What Risks are Involved with Outsourcing?

Updated April 24, 2024

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As a shrewd business leader, you're always searching for ways to improve efficiency and spur growth. Outsourcing has become a go-to plan for hitting these targets, but it's vital to know the risks. This article will walk you through outsourcing's key dangers and offer actionable tips to sidestep them, drawing on our vast experience at Cambria. Let's jump in!

Grasping the Outsourcing Terrain

Before tackling the risks, let's get on the same page about outsourcing. Essentially, it means hiring outside providers for specific business tasks or projects. This spans IT support, software development, accounting, customer service and more.

Many businesses use outsourcing to cut costs, access specialized skills and focus internal resources on core functions. Around 80% of Fortune 500 firms have shifted automatable tasks like accounting and training admin to global business services (GBS) models. But it's crucial to approach outsourcing with eyes open and recognize the potential pitfalls.

At Cambria, we've seen outsourcing evolve firsthand since 1984. What began as a small family operation has grown into a global software outsourcing leader by adapting to changing tech needs and crafting custom solutions for clients.

Money Matters: Avoiding Surprise Costs

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One of outsourcing's biggest risks is hidden expenses. While it may seem cost-effective at first, unexpected fees can quickly pile up and strain your budget.

These stealth costs include:

  • Extra charges for services outside the initial agreement
  • Expenses tied to managing and communicating with the outsourcing team
  • Transitioning work to the outsourcing group
  • Quality issues needing rework or more resources to fix

To reduce financial risks, thoroughly vet all costs upfront. Make sure they're clearly spelled out in your outsourcing contract. It's also smart to build a buffer into your budget for unforeseen expenses. Remember, indirect procurement can eat up 10-18% of revenue in some sectors. Careful planning and budgeting help keep costs in check.

Quality Control: Delivering Consistent Results

Outsourcing also risks inconsistent or subpar quality. Handing work to an external team means less control and visibility. This makes it tougher to ensure the final product meets your standards.

To minimize quality risks, pick an outsourcing partner with a track record of top-notch work in your industry and needed skills. Set clear quality guidelines and expectations from the start. Use regular checkpoints and reviews to spot issues early. BPO providers have advantages in driving successful automation, including scale, big data volumes and global digital talent access. Tapping into these strengths helps maintain quality in outsourced work.

We saw the importance of quality control firsthand with Cornestech. In building their Order Tracking System, we used Angular and ASP.NET Core for a web app that tracks orders, invoices and reports. Angular's reactive forms cut entry errors, while ASP.NET Core sped up reporting and data vizualization. The result? Increased on-time delivery and efficiency post-launch.

Data Security and Confidentiality Risks

Outsourcing often means sharing sensitive company data with an external partner. If not handled right, this creates big security and confidentiality risks.

To safeguard your company's data and IP, work with an outsourcing provider that has strong security measures like secure storage, access controls and regular audits. Have clear confidentiality agreements to prevent data misuse.

In our experience, the Philippines is well-equipped to address these security worries. It ranked 1st on the 2013 Business English Index with a 7.95 score, beating India and Malaysia. This English skill, paired with Western business culture alignment, helps enable clear security protocol communication.

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Legal and Compliance Risks: Navigating Global Rules

Outsourcing to providers in different countries or jurisdictions can pose legal and compliance challenges. Nations have varying laws on data privacy, IP and employment. Not following these laws can bring serious legal and financial fallout for your business.

To reduce legal and compliance risks, partner with an outsourcing provider that knows the legal landscape in their area. Have clear contracts that spell out each side's duties and obligations. Get legal experts to review them for compliance.

At Cambria, we've successfully managed these legal and compliance risks with clients like ERISK SOLUTIONS, LLC. Using .NET frameworks, we developed a secure, custom enterprise app that met their needs. Client feedback shows the app streamlined risk management workflows and reporting while sticking to all relevant legal and compliance norms.

Choosing the Right Outsourcing Partner

Many outsourcing risks can be reduced by picking the right partner. Look for a provider with a proven success record, robust security and quality control and experience in your industry.

At Cambria, we bring 40 years of experience delivering top-quality, reliable outsourcing solutions to businesses like yours. Nine Philippine cities made Tholons' 2016 list of top global IT-BPM spots, including Manila at #2, Cebu City at #7 and Davao City at #66. Our skilled developers, strong security and quality processes make us a trusted partner for firms seeking growth and efficiency through outsourcing.

We believe the Philippines is uniquely positioned to tackle outsourcing's risks and challenges. The country's highly skilled workforce, Western business culture fit and strong government IT-BPM industry support create a favorable climate for outsourcing success.

The Bottom Line: Eyes Wide Open

Outsourcing can power business growth and efficiency, but approach it with a clear view of the potential risks. Knowing these risks and taking steps to reduce them sets your business up for outsourcing success.

If you're weighing outsourcing for your company, contact us to learn how we can help you reach your goals while cutting risk. Our expert team is set to craft a custom outsourcing solution that fits your unique needs and drives real results for your business.

This article is part of the Outsourcing series. Read more on how we craft tailored Outsourcing solutions - driving efficient growth, hassle-free:

Frequently Ask Questions (FAQ)

How can I keep my company's data safe when outsourcing?

To protect data, pick an outsourcing provider with strong security like secure storage, access controls and regular audits. Also use clear confidentiality agreements to shield sensitive info.

When choosing an outsourcing partner, seek a provider with a proven record of high-quality work, experience in your field and solid security and quality control. Also pick a partner that shares your company's values and can give satisfied client references.

Clear communication and collaboration are key to outsourcing success. Set clear communication channels and rules upfront. Consider using collaboration tools like project management software to keep everyone aligned. Regular check-ins and progress reports also help keep work on track and issues addressed fast.

An outsourcing contract should clearly outline the work scope, deliverables, timelines and payment terms. It should also cover intellectual property rights, confidentiality and ending conditions. Have legal experts review it to ensure it's thorough and legally sound.

Outsourcing can help your business grow by letting you tap specialized expertise and resources, freeing internal resources to focus on core strengths and giving you flexibility to scale up or down as needed. The IT-BPM industry is the Philippines' largest source of foreign exchange inflow. By partnering with the right outsourcing provider, you can drive innovation, boost efficiency and gain an edge in your industry.

With our deep understanding of the outsourcing landscape and proven track record of delivering exceptional results, Cambria is well-positioned to be your trusted outsourcing journey partner. Our experienced team is dedicated to helping you navigate outsourcing, mitigate risks and maximize benefits for your business. Partnering with us lets you focus on core competencies while we handle the rest, enabling you to drive innovation, improve efficiency and achieve strategic objectives. Contact us today to learn more about how we can help you unlock outsourcing's power and take your business to new heights.

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About Cambria Software

We have been providing custom software development services since 1984, offering expert programming in multiple languages to build high-performance websites and applications for our clients.

Leading software outsourcing authority

Our experts in various programming languages and tools enable us to provide custom programming services that create tailored software solutions for our clients, ensuring the highest quality of service.

Our engagement models guarantee excellent service, and our history of success makes us the go-to choice for all software development needs. We are a leading authority in software outsourcing, providing unparalleled customer service.

Cambria Staff Augmentation

Our tailored staff augmentation service enables teams to benefit from offshore talent. Our flexible hiring pool offers a cost-effective solution and the augmented team is committed to our clients, integrating seamlessly into existing company development projects.