Top Ten Business Process Outsourcing Risks and How to Mitigate Them

By Thomas Skorzewski - July 30, 2019

Business Process Outsourcing (BPO) provides companies with decisive strategic advantages and makes them more efficient. At the same time, however, such a fundamental change in work processes entails a whole series of risks that should not be underestimated. From careful planning, controlled implementation and ongoing reevaluation, there is much you can do to prevent running into problems. By dealing with the following scenarios and possible stumbling blocks, you are well on your way to avoiding the biggest Business Process Outsourcing risks.

Before we move on: Are you familiar with the fundamentals of BPO? Why don’t you take a look at our Business Process Outsourcing primer for business executives!

A study conducted by NC State University has shown that only 6-8% of all companies have ever entrusted back-office tasks to BPO service providers. Many entrepreneurs thus still maintain a sceptical attitude when it comes to business outsourcing. However, there are many benefits of outsourcing, especially for dynamic and growth-oriented companies.

Remember, though, a whole series of things can go wrong with a BPO process. Careful planning is of paramount importance if you want to mitigate these risks. In the absence of in-house expertise, it is usually worthwhile to call in experienced external consultants.

These are the biggest Business Process Outsourcing risks that you need to take into account when making your plans:

Risk 1: Choosing The Wrong Supplier

You can run into considerable problems if you end up choosing a provider that does not optimally meet your requirements. But how can you trust a provider whose office is thousands of miles away?

The decision to work with a provider should always flow from a risk analysis, which should answer questions such as:

  • Is the area you want to outsource the provider’s core business?
  • Does the provider have the necessary expertise?
  • How experienced is the company with projects of a similar size?
  • How successful has this company been and for which partners has it worked recently?
  • What is the provider’s web and social media presence like?
  • What kind of feedback has it received from other customers?

If possible, you should also visit the company in person to gain a real-life impression of the operational capabilities of the BPO provider.

Risk 2: Inaccurate Definition of Task Areas

Guidelines and rules for outsourced work that are not sufficiently defined or detailed can lead to grave misunderstandings. In order to avoid processes being incorrectly or only partially performed, it is essential that you define guidelines and rules in a meticulous manner beforehand.

The areas of responsibility must also be defined clearly, taking every last detail into account in advance. This way, you will avoid any disagreement over what responsibilities the outsourcing includes and prevent agreements being wrongly interpreted and implemented.

Risk 3: Errors During Handover

The transfer of a work area can sometimes not happen fast enough. Many companies rush back to their core business as soon as partner has been found for the BPO. Caution is advised here, however: the consequences of a hasty handover can be devastating. Subsequent corrections can demand a lot of time and effort as well as further increase the cost of outsourcing.

Detailed planning, including consideration of all possible risks, is essential to avoid such a scenario. Even after the handover, you must not let go of the reins too quickly. It takes time for the new work processes to become established and function seamlessly. We recommend creating detailed process documentation that you update at regular intervals.

Risk 4: Lack of Experience with Outsourced Teams

If you have never worked with outsourced teams before, you run the risk of things getting out of hand. This is especially the case when the outsourced team has a lack of experience. Such a situation can lead to you both working in a vacuum and throwing resources down the drain unnecessarily.

In order to protect yourself against such a situation, especially if you have no experience yourself, you should rely exclusively on experienced providers. In addition, you should maintain ongoing communication and regularly evaluate work processes.

Risk 5: Inefficient Knowledge Transfer

The unrestricted transfer of knowledge is an indispensable building block for successful Business Process Outsourcing. Problems can arise in two ways. Firstly, you should not deprive your partner of any knowledge they may lack for the implementation of the work. In many cases, you are all too concerned about protecting your own company secrets.

A second problematic aspect concerning the transfer of knowledge is the handling of know-how that is created by the partner. If you do not regulate this beforehand in a contract, conflicts regarding intellectual property could arise by the end of the cooperation, especially when it comes to software or product development.

Be sure to precisely define the handling of both aspects in the contract. This way, you can ensure that both intellectual property and the protection of trustworthy data are clearly clarified.

Risk 6: Hidden Costs

A nightmare for any manager dealing with BPO is the incurrence of unforeseen costs. When the contractor’s invoice comes in, there could be lots of unexpected costs and items that were not previously included in the contract. The project can become dramatically more expensive and ultimately uneconomical. In addition, if long-term contracts are involved, the damage becomes even more serious.

In order to prevent such scenarios, you should check the contracts carefully for any hidden costs. A statement stipulating that the partner is not allowed to invoice additional costs without prior warning will help to ensure transparency throughout.

It is quite normal for BPO to incur unforeseen additional costs here and there. So don’t be surprised, and make sure you know in advance how you want to handle such a situation. In this respect, it is also crucial that you realistically assess the overall workload of the contracting partner. External consultants can be of great help here.

Risk 7: Provider Fails to Perform

Imagine the situation: The provider has to stop its business completely unexpectedly or is no longer able to fulfill the contract for other reasons. This is terrible news for customers of BPO providers; not only because it can lead to considerable complications it the workflow, but also because it could even mean losing customers.

In order to be able to react in the best way possible in such cases, you should discuss this with the partner in advance and include appropriate arrangements in the contracts. This way, you remain operational in the event of an emergency. You should also have a risk management and reaction plan in place for such a situation.

Risk 8: Unprofessional Support by the Provider

One of BPO’s great promises is the efficiency of external providers over in-house processes. To guarantee this, however, the provider must scale its service i.e. serve several customers at once. This is often a challenge for the provider since each of these customers expects to receive a tailor-made service. In turn, this can mean that you as a customer do not enjoy absolute priority, which can sometimes lead to problems.

Ideally, you should be able to see in advance which customers the provider already serves and what the workflow generally looks like. Knowing this will make it easier to determine whether a vendor can give sufficient priority to your own requirements.

Risk 9: No Optimization Strategy

What exactly should happen if the outsourcing does not meet your precise requirements? Is it due to poor implementation by the provider? Were there any misunderstandings?

In order to be able to continuously enhance process flows, an appropriate optimization strategy should be in place. Ideally, you will stipulate in the contract to regularly carry out appropriate evaluations. This way, the partner cannot avoid adapting an existing service.

Risk 10: Change of Provider

Has your BPO project failed? Do you want to change your provider? If this happens and you are not prepared for it, there can be serious consequences. Try to cushion these with exit clauses in your contracts.

Another aspect that you should not forget is the question of intellectual property that has already been mentioned. Should an emergency occur, are you in a position to transmit all the data to the new provider? These and many other questions must be taken into account if you want to remain operational when changing provider. In any case, it is helpful to define the consequences of such a situation in the contract.

All in all, you can avoid most of the stumbling blocks associated with BPO if you always have a viable answer to the aforementioned risks. As is the case with so many other things, having an ingenious plan and implementing it consistently is of paramount importance.

If you would like to learn more about BPO and how to make your Business Process Outsourcing project a success, please get in touch!



About the Author

Thomas Skorzewski

As B2X VP of Business Development and Sales, Thomas orchestrates all global new business and customer activities, including account management and business development for strategic focus markets around the world.