Critical Aspects of Outsourcing: Cost, Quality, and Value

On November 12, 2012, in Outsourcing, by Business Development Group
 For an organization entering into an outsourcing relationship, it is crucial to understand the pricing aspects of outsourcing that are putting outsourcing vendors in a dilemma:

For an organization entering into an outsourcing relationship, it is crucial to understand the pricing aspects of outsourcing that are putting outsourcing vendors in a dilemma:

Most organizations enter an outsourcing arrangement due to the attractive cost advantages it offers— especially in the case of offshore outsourcing. However, the “low cost” pitch is simply a small part of the bigger picture. With the outsourcing industry’s exponential growth, vendors are clamoring to get a piece of the pie, touting low-cost offers to attract clients and increasing competition.

For an organization entering into an outsourcing relationship, it is crucial to understand the pricing aspects of outsourcing that are putting outsourcing vendors in a dilemma:

Cost

With the clients expecting absurdly low service costs, outsourcing service providers are oftentimes forced to make a trade-off in quality in order to maintain low service cost offerings attractive to most potential clients. For clients focusing on cost advantages, this can be an attractive deal upfront. However, the provider runs the risk of later losing clients to competitors as priorities change and the focus shifts to reaching service quality benchmarks.

Related Article: High Quality or Low Price? – An Outsourcing Dilemma

Quality

Delivering high quality outsourcing services comes with higher costs which translate to high service costs being offered to clients. With most clients expecting low service costs, vendors focusing on quality tend to lose these outsourcing deals to low-cost competitors.  In other cases, clients focusing on service quality favor these vendors; however, vendors still face the risk of later losing these clients should their priorities shift more to cutting costs.

Value

Choosing the right outsourcing service provider and tackling pricing can indeed be tricky, especially when client and vendor set priorities on either the cost aspect or the quality aspect of the outsourcing deal. The outsourcing venture is a long-term relationship that requires commitment and compromise from both parties in order to structure a mutually-beneficial partnership. Both client and outsourcing vendor must focus on value creation, instead of cost alone or service quality. By looking out for each other’s best interests, client and vendor drive success for the outsourcing relationship.

Related Article: BPO Pricing: Be Smart, Think Value

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