Area

Con

What does outsourcing bring

Process

Control

Less direct control of the day-to-day process

Managing the provider

Management attention shifts from managing the process to managing the relationship via a new Governance structure. This is usually a ‘hick-up’ spot, and consumes much more time than anticipated to manage the relationship on all levels and ensure smooth communication between the layers from operational through tactical to strategic and back.

Need for new management skills

The skills required to manage an outsourcing provider are very different than managing an internal resource.  Many organizations underestimate the resources needed to successfully manage an outsource relationship, and do not seek external advise in developing.

Long-term commitment

The long-term nature of outsourcing contracts means you are locked in for a long time, precluding unforeseen “better” solutions later on.  . The requirements for “change” in the business and future delivery process improvements need to be clarified, negotiated and agreed upfront with the provider.

Hard to exit

Outsourcing contracts can be difficult to exit (penalties, etc.), and transitioning at the end of contract to in-sourcing or another service provider may not be easy.

Performance

Impediments to change

Time to fix poor performance may take weeks or months instead of hours or days as provider typically has a set “time to cure” performance issues which may be beyond the patience of the end user.

Decrease in internal talent pool

The ability to foster and grow leadership talent from within decreases as leadership roles in certain functions are outsourced.

Loss of intellectual property

Risk of losing all internal capability and “tribal knowledge” in the process.  Provider’s uunderstanding of institutional knowledge, internal relationships, and the business culture can take time.

Loss of connection between departments

Raised perception of “loss of control” as multiple functions exit the organization, and handoffs between departments get “fumbled.”

Cost

“Cost creep”

Risk for unforeseen add-on costs for ad-hoc projects and activities, if contract does not have a clear definition of what services are in scope, and how “new” services would be managed/priced.  

Penalties for volume changes

Higher cost/transaction (e.g., F&A) for decreasing transactional volumes – again during contracting volume change bands need to be agreed, and client needs to understand the minimum volume profitability threshold for the provider. 

Redundancy costs

Redundancy of technology costs can sometimes exist between the company and service provider, potentially raising the overall technology support costs.

Inflated retained organization

The retained organization needs to change to realize the benefits.  Requires re-skilling (as above) and monitoring to ensure the new way of operating is implemented and lived by.