7 Proactive Solutions for Reducing Risk in Outsourcing

Outsourcing can be a lifesaver. For companies looking to cut costs, focus on their core areas and/or get access to specialized skills, outsourcing is an excellent solution.

Except of course when outsourcing goes wrong. Horror stories of outsourced projects include extremely poor quality, extravagant hidden costs, months-long delayed timelines, leaked intellectual property and unresponsiveness from workers in distant time zones.

These experiences may rightly make you skeptical of outsourcing. However, the outsourcing projects doesn’t have to be a nightmare, especially if you do your homework ahead of time. Often, problems arise in outsourcing because of a lack of preparation by the hiring company.

Safeguard your next outsourcing project by considering these 7 common risks and our proactive solutions. Reduce your risk with these tips for smooth sailing in outsourcing.

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Risk #1: Lack of trust in the company’s ability and quality

It’s hard to trust a company located on the other side of the world. The uncertainty of hiring a company that you’re not familiar with can be, well, scary. Will this company handle your project with care? Will the standard of quality remain high? Are they as skilled as they sell themselves to be?

Solution #1: Do extensive upfront research

There are a number of factors you should research before hiring an outsourcing company. These key indicators will guide your hiring process and give you the reassurance that you’re making the right decision:

• Portfolio and case studies: Get a sense of what this company has accomplished in the past. Ask for a portfolio of past projects and clients. If they don’t have a formal portfolio, request links to completed projects and contact information of past clients.
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• Company ranking online: Dig into online reviews. Sites like Clutch have ratings for outsourcing companies that will give you more information about the company’s successes (or failures).
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• Websites, social media, and conferences: Find other sources of information about the company and their working style. Check out their website, social media and any conference participation. Is this a company on the cutting-edge of technology? Do they know how to share their knowledge? Or, is their online footprint lacking? These sites will be good gut checks.
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• Multiple interviews: One interview for outsourcing a project just isn’t enough. Make sure you schedule multiple interviews with several different areas of your project. You’ll need to get the full picture on how this company communicates, schedules meetings and responds to in-depth questions.
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• Example work: If you’re still on the fence and want extra reassurance, ask for example work on your project. Be sure to pay for this “test” and evaluate how it went. If this example work raises red flags in either the quality or communication style, it’s time to say goodbye.

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Risk #2: Loss of control

One of the most nerve-wracking aspects of outsourcing is the loss of control. When you’re in charge, you feel comfortable about how the project is going and your ability to change course if something isn’t going well. However, loss of control in outsourcing can make you feel blind.

Solution #2: Consider staff augmentation

Whenever you outsource, you lose some control of your project. That’s why it’s so important to do the initial research so that you trust the company to do it right.

However, if you want to outsource and maintain more control of your project, you might consider staff augmentation. Staff augmentation is similar to outsourcing, but instead of hiring an entire company to complete your project, you hire specific workers to fill your needs. These workers will be under your management and provide an extra pair of hands, but like outsourcing, they’re temporary labor for a specific project.

For those unhappy with the idea of losing control, staff augmentation is a great compromise for getting the skills you need without committing to hiring a new in-house employee.

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Risk #3: Over-reliance on a specific company and/or technology

Another potential pitfall of outsourcing is that you become too dependent on the company you hire or the technology you purchase (or both). This means that you’re locked into a company or technology because you don’t have the know-how to take control of the project. Some unethical outsourcing companies try to maintain clients with this tactic.

Solution #3: Make a timeline for knowledge transfer

Every outsourced project should have a clear timeline for when they will transfer knowledge of the project or technology to your in-house team. It’s key to have this kind of foresight. This way you can include clauses in your contract and timeline about transferring knowledge and avoid over-reliance.

Of course, this isn’t just about setting a date for transferring knowledge. Ask the company about how they transfer knowledge and who will be leading the transfer. The more specifics you can define, the smoother this transition will go.

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Risk #4: Hidden costs

Hidden costs are the Achilles heel of outsourcing. According to studies, the majority of IT companies use outsourcing to cut costs, which makes unexpected expenses so frustrating. Whenever the price hikes up, you feel both the pressure of the budget and also a lack of trust in the company you hired.

Solution #4: Maintain tight contracts and controls

Tight contracts are everything. Put everything you can possibly think of on the table during budget and contract discussions. Don’t leave anything out or assume that you’ll deal with it later.

Of course, given the ever-changing nature of projects and challenges, unexpected things do come up. That’s why anything not included in your contract should be named in some kind of clause that specifies the hourly rates for any extra work beyond the project scope. This will ensure that you and the outsourced company are on the same page from day one.

Besides the initial contract, you’ll also want to put controls in place to evaluate estimated vs. real hours, as well as what areas are generating extra costs. Controls often come in the form of an in-house liaison who knows the project inside-out and can speak to on-the-ground issues and budget constraints.

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Risk #5: Timeline delays

These days it seems that project delays are the new norm. This may be because IT projects are notoriously difficult to plan. Technical challenges crop up all the time, which may account for lengthy delays. Changes in staff can also contribute to delays, as well as a lack of good management.

Solution #5: Check for responsiveness

When it comes to delays, it’s important to have a flexible understanding of tech problems. Sometimes there are issues that really can’t be planned for. That said, the key is that you feel confident in the company’s ability to respond to challenges and communicate them to you. You should feel that even though there are delays, the discussions you have with the company are responsive and timely.

Before you hire a company, be sure to ask how they handle delays and what kind of daily/weekly communication you can expect. In the interview, check this communication by making sure you’re satisfied by the way they answer questions during each round.

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Risk #6: Intellectual property leaks

Intellectual property rights are also an area of concern for companies looking to outsource. Especially nowadays, with so many potential leaks due to lack of online security or a straightforward way of ensuring confidentiality with partners. Companies that have intellectual property as a core aspect of their business may be wary of passing information to third parties.

Solution #6: Tighten security measures using tech

Tech is a double-edged sword. Without the right security measures, it can aid with leaks. However, by doubling down on tech solutions, you may find the tight security you need to ensure intellectual property safety.

There are lots of potential tech solutions, including online contract services that include global clauses, password-protected document sharing, exclusive VPN networks for more secure passing of information and of course, 24-hour reports of who accessed what and when. Do the research and find the tech solutions that will keep your intellectual property air-tight.

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Risk #7: Geolocation and time zone issues

Finally, geolocation is huge when it comes to workplace collaboration. In particular, companies that choose to outsource may find that the time zone really matters when getting work done, monitoring progress and receiving timely answers to questions.

If you choose an outsourcing location that’s far from your home country, you may find more issues beyond a lack of overlapping hours. Besides the asynchronous communication, outsourcing locations that are physically more distant often also have less cultural know-how and language skills.

Solution #7: Look into nearshore hiring

If you’re concerned about outsourcing location, there’s a new solution: nearshore outsourcing. Unlike traditional outsourcing, nearshore hiring refers to hiring a company in a country with overlapping time zones. For example, U.S. companies are now looking for nearshore locations in Latin America - such as Brazil, Argentina and Costa Rica - which share 6-8 hours of overlap.

In addition, Latin America scores higher in English skills and cultural know-how than traditional outsourcing locations such as China and India. If you want to feel that outsourcing is a little closer to home, nearshore hiring is an excellent option.

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Final Takeaway

By implementing these 7 proactive solutions, you’ll find that the risks of outsourcing aren’t deal-breakers. Any time you hire a third party for services, there’s some level of risk. However, you can protect yourself as much as possible by preparing for them and taking the necessary actions to safeguard your projects.