Nearshore Americas

Outsourcing Pros and Cons: A Closer Analysis

Do golden slumbers fill your eyes when a discussion of outsourcing benefits starts with cost savings? It’s not that cost savings aren’t hugely important to many clients — as a reader commented on this site recently, “cost will always be a decision criteria.” It’s just that you’ve heard about the cost benefit before. Deciding to engage in offshore outsourcing can be complex – there are pros and cons that have to be tackled – starting with who to partner with.

Expertise, for example. Many Nearshore IT providers have built their business around designing for specific platforms, such as mobile applications or social media, for example. Or they have mastered skill sets you need, like agile development techniques or rigorous testing. These are not batch programming shops but companies staffed by experts in their field, specialists for hire. In a good partnership, their knowledge becomes yours.

Faster results are an added benefit of partnering with a team of experts. A company that has developed dozens of mobile apps is going to be quicker at it than the team you can assemble from scratch.

Or the opposite: Slower results. If your provider is not in synch with your schedules, if they slip or miss a deadline, guess who else might miss a deadline? (See “Headaches” below.)

No matter what, when you outsource you still have to manage people

Better quality is another potential result with an established expert provider. “Outsourcing providers running volume operations have better quality assurance (QA) programs in place than the average company that is still trying to do it in-house,” says Steve Simonson of Tompkins Associates.” It’s okay to admit someone can do it better.

On the other hand, poor quality and bad service are the biggest reasons cited for dissatisfaction with outsourcing. In the latest IDG survey of enterprise outsourcing clients, 44% of CIOs said poor-quality service was the greatest risk of outsourcing IT.

You analyze and improve. “The requirement to document business processes (and their costs) inherent with any outsourcing implementation often uncovers valuable information that can be studied and put to use within the organization,” Simonson says. In the course of developing metrics to choose a provider, you might ask why the metrics aren’t used throughout your own company.

Learn from others. The fact is, your outsourcing provider might know a lot more than you do about certain things. (See above.) They might know what works best when it comes to designing a user interface or data warehouse, for example, or they might have a superior process for communicating change requirements or for sharing updates. Some providers have been in business for 20 years or so; they just might have a set of time-tested best practices that can be applied to your own operation.

And let others learn from you… and maybe learn too much. When you outsource, especially if it’s things like accounting functions, you are potentially exposing critical information about your company. Perhaps an even greater threat is loss of intellectual property — either deliberately by someone within the provider organization or as a result of their lax security. This doesn’t happen often, but it happens. In a recent survey of IT decision-makers in the US, UK, Japan, China, India, Brazil and the Middle East, one-quarter of the respondents said “they have had a merger or product launch disrupted, stopped, or delayed by a data breach,” reports Dean Takahashi of VentureBeat.

Some providers might boost your business by being innovative. The latest Harvey Nash CIO Survey finds that more IT leaders are turning to their outside partners for innovation. The trend to multisourcing is being driven by a need for innovative providers, the survey finds: “Many CIOs are benefitting from expertise found in smaller partners who operate in a multisource environment and contribute to innovation projects within private cloud services, mobile technology and social networking platforms.”

Ah, but there’s also a danger of counting on someone else to handle innovation. Robert Davies, BPO expert with Imhotep Consultancy in the UK, calls it “negative innovation impact.” Davies agrees that outsourcing can “enhance innovative capability,” but says that service-oriented companies that outsource their customer contact are losing a chance to innovate and improve: “the innovation trail starts with the end customer — it’s the end customers’ comments and ideas that really kick-start and drive innovation.” Others have warned that relying on someone else to do the deep thinking ends up making you, well, less brilliant.

Fewer headaches. Ok, so the external team is handling Project X, and the team leader there is top-notch, so that’s one thing you don’t have to be worrying about.

More headaches. Until you’re in a “trusted partner” relationship, you have to worry about: 1. Do they really know what we want? 2. Are they working hard on our project? 3. Why isn’t the manager down there returning my calls? 4. I hope he understood what I meant. 5. Will their high attrition affect our project? 6. Our deadline is the day after Carnival.

Because no matter what, when you outsource you still have to manage people. With a trusted partner, not so much. But in many scenarios, you’re doing just what you do with in-house employees: explaining what you want done, keeping track of progress or anti-progress, monitoring performance — except now you’re doing it remotely, and possibly in a different time zone.

Sign up for our Nearshore Americas newsletter:

Suddenly become multinational. You want to do business in Brazil or Colombia or Chile or Saskatchewan. It can be a whole lot easier and less expensive enlisting a local partner to handle activities and processes there than pioneering your own trail.

Happier workers. If you have someone else doing what some might call the drudge work, in-house employees can take on the more interesting and challenging stuff. If everything you do is considered drudge work, well, maybe employees will just be glad they have to do less of it.

Unhappier workers can also be a consequence of outsourcing. Employees might resent it if the more interesting and challenging work going to someone outside, or they might think outsourcing is just the first step toward layoffs or sending the whole operation offshore.

You get to go places. Ok, so this doesn’t go on the list of reasons for outsourcing that gets submitted to the CFO, but….. Just about anyone you talk to who has a sourcing project, at least in the Nearshore region, will mention how much they like visiting the Nearshore location. We have yet to hear anyone complain about being forced to visit Sao Paulo or Rio, Cartagena or Bogota, Buenos Aires, Guadalajara, Costa Rica, etc etc etc.

Unless you prefer to stay home, in which case outsourcing has a big downside: You have to go places.


Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

Add comment