How Does Culture Affect a Company’s Decision to Outsource?

Our economy today is made up of more multinational companies than ever before. However, due to the unsettled economic times facing us, one of the fundamental problems for a company has been how to sustain itself and grow. Most companies struggle with this i.e. how to ensure low production costs and high quality products and profits. 

Have you been mulling about outsourcing your company operations to other business providers? Usually this is very beneficial as it reduces the long term investment in infrastructure, thus reducing costs. However, it is very important to ensure strategic relationships are set up keeping in mind the state of affairs of both parent and partner companies. According to Forbes, there are approximately 300,000 jobs outsourced by the United States each year.

Source:https://www.forbes.com/sites/deeppatel/2017/07/17/the-pros-and-cons-of-outsourcing-and-the-effect-on-company-culture/#43effa7b562d

​Company executives and CEOs are sometimes under the impression that purely outsourcing the business to a company makes the business function the outsource providers responsibility. This is not entirely true. In order to form a successful outsource partnership, a thorough analysis is required of both parent and partner companies. If this is not done, the result can be disastrous.
In an unsuccessful alliance, depending on the function or functions being outsourced, companies can lose clients, good employees, as well as profits. Operations like production, accounting, HR, admin and sometimes even core operations can be outsourced. Companies like Apple, Nike, Wal-Mart, IBM, etc are some of the biggest outsourcing companies. A number of factors are looked at while outsourcing like a company’s goals, duration of alliance, clear details of decision making power (which company is in charge), companies culture, etc.

What is Organization Culture?

An organizations culture is made up of the following:

• Core values
• Beliefs
• Principles

This framework helps guides how an employee would act or react to any given incident at work. It is seen not only in social interactions but also business interactions between employees. It defines what is appropriate and acceptable i.e. it is learned behavior.

Importance of Culture

Every individual and company has its own culture. Some of the latest hiring techniques also make recruiters look at employees as being a cultural fit apart from other qualifying factors. Yet culture is often neglected or not given due diligence when it comes to outsourcing. In a lot of cases culture is the missing link between a successful and failed partnership.
Your employee’s behaviour affects every aspect of your business. Culture is the framework which guides your company or an individual’s behavior. It impacts happiness of your employees which in turn affects productivity. Ultimately it is your organization’s culture that dictates how your employees would work together.
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Culture and Outsourcing
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An employee’s behaviour is strongly influenced by culture, since “behavioural competence stems from our own individual attitudes and experiences.”
Source: https://www.researchgate.net/publication/309650396_Culture_and_the_Impact_on_Customer_Service_Considerations_for_Offshoring_to_India

While outsourcing, employees from different backgrounds get to work together. Usually the outsourcing takes place with company’s located in different countries. In such scenarios, the cultural differences play a pivotal role and can lead to misunderstandings and undesired results. Most executives do not understand that outsourcing is usually an alliance and a partnership, where both parties need to acknowledge and be aware of each other’s work, expectations and most importantly culture. 
It is safe to say that employees work best when they understand who they are working with and working for. While working with people from different organizations or countries they have to look at various aspects like:

1. Time difference
2. Difference in troubleshooting
3. Communication
4. Company goals (are they the same or different?)

For instance, either the companies might want a successful partnership or one company would want to increase profits while the other only wants to minimize costs.

1. Cultural similarities and differences

Pros and Cons of Choosing Companies with Similar Culture

Pros:

• When a parent company and partner company have similar cultures, it becomes easier to avoid issues.
• Interactions go a lot smoother as usually everyone is on the same page.
• Not many variables need to be monitored in this scenario. Communication styles are also similar. Training required in these cases would be minimal.

Cons

• A lot of issues can get over looked and lead to future problems.
• Executives do not look too closely to verify details as they assume they would be the same again jeopardizing the collaboration and work which needs to be done.

Pros and Cons of Choosing Companies with Different Culture

Pros:

• When a company is aware about the differences in their partners work ethos, they pay more attention to detail.
• This would help ensure less issues cropping up in the future. Interactions are a lot smoother because each side pays attention to how the other side behaves. Especially when applied to the global scenario.

Cons:

• If the company is extremely different from the parent company, it could lead to a lot of misunderstandings and friction.
• The time taken to understand the differences would lead to a delay in expected results. This is because executives would have to look at even minute details and wait to collect all data to avoid overlooking any critical factors. It is not possible to assume the details have been understood. These delays could lead to an increase in unforeseen costs.

Finding the Right Partners

While looking at outsourcing business, be it a small fraction/tactical support or a core business need, it is important to find the right partner! Companies have to keep in mind that these agreements are with partners and not vendors. The rise in outsourcing has also given rise to companies who help form alliances based on customised requirements.
An outsource service provider will always look at minute details of business required, as well as cultural fit when it comes to creating a partnership. This will ensure a smooth transition and help both companies understand the requirements and differences in culture.
This helps tremendously when the company is outsourcing to an offshore account where the possibilities of cultural differences is very high, thus, reducing time and cost needed during the initial phases.

To Sum It All Up

Since outsourcing means you are extending your company, a cultural fit is important. We have also seen the important role played by culture in a company and its employee’s growth. The informal culture is lot more telling in such scenarios. Communication styles play a huge role here as executives have to work with the partners.
For example, if the informal culture of a company rewards secrecy and division in the team, then assuming they encourage openness and teamwork would be a huge error. This can lead to a lot of future problems down the road. Also, people would only be working with selectively passed on information leading to errors and misgivings.
Since corporate culture has a direct impact on your business outcome, it is imperative to look at the prevailing cultures in both companies before partnering them. This not only makes the entire operation cost effective and productive but also helps in ensuring a successful outsourcing relationship.
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If you need to know how to make the right decision to outsource, you can contact the App Scoop mobile app developers: https://app-scoop.com/contact-us.html.