The unspoken truth about outsourcing overseas is that in the vast majority of cases, outsourcing fails largely due to errors committed by the clients.

The 3 most common causes of outsourcing failure are:

Working with Unprofessional/Rogue vendors Working with an Unqualified Outsourced Team Choosing the Wrong Outsourcing Business Model

More often than not, the above scenarios can be foreseen and easily avoided. But the reason why clients are not able to spot the ‘storm on the horizon’ is that they are not diligent.

In this blog post and the next two, I take a look at the problem of client diligence when it comes to making outsourcing decisions. In this post, I will reveal ‘what the problem is’, and in the next two blog posts, I dive into ‘why clients lack diligence’ and ‘how to ensure you are diligent when you outsource’.

So, let’s start with: What exactly is the problem? Why are clients to blame in the majority of cases?

The 3 most common causes of outsourcing failure are:

1 Working with an Unprofessional/Rogue Vendor

A common complaint from clients, whenever outsourcing goes wrong, is that the outsourcing company was ‘unprofessional’.

Clients will often protest that the company they worked with overseas lacked a stable internet connection or had terrible facilities. But if you invest time into screening a vendor (yes, this can actually be done remotely), you will be able to identify very quickly which firms are unprofessional and which ones are not.

In two blog posts, 5 Website Red Flags of a Rogue Outsourcing Company and 5 Tips to Help You Determine if an Overseas Outsourcing Vendor is Legitimate, I revealed that 9 out of 10 times, you will be able to identify whether an outsourcing company is a rogue firm or a reputed one. The key point here is that this observation (or say, advice) that I have shared with you is a very obvious one and is all about applying your common sense. My advice to you basically calls for due diligence from your end – something that all businessmen should be able to identify with.

Unfortunately, when it comes to outsourcing, common sense simply goes out of the window. Most SMBs (small to medium-sized businesses) fail to assess a vendor on even the most basic parameters.

This might seem like an exaggeration, but it is not. When I meet clients in person (even established businesses), more often than not, it is evident that they haven’t done any research or homework. They invariably ask questions to which they should already know the answers. They even ask meaningless questions like: What do your offices look like?

You should already know the answer to that question because on our company website, we have plenty of videos showing our offices. You could also check the quality of our facilities by getting one of our client account managers to give you a Skype tour of our premises.

The fact that you are asking me such basic questions during an onsite meeting tells me you haven’t done any research about our company. That means you are moving forward with the process of outsourcing without having shown any due diligence. The point is, when clients invite me to their offices to meet with them in person, they try to be diligent, but they are not being diligent actually. Well, that is a very sorry indicator of the industry as a whole.

2 Working with an Unqualified Outsourced Team

Working with unqualified outsourced staff can clearly be avoided 9 out of 10 times. Provided you are rigorous in your screening process, scrutinizing resumes carefully, asking tough questions during an interview and assigning difficult technical tests, you will be able to identify those candidates that are qualified to work for you and those that are not. We all know this to be true because it is the exact same process that works for us when we hire locally. The only difference is that when it comes to outsourcing, we decide not to follow these well established and proven protocols.

In 2013, I met Larry Spencer, the VP of Application Development at Sceris in the US, to film a case study. Larry had at that point hired four software developers from Virtual Employee (his team is larger now, about 10 staff at the time of writing this blog post) and he raised exactly the same point that I mentioned above:

Me: “So far, you have hired four developers, and it’s been a 100% success rate because you’re happy with all four of them. It’d be valuable to share with me what has been the secret of your success.”

Larry: “Sure, it is the same process that we used when we hired developers here in the US. Virtual Employee is just in a different time zone. We begin by looking at the resume to make sure that the qualifications match up. Then there is an interview. But I think our magic piece is a programming exercise that we give to the developers. There is nothing that proves how a programmer can do better than programming. So, we have a three-hour exercise. It’s a fun exercise; it’s not business programming. It’s a game. They get as far as they can in three hours, and then we review the code and we see what they can do. I think that makes a big difference.”

Click on the video below to watch the full case study:

Software development is the most frequently outsourced work. In many cases, a challenging technical test can be assigned to establish the capability of a software developer. But how many clients actually do this when they are thinking of outsourcing software development? Despite this being very simple to do, most companies just don’t bother.

If outsourcing fails because you end up working with an individual who is unqualified, did that happen because of a lack of talent overseas or because you were not diligent? I would argue it’s the latter. If you hired locally with the same rashness, I suspect the result would be no different. That does not mean there is a lack of talent locally. It just means you made no effort to identify which individuals are suitable to work for you and which ones are not. The same idea applies to outsourcing. There is a lot of talent overseas in countries like India, but that does not mean everyone is talented. It’s your responsibility to distinguish between the qualified and the unqualified.

In the unfortunate scenario where a candidate is able to clear your vetting process but still turns out to be a ‘bad hire’ down the line; provided you have partnered with a reputed outsourcing company, you should still be okay. A reputed firm will work with you to provide you with a solution, such as refunding the payment, thereby minimizing your loss.

But if in the first place you have made the error of partnering with a rogue outsourcing company (because you did not vet the companies you were speaking with) and then it materializes that the outsourced staff you are working with are unqualified, of course you are going to be in trouble. A rogue firm will ‘flap around’ in the face of client disgruntlement as opposed to meaningful solutions offered by a reputed firm. Once more, in such a scenario, the real reason for outsourcing failure is the lack of client diligence and not professionalism or overseas talent.

3 Choosing the Wrong Outsourcing Business Model

I have lost count of the number of software development companies that have told me the same thing when I have visited them – ‘We don’t want to outsource a project specification as we’ve had a bad experience with this in the past. We want to work with remote staff that we project manage.’

Choosing the wrong outsourcing business model is a key cause of outsourcing failure. It does not matter how talented the offshore team is. If the way they are working for you is not in sync with the requirements of your project, the process is going to fail.

Which business model you should opt for is not as easy as one might think it is. Yet, it is not rocket science either. Provided you invest critical thought into the process, you will quickly be able to come to a sound judgement.

Outsourcing a specification frees you up to focus on other projects, but it means you retain no project management control, and so you are placing complete trust in the hands of the vendor. While this enables you to get more done, it leaves you vulnerable to standards and levels of compliance that do not meet your expectations.

On the flip side, if you hire Virtual Employees, while you retain project management control and thus quality control (and also the direction of your project), you do have to invest time into supervising and collaborating with your remote team, which means you cannot run as many projects simultaneously.

In short, these are the differences between project outsourcing and working with remote virtual staff. Surely, this very brief assessment: a) already gives you clarity on which model is most suited to your project, b) is not a determination that was particularly difficult to conclude and c) makes my point as to how easy it is to avoid a lot of the common pitfalls many clients succumb to when outsourcing.

With a bit of research and thought, any seasoned project manager can quickly arrive at the same deductions that I have. It is not that due diligence is difficult, but rather due diligence simply is not taking place.

Conclusion

When outsourcing fails, clients lambast, “there is no talent overseas,” “it failed because of cultural differences,” “communication was too big of a problem,” and so on. But are these the real reasons why outsourcing failed?

By now, it should be clear that more often than not, these are not the reasons. It does not matter how talented a software developer is, if you choose the wrong business model for your work, you are going to get poor results. If you don’t bother to screen and vet vendors and instead treat all outsourcing companies as equal, you will probably end up working with a rogue outsourcing company.

When that firm conducts itself unprofessionally, you may think outsourcing has failed due to ‘cultural differences and standards’. But the truth is, if the client had been diligent to ensure he or she partnered with a reputed firm in the first place, you would find offshore firms to be just as professional and culturally in tune with any Western firm.

And yes, outsourcing does often fail because of ‘communication difficulties’, but that again is the point. Why do clients not thoroughly assess the communication skills of their outsourced team before outsourcing? It is the easiest of all efforts. Of course, there are offshore staff that have poor communication skills, but there are also an abundance of individuals overseas that have excellent English communication skills.

Once more, in such a scenario, offshoring does not fail because ‘offshore staff can’t speak English’, but because clients simply did not bother to identify which individuals they can easily communicate with and those with whom they would struggle to interact.

This is why outsourcing gets such mixed reviews. This is why some clients have nightmare-like experiences and others attain mind-boggling levels of success. Your chances of success have nothing to do with talent overseas or whether the process can work. No, your success is in your hands, it is dependent upon your diligence (although your diligence should not be misplaced)

More often than not, most outsourcing failures could have been avoided all together. When outsourcing fails, it is because most clients have simply dived in head first, eyes closed. Introspection and identifying the mistakes we make are not particularly strong traits of the human race and this is why when outsourcing fails, clients are quick to attribute an incorrect cause to the failure as opposed to identifying and acknowledging the real reasons for the mistakes they made.