IT outsourcing is a controversial topic. Per Forrester Research, 542,000 IT jobs would move out of the US and overseas in 2015 alone. Obviously, cutting your existing workforce to save potentially money is a moral and business dilemma only executive management and IT leaders should decide.
Outsourcing IT isn’t solely focused on decreasing cost though, since it can lead to innovation by letting your existing workforce concentrate on more important tasks. Regardless of your reasons, you need to ask yourself, “what are the IT outsourcing risks to my company?” Questions like this aren’t easy to answer, but it’s probably weighing heavy on your mind.
Here are some of the important risks to consider when outsourcing IT:
1) The Impact on Business Services
You need to ensure business continuity and have backup plans if there are hiccups with any of your services, including your outsourced IT provider. If there is a business impact, whether your website is down or your service is just running slow, you’re losing customer trust and burning through cash — both to fix the problem and to satisfy customers in the meantime.
As the image above illustrates, the cash burns quickly and it can happen to just about any organization. To mitigate risk with an outsourced IT provider, make sure you have failover setup at offsite locations or multiple ways to connect to the outsourced IT provider in case your primary connection method goes down.
2) Data Security and Privacy Risks
Data security is something that worries us all. Per Computer Weekly, Gartner research rated 9 countries in Asia Pacific ‘poor’ or ‘fair’ on the data/IP security and privacy criterion for offshore IT.
Culture might be the culprit here. In some countries, someone might be ordered to build a feature a specific way. While that person might know a much more secure way to do it, they will follow the directions exactly. In the US and some western countries, developers in this scenario would likely voice their opinion regarding the security implications and provide a better solution.
Also, it’s important to maintain visibility into their workforce. What happens when the outsourced IT company’s employees leave? As illustrated above, 60% of employees steal data or files when they leave a company. It’s hard enough to monitor your employees; it’s even more difficult to monitor an outsourced IT company’s employees.
3) Bad Press and HR Problems
Of course, outsourcing IT usually results in the loss of jobs. Loss of jobs creates risks with regards to PR and HR.
From a PR perspective, various employees at your workplace could be asked for quotes regarding your thoughts. It’s important that those questions get fielded to your internal PR team or executive management. All it takes is one bad quote from a current employee who’s best friend was just fired to save a few pennies.
From an HR perspective, do whatever you can to make exiting employees comfortable. Give them job assistance. Provide a severance package. Give multiple letters of recommendations. If they had a glowing record, help them network with nearby businesses. At the same time, protect your business. Check your data to see what files they accessed before they left. Go through your IT employee termination checklist to ensure all their accounts are deactivated and equipment turned in.
4) It Can Be More Expensive
High expenses is a major IT outsourcing risk. Outside of focusing on the core business, the primary reason companies outsource IT is to increase profitability and agility to the business by decreasing cost. If outsourcing increases cost in the long-term, it’s a failure.
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Most teams understand that it will be significantly more expensive to outsource IT in the short-term. However, many organizations overlook the impact of the IT outsourcing transition period. After a vendor is selected, there are long-term IT outsourcing transition period costs that need to be considered.
5) Laws and Government Regulation Risks
There is always the risk of the law impacting your business agreement with an outsourced IT employer. The impact of laws and regulations can play out several different ways, including laws regarding the outsourcing of your workforce out of the country, new rules regarding pay for that impacts your outsourced IT company, or data storage or data transfer regulation changes (such as the recent EU’s Safe Harbor ruling).
Any law or regulation may derail business continuity. You need to stay on the forefront of these rule changes for both your country and the country where your outsourced IT exists.
6) Communication Problems
Communication is a struggle between domestic business partners, so it’s a potential nightmare when you’re dealing with outsourced IT company located halfway around the world. Communication issues include time zone problems, translation hiccups, limited face-to-face meetings opportunities and cultural differences. Oh, and the same problems like differences of opinion, hurt feelings, and individuals not paying attention still exist…
While the behaviors might be different from country to country, don’t expect people to hang on your every note. You need to create clear meeting notes when working with an outsourced IT company that provides specific deadlines. Communication problems are IT outsourcing risks because they can create a ripple effect that leads to data security risks, decreased employee moral (for both sides) and even potential HR problems from an aggravated employee. Clear communication is a top priority with regards to limiting IT outsourcing risks.
7) Broken Promises
Let’s be honest, companies exaggerate their capabilities all the time. This goes for both you and your outsourced IT provider. You might think that you’ll have the workforce-in-place to transition existing services, when in all actuality that team might leave before you can finish your migration.
The outsourced IT company might promise they can have the infrastructure in place by X date, but they might overlooking the electricity requirements necessary for that type of equipment, which can cause massive delays and even shutter an agreement for good.
Hopefully you never get to the point where you need to partner with a service while actively seeking legal action against them because of a breach of contract.
8) Vendor Lock-in Risks
Often you’re stuck with an outsourced IT vendor once they’ve been fully implemented. Either it’s due to a contract, a strong connection between two high-ranking employees at both companies, or because the outsourced IT company has control over too many valuable business assets.
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When a partnership is bad and it can’t be ended, it can create another ripple effect that can lead to many of the other issues we’ve already described above.
9) The Outsourced IT Company Might Go Under
The failure of an outsourced IT provider on the whole is a worst-case scenario and the largest risk when outsourcing IT. You might think that this is unlikely to happen, but what about a natural disaster? If your new business partner goes under — for whatever reason, what are you going to do? What are your next steps?
This isn’t just about business continuity. If an outsourced IT provider goes under, your equipment in their facilities and any data you have stored or transferred to them might be at risk. Creating off-site locations with failover in this scenario is critical, but that again drives up cost. This is where it’s important to consider a secure file transfer and management tool like SmartFile’s FileHub™ that can deliver across multiple locations with failover.
Concluding Thoughts
Working with any vendor can be problematic, and there are several IT outsourcing risks that we pointed out. Keep in mind, there are several benefits regarding outsourcing IT that you should always consider.