10 Biggest mistakes companies make when outsourcing

Outsourcing continues to be the top choice of companies striving to improve productivity and cut costs. Even though outsourcing has risks, companies choose to work with outsourcing agencies and gain a competitive advantage to outshine competitors. Medium and large organizations follow market trends and strategies to minimize the risks of mistakes when outsourcing. Nevertheless, no one is protected from mistakes. 

Analyzing business processes outsourcing (BPO) in the global market, it’s obvious that there are common mistakes repeated over and over again by companies when outsourcing. Those mistakes affect the business processes and the market overall, resulting in an environment of distrust and fear. The solution is clear, start with a straightforward collaboration strategy and eliminate the risks of making the following 10 biggest mistakes when outsourcing. 

Global outsourcing survey

Whether you are a c-level executive or an outsourcing agency, keeping pace with the trends and global market demands is one step toward gaining an advantage from outsourcing. Deloitte, an independent audit and consulting firm, conducted another global outsourcing survey defining key trends, insights, and the changes we will face in the post-pandemic world. 

Discover the global outsourcing: Uncover Rates, Trends, and Your Perfect Project Partner! Use country comparison tool to compare outsourcing environments.

Key outsourcing takeaways

Disruptive technologies still remain the top popular field for outsourcing. Having access to a global talent pool gives more opportunities for business development. For a long time, the cost-efficiency of outsourcing was a secondary benefit prioritizing increased agility and improved quality service first. The latest survey showed a drastic increase in the number of organizations prioritizing the cost efficiency of outsourcing. Moreover, in the face of pandemic and post-pandemic-induced global recession, the trend will continue gaining traction.

Cloud and robotic process automation (RPA) is in the top demand.

The expansion of smart technologies is aimed at automating processes and unloading the workflow. This is why most organizations strive to get similar services. At the same time, outsourcing agencies adopt new technologies to meet partners’ needs.

Supplier management regulations are the top challenge

The big data inflow and customer management ecosystems become larger and more complex, requiring better security and regulations. As a responsible party, organizations need to build supplier management systems to achieve maximum efficiency from the outsourced ecosystem.

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10 Biggest Mistakes to Avoid when Outsourcing

Finally, let’s point out the top mistakes of companies that hinder productive collaboration:

Top Outsourcing Mistakes

1. Outsourcing before defining core competencies

Without a home-based core team (both physical and remote homes apply here), the success of a business and its outsourcing can hardly be possible. Companies should consider outsourcing services when they already have a stable functioning in-house team and can now outsource part of the services. If the company is in its pre-seed and seed stage, working on product development, it will be reckless to outsource the core production processes. In this example, the biggest mistake is that organizations often outsource the core competencies/functions vital for the business at a given stage of development and lose control over the entire business.

Organizations practicing collaboration with outsourcing agencies should analyze the format of the services provided - strategic, assistive, and mixed and combine that with the company’s expectations. It’s crucial not to demand strategic consulting involvement from outsourcing agencies providing staff augmentation/assistive services and vice-versa. 

2. Partnering with “we do everything” type of agencies 

Common practice proves those agencies who offer focusless services concentrate less on quality. Furthermore, similar agencies strive to gain as many clients as possible, losing control over the processes and the quality. Businesses often get tricked by the number of successful projects and the clients when conducting vendor research. While in a nutshell, similar agencies work on quantity rather than quality, and the workforce behind each portfolio doesn’t share expertise simply because they don’t have a clear common focus, a direction outsourcing agency has chosen to follow.

The best thing to do is target those agencies with clearly defined services and directions rather than those that offer everything that the client would pay for. The risk posed by the latter scenario is that not all services can be provided with equal quality.  Find a vendor confident in its expertise focused on one direction covering nuances within it. 

An easy hack to figure out if you are dealing with a “we do everything” type of agency is to ask a simple question; “What are the services that you don’t provide?” and listen to the answers carefully. 

3. Choosing technical skills over communication skills

The expertise and skills of an outsourcing agency are definitely the main priority, but sometimes companies neglect the role of communication. Hard skills cannot deliver value if not supported by communication and the synergy of teams. Both sides should be ready to align the communication for productive collaboration, give and accept regular feedback.

Clear communication without language gaps between the partners ensures efficiency in the initial stages of the partnership and throughout the collaboration. Before making a final decision, make sure the vendor and the team members are a good fit and meet business perspectives.

4. Ignoring the outsourcing agency’s retention rate

The collaboration should be based on detailed research of the partner's expertise, history of previous collaboration, retention rate, and employee attrition (turnover rate). Each of these indicators shows the competence of an outsourcing agency in being professional and loyal. If the partnership is based on a quick look-through of competencies, the future is quite unpredictable. Above everything else, executives should pay attention to the retention rate of the vendor. If the portfolio includes dozens of partners, it is still not an indicator of expertise. It is wise to go deeper and find each partner’s retention rate. On the contrary, if a reputable, dynamically changing company chooses to continue the partnership with the agency for years, it’s a clear indication that there is a real business value behind the initial contact sales made by the outsourcing agency. They have most likely worked with several POCs, and important decision-makers from the client’s side, and everyone was satisfied with the service. 

No less essential is the vendor’s employee retention and inner atmosphere, the ability to provide employees with comfort and a positive work environment. It directly impacts the efficiency and productivity of the cooperation. In this regard, it’s crucial to pay attention and avoid agencies that engage in out-staffing practices.  

5. Providing access to personal data

Security concerns are the main fears of organizations when starting with outsourcing services. Reducing expenses and bridging the talent gap with outsourcing are solid arguments for forging partnerships with offshore companies. Even understanding the danger, consequences, and financial losses of data leakage, some organizations still neglect the importance of regulations and administrative measures when providing access to personal data. 

What do companies need to do to be protected? 

Legal backup. The agreement should also cover data transfer specifics. Data should be encrypted and accessed through VPNs to ensure the actual data stays in-house if it is transferred online.

Physical security. The measures like 24/7 security guards and protection from physical damage to servers should comply with international standards. 

Cyber security. New technologies empower organizations to protect data with the best security software tools and technologies. Outsourcing agencies should have access to the latest technologies and tools to protect data against cyber attacks. 

PoLP rule. The principle of least privilege defines different access rights to members of the offshore agency. 

6. Partnering with multiple vendors

The common mistake of organizations is partnering with several individuals or agencies to outsource more than one but similar services. It may be a cost-effective strategy in terms of expenses, but decentralized outsourcing is more difficult in management and security protection. 

The abundance of services provides the relevant number of managers to control the processes. Poor task management and project management take much time, slow project development, and eventually lead to financial loss.

It is better to partner with one or two providers who can cover all the services in a multidimensional approach. 

7. The absence of feedback systems

The workflow with in-house teams is much easier with face-to-face meetings, constant communication, and feedback. When it comes to outsourcing services and partnering with offshore vendors, sometimes organizations make great mistakes in losing regular communication and not providing feedback. As such, it is critical to take surveys and measure remote employees’ satisfaction. 

Similarly, it is essential to expect regular feedback-gathering initiatives from the agency as well, since it’s the only way of ensuring the cooperation meets expectations and is intended to increase performance results, not just “keep the business.”

8. Underestimation of cost

Companies often choose to outsource, prioritizing cost-efficiency more than productivity and quality. The global labor market allows the option to select cost-saving options and low rates, but saving a budget as the main priority will not meet business objectives. 

9. Absence of transition and exit strategy

Starting outsourcing a service, even a small task, needs preparatory steps and a transition strategy. You cannot simply hand over the competency to the third party and step aside. The first month or months requires the full involvement of a responsible person from the company to control and provide a smooth transition of processes. 

Further collaboration should be powered by proper planning and strategy, regular communications, and alignment meetups. As a part of the strategy, the agreement should also have a clear exit plan if the partnership no longer works. In this regard, the client should also be careful about the outsourcing agency’s intentions and willingness to perform efficiently, even if that would bring the cooperation to a place where the client won’t need the service anymore.

10. Cutting the outsourcing agency from the workflow

To gain productivity and performance from a service provider, the organization is responsible for providing complete information and resources to work with. The most common mistake of companies is staying aside and not contributing to the integration of the outsourcing team into the workflow. Before starting the collaboration, the parties should discuss the targets, main steps, strategies, and detailed descriptions of tasks. 

Moreover, these steps should be held regularly. It is important to select the right points of contact from the in-house team to take responsibility for managing the operations and workflow with the outsourced teams. Communication issues between the POCs of the in-house and outsourced teams can cause great talent to be lost. 

How to avoid common mistakes of outsourcing? Final thoughts

Outsourcing is a powerful strategy for gaining an advantage in this highly competitive market. To benefit from outsourcing and mitigate all the possible risks, take research on outsourcing companies seriously. The partnership with a dedicated team of professionals is the goal you are going for, don’t fall into the trap of sales tricks; get into the details of working processes, staff management, reporting, and communication. Ask questions and expect honesty and transparency from your potential partner.