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Outsourcing Strategy: Measuring Returns on Outsourcing

The research carried out by a Dun & Bradstreet revealed that the worldwide figure for outsourcing expenditure in year 2000 was $1 trillion. The report also shows that United States’ contribution to this figure was $318 million. Obviously, outsourcing strategy is used massively by companies to cut operational costs, while keeping up high quality in a dispensation of rapid technological change.

In addition to massive cost saving, companies also use outsourcing as a strategy to focus on what they do best by redirecting management’s attention from business functions to core activities that enhance corporate image. Obviously, outsourcing is a partnership venture whereby the partnering vendor handles the client’s specific business functions faster, better and at a significant reduced operating cost. However, successful outsourcing strategy requires measuring the returns properly.

Measuring Outsourcing Returns – The Techniques

Companies can only improve the benefits accruing from outsourcing by setting up and supervising performance metrics continuously. Typically, three major areas or factors require monitoring and measurement in the course of an outsourcing contract. These factors are;

1. Lower or Reduced Cost; typically, an organization should look forward to achieving cost savings beginning from the initial 3 months of the contract. If offshore outsourcing is involved, the outsourced company should keep an eye on the rates, while factoring in productivity as well. In essence, if the offshore company is paid half of the current cost in the outsourced company, it would be less beneficial if the work of an individual is done by three persons. Therefore, it is necessary to measure costs adjusted for productivity.

2. Responsiveness; the outsourced company should ensure that a vendor has pre-existing and proven technique for relating with client’s management team steadily and regularly. The outsourcing firm should also have a process for responding to requests speedily. If the response time is not rapid, reduced costs may not be achieved. For instance, there should be quick response to critical issues such as malfunctioning database.

3. Rapid or Swift Cycle Times; also, outsourcing strategy should provide significant time reduction when it comes to implementing new project innovations or ideas. Thus, if swift cycle time is combined with reduced costs advantage, a company will fully enjoy the actual synergy resulting from outsourcing contract. Subsequently, the viability of a new project is enhanced as a result of increased cost-to-benefit-ratio.

From the foregoing, proper performance measurement using the metrics above is the best way to make most of outsourcing. The contract will be mutually benefiting when both parties play their role properly. This goes without saying that proper selection process is also necessary in choosing the right outsourcing partner for your business functions. If you desire to hire the most qualified outsourcing company, get help here.

Daven Michaels is an award-winning outsourcer and author of the book, ‘Outsource This!’ Daven has been honored more than any other individual or outsourcing organization. You can get more information on outsourcing by visiting http://www.123Employee.com


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