10 Business Process Outsourcing Risks and How to Avoid or Mitigate Them
Business Process Outsourcing (BPO) provides firms with significant strategic advantages while also increasing their efficiency. At the same time, such a significant change in work procedures carries a slew of risks that should not be overlooked. There is plenty you can do to avoid difficulties through careful planning, regulated implementation, and constant reevaluation. By addressing the following scenarios and potential stumbling blocks, you will be well on your way to avoiding the most significant Business Process Outsourcing risks.
According to a survey conducted by NC State University, just 6-8 percent of all organizations have ever outsourced back-office jobs to BPO service providers. As a result, many entrepreneurs continue to be skeptical about company outsourcing. However, there are numerous advantages to outsourcing, particularly for dynamic and growing businesses.
However, keep in mind that a variety of issues can arise during the BPO process. If you wish to mitigate these business process outsourcing risks, careful planning is essential. In the lack of in-house expertise, it is usually worthwhile to engage the services of skilled external consultants.
These are the most significant Business Process Outsourcing hazards to consider when formulating your plans:
1. Selecting the Wrong Supplier
If you choose a provider who does not match your needs optimally, you may face significant difficulties. But how can you put your trust in a doctor whose office is thousands of miles away?
The decision to engage with a supplier should always be based on a risk assessment, which should address questions like:
- Is the region you intend to outsource the core business of the provider?
- Is the provider knowledgeable in the field?
- How much experience does the company have with similar-sized projects?
- How successful has this company been, and with whom has it recently collaborated?
- What kind of web and social media presence does the provider have?
- Has it received any feedback from previous customers?
If possible, you should also visit the organization in person to get a firsthand view of the BPO provider’s operational capabilities.
2. Defining Tasks Incorrectly
Inadequately stated or clear guidelines and procedures for outsourced work might lead to serious misunderstandings. It is crucial to set up standards and norms meticulously ahead of time to avoid processes being completed improperly or partially.
The areas of duty must also be precisely specified, taking into account every minute detail in preparation. This manner, you can avoid any disagreements about what tasks are included in the outsourcing and prevent agreements from being incorrectly read and implemented.
3. Mistakes During Handover
The migration of a work area is not always as quick as it should be. Most organizations go back to their core business immediately after finding a BPO partner. However, a hurried transition can be disastrous. Subsequent repairs may necessitate a significant amount of time and effort, as well as an increase in the cost of outsourcing.
To prevent such a catastrophe, detailed planning is necessary. You must not let go of the reins too early following the handover. It takes time for new work procedures to become established and operate smoothly. We propose that you create extensive process documentation that you update on a regular basis.
4. Inadequate Experience with Outsourced Teams
You run the danger of things getting out of hand if you’ve never worked with an outsourced team before. This is especially true when the outsourced crew is inexperienced. In such a case, you may find yourself operating in a vacuum and squandering resources unnecessarily.
To safeguard yourself against such a predicament, especially if you lack experience, you should only rely on professional suppliers. You should also keep continuing contact and analyze work processes on a regular basis.
5. Inadequate Knowledge Transfer
Unrestricted knowledge transfer is a necessary building block for successful Business Process Outsourcing. There are two ways in which problems can occur. To begin, you should not deny your partner of any knowledge they may require to complete the assignment. In many circumstances, you are overly concerned with safeguarding your own company’s secrets.
The handling of know-how developed by the partner is a second challenging aspect of knowledge transfer. Intellectual property disputes could arise after a collaboration if this is not addressed in advance in a contract, especially when creating software or products.
6. Hidden Costs
The incurrence of unplanned charges is a manager’s worst nightmare when dealing with BPO. It is not uncommon for the contractor’s invoice to contain a number of unforeseen charges and items that were not previously outlined in the contract. The project may become significantly more expensive and, as a result, unfeasible. Furthermore, the damage can be exacerbated with long-term contracts.
To avoid such instances, you should thoroughly review the contracts for any hidden costs. By stating that the partner cannot invoice any additional costs without prior notice, you will increase transparency throughout.
It is common for BPO to incur unplanned additional charges from time to time. So don’t be surprised, and plan ahead of time for how you’ll handle such a situation. In this regard, it is also critical that you fairly analyze the contracting partner’s overall workload. External advisors can be extremely beneficial in this situation.
7. Provider Fails to Deliver
Consider the following scenario: your supplier has to close its doors abruptly or is unable to fulfill the contract for other reasons. This is bad news for BPO customers, not only because it can cause significant delays in the workflow, but also because it may result in customer loss.
To be able to respond in the best possible way in such instances, you should discuss this with the partner ahead of time and put suitable provisions in the contracts. In this manner, you can continue to operate in the event of an emergency. In addition, you should have a risk management and response plan in place for such a case.
8. The Provider’s Unprofessionalism
The efficiency of external suppliers over in-house operations is one of the big promises of BPO. To ensure this, the supplier must scale its service, i.e. serve multiple consumers at the same time. This is frequently a challenge for the provider because each of these clients expects a customized solution. As a result, you as a customer may not receive absolute priority, which can sometimes cause issues.
Ideally, you should be able to know ahead of time who customers the provider already serves and how the workflow works in general. Knowing this will make it easy to decide whether a provider can give your requirements sufficient priority.
9. No Optimization Strategy
What should happen if the outsourcing does not satisfy your exact specifications? Is it due to the provider’s bad implementation? Were there any miscommunications?
An adequate optimization strategy should be in place in order to constantly improve process flows. Ideally, you will include a clause in the contract requiring you to do suitable evaluations on a regular basis. In this manner, the partner is unable to avoid altering an existing service.
10. Changing Provider
Is your BPO initiative a flop? Do you wish to switch service providers? You need to be prepared in case this happens, or there can be significant implications. Try to mitigate these business process outsourcing risks by including departure clauses in your contracts.
Another consideration is the issue of intellectual property, which we have already highlighted. In the event of an emergency, are you prepared to send all data to the new provider? These and many other considerations cannot be overlooked if you want to remain productive when switching providers. In any event, defining the repercussions of such a situation in the contract is beneficial.
Overall, if you always have a viable answer to the aforementioned business process outsourcing risks, you can avoid most of the stumbling blocks. As with so many other things, having a clever plan and regularly putting it into action is critical.