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Why Companies Outsource
The top five reasons.
Posted Nov 1, 2006
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Without question, outsourcing has fundamentally changed the global business landscape. Not long ago outsourcing was simply viewed as a means to reduce various operational costs. However, as competition increases and budgets wear thin, wise organizations are turning to outsourcing to add value beyond lowering costs.

A recent Duke University study of 100 companies in the Fortune 500 found that respondents were overwhelmingly satisfied with their outsourcing operations. Seventy-two percent said their implementations met or exceeded expected savings. Outsourcing providers have all but perfected the process of helping companies strategically reduce costs, but the industry must evolve to meet the additional demands of organizations that also embrace outsourcing as a way to increase both revenue and customer retention.

In recent years, five distinct reasons have emerged as the most important factors companies consider when electing to outsource:

Lower costs
Reducing cost remains the number-one reason that organizations elect to outsource. Virtually every company cites lowering costs as a primary driver. According to industry analysts at Gartner, 80 percent of companies name cost cutting as the main reason for outsourcing.

One ISP began outsourcing primarily as a cost-reduction initiative. The company had internally run a large call center operation that generated great results but at a high cost. Under pressure to reduce costs across all functions, the company began outsourcing exclusively in the U.S. As the ISP became more comfortable with outsourcing and saw comparable results, it moved part of the operations overseas. The initiative has been a success, saving the company $30 million a year without diminishing quality of service.


Cross- and upsell opportunities
The days of sales calls in the middle of dinner are over. Outbound calling is intrusive, disruptive, and ultimately damaging to the customer relationship, while inbound calls are a powerful and productive way to generate revenue. Companies leave a great deal of potential revenue on the table by not cross- and upselling at the right moments during in-bound interactions.

The financial services industry is surprisingly sophisticated when it comes to the benefits of cross- and upselling. The analyst group IDC says that U.S. spending on payments-related business process outsourcing (BPO) reached $3.3 billion in 2005 and will grow at a five-year compound annual growth rate of 5.5 percent.

One of the world's largest investment banking institutions decided to tap outsourcing to meet three primary objectives: drive additional revenue in sales campaigns; create lead generation for a growing offering; and manage customer inquiries related to credit card services. The company successfully met these objectives, upselling $50 million in balance transfers, ranking first among all service centers in customer satisfaction, and generating an additional $600 million in revenue.

Retention
One overlooked benefit of outsourced customer care is the ability to generate higher retention rates. The combination of creative programs, informed and talented agents, and timely execution can lead to dramatic increases in customer retention. Agents need to think of every customer interaction as an opportunity to increase satisfaction and retention, saving revenue by turning a cancellation call into a retained customer.

As satellite radio is proving, entire industries are now upping the stakes by giving away their service for a given period of time. These companies rely on talented customer care associates to make sure the customer starts paying for the service when the trial period is over. Customer retention is a central part of the company's business model, making outstanding customer care a critical part of the company's ultimate success.

Scale
One of the biggest benefits of outsourced customer care is flexibility. Partnering with an outsourcing company with a deep stable of agents worldwide enables a company to quickly scale up or down based on demand. Two of the biggest drivers that create this demand are seasonal spikes (Christmas, Valentine's Day) and marketing promotions. One consumer company that outsources its holiday calls experiences a volume increase of more than 500 percent, requiring several hundred temporary agents.

A large travel agency specializing in cruises experiences dramatic increases in enquiries and bookings from December to March. As cruise travel is highly personal, agents must be trained to understand the various cruise options and provide sound booking guidance.

Diversification
Some companies want to keep part of their call center operations internal and outsource other parts, often because they have experienced success running their operations internally, but are looking to supplement the program with outside expertise or geographies. Diversifying call center operations in this manner is an excellent way for companies to keep internal benchmarks in place to maximize the outsourcing results.

One rapidly growing financial services company turned to outsourcing for its prepaid debit card products and services. This company sees customer support as its most important competitive differentiator and diversified its call center operations to utilize offshore options.

About the Author
Julie Casteel is the chief global sales and marketing officer at ClientLogic. Please visit www.clientlogic.com

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