Why Do Businesses Overpay Outsourcing? 

Why Do Businesses Overpay Outsourcing

In the absence of an efficient payment management system, mistakes can occur. Among them are miscalculations, data loss, and even overpaying or underpaying your employees. Reimbursement can be requested, but the rules and regulations are complex. 

When you overpay an employee, you have the right to ask for reimbursement from them. You can deduct it from your employee’s paycheck next month. It can, however, be challenging for the employee, especially if they are unaware of the situation. In such cases, the team concerned can inform the employee about the deduction. It will be awkward to break the news to your employee, though. 

If it is difficult to process reimbursement from a full-time employee, it can be even more difficult for an outsourced one. Outsourcing can subject you to several pressures – many moving parts, different suppliers, and points of friction especially when dealing with companies from distant parts of the world. 

However, this does not stop the big and small companies from all over the globe who trust their IT, HR, finance, and back-office tasks to outsourced suppliers. Several types of services are bought by organizations, including managed IT services, contingent labor, cloud services, business process services, and more.  

This doesn’t mean that outsourcing doesn’t have its own challenges.  

Everest Group examined how organizations buy services from a wide variety of service providers and discovered that they leave tens of millions of dollars on the table. Why do businesses overpay outsourcing and how can we address this dilemma? 

Why Businesses Overpay Outsourcing 

Contracts for services are complex, and the traditional MSA and SOW structure makes understanding the commitments difficult and time-consuming. Consequently, firms often overpay for services, and the contract administrators lack the context, training, and access to current market information that is required to avoid overpayment. 

Firms that invest in training and equipping their contract administrators save millions of dollars and improve the value they get from these potentially strategic relationships. 

The Solution: Contract Administration 

Don’t make the mistake of assuming that a contract’s rate card and structure will not require adjustment during the life of the contract. To fix the dilemma of overpaying in outsourcing, it’s important to conduct better contract administration. 

In contract administration, companies may have to negotiate for skills relating to new technologies. The availability of these skills can change radically. Artificial intelligence skills are in high demand, but contracts and rate structures are not keeping up with the demand, leaving customers with inexperienced talent, low productivity and often failed projects. 

The contract administrator faces a dilemma because the company can’t get vendors to provide AI skills at the price it originally negotiated. The administrator must either frustrate the business or agree to pay an off-rate card price. 

To do effective rate card administration, customers need to get current market information around service level and current pricing by component. This information can be introduced into the category management and purchasing executive function. 

Although an ill-informed customer may seem like an easy target, over time, it results in a problem customer. So, educate your customers! 

Are you struggling with overpaying your outsourcing partner? It’s not always easy. If you’re just starting out, you might not have a strong understanding of the process and its value. 

We hope this article has given you some insight into how to solve the dilemma of overpaying outsourcing. The key takeaway is to strengthen your contracts and choose a partner that you can trust!  

Be sure to choose a third wave outsourcing company that is already investing heavily in hiring the best people and offering incentives such as stock options or bonuses for their employees.  

If your company is not yet with a third wave provider, now may be the time to start looking around for potential candidates who fit your needs.  

When done right, outsourcing sparks startup success, increases the chance for thriving, and clears the path toward sustainable and guaranteed growth. Let us help you find top talents in IT, technical support, digital marketing, and cloud services so you can leverage all the benefits of outsourcing in the new normal. Request a FREE copy of the e-book on  Third Wave Outsourcing .