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Balancing Savings and Performance in Outsourcing

outsourcing, service performance, budget, profitability

The first step to building a partnership with an outsourced service provider is to ensure your goals are realistic, achievable and aligned.

Often only two goals are considered as important in the outsourcing relationship: the client's goals of service performance and budget objectives and the service provider's goal of profitability. While these are not the only goals you should keep in mind, it is essential that these two goals be realistic. In a nutshell don't cheap out your service provider and don't take a bid just because it's the lowest one.

A partnership cannot survive if the service provider over-promises savings and finds itself unable to deliver the savings while maintaining service levels. Increasing competition and the large scale of many outsourcing companies reduces costs, but it's important to realize that the outsourcing company is in business to make a profit. The reality is simple: When your service provider is losing money, it can't give you the service you need.

So, while the goal of many procurement exercises is to reduce costs, the scale of the reduction should be reasonable if a partnership is to succeed. There's a direct relationship between service levels and resources, and resources cost money.

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