There are both benefits and risks associated with outsourcing. Success in entrepreneurship comes from the ability to maximize benefits while minimizing risks, and it is true for outsourcing too.
Outsourcing will, just like any partnership, require a risk management plan. This is the process of determining how the work will be done in case of unexpected events, how decisions will be made, and how disputes will be resolved.
Having a solid plan in place will protect you from any risk that may emerge through your outsourcing partnership. Let’s get ready together!
Fintech Outsourcing Risks: 10 Things to Watch Out For
#1.1. Conflict of interests
A root cause of outsourcing-related problems is the inherent conflict of interest. The client in many cases wishes for high-quality services at a low price with a minimal amount of client engagement. Vendors, however, are seeking profit and often cannot produce significant results without the client’s input. It results in miscommunication, conflicts, and, consequently, the breach of the collaboration. A conflict of interest often arises when there is no formal agreement between the two parties about the terms of collaboration and expected contributions from each.
#1.2. Cultural and communicational barriers
You need to recognize when you outsource that you need to work with people from other countries, which often means dealing with different languages, dialects, accents, and cultural differences. There may be tension due to something as minor as misunderstanding what the speaker is saying, or something as major as the clash of business cultures.
Apart from cultural differences, communication barriers may occur when people lack English proficiency, soft skills, or competency in a business domain or technical area, etc.
#1.3. Poor distribution of responsibilities
In many cases, outsourcing is considered a quick fix. It is common for clients to think they will just tell what they want their project to look like and then appear again during the production process. Clearly, this is not true.
First of all, outsourcing can take many forms. You can outsource the whole project, a portion of it, or simply hire people from an outsourcer’s side and manage them yourself.
Secondly, even if you opt for an outsourcing model, where you delegate the whole project from scratch, your involvement will still be needed. Oftentimes, the project vision may end up not feasible, so you will need to update your requirements. Furthermore, your definition of “good enough” may differ from that of your vendor, and it is your feedback that will bring you both to the same page.
Following is a basic breakdown of client and vendor responsibilities. You may, however, come to other terms with your outsourcing partner, depending on the service model you choose.
#1.4. No experience with managing remote teams
Be prepared to manage remote teams if you select a talent acquisition outsourcing model. It comes with peculiarities, from how the communication takes place to how you supervise the work done. In the case of outsourcing, the long distances and time differences also greatly complicate matters.
The thing is that although you are far away, you still have to be present every day in the working lives of your developers, monitoring their work and assigning the tasks. If you don’t follow up with your team in a structured way, your team might lose track of the project’s progress. In other words, if you cannot constantly manage your developers, hire a project manager (on your side or the vendor’s).
#1.5. Dangers posed to the security of data
The fintech industry is especially vulnerable to security threats since it deals with money and highly sensitive user information, which makes it an appealing target for hackers. Having no ability to negotiate face-to-face makes it a bit easier for outside vendors to hide their lack of certifications, technical skills, and experience.
Information security policies vary from country to country as well. As one example, people from the EU are protected by GDPR, while other countries do not have to comply with it if they do not deal with EU clients.
#1.6. No client participation and unclear requirements
Your outsourcing vendor can become your business partner, but only if they understand your business context well (enough to finish the project successfully). Unless you provide clear requirements and enough feedback throughout the development process (from design to production), the development team will have to guess. And guesswork isn’t an effective tool for product development. Your requirements are.
#1.7. The use of outdated technologies
Unless you are a particularly tech-savvy person, you could miss out when your outsourcing provider offers to implement outdated technologies in your project. In turn, this will lead to low-quality development and further maintenance of legacy systems.
#1.8. An absence of control
Your team may seem out of your control when managing them because they are on the other side of the world/continent/country (underline as applicable). In other words, you can’t simply enter the developer’s workstation to see if they’re working like you can with an in-house developer team. In this case, our advice is to either implement supervision tools into your monitoring process or develop trust between you and your team. We choose the second option.
#1.9. Outsourcing with the wrong partner
Choosing a mature vendor will reduce all the above risks while choosing a bad one will exacerbate them. You’re better off if your outsourcing partner has vast knowledge and experience with outsourcing services since they’re likely to have encountered all the potential risks and have learned how to effectively mitigate them.
How to Avoid Outsourcing Risks
#2.1. Choose a reliable outsourcing partner.
Before agreeing to work with anyone, you check a prospective collaborator’s reputation and a sample of previous work. Make sure to check the following aspects:
- Workplace quality. A company’s attitude toward employees determines the quality of its services. Assess job platform reviews.
- Their previous projects. Review the case studies of the company for insights on the length and outcomes of previous collaborations. A company’s positive history of long-term collaborations is the green flag you should be looking for.
- Maturity. How long has company X been in business? How large are their projects on average? And how many people are working there? Is there a great talent turnover?
- Relevant experience. The company you outsource to should not only have a mature business operation but also have experience in your domain.
- Clients reviews. If you want to know the performance of a company, you can check Clutch.co and other independent sites. To acquire the most accurate information, you can even speak directly with the client.
#2.2. Protect your data
Non-disclosure agreements recognize that a relationship is confidential and is legally enforceable. Such a document can be requested even before you begin the collaboration – during the discussion of any business information you don’t want to be spread. Make sure to sign it whenever you feel the need.
Also, check if they are compliant with security standards – that’s a good sign you encountered a reliable vendor. Look for ISO/IEC certifications.
#2.3. Hire tech experts to support your major decisions
There’s nothing wrong with not having vast expertise in all the technologies and tools developers use to create your product as a business person. In order to ensure a vendor is following the best practices and is not offering outdated technologies, you can speak with a tech-savvy person from your side whilst discussing tech solutions and decisions.
#2.4. Create communication plan
The purpose of a communication plan is to provide stakeholders with information on how and in what way they will stay in contact. In the plan, it is specified who should be given specific information, when and how it will be provided.
An effective communication plan will improve transparency and structure in the collaboration:
- it helps to establish the relationships between stakeholders, channels of communication, activities, and materials.
- it clears up the obligations of employees, stakeholders, and others
- It coordinates the efforts of your team members and stakeholders.
#2.5. Design a risk management plan
An effective risk management plan helps to predict risks and decide how the company will respond to them. Despite a clear vision, it is common to overestimate one’s ability to establish control over circumstances that are largely determined by chance.
Suppose, for instance, you choose a vendor who is immature in outsourcing and reveal it when the project’s in progress. Or, you partner with one that’s mature, but suddenly the market changes and you need to perform many reworks. Or, your outsourcing partner changes his prices so that they exceed your budget, and now you need to reduce the workload.
Anything may happen. In order to keep your project afloat, you must be ready to respond to these challenges in a timely manner.
An outsourcing partnership that is strong and reliable requires extensive research and experimentation in advance. We can reduce your trial-and-error process and offer our services.
The SapientPro company is an outsourcing provider with extensive experience in industries such as retail, education, logistics, and finance. We also offer custom development if you have a domain expert on your side. Contact us to learn more about collaboration opportunities!