Jul

13

To engage in any business enterprise is to engage risks which must be dealt with to gain rewards.

Outsourcing, the farming out of work and processes to third-party business process outsourcing (BPO) service providers abroad, bears its own unique set of risks that, with careful research, can be avoided.

Let’s identify the most common outsourcing risks that companies encounter when outsourcing their business processes.

1.    Inadequate cost planning.

[TCIM Services] have established joint ventures in Canada, India and the Philippines, one in each country. Today, 2 percent of our business is offshore; it’s not generating a lot more than 2 percent of revenue or profit.

My clients think they could save 40 percent in customer service costs by outsourcing, but the actual savings are 30 percent in India and the Philippines, and 20 percent in Canada.

Their estimates are too high because you have travel considerations; you have to have people who are going to be there, managing and deploying the technology. Then you have to have quality control in place to maintain the standard. In the meantime, you’ve got training and retraining, and then you’ve got language certification.

Linda C. Drake, founder of TCIM Services, a call-center service provider based in Wilmington, Delaware.

Many companies have entered into outsourcing without considering the real, and hidden, costs of such an enterprise. While outsourcing is an advantageous way to reduce your business budget, you must respect the actuality that at first, the expected savings will neither be instantaneous nor impressive.

2.    The Social-cultural barrier.

The human base factor in business is building relationships and acquiring gain from these relationships. The foundation of relationship-building is communication. Inadequate and incompetent communication creates misunderstanding that diminishes the effectivity of relationships, leading to loss.

Employing personnel of a different nationality right in their own country, through a BPO service provider, brings on the challenge of dealing with these employees’ inherent culture: language, personal values and work ethics. With this challenge come high costs in training and educating your employees to adapt your intended business ideals and standards so that they can be qualified and competent to do the work you’ve hired them to do.

3.    Security Breaches of information confidentiality.

In 2005, customers from Citibank and HSBC have reported funds stolen from their accounts. The culprits were later found out to be agents from call center firms based in India who gained access into customer records, obtained PIN numbers and other account information which they used to transfer money out of those customers’ accounts into the bank accounts of accomplices.

Other than being leaked or stolen, confidential client documents or information could also be lost, mislaid during the transfer process.

These breaches of confidentiality are often caused by poor employee screening; monitoring; high internal and external turnovers by middle-management that leads to lack of continuity and accountability; and a corporate culture in which maximizing financial gain is paramount and this is spread through ranks, overriding ethics.

4.    Local politics and economic interference.

Exclusive to outsourcing is the possible interference of your BPO service provider’s government into your mutual operations.

Nonetheless, your outsourced business processes are subject to your BPO service provider’s national economy, tax concerns, local politics and local industry standards.

5.    In-house resistance.

It is also possible that you can encounter problems on your end once you announce your intentions to outsource jobs from your company’s home offices. The transfer of knowledge and technology to your BPO service provider would have to be facilitated by your stateside employees which consumes times and reduces productivity.

Another problem could be the morale of your present employees who would feel that their jobs are in danger, due to misconceptions on what outsourcing does to job security.

6.    Supplier stability.

A great risk is the BPO service provider whom you selected and partnered with to handle some of your business’ processes. Can you be able to rely on these off-shore offices to do the work with competence similar or exceeding your own in-house operations?

Now there is a great market demand for BPOs and a lot of new service providers rising out to meet these demands, fiercely competing with each other. Beware that these new service providers could offer attractive and cost-effective business packages but can also be immature when it comes to technology and capability, making things up as they go and who haven’t completely solidified their service delivery models.

Look BOTH ways before crossing the street is among the first of life’s lessons we get to learn. As you can identify the risks of outsourcing, the more capable you would become in mitigating such risks to achieve rewards for your business through outsourcing.
Outsourcing Solutions, Inc. – your outsourcing partner!

References:

  1. Levere, Jane. “The Profits and Pains Of Outsourcing; Understanding the Hidden Costs.” 6 December 2004. The New York Times. Accessed 24 June 2008. Link here
  2. Mitchell, Anthony. “Indian Call Center Agent Arrested for HSBC Thefts.” 28 June 2006. E-Commerce Times. Accessed 24 June 2008. Link here
  3. Rai, Saritha. “Security Breaches Worry Outsourcing Industry.” 5 October 2006. The New York Times. Accessed 24 June 2008. Link here
  4. Rosenthal, Beth. “New Outsourcing Risks in 2005 and How to Mitigate them.” January 2005. Outsourcing Journal. Accessed 24 June 2008. Link here

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