Top 10 Mistakes in IT Outsourcing for Your Business Failure
We are in the age of outsourcing. It is rare to find a small business, or any business for that matter, that does everything in-house with full-time employees. Everyone outsources to some degree no matter what they call it including subcontracting, freelancing, and virtual assistants. Businesses outsource to grow more rapidly and save costs, but costly mistakes can lead to business failure.
With so many business outsourcing, you expect to find many books, blogs, and lectures on the subject by experts claim this or that reason why you should or shouldn’t outsource. They all claim their ideas to be the truth as well. We found thousands just on the topic of this article alone during our research. The truth is that outsourcing can help your small business survive and succeed in today’s economy along as you avoid certain mistakes.
There is no surprise here. Outsourcing will remain an integral part of IT organization for years to come, and people will make mistakes along the way at every step and aspect of its utilization.
All outsourcing mistakes happen like any other mistake in business. The owners either overconfident or they forgot something important in their rush to get their products to market. They happen when businesses try something new or when their staff does not have an adequate training to do what they have to do. Outsourcing mistakes are no different.
While businesses have outsourced their projects since the dawn of time, no one did it much like we do today. This makes outsourcing a new commodity to lots of people leading to costly mistakes. Businesses make mistakes in how they implement outsourcing, and in whom they use as their outsourcing partners. If you want your business to succeed, you have to avoid all the mistakes.
Don’t take this lightly. Both your reputation and your business are on the line here. Your customers don’t care that you outsourced your product development. They just want products that work. If you outsourced poorly, you may end up with products nobody wants enhancing the devastating losses you face with your outsourcing mistakes alone!
If you want your business to succeed, you must avoid making outsourcing mistakes. To avoid them, you have to know what they mistakes are and how to avoid them. To get you started, here are the top ten IT outsourcing mistakes that the experts believe lead to business failure:
1. Believing that you do not need managers.
Contractors, freelancers, and other outsourcing solutions providers cannot help you manage your business. They can manage their own internal processes, but they do not have the staff or time for yours as well. Remember, if you completely rely on managers from your outsourcing vendors, they, not you, will be managing your company and its objectives. All entrepreneurs need to know everything about their business at a management level, or at least have a cofounder that does, in order to have their business succeed. While you should never over-manage anyone, you need your own management team to keep your internal and external projects moving forward.
2. Believing that your workers can work anywhere in the world.
Business owners outsource to fill needs that are otherwise too costly for their budgets, but many do not understand that understanding your workers is the real key to productivity. That foreign outsourcing provider may save you money now, but that means nothing if you do not understand their culture and language. Even if you get past those roadblocks, you have to deal with time zones. Using vendors in your time zone makes communication easy, but they may not have the skills you need. As with real estate, it’s still about location, location, location.
3. Outsourcing solely to cut costs.
Businesses outsource for a variety of reasons, but the worse one is to cut costs. In fact, some entrepreneurs get so outsource-happy that they will outsource their entire business operation to save money. They develop myopic views of what outsourcing is and focus solely on what it can save them financially. Many even believe that can reduce their budgets just by outsourcing everything and anything that crosses their desks. This is the wrong focus, and it will only lead to disaster.
While every business needs to cut costs when they can, it cannot be your reason to outsource your workers. First of all, outsourcing does not guarantee savings. It takes money to save money. You usually have to raise your burn rate before you can decrease it.
Second, outsourcing your workers brings with it costly collaborative tools, Internet bandwidth, and new data security tools. You also have to invest money to train your own team and to purchase new hardware and software your in-house staff and your remote workers need to accomplish what you want them to accomplish: develop and sell your products. Focusing on money may also lead you to the wrong outsourcing vendors making money the least of your concerns.
Ideally, you want to outsource tasks that are outside your core competency. You should be able to specify these tasks in details and manage their deliveries and checkpoints as well.
4. Using fixed price bidding on all outsourcing projects.
Related to cutting costs, many business owners believe that they can use fix pricing bidding on everything. Fixed pricing is only an effective compensation for well-defined short-term projects such as blogging or programming. You will not get far if you try to use it on call centers, affiliate marketing vendors, or even data entry. You have to be flexible and do the necessary research with your peers to check all the alternatives available to you.
5. Having the wrong mindset.
Companies tend to use fix pricing on everything because they outsource with the wrong mindset. They see their remote workers as employees and can be treated like employees. Other companies see their outsourcing partners as temps, or cheap startup staff that they can eliminate as they please. But, these abusive RFP processes, ruthless negotiations, or treating your vendors poorly will only lead to disaster.
You should never hire anyone for what they can do for you right now. Selecting an outsourcing vendor is like choosing a business partner and not a disposable commodity. You need to keep your virtual team happy before outsourcing can work for you. If they resent you or are otherwise unhappy, they will do their jobs poorly leaving you with worthless products. Cheap is never a good deal. Fair compensation is usually higher than the current market price, but lower than you would pay for a full-time employee. But remember, your outsourcing vendors have their own business interests and needs.
6. Ignoring potential personality mismatches.
Business owners tend to outsource without considering the possible cultural clashes between their in-house people and their remote vendors. They expect their vendors to adopt their business culture, and their employee the stress that come with outsourcing.
While your vendors will always try to adapt to your situation, the success of your projects will depend on their cultural work ethics, time constraints, social status, language quirks, and an overall attitude. Remember, cultural adaption goes both ways. You have to learn how to embrace your vendors’ cultures as well to establish a mutually successful business relationship.
This means you have to properly training your staff, and plan extra communication, standard protocols, and contingency plans as well. You should never place outsourced projects under a profession who does not want to manage them, cannot manage them because of time constraints, or is insensitive to cultural differences. There is no easy solution for this either. They key component to all personal and business relationship is personality matching. This is a complex and barely understood topic, but it is extremely important to the success of your business and its outsourcing ventures.
7. Inadequate processes and technical mismatch.
The best cook on the planet is not necessarily the best pilot, but not even the best pilot in the world can fly a plane without controls or engines. For your outsourcing projects to succeed, you need to hire their right vendors for the job and then supply them with enough tools and information to do the job. You have to assess your project needs, organizational culture, and the available funding and hire your vendors accordingly. Never go into this by winging it. You are unlikely to find good one-size-fit-all vendors. Each outsourcing vendor has their own specialties and you must choose the ones that match the capabilities you need, even if you have to multisource to get them.
8. Lack of commitment.
You might not think of it as an issue, but not having the commitment to follow through with your outsourcing endeavors is a disaster waiting to happen. Changing your projects needs and switching between vendors mid-project will lead to defective products, longer development times, and confusion for everyone. Organizational commitment, executive sponsorship, and stakeholder buy-in are the keys to any successful initiative.
9. Outsourcing for the sake of outsourcing.
The biggest outsourcing mistake is outsourcing for the sake of outsourcing. That is outsourcing tasks and problems that are better addressed in-house or through other more effective tools and measures. While outsourcing is a powerful tool that can help you meet your business goals, you can abuse it if you are not careful. Outsourcing without caution or appropriate knowledge can backfire causing irreparable damage to your business and your reputation.
10. Lack of transparency.
Finally, in an attempt to keep their intellectual property and data confidential, many companies hide their intentions and needs from their outsourcing vendors, often to gain some negotiating advantage. Despite these intentions, this approach often fails to deliver the advantage these companies seek. Rather, this tactic just misleads your vendors and vendor selection team leading to poor performance, defective products, and more headaches for you.
With modern technology, and worldwide reach, outsourcing should be an important tool for building your business into the efficient, lean, and competitive business of your dreams. You just have to avoid the pitfalls of believing that it is easy and inexpensive. Keep this in mind, and your efforts will lead to business success instead of failure.