The risks and opportunities of outsourcing

In previous articles we explored the notion of business resilience and supply chain risk in a corporate governance context; here we look at the aligned topic of outsourcing, where strong governance is paramount for organisations who are considering or have already invested in outsourcing some, or all, of their business functions.

The growth in outsourcing continues unabated across all sectors according to recent surveys, driven by the considerable benefits that this can create, including: 

①  access to a wider pool of talent or specialist skills;
often being a cheaper alternative to insourcing or recruiting;
providing an internal focus on functions and tasks that are core to their business; and 
increased process and functional efficiencies

But it is critical for organisations to also consider and control the risks associated with relying on third parties to deliver some of their core business functions. For example, organisations must be sure that measures are in place to mitigate the below risks.

Risk How to mitigate
Lack of service quality Implement effective service level and performance indicators, both qualitative and quantitative.
Disrupted service delivery Make sure that service level agreements clearly define accountability should things go awry. This is particularly critical on large scale projects. 
Inadequate data security The level of regulation and risk management around data and stakeholder data has never been higher. Organisations must ensure that their provider is fully compliant with all relevant cyber security requirements as part of their selection process.

Therefore, from a more generic perspective, strong collaborative governance structures should be put in place to provide a forum through which all these and similar issues can be negotiated and then addressed once live. This forum should include key stakeholders on all sides – both client and service provider – who need to address the emerging issues collaboratively and with the organisational risk agenda high on their priorities.

If your organisation is considering outsourcing any business function and you would like to discuss your options, please contact Ian Sadler

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