Losing Customer Care Business To A
BY MIKE ROWLAND, PACK FANCHER, AND BRYAN JOHNSON, MATRIX CAPITAL
'This transaction expands Solectron's presence in customer
relationship management (CRM) services, a sector we have specifically
targeted for growth. Stream's expertise extends our industry-leading
service offerings. The capability to add full CRM services will provide
our customers with a complete and fully integrated 'end-to-end'
solution. This will improve our customer's product support and service
delivery in substantial and innovative ways.'
This quote from Bill Mitchell, EVP and president of Solectron Global
Services, references the electronics manufacturing firm's recent
acquisition of Stream International, a $322 million in revenue provider of
CRM services to computer makers such as Compaq and Hewlett-Packard. When
the acquisition closes, Solectron will be one of the 10 largest CRM
outsourcing providers in the world and will compete with the likes of ICT
Group, Sitel and Tele-Tech. Consider also Spherion Corporation, a Fortune
500 company that announced a major change in its corporate strategy this
summer, de-emphasizing its core business -- staffing -- with the goal of
doubling its outsourcing business, which currently handles 50 million
customer contacts annually and operates call centers in nine countries.
As traditional CRM and teleservices firms scramble to bid on the next
telecom or credit card RFP, a number of well-capitalized, well-managed
outsourcing firms like Solectron and Spherion have been quietly watching
the industry. These companies are global, integrated outsourcing companies
offering a variety of outsourced business processes, including electronics
manufacturing services and staffing, as well as IT consulting, accounts
payable management and printing, and they are increasingly looking to
acquire or develop CRM and teleservices capabilities to round out their
service offerings. Acquiring or developing customer interaction
capabilities would complement the services these firms already offer,
allowing them to create a one-stop solution for all of their clients'
outsourcing needs. In essence, these firms have the capacity to become the
industry's new '800-pound gorilla.'
The emergence of these global, diversified outsourcing companies and
their entry into the customer contact marketplace could have far-reaching
implications for traditional CRM and teleservices firms, not the least of
which is an entirely new competitive dynamic. For the traditional
teleservices firm, competing against a nontraditional outsourcing firm,
which integrates customer interaction capabilities on a global basis with
an entire suite of other outsourcing capabilities, may become more
difficult than ever, particularly when it comes to winning large, new
For the nontraditional firms, the benefit is two-fold. Not only will
they be able to capture business away from traditional CRM and
teleservices firms, but the increasing depth of their outsourced business
services will give them new ammunition in targeting the in-house
operations of firms that have until now refused to outsource any customer
interaction services for fear of relinquishing the crown jewels of their
companies: their customer relationships. This ability to penetrate the
in-house market may, in fact, be the opportunity that nontraditionals are
most excited about.
These new industry participants are also in a position to dramatically
alter the current pricing dynamics within the teleservices industry.
Currently, pricing is more or less dictated by the large telecom and
credit card companies, which pit CRM and teleservices firms against one
another by dividing their inbound, outbound and eCRM contracts among a
dozen or more firms. In fact, some of the larger telecom and credit card
companies have recently gone so far as to pit companies against one
another in a reverse auction to drive down pricing. The net effect is
contracts with demanding clients and thin margins, leaving CEOs scratching
their heads at night wondering why they ever agreed to take on the new
For Solectron, which currently generates roughly $18 billion in annual
sales, Stream International represents the company's third acquisition
of an after-sales, customer support business. Stream operates 22 contact
centers in North America, Asia and Europe and employs approximately 10,000
people. Solectron provides a full range of global manufacturing and
supply-chain management services to numerous technology and electronics
companies, including new-product design and introduction services,
materials management, product manufacturing, product warranty and
end-of-life support. Solectron Global Services provides a full range of
post-manufacturing services, including product repair, upgrades,
re-manufacturing and maintenance, help-desk support, logistics and parts
management, asset recovery, returns processing, warehousing, engineering
change management and end-of-life manufacturing. As evidenced by the
Stream International acquisition, Solectron has now extended its
outsourcing services to include after-sale customer support.
Spherion, one of the largest worldwide staffing firms with more than $3
billion in annual sales, has traditionally been focused on providing
temporary staffing solutions to large corporations, a position that was
bolstered through its acquisition of Atlanta-based Norrell in 1999.
Spherion's core service offering has since been expanded, however, and
now includes a variety of additional outsourced services. The company now
operates through a network of more than 1,000 offices throughout North
America, Europe, Asia and Australia. The firm still generates roughly 45
percent of sales through traditional temporary staffing, however,
expansions into managed staffing, software development, IT consulting,
search and recruitment and call center outsourcing now comprise the
majority of Spherion's revenue.
Spherion's emphasis on leveraging its growing suite of outsourcing
services to drive growth and capture multi-year outsourcing contracts is
evidenced by its recent announcement that it would expand its outsourcing
relationship with Sprint PCS to provide customer support at Sprint PCS'
new customer interaction center in Puerto Rico. Spherion signed a
multi-year outsourcing agreement with Sprint to outsource the management
of this center. When announcing this deal, Spherion President and CEO
Cinda Hallman stated, 'Spherion will continue to look for opportunities
to add value to our customers' businesses through leveraging our
experience in call center outsourcing.'
These are but a few examples of global firms buying or expanding their
CRM capabilities to offer a one-stop solution for their clients'
outsourcing needs, wherein traditional customer interaction services
represent just one component of a much larger service offering. These new
entrants in the CRM and teleservices industry could shift the pricing
dynamic back into the hands of outsourcing companies. By bundling customer
interaction services with a number of other outsourced business services,
the outsourcing firms will increasingly win the large, multi-year
contracts that have characterized other outsourcing industries, such as
the electronics manufacturing services industry, resulting in enormous
growth. As this occurs, the fragmented contracts of the large telecom and
financial services companies are likely to be consolidated by a much
smaller pool of large outsourcing firms with significantly more clout than
traditional CRM and teleservices firms, shifting the pricing dynamic away
from the customer and back into the hands of the service provider.
Granted, none of this will happen overnight, and may in fact take years
to unfold. However, what is clear is that it will happen. What is also
clear is that there will be winners and losers. Nontraditional outsourcing
firms are acquiring or developing high-quality CRM and teleservices firms,
with the end goal of integrating their capabilities and expertise into a
broader suite of outsourced business services. Traditional teleservices
companies have a choice. They can either embrace the change by becoming
part of it, or be overwhelmed by it. The owners and CEOs of traditional
firms need to recognize the threat posed by these new, well-capitalized
competitors and begin to think in terms of how they can either ally
themselves with them, or position themselves to compete effectively with
them by broadening their own service offerings.
Mike Rowland, Pack Fancher and Bryan Johnson of Matrix Capital
Markets' Outsourced Business Services Group all contributed to this
article. Matrix Capital Markets Group can be reached at 804-780-0060.
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