5 Reasons Outsourcing Fails

Number 5 on fire, outsourcingThe rich and long history of outsourcing has evolved to be a more complex process over the years.

Today’s outsourcing is for tasks that are mission critical for enterprises worldwide. These include outsourcing for high-end tasks such as product design and engineering, strategic outsourcing of functions and niche skills that require innovation, and others that can transform processes and make them more efficient. Outsourcing has moved away from mere cost savings, which was the traditional de facto factor for outsourcing, towards value addition or enabling companies to focus on core functions.

There is no room for failure, yet outsourcing efforts continue to fail. Here are 5 reasons why:

  1. The objectives of outsourcing are not clear: Are you outsourcing to reduce costs? Or are you outsourcing to ensure you have access to niche skills, best practices to improve the quality of service or increase functional flexibility? Most businesses begin by putting down cost savings as their primary goal. This is a sure recipe for failure. Cost savings should be an outcome of outsourcing, not the key reason. Cost savings as the prime objective leads you to the cheapest solution provider in the market, without giving adequate attention to other needs that drive outsourcing.
  2. There is no concurrent change in workplace culture: Outsourcing must be tightly linked with a change in workplace culture. Very often, businesses outsource tasks, functions and responsibilities that were previously done in-house. Getting rid of jobs does not help lower costs in any meaningful manner; burdening your existing team with increasing and unreasonable performance targets and responsibilities guarantees lowered quality, inefficiencies and attrition. The way out is to outsource. Outsourcing works best when it is led by strategic reasons and is accompanied by a change in organizational culture or workplace structures.
  3. Expectations are not set correctly: When expectations from both partners are not clear, there are cost escalations, delays and the quality of work delivered is poor. Everyone is investing precious time in getting it right rather than considering it as just another tick mark in their checklist. Instead, you need to define tasks, set benchmarks and insist on processes, tools and talent. Decide and agree on the right measurement metrics. Equipping the provider with a clear understanding of your business drivers in addition to sharing plans and roadmaps is the very foundation of a successful outsourcing partnership.
  4. There is a lack of communication: It isn’t what you say but what is understood that is important. This can arise from a variety of factors such as cultural differences, language capabilities, differences in industry terms and jargon, even technological limitations. It’s important to have regular, scheduled meetings to discuss project progress or upgrades and formalize changes in goals and metrics. Keep your outsourcing partner on regular talking terms with you. Don’t let talking get replaced with a reporting relationship. This means your provider begins to provide daily, weekly or monthly performance reviews and as long as the metrics look right, no one bothers to talk to each other. This is risky. When direct and regular communications become perfunctory, expect failure. There are hidden aspects such as work norms, ethics and standards between a task that is done as per SLAs and a report being delivered to show the task was completed. These are facets of business that cannot be managed without regular communications.
  5. Transition processes need improvement: Ensuring that you have a right plan for transition of processes or migrating processes to offshore or outsourced locations is important to success. Migrations are complex activities that require a thorough examination of processes as well as the technologies, infrastructure and managerial skills required to sustain processes in the offshore location. Simple processes, say support for spam filtering and message quarantine devices in enterprise email systems, can quickly impact the entire business from day one if not managed correctly. The impact can be so widespread that it can create a company-wide resistance to outsourcing. Transition processes are important for a variety of other reasons. Poor transition can result in cost escalations, delays in outsourcing implementations and poor customer satisfaction. Poor transition can be the root cause of outsourcing failure.

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