Potential pitfalls of delegating direct control

Many businesses are wary of outsourcing. They’re concerned about handing over key business functions to an external organisation over which they have no direct control.

Losing an element of control can be one pitfall of outsourcing. Others may include:

  • service delivery falling below expectation
  • confidentiality and security not being respected
  • the outsourcing contract proving too rigid to accommodate change
  • management changes at the outsourcing company leading to friction
  • the outsourcing company going out of business
  • failure to provide sufficient management resources in-house to safeguard the success of the outsourced business processes

When you plan to outsource tasks, you also need to plan what you will do if any problems arise. Consider having other service providers to whom you can turn relatively quickly, or how you would take outsourced processes back in-house. You need to set out the circumstances in which you can make such changes in the contract between you and the outsourcing company. If not, the outsourcing company could claim compensation.

It’s been estimated that as many as 50 per cent of outsourcing deals end badly. This isn’t a reason to reject outsourcing, but proves how important it is to choose very carefully how and with whom you enter an outsourcing relationship.

A recent study by the Department for Business, Enterprise and Regulatory Reform looked at the causes of outsourcing problems and found that:

  • 23 per cent of buyers had not set clear objectives for the outsourcing project
  • 15 per cent had problems where the interests of the buyer and supplier became misaligned
  • 13 per cent found problems with poor management and control of the outsourcing process
  • 11 per cent reported poor communication as a problem
  • 11 per cent of outsourcing arrangements were not mutually beneficial
  • 11 per cent reported other failures such as lack of commitment
  • 8 per cent had problems with the provider’s poor performance
  • 5 per cent had a poor cultural fit
  • 3 per cent were buyers who had multiple suppliers

These are areas that you need to consider when setting up an outsourcing relationship. Remember that outsourcing means partnering with your supplier for your mutual benefit.

Source: Business Link

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