8 Mistakes Clients Make When Outsourcing Services

Outsourcing Services is one of the most effective strategies to help businesses navigate through times of turmoil and turbulence. It is one of the few processes that successfully address both the cost and revenue variables of the profitability equation. The ability to reduce cost and improve revenue is one reason why the global outsourcing industry continues to grow and prosper.

But not all outsourcing services arrangements end on a happy note. There have been arrangements which fell short on expectations and deliverables. If you are planning to outsource services, keep in mind these 8 mistakes clients make when outsourcing:

1. Lack of Research

In theory, outsourcing is an effective process for streamlining costs while enhancing revenue generation activities. But without proper research, the outsourcing venture may be doomed to fail.

Before you outsource, you should learn everything that you can about the process. In addition to online research, talk to businesses that have outsourced. Learn from their experiences and keep an open mind.

Do not be selective about the information you receive. You have to create an objective market study and gather reliable numbers for the financial study.

Create a project feasibility report and discuss its contents with your outsourcing team. The project feasibility report will be your reference point and should be subject to revisions when needed.

2. Prioritizings Pricing

Outsourcing reduces cost because you are capitalizing on comparative cost advantages and economies of scale. In outsourcing the largest cost advantage is in labor.

By outsourcing to remote locations such as the Philippines and India where the wage rate is approximately 1/3 of North American countries, you can potentially reduce costs by 40%.

But do not prioritize pricing. If you keep streamlining costs, you will arrive at an equilibrium point where further cost cuts will compromise quality of work.

For example, if you get a proposal for US$4 per hour in India and the wage rate is US$1.50 per hour, how much would the service provider allocate to the other costs of production in order to make an acceptable profit?

3. Overlooking Cultural Differences

 If you plan to outsource in remote locations, you have to be cognizant of cultural and social differences. Otherwise, there will be frequent misunderstandings and incidents of miscommunication.

Behavior, practices and traditions are all influenced by a country’s culture and this creates differences in perspective. If you contract the services of an outsourcing third party from the Philippines, you may find the people quiet, reserved or perhaps shy.

So when you ask, “Are my instructions clear? Do you have any questions?” They may not say anything or say “Yes” even when the instructions were in fact, unclear. As a warm and friendly people, perhaps the agent did not want to disappoint you.

Instead ask the agent to relay the instructions back to you and correct mistakes along the way.

4. Failure to Respect the Learning Curve

It doesn’t matter who you are; the level of experience and degree of expertise. You are still subject to the Learning Curve.

Even the best agents who have found success managing different campaigns across a wide variety of industries will need time to get familiarized and proficient with a new campaign.

When outsourcing, you have to be patient with the Learning Curve. Yes, you may fall below projections during the first few months but these losses are the currency you pay to get everyone moving up to speed.

Clients that do not respect the Learning Curve demand the agents to be replaced with “better ones” who will still be subjected to the same process. Replacing the team will only set you back longer and cost you more money.

Instead, you should continue to support development by maintaining the team and trust that the training programs will eventually pay off sooner than later.

5. Underestimating Security Risks

You never think it will happen you. But when it does, you are unprepared. Every second that passes by without arriving at a resolution will expose you to greater risk.

This is the reality of a breach in security data. It is a client’s worst nightmare. Customer records which contain confidential information are a goldmine for unscrupulous parties. If your data has been compromised, your customers, clients and end users will be at risk of identity theft.

Do not assume that putting up firewalls, anti- virus and malware protection programs are enough to protect the integrity of your data. Take data security an extra step by instituting measures at your network, encrypting important programs and providing limited access to your system.

Do not entrust the outsourcer with data protection. That should be one of your priorities and key area of responsibility before outsourcing services.

6. Belittling Talent

The problem with a client – service provider agreement is that it creates an arm’s length relationship whereby each party is relegated to what they are legally bound to do.

Of course the parties have to respect the provisions of the contract. But it should discourage mutual cooperation. Even if both parties have different interests, there is no question that each one wants the other to succeed.

For example, if you are outsourcing software app development to India you should not discourage their software engineers from stating their opinions and findings just because you are the client.

The last thing an outsourcer would want is to be accused of withholding information that could have crucial to your success. You are not only outsourcing to cut costs; you should also outsource to capitalize on talent and available technology.

7. Lack of Involvement

 Another reason why outsourcing arrangements fail is lack of involvement from the client. If you believe you found the best outsourcing company, do not assume that everything will be perfect.

The client should be involved in the process at least from a management standpoint. You have to provide your own checks and balances to make sure the outsourcing company is staying within prescribed parameters and guidelines.

8. Too Much Micromanaging

On the flip side are clients who are too involved with the campaign that the services provider can no longer perform its tasks.

You should allow the outsourcing company to do its job and carry out what it is paid to do. After all, there are guidelines, benchmarks and metrics to keep everyone on the same course.

If you keep hovering over the outsourcing company, they will not be able to overcome the Learning Curve on their own. You will be delaying their progress and indirectly compromise the success of your own business.

Outsourcing is an effective strategy but it is not perfect. You are not guaranteed business success once you make the decision to outsource. Like all endeavors, you have to work at it and be patient enough to understand the process takes time to develop before it produces the desired results.