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Eight Common IT Outsourcing Mistakes to Avoid

Eight Common IT Outsourcing Mistakes to Avoid
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by Sanjeev Kapoor 22 Apr 2019

For more than twenty years outsourcing remains a compelling alternative to hiring full time employees, especially in the case of IT enterprises. Outsourcing delivers many benefits to enterprises that opt to take advantage of it: Cost savings, access to talent and specialized resources, flexibility in growing and shrinking the number of the workforce are some of them. For example, by outsourcing auxiliary or support activities (e.g., data entry or data migration) to enterprises that are destined to deal with them in an optimal and cost-effective way, companies can benefit from cost savings and economies of scale. Likewise, outsourcing is one of the best ways to gain access to expert personnel with leading edge technical skills, which is quite difficult to find and very expensive to recruit. Therefore, there are some very good reasons why companies outsource IT-related activities.

The benefits of outsourcing are maximized when outsourcing the right tasks, to the right providers, in the right way and at the right time. Hence, a very good management of the outsourcing process is required. Likewise, companies that outsource had better take into account best practices for optimal outsourcing, while at the same time avoiding some of the common pitfalls that we discuss in following paragraphs.


Mistake #1:  Poor Management of the Outsourcing process

Outsourcing providers are typically hired to help you complete your tasks and projects. They should be by no means shaping your strategy, running your business and leading key decisions. Thus, outsourcing does not mean that an enterprise is no longer involved in the outsourced tasks. Rather, it’s still essential that enterprises engage knowledgeable managers which will put the outsourcing process on track, while making sure that outsourced implementations align to the overall strategy of the company. Management engagement is the way to minimize outsourcing risks and guarantee that outsourced tasks meet the company’s requirements.

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Mistake #2:  Poor Selection Processes

In the era of globalization, enterprises are offered with a wealth of options when it comes to selecting an outsourcing IT provider. This wide array of options however can be tricky as well. Cultural differences, different time-zones and communication gaps are factors that could create problems in the outsourcing process. Therefore, enterprises must be selective, putting in place the proper processes that will lead them to the best possible choices. In this context, they should establish holistic selection processes that take into account technical, cultural, communication and economic criteria at the same time.


Mistake #3:  Being Cost-Driven Only

In the early days of IT outsourcing, many companies used to be focused on off-shoring tasks such as software development and data entry, as a means of saving costs. Nowadays, this is considered an old-fashioned and ineffective form of outsourcing. Rather companies take advantage of outsourcing in order to access talent and specialized resources worldwide. In most cases, cost related advantages (e.g., getting a service in lower price than it would cost when carried out by full time employees) can be combined with high quality (e.g., access to freelancers that deliver top quality), which yields a very successful combination. Overall, being only cost-driven is no longer a good idea, as it misses other significant benefits of outsourcing.


Mistake #4:  Hiding Information

While you don’t want outsiders to gain access to your critical data or other business assets, you have to acknowledge that such access is in several cases a prerequisite for outsourcing companies to deliver their tasks. Therefore, enterprises have to be prepared to be transparent and to share assets and information. To this end, they might have to put in place appropriate IP (Intellectual Property) mechanisms, including the signature of non-disclosure agreements and the inclusion of IP protection terms within freelancers’ contacts. This will increase the cost of the outsourcing process, but is highly likely to pay-off since it will facilitate the timely delivery of relevant and high quality results.


Mistake #5: Changing IT Outsourcing Providers Frequently

It’s true that outsourcing is largely about flexibility in selecting your preferred provider. Nevertheless, this does not mean that companies should not strive to develop high-value long term relationships with their outsourcing partners. Long terms relationships foster trust between companies and their providers, while at the same time enabling outsourcing enterprises to acquaint themselves with the needs and the culture of the customer. In this context, long term, lasting relationships, are win-win ones. Hence, companies should avoid changing IT outsourcing providers frequently, in an attempt to gain marginal benefits such as slightly reduced costs. Needless to say, this does not hold for cases where the IT outsourcing company performs poorly: This is already a good reason to switch to another provider and try to build a relationship with it.


Mistake #6: Ignoring Non-Technical Criteria

IT enterprises tend to overly emphasize technical criteria in their IT outsourcing selection process. Indeed, technical skills and track records of successful technical implementations are among the most important selection criteria. However, there are other important criteria to be considered, such as cultural criteria, the personality of the freelancers or consultants, as well as the processes that they have in place in order to implement their tasks and to communicate their results. Ignoring the latter batch of criteria is a common mistake that leads to wrong choices.


Mistake #7: Not Investing in Complementary Assets like Training, Communication and Processes

An outsourcing relationship is not merely a contractual relationship between the different parties that engage in the outsourcing process. It’s also about effective interactions and collaboration between the various parties. As a result, enterprises that outsource IT services need to undertake investments in complementary assets that will boost the success of the outsourcing. In particular, an enterprise needs to setup outsourcing processes with particular emphasis on the communication protocols between its employees and the freelancers or consultants of the outsourcing company. Similarly, it’s important to train its employees on how to engage with the outsourcing provider in order to provide requirements, execute acceptance tests, provide feedback and more. Likewise, managers from both sides need to interact frequently and to share a common understanding of the goals and the status of the outsourcing project. Failure to undertake the above-listed activities can lead to poor outsourcing results.


Mistake #8: Failing to Exploit the Opportunity of On-Line Workers

In an increasingly connected world, IT enterprises have great opportunities to attract talented workers that will work on-line, from remote, based on an outsourcing model. In order to tap on these opportunities, companies should put in place processes that enable the integration of on-line workers with other teams of the company. In this way companies will become able to take advantage of hard-to-get talent in emerging IT technologies such as BigData, Artificial Intelligence (AI), blockchains and the Internet of Things (IoT).

Also Read: Do you need an IT Department in your SMB

For more than two decades IT outsourcing has been delivering benefits to enterprises. Moreover, outsourcing processes have been constantly improving and evolving in-line with the state of the art in IT. However, companies are still making mistakes in their outsourcing endeavors.  Earlier paragraphs shed light into some of the most common mistakes that companies could avoid towards optimizing the effectiveness of their outsourcing processes. The presented list is non-exhaustive, but can certainly help an enterprise start an outsourcing project on the right foot.

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