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Only Thinking About Price for Your Outsourcing? It’s Time to Think Again

When choosing a partner for an information technology (IT) outsourcing project, most companies only consider skill sets and price, but the reality is that making an educated decision requires a much more thorough analysis. While cost of labor is one of the primary reasons many companies choose to outsource (offshore, nearshore, onshore) their IT projects, an overemphasis on price as a decision-making factor is shortsighted. In seeking to help your company save as much money as possible, you can be tempted to select the cheapest partner you can find, which most likely will be reflected in the quality of work you receive.

Price is certainly an important factor in your IT outsourcing decisions, but it is just one piece of a much bigger puzzle. We’ve recently discussed how important it is to make a culture match when selecting a project partner, and now we’ll dive into the pricing paradox. But first, consider this quote from Sir Henry Royce, one of the founders of Rolls-Royce:

“The quality is remembered long after the price is forgotten.”

The Hidden Costs of Outsourcing Done Wrong

Whether offshore, nearshore, or onshore, the true cost of outsourcing is not in the hourly price of the people, it is the ability to have a first-time quality deliverable that meets the expectations set for the project. Therefore, a focus on the value to be derived from the project is key to balancing the hourly rate of the outsourced personnel with the goal of first time quality of the project. When price is prioritized over value, it’s very likely that both will become compromised, as illustrated by a blog article on Lessons of Failure .

If you walked into a store and asked to have someone make you a suit and you agreed on a price of $100 and a week’s sewing time, a week later you’d expect to walk back in and be trying on your new suit after parting with a $100 bill (at least in America).

What if you went into a different store, after that initial price quote and they offered to make it for $25?  You’d think, “Great!  One fourth the cost of that previous guy!  I’ll take it instead.”

How would you feel if a week later you came back and they said it would be another week and $50 instead?  Think you’d be mad?

How much madder would you be after TWO weeks, and now the shop owner is telling your it will be $75 and one more week, but this time he’d definitely get it done.  And after you get it, you notice that the pocket is sewed on slightly funny and the trousers don’t fit quite the way you’d expect.  Would you be steaming mad now?

Yeah, I would too.

This example is an all too common reality for companies who outsource IT projects based on low cost rather than quality, skills, culture compatibility, and past performance. And consider this: the Aberdeen Group has reported that 51 percent of US companies said that their offshore partner was not performing to their stated expectations.

However, it’s very possible to mitigate this failure rate and form a very successful outsourcing partnership if your decisions consider the right criteria from the start.

The Crucial Criteria

IT outsourcing decisions are complicated, as an ATKearney report summarizes:

“Today, the number of locations suitable for business services offshoring is greater than ever. For companies that is a boon, but the availability of choice also increases the complexity of designing the optimal footprint.”

Precisely because of this complexity, in selecting an outsourcing partner, you must focus on the criteria that will maximize your success:

  • Skills. Your outsourcing partner must have the exact skills to perform the tasks for which it is being contracted. Many companies have been disappointed with their outsourcing partners when serious milestones were missed or implementation issues arose. Subsequent investigation revealed that the outsourcing partner did not possess the complete suite of skills or it only possessed them at a basic level when a more refined level was needed.
  • Flexibility. Rare is the IT project that experiences zero bumps in the road, so the ideal outsourcing partner will understand this reality and build in flexibility. This means the ability to find different approaches or techniques when diverse problems threaten progress.
  • Cultural Compatibility. As we explored recently, understanding the culture of your outsourcing partner is vital to making a successful match. It enables successful communication, clear expectations, and a good working relationship that produces results.
  • Previous Performance. The best metric for evaluating a potential partner is the success of their relationship with other companies they have worked for. If they’ve provided good service to companies that contracted them for similar services, you can be confident that they will do the same for you. If not, that’s a major red flag that not even price considerations should lead you to ignore.

By prioritizing these criteria, you will keep the factor of price in perspective. It’s well worth it to pay a bit more for a team that will get the job done right the first time, without the hidden costs of extended deadlines and increased costs to complicate the process. This approach provides higher quality and better value in the end.

At EDZ Systems, we know building successful outsourcing relationships requires a lot more than a low price. Our matching analytics and technology go deep into expertise, culture, personality, compatibility, language, past performance and accuracy to help companies optimize their resources, their outsourced projects, and their results. With the right match, and the right balance of quality and price, you can maximize your in-house capabilities through successful outsourcing partnerships.

How do you find the balance between quality and price considerations when outsourcing IT? Tweet us @EDZ_Systems with your thoughts!