Strategic Outsourcing Professionals

In this economic downturn, businesses are doing everything they can to weather the storm.  Unfortunately, most are taking a simple approach by making cuts in the easiest way – its people.  That is understood; human capital is expensive and business needs to do what must be done.  However, by going lean, businesses are putting themselves at risk of losing market share when the economy picks up.  Management teams need to think about positioning the business to outpace their competition and capitalize on the economic rebound.

To do this, Executives should focus on achieving operational excellence to position business for rapid growth.  Operational excellence isn’t a form of just managing the way business is done; it’s also about how the business is organized.

In my view, there are low-cost investments that can add significant value to the operating model of a company.  Further, their measured success will allow a company to scale and grow operating income at a faster pace.

1.     Continuous Improvement: Measure, Adjust, Improve, Iterate

2.     Develop a Strong Product Feedback Loop: Your angriest customers are the source of your greatest learning.  Use that to your advantage and build what people want and require.

3.     Enable Self-Learning: Drive content and metrics for everyone to learn about the business.  An organization’s ability to learn, and translate that learning into tangible action, is the ultimate competitive advantage.

In the words of Walt Disney, “The way to get started is to quit talking and begin doing.”  

As large companies experience growth, especially by acquisition, there will always be opportunities to consolidate and streamline business operations for optimal efficiency and cost reduction. When individual business units are managing the same function, such as Customer Care Operations, there is an opportunity to consolidate the function so each unit and their unique requirements are met while placing a core group accountable for all the operational infrastructure, vendor procurement and relationship management that is necessary to ensure excellent service delivery. For this reason, I am a firm believer and proponent of a Global Operations governance model when managing customer care across multiple business units within large organizations.

The benefits for consolidating the global sourcing function are as follows:

• Responsibility and accountability falls within one group to manage the service and sourcing function for the business to meet the needs of both internal and external customers.
• Promote collaboration between business units and drive toward unified customer experience goals.
• Optimize costs by performing Work Force Management (WFM) to forecast and staff a balanced vendor portfolio.
• Enable an infrastructure to seamlessly transition vendors when better performance, terms or service levels are desired.
• Expand, grow and align the business with strategic partners that can deliver results.
• Build a diversified vendor portfolio for business continuity.
• Build and foster sound relationships to ensure the business is satisfied with performance, costs and customer experience.
• Balance the need for immediate cost savings with customer satisfaction
• Coordinating activities/projects across multiple providers and geographies

I developed this star diagram for a recent presentation on Global Operations. I feel it sums up the function well.

In the BPO environment, a typical governance model will include a mechanism for managing key performance indicators (KPI) to ensure high levels of resource utilization and customer satisfaction (CSAT) while driving down operational costs. Most environments will define measurements that track KPI at an individual resource level, but will then average KPI by vendor, site location and/or line of business to measure success. The data is then traditionally used to identify opportunities for improvement and/or steer ‘spend’. Typically, enterprise-wide initiatives are developed for an entire program where only marginal benefit is achieved because the gaps are not enterprise-wide. What if you could monetize each resource in dollars and cents to understand impacts and/or benefits?

As ‘BPO 2.0’ moves forward, there is a need to measure individual resources with a metric of Earned Value (EV). This concept is founded on the principle that resources are variable; they perform at different and unique levels of efficiency and quality. The more adept a resource is at providing efficient and quality services, the less impact that resource will have on the overall operating cost of the organization. By measuring individual resources with earned value, this opens the door for aligning vendors more seamlessly to corporate objectives and goals.

Benefits of deploying an EV metric are as follows:

• Develop a performance monetization matrix that specifies impacts of resource specific operating costs within the organization
• Incorporate a framework for training development to promote resource grade classifications and drive towards higher quality, higher efficiency and lower costs.
• Develop value stream maps for process improvement and resource development
• Incorporate EV metrics into the scorecard to assess and target opportunities for improvement

Stop and think about the possibilities from both a negotiation and vendor management perspective as the model is developed. Vendor incentives could be negotiated where the best and most efficient resources are aligned to your account. Vendors have the potential to make higher margin; clients would be willing to pay slightly more for resources that are known to operate more efficiently with higher quality because earned value would quantify an actual cost reduction of lower FTE. By developing an earned-value metric, everyone has the opportunity to win. Let’s just hope my boss wants to play!

It seems pretty easy to outsource IT or Business Process functions. The concept is simple enough. You draft requirements, build a plan for implementation and then transition to your outsourced vendor for execution. Ah, if it were only that simple. Obviously, there is a lot to successfully sourcing the correct vendor to perform services for your business. Any serious sourcing professional understands the process and challenges, but for those that are just diving into the outsourcing realm, there is one ‘gotcha’ that you need to think about – working with offshore providers brings a new set of challenges with cultural barriers.

Most folks in the outsourcing community will agree that one of the largest challenges with successfully transitioning a business function is transferring knowledge to a distributed environment. Further, once the knowledge transfer occurs, results have the potential to vary greatly. I call this effect ‘Lost in Translation’. It is similar to playing the game ‘Telephone’. Do you remember that game from your childhood? Basically, a group gets in a circle and the first person communicates a message and asks the next person to relay that message. The process continues through the circle and by the time the message gets to the last person, it tends to be dramatically different from what was originally communicated. In outsourcing, this unfortunate ‘game’ of communicating is commonplace. When you think about it, collaboration with internal teams can be challenging enough with a virtual environment; when introducing a global collaboration paradigm where broad cultural differences exist, the challenge grows exponentially.

I have yet to find the golden answer to overcoming this problem in the outsourcing environment, but there are things you can do to mitigate this risk. The concepts may seem simple, but then again, so does communicating. So, without further ado, here is my advice to overcome communication and cultural barriers in the global workplace.

• People tend to be more productive and assume greater ownership with face-to-face communication. When outsourcing, make sure key managers get together once a quarter and leverage teleconferencing for other key meetings. It is easier to develop relationships when you are able to see the people you are engaging. Body language is a key indicator; you need to understand if resources have blank stares or if people are onboard with key discussion points.
• Provide a solid training overview of your American business and segue into why the vendor resources are necessary to complete the company objectives. This will provide background and will help facilitate ownership of responsibilities for the vendor resources.
• Empower employees and vendors to collaborate with software. Whether you are in a Manufacturing, IT or BPO environment, there are plenty of tools in the marketplace that will manage both SLAs and Change Management. For success, use tools to your advantage.
• Introduce American cultural in a simple and entertaining manner. Be resourceful and forward movies, commercials, magazines and just about anything else you can think of that provides a reference to American culture. Yes, this really works; especially in a call center environment. Agents will absorb this material and build more rapport when engaging customers.
• Empower communication through instant messenger software. In a global footprint, instant messaging is a great forum for communication and can help your resources get clarification faster.
• Brand the vendor facility with marketing materials to develop a sense of corporate pride. People are more productive and will engage in conversation or email more frequently when they have a sense of belonging.
• Manifest collaboration to deliver positive results by making a point to know your co-workers and partners. Encourage your team to do the same. At the end of the day, the more you know about your co-workers and vendors, the more comfortable, productive and enjoyable the partnership(s) will become.

I hope this post doesn’t seem ‘Lost in Translation’.  If you have other ideas to combat this problem, please let me know or comment to this post.  I am all ears.

How do you outsource customer care operations to maintain high levels of customer satisfaction and retention? This is often the biggest question and/or tradeoff when executing an outsourcing strategy in the business process outsourcing realm. The Marketing executive will view business process outsourcing as a sacrifice of long-term retention revenue and customer satisfaction for short-term operating income. The Operations executive will view business process outsourcing as a cost-reduction opportunity and will not always see the value of long-term customer satisfaction. Truth be told, BPO can provide big-wins for everyone by aligning your outsourcing strategy to include a Marketing Operations function within your business that increases satisfaction and reduces cost.

In my experience, marketing groups tend to be very focused, organized and driven with customer acquisition strategy. Advertising programs are designed and targeted to solicit new customers or prospects. Most companies are very brand and product-based, and when a decision is made to outsource customer service departments, Marketing professionals tend to feel there is a lack of integrated Marketing strategy with the Operations team. To create a closed-loop Marketing process, especially with your outsourced customer care operations, executives must champion an effort to build a greater customer service and retention strategy that reinforces the value proposition of your company’s product offerings. By reinforcing product value, you can enable your company to grow its brand equity while reducing operational costs with outsourcing relationships.

To accomplish the task of integrating Marketing with Operations, there are several things that need to happen to gain Marketing value with your outsourced relationships. Marketing Operations groups need to have clear metrics of customer attrition, customer satisfaction and effectiveness of messaging from the BPO teams. Additionally, the enterprise needs to focus on the outsourced relationship to ensure the Marketing Operations team is empowered to address problems as they are presented. A paradigm needs to be implemented where the Marketing Operations team is leveraging the cost savings associated with outsourcing to proactively hold on to customers. To enable success, the enterprise Marketing focus needs to adapt to the outsourcing model and identify strategic plans for customer retention and satisfaction when using outsourced partners. In turn, the Operations group needs to jointly focus to enhance technology tools, implement a reporting infrastructure to measure success, create feedback channels from the BPO teams and ensure there is collaborative management structure between Marketing, Operations and the outsourced partners. By proactively responding to customer needs and operational efficiencies, a company can objectively quantify the success of using an outsourced provider to increase satisfaction and reduce operational cost.

For more details on Marketing Operations, the paragraphs below drive into proactive methods you can use to establish a successful integration with Marketing, Operations and BPO providers.

Establishing Marketing Operations Metrics

In my opinion, the single most important metric that enables a Marketing group to maximize long-term satisfaction and revenue is a lifetime value or loyalty metric. While this may seem intuitive, I have found that it is very hard to determine how much a customer can be worth to any business because every business is unique. It often takes a PhD in Applied Mathematics to develop an algorithm, and while there are off-the-shelf CRM products that attempt to calculate this metric for you, there will always be a level of customization necessary to correctly calibrate the final value. That being said, your company needs to spend time developing this metric. Marketing needs to know how to segment the customer base to enable Operations to manage costs by creating an efficient servicing cycle.

Once this metric is developed, it needs to be incorporated into the service tools so the Operations groups can follow processes for servicing and processing customers. For example, a customer with a high lifetime value metric needs to have high service levels, increased benefits, increased customer incentives and further communication around product value for future revenue. Customers with lower lifetime values need to have less all around effort to be retained as a customer because the revenue they produce will not be worth the cost. Outsourced agents need to understand this value to assess how to manage AHT, sales metrics, and proper messaging to keep the cost center at an optimal efficiency level.

The second most important metric that Marketing and Operations need to understand is a customer’s behavior of purchasing in a transaction model or the persistency of membership in a subscription model. By leveraging interactive Marketing methods, your team can identify conversion rates for new Marketing campaigns. By understanding customer persistency, your team can understand the correct communication points in the membership lifecycle where reinforced value-messaging can be targeted. From an Operations perspective, all this predictive data needs to be correctly included in a forecasting model to ensure your outsourced providers are leveraging work force management methods to properly staff customer contact volumes. Everyone needs to be in-synch to ensure customer satisfaction increases, operational efficiencies are optimized and your vendors perform to the correct level of expectations.

As you develop this process, outsourced providers need to provide input and feedback from each campaign. BPO groups should be able to segment agent level performance by gender, geographic location, messaging and/or scripting and English assessment scores. This feedback is essential to identify the success of each interaction and campaign targeted at your consumers. Marketing and Operations both need this to understand what was most effective and how to increase performance for future campaigns. For example, if a transactional campaign is executed and male service agents in Costa Rica delivering an assumptive language script had the highest conversion, you need to make sure your Operations staff understands this for proper staffing against those campaigns. If you know that female agents in Manila using tailored value scripting are best at retention, you need to staff those queues with those types of service agents. Your vendors need to work with your company to develop the right profiles for the right servicing campaigns so you reach optimal revenue and customer satisfaction while taking advantage of the reduced costs to increase margins.

Enhance Value Statements and Messaging

Historically, it has been my experience that customer service operations have a reputation as being a burden of doing business. The constant struggle and daily battle for increased budget to service customers can take its toll for many Operations executives, and I affectionately refer to this philosophy regarding customer service as the “beaten step-child” of an organization. However, in all seriousness, this philosophy of doing business causes a lot of Operations groups to focus on driving down cost by sacrificing customer satisfaction. While there is an attempt to try and provide the best possible service at the lowest possible price, companies focus on AHT to service customers as fast as possible. In turn, Marketing starts learning about reduced satisfaction and lower retention sales, which then prompts the cycle to shift back to ‘caring’ about customers. It seems like there is a pattern in business to drive goals toward sacrificing service for operating income.

If anyone has followed the path of Dell Computer over the last few years, you will have noticed their market-cap drop 20 Billion dollars. One of the issues that caused this rapid decline was the implementation of a BPO strategy to drive down costs that ultimately lead to poor customer service. They lost a lot of market share, and poor service seems to be one of the important inputs that caused these issues. Today, Michael Dell has promised to get their service group back on track, and Dell is also looking to streamline their supply chain to increase their operating margins. Hopefully, this strategy will lead to greater customer satisfaction in both servicing and product fulfillment. If that happens, Dell will get right back on track to where they were in the ‘glory’ days.

To be successful with BPO, there needs to be a compromise between Marketing and Operations to ensure customer satisfaction. This can better position a company to have greater long-term financial benefit. In my opinion, this can be accomplished by changing the messaging structure of your service organization. Additionally, there needs to be a mechanism established for your BPO partners to execute on scripting changes. Messaging needs to be tailored to different customer types where the value of the interaction and the products are always reinforced. Think about changing the experience on certain call types to offer a value statement of the company or products that were purchased. Segment the customer base to target specific messaging for customers with different lifetime values. Enhance the self-service components in the IVR to provide information faster without incurring live agent costs. Increase the time you spend assisting customers that are loyal and important for your business. There are several options and strategies that can be implemented. But at the end of the day, the goal needs to focus on proving the value of having Marketing and Operations work collaboratively to demonstrate the value of providing quality service and proper messaging to your customers.

Conclusion

In this article, we discussed the importance of integrating Marketing, Operations and your BPO vendors to ensure your company reinforces the value proposition of your products, help drive brand equity and ensure your outsourced providers are setup to succeed. The tradeoff of reduced cost for lower customer satisfaction is not necessarily a paradigm that should be settled upon. By enabling a Marketing Operations group within your company, opportunities to lower operational costs and increase efficiencies while improving customer satisfaction are definitely viable. The goal is to define the right metrics, deliver the right messaging and ensure the right feedback channels are implemented. With the right mechanisms in-place, your company should feel that launching BPO operations was the right decision.

So, your boss just got back from a management meeting and you find yourself in a situation where the directive from the Executive Team is to implement a new set of cost cutting initiatives across the enterprise. Naturally, the Executive Team wants to tackle the cost centers and decide that an outsource strategy needs to be identified. Given you are in Operations, your boss looks at you and asks that you start the research. What do you do? Where do you start? It seems apparent that you need to assess the components of your operations and start prioritizing what processes you can begin to offload to a partner. You develop a transition strategy where you start small with a pilot, and as you begin to realize the benefits of outsourcing and gain confidence, you continue to outsource more processes as your comfort level rises. Sound simple? Well, it is one thing to have the vision; it is another thing to execute on that vision. Like anything else, proper preparation will be the best tool to guarantee your success.

While there is a lot to defining an outsourcing strategy, the key components to execution are being able to assess, qualify, source, and transition to 3rd party providers. However, in all my experiences, it always seems that time-and-time again I hear the same story with companies making the leap to BPO - they don’t feel they are earning enough contract value with their partners. The largest complaint is that everything looked good on paper, but that the demonstrated contract value is not following the model. Does this sound familiar? If you are nodding at your screen, you are not alone. There are lots of smart people out there jumping into outsourcing. They assess vendors, get the security engineers and compliance officers to assist with due diligence, they make the decision to move forward, and they launch their sourcing strategy. That being said, if you ask them about their contract structure, they usually say - “yeah, we have a contract…we moved through the process quickly so we could start executing the project…we had lots of deadlines…the contract was just a formality.”

Deadlines are deadlines, but a contract is a contract. The contract is by far the most important part of your preparation to achieve earned value and get the true benefit out of your sourcing relationships. While most people focus on costs (as they should), there are other key components that must be negotiated to streamline operations and make your partnership a success. Without negotiating and administering these critical relationship components, you are setting up your company to achieve lackluster results with their outsourced partnerships.

Besides the standard price structures, indemnification, and legal terms and conditions, a sound contract must contain the following key components to help ensure success. I discuss these topics in the paragraphs below.

Governance Model

Governance is a buzzword in the outsourcing industry. It seems everyone knows it is important, but everyone has a different opinion on how a governance structure must be designed. Well, I tend to agree that there is no standard governance model; however, there are several necessary components of a governance model that should be developed. When you think about it, outsourcing is only as good as the partnership that is established. It is imperative that you manage that relationship with a governance structure that keeps all business strategy and objectives in-sync. You must develop the governance model to communicate a clear plan that can be executed by all involved parties.

It is my opinion that a contract needs to provide the definition of how you intend to govern the relationship. All outsourcing contracts should have some language around steering committees, management structure, account structure, training platform, quality platform, meeting schedules, management tools, reporting, and feedback channels. As a small example of something that should be included in a contract, a Quarterly Business Review (QBR) is essential to the success of the relationship. A QBR should be performed to communicate business strategy from both the client and vendor perspective. Additionally, both the client and vendor should perform a SWOT assessment - Strengths, Weaknesses, Opportunities, and Threats.

Defining a governance model upfront will prevent a lot of headache as the relationship progresses. There is nothing worse than getting into a nasty cycle of placing blame. If you don’t understand each other, you will not enable yourself for success.

Performance Model

Performance metrics are probably the most straightforward negotiation you can have in any outsourcing contract. There needs to be a set of objective measurements that determine how successful your vendor is performing. Often times, people will resort to industry standard Service Level Agreements (SLA). However, I would encourage you not to be satisfied with anything just because it is industry standard. Industry standard doesn’t mean much to a unique business - your business. When entering contract negotiations, you need to negotiate what’s in the best interest for your company, not what the industry has come to accept. Make sure you understand what it is you are trying to achieve and why you are trying to achieve it.

As an example, an industry standard SLA for answering phones is 80:30. This means 80% of all calls are answered in 30 seconds. While this may accommodate most businesses, you need to ask yourself if this SLA fulfills your requirements. Think about answering the phone quicker if you have an elite customer base that you can’t afford to lose. Think about allowing customers to wait longer if your customers are not at risk. Remember, resources or more directly, cost, is driven by your performance metrics. You need to make sure you negotiate what is best for your company; it is about making your customers happy - both external and internal. Keep costs low and satisfaction high to ensure ultimate success.

Change Management

Change management is something that every contract needs to define because as your business grows and scales, your contract needs to evolve as well. There needs to be a process for managing these changes. Your contract should define how this process should work within the relationship. Are you empowering the relationship managers to execute change? Do the executives have to sign-off? Is there a forum to discuss change? How do you perform a change? What is the lead time to execute change or is this defined within the change request? I can go on-and-on, but I will tell you that you need to think about this process because nothing can ever be set-in-stone. You will hinder your success if you a draw a line in the sand. You need to work through change effectively, and it needs to be defined on how you will perform that function.

Security Management

If there is anything that will put your business at risk, it is the release of sensitive customer information or proprietary company data. The media loves to publish stories of outsourcing companies that have associates breaching data. You need to make sure your company never makes it to the news by defining the security policy and getting it integrated into the contract.

As an example, security should start with offshore associate background checks and drug testing. A lot of vendors may not sign-up for drug testing, but you may want to drive to get that in your contract. You never know what people may do to support a habit.

After you work through the human resource screening, you need to focus on facility access, account access, and system or data access. In general, more security is better. You should never allow cell phones, PDAs, cameras, or any other electronic device into the walls of your account. Prevent Internet access, instant messaging, enforce a clean desk policy, and disable USB drives on computers. There are so many things that can be established in your security policy; my suggestion is you poll all the key players within your organization, and ensure you cover your bases on the security front. A mistake within this category can be terrible for your career and the well being of your company.

Business Continuity and Disaster Recovery

All vendors that are being considered for partnership should be able to provide you with a successfully tested disaster recovery (DR) plan. It has been my experience that issues happen - especially in developing countries where you are planning to facilitate operations. I have seen monsoons, typhoons, hurricanes, citizen strikes, and Telco failure that all have prevented daily operations from moving forward. For that reason, it is imperative you build-in a DR strategy into your contract. While you can’t prevent natural events from happening, you can prevent significant risk to your business. My suggestion would be to inquire about DR plans, and work a clause into your contract that provides your business with the schedule and results for quarterly DR tests. Your vendor should have generators, UPS backups, and other contingency plans in the event an emergency response is required.

In addition to vendor DR, you need to think about your own DR. Do you have a multi-sourced environment that can take on the workload from another center? Do you have captive centers that you can failover to in the event of an emergency? How do you queue calls or transactions to easily distribute if needed? These are all things to take into account when preparing to outsource. The better prepared your vendor is for DR, the better prepared you will be for DR.

Culture

Company culture is different for everyone. However, one commonality that people have within an organization is that they want to feel a sense of belonging. Belonging is one of the easiest and least expensive things that you can provide to your relationship where the reward is an intangible measure of gain. Making people feel the pride of working for your organization will more than likely lower attrition and turnover because you establish a level of trust with your people. Obviously this is a personal opinion, but in my experience, it has been consistently true.

You can quickly address culture by setting aside a fixed budget with your vendors to provide company events, clothing, tchotchkes, and other incentives. Additionally, you should have your staff managing the relationships take the time and visit the facility to show that you care about what your associates do for the business. Every time you get face-to-face with your associates, the better morale will be on the account. It is essential you put in the effort to make your folks happy. The more you do, the better the relationship. The better the relationship, the more productive, efficient, and cost-positive your account will be for the long-run.

Conclusion

We have discussed a variety of topics in this article regarding the importance of preparing the right contract with the right BPO provider. To be successful, you need to setup a contract to ensure there is a clear communication path that is designed to strengthen the relationship between the vendor and client. It is imperative that you earn contract value by negotiating and planning the correct relationship management structure upfront so there is no contention after transition. Outsourcing is all about the strength of a relationship, and you need to do everything in your power to ensure success by negotiating a sound contract that defines how you are going to govern that relationship.