When talking about outsourcing, it is important to understand what outsourcing exactly is. Outsourcing is referred to as a transfer of business activity from a client or a customer to a third party service provider, which could be local or foreign. Some of the more common examples of outsourcing that you might come across include IT services, delivery, logistics and distribution services. Most companies opt for outsourcing business processes because it gives them the opportunity to have more efficient allocation of roles, as well as responsibilities. Let’s delve a little deeper into the topic, looking at some of the important things that a business should consider when outsourcing a process.
1. Understand risks specific to outsourcing
When a business decides to outsource a service to providers who are offshore, then the customer faces inflated costs along with risks which could have been mitigated if the solutions involved resources which were on-source. Also, offshore outsourcing might be cost effective at first, but there might be hidden costs that you were not aware of. For instance, an off shore process might require an expensive and lengthy step of vendor selection. Also, other differences like communications due to language barrier or cultural differences should be considered.
2. Data / security protection
For the most part, IT organisations generally find the security practices implemented by offshore vendors impressive, yet, the risk of security breaches or compromises with intellectual property greatly increases when the process is outsourced to offshore vendors.
3. Efficiency considerations
Companies should give serious considerations, if moving to an offshore location will impact the organisation’s ability to perform in a negative manner.
4. Contingency Plan
An organisation that is outsourcing its business process to an offshore vendor should make it a point to have a contingency plan, in order to deal with a vendor that fails to deliver as promised. In order to deal with such high risk situations, organisations must consider altering their strategy. E.g. have multiple vendors, create a list of preferred vendors, etc.
5. Compliance issues
Organisations dealing with financial services and health care, among other organisations, face different degrees of oversight by the government. Before negotiating the terms, make sure that the offshore vendor selected is well aware of the compliance and the industry specific requirements. Also, make sure that the vendor’s compliance will be demonstrable to the necessary auditors.
6. Disputes
Make sure that you have dispute related provisions included in your contract. Having such provisions can provide you with an initial phase where the dispute can be escalated through committees that will be staffed by representatives of either parties. A second phase will follow this phase which will be a more formal one, compared to the first phase. In this phase, ay unresolved dispute will become the subject of either,
- Litigation
- Mediation, or
- Arbitration
Outsourcing as a process has become an industry standard, and organisations are following this practice in order to improve and enhance service quality and drive innovation, while at the same time, reduce costs. But, it is important to remember that the process of outsourcing is not without its pitfalls. To know more about outsourcing and the related laws governing it in Canada, get in touch with Prowse Chowne.