Outsourcing is business strategy that continues to gain popularity on a global scale. More companies are entering into outsourcing services agreements because it has been proven to lower costs while improving productivity. But there are engagements that fail because of these 3 key oversights in outsourcing.
Contracts are often looked as a “necessary evil” in business. When a client meets the outsourcing service provider for the first time, relations are pleasant and professional. However, discussions always become more serious in tone when it comes to contracts.
A contract contains provisions intended to protect the interest of both parties which is why it goes back and forth in the negotiation process. The purpose of the contract is to have a legal reference point as bases to resolve issues that have been raised in the duration of the engagement.
Your contract should contain details on the following provisions:
- Scope of Work
- Obligations of the Client
- Obligations of the Service Provider
- Mode of Payment
- Grounds for Pre-Termination of Contract
The contract is issued by the Client to the Service Provider. It has to be signed by an authorized representative from each party. Attachments include copies of valid passports from each signatory and the bank coordinates of the Service Provider. The signed contract will be notarized by the Client and a hard copy provided to the Service Provider.
One of the biggest mistakes by first-time clients of outsourcing is lack of research. It’s not enough to read online material and feel secure of your knowledge on outsourcing.
You should extend your research methodologies to actual interviews with companies or people who have experienced outsourcing. If you are able to arrange sit- down meetings with them, bring in key personnel from your group and procure as much information as you can.
They will share their pitfalls, oversights and other common mistakes. They may even offer advice on how to shore up outsourcing operations. Make sure you bring personnel designated to handle recruitment, training, operations and IT during the meeting.
The information you get will be used to firm up your comprehensive project study on outsourcing. It should include studies on the market, the feasibility of the project and financial benchmarks.
3. Due Diligence
You will often come across a few former outsourcing clients who will discourage you from the planned venture. They will say outsourcing did not deliver the expected results and in fact led to huge losses.
If you breakdown the reasons the outsourcing arrangement did not work out, it will come down to one thing: lack of due diligence.
The global outsourcing industry is a business with an assessed value of US$250 Billion. Its market value has grown by as much as 142% over the last 15 years. Many businesses want a piece of that outsourcing pie; even unscrupulous, shady companies.
Before you even meet with any outsourcing services provider, you have to conduct due diligence. Contact the regulating agency in its state and ask for referrals or a list of members in good standing. A simple Google search may yield surprising results.
Outsourcing is a great strategy for developing business despite periods of economic uncertainty. But it is still an arrangement between 2 parties with distinct business interests. Do not be complacent; make sure all stones are overturned before finalizing the outsourcing arrangement.