Save to grow: Cost efficiency and price vs. value in outsourcing decisions

Serengeti

Business

28.04.2020.

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What is important to western European countries when they consider outsourcing partners?

We recently came across some research on this -- and it tends to apply in other parts of the globe too. Here were the “big five:”

  • Cost efficiency (85%)

  • Flexibility (85%)

  • Quality of service (78.2%)

  • New technologies, i.e. Cloud, IoT, machine learning (74.4%)

  • Industry knowledge and experience (48.9%)

What is “cost efficiency?” Sounds like a buzzword.

For sure. We say things like this because it can be uncomfortable to discuss cost. Organizations do not want to spend tons of money -- they have budgets they need to protect, obviously -- but they don’t want bad work either. So the answer is not “Get it cheap,” because “cheap” usually can mean “bad.” But the answer is also not “Pay a lot of money,” because “spent money” does not always mean “best project.” 

When we talk about “cost efficiency,” this is usually what we are actually discussing: cost and value. The cost of something should reflect the value. If you found a time machine and went back 25 years and told people “Someday, you might spend $1,100 USD for a phone in your pocket,” they would laugh at you. That would be impossible to even consider. But if you told them “This phone will also have games, and memes, and your banking information, and the ability to reach friends…” Well, now someone 25 years ago might be saying “This seems valuable…” Once they see the value of it, the cost they will tolerate can come up. 

“Cost efficiency” for an organization usually means “This seems to be fair based on the value I will receive.”

“Cheap” is a relative term, however

Consider us briefly. We have functional knowledge, expertise, domain expertise, etc. That’s why we were one of the fastest-growing IT companies in Croatia in 2019. We extend your team so that projects do not fall behind.

So, whether we are “cheap” or “expensive” is a completely relative term. As you research, you could go see what people say about us on Clutch (a B2B review site), for example, and then make a determination on cost and value.

Consider: When you go for a cheap option, one common problem is that the resulting project is not great, so you need to pay someone else to do it again. That means you just paid twice for a project that you should have paid once for. That adds to costs, and unnecessarily at that. 

Why not just pay experts to do it right and do it once? You end up saving money. 

And then, if you have another project they can work on, great. If not, you end the financial arrangement and come back to them later when a new project arises.  

You can’t just think of costs as “We spent this money this time and that is the cost.” Cost is part of a bigger relationship between your company and providers and between your company and customers (i.e. what you will end up charging). It’s an ecosystem, not a one-time decision. So when you think about cost efficiency, realize that there are many inputs to the discussion. It’s all part of the science of “cost-benefit analysis.”

Speaking of multiple inputs …

… when you look at different outsourcing partners, as the top of this article mentions, there are several key factors that you take into account. Cost efficiency is a major one, but not the only one. What should you be looking at in an outsourcing partner? How do you know you are getting what you need?

Here’s a checklist to guide you:

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