You can't cut costs to profitability!

Dave Sobel

At times, solution providers befuddle me. As service organizations, the most important part of the engagement with end users is the ability to provide strong customer service. As such, it’s why choosing strong vendor partners is so critical. Solution providers take to listservs, online forums, and face-to-face meetings to complain loudly and strongly when a vendor lets them down. This is to be expected and encouraged – MSPs depend on their vendors to deliver high quality service so that they, in turn, can deliver on their SLA’s to their end-user customers.

Customer-ServiceBuilding those partnerships is critical, and some portions of a business may be outsourced or delivered through a third party.  For example, most MSPs are leveraging cloud services delivered by a third party rather than building their own data centers. This is a wise decision, as the scale required to build a data center with the level of redundancy is extremely high and costly, and most MSPs are best served by using someone else’s, and then adding their own management and customer service skills on top of that to deliver a comprehensive, complete service.

People are the key resource in an MSP’s organization. In order to deliver high quality customer service, it’s important to have solid people under the MSP’s management. An investment in people will always pay for itself through improved service and allow for the MSP to deliver higher value service at higher margins.

Thus, I’m confused when a solution provider elects to outsource sections of their business that are devoted to customer service to an organization where they know the service is lower than their expectations, but view it as a way to “save money” by using a lower cost set of labor. When your value is tied to your service delivery, and you know that vendor delivers a lower level of service, why would you outsource key functions to them, citing the fact that it is simply a “financial decision”.

This seems like madness to me. Controlling the level of your end-users experience is key, and you cannot cut costs in this area to profitability. While cost of service is important, it’s not the only factor to consider. The quality of the engagement matters, and a vendor who you know delivers lower levels of service than you require will not help your business, regardless of how much cheaper they are.

Just because your payroll is lower doesn’t mean you get the same level of control or experience as with your own people. This is a key factor in how you design your services – I believe in outsourcing as much as possible, but never your core capabilities. If customer service is your core responsibility, these are human resources that need to be under your control. Think carefully about your investments and your partnerships, as you can’t cut your costs to profitability forever.

As always any thoughts are always welcome...just leave a comment below!