Tuesday, November 28, 2006

When Outsourcing, Hope is not a Strategy

Outsourcing: Hope is Not a Strategy
Almost every day we read about another company or organization announcing that they are outsourcing or off-shoring some function or work, often call centers. It is now fashionable to do so. For example just today I read that 43 states have outsourced federal programs they administer. One hears less frequently of the failures and problems associated with unsuccessful outsourcing or are provided with any learning of how to avoid these issues. In fact according to Deloitte Consulting some 70% of survey respondents reported significantly negative outsource experiences.

All outsourcing follows a distinct pattern of three stages: Stage One - Preparation Evaluation and Planning, Stage Two – Proposals, Assignment and Transition, Stage Three: Maintenance, Monitoring and Oversight. Successful projects are those where the management is attentive to the details of all three stages and possess the skills to ensure the disciplines for each are followed. We will focus here on Stage One considerations.

The first and most common point of failure is the skipping over Stage One and jumping directly to a proposal from the vendors either domestically or offshore. This happens so often that some vendors count on it for part of their profit.

2500 years ago Sun Tzu wrote in the Art of War in the chapter on Offensive Strategy:
o Know the enemy & know yourself; in a hundred battles you will never be in peril.
o When you are ignorant of the enemy, but know yourself, your chances of winning or losing are equal.
o If ignorant of both your enemy and of yourself you are certain in every battle to be in peril.

It is this ignorance of one’s self, or organization that is the cause of much peril for the organizations outsourcing their call centers and customer service. One good practice is to have a thorough audit done of the call centers or other functions to be outsourced. This puts the client organization in a better position to deal with the vendors and others who come calling. Knowing what is; aids with the negotiations, the estimates of what it will take to move over, what will be saved, what the goal of the exercise is and how much money needs spending to achieve the end. Knowing “what you don’t know”, allows you to focus on solution providers who may have expertise which you lack internally. It should be kept in mind that generally speaking outsourcers do not “fix” dysfunction processes or mismatched alignment related issues. Outsourcers simply replicate what you have been doing and do it for less based upon their economies of scale and/or dollar arbitrage. Addressing fundamental and structural issues before outsourcing can dramatically improve the likelihood of success.

Again from Sun Tzu’s Estimates: With many calculations one can win. With few one cannot. How much less a chance of victory has one who makes none at all?

There are number of outsourcing checklists are available. Most often these are developed by vendors to aid the transfer of your business to them. What is less apparent is the “why” behind the questions posed to facility the “how” of outsourcing.

Why is outsourcing being considered?
If the only answer is cost, then have all other approaches to reducing the demand and effort required to complete the work been exhausted? Changes to marketing, sales, service or service offerings can often generate as much if not more long term savings than outsourcing alone. This is important because once the work is outsourced; changing anything, the processes etc. usually becomes much more difficult and longer to affect. For instance, if the vendor is paid on the number of talk-time minutes, there is no reason for them to aid in strategies to significantly reduce the number of calls or the call length, since this affects their revenue base. Since the vendors are now closer to the calls, demand, they are likely to see opportunities to reduce the demand before the client company does. Unless there are very good controls and transparency to the relationship and work, clients may never see these opportunities.

Vendors also often count on the client firms to overlook being organized with good documentation. Additional tasks and activities that were not clearly identified up front can drive up the costs and sometimes is the causes outsourcing projects to failure because the cost is higher then it was in-house.

What is the size of the project and revenue in relationship to the vendor revenues?
Many companies and their staff considering outsourcing want to go with a large secure vendor in order to minimize risk. The old adage “Nobody gets fired for buying from IBM” comes to mind here. The risk is that many companies the amount of work is a fraction of the vendors total revenues and therefore the work will not get the time and attention it deserves from their senior managers and experienced staff. Many organizations simply become a small fish in a a very big bowl. Too small a vendor and the risk is that opposite. The client is too large a portion of their revenues. Any hiccup in vendors operation, financing, staff and the client is left high and dry with little or no means of recourse or recovery. To solve this last risk many clients spread the work over multiple vendors, thereby compounding the management oversight required to keep the quality of work at their standards, multiplying the reporting issues and points of failure.

What is the exact extent of the work and functions being considered for outsourcing?
This question requires that a detailed Scope of Work document be developed. The organization must examine every aspect of the activities they are considering to outsource. Once again effort that is invested here can pay huge dividends and those who gloss over this step will dramatically increase their likelihood of failure. Again a detailed assessment of the call center encompassing all of its’ activities can provide the basis for this document.

When was the last set of process maps done for all functions in the center?
If the answer is “we don’t have any” then they need developing before sending them to an outsourcer. The vendor will usually do as you ask. With good up-to-date documentation this is relatively simple. Without it, the transition is fraught with risk to both the client company and the outsourcer. Without definition and boundaries both firms will have difficulty achieving the goal of reducing cost and maintaining good quality customer service.

It is dangerous to think of call centers as only a cost centers. Remember that your call center is likely the primary communications channel for customer interactions. In fact there are only two types of calls that any organization will receive in their call center; Fault calls and Value calls. Fault calls arise due to some action taken or not taken by the organization that requires a customer to call to ‘Fix’ something and Value call generates revenue. In our experience most call centers expend fully a third of their call center efforts (and budgets) dealing with Fault calls. Looking at the work in the center should reveal details as the number and ratio’s of fault versus value calls. If the issue is one of absolute costs, then what is the value of having a center in the first place. Sell to the customers and forget giving any service. There must be some value or the center would not been started. Call centers and customer service defends the revenue and customer base generated by sales and marketing. Unfortunately the following is also true.

“54% of customer have a lower opinion of a company/brand following a contact with that company’s call center then they had before the transaction” – Transveral Study

One goal of outsourcing could be to increase the level of service while either reducing or maintaining the costs. This is a laudable goal and a worthy one to pursue. If this is the intent it is even more important to do it right.

How will you measure the Outsourcing project?
Some organizations who examine the outsourcing option fail to properly prepare themselves to assess the success or failure of the relationship. It is critical that the metrics that will be employed to complete this assessment are known and in place. Further these comparisons must be ‘apples to apples’ and not to grapefruits. Don’t not measure the performance of the outsourcer to what you wished you could have achieved but rather to what you actually did achieve. This is true not only in securing pricing and negotiations but also in the day-to day management of the program.

One client we worked with issued an RFP to outsource a part of their business and included mandatory service levels significantly greater than those achieved in the in-house center. The net result of course was that the outsource vendors priced the solution to the service level desired, which was more labor intensive and submitted the corresponding price. The Call Center manager used the RFP responses to justify retaining the business internally “since there was no cost advantage to outsource”.

Similarly you must ensure that when comparing costs that the cost burdens are also equivalent; if rent was charged to the call center internally then rent relief or a credit should credited to the department if the work is outsourced and the space no longer required.

Of course there are other metrics beyond the financial; customer retentions (churn), average order value, customer satisfaction etc. Regardless of the metric(s) employed be sure that you maintain a level playing field and can compare ‘apples to apples’. Also make it abundantly clear to any potential outsource provider the metrics you will require and how you want to view them.

Check References:
While this seems obvious, we have seen companies that expend significantly more time and effort checking the references and background of a new TSR, than they do checking the references and background of a potential supplier who will invoice the company millions of dollars. Ask for references, ask for references that are similar to your needs, Nobody wants to be a guinea pig. Then check the references, bear in mind that the company will only provide those references where it expects a positive response, so also ask for former customers in the same or a similar vertical. When doing reference checks ensure you do more than just verify they worked together; ask how the relationship was managed, how disputes were resolved, speed of action, sense of urgency and about the access to management. The answers to these questions will give you an insight to how the company is operated and where their priorities lie. Addressing this in advance will eliminate potential problems downstream.

Sun Tzu, “So assess them to find out their plans, both successful and the failures. Incite them to action in order to find out the patterns of their movement and rest”. This is always good advice in battle of in business

Saturday, November 25, 2006

Sometimes the future is obvious

Just saw an article in the local paper today. A company we had spoken to about a year ago, they were interested in outsourcing their call center services to India, we recommended against it as we felt that as new business, trying to establish themselves they would be better to retain close control of their client interactions.

They chose otherwise and outsourced their call center. The article in the paper was a litany of problems they had with the call center...commitments made and not honored, lost call records, credits gone missing. The result a negative article in the local paper which will likely do more damage to the reputation than the actual call center errors actually did. The result will be huge challenge to the senior management and contact center management. Now they need to over come bad press as well as a poorly functioning infrastructure.

This situation should not be an indictment of outsourcing as hundreds of companies do this well on every call every time. It is I think more of cautionary tale about the repercussions of our actions.

I suspect there may not have been enough due diligence in selecting an outsourcer and their reputation and processes. There were also likely challenges within the organizations and their ability to effectively manage an outsource relationship half way around the world.

The morale to each of us should be that these decisions are not just about individual calls and contacts but may have far reaching consequences that impact the business well into the future.

Our customers are our most important assets, we have an obligation to them, to our stakeholders and to our shareholders to treat this assets with care respect, lest we end up in an article in the local paper.

Friday, November 24, 2006

Are Contact Centers a Loyalty Leak?

The increasingly important role that call and contact centers are playing as the primary communications conduit between a company and their customers, inevitably leads to customers judging the company based upon the access and service quality the center delivers. (In a Purdue University study 92% of consumers said they formed their opinions regarding a company based upon their call/contact center experience. )

So the lowly agent in the contact center is becoming a key individual in the process of retaining customers and securing their loyalty... so then why is the overall quality of service so poor?

Most companies have failed to recognize the growing importance that the call/contact center channel plays in customer satisfaction and loyalty. Too many organizations are still focused on developing self-help environments that eliminate the need for a customer to actually speak with a company. Certainly this can reduce the cost per transaction, but there is not any opportunity to build or reinforce a relationship with that customer. Each transaction or interaction provides the opportunity to build satisfaction and loyalty or to erode it. The absence of customer intimacy must inevitably lead to erosion of customer loyalty. It is difficult to build loyalty with a machine.

With live agents, the environment exists to build or reinforce customer satisfaction and loyalty, but so does the opportunity to erode and damage the relationship. Poorly trained agents, poor availability and access, too few staff, turnover that is too high, all handicap the companies ability to deliver a positive relationship building dialogue and make it far more likely that the exchange will weaken and erode the customers connection and the positive image of the company.

The choice is ours we can make our center a strategic asset in acquiring customers and improving their loyalty, satisfaction and life time value, by investing in our contact centers and the staff that manage and work there or we can waste the millions of dollars spent on advertising and marketing to secure the customers in the first place, by delivering unprofessional, poor quality service that frustrates and drives away our customers.

The contact center can buttress loyalty or become a loyalty leak.

What choice will your company make?

Thursday, November 23, 2006

Is Your Call Important?

We have heard the phrase a thousand times…”your call is important to us please hold”. This is the standard message we hear when we call a company’s call center. Interspersed we may hear about “an unexpectedly high call volume” and other variations on the theme. All of these messages serve to keep us informed of the call volumes impacting on the call center and thus are intended to mitigate our frustration with the call not being answered immediately. But what is a reasonable delay in answering our call… 20 seconds, one minute, twenty minutes? What event had impacted on the center and caused them to be unable to answer our call?

The general public can only guess about the underlying causes while we, in the call and contact center industry, know the truth about this guilty little secret. There was no unexpected run on the call center, no surge that caught the center blind. The reality is that there are only two likely reasons why the call wasn’t answered promptly; either the management of the company has determined not to or the call center senior management is incompetent. What other reasons can there be?

Ignorance or Neglect, your Choice

Call and contact centers produce a huge amounts of data and the center management can analyze the data and information to determine call volumes and patterns and forecast what volume of calls to expect when. This forecasting process is a basic tenant of call and contact center management.

Senior corporate executives constantly communicate a message that their customers are their number priority, yet these otherwise intelligent, savvy and effective communicators fail to support the customers when they have the opportunity…when the customer contacts the center.

I recently had to tell the CEO of a Fortune 500 company that their Mission Statement was a lie. I told him that the company’s’ commitment to “world class customer service” was incompatible with a wait time of more than 20 minutes to get a phone call answered. Perhaps this wasn’t he best way to begin a consulting engagement and certainly this wasn’t a pleasant conversation of either of us, but it was the start of a process that today has this company answering their calls within their stated service level parameters.

So let’s examine the reasons why companies don’t answer our call in a timely manner. First let’s look at why a company would neglect and alienate their primary asset: their customer.

Familiarity breeds contempt

The nature of contact and call centers provide some insight to this problem. Call centers in particular employ a device that we use and take for granted each and every day…a telephone. We have grown up using the phone, we don’t see this as complicated technology. We view the phone as a basic everyday item. This point of view can lead us to not fully appreciate the challenges and dynamics that come into play when you put 10 or 20 or 300 phones and agents together in a room and ask them to service customers. As I was once told by a senior VP at a packaged goods company, “we don’t need your help to answer the phones, I have one of these at home”, he said while holding up his telephone set, “I use it every day”. This familiarity can breed contempt. If instead of a telephone, we were employing some ‘black box’ technology with a catchy three letter acronym (TLA), then we wouldn’t be so eager to dismiss the complexities and subtle nuances that managing incoming calls can present.

A second root cause for the lack of focus on meeting customers needs when they phone the call center may be traced back to the evolution of the call center itself. In many organizations call centers weren’t planned. They just sort of happened. A ringing phone prompts all of us at home or at the office to ask, often out loud, can somebody get the phone. The same process occurred in offices leading to more people and more resources being deployed to ‘answer the phones’; pretty soon you have a call center.

This background may be interesting, but still doesn’t explain how otherwise savvy and bright executives end up in a situation where they are at best complicit in and at worst intentionally creating an environment certain to alienate their customers. Research shows that customers judge a company based upon their experience with that company’s’ call or contact center. In fact 92% of consumers in a recent Perdue University study said they judge a company based upon their experience in dealing with the call center. A Transversal study provided even more distressing news: 54% of consumers had a higher opinion of a company before they contacted the company call center than they had after their call center experience.

Senior executives in many organizations are forming opinions and making decisions based on faulty information. One of the most common myths we have seen is “It costs too much to provide good service” This is patently incorrect. Consider this not so hypothetical example.

The Death Spiral is not a Strategy

A company is having difficulty answering their phone calls. So the average speed of answer (ASA) increases. With the increases in ASA comes a matching increase in the frequency of customers mentioning and complaining about their wait time. This increase in complaints increases the average handle time (AHT) that a call takes to be completed. This increase in AHT means that an agent handles fewer calls in each period and the ASA for new incoming calls increases again. Also as the AHT increases so does the cost for each call handled and the budget is consumed exponentially. Meaning that fewer resources can be deployed to handle future calls. This cycle as you can see can cycle over and over creating a call center ‘death spiral’.
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