28 Sep The risks associated with Business Process Outsourcing (BPO)
Outsourcing is a common business strategy nowadays. Different organizations outsource their business activities, functions, and process through contractual agreements to reduce the organization cost and focus on core business activities. There are numerous other benefits of outsourcing like improved operational efficiency, improved quality and higher business satisfaction score. However, with multiple benefits, there are also some disadvantages associated with outsourcing which cannot be neglected. The disadvantages of outsourcing for most small business are limited but they do exist. Below are the top 5 that I can think of.
Outsourcing companies are often notorious for being inflexible and rigid in their delivery of services and output which lead to the poor reputation of the company. The main reason for this is that the outsource employees have to work within a strict set of standard operating procedures (SOPs). This allows them to manage their low costs while providing the level of quality as stated in their contracts or service level agreements (SLAs).
Risk of Exposing confidential data
One of the biggest disadvantages of outsourcing is the risk of exposing sensitive data and confidential information of the company. The employees you hire may do not respect the intellectual property of the organization and expose it to other vendors. One thing is clear if you are outsourcing, you are leaving yourself unprotected. Moreover, you cannot take legal action unless you the country you are outsourcing your business activities have same rules and regulations to follow. So think long and hard before you outsource anything that involves sensitive data and intellectual property.
Firms or organizations which outsource their work in countries with employees who cannot speak English fluently or English is not their native language no matter how skilled they are, it may cause communication barrier. In such cases, getting the work done from such employees can be a complicated process. In the same way, the difference in culture and upbringing can also be an issue, especially if they know English only in technical terms. Many companies prefer to hire employees who are able to communicate clearly. They arrange interviews via phone calls, emails, and chats just to make sure the employee they are hiring is fluent in English and there will be no communication barrier during the work.
Lack Of Control
Although you can provide direction and guide to the outsource employees in regard to what you need to accomplish and what is the deadline, however, you still lost some control when you outsource a particular task.
There are many reasons that you give up some control while outsourcing including the fact that you are often hiring a contractor instead of an employee. And since the person is not working on-site, it can be difficult to maintain the level of control you desire.
Lack of transparency & credibility
Consumers are more interested to know what is the source of their products and who made them. However, Outsourcing makes this kind of transparency difficult. It makes it harder to check the transparency of the company employees, an audit of the labor and it is hard to trace the supply chain of the company where you outsourced. Even, you cannot trace the previous professional record of the outsourced employees.
Fail to meet deadlines
Outsourcing does not always lead to cost optimization for the companies that do it. Quite a few times, the companies they have outsourced their business functions do not get the product and work done on time. Onshore and offshore companies which are hired for outsourcing often failed to meet deadlines, does not perform well and sometimes it has a negative effect on business. There may be communication barriers or costs might exceed expectations. For smaller companies, in particular, outsourcing can be a serious mark to their market reputation.
Increased unemployment rate
When companies prefer to outsource instead of hiring the local talent they increase the domestic unemployment rate. Some outsourced agencies attract the companies and firms by offering work at a rate that is lower than the minimum. This attracts the companies to outsource their departments. Basically, when outsourcing comes, it is beneficial to one country but cast a bad spell to another, by increasing the employment rate.
You Lose Focus
Another disadvantage of outsourcing is you lose focus on your work. Many outsourcing agencies or freelancers tend to provide their service to multiple clients at any given time, chances are there the work you are sending out may not be receiving the focus it deserves. Sometimes the business activity you are outsourcing is important and crucial to your company and when it lacks focus it could be detrimental to your small business.
Different Time Zones
Another major disadvantage of outsourcing is that you have different time schedules with your outsourcing agency and employees. As a result, it is not easy to synchronize time schedules with your outsourced employees. In such cases, outsourced labor sometimes failed to respect the deadlines.
Although outsourcing work is generally considered cheaper and cost-effective, still you can also be getting ripped off. Outsourcing companies or big agencies are generally asked small companies to sign lengthy contractual agreements, and they would include plenty of fine print and terms and conditions as well. If you do not read the terms carefully, you could get hit with unexpected costs.
Important things lost attention
It does not matter whether you are dealing with overseas freelancers or some professional skilled labor, you need to give the proper attention and focus the work demands. In the case of outsourcing you mostly handle out work via email or telephone, important instructions are often lost in translation. That could cause your business serious hassle.
Outsourced employees lack feelings
Outsourced employees do not have the same feelings and interest in your business as you have. They often lack the passion for the organization and just work as an employee. This ultimately affects the efficiency of your business and sometimes get failed to meet deadlines which could affect your brand in the market.
Security and compliance
When you outsource certain business activities, you have to make sure about system security and regulatory compliance. Processes that affect the safety and legal compliance, should be formally addressed by the documentation so at the end you won’t have to face any hassle.
Internal talent is lost
If you outsource a function you are giving an opportunity to employees of other countries and agencies whether onshore or offshore. This will not be developing those skills in any of your employees. To eliminate this concern you should give a chance to in-house employees and train them accordingly.
If you unluckily coincide with a wrong vendor, then chances are there they force you to invest in equipment or software that you do not need at that stage or even later as well. They push you to do so because vendors may have more expertise in that particular equipment or software but in the end, it put a burden to your pocket.
I have mentioned all the risks associated with outsourcing your business activities. The decision is Yours! No doubt, the advantages of outsourcing outweigh its disadvantages and this is why most of the multinational companies and businesses are relying on outsourcing to increase their efficiency and to compete in the global market.
Also, read In-House Hiring or Outsourcing, Which is better? to get a better insight into the pros and cons of both choices.