“When You Outsource the
Service, Make Sure You Don’t
Lose Track of the Customer”
UCSC Service Engineering
Course Presentation
February 2007
Professor Vijay Mehrotra
College of Business
San Francisco State University
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
1
Agenda
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Who is This Guy?
Why Do Companies Outsource
Customer Service?
Rewards and Risks
How to Successfully Capture
Outsourcing Benefits and
Minimize Customer Losses
Conclusion / Q & A
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
2
About Vijay: “Academic or Real World?”
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PhD in Operations Research, Stanford University
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1994-2002: Co-Founder and CEO of Onward Inc.
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Operations Management Consulting Firm
Grew from 3 founders to 30 consultants
Special Emphasis on Call Center Operations and Business Analytics
Clients Included Intuit, Charles Schwab, Wells Fargo Bank, HP, IBM,
Advertising.com, GE, Cisco, Cadence, and Applied Materials
Call Center Practice Acquired by Blue Pumpkin Software (Witness)
Analytics Practice Acquired by Advertising.com (AOL)
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2002-2003: Vice President of Solutions, Blue Pumpkin
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2003-present: “Retired” to life as a University Professor
Academic Research on Customer Service Operations,
Probability and Statistics, Business Process Improvement
Operations Management Consulting Practice
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
3
Agenda
•
•
•
•
•
Who is This Guy?
Why Do Companies Outsource
Customer Service?
Rewards and Risks
How to Successfully Capture
Outsourcing Benefits and
Minimize Customer Losses
Conclusion / Q & A
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
4
The Customer Perspective
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5
The Management Perspective
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MORE Technical Complexity
• Skill-Based Routing
• Multiple Customer Channels
• Inbound/Outbound Blended
• MultiSite / Outsourcing
MORE Demand Uncertainty
• New Policies/Processes for
Existing Businesses
• New Businesses/Services
• M&A Activity
• New Operating Hours
• Increased Service Level
Goals
• Cross-Channel Dynamics
MORE Pressure / Urgency
• Tighter Budgets
• “Solve the Problem Now”
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Why Do Companies Use Outsourcers
for Customer Service Operations?
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7
Why Do Companies Use Outsourcers
For Customer Service Operations?
• “Get more for less”
• To reduce costs
• To increase capacity and
flexibility
• To accelerate expansion
• “Not our core competency”
• To obtain expertise, skills,
technologies, and ideas
• To deploy internal resources
and capital in other ways
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8
Do you really “Get more for less” ?
• Gartner Analysis: “Outsourcing will cost you more”
• Average In-House Cost Per FTE is 30% Lower than
Outsourcer
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Average
Best-in-Class In-House Cost Per FTE is 41% Lower than for
Best-in-Class Outsourcers
• Why?
• Start-Up costs can be significant
• Additional in-house resources (IT, relationship management,
training, etc) to support outsourcer
• Outsourcers’ costs (marketing, capital, staff turnover and
training) are also growing
• Offshore cheaper, but both salaries and attrition soaring for
overseas service providers
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“But all the kids are doing it”
• Ventoro Study
• 10,000+ outsourcers worldwide
• 95% of Fortune 500 has offshoring strategy
• Others will follow their lead
• Hard to convince execs not to consider offshoring
• Peer pressure – fear of losing edge to competitors
• Price pressure – too enticing to not consider
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10
Agenda
•
•
•
•
•
Who is This Guy?
Why Do Companies Outsource
Customer Service?
Rewards and Risks
How to Successfully Capture
Outsourcing Benefits and
Minimize Customer Losses
Conclusion / Q & A
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
11
The Customer Service Exec’s Dilemma
• “Outsourcing/Offshoring Can Save Us Money…
• …but how can I maintain and enhance our customer
relationships when someone else – at another
company! – is interacting with them on my behalf?”
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12
It All Starts With the Customer
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Outsourcing Contracts Usually Based on Traditional Operational
Metrics (“How Many” and “How Fast”)…
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…But Customers Value More Than Just Speed
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Accenture Study
• Waiting on Hold is Definitely Frustrating, But Not
Significantly More Than
Having to Repeat Info Over to Multiple Agents
Agents Who Could Not Effectively Solve Problems
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Key Drivers For Switching Providers
1. Poor Service/Product Quality
2. Lower Prices
3. Lack of Knowledgeable Agents
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13
Why This Matters – A Lot!
• Example
# Calls / Year
In-House Cost / Call
2,000,000
Customer Base
1,000,000
OutSource Cost
/ Call
$10
Lifetime Value of
Customer
$5
Churn Rate Increase
$1,000
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2%
Annual Savings
$10,000,000
Lost Revenue
$20,000,000
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Agenda
•
•
•
•
•
Who is This Guy?
Why Do Companies Outsource
Customer Service?
Rewards and Risks
How to Successfully Capture
Outsourcing Benefits and
Minimize Customer Losses
Conclusion / Q & A
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
15
How to Win With Outsourcing:
Strong Ownership of Customer Experience
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Tightly Integrated Data From Outsourcer(s)
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The Right Metrics for Outsourcer(s) Service Quality
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Clear Expectations & Incentives For Outsourcer(s)
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Responding Quickly to Emerging Problems
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Systematically Eliminating Customer Issues
•
Building Real Partnerships
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True First Contact Resolution Rates are
Major Driver of Customer Loyalty

Successful Resolution on First Contact
Loyalty Maintained Very Successfully (90%+)
In Some Situations Even Enhanced
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Unsuccessful Resolution on First Contact
Repurchase Rates Plummet
Negative Word of Mouth Grows by Factor of 2
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Customer Defines “Successful Resolution”
Most Service Ops Claim Overly High FCR Rates
Uniprise Story
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Tightly Integrated Data From Outsourcer(s)
• Outsourcers see individual encounter in isolation
• Was their a callback that went to a different site?
• Did that customer go back to the web site or send
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an email about a related problem?
How did that customer respond to a customer
satisfaction survey?
How frequent was that issue?
• Without data integration with outsourcer
• Unable to analyze customers’ experience over time
• Unable to analyze content to drive call prevention
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18
How to Win With Outsourcing:
Strong Ownership of Customer Experience
•
Tightly Integrated Data From Outsourcer(s)
•
The Right Metrics for Outsourcer(s) Service Quality
•
Clear Expectations & Incentives For Outsourcer(s)
•
Responding Quickly to Emerging Problems
•
Systematically Eliminating Customer Issues
•
Building Real Partnerships
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19
The Right Metrics - Measured Right
• Traditional Metrics (# Handled, SL, ASA) For
Outsourcers Focus Mainly Quantity and Speed
• Customer Relationships Also Hinge on Quality
“Measuring and improving quality is
significantly more difficult the farther
you are from the home base”
Bill Price,
Former EVP for Customer Service
Amazon.com
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The Right Metrics - Measured Right
• Key Quality-Based Metrics for Outsourcers
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First Contact Resolution Rate
Shows how effectively outsourced agents are solving
customers’ problems
Easy to miscalculate, either by relying on agents’
classification or by ignoring customer perception &
behavior
Requires integrated data to see customer behavior
over time and channels
Customer Sat Scores By Call/Case
Immediate customer satisfaction surveys to capture
customer feedback (often done by another outsourcer)
Must be connected to call detail records for
evaluating Calls/Agents/Teams/Issues
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21
How to Win With Outsourcing:
Strong Ownership of Customer Experience
•
Tightly Integrated Data From Outsourcer(s)
•
The Right Metrics for Outsourcer(s) Service Quality
•
Clear Expectations & Incentives For Outsourcer(s)
•
Responding Quickly to Emerging Problems
•
Systematically Eliminating Customer Issues
•
Building Real Partnerships
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
22
Money Talks
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Outsourcing Contracts must include
explicit targets for quality metrics with
incentives and penalties
Measurement of quality must be driven by
customer behavior!
This is the only way to ensure that quality
is taken as seriously as quantity and speed
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
23
How to Win With Outsourcing:
Strong Ownership of Customer Experience
•
Tightly Integrated Data From Outsourcer(s)
•
The Right Metrics for Outsourcer(s) Service Quality
•
Clear Expectations & Incentives For Outsourcer(s)
•
Responding Quickly to Emerging Problems
•
Systematically Eliminating Customer Issues
•
Building Real Partnerships
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
24
Rapid Response to
Emerging Problems
• Rapid detection is critical
• Drives continuous improvement
• Enables crisis prevention
• It doesn’t happen by accident
through email
• Disciplined, structured analysis is key
• Tight Communication with Outsourcer’s Staff
or
Builds Knowledge Base, common way of thinking
Understand just who is managing the operations
• Lost time means
• Lost customers
• Potential embarrassment (internal or public)
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
25
How to Win With Outsourcing:
Strong Ownership of Customer Experience
•
Tightly Integrated Data From Outsourcer(s)
•
The Right Metrics for Outsourcer(s) Service Quality
•
Clear Expectations & Incentives For Outsourcer(s)
•
Responding Quickly to Emerging Problems
•
Systematically Eliminating Customer Issues
•
Building Real Partnerships
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26
Eliminating Customer Issues
• You all understand the value of call prevention, as do
(all of) your customers and (some of) your prospects
• Eliminating customer problems is NOT part of an
outsourcer’s job. In fact, customer problems provide
outsourcers with job security!
• Expectations must be set for outsourcers for both the
quality of the data captured and the frequency with
which this data is delivered
Without good detailed data from outsourcer, call
prevention is seriously hindered
It’s your problem, not the outsourcer’s…
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Huge ROI Opportunities
Through Regular, Structured Data Analysis
IVR and Web
ACD / WFM
Data
Data
Service Operations
Data Store
Firewall
Survey Data
From
Outsourcer
Contact Data
SQM
From
Survey
Outsourcer
Billing
Data
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28
How to Win With Outsourcing:
Strong Ownership of Customer Experience
•
Tightly Integrated Data From Outsourcer(s)
•
The Right Metrics for Outsourcer(s) Service Quality
•
Clear Expectations & Incentives For Outsourcer(s)
•
Responding Quickly to Emerging Problems
•
Systematically Eliminating Customer Issues
•
Building Real Partnerships
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
29
Building Real Partnerships
• Outsourcers have much to learn…
• …about your business (all of them)
• …about their business (many of them)
Outsourcing industry has grown fast
Shortage of managerial talent across industry
• Good outsourcers also have much to offer your operations team
• It doesn’t happen overnight – don’t outsource just for the quick
operational savings because you may not see them quickly
• Invest time and effort
• Put people on site, respond quickly to the unexpected
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
30
Agenda
•
•
•
•
•
Who is This Guy?
Why Do Companies Outsource
Customer Service?
Rewards and Risks
How to Successfully Capture
Outsourcing Benefits and
Minimize Customer Losses
Conclusion / Q & A
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
31
Outsourcing is Not a “No Brainer”
• Is it a “good thing”?
• Cost savings not guaranteed
• Customer service quality not guaranteed
• Is it a “bad thing”?
• Not necessarily – but must follow best
•
practices to succeed
Requires executive and managerial focus
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
32
Questions and Ideas?
Please Ask Away (or Call / Email)!
Professor Vijay Mehrotra
Department of Decision Sciences
San Francisco State University
[email protected] / 650-465-8443
Confidential. Copyright © Enkata Technologies, 2005. All right reserved.
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