Analysis: Outsourcing CRM operations

Outsourcing customer relationship management - generally seen as part of the business process outsourcing trend - is a complex undertaking. And it's about a lot more than 'shipping jobs overseas', as Anthony Plewes finds out.

In most developed industry sectors, competition forces razor thin margins and encourages companies to look at a variety of ways of lowering costs to help the bottom line. Delivering customer care is often seen as too expensive, tempting organisations to seek cheaper, specialist providers of call centre services.

The outsourcing trend has been gathering pace over the last few years and one country in particular, India, is the centre of much of the attention. More and more companies are seeking to outsource their call centres overseas, where labour - the single largest cost in the call centre - can be considerably cheaper than in the UK.

Financial services management consultancy Troika predicts 100,000 UK financial services jobs will be carried out in offshore locations such as India and China by the end of this decade. Typically call centre operations are around 30 to 50 per cent cheaper in India than in the UK, with reduced salary costs making up the bulk of this saving.

"The financial service industry is under massive margin compression and is looking to reduce costs," says Andrew Stewart, Troika MD. "They have already streamlined all their processes and cut 15 per cent of the bottom line but they need to knock off 40-50 per cent more and the only reliable way to do this is to outsource."

Offshore outsourcing in particular has hit the headlines because large high street names such as Aviva and HSBC have shifted part of their customer contact offshore, sparking fears that the UK call centre industry will be decimated. But offshoring is only one part of outsourcing and companies have been outsourcing their customer contact requirements for years.

"Companies need to decide whether they view customer contact as a core competence," says Mark Hennessy, marketing director of the customer management group at outsourcer Convergys. "Many objections against outsourcing are emotive and companies will say that talking to their customers is a core competence but that is missing the point about outsourcing. It is not about throwing customer contact over the fence. Successful outsourcing requires regular contact with the provider and it is important that the client retains strategic control."

The contract with the outsourcer needs to be set up to maximise chances of success.

"As a buyer you have to put yourself in the management of the contract and retain control on key parts such as performance/relationship management," says Duncan Aitchison, MD international operations at outsourcing adviser TPI. "Managing a team at a third party is different from doing it directly."

Outsourcers should present a consistent brand message to callers, which can be achieved by blurring the line between outsourcer and client.

"We create an identity for the agents so that they sit in an environment that reflects the client brand not our brand," says Martin Dove, general manager at outsourcer Merchants' South African operations. "The client’s culture and values needs to be instilled from the start."

Companies should also be looking for continuous improvement from their outsourcer, and it is common to reset service targets each year. Because outsourcers position themselves as experts in their field they should be able to deliver.

While cost is a primary reason that makes companies consider offshoring, TPI's Aitchison warns there is a wide range of factors to consider. He adds: "Outsourcing overseas involves a complex web of issues and it is not a simple matter of wage arbitrage."

Companies need to see if it makes economic sense and see whether they are ready to do this. As the high-street financial services companies have discovered, there is a potential knock-on effect on brand reputation. There have also been a few ill-fated ventures overseas. Two notable examples are directory enquires and the train timetable service, neither of which were suited to offshoring as they required intimate local knowledge.

Most of the call centre problems in India are based around language and understanding but there are other problems that need to be overcome. The most obvious one is that it is a long way away, which makes it hard to stay in contact. The culture in India is also more hierarchical and the level of education in the call centre often higher than typically found in the UK.

Companies also need to be very wary of data protection issues. The Data Protection Act requires explicit consent for sending sensitive data outside the EU. Shelagh Gaskill, head of the Information Law Group at law firm Mason, reckons many companies are ducking this requirement.

"There are vast swathes of financial services companies that have not asked their customers for explicit consent. They have taken a business risk. Not only do they not have consent, many have not even notified their customers."

She adds that expected data protection legislation in India has effectively been put on ice because of objections from the US.

Unsurprisingly offshoring has turned into a bit of a political hot potato, as Steve Morrell, ContactBabel analyst, discovered when he published research into the Indian call centre market. His study found that some key call centre metrics - such as average speed to answer and first-time resolution - compared unfavourably with averages in the UK. This was seized upon by unions that said it was proof customers would get shoddy service if the CRM operation they dealt with was moved offshore. Similar fears exist in the US, where offshore outsourcing is becoming a big election issue and is being equated with job losses.

But this is short-sighted says Paul Davies, who has written a book on the subject called What’s This India Business? due out in March.

"Protectionism won’t work and will cause damage," he explains. "Offshoring is, perhaps counterintuitively, good for the UK economy and immediate issues should not cloud the medium- and longer-term benefits."

And at any rate, it is extremely unlikely that companies will offshore all of their customer contact capability. Any strategy is likely to include elements of an in-house call centre, outsourcing in the UK, automation and offshoring. Companies need to decide which parts of their CRM operation are best suited to which location – a strategy many are dubbing 'rightshoring'.

Outsourcers are reacting to this requirement by becoming increasingly global. Countries such as Malaysia, the Philippines and South Africa are emerging as offshore destinations. This spread of countries also allows the outsourcers to balance any potential geo-political risks. Outsourcers will also typically offer more than just contact centre outsourcing and provide additional services such as back office processing.

Many of the larger Indian call centre operators also have their own operations in the UK. HCL, for example, has a 1,000-seat call centre in Belfast which it set up in partnership with BT.

Outsourcing will continue to be a fact of life for many companies across various business functions. And CRM is a key area that can benefit from this approach. Operating call centres is not a core competency for many companies and, in many cases, they would be well-placed to leave it to the specialists. Outsourcing CRM does not mean abandoning CRM strategy. It can free an organisation from the operational details to focus on strategic issues.