Risks of the Outsourcing Chain Gang
When you think about “outsourcing services,” what comes to mind? Two, three, maybe four major players? The big ten? Your favorite one? At any given search, you might find thousands of them at a time. That’s certainly more than any single person could digest, but the number of existing outsourcing services isn’t the point of this article. The point is the usability of these sites and the role they play in the outsourcing industry.
Let’s talk about “XYZ Outsourcing Inc.”
“XYZ Outsourcing Inc.,” like thousands of its competitors, sits inside a commercial web template on a U.S. dot com. Its online interface hosts a standard contact form, and a photo album of business suit-wearing employees doing things with computers, headsets, and staplers. And yes, there’s even an “Hours of Operation” blurb near the bottom of its homepage.
The site looks good and reads good — giving anyone with a healthy dose of skepticism little reason to suspect it of any outright wrongdoing. Even after researching the company, you might find it even has a decent reputation for following through on its promises, and that it has more than a few real customers. What would be so wrong with working with a service like “XYZ Outsourcing Inc.”?
Just a Matter of Chain-of-Outsourcing-Events
There’s really nothing wrong with “XYZ Outsourcing Inc.”, of course, until you discover your work is outsourced to another outsourcing service (and another, and another) that operates under rules you might not have been aware of.
An unintended consequence of outsourcing the outsourced!A lot of outsourcing companies outsource contracted work to other service providers. It’s such a common practice in fact, some people contractually prohibit this activity, known as “resourcing.” And the reasons for doing so are sound.
Multiple outsourcing increases risks each time a project is outsourced to an unknown 3rd party. It can also decrease the quality of work performance when the outsourcing finally stops at its final destination: the smallest obtainable dollar.
Consider the following example.
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Note: XYZ Outsourcing Inc., Jim’s Online Vending, and SourceTo Us 2Day are completely fictional business names. Any resemblance to actual outsourcing establishments is purely coincidental. |
You outsource a simple software project to “XYZ Outsourcing Inc.” who outsources it to “Jim’s Online Vending” without escrow protection. “Jim’s Online Vending” then outsources it to “SourceTo Us 2Day” without free arbitration services. “SourceTo Us 2Day” ultimately outsources it to a Chinese developer who works through an outsourcing service that doesn’t require status reports.
The Chinese developer turns around and outsources the project to an Indian programmer who (you guessed it), outsources it to a Philippian coder at yet-another-outsourcing-service. The outsourcing service that the Philippian coder works through, unfortunately, doesn’t guarantee its coders’ work.
In a perfect world, your software product arrives on time without any flaws. In reality, the probability of getting a timely and flawless product decreases each time it passes through services that don’t enforce:
Reducing Chain-of-Outsourcing-Risks
There are three ways to reduce the risks involved with multiple outsourcing. You could not allow it in your contract, and/or, you can bypass it altogether by outsourcing through a service that provides protection against the risks identified above. You can also require your that service provider work through a desktop monitoring time-card, which takes screenshots of what your service provider is doing with your project.
All three methods are practical approaches to preventing the worst type of labor arbitrage there could be. The costs of not implementing them are too great. Let us not forget the real reason we outsource in the first place. We outsource to get a quality product or service (a strength in the face of a weakness). The goal of outsourcing isn’t to pass the buck onto someone else, because when that becomes the goal, that’s all what we end up with.
Great article. Perhaps you could also tell us about specific things to look for and avoid in outsourcing contracts? I think I need to learn more about this.
Outsourcing in general has ethical issues but especially outsourcing arbitrage. Imagine you hire someone to perform a job for you and pay them only to find out someone else did it. That is not the person you hired for the job, you were expecting someone else. This is misleading in the simplest terms of the word. The person outsourced to do the job could have done an inferior quality work than what you were expecting from the person you hired. The job could have been done completely wrong. This type of dishonesty can seriously harm future business relationships.