May 2000

BY PETER BENDOR-SAMUEL, THE EVEREST GROUP

Banks, insurance companies and other organizations within the financial industry today face the dilemma of increased competition, low customer loyalty and few opportunities to sell something new to their customers; and all the while, it costs far more to recruit a new customer than it does to retain a current one. Without a doubt, these organizations within the financial industry can reap enormous benefits by outsourcing call center and customer relationship management (CRM) services.
The financial industry is clearly on the leading edge of moving toward e-commerce as a solution; and with fungible products such as insurance or money, it is a perfect e-commerce candidate. Necessitating less customization than some other products, financial industry products easily lend themselves to being purchased and bought over the Internet. At the forefront of the e-commerce movement is the financial services industry -- that is also where we find the call center and CRM industries.

Having gone through a huge growth spurt about four years ago, call centers subsequently leveled off as the growth of new businesses leveled off. Although call centers enabled the outsourcing buyers to reap reduced costs, the impact of their service eventually leveled off. In the new world of e-commerce, opportunities abound for call centers to make an enormous impact on the success of businesses. Analysts now predict call center market revenue will exceed $58.6 billion by 2003, and $42 billion will be the outsourcing part of that market.

Outsourcing And Call Centers Share Characteristics For Success
One of the most often misunderstood concepts of outsourcing is its very definition. When an organization outsources one or more of its business processes, it turns over the ownership and control of that service to the outsourcer. The buyer determines what results it wants to buy, but the supplier controls the process and determines how to achieve the results the buyer wants.

A buyer that tries to dictate how the supplier must accomplish the results actually robs its opportunity to take advantage of the aspect that makes outsourcing work -- leverage. Such a buyer will not reap the benefit of the leverage the supplier brings to the relationship. An illustration of this point would be a buyer that tells a supplier how many employees it must maintain in the call center, what their educational level must be, what hours they must work, etc. In an effective, successful outsourcing situation, the buyer will only tell the supplier, for example, that it wants calls answered within a certain amount of seconds at least 80 percent of the time. The supplier will then use its expertise and economies to determine how many employees it needs and what kind of technology it needs to accomplish that level of service.

In outsourcing, leverage is the key to success. Without leverage, the supplier would be unable to provide the business process back to the buyer at a price that is lower than the buyer's in-house cost of performing that service and also enable the supplier to make a profit. Usually, leverage points are economies of scale, expertise and access to capital or other resources not available to the buyer. Standardization of processes enhances economies of scale, and the finance industry definitely has standardized processes.

Suppliers invest a great amount of their capital in ensuring that their employees reach a high level of expertise and capability. In doing so, a supplier is usually able to recruit and retain a higher level of employees. Often suppliers' expertise will allow them to look at a business process from a different perspective and reengineer the process for more efficiency, usually adding new technology. Some suppliers bring one point of leverage into a relationship; others bring a combination of several.

Two additional points of leverage -- flexible pricing and the ability of the supplier to scale easily -- will benefit the buyer a great deal. Again, both of these leverage points are highly possible in a call center.

When outsourced processes are fractured, less value is created than for whole processes. As an example, outsourcing only janitorial services is a fractured process; whereas janitorial services outsourced as a component of an entire facilities maintenance process will yield a far better price and efficiency. It is this concept that has changed in the world of call centers, for they have moved far beyond the days of answering phone calls and giving out scripted information. Many call centers today are combining CRM solution services with answering phone calls, thus turning a fractured process into a more valuable whole process.

The New Movement
In today's marketplace, companies are challenged by rapidly changing technology, dispersed customer bases and new sources of competition. Companies are being forced to develop new strategies to combat these new pressures. At the same time, customer relationship management has moved to a much higher position on the list of priorities.

In the new wave for call centers, buyers are combining their entire customer management component (rather than the fractured process of just answering calls) and outsourcing it as a whole process, thus creating a business process that is ideal for outsourcing. This is the direction the market is going, for it optimizes use of leverage and all that outsourcing has to offer in creating enormous value. While there is certainly a lot of value in outsourcing to call centers, it is not nearly as much as when the supplier is able to take over a larger, more complete process.

The current marketplace trend in outsourcing and CRM is particularly enhanced by e-commerce, where the Internet enables increased customer relationship functions. What we are seeing now is a marriage of call centers with Web management. Services such as order processing and fulfillment from Web pages or catalogs and billing go hand-in-hand with answering calls.

In addition, today's executives know that tomorrow's revenue will be dependent on gaining a deeper understanding of who their customers are and what their buying patterns are. Data mining and analysis are becoming an integrated part of the call center industry, and analysts predict this information market will grow to $70 billion by the end of 2001.

Focusing on how to market to individual customers, as well as how to retain their loyalty, software companies and other suppliers are designing applications that intelligently sort through customer information in data warehouses and apply CRM solutions to this analysis. Finance and insurance are two of the vertical industries for which these applications are currently being designed.

More Leverage
The call center/CRM industry fits perfectly onto a leverage point that makes outsourcing highly successful. As buyers' organizations quickly try to get their Web sites and e-commerce initiatives off the ground, they run into infrastructure challenges in trying to integrate customer management functions with their Web sites. Setting up an e-commerce site in coordination with a call center is a very specific skill. An important aspect of the CRM solution is that all points of customer contact with the company -- whether by telephone, e-mail, Web site orders, faxes or mail -- must be linked and integrated into a system whereby all data are easily accessible by call center employees and all of the buyer's sales representatives and other individuals who interface with customers.

It is difficult to marry these technologies; but once it has been accomplished, the infrastructure can be used for multiple companies, thus creating two leverage points: economies of scale and expertise in the underlying technology. There is no reason why a bank, insurance company, brokerage or other financial institution that wants to move quickly would attempt such technological challenges on its own. It could take years to get to market. The buyer could more easily outsource to a supplier with an already seamless process that delivers high-quality customer relationship management, along with detailed information about customer buying patterns. Using the tool of outsourcing, the time-to-market would be only days and weeks, rather than months and years.

Outsourcing suppliers that provide these integrated services will be able to do it better, faster and cheaper than the buyer can accomplish the service in-house. Buyers are unable to compete against this leverage point of the supplier; yet if they take advantage of outsourcing, the supplier's leverage is a powerful tool that gives buyers a strong competitive edge in their own marketplaces.

Peter Bendor-Samuel is editor and CEO of The Outsourcing Center and president of The Everest Group, an outsourcing services firm.