June 1999

Co-Sourcing: A Winning Alternative To Outsourcing Call Center Operations

BY FRANK L. FUHRMAN, TELERX

We've come a long way from the early days when "customer care" simply meant "complaint department." Surviving the transformation from a drain on the corporate bottom line to a profit center, customer service departments, as we know them today, are an integral part of the marketing mix. Companies now rely on their customer care professionals to expand their businesses by satisfying customers' needs, strengthening their repurchase intent, nurturing long-term relationships and fostering loyalty.

In turn, many companies outsource this function to specialists. Outsourcing relieves corporations of the need to develop and maintain internal resources  and helps assure all customer contacts are handled with the utmost quality. After all, the negative impact a less-than-top-notch interaction can have on business can be significant. Studies indicate that customers whose issues are not handled sufficiently tell eight to ten people about their negative experiences  twice the number they would tell if their experiences had been positive.(1) This can create serious market damage for any company.

However, many companies are hesitant to outsource this mission-critical function. They fear a loss of control and confidentiality. They maintain this effort in-house, even if they have to struggle to provide the high-quality service levels, professional staff and state-of-the-art technology service agencies can offer.

Co-sourcing is a winning alternative that offers the best of both worlds. Yet, handling some elements of a customer care program in-house and outsourcing others  is an option that has long been overlooked. According to DGY Associates' 1997 call center survey of Fortune 1000 companies, only 7 percent of 228 respondents had an internal call center and outsourced.(2) Typically, most companies either handle all of their customer care contacts internally or outsource them all.

Co-Sourcing Offers Many Benefits
Yet, co-sourcing is gradually gaining acceptance as an excellent option for many companies. Sharing the responsibility for customer contacts allows companies to focus on their core competencies while remaining intimately involved in their customer care programs. It permits them to retain control, one of the biggest fears many companies have with regard to outsourcing.

A co-sourcing partnership offers many additional benefits  particularly in the areas of staffing, technology and the bottom line. Co-sourcing can effectively expand an existing workforce without the costs and hassles associated with recruiting and retaining qualified professionals. It can also free internal resources to do more data analysis and serve as a vital market intelligence source.

Many companies find co-sourcing beneficial when their programs require highly specialized customer service representatives such as health care professionals or individuals with other special skills such as floor installers and licensed agents. They tend to outsource the handling of more complex interactions, deferring the task and expense of retaining and training specialists to their co-source partner. An added value is the exposure internal customer care representatives gain from the knowledge and experience of call center industry experts.

In addition, with two complementary teams, there is always back-up support. Recently, when an insurance company was hit by a severe snow storm, all calls were rerouted to its service agency partner in another part of the country. The teleservices agency mobilized its team. Reps were asked to arrive early and stay late to help handle the extra load. Seamlessly, the majority of the additional customer calls were answered without any negative effect from the storm.

In another case, when a major manufacturer of consumer products had an internal customer service department meeting, all calls were transferred to the service agency to allow meeting attendees to concentrate on the agenda and eliminate interruptions.

Similarly, co-sourcing benefits businesses that are affected by seasonality and experience an ebb and flow in call volume. For example, with a manufacturer of air conditioners, normal call volumes are experienced during eight months of the year. With co-sourcing, the manufacturer need not staff up during the four warmest months when call volumes soar.

The same applies to a coffee company whose call volumes escalate during the winter months, and for a major beer manufacturer whose call volumes soar during the summer barbecue season.

Additional Reasons To Consider Co-Sourcing
Co-sourcing also allows companies to take advantage of emerging technology without the capital expenditure. Most service agencies maintain the state-of-the-art structure needed to support it. Clients are able to benefit from enhanced technology for a fraction of the investment that would be required for them to maintain the technology in-house.

Last, but not least, co-sourcing can have a significant impact on the bottom line. In addition to controlling costs and offsetting internal charges, the DGY Associates' study shows that companies that partially outsource claim the highest average percentage return to investors on an annual basis.(3)

How Co-Sourcing Works
Co-sourcing arrangements come in all shapes and sizes. Often, both partners handle the same level of contacts and just split the load in half. In other cases, the service agency handles specific types of calls that are more or less complex than those going to the in-house team. A company may opt to outsource its tier-one calls (basic name/address capture and basic questions/requests) and tier-two contacts (more complex customer service interactions). The internal department may choose to retain the most difficult customer contacts  those that require a high level of expertise and years of experience. Or vice-versa. The simplest contacts may remain in-house and the more complex ones referred to service agency specialists.

According to the DGY Associates' study, companies that use a combination of internal and external centers are more likely to outsource inbound functions. Companies new to outsourcing are expected to retain exclusive control over inbound sales. They are most likely to outsource inbound service and support as well as outbound sales and service.(4) The flexibility co-sourcing affords allows the mix of responsibilities to change as needed.

Deciding the best way to configure a co-sourcing partnership depends on many issues. First and foremost, the corporation's mission must be clear. What is the goal of the customer care effort? Is it to augment marketing activities, satisfy and retain loyal customers or provide the first line of defense? Is customer care viewed as a cost center or a department that can make a difference in the long-term growth and profitability of the company?

What are the corporation's competencies? Is there in-house capability to run a call center? Is the infrastructure to deal with the associated staffing, systems and training issues in place? Are the systems year 2000 compliant? If not, what role can a service agency play to ease the transition to the new millennium?

What is the comfort level of company executives? Do they feel more secure dealing with confidential matters in-house or does the expertise and experience of a service agency handling more complicated interactions put them at ease? Answers to these questions may depend on the nature of the customer contacts. Often, those with potential medical ramifications or legal liabilities  as well as those that deal with sensitive issues are handled internally. The remaining call types (which can represent as much as 95 percent of the total call volume) can then be handled by the co-sourcing partner.

When these questions are answered and the direction for co-sourcing is clear, it is imperative that the right service agency be brought on board. Make sure the agency has experience with co-sourcing. Understand its focus, core competencies, corporate values and goals. Penetrate its organizational structure and learn what it is really like on the inside. Establish relationships with the professionals who will be involved in the program and evaluate their ability to be cooperative, influential team players and business partners who can add value.

Once the best-suited partner is selected, design a true partnership where both parties are equally important. The success of the program hinges on mutual respect and responsibility. Have clearly delineated goals and roles and a defined process and methodology  in place. Make sure each party understands the tasks for which it is accountable and be sure to monitor the situation on an ongoing basis. This way, roles and responsibilities can change as needed.

In addition, if calls need to be transferred between the in-house team and the co-source partner, be sure a system is in place to eliminate lost or misdirected calls. Assure that every piece of technology that interfaces with the customer care program   both the company's and the service agency's is Y2K compatible. Then, repeatedly test the systems to assure they all work as planned.

When all systems are up and running  and the partnership is moving ahead  the benefits of co-sourcing will likely be evident, and the missing link to providing high-quality customer care that addresses the ever-increasing sophistication of today's customers and consumers will have been found.

(1) "The Information Challenge," General Electric 1982.
(2) "Survey Analysis 1997," DGY Associates, p. 9.
(3)Ibid  p. 6.
(4)Ibid  p. 31.

Frank L. Fuhrman is vice president of sales and marketing at Telerx, a service agency that specializes in call center solutions for customer care. Frank has more than 15 years of experience helping major national companies clarify their customer care goals, set objectives and design strategies for delivering quality customer communications and managing critical information.