Outsourcing your Customer Service function could be the best strategic move your company makes. If you haven’t considered outsourcing because you believe Customer Service is a critical support function to your core competency; you may be surprised to find that that is often the primary business driver to justify outsourcing! Leveraging the expertise and best practices of a third party whose core competency is Customer Service could prove to be a key differentiator for your company.

 

 

The most common reasons companies outsource their Customer Service are:

 

--Resource management – what are the total resource costs associated with your financial, human and intellectual capital?

--Growth strategies – build versus buy analysis, seasonality and capacity constraints

--Gain competitive advantage through utilization of other knowledge management opportunities

--Physical plant space limitation – decision to buy or build

--Labor issues – cost and availability – can we keep the service center staffed to provide the required hours of coverage to support the business in a cost effective manner?

--Inefficient or ineffective operational expertise or technology

 

While the decision to outsource is complex, the process typically begins with a capital resource analysis. A thorough review should include the total human, financial and intellectual capital cost implications of insourcing versus outsourcing. Careful attention must be paid to both the soft costs and hard costs associated with this decision as well as the cultural implications of the process and change management concerns.

 

 

Human capital costs cannot be viewed simply as a factor of labor and fringe benefits. An accurate comparison must include the total cost of recruitment and retention; ongoing managerial, administrative and legal support, as well as the physical plant overhead or other cost allocation from headquarters. Additional costs which must be considered for a thorough assessment:

--What is your annualized cost of employee recruitment and retention?

--What are the annualized costs of training and compliance?

--What are your costs of absenteeism and turnover?

--What are the managerial costs to maintain this staff?

--What are the ongoing costs of technology, support, and administrative maintenance and materials?

--What is your exposure to harassment, workman’s comp, unemployment and other legal implications?

--What is the square footage overhead allocation for those employees?

 

In addition to possible cost savings on the recruitment, retention, training and management of these employees, additional advantages of outsourcing are:

--Ability to free valuable staff resources to focus on more critical strategic initiatives

--Allows companies to avoid excess staffing to cover peak operational needs or seasonality staffing requirements. This creates inefficiencies not only within customer service personnel but also the training and quality assurance teams as well as management infrastructure to support those staffing levels.

 

In smaller companies, outsourcing helps to mitigate the risk factors associated with staff in critical roles. The loss of one or two of these persons on a small staff can have serious impact to the overall knowledge base.

 

Because outsourced service providers become experts at implementation, configuration, customization and operations, standard customizations and integration tactics become best practices. However, the best outsourcers are still able to adapt to the unique needs of each of their customers.

 

 

In addition to the financial implications of human resource capital, the financial capital analysis should also take into consideration:

 

--Your company’s current ability to attain operational efficiency, support growth and meet the scalability needs of your operations.

--Your ability to provide disaster recovery and business continuity to ensure recovery from any major business interruption such as fire or acts of God.

--Costs of technology:

--Acquisition, implementation, integration, and support

--Hardware, software, and peripherals equipment acquisition, maintenance and support

--Fixed voice and data connectivity and the monthly usage and maintenance.

 

Once these costs have been analyzed, companies often will find that outsourcing’s greatest advantages include:

 

--Ability to build to economies of scale in technology and related services.

--Ability to convert a fixed cost into a variable cost – pay as you go versus pay all of the time.

--Save money and provides greater flexibility and responsiveness to meet the business’s needs and demands; especially those associated with disaster recovery and business continuity planning.

 

The size of the firm considering outsourcing also matters greatly. Smaller firms often have smaller pools of resources and budgets. Oftentimes they are unable to afford the technology or build the required disciplines, procedures and technical skills (best practices) to effectively support their customer service needs. With smaller firms, outsourcing allows companies to grow their businesses more quickly without the burden of heavy capital investment in physical plant and personnel; especially if they are experiencing rapid growth. Smaller firms also report difficulty in maintaining the expertise in house. This is frequently caused by the fact that smaller firms lack the ability to compete with larger firms on pay and benefits and can often become a training ground for their employees’ next opportunity. This turnover cost can be significant to smaller firms.

 

 

Intellectual capital cost implications are typically the most difficult to quantify but also tend to be the most critical cost factors in the overall business case analysis. These costs include assessing the value and costs to develop and maintain expertise and best practices internally as well as the requisite managerial attention to support those functions. The greatest competitive advantage to outsourcing may lie in this area because outsourcing non-core functions allows critical team members the ability to have a singular focus on strategic growth and not be distracted by the day to day tactical issues related to managing non-core activities. In addition to freeing those valuable resources to focus on strategy, it also provides them more time to focus on metrics and analytics which are critical to the strategic process as well.

 

 

From a cultural perspective, it is important for companies to honestly evaluate the role customer service plays in their organization. While all businesses value their customers and understand that their customers will either keep them in business or shut down their doors; to really understand the value your organization places on customer service you should ask yourself the following questions:

 

--How much of your annual budget is allocated to customer service?

--What role does customer service play in your strategic planning process?

--What is your cost of customer acquisition versus retention?

--How much do you budget annually for training and quality assurance for your customer service team?

 

If you don’t know these answers readily, then there is a strong likelihood that customer service is not a critical focus in your organization. However, if customer satisfaction and return sales are keys to your ongoing sales performance, this may be reason enough to outsource to a company whose sole focus and core competency is customer service. While they may not have the same level of product knowledge as your internal team, that knowledge can be trained. It is much easier to train product knowledge than to change internal cultures.

 

Oftentimes companies fear that outsourcing specific functions within their companies will send a message to their team that they do not value them. However, in today’s competitive job market, what companies often find is that when they outsource their customer service department, they often free up knowledgeable individuals to fill more critical roles in their company. In the end, outsourcing can provide great growth opportunities for those persons and the company.

 

 

The biggest mistakes companies can make in the outsourcing analysis process is focusing only on the hard costs and ignoring the soft costs which can typically be two to three times greater when honestly evaluated. From this approach, companies often erroneously conclude that outsourcing is dramatically more costly. It is critical that all of these costs be objectively analyzed and quantified, not assumed. Companies who take the time to complete the analysis are often shocked at the final cost comparisons.

 

While there are many reasons outsourcing can make sense, it should never be used to cover up other operational problems or quality issues. These will likely result in a failed outsourcing attempt which reduces the overall cost savings and creates other complications in the value chain.

 

 

As you continue down the path of reviewing the viability of outsourcing, there are a number of other questions that your team needs to be thinking about during the analysis process. It is good to have a firm understanding of how you will address these concerns in the event you decide to outsource.

 

As you consider possible vendors, do you want to be a big fish in a little sea or little fish in a big sea? This will determine what type of outsourcer you will engage with. What are the implications to your internal and external customer culture of outsourcing onshore, near shore or offshore? Do you want to move to 100% service outsourcing or do a more gradual approach such as outsourcing overflow and after hour’s service first before making the move and if so, how would you manage that transition?

 

These are the types of questions a competent and reputable outsourcer will be happy to work through with your team.

 

 

The strategic implications of outsourcing can be profound. While outsourcing is not for everyone, it should be evaluated periodically to ensure your company is on the best strategic path. Either way, the in-depth review of your total cost structure that you will gain from this process, is worth the investment. Outsourcers are successful because they are able to gain efficiencies at repeatable processes and this can save companies money and time as well as improve their overall customer satisfaction, which is really the bottom line.