Overpaying for Outsourcing? Why Companies Leave Money On The Table

Overpaying for Outsourcing

Organizations pay for services from a wide variety of outsourced service providers – ranging from business process services, cloud services, and contingent labor to supplement gaps in skills and availability to managed services for IT applications and infrastructure, and more. Alexa Bona, research director at Gartner, revealed that outsourced operations are 30 percent more expensive than the top quartile of in-house customer service operations. “The outsourced service is often more efficient, but then outsourcers need to make a profit too,” she said. 

We look at the administration of these contractual relationships and discovered that most organizations leave tens of millions of dollars on the table. Why does this happen and what is the answer to this dilemma?   

First, the red flags. While outsourcing can prove to be the best business decision you ever made, there are warning signs that point to it as the worst mistake that’s costing your company a good deal of money.  

  1. Misalignment of Core Values 

The alignment of core values is the truest indicator of outsourcing partner fit. Successful relationships result from passion, perseverance, and openness in communication. Careful management of budget, staffing, and other logistical factors, on the other hand, minimize business failure. But not having the same enthusiasm and vision for a common goal make a partnership unfruitful and unsuccessful.  

  1. Different Worldviews 

Inconsistencies with key ideals about the way buyers buy, the way customers behave, or the way business growth is established is another red flag with a potential outsourcing partner. If you don’t see eye to eye with how the world works, you will spend most of your time fighting uphill to create alignment.  

  1. Lack of Common Courtesy 

It is waste of good money when an outsourcing team does any of these: does not reply to messages in a reasonably timely manner (or at all); disengages or ‘ghosts’ you more than once without logical explanation; suddenly drops an unforeseen project in your lap, demands immediate payment, and delivers less-than-stellar results.  

  1. Misalignment of Expectations 

The only outsourcing partner who will turn out to not be a good fit for your organization were the ones who were not on the same page regarding how they should behave and what they should deliver in the duration of the contract.  

  1. Not Participating in Discovery 

If a prospective outsourced service provider does not see a value in exploration of other options or does not want to participate in any discovery effort to solve an issue, they’re not worth paying for. 

  1. Friction Over Standard Policies   

Personal scenarios would be a nightmare if standard policies already create friction between you and the potential outsourcing team. Let the structure and policy of your agency be the test by itself – if the outsourcing partner wants to skip a few SOPs and jump ahead of your normal procedure, it likely won’t be a one-time occurrence.  

  1. Decreased Client Satisfaction

Client satisfaction is the top priority of any business. When an outsourcing partner does not take this seriously, they won’t care if they’re giving a very poor quality of customer service. This is a case where you need to immediately step in or else have your company be stricken with a bad image. 

The Answer To The Dilemma

Is it right for an organization to overpay for outsourcing? One MIS Quarterly study concluded that: 

  • Outsourcing gives you instant and unlimited access to world-class skills.

  • Outsourcing would free the in-house team so they can focus more on their core competencies which in turn can increase operational efficiencies of processes.

  • Outsourcing would reduce employee training, retention, technology training, and the overall operational cost of the organization. 

  • Outsourcing helps employees to direct their efforts to strategic activities that can be useful in enabling the organization to gain a competitive edge.

  • Outsourcing enables in-house teams to make improvements in their business performances for the long term and have a competitive edge over their industry peers. 

Learn about mistakes that can cost you a fortune when outsourcing and tips to increase the cost savings from outsourcing. Let’s explore further! Watch for the upcoming e-book on Third Wave OutsourcingSign up here to be notified when it is released and receive related news and updates!