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The Common Misconceptions of Outsourcing
Business process outsourcing- or outsourcing, as many would have called it- in its most basic sense, is the transferring of non-core functions of a business to a third-party supplier rather than completing it all internally, which then results in reduced cost and improve efficiency. One does not have to be a doctorate graduate to take advantage of this strategy. In fact, many of the small and medium enterprises today are now outsourcing some of their operations to countries like India, Philippines, and China to attain such results.
It is not surprising that the outsourcing is one of the most thriving industry today. Because of the increasing competition in the market, along with rising cost of living to major business city hubs around the globe like London and New York, businesses can harness the talents of the overseas individual/team that an outsourcing provider offers, with only half of the cost compared to hiring additional staffs to do the same task/ job.
Outsourcing does not only save a company of a lot of money big time, it also helps them to fully concentrate on other main business areas while the outsourcing providers take care of the minor business details. From tasks like medical claims billing, bookkeeping, and accounting, to complex jobs such as 3D design and web development, many outsourcing firms today offers an extensive array of services to help you streamline your business process while maintaining growth in revenue, as well.
Despite all these benefits, many are still reluctant to embrace this new solution because of some apparent reasons. From quality to compromised data security and communication, issues are still lurking in the background of outsourcing that needs to be clarified. To help you demystify these misconceptions, take a look at this infographic from Focusinc and enlighten yourself on the full capabilities of outsourcing to bring your business to the greater heights of productivity and success.
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8 Common Misconceptions About Outsourcing
Look back 10 to 20 years and you will see the big changes that outsourcing has brought to the global market. A lot of companies that hire another individual or firm to handle non-core operations has grown into a fertile business capable of doing their best at their core functions, all while maintaining reasonable profit and market growth.
However, businesses that think the outsourcing process is laid-back or easy can become largely disappointed. Companies who often have high hopes and idealistic notions about outsouring often find themselves blundered because their expectations about greater efficiency fail to be achieved.
In order for you to have a better grasp about the topic, we have compiled a list of eight common misconceptions that clients and even vendors experience when considering outsourcing.
Ranging from impractical assumptions to mistake views of risk, these myths can bring the success of your outsourcing project and even the organization’s overall services sourcing strategy into failure.
1. The Same Outsourcing Project Can Deliver All Desires Objectives
Many top executives believe that cost reduction, improvement in service, and the ability to increase and decrease production rapidly are the criteria for judging the success of an outsourcing project. Though each in itself is a perfectly valid objective, the problem comes in when many clients expect – and many vendors promise – all three objectives in the same outsourcing project.
The truth is, achieving one objective means making a trade-off in another area.
For instance, a company who wants to boost its effectiveness by adding more features to its outsourced services means that additional costs will also be incurred, thus efficiency or cost reduction might be hard or impossible to achieve.
2. Outsourcing Services Is Like Buying Commodities
79% OF COMPANIES TODAY views outsourcing as a way to reduce cost and improve efficiency.
However, many of these companies think outsourcing is a “frictionless market” with no transaction cost or other restraints. Worse, they treat outsourcing as a “one-stop shop” to help them streamline their process, all without expecting additional expenditure – just like how someone buys a stationery from a local shop.
But on the contrary, outsourcing carries significant transaction cost, starting with finding a vendor and negotiating a contract. Then, there’s the expense of moving the operation from one location to another and subsequently keeping it in sync with the rest of the company.
For instance, there are some cases wherein you have to send your organization’s key people to your partner’s sites overseas for the first few months just to make sure that the processes will be executed properly. If you have envisioned to reduce cost, you have to consider these cases from the start to avoid issues and unexpected cost.
3. A Complex and Ironclad Contract Is A Must
Because outsourcing is an ever-changing plane, primarily because of competitive conditions and technology, many executives try to write complex contracts that protect them in a host of possible circumstances.
Apparently, doing so turns out to be the only waste of time. It is impossible to take all contingencies into account. In some cases, a protracted and contentious contract negotiation process can sour relations between vendor and client even before the beginning of the outsourcing project.
Instead, companies should write a contract that ensures all parties understand their roles and responsibilities, and then put in place a process for negotiating changes.
4. Outsourcing Can Be Done Without Contract
On the other end of the spectrum, there are companies who try to rush into an outsourcing deal without a contract. They rather draft informal documents such as a letter of intent or memorandum that set out grand visions of the client-vendor partnership, instead on focusing on fundamental details as a contract does.
Through these documents are useful in setting a joint vision of the partnership, it is not advisable to use them as a substitute for a contract as the primary binding document.
Since the client and and the service provider will not always have identical interests and goals, it is important to draft a contract to head off tensions that soon may arise.
The process of negotiating a contract will enable the client and vendor to understand the risks, rewards, and interests for both sides. That, in turn, will make it clear what should be on and off the table in the relationship.
5. Vendors Have a Greater Liability for Failure Than In-House Employees
One of the most argumentative issues that loom outsourcing is the sharing of risk between client and vendors. A common misconception is that vendors should bear greater liability for failure than regular, in-house employees who do a job.
It has to be cleared up t hat even you can outsource your processes, you cannot entirely outsource risks that comes with it.
Rather than spending excessive time negotiating unrealistic contractual clauses in case of failure, clients and vendors should concentrate on understanding the process as it operates.
They should identify acceptable rates of error based on real data — jointly — invest in understanding and eliminating the problems.
6. An Outsourced Process is Not Your Headache Anymore
Sometimes, companies think that once they outsource a process, they can get rid of involvement of it. Unfortunately, an outsourcing project is more likely to fail if one sees itself as relieved of all operations and abandons control to the other.
Outsourcing does not mean that the process is not your headache anymore – though it would make it less of a headache.
To make the outsourcing project successful, you should make a habit of giving informal talks to your vendor and to your outsourced employees in order to build a greater sense of identification with your company, thus creating a symbiotic relationship that will surely help you ease problems and other existing issues about your outsourced processes.
7. Outsourcing Internationally Damages Domestic Businesses
One of the most undesirable myths about outsourcing internationally is that it damages domestic business. For this reason, some believe that outsourcing business exclusively to domestic companies is good for domestic business.
The reality is that in today’s world economy, companies are always looking for ways to improve performance in order to release capital for the reinvestment needed for growth.
To survive and succeed in this increasingly congested marketplace, businesses must remain competitive. Outsourcing gives businesses access to the best supplier services, nurturing growth which in turn benefits the domestic economy.
8. Your First Failure Should Be Your Last Attempt
Only a handful of companies have a fair share of success stories with their very first outsourcing project. But, that doesn’t mean they should give up. There is evidence of significant learning on teh part of both the client and the vendor in such relationships.
Little by little, vendors and client learn to communicate better, leading to a more efficient coordination and fewer mistakes.
As partnerships move through a long list of challenges, the experiences gained by the company will give them higher chance of greater success implementing more complex models and face fewer problems in their outsourced activities.
Today, outsourcing as part of the business is a viable strategy for even small and medium enterprises who want to fully maximize their potential on their core functions.
Just remember that in order to outsource efficiently, you have to identify and fully understand our business needs as well as its objective to find a vendor that can support you achieving your goals along the way.
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