James Adams
Analyst
Datamonitor
jadams@datamonitor.com
|
Search Our Catalog of Articles
Outsourcing CRM is Worth a Look
Outsourcing and customer relationship management (CRM) have been two of the biggest buzzwords in IT and business of the last few years. Outsourcing basic call center operations, such as telemarketing campaigns and customer service, is now common practice amongst many companies. However, the nature of outsourcing agreements is changing radically. Both outsourcers and their clients are increasingly looking toward agreements that share not only project risk, but also the potential rewards available.
The advent of CRM
CRM technologies have radically changed the agent-customer interaction. These and other drivers have placed the call center, once thought of as a no-glory, cost-generating necessity, in the spotlight. The new emphasis on the call center is good news to service providers. CRM provided the necessary tools for outsourcers to give themselves a makeover. Traditional outsourcers, who used to be known for overflow and telemarketing activities, can now use CRM
technologies to climb up the value chain.
The range of services that a customer relationship outsourcer might offer can include telephony technologies, agents and supervisors, CRM applications, and fulfillment and billing services. Traditional outsourcing has primarily focused on providing the first two: telephones and people. Now, however, there is a range of other services on offer. For example, an outsourcer might offer operational CRM applications, such as sales force automation (SFA), and the analytical CRM applications that sit behind them.
Changing relationships
It is not only the range of technologies available that is changing. In the classic outsourcing relationship the outsourcer and the client have distinct sets of employees, premises and technology. However, this simple model is breaking down as more flexible models for outsourcing emerge. It is no longer the case that clients are forced to choose an all or nothing approach to outsourcing
a discrete part of their business, and this in turn expands the range of functions that they can consider outsourcing. For example, for many businesses the idea of handing over the whole of a CRM system to an outsourcer is both very risky and simply impractical. However, if an outsourcer can offer some combination of hardware, applications and management that interface with existing systems they can make outsourcing viable.
Charging pricing models
One of the key difficulties for any company considering how to outsource a service is how to design the contract so that the interests of the outsourcer are aligned with the goals of the business. In trying to do this, the company will use a series of metrics, which are either related directly to the cost or part of the minimum conditions of service. Pricing models for the different contracts can therefore be quite complex. However, charging models divide into two broad categories:
- Cost-based charges or client
risk models - where the outsourcer charges based on the number of agents or calls received;
- Revenue-based charges or shared risk models - such as per sale (in a sales environment) or per customer (in a customer services environment) charges.
In telesales it has always been much easier to share risk all the way down to the agents, by paying all parties based on sales commission. This has made shared risk the standard approach to telesales, although how much risk is shared varies a great deal.
However, customer service or helpdesks have historically been seen merely as cost centers and been priced out on that basis. Now, with the recognition that they also represent a core part of the business, and a revenue-generating opportunity, many outsourcers have looked for charging models that reflect this. The obvious way of doing this is to charge on a per customer basis, with an added element of complexity to reflect the fact that some customers are more valuable
than others. The pay-per-customer principle can also be used in a sales context to focus attention on lifetime customer value.
Although charging on a per customer basis might seem an ideal way for clients to reduce their exposure and place the outsourcer's interests in line with their own, adoption has not been as fast as one might expect. Despite the acknowledgement that a call center can be revenue-generating rather than just being a cost center, there is still a certain amount of conservatism about its role and practice often lags behind rhetoric.
Outsourcers will only accept such contracts if they believe they will have the power to control the level of customer service provided, and often this may be a level of control that the client is unwilling to hand over. In addition, it can simply be difficult to measure how many customers a client has. In some contexts, such as the number of mobile phone subscribers, it is relatively easy to tell when a customer
is still a customer and how much they spend. However, other environments, such as supermarket customers, it is very hard to tell how many customers there are, let alone whether an individual customer has been retained.
Despite the concerns surrounding these new approaches and the barriers to uptake, deeper outsourcing relationships do offer benefits to both outsourcers and their clients. While outsourcers benefit from providing more services and adding more value, their clients can also benefit not only from cutting costs and increasing revenue, but also from sharing risks. In these uncertain times, and with a question mark hanging over the ROI of many CRM projects, this provides an extremely compelling proposition.
|