October 2003

By  LeeAnn McCoy-Tomlin, The Telvista Company

Economic Realities Of The New Millennium
In today's tough economy, a number of key operational metrics have combined to create one of the more challenging business environments in recent memory. As a result, many firms find themselves continually stuck in a seemingly never-ending cycle where they spend the first six months of the year negotiating for a budget that will be spent in the last six months. Hardly is the process completed before it starts all over again; all too often, the end result is a 'wait and see' atmosphere that disrupts business continuity while reducing productivity.

As many in the contact center industry already know firsthand, an approved budget alone no longer guarantees operational continuity. Today's budgets are living, breathing entities equally capable of expanding or contracting based on the need to meet specific economic conditions; gone are the 'salad days' where one submitted a budget that was approved and then left to percolate on its own. Today, contact centers face higher operating costs with razor-thin profit margins, forcing executives to constantly maximize productivity while reducing expenditures. Many of these executives must revisit their budgets monthly and, in some cases, build a business case to justify or retain funds that have already been allocated.

In response, many companies have increasingly adopted a policy of outsourcing, which has traditionally been viewed as a cost-containment strategy. Although cost reduction is almost always a primary justification for outsourcing, the reality is that it is a far more complicated process. It is also about doing things quicker and more efficiently while improving flexibility. Outsourcing also gives companies access to high-quality employees they otherwise might not be able to afford. In short, it gives companies in virtually every industry the ability to do more with less when providing customer service, technical support and related CRM functions. As a result, increased emphasis is now being placed on the advantages outsourcing can offer to a company in today's highly competitive global marketplace.

'Increasing economic challenges are driving a trend among many companies to explore an outsourcing strategy,' said Erika Van Noort, vice president of the Customer Contact Strategy Forum, a contact center trade organization. 'Outsourcing lets these companies more effectively maximize the value of each customer interaction by increasing revenue and reducing costs through upsell and cross-sell opportunities.'

Advantages Of Outsourcing
The cost of outsourcing typically pays for itself in approximately 12 months. By contrast, two to three years are required to recoup start-up costs incurred when opening an internal facility. Start-up costs can include large amounts of capital needed for facility sites, construction and build-out, equipment, technology and related systems, personnel and the expertise required to make it all work.

Given the fluid nature of today's contact center industry, a major benefit of outsourcing is the ability to effectively negotiate fluctuations in call volume due to company growth, workforce consolidation or seasonal spikes. Employee attrition is an ongoing challenge at the facility level that must also be addressed on a regular basis. Outsourcing frees companies from the time and expense of having to constantly manage these fluctuations. It also allows them to easily ramp up or downsize their accounts based on seasonal call volume with little or no red tape on their end, as this process becomes the responsibility of the outsourcing partner.

These outsourcing partners can reduce corporate costs through greater economies of scale and industry specialization. They do so with existing processes, facilities and resources that let them work much more cost-effectively. Outsourcing also allows original equipment manufacturers ' such as computer firms, mobile phone service providers and financial institutions, among others ' to effectively support the needs of customers without leaving their respective area of core competency. The highly specialized nature of the contact center industry often makes it difficult for companies to implement and provide reliable, high-quality CRM services.

At the same time, the CRM needs of many companies are relatively small, making it economically unfeasible to form an internal contact center. Outsourcing offers scalable solutions that let these firms efficiently meet the needs of their customers, no matter if three workstations or thirty are required. Since outsourcing partners traditionally operate pre-existing, round-the-clock facilities, it is no problem for their agents to accept and service calls after normal business hours when it may be cost-prohibitive for smaller companies to offer these services internally.

It also helps companies, both large and small, maintain a balance between variable and fixed costs. Contact center operating expenses and requirements can vary widely, straining not only budgets, but also the ability to maintain a constant level of service. Outsourcing can help control these costs because companies can negotiate fees in advance and benefit from the knowledge and expertise of trained personnel.

Internal contact center executives also face the challenge of establishing key performance metrics and constantly monitoring them to maintain acceptable levels of agent performance and customer satisfaction. This process is difficult even for existing contact centers and many companies establishing internal facilities for the first time do not have, or are unsure how to establish, baseline performance measurement indices. Outsourcing helps executives avoid these headaches by negotiating desired performance levels, such as customer satisfaction, agent performance, quality service, sales and speed. The partner then assumes responsibility for establishing, achieving and maintaining the stated objectives.

Outsourcing partners with multiple sites, particularly those located close together, can also offer the added benefit of redundancy in the case of sustained power failure or related facility downtime. Many internal facilities are simply not equipped to deal with the level of disaster recovery protection that a dedicated outsourcing partner can provide. In this case, the outsourcer can also serve as a 'test ground' for monitoring and interpreting data and related feedback.

Estimated Cost Savings
Due to razor-thin profit margins ' combined with tough economic conditions and constantly rising wage levels ' many contact centers, both internal and external, are finding it increasingly difficult operate profitably in the U.S. As a result, many firms are turning to vendors that offer offshore and nearshore outsourcing at a fraction of what it now costs to operate a domestic facility.

Depending on location, a company outsourcing to a vendor in the United States can save five to fifteen percent on average. By outsourcing to an offshore or nearshore locale in Canada, Latin America, Asia or Europe, these savings can reach as high as 40 percent. Some of these cost savings include:

' Mexico: 20 to 30 percent

' Ireland and the Philippines: 20 to 40 percent

' Canada (depending on location): 25 percent

' India: 30 to 70 percent

Another key benefit of outsourcing is the ability to develop a program that continuously strives to reduce baseline expenses. A good outsourcing partner will strive to improve performance and provide enhanced service levels that create results focused solely on client growth. There are typically eight economic factors that should be analyzed to determine the feasibility of outsourcing:

' Direct labor cost ' hourly pay;

' Benefits package (percent of hourly rate plus attrition);

' Attrition rates (voluntary and involuntary);

' Long-distance fees;

' Ratios ' management, telco, usage fees, etc.;

' Real estate costs ' take all variables into consideration;

' Application software cost ' license fees, development and customization charges; and

' IT infrastructure ' setup cost and ongoing support.

Finding An Outsourcer
Although outsourcing offers many benefits, there are a number of important criteria to consider before choosing a partner. A good outsourcing partner will have the ability to quickly incorporate and implement new data related to company products and services. They will work with companies to establish service-level agreements that establish clear expectations and performance requirements. If in doubt, ask to implement a trial 'pilot' period to evaluate the service. Above all, keep in mind that cost should never be the only consideration during the selection process. With this in mind, some of the other factors to consider and their benefits include:

Track record. What kind of results has the outsourcer produced for current and previous clients? Ask for a list of references.

Management. What are the management techniques like; do they share knowledge and best practices? Ask them to describe how they would manage your account from cradle to grave. A true outsourcing partner will have management processes that are equally geared toward producing maximum results for both themselves and the client. Their front-line management will also focus on coaching and employee development.

Quality measurements. These guidelines are a good way to gauge the monitoring process. Do they include voice and data? Is first call resolution measured and reported at the agent level? Ask how they support accounts and have them provide support history on a similar type of account. Ask for the methodology of customer quality surveys used and require a list of formal quality certifications, such as Six Sigma, COPC, ISO, etc.

Reporting. What kinds of reports are provided on service response and performance metrics? Are these reports accessible via the Internet or Intranet site? Do they offer online invoicing?

Training. What type of training does the outsourcer offer agents who will work on your account? A good partner can develop customized instructional design and a comprehensive training curriculum that effectively matches the current and future needs of an account. Do they have calibration session with employees and clients? What technology do they use to support the process? Does the technology capture voice and data?

Productivity management. A key measurement here is what kind of best practices does the vendor offer and how they can be applied and/or customized to ensure maximum productivity at all levels.

Systems and technology. Does the outsourcer have state-of-the-art equipment and technology? A reliable outsourcer will have modern equipment, techniques and processes in place that allow it to effectively interface with client databases and internal knowledgebases.

Location. Is the outsourcer offshore, nearshore or next door? Although a 40 percent cost savings may look appealing on paper, is it enough to offset related expenses and travel times that can exceed 24 hours? Is the local technology infrastructure reliable and are the language skills and culture compatible with those of the people being served?

Industry-specific knowledge. Does the vendor have the industry expertise required to effectively service the account in question? If necessary, are you prepared to pay extra in time, decreased quality and lower service levels while the vendor gets up to speed on your account? A knowledgeable vendor in this regard can dramatically reduce the time it takes an account to go live.

In addition to these factors, an outsourcing partner should use creative business practices to pass along additional benefits and related cost savings. These include, but are not necessarily limited to, setting and meeting key performance indicators such as first call resolution rates, sales conversion ratios and employee satisfaction scores. A partner will also maintain a relentless focus on cost reduction while providing scalable solutions that address specific pain points and promise a return on investment. Above all, a reliable outsourcing partner will consistently demonstrate and deliver value in determining and addressing the business goals of its clients.

Today's global marketplace is a highly competitive arena, which, more than ever, is conducive to outsourcing. The fundamental benefit is that it allows a company to focus on its core competencies while improving operational effectiveness. The end result should be an effective outsourcing strategy that is directly aligned with the company's overall goals and objectives.

A well-run outsourcing relationship can also establish a strategic partnership that better identifies and monitors key indicators related to revenue growth, increased market share and enhanced customer satisfaction. This enables outsourcing companies to more effectively compete in the global marketplace, both at home and abroad. In the end, long-term success in outsourcing is based on building a relationship in which the provider becomes a partner in the outsourcing company's success ' one where both partners succeed or fail together.

LeeAnn McCoy-Tomlin is a national sales manager with The Telvista Company (www.telvista.com), a Dallas-based provider of outsourced customer care solutions and professional services.

1 Customer Contact Strategy Forum Quarterly Report Fall 2002.

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