January 2003

Outsourced CRM: Keep The Strategy, 
Lose The Infrastructure

By Peter Allen And Mike McMenamin, TPI, Inc.

In the past several years, CRM has become one of the most promising, compelling and confusing concepts. CRM ' which on a high level encompasses the thorough understanding of customers, how to interact with them, how to make that process more efficient and how to satisfy and support them with products and services ' brings together business strategy, business processes, business applications, IT infrastructure and supporting technologies and platforms. In short, CRM puts customers in the center of the enterprise and organizes around them, as it should.

Perspectives on what the concept of CRM means to an organization can vary greatly. Some see it as a series of IT projects, some view it as a software implementation and some as a technology deployment. Others perceive it as a combination of business processes and technology applications that support customers.

Because the supporting CRM technologies and processes are highly complex and usually require intricate integration and implementation of major business applications across the enterprise, they are prime candidates for outsourcing to third-party specialists. However, while the contact center and the CRM infrastructure in an outsourced CRM environment are managed by an external third-party, the CRM strategy must remain in your control, not the service provider's. Control in this context means leading all actions taken by the service provider. This is the only way to ensure that all parties ' including your company, its shareholders and customers ' are duly served by the CRM initiative. More importantly, it's a requisite for survival. No one knows your customer base better than you do. Likewise, you understand your overall corporate strategy better than anyone else. With today's down economy and a plethora of companies vying for your customer's attention, your ability to compete and expand lies in tying your CRM strategy directly to your corporate growth plans. 

First, some important points to consider with an outsourced CRM initiative.

The Challenges Of Outsourcing CRM
A few years back, GartnerGroup referred to CRM as 'the concept of moving ownership of the customer up to the enterprise level and away from individual departments. The departments are still responsible for customer interactions, but the enterprise is responsible for the customer.' As this shifting of customer responsibilities continues across organizations, it causes much debate regarding the enterprises' CRM strategy and approach. Likewise, when it comes to outsourcing CRM, many internal obstacles exist.

The first obstacle many organizations face is the lack of a well-defined CRM strategy that is clearly tied to its business strategy. When a clear CRM strategy, which is backed by an executive champion who connects it to the company's strategic business plan, exists, the future direction of the organization becomes clear. Because the organization understands what it needs to do to improve customer support, service and information, it is often in a better position to make decisions on whether to outsource. However, in most cases a well-defined vision does not exist. The result is internal debate and confusion among the marketing, sales, IT, finance and service departments about what needs to be done, who should do it and how to fund it.

Because CRM directly touches the customer, it is an extremely sensitive and highly strategic component. Often, the proposal to outsource CRM is met with protests that equate to abdicating responsibility for the customer to a less concerned, less knowledgeable third party. In addition, since CRM has many different internal constituencies, achieving consensus on outsourcing CRM functions is often difficult. However, when organizations begin to look at CRM as a collection of integrated strategies, applications, platforms, technologies, processes and people, they begin to see how outsourcing the CRM function can help them meet their strategic, competitive and financial goals.

When Does Outsourcing Make Sense?
While current economic constraints may have changed business priorities, customer satisfaction remains at the top of the list. Consequently, if enhancing CRM systems and processes through alternative sources can improve customer interactions, available customer information and customer service, organizations have a strong business case for outsourcing. These business cases to justify CRM outsourcing projects will require tangible benefits to customers, shareholders and the business' bottom line. In addition, as mentioned earlier, if the organization does not have a cohesive CRM strategy (connected to the business objectives, with executive support), these outsourcing proposals will flail, and fail. 

The decision to outsource starts with an honest assessment of a company's core capabilities versus those of an experienced CRM services provider. Can the service provider deliver the systems and services better, faster, cheaper and with less risk? Do you have the talent, experience, project management, business process management, application, implementation and systems skills required to get this done right? Does the service provider bring some extra value to the transaction that you do not have or could not efficiently build? Do you have the ability to select a service provider, put together a contract and effectively manage the delivery of services to the business? 

While the answers to these questions are some of the more common issues to consider, a less obvious strategic value of CRM service providers is their ability to function as a catalyst for change and action within the enterprise. They are focused and often able to lead the organization to a destination they could not get to on their own. 

Aligning Business Plans, CRM Strategy And Technology Direction
A CRM strategy is ultimately an organizational roadmap connecting business strategy, business processes and supporting technologies. It focuses on achieving profit and revenue goals by improving how customers are treated, supported and serviced across the enterprise.

The CRM strategy defines how the organization wants to treat and interact with its customers (and its prospects). The CRM strategy defines the channel strategy, the Web strategy and the intended utilization of the contact center. It defines how customers will be segmented and how different segments will be treated. This in turn feeds the technology strategy and plan, defining what business processes, business applications and supporting technologies are required. Frequently this leads to re-engineering dated business processes, making account information available to customers and creating self-service options online for customers. In many cases, this drives the need to integrate or modernize existing systems.

While a CRM strategy can help create organizational alignment, executive sponsorship can help move the business to take action. Without executive support from the top, conflict, confusion and indecision will reign, leaving the CRM strategy in limbo. A strong executive sponsor will be an advocate of improving customer care to create competitive advantage and to ensure that business case benefits can be achieved, driving the initiative forward. 

In order to gain support across the organization, the executive sponsor and his constituents should create momentum with early successes and incremental improvements. Changes in processes and systems should also address pain points. The ability to segment customers, interact with customers across multiple channels, offload contacts and transactions to the Web and enable a one-to-one approach to customers will drive improved customer satisfaction and improved business performance. 

Retaining Control Of CRM Vision And Strategy In An Outsourced Environment 
If the enterprise is going down the right road and has developed a CRM vision aligned with its business strategy, it does not contemplate giving up the strategy component when it evaluates a CRM outsourcing decision. Instead, the enterprise retains ownership of the CRM vision and business strategy, and uses the outsourcing service provider to enable or implement parts of the strategy through a major implementation, modernization or outsourcing arrangement. 

In any outsourcing scenario, the organization must have some experience and competency in sourcing relationship management to ensure that the leverage, capabilities, benefits and business value contracted for are, in fact, delivered. Most organizations have some knowledge and capabilities in this area, but most would be well-served by enlisting the help of sourcing advisors to reduce risks for major transactions. 

The Sourcing Relationship Management Success Formula
The major competencies necessary to manage sourcing relationships are performance management, financial management, relationship management and contract administration (see Figure 1). The business needs to staff the governance team with its own people and ensure they have the proper skill sets to perform their functions. The governance team will help ensure the right work is done right, that work performed is in compliance with the contract, that costs are valid and that the company is ultimately satisfied with the services delivered. 

Figure 1

Staying Connected To Customers
When business processes like technical support, customer service and telesales are outsourced to a service provider, the organization must take steps to stay in touch with its customers. This is often accomplished by retaining certain functions that significantly impact the quality and tone of customer interactions. For example, retaining oversight for portions of the training curriculum for new customer service representatives (CSRs) can help address the desired 'soft skills' in interacting with customers. Providing periodic spot training to CSRs can help address how to handle special circumstances that arise when delivering products or services to the customer base. Finally, company approval of CSR scripts or interactive voice response (IVR) changes, regular monitoring of customer calls and retention of the responsibility for handling certain types of problem escalations can allow the CRM governance team to retain control of the customer interaction and experience.

Careful performance monitoring and measurement of the service provider's work (speed to answer, first call resolution, escalations, quality rating, etc.) will help to improve the productivity and quality of the customer service and support functions. Likewise, the improved use and analysis of customer information should provide business intelligence about customers that can enable increased sales, improvements in services and greater customer satisfaction. 

Tips From The CRM Strategy Retention Front
Some organizations have done a stellar job at retaining their CRM strategy while outsourcing the contact center, infrastructure and processing to third parties. For example:

The ISP technical support contact center for a regional telecommunications company:
' Provides scripts to its service provider for their CSRs to use;
' Monitors agent calls weekly, and service provider management monthly;
' Calibrates CSR quality assurance scores with the service provider;
' Visits the contact center monthly, meets with CSRs and recognizes top performers; and
' Reviews detailed performance statistics daily.

The toll-free customer service product information center for a consumer goods manufacturer:
' Visits the center every month and works directly with the CSRs;
' Personally educates the CSRs on new products, issues, product use, etc.;
' Monitors calls and conducts quality assurance calibration sessions with service provider supervisors and CSRs; and
' Has problem calls escalated directly to its own customer care team.

The telesales organization for a nationwide PCS provider:
' Requires that the service provider connect to/use its systems; and
' Retains significant control over how new CSRs are trained (duration of training, training content, testing before new agents get on the phone, etc.).

Retaining Key CRM Thought Leaders And Customer Care Experts 
In most customer-driven organizations, CRM thought leaders and customer care experts have developed and evolved. These people hold many different positions, but they are often the champions of CRM, striving day in and day out to serve the business' customers. They often have unique backgrounds that qualify them for this role, and they almost always bring a perspective from time spent on the customer side. These people must be retained when CRM functions are outsourced, and they can act as key members of the governance teams, providing guidance and insights to service providers striving to improve customer interactions and satisfaction. 

Amidst today's competitive marketplace, outsourcing CRM may provide your organization with the pathway to competitive advantage. A carefully managed outsourced CRM environment holds the potential of improved customer sales and service channels. However, when leveraging a CRM service provider's expertise and capabilities, you will want to be sure to develop and retain a comprehensive CRM strategy. After all, only you know where your organization is going, and you will want to be sure your customers follow you there. 

TPI, a sourcing advisory services firm, has advised over 500 sourcing transactions with a total contract value of more than $300 billion since its inception in 1989. TPI assists clients with the evaluation, negotiation, implementation and management of IT and business process sourcing transactions. Peter Allen, TPI managing partner, possesses global service delivery, practice development, new services development, industry relations, business intelligence, account planning, account management, sales and marketing expertise. Mike McMenamin, a TPI project director, has more than 25 years of experience in business process outsourcing, IT outsourcing, Internet, e-commerce, CRM, ERP and application design, development and implementation.

[ Return To The January 2003 Table Of Contents ]

Separating Myth From Reality: How Outsourcing Can Improve ROI And Lead To Greater Profitability

By Tom Antunes, Convergys Corporation

Outsourcing is a business practice that is often too easily dismissed because of long-held misperceptions. We often hear that 'it's more expensive to outsource' or that 'customer management is too strategic to be handled by a third party.' Myths like these have influenced many service providers to keep their billing or customer care operations in-house.

Yet in the face of declining average revenue per user (ARPU), increasing competition and significant incremental capital investments in billing and operational support systems to launch new VoIP and 3G services, the practice of 'doing it all in-house' is undergoing re-examination. 

The following offers a look at some of the more pervasive myths about outsourcing, as well as compelling evidence against them.

Myth number 1: It's more expensive to outsource.
Reality: It's more expensive not to outsource.

Cost is one of the most important factors to consider when evaluating an outsourcing offering. To make a fair comparison, a provider's business case for outsourcing should compare the projected total cost of ownership (TCO) of outsourcing versus TCO if the work were to be done in-house. When performing this comparison, all costs must be considered, including:
' Administrative costs, including human resources, taxes and facilities;
' Cost of capital (financial cost) including hardware, capital depreciation and software;
' Future expenditures for development, implementation and migration costs to develop a new solution in-house; 
' Research and development for evaluating new technologies and value-added services; and
' Consultants and other contract services.

Most providers find that with outsourcing, TCO is often less than keeping operations in-house. Cost efficiencies can be maximized because outsourcing provides the ability to add/subtract resources to match project and volume needs. Additionally, since providers who choose to outsource share facilities and the information technology infrastructure of the outsourcer, capital investments are lessened, helping drive down the overall cost per transaction.

Myth number 2: Outsourcing decreases control over data. 
Reality: Outsourcing puts you in control.

The provider will always own subscriber information and retain the choice of how to service those subscribers. Nevertheless, the outsourcer must take ownership of performance. To that end, service level agreements (SLAs) should be established during contract development as control parameters for the performance. Such parameters give the provider control by making certain that the outsourcer maintains an acceptable level of response to both subscribers and to the provider and by clearly defining the legal ramifications and/or penalties if that response is not met. Common areas monitored by SLAs for billing operations include system response time, system availability, bill timeliness and completion of system enhancements. 

Other parameters that can also help the provider retain control include establishing and/or defining:
' Minimum staffing levels;
' Change management requirements; 
' Control reports;
' Escalation process for issues;
' Release/version control measures;
' Data security; and
' System accessibility.

Myth number 3: I can do it myself, really.
Reality: You have more important things to do'really.

Historically, companies that attempt to build billing operations in-house are faced with internal departmental competition for financial and human resources ' competition that can be magnified by internal politics, which ultimately delay major project completions. Outsourced billing contracts circumvent this problem through the development of milestones and timetables that document each phase of the system development process with associated due dates, enabling providers to maintain complete control of the entire process.

Furthermore, today's tight economic environment requires providers to make smart choices regarding how best to use available resources. By outsourcing billing and customer care, a company can concentrate its knowledge capital on growth strategies, pricing and product development and delivery issues and allow the outsourcer to worry about investment in capital assets and items such as training, quality assurance and staff development, which are included with the most effective and sophisticated outsourced solutions.

Myth number 4: My outsourced system won't change to meet my needs.
Reality: Outsourcing provides more system flexibility than in-house development.

Actually, it is often difficult for providers who keep systems in-house to stay on top of changes in technology and industry standards. The cost of maintaining such expertise alone can be overwhelming to those who choose in-house development. Customization of the system can be difficult to support along with the management of day-to-day operations.

Instead, outsourcers can maintain such expertise and put economies of scale to work for individual clients. That way, each provider has access to a dedicated staff of experienced developers whose core competency is to develop new billing systems and applications to support corporate business and technology strategies.
Moreover, the outsourcer's annual spending in R&D 'future-proofs' billing products, minimizing the amount of system development required both at the start of a provider's billing relationship with the outsourcer as well as throughout its lifecycle. 

An outsourcing environment also allows providers access to a flexible migration path for clients to expand billing and customer care capabilities without loss of initial investment and greater expansion capabilities into new vertical markets or support systems.

From Reality To Profitability With Outsourcing
In truth, there are many operational, technical and financial considerations that must be weighed when determining the right approach to an outsourcing relationship. Dispelling pervasive myths about outsourcing is only the first step in helping providers move toward this operational choice. Ultimately, the decision to continue with an in-house operation or to partner with an experienced outsourcer will be based on the provider's comfort level with the outsourcing company, its technology and other factors. If you're a service provider considering outsourcing as an option, visit the outsourcer's data center, more than once if necessary. You must be comfortable with where your data will be housed and processed.

Don't simply rely on what you hear during planned visits and sales presentations when assessing an outsourcer's solution. Rather, get to know the organization that will be handling your account and try to gain a thorough understanding of how the relationship will work on a day-to-day basis. You'll need to know not only how issues will be resolved, but also the people who will be addressing those issues. 

Get references, and check them. Talking to other clients cannot only help you understand how well the outsourcer builds relationships, but will also provide valuable insight on what to do, and what not to do, in building your own outsourcing relationship.

In today's tough economic times, many companies are re-thinking business models ' transforming existing operations to increase revenue and reduce operating costs while ensuring customer satisfaction and loyalty. When all is said and done, outsourcing billing operations can have many positive impacts on these efforts, including helping to improve corporate earnings and achieve sustainable performance benefits for the companies who choose to do so. 

And that's no myth.

Tom Antunes is vice president of Convergys Product & Industry Marketing. Convergys Corporation, a member of the S&P 500 and the Forbes' Platinum 400, is a global leader in integrated billing, employee care and customer care services provided through outsourcing or licensing, serving companies in more than 40 countries.

[ Return To The January 2003 Table Of Contents ]