If you are looking to outsource a department at your company, you’re probably wondering about all of the problems that could arise when outsourcing.
In this blog, we will review several of the most common problems with outsourcing, and how your company can help mitigate them.
First, Understanding the Terms
But first, let’s go over what “outsourcing” and “insourcing” actually mean.
“Insource” or “insourcing” refers to the process of having an employee of your company complete a task or business process.
“Outsource” or “outsourcing” refers to the process of having someone external to your company, that is not an employee, complete a task or business process. This could be an outsourcing agency or a consultant.
Say for example that you have tons of accounts payable work at your organization. You could hire an employee of your organization to handle your accounts payable, or you could outsource it to a company that specializes in doing accounts payable. This is a great, and very common, example of choosing between insourcing vs outsourcing.
There are many ways to reach this decision. Your business could be doing so phenomenal you could be considering outsourcing to help with volume. Or your business could be going through financial downturn, and you are looking at outsourcing as a tool for containing costs.
Either way, the decision to insource vs outsource is a very serious one that shouldn’t be taken lightly.
There is a lot at stake with this decision. Your choice could be the reason that your business grows at an exponential rate, or saves your company from going under. It could also be the reason that your business actually goes under.
This makes it all the more important to understand the problems associated with outsourcing, and how your company can handle them.
Problems With Outsourcing: Less Control
When you outsource your business processes to an external company, you lose some amount of control. The outsourcing company has their own way of doing things, and you might not be privy to those methods or have the ability to request changes.
If it is something simple, it might not be a bad thing.
But if you have a client who relies on things being done a certain way, and your outsourcing agency is involved in the process, it could spell disaster.
To mitigate this situation, make sure that you set clear expectations about what is expected from the outsourcing agency from the start of your relationship.
Ask them details about their process, and note how it varies from your current process, or how you would like things to be done. If there are big differences talk to the company about them and see if they are willing to bend for you.
Sometimes they are, sometimes they aren’t. It just depends on the outsourcing company.
Problems With Outsourcing: Less Ownership
An employee will generally feel more pride and ownership in their work than someone who is working at an outsourcing firm. This means that your internal employee will be more likely to go the extra mile to make sure that your company’s business process is top notch.
They will be more innovative, and likely have less mistakes than an employee of an outsourcing firm that feels no loyalty to your business.
This concept is fairly well known, and applicable to tons of different situations. You will always feel more ownership and pride in something that you own versus something that someone else owns.
There are several ways that you can mitigate this as a company. If you are planning on having a long term relationship with the outsourcing firm, include their employees in your corporate events. Invite them to your happy hours to interact with your other employees.
You should also set up weekly check ins to learn more about how their work is coming along, so that they know you are invested as well. During these meetings, take time to build rapport by asking about the outsourcing firm’s employee’s personal lives, and taking interest in their well beings.
Problems With Outsourcing: Lack of Customization/Quick Changes
Let’s say that you are considering outsourcing your accounts payable work to an outsourcing firm.
Having an internal employee do your accounts payable will allow you to customize the process, and respond to changes more quickly than if you were to outsource.
Since the outsourcing company has tons of different clients that they have to service, they will have to have a standardized process that applies to all clients. This means that any customizations, or things that you do in a specific way differently from them, will more than likely be out the door.
And let’s say that your business gets a new client that needs their accounts payable done a specific way. Your internal employee will be much more able to accommodate that request quickly than that of an accounts payable firm, where you will have to call the client success manager and then get a price quote for the new change in process. This is one of the huge problems with outsourcing.
Now, this isn’t true with every outside agency. If an agency is small and nimble, they might be able to accommodate certain situations with needed flexibility. Just make sure that you communicate in advance with the firm about the amounts of flexibility that you will require from them in your relationship.
Problems With Outsourcing: Communication
Sometimes communication can be one of the most difficult problems with outsourcing.
When you need to change something, such as your accounts payable process, it isn’t just as easy as walking down the hall and talking to your accounts payable person.
For some outsourcing companies, it might just be as simple as emailing your point of contact and waiting for a response.
But, like in the previous example, sometimes it just isn’t that easy. You might have to book a meeting with the client success manager, who will then need to talk to the operations manager, who will then provide a new quote for you. Then you will have to advocate for that new quote internally.
That’s a lot of work.
Problems With Outsourcing: Cost
There are lots of different types of outsourcing. Sometimes you might need to outsource a function to get more expertise in an area of your business. In this case, you can expect to spend a significant amount of money.
Other times, you might need to outsource something because of the cost of insourcing. In these situations it might actually save you money on completing those business processes.
However, you might incur secondary costs. If the quality of said processes decreases, you may lose customers, or have to increase the amount of your internal employees to make up for it.
Addressing these secondary costs are on of the biggest problems with outsourcing. Make sure that you do a complete analysis of short term, long term, primary, and secondary costs when looking at outsourcing.
Problems with Outsourcing: The Final Say
In some situations, outsourcing is a great option. In others, it might actually make a problem or situation worse. That is why it is always a good idea to go through the problems with outsourcing that can occur, and assess whether or not they will be an issue at your organization.
If they could potentially be an issue, make a plan to mitigate it in advance, and communicate that to the outsourcing company you want to work with before making a decision.