Are You Ready for the Outsourcing Decision?

By: John Hamilton, Service Strategies

If the question of whether or not to outsource your customer facing Support Operation hasn’t been raised, it soon will be. In this current economic downturn, all companies are under   immense pressure to cut costs and outsourcing appears to be a quick and attractive solution. In a typical scenario, this mandate comes from C-level executives who have been approached by an outsourcing vendor with promises to dramatically reduce their operating expenses.

You, as the Service business leader need to be included in the outsourcing decision process. Being proactive and evaluating outsourcing alternatives on a regular basis will enable you to respond with rational arguments outlining the relative merits or disadvantages of outsourcing.

How to prepare

There are a number of areas you need to completely understand about your current service operation to enable you to represent the facts and data to C-level executives so they can objectively evaluate the advantages and risks associate with outsourcing. This entails developing a cost baseline, an activity and performance scorecard and finally a strategy that outlines options for how service can be delivered most efficiently in the future.

1.      Cost baseline – Capture all the costs related to running your service operation. The largest of these is the fully burdened staffing cost which includes payroll, benefits, training, recruitment and all other incentives programs. The next biggest expense would be your support systems (ACD, CRM, Knowledgebase etc.) and IT infrastructure. This also includes all desktop hardware and software as well as lab systems for testing and problem replication. The remaining large overhead would be facilities and utility costs for your buildings. Typically, all the line items covered in your annual budget need to be accounted for. Now that your total service expenses have been captured, they now need to be broken down into unit cost and simple ratios for comparative purposes with potential Outsource vendors. Examples of the key ratios and unit cost metrics are:

• Service cost as a percent of overall company expenses
• Cost per service employee
• Average cost to resolve a service request (breakdown by level 1,2,3 or product)
• Average training expense per employee/year
• Revenue per service employee

Note: The last metric is only applicable to Service operations managed as a P&L.

2.      Activity and performance scorecard – Service operations traditionally measure many things. The key metrics that cover workload activity and performance should be converted into a scorecard that will help to compare and benchmark your capability against potential outsourcers. Feedback from customers is also very important and results from your customer satisfaction surveys need to be incorporated. Here are some examples:

• Percent of customers satisfied month/annual (event and periodic surveys)
• Number of service request per month (breakdown by channel, phone, email, web)
• Average time to respond to a service request (breakdown by channel, phone email, web, chat)
• Average service requests handled employee/month (Level 1,2,3)
• Percent of First Contact Resolutions
• Average time to resolve a service request (breakdown by severity 1,2,3)
• Percent resolved by Level 1,2,3
• Percent resolved via Channel (phone, email, web, chat etc.)
• Total knowledgebase submissions per month
• Total training hours per employee/month
• Knowledgebase submissions per employee/month

Based on the nature of your business, there maybe other key metrics you want to add to your scorecard. The scorecard can be presented monthly to show trends in performance and track growth or declines for every metric.

3.      Service Strategy – The financial cost baseline and scorecard data provide a current and historical view of your service operation. This is necessary to manage the immediate needs of the business. However, in order to look ahead and plan for the future, a strategy must be developed that factors in growth, efficiencies, staffing resources, customer support demand, technology upgrades, training etc. The ability to scale your service business to satisfy customer demand for support on both old and new products can be challenging. The option to outsource some or all aspects of your service operation should be considered as part of your strategy.

There are a number of different reasons why companies outsource:

• Reduce operating expense
• Improve company focus on core competencies
• Ability to scale quickly
• Access to an on-demand skilled talent pool

Cost reduction is obviously the most popular reason for companies to outsource, however short term gains can quickly disappear and other larger problems can arise if the decision is not evaluated as part of the overall strategy. The impact on customer satisfaction is a major consideration and should not be compromised in a tactical endeavor to save a few dollars. Taking a proactive approach and gathering essential cost and performance data will enable you to benchmark your service operation against the outsourcing vendors. Doing an “apples to apples” comparison will uncover if there are realistic areas where you can take advantage of outsourcing and ensure it does align with your strategy.

The outsourcing market has matured considerably in the last decade in terms of skills and capabilities. Once the decision is made to outsource, then next question is should it be inshore or offshore. We will address this topic in our next blog and I would value your opinions and experience.

 

John Hamilton is the President of Service Strategies Corporation, the leading provider industry standards, training and consulting services for the Service and Support marketplace. John has more than twenty years of software engineering and service industry experience. He has significant international experience from working in both the Asia Pacific and European regions. In addition to his support management knowledge, John has a well-rounded background from managing engineering, quality control, and training organizations. Visit www.servicestrategies.com to learn more.