Risk reduction

The accelerating rate of change means that each and every investment an organization makes becomes ever more risky. Competitive activity, technology and legislation can all change overnight.

The outsourcing service provider is subject to the same risk but this can be significantly reduced when the investment is made for and spread over the work carried out for a range of clients.

Outsourcing can produce its own unique risks. Nike, the owner of the sports shoe brand, developed a strategy for outsourcing the manufacture of its shoes. Over a period of time, more and more production was centred on plants in Asia. After the usual initial teething troubles, they started to get satisfactory product at a relatively low cost.

Then Nike started to get a bad press because of alleged ’sweatshop’ conditions in some of the Asian plants. The company was eventually compelled to cancel contracts with four factories in Indonesia. The reasons given for these cancellations included paying lower wages and providing poorer working conditions than the agreements stipulated.

This illustrates the need in all outsourcing arrangements for the client to make sure it fully understands what the service provider is, or is not, doing. In many cases insisting on regular access to all the provider’s relevant sites is the only way to achieve this aim.