As a student, you were invited by the Dean of the Institute of Computing to attend a seminar-workshop on information systems planning with some of the faculty members. In one of the sessions, a discussion of outsourcing came up. You have been asked to present your evaluation about outsourcing the information systems functions of the school.
Required:
You are to take a position- outsource or in-source and justify your position. (3000words)
To think about it is really hard.
Well i'll just justify the what i can give.
To start with.
**************************************************************************************************
to present this .
EXECUTIVE SUMMARY
THE GROWTH OF THE OUTSOURCING MARKET
Customer Contact outsourcers have been in business as long as the industry itself. Most of the 1980s
were spent in relative anonymity for the industry as a whole. It was not until the end of the decade that
more than 50% of businesses offered toll-free service to their customers.
The mid-1990s saw rapid growth in the customer contact industry as a whole. This growth was driven by
the increased use of toll-free services by business, with nearly 9 in 10 businesses offering toll-free service
by the end of the decade.
Businesses Offering
Much of the move to increased toll-free services was driven by the economics of contact centers and
customer needs. Coming out of a difficult economic decade in the 1980s, businesses sought to reduce
field services costs by replacing those services with customer contact groups. In addition, customers
demanded the convenience of telephone service and support as they continued to place value on
convenience, speed and time saving activities.
In the midst of the 1990s came the Internet revolution with the introduction of the first user-friendly
interface, Mosaic. While companies attempted to harness the power of the Internet to reduce customer
contact costs, the speed and technology of the Internet could not replicate the ubiquity, speed and
efficiency of toll-free service. Rather than reducing contact volumes, the Internet supported increased
volumes.
The customer contact outsource market gained significant visibility in the early 1990s. Originally a
backwater market, several events converged to increase the visibility of this market.
First, the market had reached a size and scale that began to attract attention. In 1990, the outsource
market reached $1 billion and was growing at a rate of 40% per year in the first half of that decade.
Second, the industry began to consolidate as larger companies saw the opportunity to bring significant
scale and geographical diversity into the market. Third, to fund the consolidation and expansion, manycustomer contact companies went public, allowing some of the first outside view into the economics of the
business.
The early view of the business thrilled the financial analysts. Their enthusiasm was so great, that
outsource contact center companies carried valuations (P:E ratios) in excess of Internet companies.
Exhibiting growth rates of well over 50% (part through market growth, part through acquisition), analysts
thought they had found a diamond in the rough.
The enthusiasm of the analysts was soon brought back to earth when it became clear that the growth of
outsource companies would be limited to market growth in the long run. In addition, the key markets
supported by outsourcers ran into their own issues, quenching the growth of the market for a short period of
time. The P:E ratios of outsource companies are now at normal levels.
• The customer contact market has completed its growth phase and has now reached maturity. The rapid
deployment of customer contact centers by companies has slowed, having reached the saturation point.
• The customer contact market will begin to decline in 2005 due to electronic messaging alternatives (via
the Internet and through other means). The mix of transactions in contact centers will become more
electronic as call volumes flatten and electronic communications increase. Demographics, technology
and an improved wireless infrastructure will make electronic communications more convenient, easier
and faster causing customers to dramatically increase their use of electronic messaging. The lower cost
of handling electronic messages will cause the overall decline in revenues of the contact center market.
PC and Internet
Internet Purchases
• Customer will perform a significant amount of transactions beginning around the turn of the decade, with
almost 50% of transactions done through electronic messaging by 2020. This will be driven by the
speed of access at the home as well as the user-friendly technology on web sites. These advances will
reduce the staffing in real-time customer support.
Gaining a Competitive Advantage Outsourcing v Insourcing
Page 4 Copyright© 2003 Destination Excellence, Inc.
877-433-7839 or www.destex.com
• As the outsource market in the U.S. reaches maturity, offshore companies will provide a valid, and less
costly, alternative to North American-based sites. Spanish language calls (representing about 5% of the
market) will generally be placed in Spanish-speaking countries. English language calls will be placed
increasingly offshore into countries where English as a second language is readily available, the quality
of operations is similar to that in the U.S. and the cost is as much as 50% lower than U.S. based
centers.
• Customer contact operations will become more of a commodity in that an outsource group will be able
to replicate the success of internal groups in terms of cost and service. Like payroll processing, contact
operations will be considered for outsourcing to reduce costs or resource requirements within a
company. The penetration of outsourcing will increase to over one-third of the total market around
2010.
The challenge for companies utilizing customer contact groups is to look ahead and develop a strategy
based on their specific requirements. The questions companies must ask are:
1. Is outsourcing a viable option for our company?
2. If I decide to outsource, how do I select the right outsource strategy and partner?
3. How do I continue to leverage the strategic value of my customer contacts with an outsource partner?
Each of these questions is reviewed in the following sections.
Strategic Necessity
Whereas culture is internally driven, strategic necessity is externally driven. Culture may pull in one
direction, but strategic necessity pulls in a different direction. In the 1980s, many companies had a culture
of performing all functions internally and on U.S. soil. Due to increased international competition U.S.
companies were forced to rethink this strategy or face extinction. Very few issues motivate change greater
than the possibility of extinction.
Strategic necessity is a reaction to outside forces. When a company must react strategically, the remaining
issues (quality, annual cost, capital cost, human resource availability and risk) must be reviewed in careful
detail to ensure the proper decision is made. Strategic necessity in the first two decades of the 2000s will
be driven primarily by cost. In the 1990s, companies began to recognize that outsource companies were
competitive on key non-financial measures (e.g., overall customer service) while also matching strategic
capabilities (e.g., partnering with internal groups and providing market intelligence). Consequently, the
strategic necessity of maintaining internal call center operations began to decline.
Strategic necessity will be measured and managed differently by each company. The litmus test used, however, is
the same. The key question is, what strategic value do internal operations provide and at what cost.
Quality
In almost every industry, the quality of the customer contact center is more important than its cost. Quality
here will refer to the quality of the overall customer experience.
Key concepts such as lifetime value of a customer, the cost to attract versus retain a customer and support
of brand image make quality one of the key factors in determining an outsource strategy. The revenue and
margin lost by poor quality can easily outweigh the cost savings of outsourcing.
Annual Cost
The term annual cost is purposely used here. Companies generally have a good handle on what internal
operating costs are for outsource groups. However, the analysis of determining true outsource costs must
not be limited to the operating costs of the contract (e.g., staffing, project management, administration).
These costs must also include incidental costs (e.g., programming, licenses, special requests) that may be
charged by the outsourcer as well as costs borne by the company in managing the contract. These latter
costs include the costs of personnel (e.g., contract manager, QA personnel) and travel.
Capital Cost
Internal customer contact centers often maintain a continuous battle to update technology to implement
new services expected by customers. Often, internal groups receive such investment well after the
customer need is identified and customer complaints have been generated.
Capital allocation to the contact center is difficult because it often competes against core business units.
These business units invest in capital to create new products or services that have a projected return. The
contact center operations, in contrast, often have to implement technology to avoid a decline in customer
contact quality that is difficult to measure.
Outsource companies have the advantage in that they must constantly maintain a competitive infrastructure
for their clients. The cost of the infrastructure is built into pricing eliminating the requirement of client
companies to spend significant capital to utilize this technology. Companies may look to outsourcers as a
way to maintain a competitive technology base without maintaining an expensive infrastructure.
Human Resource Availability
Companies that do not have contact centers as a key part of their business often find it is difficult to locate
and retain qualified contact center professionals, particularly at the middle and executive levels. The
reasons for this are simple. First, the discipline and expertise required for a contact center are not normally
found within the business. This often requires companies to recruit candidates from outside the company.
Second, the career path of contact center professionals may be limited if a path to alternate careers within
the company are not available. This causes turnover within contact center positions.
Some companies may find that the constant battle to maintain strong and knowledgeable leadership within the
contact center distracts them from the core business. They may choose outsourcing as a solution to this issue.
Risk
Risk is an inherent component of outsourcing. A company and its outsourcer may have similar program
goals, but the ultimate ways in which they achieve revenue and profitability are different. Most outsource
companies reduce risk by tying their success to maintaining long-term relationships with clients, causing a
closer alignment of objectives. While this reduces, it does not eliminate risk.
Every company has a risk threshold that they are willing to tolerate. For some companies, regardless of
how small the risk, they will not outsource their contact operations. Other companies are comfortable
establish systems to manage risk, viewing the need to control the output but not the operations themselves.
SELECTING THE RIGHT OUTSOURCE PARTNER
Outsourcing is a partnership. Like any partnership, the objective of the partnership is to add value to both
parties. Partnerships that accomplish this endure over long periods of time. The ramifications of selecting
the wrong partner can be painful.
Fortunately, the process of selecting a positive partnership is well known. Destination Excellence has
assisted a number of companies in selecting partnerships successfully. This process is detailed further in
this section. Adherence to the process outlined here significantly increases the quality and output of the
outsource process.
Develop Your Requirements
First and foremost, a company must detail its expectations. In companies who have performed customer
contact work internally for a long period of time, this process may require significant documentation.
(Internal operations tend to be less documented, as procedures and training are often the intellectual
capital of individuals within the center.) This documentation is critical, however, to properly assess the
capabilities of the companies considered.
Documentation of a program to be outsourced should include:
• An overview of the company and how the program supports overall company goals.
• The mission and vision of the program along with specific and measurable objectives/expectations
(including turn-around times and service levels).
• Volume projections by type (e.g., calls, e-mail, chat), month (weekly if sufficiently cyclical), day (day of
week distribution), and holiday. If media drives some portion of volume, then outline the expected media
schedule.
• Average talk times and after call work times by contact type.
• Hours of operation, including holidays and other events. Include expectations on downtime and disaster
recovery.
• Hiring profiles, initial training requirements, how training will be developed and delivered.
• Non-productive time requirements for training, coaching, monitoring, ongoing training and other activities
desired by the company.
• Estimated staffing levels.
• Schematic of the workflow.
• Schematic of the expected systems set up and system interfaces back to the company.
• Other requirements, as appropriate.
This information will be crucial to the development of an RFP. If information is not available at this time, it
will be required in response to the RFP.
The RFP Process
The RFP process begins with the selection of vendors to include in the distribution of the RFP. This can be
accomplished in one of two ways. First, a company can send an RFI with an overview of the project to a
broad array of vendors and use the responses to the RFI to narrow the field. Alternatively, the company
may survey the industry and pre-select a number of vendors who have a solid reputation of performing well
against similar programs. Only companies with a high probability of success in the program should be
included in the RFP.
The RFP itself should reflect all of the information that a vendor will need to submit a complete and
qualified bid. While there is no single format that is best for every RFP, the following provides an outline
that has worked well in a number of submissions:
• Secrecy Agreement. The signed Secrecy Agreement should be included with the RFP for the vendor.
• Instructions to Bidders. Standard legal language should be included to make clear the time frames,
submission criteria and release the company from any legal obligations in distributing the RFP.
• Bid Selection Criteria. This outlines how the vendor will be selected. The criteria should be clear enough
for vendors to understand what the company considers most important, yet remain flexible to provide the
best overall selection process.
• Timeline. The timeline for submission, review, selection, contract negotiation and implementation should
be outlined in detail.
• Program Overview and Requirements. The requirements developed (see previous sub-section) are
detailed in this section.
• Sample Contract. A standard company contract should be included so that vendors may judge what
contractual criteria may impact their pricing and performance. Vendors should list any objections to the
contract in the Additions, Variances and Exceptions section.
• Bidder Response. A standard response sheet with pricing (using a single pricing format will increase
understanding), performance, support services, systems and other information should be filled out be
each vendor. A clear and consistent bid sheet will allow for objective comparisons between vendors.
Companies may opt to allow an additional response to be provided by the vendor in a freestyle format.
• Additions, Variances and Exceptions. Providing a specific section for deviations from what was
requested allows companies to ensure they are clear on what has been requested will be adhered to.
• References. Require references from similar applications from current and discontinued clients. Also
provide some investigation outside of the references provided to determine what issues companies may
have with the vendor.
After the RFP is developed and the vendors who will receive the RFP selected, each vendor should be
contacted to obtain their level of interest for inclusion. Any vendor who wishes to be included in the RFP
must sign a Secrecy Agreement protecting the information that is being provided to them. Upon receiving a
signed Secrecy Agreement, the vendor will receive a copy of the RFP.
After all the responses have been received, the vendor assessment can begin.
Vendor Assessment
Upon receipt of all vendor RFP responses, the company must determine if some vendors should be
eliminated from consideration. Causes for elimination may include pricing, quality of response, service
capabilities or unacceptable exceptions. Any vendor eliminated should be notified immediately that they
are no longer going to be considered in the process and the reasons why.
Destination Excellence recommends companies evaluate vendors on three specific criteria. These criteria
should receive the appropriate weighting to reflect what is most important to the company. The criteria
include:
Quality. Recommended to be the most highly weighted criteria (normally 50% or more), quality reflects
the ability of a vendor to produce consistently high levels of performance. To judge quality, Destination
Excellence utilizes its 100-Point Audit to evaluate vendors (see Optimizing Customer Care Operations –
The 100 Point Audit for specifics). Vendors receive a score based on a one to two-day audit of their
operation.
• Cost. Vendors’ submissions are also evaluated in terms of cost. Costs include start-up costs, ongoing
costs and termination costs. Costs should be determined over the proposed lifetime of the partnership
agreement. Costs may be factored by year to take into account the greater certainty in costs in the early
years.
• Strategic Fit. For longer-term partnership agreements, an evaluation of vendors is necessary to
determine if the direction and investments vendors plan to make are consistent with the needs of the
company. For example, investments in integrated marketing databases may be important and therefore
should receive consideration. While the strategic fit assessment is rarely the final determinant of the
selected vendor, in cases where the current quality and cost are essentially the same between two
vendors, a strategic fit assessment can help select the best long-term vendor.
With the scores and weights from the above sections, vendors can be rank ordered in their overall score.
LEVERAGING YOUR OUTSOURCE PARTNER
There are many advantages to outsourcing and companies should look to maximize the advantage of their
outsource partnership. It is in the best interest of the company and their outsource partner to fully leverage
this relationship.
This section will review three common ways companies leverage the outsource partnership. These include
access additional operating capacity (operational flexibility), accessing an untapped workforce or access
new technology without the capital cost.
Operational Flexibility
Companies often find challenges in coping with the cyclical nature of their business. In some companies
the peak contact month to low contact month ratio can be as much as two, or higher. Cyclical peaks and
valleys within a year may cause companies to hire new staff only to lay off that same staff later in the year.
This can cause strain excessive strain within the workforce and harm a company’s reputation within the
community. Outsource partners can absorb cyclicality by utilizing people across a variety of programs
throughout the year. This approach provides a stable environment for a company and its work force
throughout the year.
Other companies may have a relatively low peak month to low month ration, but may have challenges
maintaining a trajectory of growth. This is particularly true in newer industries where annual growth rates
can easily exceed 25%. Opening new facilities, project managing technology installations and installing a
new workforce can distracting a company from managing its core business. Such distractions can
ultimately stunt the growth of the business itself. Utilizing outsource groups allows companies to maintain
their focus on the core business without losing market momentum.
Lastly, some companies wish to avoid spending significant capital on new facilities. Capital investment
often receives a higher rate of return in other parts of the business outside of the customer contact
operations. After maximizing utilization of existing facilities, companies turn to outsource groups to provide
additional capacity without capital spending.
Workforce Access
Contact center positions have become the largest entry-level opportunity in the United States. The growth
in employment in the industry has created challenges of locating qualified candidates and turnover of the
existing workforce for companies. In addition, normal local demographic changes have made previously
attractive locations longer attractive for call centers. Companies find themselves in a quandary of
escalating wages in a constricted talent pool with the only viable option of relocating facilities every five
years to follow workforce trends.
Contracting outsource groups allows companies to disconnect themselves with labor location issues,
leaving that issue in the hands of the outsource provider. Due to their size and flexibility, outsource groups
are particularly adept at maintaining flexibility in labor locations to attract a strong workforce in
geographically disperse areas. This allows companies to tap into a constantly changing labor pool without
incurring the expense of moving existing facilities.
The Outsource Partner Perspective
While this section looks primarily at ways to leverage the relationship to the advantage of the client
company, what is the perspective of the outsourcer? Is this truly a partnership that works both ways? In a
word, yes.
Outsource groups’ position in the market is to add the greatest value to any client. The outsource group
must have a complement of facilities, people and technology in order to position themselves competitively.
As with any other business asset, outsourcers gain financial benefits as the utilization of their facilities,
people and technology increases.
Good outsource companies also understand there is great value in selling additional services that a client
can leverage, and negative value in selling a client something that they cannot leverage positively. The
best outsource companies build long-term client relationships by providing access to facilities, people and
technology that add significant value to clients thereby building relationships build on trust.
source: http://www.telerxhealthcare.com/pdf/telerx-wp_outsourcing.pdf
Required:
You are to take a position- outsource or in-source and justify your position. (3000words)
To think about it is really hard.
Well i'll just justify the what i can give.
To start with.
**************************************************************************************************
Out- Sourcing
to present this .
EXECUTIVE SUMMARY
In the 1990’s, the call center outsourcing industry blossomed into a $10 billion juggernaut with a sustained
yearly growth rate of 25%. From humble beginnings as a high-volume, low-quality dumping ground of lowvalue
customer contacts, the outsource call center has become a critical part of nearly 85% of all Fortune
1000 customer contact solutions. It is estimated that by 2005, the outsource call center industry will reach
$30 billion in revenues in the United States, with nearly 20% of all customer contacts being handled by an
outsourcer.
But what does this mean to you and to your business? Why the recent boom to place your customer
contacts with a different company? How do your customers feel about it? What’s in it for you and what’s in
it for your customer?
This white paper focuses on the decision-making process involved in determining whether it is to your
strategic advantage to outsource all or part of your customer contact center, or to manage your own
business in-house. Key issues that will be discussed are:
• Growth and Trends in the Outsourcing Market. While the overall customer contact industry growth
has reached maturity, the customer contact outsourcing will increasingly be an option selected by
companies. Companies will seek outsourcers who can meet quality requirements and reduce costs.
Near-shore and offshore outsourcing is increasingly becoming an option for companies and will play a
significant role in the future. This section will review the trends in outsourcing and look into the future
of the outsourcing market.
• Determining if Outsourcing is a Viable Alternative for Your Company. Companies within the same
industry may take very different outsourcing strategies. Some may not utilize outsourcing at all, others
may outsource all of their contact center work, others may utilize a mix of internal operations and
outsourcing while still others may change their strategy over time. This section will review the key
factors used by companies in determining their outsource strategy and provides a checklist to help you
determine if outsourcing is right for you.
• Selecting the Right Outsource Group. An outsource relationship should be a partnership.
Partnership requires that there be a strong alignment between the needs of your company and the
capability of the outsource provider. This section reviews the process companies should use in
selecting an outsource partner and how to balance the areas of quality, cost and strategic fit in the
decision making process.
• Leveraging Your Outsource Partnership. It is not enough to engage an outsource partner,
companies must learn to leverage the relationship to their greatest advantage. This section will review
common ways in which a company can leverage their outsource partner’s capabilities.
The approach outlined in this white paper provides proven methods for determining a company’s
operational strategy, outsource vendor selection and relationship management. Destination Excellence
has guided numerous clients though this process achieving a high level of success.
THE GROWTH OF THE OUTSOURCING MARKET
Customer Contact outsourcers have been in business as long as the industry itself. Most of the 1980s
were spent in relative anonymity for the industry as a whole. It was not until the end of the decade that
more than 50% of businesses offered toll-free service to their customers.
The mid-1990s saw rapid growth in the customer contact industry as a whole. This growth was driven by
the increased use of toll-free services by business, with nearly 9 in 10 businesses offering toll-free service
by the end of the decade.
Businesses Offering
Much of the move to increased toll-free services was driven by the economics of contact centers and
customer needs. Coming out of a difficult economic decade in the 1980s, businesses sought to reduce
field services costs by replacing those services with customer contact groups. In addition, customers
demanded the convenience of telephone service and support as they continued to place value on
convenience, speed and time saving activities.
In the midst of the 1990s came the Internet revolution with the introduction of the first user-friendly
interface, Mosaic. While companies attempted to harness the power of the Internet to reduce customer
contact costs, the speed and technology of the Internet could not replicate the ubiquity, speed and
efficiency of toll-free service. Rather than reducing contact volumes, the Internet supported increased
volumes.
The customer contact outsource market gained significant visibility in the early 1990s. Originally a
backwater market, several events converged to increase the visibility of this market.
First, the market had reached a size and scale that began to attract attention. In 1990, the outsource
market reached $1 billion and was growing at a rate of 40% per year in the first half of that decade.
Second, the industry began to consolidate as larger companies saw the opportunity to bring significant
scale and geographical diversity into the market. Third, to fund the consolidation and expansion, manycustomer contact companies went public, allowing some of the first outside view into the economics of the
business.
The early view of the business thrilled the financial analysts. Their enthusiasm was so great, that
outsource contact center companies carried valuations (P:E ratios) in excess of Internet companies.
Exhibiting growth rates of well over 50% (part through market growth, part through acquisition), analysts
thought they had found a diamond in the rough.
The enthusiasm of the analysts was soon brought back to earth when it became clear that the growth of
outsource companies would be limited to market growth in the long run. In addition, the key markets
supported by outsourcers ran into their own issues, quenching the growth of the market for a short period of
time. The P:E ratios of outsource companies are now at normal levels.
• The customer contact market has completed its growth phase and has now reached maturity. The rapid
deployment of customer contact centers by companies has slowed, having reached the saturation point.
• The customer contact market will begin to decline in 2005 due to electronic messaging alternatives (via
the Internet and through other means). The mix of transactions in contact centers will become more
electronic as call volumes flatten and electronic communications increase. Demographics, technology
and an improved wireless infrastructure will make electronic communications more convenient, easier
and faster causing customers to dramatically increase their use of electronic messaging. The lower cost
of handling electronic messages will cause the overall decline in revenues of the contact center market.
PC and Internet
Internet Purchases
• Customer will perform a significant amount of transactions beginning around the turn of the decade, with
almost 50% of transactions done through electronic messaging by 2020. This will be driven by the
speed of access at the home as well as the user-friendly technology on web sites. These advances will
reduce the staffing in real-time customer support.
Gaining a Competitive Advantage Outsourcing v Insourcing
Page 4 Copyright© 2003 Destination Excellence, Inc.
877-433-7839 or www.destex.com
• As the outsource market in the U.S. reaches maturity, offshore companies will provide a valid, and less
costly, alternative to North American-based sites. Spanish language calls (representing about 5% of the
market) will generally be placed in Spanish-speaking countries. English language calls will be placed
increasingly offshore into countries where English as a second language is readily available, the quality
of operations is similar to that in the U.S. and the cost is as much as 50% lower than U.S. based
centers.
• Customer contact operations will become more of a commodity in that an outsource group will be able
to replicate the success of internal groups in terms of cost and service. Like payroll processing, contact
operations will be considered for outsourcing to reduce costs or resource requirements within a
company. The penetration of outsourcing will increase to over one-third of the total market around
2010.
The challenge for companies utilizing customer contact groups is to look ahead and develop a strategy
based on their specific requirements. The questions companies must ask are:
1. Is outsourcing a viable option for our company?
2. If I decide to outsource, how do I select the right outsource strategy and partner?
3. How do I continue to leverage the strategic value of my customer contacts with an outsource partner?
Each of these questions is reviewed in the following sections.
Strategic Necessity
Whereas culture is internally driven, strategic necessity is externally driven. Culture may pull in one
direction, but strategic necessity pulls in a different direction. In the 1980s, many companies had a culture
of performing all functions internally and on U.S. soil. Due to increased international competition U.S.
companies were forced to rethink this strategy or face extinction. Very few issues motivate change greater
than the possibility of extinction.
Strategic necessity is a reaction to outside forces. When a company must react strategically, the remaining
issues (quality, annual cost, capital cost, human resource availability and risk) must be reviewed in careful
detail to ensure the proper decision is made. Strategic necessity in the first two decades of the 2000s will
be driven primarily by cost. In the 1990s, companies began to recognize that outsource companies were
competitive on key non-financial measures (e.g., overall customer service) while also matching strategic
capabilities (e.g., partnering with internal groups and providing market intelligence). Consequently, the
strategic necessity of maintaining internal call center operations began to decline.
Strategic necessity will be measured and managed differently by each company. The litmus test used, however, is
the same. The key question is, what strategic value do internal operations provide and at what cost.
Quality
In almost every industry, the quality of the customer contact center is more important than its cost. Quality
here will refer to the quality of the overall customer experience.
Key concepts such as lifetime value of a customer, the cost to attract versus retain a customer and support
of brand image make quality one of the key factors in determining an outsource strategy. The revenue and
margin lost by poor quality can easily outweigh the cost savings of outsourcing.
Annual Cost
The term annual cost is purposely used here. Companies generally have a good handle on what internal
operating costs are for outsource groups. However, the analysis of determining true outsource costs must
not be limited to the operating costs of the contract (e.g., staffing, project management, administration).
These costs must also include incidental costs (e.g., programming, licenses, special requests) that may be
charged by the outsourcer as well as costs borne by the company in managing the contract. These latter
costs include the costs of personnel (e.g., contract manager, QA personnel) and travel.
Capital Cost
Internal customer contact centers often maintain a continuous battle to update technology to implement
new services expected by customers. Often, internal groups receive such investment well after the
customer need is identified and customer complaints have been generated.
Capital allocation to the contact center is difficult because it often competes against core business units.
These business units invest in capital to create new products or services that have a projected return. The
contact center operations, in contrast, often have to implement technology to avoid a decline in customer
contact quality that is difficult to measure.
Outsource companies have the advantage in that they must constantly maintain a competitive infrastructure
for their clients. The cost of the infrastructure is built into pricing eliminating the requirement of client
companies to spend significant capital to utilize this technology. Companies may look to outsourcers as a
way to maintain a competitive technology base without maintaining an expensive infrastructure.
Human Resource Availability
Companies that do not have contact centers as a key part of their business often find it is difficult to locate
and retain qualified contact center professionals, particularly at the middle and executive levels. The
reasons for this are simple. First, the discipline and expertise required for a contact center are not normally
found within the business. This often requires companies to recruit candidates from outside the company.
Second, the career path of contact center professionals may be limited if a path to alternate careers within
the company are not available. This causes turnover within contact center positions.
Some companies may find that the constant battle to maintain strong and knowledgeable leadership within the
contact center distracts them from the core business. They may choose outsourcing as a solution to this issue.
Risk
Risk is an inherent component of outsourcing. A company and its outsourcer may have similar program
goals, but the ultimate ways in which they achieve revenue and profitability are different. Most outsource
companies reduce risk by tying their success to maintaining long-term relationships with clients, causing a
closer alignment of objectives. While this reduces, it does not eliminate risk.
Every company has a risk threshold that they are willing to tolerate. For some companies, regardless of
how small the risk, they will not outsource their contact operations. Other companies are comfortable
establish systems to manage risk, viewing the need to control the output but not the operations themselves.
SELECTING THE RIGHT OUTSOURCE PARTNER
Outsourcing is a partnership. Like any partnership, the objective of the partnership is to add value to both
parties. Partnerships that accomplish this endure over long periods of time. The ramifications of selecting
the wrong partner can be painful.
Fortunately, the process of selecting a positive partnership is well known. Destination Excellence has
assisted a number of companies in selecting partnerships successfully. This process is detailed further in
this section. Adherence to the process outlined here significantly increases the quality and output of the
outsource process.
Develop Your Requirements
First and foremost, a company must detail its expectations. In companies who have performed customer
contact work internally for a long period of time, this process may require significant documentation.
(Internal operations tend to be less documented, as procedures and training are often the intellectual
capital of individuals within the center.) This documentation is critical, however, to properly assess the
capabilities of the companies considered.
Documentation of a program to be outsourced should include:
• An overview of the company and how the program supports overall company goals.
• The mission and vision of the program along with specific and measurable objectives/expectations
(including turn-around times and service levels).
• Volume projections by type (e.g., calls, e-mail, chat), month (weekly if sufficiently cyclical), day (day of
week distribution), and holiday. If media drives some portion of volume, then outline the expected media
schedule.
• Average talk times and after call work times by contact type.
• Hours of operation, including holidays and other events. Include expectations on downtime and disaster
recovery.
• Hiring profiles, initial training requirements, how training will be developed and delivered.
• Non-productive time requirements for training, coaching, monitoring, ongoing training and other activities
desired by the company.
• Estimated staffing levels.
• Schematic of the workflow.
• Schematic of the expected systems set up and system interfaces back to the company.
• Other requirements, as appropriate.
This information will be crucial to the development of an RFP. If information is not available at this time, it
will be required in response to the RFP.
The RFP Process
The RFP process begins with the selection of vendors to include in the distribution of the RFP. This can be
accomplished in one of two ways. First, a company can send an RFI with an overview of the project to a
broad array of vendors and use the responses to the RFI to narrow the field. Alternatively, the company
may survey the industry and pre-select a number of vendors who have a solid reputation of performing well
against similar programs. Only companies with a high probability of success in the program should be
included in the RFP.
The RFP itself should reflect all of the information that a vendor will need to submit a complete and
qualified bid. While there is no single format that is best for every RFP, the following provides an outline
that has worked well in a number of submissions:
• Secrecy Agreement. The signed Secrecy Agreement should be included with the RFP for the vendor.
• Instructions to Bidders. Standard legal language should be included to make clear the time frames,
submission criteria and release the company from any legal obligations in distributing the RFP.
• Bid Selection Criteria. This outlines how the vendor will be selected. The criteria should be clear enough
for vendors to understand what the company considers most important, yet remain flexible to provide the
best overall selection process.
• Timeline. The timeline for submission, review, selection, contract negotiation and implementation should
be outlined in detail.
• Program Overview and Requirements. The requirements developed (see previous sub-section) are
detailed in this section.
• Sample Contract. A standard company contract should be included so that vendors may judge what
contractual criteria may impact their pricing and performance. Vendors should list any objections to the
contract in the Additions, Variances and Exceptions section.
• Bidder Response. A standard response sheet with pricing (using a single pricing format will increase
understanding), performance, support services, systems and other information should be filled out be
each vendor. A clear and consistent bid sheet will allow for objective comparisons between vendors.
Companies may opt to allow an additional response to be provided by the vendor in a freestyle format.
• Additions, Variances and Exceptions. Providing a specific section for deviations from what was
requested allows companies to ensure they are clear on what has been requested will be adhered to.
• References. Require references from similar applications from current and discontinued clients. Also
provide some investigation outside of the references provided to determine what issues companies may
have with the vendor.
After the RFP is developed and the vendors who will receive the RFP selected, each vendor should be
contacted to obtain their level of interest for inclusion. Any vendor who wishes to be included in the RFP
must sign a Secrecy Agreement protecting the information that is being provided to them. Upon receiving a
signed Secrecy Agreement, the vendor will receive a copy of the RFP.
After all the responses have been received, the vendor assessment can begin.
Vendor Assessment
Upon receipt of all vendor RFP responses, the company must determine if some vendors should be
eliminated from consideration. Causes for elimination may include pricing, quality of response, service
capabilities or unacceptable exceptions. Any vendor eliminated should be notified immediately that they
are no longer going to be considered in the process and the reasons why.
Destination Excellence recommends companies evaluate vendors on three specific criteria. These criteria
should receive the appropriate weighting to reflect what is most important to the company. The criteria
include:
Quality. Recommended to be the most highly weighted criteria (normally 50% or more), quality reflects
the ability of a vendor to produce consistently high levels of performance. To judge quality, Destination
Excellence utilizes its 100-Point Audit to evaluate vendors (see Optimizing Customer Care Operations –
The 100 Point Audit for specifics). Vendors receive a score based on a one to two-day audit of their
operation.
• Cost. Vendors’ submissions are also evaluated in terms of cost. Costs include start-up costs, ongoing
costs and termination costs. Costs should be determined over the proposed lifetime of the partnership
agreement. Costs may be factored by year to take into account the greater certainty in costs in the early
years.
• Strategic Fit. For longer-term partnership agreements, an evaluation of vendors is necessary to
determine if the direction and investments vendors plan to make are consistent with the needs of the
company. For example, investments in integrated marketing databases may be important and therefore
should receive consideration. While the strategic fit assessment is rarely the final determinant of the
selected vendor, in cases where the current quality and cost are essentially the same between two
vendors, a strategic fit assessment can help select the best long-term vendor.
With the scores and weights from the above sections, vendors can be rank ordered in their overall score.
LEVERAGING YOUR OUTSOURCE PARTNER
There are many advantages to outsourcing and companies should look to maximize the advantage of their
outsource partnership. It is in the best interest of the company and their outsource partner to fully leverage
this relationship.
This section will review three common ways companies leverage the outsource partnership. These include
access additional operating capacity (operational flexibility), accessing an untapped workforce or access
new technology without the capital cost.
Operational Flexibility
Companies often find challenges in coping with the cyclical nature of their business. In some companies
the peak contact month to low contact month ratio can be as much as two, or higher. Cyclical peaks and
valleys within a year may cause companies to hire new staff only to lay off that same staff later in the year.
This can cause strain excessive strain within the workforce and harm a company’s reputation within the
community. Outsource partners can absorb cyclicality by utilizing people across a variety of programs
throughout the year. This approach provides a stable environment for a company and its work force
throughout the year.
Other companies may have a relatively low peak month to low month ration, but may have challenges
maintaining a trajectory of growth. This is particularly true in newer industries where annual growth rates
can easily exceed 25%. Opening new facilities, project managing technology installations and installing a
new workforce can distracting a company from managing its core business. Such distractions can
ultimately stunt the growth of the business itself. Utilizing outsource groups allows companies to maintain
their focus on the core business without losing market momentum.
Lastly, some companies wish to avoid spending significant capital on new facilities. Capital investment
often receives a higher rate of return in other parts of the business outside of the customer contact
operations. After maximizing utilization of existing facilities, companies turn to outsource groups to provide
additional capacity without capital spending.
Workforce Access
Contact center positions have become the largest entry-level opportunity in the United States. The growth
in employment in the industry has created challenges of locating qualified candidates and turnover of the
existing workforce for companies. In addition, normal local demographic changes have made previously
attractive locations longer attractive for call centers. Companies find themselves in a quandary of
escalating wages in a constricted talent pool with the only viable option of relocating facilities every five
years to follow workforce trends.
Contracting outsource groups allows companies to disconnect themselves with labor location issues,
leaving that issue in the hands of the outsource provider. Due to their size and flexibility, outsource groups
are particularly adept at maintaining flexibility in labor locations to attract a strong workforce in
geographically disperse areas. This allows companies to tap into a constantly changing labor pool without
incurring the expense of moving existing facilities.
The Outsource Partner Perspective
While this section looks primarily at ways to leverage the relationship to the advantage of the client
company, what is the perspective of the outsourcer? Is this truly a partnership that works both ways? In a
word, yes.
Outsource groups’ position in the market is to add the greatest value to any client. The outsource group
must have a complement of facilities, people and technology in order to position themselves competitively.
As with any other business asset, outsourcers gain financial benefits as the utilization of their facilities,
people and technology increases.
Good outsource companies also understand there is great value in selling additional services that a client
can leverage, and negative value in selling a client something that they cannot leverage positively. The
best outsource companies build long-term client relationships by providing access to facilities, people and
technology that add significant value to clients thereby building relationships build on trust.
source: http://www.telerxhealthcare.com/pdf/telerx-wp_outsourcing.pdf
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