The Dark Side Of Business Outsourcing

DenisGiles-game-table-top-ship-figure-miniature-arrow-russia-icon-little-playing-outsourcing-stock-photo-art-cropOutsourcing can be a seductive play on the corporate field, often a gamble. If not played right, instead of the major financial benefit, you have a quicksand situation where you’re just sinking, and sinking — and sinking. No one likes quicksand.

That’s majorly why outsourcing has received such a bad rep, not necessarily just because of the fact that many American companies send out their operations to foreign countries at cheaper costs, cutting out many opportunities for our deserving workforces. That’s a different matter altogether, but one thing’s for sure — outsourcing doesn’t always work out, because no matter how you look at it, this is about an external company handling your business with little to no oversight on your end. That can be kind of scary.

The crazy thing is this: even if the outsource does a decent job, it might actually show that the original in-home corporation can do it better. Don’t be surprised. Sometimes if the company knows how the product works, where it goes and understands it all internally, outsourcing might not be the best way to go. It all depends on an in-depth, thorough analysis of the business and operations, determining whether or not outsourcing is necessary.

Some companies, though, see this idea of outsourcing as a ‘quick fix.’ That’s a no-no. Consider these factors never considered in business with regard to outsourcing. Who knows: it might make you believe that you, in fact, can do this all on your own.

Evaluating Vendors Carefully

Not all vendors are created equal. By vendors, of course, I’m speaking about those external outsourcing companies offering services to handle your business. You’ve got the well-established firms out there; and then you have some upstarts trying to break into business. You might have a few golden gems out there with some clear policies, procedures and definite realm of success, but more often than not, if you want a sure thing, go with the pro that has been in the business for years.

Figuring out which vendor might be a good fit is of itself quite an expense. Bear that in mind. It may, though, provide you the ROI you’re hoping for. You have to specifically ask these questions: “What’s your workload?” and “Are you receiving your payments on time?”

Why’s that important? It’s simple: you want to know that this particular firm will stay in business. Once you find out that it’s gone under, you’re back to square one, and it’s that much more cumbersome. Stick with reliability. Usually that’s a great indicator that the company does well with the outsourcing, especially if clients continually pay on time.

Watch Out for the Contract “Mistakes”

It’s a difficult prospect to simply hand over an aspect of your business just out of good faith. Sure, that external outsourcing company may be an expert in the logistics and distribution, for instance, but how do you really know that the company’s going to make sure your product gets from A to B?

The only sign of good faith is in the words of a detailed agreement, period. If you don’t, however, specify your clear requirements — such as delivery deadlines, budget limitations and other factors that you don’t want affecting your bottom line — expect that external company to throw a major wrench into your operations, and that’s even if the external company in question stands as the standard in the outsourcing game.

It’s about communication. Communicate. Remember: it’s a partnership. This would also require constant renegotiation, particularly if people leave the external company or if certain stipulations change due to changes in the industry. Perhaps your results are a lot different — good or bad — than what you expected. You’d definitely want to renegotiate — good or bad — just to keep the communication lines open.

Don’t ever sign on that dotted line without continually talking about it, day in, day out, to your major point of contact. You’re still in charge even though they’re the ones operating that facet of your business.

Speaking of Maintaining Communication

Just for its own sake, that’s a major priority — always keep tabs on their work. Because, again remember: you’re the boss. We do understand, though, as any skilled business lawyer might consult you, that constantly overseeing their work weekly and even daily can eat up time management, but understand this:

That’s a minimal expense compared to what you could face if you’re not keeping an eye on it in the first place. Before you know it, once it’s all said and done and you realize that the tasks at hand weren’t completed, you’re forcing your own workforce to take on the work they weren’t supposed to have, plus pay them additionally on your own end (plus what you already pay the outsourced firm).

Guess what: you’re losing the money. The reason why is you’re not constantly checking what they’re doing as they do it. Think of it akin to making sure your car runs fine regular checkups and diagnostics. It’ll cost regular money out of your pocket, but let me tell you — it’s a lot less expensive than repairing or replacing that engine you suddenly saw smoking under the hood.

Overall, It’s an Adjustment

Outsourcing is no quick fix. It’s not like you can just hand over that side of the business and forget about it. Not only does the cost go down, supposedly, but your entire operations has to be reconfigured to ensure that everything is still working properly as it should.

That’s the dark side of business outsourcing. Are you willing to handle it? Good. It’s an adjustment. Who knows — it might work out well. Just in case you think it’s too much of an adjustment, know this: you might do the work just fine on your own.

The only question then you have is whether or not you have other parts of your business you can somehow optimize, streamline or cut to maximize your profits and revenue. That, my friends, is another story worthy of consultation with your friendly neighborhood business lawyer.

About the Author

Matt Faustman is the CEO at UpCounsel. You can follow his business insights on Twitter at @upcounsel.

  • Romina

    There’s a lot of truth here but the outcome can vary to a degree of thr scale of all service providers out there. We’re not only talking going into third world countries for cost savings but often orga hire specialists who are even more expensive but are required for the job.
    Basically… You get what you pay for… Golden rule… Will never change.

  • Grizzly

    Nice … good to hear a bit experience sometimes. Theres a lot of blah going on in the media which really doesn add value.