Outsourcing for the first time is like treading a tightrope; you have to find the balance between risks and rewards. But for first-time business owners, outsourcing mistakes are present along the way. Without any idea of what you're up against, you're likely to make such mistakes.In this blog article, we'll focus on some of the key outsourcing mistakes every first-time business owner makes. Be sure to jot down any valuable insights you see fit for your business to have a successful outsourcing venture.
Outsourcing Mistakes to Avoid as a First-Time Business Owner
When you're new to outsourcing, you're susceptible to making business decisions on a whim. And this is a perfect recipe for making outsourcing mistakes from the get-go.The tricky part about some of the biggest outsourcing mistakes is that you'll never know it's a mistake until it wreaks havoc on your financial resources. To eliminate this blind spot, it's important to note the following outsourcing mistakes you need to avoid. Certainly, these outsourcing mistakes will help you learn more about outsourcing than any advice you've ever
1. Going for the cheapest deals and packages
The number one reason why businesses outsource is to save on labor costs. You often see companies out there scrambling, looking for the cheapest vendor. But is it the best way to hit the ground running? The definite answer is NO.It's bold to assume that cheap labor may sometimes render subpar quality output. But in the world of outsourcing, this is not a shocker.Have you ever wondered why some BPO vendors offer low-cost services? Well, most of these vendors are struggling to hire and train quality agents. Thus, with a mediocre workforce, they are only capable of delivering substandard services. These cheap services are often advertised online, luring businesses ready to take the bait.So the next time you look for an outsourcing partner, you shouldn't be fixated on the price only. You may also want to consider their quality assurance and industry experience. There's nothing wrong with cheap services out there. But remember that you only get what you pay for most of the time.
2. Failing to identify business needs
When outsourcing, you've got to be smarter than your outsourcing vendor. Otherwise, you'll find yourself saying yes to services irrelevant to your business.For instance, any BPO service provider would offer you scalable solutions. In addition, they would emphasize that your business may expand very soon. Thus, you may also need to outsource your marketing and HR-related functions.Scalable solutions are as good as optimizing your business for productivity. But it only works best if you know which areas of your business need to scale. If you're a small company with no potential to grow soon, it's wise to outsource only your non-core functions.The rule of thumb is to identify your business needs first before outsourcing. Never allow any vendor to prescribe you anything that doesn't help your business grow. Should you upgrade, make sure that it will increase your revenue in line with the number of resources used.
3. Not hiring for culture fit and location
When hiring in-house employees, most employers consider culture fit and location. You wouldn't want someone who doesn't conform to the values of your business. At the same time, you may not hire candidates whose residence may conflict with their work compliance. Thus, there's no way you would look past these essential factors in outsourcing.However, many businesses keep repeating the same mistakes when outsourcing over the years: neglecting culture fit and location. These businesses assume that they're in good hands as long as a vendor promises quality service. But what happened to those who subscribed to these faulty assumptions—they failed terribly.Before choosing a vendor, ask yourself the following questions to narrow down your choices:
- Does the vendor have a strong affinity and familiarity with our culture?
- Are they capable of adjusting and working across different time zones?
- Can they speak our language fluently and proficiently?
- Do they receive robust support from their government?
- What do their professional work ethics look like?
If a particular vendor ticks all the boxes, you're absolutely near to choosing one of the best outsourcing providers.
4. Choosing the incorrect pricing model
Selecting the wrong pricing model is a costly mistake every business owner must avoid. Not only does it lead you to financial losses, but it also harms your relationship with your vendor.Here are different types of pricing models in outsourcing you have to be at least familiar with:
Fixed Price
A model that establishes a single rate for a specific project, regardless of its duration or cost. This is ideal for small to medium projects, where requirements, specifications, and timelines can be explicitly defined prior to the start of a project.
Time and Material
Conversely, this model charges you for both the time spent on the project and the costs incurred. This is most effective for long-term projects with changing requirements. Typically, perfect for projects when the scope is not yet clearly defined, and additional flexibility is required.
Staffing
This model enables businesses to hire employees for a set length of time. They can hire more people and choose who will work for them based on the project's requirements. Usually, this is best suited when a company requires more labor for a project but does not want to hire full-time employees to save money.
Mixed Mode
Essentially, this model is a hybrid of the fixed pricing and the time-material model. It's suitable for any company if they need to release a product within a given timeline but don't have specific project requirements.
Consumption-based
Businesses only pay for what they consume under this arrangement. The pricing model appears to be a more equitable method of pricing. Here, businesses are paying for actual usage rather than just access to the platform or potential service consumption.
Profit-sharing
Meanwhile, the profit-sharing model may be contingent on the client and service provider agreeing. Clients can compensate service providers for boosting the overall value delivered to their organization using this incentive-based framework. After jointly attaining mutually beneficial business goals such as enhancing the company's bottom line, a client agrees to allocate a share of their profit to the service provider.
Incentive-based
Here, clients pay a bonus to a service provider for exceeding the contract's service level agreements on particular performance levels. In this strategy, input is highly valued rather than meeting corporate objectives. For example, a client might reward a team of agents with bonuses if they maintain a high level of customer satisfaction.
Shared-risk reward
This pricing model necessitates both the client and the vendor to brainstorm and mutually fund a project's development. Because of the project's codependency, a vendor is responsible for possible and current hazards during the project. At the same time, they also have the right to a portion of rewards for a defined period.To sum up, it's vital to know the scope of your project before deciding on the optimal price approach. In addition, you should consider your projected goals, timeline, and quality in relation to your available resources.
5. Not undertaking due diligence
Fraudulent activities are common in outsourcing. If you fail to conduct your due diligence, you may work with a service provider with a bad reputation for doing business.Take India, for example, one of the world's leading outsourcing destinations. Due to the country's history of BPO scams, some businesses are hesitant about relocating their operations there. In April 2005, five employees of MsourcE in Pune were arrested for allegedly defrauding four Citibank account holders of about $425,000.So, how will you ensure that you're outsourcing to a vendor that has your best interests? Here are simple steps to find service providers that are legit and trustworthy:
- Obtain the vendor's contact information (phone numbers, email addresses, etc.). Typically, this information may be obtained on the vendor's website. If the website does not have it, no further inquiry is needed — just leave.
- Check to see whether the business has been flagged as a scam. You may also see lists of online scammers on websites like Ripoff Report to verify your vendor's legitimacy.
- You can also request a portfolio containing finished projects, terms, case studies, and services that can be verified and found on their website. Client testimonials and reviews may also be beneficial.
- If you're outsourcing output-based services, check with your provider to see if they have a presence on any specialized professional platforms. For example, for design, there's Behance and Dribbble.
There are several ways to determine whether or not a vendor is legitimate. All you have to do is invest some time in research and trust your instincts.
6. Giving little or insufficient management
The benefit of outsourcing is that you may delegate all of your non-core business duties to your service provider, allowing you to focus on growing your company. However, this does not imply that you can leave them hanging and expect great results at the end of the contract.As a client, it is your responsibility to build an orderly workflow to streamline development procedures. In addition, it's critical to provide adequate direction to your offshore team if you want them to hit the proper KPIs. One way to do this is to communicate as much as possible via instant messaging and emails, audio or video calls, and video conferencing.Also, make sure you check in with your team once a week to see how they're doing and what they've accomplished so far. You are free to communicate as frequently as you see fit. But be careful not to go to the point of micromanagement, as this would make everyone feel.
7. Outsourcing core business functions
Outsourcing has paved the way for businesses to access specialized skills outside their organization in infinite ways. Clearly, you can outsource any roles from your organizational chart. However, some experts say subcontracting anything related to your core business functions is one of the outsourcing mistakes to avoid.Consider human resources to be a critical company activity. If staff training is essential to your company's growth and differentiation from competitors, training your personnel by a third party could jeopardize your purpose and vision.HR-related functions, according to experts, should be kept in-house. Keeping this fundamental business activity in-house implies that any issues or conflicts within your company may be handled and resolved immediately. In addition, this provides a secure and friendly workplace for your staff, boosting productivity.On the other hand, business development should not be outsourced if a company is still in its early stages of growth. The logic behind this is that people you haven't seen face to face are less capable of identifying answers to your company's challenges.It's crucial to note that outsourcing will not fix your company's talent shortage. Instead of outsourcing, you may want to invest more in your employee development and engagement through new experiences, learning, and growth.
8. Neglecting retention rate
When selecting the best outsourcing partner, the retention rate is frequently overlooked. But don't make the same outsourcing mistakes as some other companies. The retention rate determines how successful a vendor is at acquiring and maintaining essential employees.When a service provider's retention rate is low, they're likely to have a high attrition rate. High attrition rates could suggest that employees are regularly leaving.Outsourcing companies with a high attrition rate are questionable. Its failure to keep its employees is a sign of an unhealthy company. In these organizations, processes are slowing down, and projects go undone.It's good to outsource to a vendor with a low attrition rate. You will not incur additional costs by training new agents every 6 to 8 months and coping with insufficient skills and work experience among the newbies if you do so.
9. Ignoring the vendor's information security policy
While outsourcing has many advantages, it also has significant drawbacks. This is true when you send confidential personal data to a third party, such as legal, financial, or medical records. Hence, your company may suffer from data breaches if you do not work with a trusted provider.The biggest outsourcing mistakes of Wipro's data breach contain valuable lessons for managed service providers. This Indian IT outsourcing giant made headlines in 2019 when a reported data breach compromised hundreds of thousands of its clients.Wipro was hacked in mid-April 2019 due to a phishing attempt targeting Wipro workers. The attackers were able to install remote access tools on the compromised systems after gaining access to more than 100 Wipro computer systems via dozens of employee accounts.So, how can you manage such third-party risks when outsourcing your IT operations? One way is to ensure that your chosen provider has good information security policies and practices. By holding your vendor to rigorous security standards, you may keep potential threats at bay.Also, evaluate your vendor's security and privacy procedures. In addition, make sure that the vendor is legally bound to rectify data vulnerabilities in your contract with them, including alerting consumers if a breach occurs.
10. Outsourcing without exit planning
Entering into an outsourcing deal without a clear exit strategy is one of the mistakes of first-time outsourcing. Exiting an outsourcing deal is just as vital as signing one. Remember that every outsourcing agreement eventually comes to an end. So, to assure continuity and effective transition, a business must have a proper exit strategy.In the event of agreement expiration, a proper exit plan can help you finish the business and build good working relationships. It is difficult to transition outsourced services to the next deployment with minimal downtime if no exit strategy exists. This is especially true when a contract has been terminated owing to a breach by the vendor.Furthermore, outsourcing agreements may fail to produce the desired outcomes. Therefore, it is preferable to plan for the exit ahead of time when entering into any contract.
Outsource Your Business Needs to KDCI
Outsourcing mistakes may be hard to dodge, especially for first-time business owners. However, you can have a smooth-sailing start when you choose the right outsourcing vendor. Your outsourcing partner should have a commitment to quality. Also, you must partner with a company that has been in the industry for over ten years.Consider KDCI, a Philippine-based offshore staffing company. Since then, our company has provided high-quality services ranging from creative design to eCommerce outsourcing. We've worked with some of the world's most well-known brands, including Apple, Dell, and Canon. Trusted by many SMEs, we've earned a great name in the industry and are ready to provide value to your business.Do you want to learn more about our services? Then, click the button below and get your FREE consultation today with our client success manager!Contact Us
