Outsourcing your customer service

Marwaha, Jay

Many large companies are now facing the reality that they must improve their accessibility to customers and become easier to do business with. Typically, companies decide to install a toll-free telephone line as a solution to the challenge. It is at this point that the problem occurs. Each product manager or functional manager, in trying to be responsive, initiates a toll-free line, and soon the company has 10, 20 or even 90 or more different lines. In one case, after realizing it had more than 800 different 800-number channels, one company considered installing an 800 number for callers to learn which 800 number to call!

There is another option: outsource your customer service. Here are some of the prerequisites an outsourcing company must fulfill before you trust your customers to them. The approach for developing the prerequisites is a balance between quantitative and qualitative measures. The methodology is based on our experience in creating world-class customer service centers. However, first and foremost, you need to ask yourself whether you can let someone else handle your customers.

Why Companies Outsource

Like many new business programs, cost cutting is a key determinant for outsourcing. Call center service outsourcing in general is a new trend among businesses as they seek to become more cost-effective. For years, companies have been outsourcing their information systems operations. Outsourcing customer service adds another dimension to consider in designing a corporate service delivery mechanism.

In one case, a company cut $4 million in costs by outsourcing its customer service. However, what was not measured was the negative effect on customer satisfaction because the service provider handled the customer calls poorly. If the vendor’s poor performance leads to customer dissatisfaction, it is unlikely you’ll be able to retain those customers, which leads to a long-term decrease in revenue. So, whether you maintain an in-house customer service center or outsource, the long-term revenue implications are important to measure.

It is important to understand what is involved in outsourcing the customer service function. First, take a look at your customer expectations so they are met or exceeded by the vendor.

Customer Expectations And Functions Of A Service Delivery System

Customers with service needs have expectations in three areas: (1) accessibility, (2) response content, and (3) follow-through. Each area is briefly described.


The general rule is that customers want to talk to you when they need your advice. Consider the following five areas:

* Hours–Be available during any hours when the customer is using your product/service, reviewing your invoices, or considering a purchase of your product/service.

* Talk to a Human Being–Customers expect to talk to a person who can answer their questions, unless expectations have been revised in advance. Only existing customers who have been warned and educated in advance can be subjected to a fully automated response system only.

* Self-Selection–If an automated system is used, customers will tolerate only three choices (e.g., press 1, 2, 3) before they become displeased. More picks or a second tier of menus cause dissatisfaction unless the customer has been educated in advance and is a frequent user.

* Transfers–TARP’s research has found that one transfer will be tolerated during the first call if the customer then actually reaches someone who can solve the problem. Multiple transfers cause 10 to 25 percent of customer dissatisfaction.

* Wait in Queue–TARP has also found that the time customers spend waiting in queue is not as important as what they experience after the phone is answered. A 60-second wait is usually acceptable if customers then reach someone who can completely handle their call on first contact. Therefore, in most cases, the expenditure of service resources to answer in 15 seconds is not cost-effective.

Response Content

The content of the response is more important than accessibility. It includes four major dimensions:

* Completion on First Contact–Representatives should have the tools, authority and training to handle calls to completion on first contact.

* Competency–Representatives should be knowledgeable, helpful, flexible and confident that the rest of the corporate system will follow-through.

* Empathy–Representatives should be able to listen effectively and, when necessary, apologize.

* Clarity–Representatives should be able to clearly explain what happened and what will happen, including providing a rationale for any corporate policy and parties to any logical challenge the customer may pose.


Promises made by representatives must be executed according to the expectations that are set. If the representative is confident action will be taken, this should be projected during the conversation as reassurance. If the back-end system works and there are concrete internal service agreements, this confidence will be communicated in the initial conversation. The result will be fewer follow-up calls from customers to see if the promised action actually took place.

Functions Of A Service Delivery System

To meet the outlined customer expectation, the 19 functions diagramed in Figure I must be performed by any in-house or outsource service delivery system.

The input, response and output factors encompass the operations functions. These functions are the day-to-day activities that are undertaken by the organization when responding to customer service requests.

The control, management and public awareness factors comprise the support functions. These functions ensure that: (1) requests are handled in accordance with established procedures; (2) service provision units get good service from their internal service units; (3) customer service data are aggregated to identify and correct the root causes of customer problems; and, (4) customers know where and how to contact the organization for assistance.

Now that you have some understanding of what your customers’ expectations are and 19 contact-handling functions, let’s look at some pros of outsourcing and critical areas to wash out for when choosing an agency.

Pros Of Outsourcing

Some of the tangible benefits of outsourcing include the following:

Cost Savings: In the short term, it may appear to the company that outsourcing will increase cost. In the long-term, however, with the increase in call volumes, the outsourcing company can provide you better cost per call.

Availability of Resources When You Need Them: An outsourcing company can facilitate a smooth transition to additional or reduced capacity. If you’ve correctly chosen a vendor, the agency can typically react quickly to capacity demands. The reason some marketing programs are unsuccessful is due to lack of available resources. This is where an outsourcing company can come in handy.

Focus on Your Core Business: Companies tend to invest heavily in creating a state-of-the-art customer service center and ignore the fact that some vendors already operate state-of-the-art call centers. Rather than investing in the creation of a call center, you should be focusing on the “meat and potatoes” of your business, and employ a vendor that is an expert in providing superior service to your customers.

24 x 7 Service: Hours of operations can be a pivotal value to the success or failure (profit/loss) of a customer service operation. Companies, due to the additional cost involved in operating 24 hours a day, 7 days a week, provide fixed service. They are open when customer don’t need assistance. For instance, most of us grocery shop in the evening or on the weekend and if you are a grocery store chain and your customer service department is open 8:00 a.m. to 5:00 p.m. Monday to Friday, no one is there to assist you when you have a question or a problem or when you are making a meal.

Reduced Personnel Issues: Service centers generally experience 15 to 25 percent turnover in their front line staff on an annual basis. Absenteeism/disability ranges from 3 to 8 percent. Having another organization concern itself with recruitment, screening, continual training, etc., is appealing to many managers.

Availability of State-of-the-Art Technology and Telecommunications: Keeping up with technology is a challenge for many companies. Technology in a service center is the third highest cost element. By outsourcing your customer service you can utilize vendor’s state-of-the-art technology at a little cost and still gain competitive advantage through productivity improvement and to support growth.

Quality Service: A vendor that is handling many clients can distribute the operating cost across all clients and provide quality service at lower cost. In particular, the vendor can pass on the volume discount obtained by telephone usage to the client, hence lowering the cost without compromising the equality.

Critical Areas Of Concern

Some of the important factors to look for when choosing an outsourcing partner are as follows:

Collection of Market Intelligence: The outsourcing company must collect accurate data from calls or complaints and provide it to you for better understanding the marketplace. The data collected can provide important information on customer behavior, product improvements, policy implications, and problem experience which may assist your company to become proactive.

Handling of Difficult Calls: Vendor staff must be trained adequately to handle difficult calls or angry customers. The vendor should not transfer the difficult calls back to your company to handle any difficult calls.

Cost Cutting: The vendor has a limited margin per call for operations. Be sure cost-cutting does not affect the quality of the facility, staff and training.

Ability to Delight Customers: Be sure the vendor’s CSRs have an interest in the goodwill of your clients, instead of merely meeting productivity objectives–handling the number of calls.

Quality Maintenance: Be aware if your objective in outsourcing is solely to reduce cost, the cost-cutting is passed on to the vendor. As a result, cost per call is lowered and the vendor’s profit margin is too little to provide quality service and adequate feedback to you.

If you are thinking of outsourcing your customer service, the five elements of the pentagon depicted in Figure II should be equally weighed in deciding whether or not to outsource.

Checklist of items for evaluating a vendor for outsourcing customer service:

* Years in inbound/outbound customer service.

* Number of clients currently serving.

* Type of product experience.

* Vendor support of languages (English, Spanish, etc.).

* Does vendor support TDD?

* Can vendor provide remote monitoring of calls?

* Can vendor provide remote data reporting?

* Vendor’s data analysis capabilities.

* Does vendor perform satisfaction surveys?

* Physical environment of the center.

* Percentage of college graduates recruited by vendor.

* Type and frequency of training to staff.

* Staff morale and career development.

* Staff performance evaluation (internal and external).

* Job incentives to the front-line staff.

* Degree of nonscripted responses.

* Down time utilization.

* Span of control of the supervisor (how many reps to a supervisor or team leader).

* Percentage of turnover.

* Use of contact tracking software.

* Use of information databases.

* Percentage of contacts closed in first call.

* Level of system support.

* Data storage cost.

* Cost per call.

* Total cost.

* Client list.

Jay Marwaha is senior vice president for Technical Assistance Research Programs (TARP). TARP is a research and consulting organization specializing in customer service–especially using toll-free telephone systems–productivity improvement, and market research. TARP is based in Arlington, Virginia.

Jeff Tommerdahl is director, quality at Pitney Bowes Credit Corporation. His responsibilities include leading the implementation of a customer contact management system and managing the companywide transformation to cross-functional work teams. Mr. Tommerdahl holds an M.B.A. from Northern Illinois University.

Copyright Technology Marketing Corporation Aug 1995

Provided by ProQuest Information and Learning Company. All rights Reserved

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