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Friday, February 4, 2011

Top 10 Risks of Offshore Outsourcing

1. Cost-reduction expectations.
Many entrepreneurs tend to assume that labor arbitrage will yield savings comparable to person-to-person comparison. In reality, companies can only expect to save at least 15-25% during the first year; 35-40% by the third year is the company decodes to “go up the learning curve” and modify strategies to align to an offshore model.

2. Data security protection.
Vendors should have sufficiently robust security practices. Apparently, not all BPO offshore outsourcing firms offer impressive security practices. In this case, it is essential that privacy concerns are raised and addressed before you eventually make a deal with any vendor.

3. Capability Maturity Model (CMM)
The CMM helps measure the readiness of a company to adopt an offshore model.

4. Loss of business knowledge.
Business owners need to identify which business knowledge may be moved to either outside the company or an offshore location in order not to compromise the company practices.

5. Vendor failure to deliver.
Failure to deliver products and services occur at times. If your targeted company is at high-risk of vendor failure, perhaps you should try to shift your outsourcing strategy. For example, you can move from one single vendor to multiple vendors.

6. Scope creep.
Fixed-price contracts in outsourcing do not really exist. Rates of offshore outsource solutions tend to change by at least 10-15% throughout the development cycle.

7. Government oversight/ regulation
Some companies are subject to various degrees of government oversight. Ensure that you choose an offshore outsource solution provider that is sensitive to industry-specific requirements. It is also important that you select a vendor that provides sufficient “transparency”.

8. Culture.
Most vendors require and provide their dedicated outsource staff to undergo cultural education programs. Call center agents, for instance, are usually provided accent training so they can communicate better. However, these trainings are not always enough. In that sense, settle with an outsourced staff that who understands fully your own culture.

9. Turnover of key personnel.
The impact of high turnover causes indirect loss to an outsourcing firm. In this case, find a provider who would be liable for every hired dedicated outsource staff that needs to be replaced.

10. Knowledge transfer.
Technical and business knowledge transfer from the vendor to the outsourcing company needs to be accounted for. Entrepreneurs can do this by using innovative solutions such as deploying video conferencing. Video conferencing eliminates the need to travel and creating one-to-many transfers. This also helps business owners save money on BPO offshore outsourcing.


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