The Challenges of Outsourcing | outsourcing problems

Established businesses in the US and Europe can now benefit from new insights from nearshore outsourcing software providers who have joined the global market. Software development outsourcing requires a lot of time and labor, so businesses should consider the financial benefits of doing it in-house vs. outsourcing, especially if they are cutting-edge startups or a corporation undergoing a digital transition.

Frequently Asked Questions About The Challenges of Outsourcing

What is Outsourcing?

Outsourcing is a business strategy that involves contracting outsourcing services or job activities to a third party. An information technology outsourcing project with a technology provider could include a wide range of tasks, from the whole IT function to small, clearly defined parts like disaster recovery, network services, software development, or QA testing.

Companies have the option of outsourcing their information technology operations either onshore, nearshore, or offshore. In the past, companies have tried to cut costs by nearshoring or outsourcing jobs to other countries. According to Forbes, there are signs within your business that will present itself to let you know it could be time to outsource your teams (1). 

“When it starts to overwhelm you and your teams and becomes too much of a burden, there are two routes that you might take — expand your team, which can lead to more costs and more difficulties, or outsource the teams, which can lighten your workload and bring more structure to your company.” 

– Forbes

Above we mentioned onshore, nearshore, or offshore. There is often confusion of this subject so we went ahead and set everything straight by answering the common question: What is the difference between offshoring and outsourcing?

Types of Outsourcing Services

The outsourcing concept was once unheard of but is now more practical than ever due to the integrated nature of the world’s economies. The evolution of outsourcing has resulted in many types of current offerings, with each one having some challenges of outsourcing.

We’ll touch on these major types of outsoucing models here but they’re many more to consider for your business. We’ve done the hard work and wrote an entire in-depth article about her and can be found by clicking on the hyplerlink above!

Project Outsourcing

It might be difficult and tiresome to manage an excessive number of outsourcing projects given the many requirements a company must monitor daily. Because of this, many businesses use project outsourcing to ensure that their current or outsourcing future projects will be successful.

Nearshore Outsourcing

This specific type of outsourcing has become more popular in the last ten years. In a nutshell, it is just an outsourcing technique where the service is given to a third party in a neighboring country or region.

It has been an emerging outsourcing model that U.S. companies have shifted too. This model focuses on onboarding teams members from Mexico and other Latin American Countries. We’re written a full article about the meaning of nearshoring that can be found by clicking the link!

IT Outsourcing

Although it is easy to think that this is an outsourcing technique exclusive to the IT industry, it is quite the opposite. It’s just the outsourcing of any IT outsourcing issues and services that a business may not already have or for which it lacks the staff.

For example, tasks like developing, coding, and server maintenance come under this category or outsourcing

Manufacturer Outsourcing

Manufacturing outsourcing is another type specific to certain industries and is the foundation of a manufacturing process. Because of this, it is well known and often used by companies whose core competencies include producing goods.

Process-Specific Outsourcing

It is called “process-specific outsourcing” because it only helps with specific procedures that a business may be having trouble with. The company in question could hire a specialist who knows more about the field or has the right skills to handle operations-related tasks.

BPO

Of all the types, business process outsourcing, or BPO, is one of the most common. It uses a third party to assist a specific organization with all operational activities. It doesn’t matter what it is; it might be IT services, payroll, human resources, or even sales.

IT Outsourcing Market Trends

Several studies have advocated that application development and I.T. maintenance have become some of the most frequently outsourced aspects in the information technology field. According to ReportLinker (2):

“The worldwide market for IT outsourcing had a value of 526.6 billion US dollars in 2021 and is projected to reach 682.3 billion US dollars by 2027, showing a compounded yearly growth rate of 4.13% throughout 2022–2027.”

-ReportLinker

According to a survey by Statista, software development is still the service that is outsourced the most often among the twelve different areas of IT. Before engaging an outsourcing company, it is essential first to know some challenges of outsourcing.

Challenges of Outsourcing and Solutions

How can businesses overcome the challenges of outsourcing? Many companies may find it difficult to adapt to outsourcing if they don’t properly understand the challenges that come with it and the various skills and mindsets that it requires. Here are some common challenges of outsourcing software development and their solutions.

Finding a Trustworthy Vendor

A trustworthy outsourcing partner is crucial for any business looking to grow into international outsourcing markets. Finding the perfect outsourcing partner might be time-consuming, but it is worth it. A common outsourcing issue in the outsourcing industry is the failure to carry out thorough outsourcing vendor background checks. As a result, the project you outsource can become of lower quality.

Solution

You may use these factors to determine which outsourcing vendor is best for your needs; these include the outsourcing firm’s track record, the number of clients and projects it has completed, the average size of previous projects, the outsourcing company’s reputation, the availability of cutting-edge technology, and so on. However, the detailed list might change from outsourcing firm to firm. It’s important to ask questions and get answers before choosing a partner for outsourcing.

Security and Privacy Concerns

When you outsource part or all of your business operations, you essentially give your outsourcing partner access to your assets. This is why it’s essential to double-check data encryption, privacy settings, and protections against unauthorized disclosure of trade secrets, patents, or copyrights pertaining to intellectual property (3). Because of the risk of sensitive information getting out, choosing outsourcing vendors who follow strict security procedures is always a good idea. 

Solution

Making a contract with a non-disclosure agreement and service level agreement and checking the outsourcing company’s security protocol and data protection system are the only ways to deal with the challenge of outsourcing.

Language and Cultural Differences

The biggest challenges most businesses experience when outsourcing are cultural and language barriers. When companies outsource, cultural and linguistic hurdles may cause them to lose focus on essential aspects like innovation and attention to detail. Language and cultural differences significantly affect the outsourcing process and are often caused by not being ready or not communicating well.

Solution

Organizational culture gaps may be overcome by opening lines of communication across businesses. Make sure you can communicate with the outsourcing company’s staff by determining whether they speak English or your preferred language.

Successful Outsourcing Strategies

It’s crucial to take the appropriate steps when outsourcing a project to a third party if you want to get the desired result and save money. Your strategy for outsourcing will have a significant impact on how well your project turns out.

Solution

Your outsourcing model should be built around scope, nature, objectives, requirements, budget, time frame, etc. Most businesses utilize one of three standard outsourcing arrangements: The time and materials model, in-house development teams, or fixed-price contracts.

Project Control Issues

In the early stages of an outsourcing engagement, one of the most common issues that businesses experience is a loss of control over the outsourced project. Since the company’s in-house staff previously handled a similar project, this is a regular hurdle that all businesses must overcome. The authority you have over an outsourced project is influenced by proximity and ease of contact. If your outsourcing service providers aren’t properly managed, they may not be aware of any changes you’ve made, which might affect the final product.

Solution

Before choosing an outsourcing partner for your business, you should investigate the outsourcing company’s client-handling experience and the tracking strategy used throughout the process. Aside from that, you should choose a point of contact, set deadlines, and keep an eye on KPIs and other metrics.

Unexpected and Hidden Charges

The primary goal of outsourcing is to outperform in-house alternatives for managing non-essential business functions. Always compare the outsourcing vendor’s pricing to your internal cost estimate before making a final decision on a provider. Such hidden costs include redeployment, troubleshooting, software updates, etc. All of these things might put a strain on your original budget.

Solution

The only way to reduce outsourcing costs is to speak with the vendor and request a precise cost estimate before closing the agreement. So that the vendor can give you an accurate estimate of how much it will cost to outsource, you must clearly describe the project’s requirements.

Differences in Time Zones

Many businesses face a significant challenge when using offshore outsourcing the time difference between their headquarters and the outsourcing location. When working with an outsourcing partner in a foreign time zone, there will be a noticeable delay in communication. You can reach out to a representative who can talk to you whenever it is most convenient, even if your vendor isn’t available at all hours. It is easier to pick the ideal outsourcing partner if you can visualize their time zone.

Time zone differences aren’t the only issue that you will face when using offshore outsourcing. Yes, there may cons when choosing an offshore solution, but that doesn’t mean there aren’t any pros. We go over all the details regarding the pros and cons of offshoring here!

Solution

When dealing with a time difference with your outsourcing provider, the only solution is to increase communication frequency. It’s essential for everyone involved in a project to know where things stand, so schedule regular meetings to discuss updates. If you choose a vendor who is open around the clock, you can avoid problems with communication caused by different time zones.

Mismatch in Expectation and Goal

Expectation and objective mismatches are particularly prevalent if your outsourcing criteria are not defined adequately. Setting goals is crucial before beginning the outsourcing process and choosing an outsourcing company. To achieve your goals and meet your objectives, keeping the contract clear, honest, and consistent is essential.

Solution

To avoid a goal and expectation mismatch throughout your outsourcing process, excellent communication is the most effective approach to creating an accurate expectation. Always double-check your project outsourcing requirements and communicate to ensure that you and your vendor are on the same page.

Inadequate Outsourcing Experience

Smaller businesses just getting started with outsourcing may find the entire process daunting compared to a larger organization that has done it before. Knowing industry standards, average prices, mainstream ideas, and standard operating procedures may help you effectively communicate your objectives to a different firm. This outsourcing challenge is caused by a lack of expertise, which may be addressed with the right approach.

Solution

To identify the bottlenecks and reduce the potential hazards if you lack outsourcing expertise, look for an experienced outsourcing partner. Your expectations will be met, and those suppliers will help you figure out the project requirements and how to meet them.

Benefits of Outsourcing

Besides the challenges of outsourcing, there are also numerous benefits of outsourcing. A business may decide to outsource a project, operation, or function for a variety of reasons. Some advantages of outsourcing include:

Staffing Flexibility

Consider outsourcing some of its specific activities to keep your business’s finances adaptable in the face of changing market conditions. It’s easy to scale up or down with outsourcing. Nearshore outsourcing allows you to keep your business working at full speed, even during the off-season and holiday months.

Cost Saving

One of the main reasons for outsourcing is to lower overhead since businesses may hire more staff at a lower rate. This decrease in labor costs does not affect quality. Cost-per-hour differences and lower utility bills make all the difference. When you outsource, you need fewer office workers, so your workspace might be smaller, lowering your power and utility bills.

Increased Productivity

If your staff is overwhelmed, outsourcing may help. Companies may maintain a professional work environment since outsourcing has reduced the need for regular recruiting and training at the primary business facility. This means that these employees can concentrate on what they do best, which enhances productivity.

Access to Skilled Expertise

When a job calls for specialist knowledge, it’s one of the main reasons a business would want to outsource it. Nearshoring the work to individuals who can do it more efficiently allows you to focus on your main goal of providing high-quality products and services to your clients.

Focus on Core Activities

As your business expands, the workload rises as more non-core operations are added, and the quality of your core activity may decrease. In this case, hiring someone else to do the work is essential so that your key employees can focus on more critical business tasks.

Giving Businesses a Competitive Edge

Outsourcing allows your company to acquire a competitive advantage in the market. Strategic outsourcing to an outsourcing partner provides your clients with best-in-class services and increases your productivity while smartly managing your in-house resources. Outsourcing could give you an edge over competitors who haven’t yet figured out how helpful it can be.

Conclusion

Outsourcing is an excellent strategy for established and expanding businesses. The epidemic has shown that outsourcing business strategy is both trend-setting and sustainable. Even though it appears that there are many challenges to outsourcing, there are several benefits as well. Hiring an outsourcing partner may be the ideal option for you if you need someone to do a task you cannot execute. Just be cautious while looking into outsourcing and working with a trustworthy business.

References:

1. “When it starts to overwhelm you and your teams and becomes too much of a burden, there are two routes that you might take — expand your team, which can lead to more costs and more difficulties, or outsource the teams, which can lighten your workload and bring more structure to your company.” – Forbes Quote
   https://www.forbes.com/sites/forbestechcouncil/2020/11/03/signs-that-you-might-need-it-outsourcing/?sh=e56f7462462a
2. The worldwide market for IT outsourcing had a value of 526.6 billion US dollars in 2021 and is projected to reach 682.3 billion US dollars by 2027, showing a compounded yearly growth rate of 4.13% throughout 2022-2027 – ReportLinker Quote
   https://www.reportlinker.com/p06039534/IT-Outsourcing-Market-Growth-Trends-COVID-19-Impact-and-Forecasts.html
3. Offshore outsourcing poses privacy perils – Computerworld
   https://www.computerworld.com/article/2574317/offshore-outsourcing-poses-privacy-perils.html