Outsourcing is often used in software development strategy as the best solution to reduce cost and bring in innovation without loss of quality. However, just like any other work model, using third-party IT service providers can bear some risks that can sidetrack your project. How to make it go safely through the risks and climb to the top success? Your determination must be considered.

Mobytelab will examine the top six significant risks when using IT outsourcing services and find out how to effectively deal with them.

1. What is IT outsourcing?

Information technology outsourcing (IT outsourcing for short) is a solution that hires a third party to outsource a part or all tasks or works related to software and hardware development. For example, you can have many IT solutions in application development through outsourcing services. Outsourcing providers might be an individual or organization. IT outsourcing provides the opportunity for companies to streamline workflow, focus on their core goals, utilize existing resources, save time and money, increase scalability and profitability.

Advantages of outsourcing:

• Focus on core business.
• Access to a larger talent pool.
• Cost-effectiveness.
• Resource maximization.
• Less risk.

Disadvantages of outsourcing:

• Lacks of control.
• Management difficulties.
• Communication issues.
• Problem with quality.
• Passive in some cases.

Depending on the business needs, there are many types of outsource services such as offshore outsourcing, nearshore outsourcing, onshore outsourcing, business process outsourcing (BPO). You need to consider and choose the best outsourcing model that suits your business goals to increase business value.

To find out the reason why you need to consider outsourcing, check this blog: Why do I Need to Outsource My Project? To find out the differences between outsourcing and in-house, check this blog: What are the Differences Between Outsourcing and In-House?

2. The market of IT outsourcing

Some statistics about the IT outsourcing market:

• The total IT budget in 2020 grew from 12.7% in 2019 to 13.6%.
• $66.5 billion was the global revenue of IT outsourcing in 2019.
• 83% of IT leaders are planning to outsource their security to an MSP in 2021.
• By 2025, the global IT outsourcing market will be worth $397.6 billion.

To find out about the IT outsourcing industry in the world, check this blog: A Report for Global Software Outsourcing Market

To find out about the IT outsourcing market in Vietnam, check this blog: A Report for Software Outsourcing Market in Vietnam

3. 6 Common Risks when IT Outsourcing & How to Avoid Them

3.1 Real ability

3.1.1 Why do you meet risk?

Cost-savings should not be the only reason to outsource development. You don’t expect something cheap but useless, do you?

In a highly competitive market, everyone strives to stand out and show their best side. Outsourced providers are no exception: each speaks of a high level of expertise and core competencies. The main outsourcing risks are that you can accidentally fall for a one-day scammer who disappears somewhere halfway through or an unreliable partner who will constantly push back deadlines and end up with a product of terrible quality.

Once you find errors after the provider is no longer responsible, you take all the consequences. You hire an outsourced IT outsourcing company to improve your technology environment, but some inexperienced providers do worse than you would in-house. This is a significant concern for many businesses because IT affects every business of a company.

3.1.2 How to avoid

When outsourcing, be as vigilant as possible. You need to take a lot of time to choose the best outsourcing partner. Starting by examining a company’s website, you will know and understand clearly their real experience. If you like what they’ve done for themselves, it's so good. Examine the company’s portfolio: case studies best reflect the expertise and demonstrate the ability to find a non-standard solution. Dig deeper, read company testimonials and reviews on reputable independent platforms, or do some research on feedback from their previous clients about customer experience and efficiencies.

Make a face-to-face meeting when discussing potential cooperation, clarify your requirements and the quality standards of the products as much as possible before starting cooperation. Visit their office or development centers - this will make sure they are real and allow you to trust a future potential partner. Follow their outsourced activities in social media and the global life of the IT community: does the company share its developments with other engineers, participate in conferences, collaborate with unions and alliances. If you have a lot of good proof for your candidate, you easily choose the right IT service provider.

3.2 Barriers

3.2.1 Why do you meet risk?

When outsourced to a third party, a lot of differences between you and your outsourcing provider become barriers. Especially in international outsourcing, some of the main barriers are culture, time zones, and language.

The Internet has turned our world into one global marketplace which made the outsourcing process possible and smooth via the powerful communication system. Communication is a decisive factor of any organization in IT outsourcing. It allows everyone to stay on the same page and work towards the same orientation. However, there are still obstacles to overcome. Communication can be badly affected due to culture, time zone, and language differences.

In reality, some differences become serious problems and risks of outsourcing. Building a close outsourcing relationship is difficult. There are possible risks from misunderstandings if your development team is unable to understand or wrong understanding, unable to communicate in your language, or at least, English. Time zone difference gets you to delay for urgent requests and influences the project deadlines and success dramatically.

3.2.2 How to avoid

To avoid this risk, carefully select an IT outsourcing service provider first. Pay special attention to its characteristics such as location, language, culture, regulation… You need to choose a vendor who can guarantee that their remote team will be able to communicate with you in the preferred language, preferably the global language is English.

No matter if time zone differences, a provider uses an effective and flexible working system that provides great customer service, always trying to reduce response time as much as possible. It's always the best vendor for any business.

You can require constant meetings (online or face to face). You easily discuss customer service standards performed by the provider, taking into account your time differences. Discuss accessibility - when and how you will meet. Determine if there will be any barriers. Check out the level of the team’s English directly and make sure it is high enough to fully understand each other. Set an official schedule that is convenient for everyone, consider (or offer) the option of shifting the work of the team at a convenient time for you to stay connected.

3.3 Hidden costs

3.3.1 What are hidden costs?

One of the main reasons that you decide to choose an IT outsourcing solution is cost reduction. But you need to remember that hidden costs are always available. Hidden costs are unexpected costs and will not be covered by the contract. Some of the common hidden costs are the cost of vendor search, contracting and bargaining, the cost of transitioning, the cost of managing vendors, the cost associated with unforeseen changes, etc.

IT outsourcing vendors will use a different pricing model. If you use IT outsourcing for the first time, you easily face the risk of hidden costs. Sometimes you can pay more than you estimate. So the important thing is to determine the hidden costs and find a suitable way to decrease them to maximize the benefits of outsourcing for your organization.

3.3.2 How to avoid

If you make outsourcing decisions, the best way to avoid additional costs is to find out more about all the potential possible costs of IT outsourcing as soon as possible. Make a specific business analysis to plan the budget including all possible costs that can appear at any stage of the process. From that, you consider whether you can afford to pay or not when using an outsourcing vendor to support your business. If you can pay all of the expenses, you use the right outsourcing IT services.

You need to check the detailed contract carefully and make sure that all information about the way to calculate the costs, the policy, and the requirements are clear… Ask about all the costs which may increase when it comes to such as equipment update, technical skill update, work environment update, additional hours outside the agreed man-hours, which were estimated for the project implementation in a given month. After having agreements of parties, write down all these arrangements in the official contract. Moreover, choosing and cooperating with a trustworthy partner is also a good way. You can avoid the risk of hidden costs, decrease the cost of outsourcing, and boost your profitability significantly.

3.4 Loss of control

3.4.1 Why do you meet risk?

No matter which IT provider you choose to work with, you always face the disadvantage of outsourcing is loss of control. Because managing a remote team is not an easy task, you can significantly reduce this risk only if you hire an in-house team to join your business.

Outsourcing allows you to delegate tasks to those who are not connected with your business 24/7. Your provider will manage the aspects of your environment you have both agreed on. From that, the management is becoming difficult. Because low-quality providers are always, the benefits when you use IT outsourcing will depend on the ability and experience of the provider. You can meet your expectations or not.

Losing control over the outsourced project is the biggest nightmare for businesses. This can be due to weak management or lack of communication. The key to facing this risk is to understand that your outsourcing project should be equally managed by your company and the vendor.

3.4.2 How to avoid

Some suggestions for you to avoid losing control. The first thing is choosing and working with a suitable and trustworthy provider. After that, you need to particularly determine what management features and business functions you keep for yourself and what to delegate. You have to confirm with the outsourcing partner all responsible for them and note it on the official contract.

Building a vendor management strategy to work with your partner. Making constant conversation to discuss, set up, and develop a reasonable cooperating plan. A detailed plan of outsourcing activities allows you to get all timely and reliable information on the project, including the resources, project progress, meetings and reports schedule, the existing issues, the way to resolve, etc.

You should assign a responsible employee from your internal team who knows how to manage IT operations and relationships with third parties such as a project manager. Through reports and project updates, you keep track of your project and also ensure that your external team understands how to handle the outsourced tasks. No missed information, your needs, and business objectives are on the right process. Everything will occur smoothly.

3.5 Data security

3.5.1 Why do you meet risk?

For any type of business, when it comes to working with a third party, the first thing that is likely to concern is security. In IT outsourcing, how to protect your idea or code source is a common question, especially if your project involves extremely sensitive information and data. Even if your idea is not innovative or unique, who knows it can bring you great profit. You may not know but you should try to protect it. Don’t assume that all outsourcing development companies do it by default. Some countries are weak at protecting Intellectual Property rights.

3.5.2 How to avoid

Hiring an experienced and reliable outsourcing services vendor to protect the provided information. So how to ensure that your vendor is a reliable partner? Check out their security measures and ask them how they have dealt with security problems in the past. Take case studies of the vendor and find out if they have handled sensitive information. Selecting a certified and reliable service provider is a crucial factor in avoiding the risk of data security.

To be more careful, when signing a contract, you can put the source code into independent sections, then set limit access and control the right to share. Of course, every situation requires different solutions. The best outsourcing services provider surely adheres to intellectual property rights and tries to protect yours at all development stages.

3.6 Find the wrong vendor

3.6.1 Why do you meet risk?

In the information technology industry, because of a high number of IT providers, you may choose the wrong vendor for your project. On the positive side, this diversity not only creates a competitive market but also offers many opportunities to approach high-quality providers. But on another side, this diversity, if you don’t work with the right provider, outsourcing can negatively impact your business.

In many cases, the outsourced partner you work with has some problems. The outsourcing team does not have highly skilled, decreases the service quality, and impossibly meets your expectations. Whether you choose the best provider in the beginning, changing is no prediction.

3.6.2 How to avoid

First, you need to know your outsourcing needs and your expectations when you use an IT outsourcing provider. Relying on your needs and outsourcing trends, you will have a list of potential IT outsourcing companies that may be fit for your business. Taking time to do a background check of all candidates, conduct referral checks, interviews... You do everything if needed to ensure their ability and experience, then decide to choose to outsource to the best provider for you. You can specifically find out the way to choose the best IT outsourcing firm through two blogs: “5 Qualifications to Consider to Choose the Best Agency” and “9 Qualifications for a Right Developer” that were suggested by the Mobytelab team. It might be a recommendation to support you to choose the right IT outsourced provider.

Conclusion

To sum up, in information technology global outsourcing, the most common and serious risks associated with outsourcing are those that affect business continuity, operations, transactions, and the confidentiality of information. This article here is to help you be aware of hidden obstacles so that you can get a full competitive edge from outsourcing solutions. With the right strategic outsourcing, these risks can turn into additional competitive advantages. Let's find out what we can help with and tell us what you aim for.