Disadvantages of outsourcing and how to handle them

Outsourcing might be the most cost-efficient way to get your work done. However, like every business strategy, it has its own risks and disadvantages that can ruin your operations.

In this article, we will discuss why outsourcing can be a setback for a business. If these disadvantages far outweigh the benefits, then you might need to think twice about pursuing it.

Outsourcing definition

Outsourcing is the business practice of hiring a third-party agency, or consultant to manage a portion of your business with the means of functions, tasks, and other services. 

Roles such as virtual assistants, social media manager, healthcare service specialists, IT and software development, customer service, and technical support are some of the most commonly outsourced services by many companies.

Outsourcing can be carried out by a service provider from your own country, which is called onshoring. It can also be provided by a neighboring country known as nearshore outsourcing. Lastly, functions can also be given by outsourcing to another continent called offshoring. 

Why is outsourcing bad?

As helpful and effective as outsourcing is, there is still a list of things that can fall out of hand. Take a look at each of the following downsides of outsourcing below. But don’t worry, we’ve got you covered on how to with them as well

1. Loss of control

When you sign a contract to have another company perform the function of an entire department for you, you are also turning the management and control of that function over to that company. This external provider might not be concerned with other aspects of your business. 

Your business operations might suffer and it might be too late when you take over to repair damages. This includes the potential of you losing the ability to respond to the changes in the business environment, because there will be another layer of people and processes to work through.

How to handle the loss of control

Finding the right outsourcing firm can be tough work, but it beats hiring the wrong one. Weigh what responsibilities you are willing to hand over to the service provider and those you’re not willing to. 

Create a plan for project management measures like setting timelines for meetings, tracking key performance indicators and other metrics so you can keep track of what goes on. You can also set real-time monitoring during work hours to see how processes are done. 

2. Threat to security and confidentiality

 Payroll, accounting, medical records, or any other confidential information that will be transmitted or used by your outsourcing partner might be compromised. 

Australian company’s intellectual property laws and other confidential data privacy laws provide firms a way on how to secure information when outsourced employees start to work in the insides of your firm.

How to manage the threat to security and confidentiality

To prepare to deal with security risks, draw up an airtight outsourcing contract or service level agreement to protect the security of your firm. 

Ensure that all stipulations indicated in the contract are clear and strong enough when you state all purposeful misuse of essential company data. To prevent any case of a data breach, both parties can also sign non-disclosure agreements.

3. Problems with service quality

You can’t exactly monitor how outsourced employees perform in real time. Since they were trained by a third-party, their performance might differ on how your in-house members do their tasks. In this case, it’s right to question the quality of work they put through.

How to manage problems with quality

When it comes to quality, you can set detailed product specifications for your provider. You can give them precise product training and business orientations to make sure they are aligned with your business. You can both agree to allow your company to make changes or revisions when necessary. 

4. Upsets company culture

Changes aren’t always easily welcomed by workers, particularly in terms of company policies, colleagues, and salaries. Introducing outsourced employees might upset your in-house employees as they may feel they are being replaced by new ones. 

This understanding might affect the daily workflow of your office and spark internal conflicts. 

How to manage upsetting company culture

A positive work culture and harmonious colleagues relationships are keys to a higher level of productivity. 

Just because other employees are new to a working environment, it doesn’t mean they can’t get to know each other and work hand-in-hand. You can conduct get-to-know sessions and team-building exercises to nourish teamwork and camaraderie.

5. Communication barriers

When it comes to offshoring, communication over the phone or even video calls is not enough. In the event when you hire a remote team, consider the time difference and make adjustments to address company culture and business needs. 

For instance, if something goes wrong with your software, you can’t just simply walk to the next desk to discuss it with your IT specialist. This leaves you with virtual communication. You can send them emails or messages and make software outsourcing less efficient.

How to manage communication barriers

To solve difficulties with communication, you have to strictly set business hours. Use virtual communication tools and set standardized formats for communication. Be open to your external provider and don’t hesitate to ask questions to avoid misunderstandings.

These outsourcing risks are real, so are the ways to manage them. Now that you know how you can manage these issues, you can make plans on how to make your outsourcing arrangements more effective.