Evaluating Outsourcing Success: Metrics and KPIs to Watch

Outsourcing any area of your business requires monitoring both quantitative and qualitative metrics. This is your only way to gauge the success of your outsourcing partnership. In most cases, your outsourcing metrics will be set out in your service level agreement (SLA).

However, they need to be predefined before you even begin the relationship. If you are staring at a blank page with the cursor blinking at you, not sure of where to start, this post is for you.

Below, we point out some essential outsourcing key performance indicators (KPIs) to give you a head start. Let’s begin.

Key outsourcing metrics and KPIs to monitor

It doesn’t matter which area of your business you have outsourced to a third-party partner — from customer service, call centers, IT and software development, or anything else — having clear performance measurement metrics to evaluate the performance of your partner is key.

Here are a few of the essential metrics to monitor:

Output quality

You probably already have quality standards in place for your team to follow (before commencing the outsourcing partnership). It’s important that you apply these standards to your outsourcing partner to ensure that they are consistently meeting or even exceeding them. Examples include evaluating code samples, carrying out code reviews, identifying issues for code quality, in the sphere of software development in particular.

Testing is a major part of this process and by adhering to industry best practices, your outsourced partner should be able to ensure you are compliant with industry regulations and meet customer expectations at the same time. All this while guaranteeing service quality.

Customer satisfaction

Speaking of customer expectations, customer satisfaction is the final stamp of approval as to whether or not your outsourcing partnership is yielding the results it should. To determine your customer’s satisfaction levels, you can conduct surveys, collect feedback, and review customer testimonials. When looking at customer feedback, consider including quantifiable deliverables such as the time to resolution, accuracy of completion, net promoter score (NPS) assessments, etc.

Customer churn rate

Following on from customer satisfaction, you should also monitor your customer churn rate. This refers to how many customers had initially signed up for your product or service and how many have chosen to part ways with your business. A loss of customers is a clear indication of whether your customers are happy or not and whether your outsourcing partner is doing a good job.

Cost savings

Cost savings are the next big metric to monitor. You need to ensure that you’re getting the best value for money and that there are no hidden costs that continuously creep into the financial equation. Whether it’s a fixed project fee or you’re paying hourly rates, it’s essential to compare these against industry benchmarks. Make sure that your costs do not exceed the amounts you have allocated for in your budget. Don’t forget to take into account expenses such as overheads, travel, and others.

Communication metrics

Here, we are not only talking about language proficiency. Instead, we go further than this and raise the issue of responsiveness. How does your outsourced partner communicate with you? How frequently? And importantly, is the communication productive in that it resolves important challenges or issues?

Delivery metrics

You also need to measure time-based metrics. In particular, on-time delivery. You must be certain that your partner will deliver on time and within the agreed timeframe. It’s vital to monitor progress regularly through predetermined mini-milestones, review project schedules, and carry out regular meetings to ensure that the project’s turnaround time falls within expectations.

Meanwhile, the time-to-market metric measures the time it takes to deliver a product or service from your outsourcing provider to your end-users. Ideally, a shorter time to market could add a great competitive advantage for your business.

Lastly, the transition time relates to how long the handover of your project to your outsourced partner takes. The longer the time frame for handover, the slower your solution will be implemented.

Team effectiveness

To measure team effectiveness, a few sub-metrics to monitor include the following:

  • Cycle lead time
  • Lead time
  • Team execution speed
  • Deployment frequency
  • Schedule compliance
  • Sprint burndown
  • Code churn
  • Mean time to detect defects

Employee retention

This metric measures how many of your team members stayed with the company for a given period. It’s an excellent way to determine employee engagement and happiness. Consider using surveys and project management tools to determine attendance, schedule adherence, and overall productivity as a result of the partnership with your outsourcing partner.

As for your outsourcing partner, consider monitoring their attrition rate, or how many of their employees leave during the duration of your relationship with them.

Operational efficiency

Operational efficiency measures improvements in efficiency that are a result of your outsourcing relationship. You can consider factors that include labor utilization, process automation, error rates, and others. It is closely linked to improvements in productivity. And this leads us to our last metric: business growth and return on investment (ROI).

Business growth and ROI

The ultimate test for your outsourcing relationship will be whether your business is stagnating or thriving. This business growth is often expressed as high ROI. The higher your returns on investment, the more revenue you are earning, and the higher your profits: the ultimate aim for most businesses. With high levels of profitability, this really is the metric that determines whether you made the right decision for your business in deciding to outsource. However, it should not be looked at in isolation and should always be considered in conjunction with the other metrics mentioned above.

Conclusion

When you’ve chosen outsourcing, you need to be well-equipped to handle the partnership in the months and possibly years to follow. For this, you need to have key metrics and KPIs in place, both quantitative and qualitative, to measure the effectiveness of your relationship. If you are looking to maximize the success of your outsourcing efforts, we invite you to contact us at StorsenDigital for expert insights on measuring and optimizing your outsourcing performance.

Published: April 14, 2024

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StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.