Companies do the same offshoring mistakes as other companies did before over and over again. The learning curve seems to be limited.
twago made an analysis and names the top 10 pitfalls in connection with the relocation of projects or tasks (outsourcing and offshoring). The list have been compiled on the basis of in-depth interviews with outsourcing and offshoring experts in major companies in several countries worldwide.
Top 10 offshoring pitfalls in complex projects
1. Companies have unrealistic expectations on possible cost reductions
2. Management offshores / outsources activities that should not be offshored / outsourced
3. The wrong provider is selected
4. The contract is poorly written and interpreted
5. Companies use offshoring / outsourcing in an attempt to get quick fixes on deeper process and management problems
6. Businesses lose control over the offshored / outsourced activity
7. Managers overlook the hidden costs of offshoring / outsourcing, such as extra coordination
8. Companies do not plan an exit strategy (i.e. firing an incompetent provider or insourcing of an outsourced activity)
9. Cooperation’s overlook critical personnel hiring, training and retention issues
10. Management fails to measure actual service levels and ensure that they are aligned with the business’s objectives
Experts recommend a detailed analysis beforehand to avoid mistakes
Experts recommend to analyse which activities and projects might be feasible for relocation (to other countries). Major levers in the process of choosing the best service provider should be the analysis of service provider’s reference projects, evaluation of finished projects by buyers as well as a comparison of relevant expert skills among all service providers who made an offer for the project. Only if a buyer is in the position that he gained enough transparency about the cooperation partner, a final decision for a service-provider should be taken. The use of professional project management tools is essential to control the project success during project implementation.
- Application of Outsourcing and Offshoring
- Selection of service provider should follow a clearly defined process – What to keep in mind
- Offshoring as a chance for development cooperation – part 2
- Outsourcing and offshoring in Germany – the current situation
- Offshoring as a chance for development cooperation?