Outsourcing non-core or low value-added services is considered as a good management strategy. This solution allows managers and employees alike to focus their attention and know-how on the core business of their company. It is therefore natural to define the services that will be entrusted to a provider and those that will remain in-house. However, if you are thinking about an outsourcing project, it is also important, not to say vital, to formulate, analyse and implement solutions in order to quickly and effectively circumvent the risks that may arise in such a framework.
As a company, it is vital for your development to gain value while minimising risks if you want to outsource one or more services. At the same time, you also need to consider your organisation in general; consisting of employees, processes, specific tools and others.
By striking a balance between value and risk, your outsourcing will succeed. This will allow your company to grow, to place itself firmly in the context of strong competition, including rivalling with larger structures.
Another key point to take into account during your outsourcing project is that the provider you entrust with running the outsourced services will be on the front line when it comes to delivering results to distributors, customers, employees and regulators of all kinds. More importantly, these results testify to his reputation.
The risks involved
A few years ago, Cathy Alegria, director of studies at Xerfi, drew up a non-exhaustive list of risks to be considered in an outsourcing project:
- Loss of in-house skills that can be detrimental over time,
- Dependence on providers, especially if they make themselves essential, for example by mastering a key technology,
- Risks of quality deterioration when the supplier or subcontractor is not faced with the final contract,
- Loss of information on the production process and cost formation, for example,
- A disconnect between external partners and internal functions that may cause communication difficulties or loss of synergies and
- The dangers associated with the irreversibility of an outsourcing decision that would involve strategic value chain links for the ordering firm.
Principles to be applied to risk management
Outsourcing is therefore a solution that continues to attract many companies, which turn to overseas providers, including Mauritius, to offload low value-added services. These may include human resources, the satisfaction surveys to assess the quality of services, remote secretary services, teleshopping or telemarketing. Regardless of the service to be outsourced, there are four fundamental principles related to risk management:
Even if they are outsourced, the services concerned must remain within the scope of the enterprise’s risk management. While there is a tendency to move away from this principle in favour of lower costs, it is essential for the company to continue to manage the risks arising from an outsourced activity.
The company must ensure that it maintains the skills that will enable it to supervise its provider, its services and its billing. These skills are essential for the operational management of the contract, for assessing and appreciating the provider and for the maintenance of risk management related to the activities concerned.
The outsourcing contract must be clear, complete and precise about:
- The services and level of quality expected (Service Level Agreement- SLA),
- Duties and obligations of the client,
- The duties and obligations of the provider,
- Procedures for managing incidents and crisis situations,
- Business continuity obligations,
- The content and methods of reporting of the service provider on the functioning of its production processes, the incidents that have occurred, the result of its controls and the methods of control by the client,
- Clauses of confidentiality, professional secrecy, intellectual property, etc., if applicable.
The company must be aware and be able to adapt its risk management system in accordance with its expectations and needs and in a proportionate manner. When entrusting a service to a provider located, for example, in Mauritius, it will be necessary to take into account the local culture, languages, schedules and other factors.
Legal rules and risk management
Outsourcing projects are composed of two essential aspects to study and solve for a serene success:
Legal rules (labour law, respect for personal data, professional secrecy, digital economy law, certification of the provider in certain cases, etc.), which will make it possible to know and apply the requirements related to your outsourcing project, both at your level and that of your provider. This will also make it possible to produce tangible and logical specifications. Why? Any poorly understood or identified legal aspect can lead to over-costs and delays, not to mention outright cancellation of the outsourcing project.
The risk-based approach, i.e. taking into account, in your analysis:
- Project costs and benefits,
- The risks, including operational risks, that may arise from it.
The risks specific to the service to be outsourced must be identified well in advance in order to reduce them.
The risks specific to outsourcing, i.e. legal, destination-related, skill level, equipment, etc.
For a successful outsourcing, it is necessary to set up processes and an adapted, contractual supervision.
Risk management is an essential, strategic aspect of any outsourcing project. Taking into account the various parameters mentioned in this article, you will set up a successful and win-win outsourcing for both your company and the provider.