January 24, 2017
Many businesses used to think outsourcing was one of the best ways to cut costs. However, it has proven on multiple occasions to be more challenging than they expected. In 2010, a number of companies reported problems with outsourcing to overseas companies.
Opposition to outsourcing has increased over the last couple of years. In 2014, the Wall Street Journal reported that the number of CEOs planning to outsource fell from 16 percent to 5 percent from the prior year. Outsourcing is still a viable option, but brands must be aware of the challenges and take steps to address them. Here are some issues they must prepare for in 2017:
New Auditing Practices
Alina Bezkrovna, founder of Qubit Labs said that outsourcing makes it very difficult for brands to monitor the work of their contractors. This makes it even more difficult for companies to deal with auditors. This has become a growing concern since 2008. Many regulators have found that major auditors like Deloitte and KPMG have become too lax with their clients, especially ones they have close ties with. Companies will face much stricter oversight in 2017, according to Deloite’s 2016 Global Chief Audit Executive Survey.
This means they will probably have to find more effective ways to manage their contractors to ensure they aren’t committing any violations. Alternatively, they will need to find ways to shift liability to the contractors, but that may not be possible in some instances.
Security issues have been a dominant concern of most brands for the past several years. Recent security breaches at Target, Yahoo! and other major companies have raised fears that security precautions are inadequate.
The risks are even higher when dealing with offshore contractors. Contractors in some countries don’t have access to the same firewalls and other security tools, which places them at risk. Sophisticated hackers may target contractors associated with large brands, because they are the weakest link.
The best way to handle this is to make sure you understand what security measures all of your contractors have in place. You may even consider asking them to consent to a simulated hacking attempt, so you can verify that their systems won’t be penetrated by hackers.
New Cloud Regulations
Most outsourcing solutions are highly dependent on cloud computing. Unfortunately, this has created a compliance nightmare for tightly regulated industries. The Health Insurance Portability and Accountability Act (HIPAA) is one of many regulations that has affected cloud computing. Since 2012, the Federal Financial Institutions Examination Council, Federal Reserve, and many other financial regulators have also began exploring new ways to regulate the cloud.
Many laws prohibit companies from storing data on servers outside their jurisdiction. This often means that international contractors can’t have any data stored on their own machines. They may also not be allowed to access protected data, unless you can show that the data won’t be cached, the contractor is a U.S. citizen working abroad, and appropriate safeguards are taken.
It’s very important to consult with your lawyer in these situations. They can inform you of any applicable regulations and the steps you need to take to comply.
Workload Requirements Will Rise
Mike Slavin, managing director for Alsbridge, told CIO Magazine that outsourcing has exponentially increased the cost of handling contracting projects.
“As clients look for ways to address the challenges of overseeing increasingly complex multi-vendor service delivery models, the [vendor management office] will establish itself as a way to provide a high-level, enterprise-wide view while at the same time managing day-to-day operational details and multiple touch points between different providers in the service delivery chain,” said Slavin.
You'll need to minimize the number of contractors on your payroll and make realistic cost projections of handling their workload. Too many brands face cost overruns due to poor cost projections and failing to maintain a lean infrastructure for their contractors.
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