Value Added Outsourcing

The market for Outsource Service Providers (OSPs) is going in two directions – volume-based and value-based. Sometimes they intersect but mostly they are separating. Volume-based gets purchased on price, value-based gets purchased on shared risk solutions. Value-based is more complex for the OSP but attracts revenue at circa. 40% above volume-based activity.

Outsource tasks are many and varied but fall into three broad categories - Business Process Outsourcing (BPO), Customer Relationship Managment (CRM) and Customer Experience Management (CEM). BPO involves existing customer administration processes such as power company billing and financial management and placing it with an external partner. CRM is about maximising the profitability of different customer segments, e.g. increasing wallet share or increasing frequency of purchase or increase contract duration. CEM relates to efficient service management - serving customers in a relationship, say, mobile phone contract and dealing with ongoing service requests. There is overlap between the three and some tasks could be fall into any one of the categories. However, as a high-level view these are useful to define processes, resources and typical activities for the different types of outsource work.

The market is becoming polarised between, on the one hand, heavily specified projects with OSPs working in a very regimented and prescriptive way (volume-based workstreams), and on the other hand, projects with a large degree of autonomy for the OSP and where the OSP is an active partner in designing outcomes (value-base). Further, there is greater use of channel integration, with customers weaving across and between channels and brands allowing an intelligent contact strategy to follow customers over different media and to dynamically adjust the communication. This is the state of the art for OSPs and represents where value can be created – this is where SBS Direct positions itself.

The market is also becoming very formal in terms of regulation and standards and practices and also in terms of the purchase model - tendering is much more common now, as tasks outsourced are increasingly high-profile in the organisation and have higher budgets attached. As the call centre was once a standalone activity in many companies but now is core to customer management, so outsource tasks have come onto the radar of procurement departments are deals are carefully structured, often for several years.

Target prospects will likely want to improve engagement with their customers (be that through improved acquisition, improved retention, increased x-sell, reduced cost to serve, increased channel access, etc). Prospects most likely do not have a proven model to roll out or they operate in a fast moving market with frequent service/ content/ device/ offer changes, with consequent impacts to commercial models. IP + Scale can take the problem on, cradle to grave, incubate the solution, architect the provision and manage the entire business function, for a processing fee plus a share of the upside.

Shared Risk/Shared Reward (SR/SR) projects are increasingly common (particularly where there is a variable revenue opportunity in the call) and command a price premium (as much as 40%) over volume-based projects. There is more work to manage a value-based project and there is risk element that must be clearly understood and managed, but there is a profit opportunity to exploit. Engagement on these projects brings exposure to C-level decision makers and opens doors to new opportunities.

Copyright 2006 Robert A Innes

Government Helplines Segment Analysis for Outsourcing

Factors Influencing Successful Outcomes

Service drivers: Government sector is more about "experience management" rather than "relationship management" hence, outputs are generally related to service quality rather than revenue impacts. Factors such as cost to serve, first call resolution, routing accuracy are important.

Acquisition Dynamics: Government has large spend in TV and press (and outdoor, door-drops and direct mail) and draws inbound contact through these media for a range of service offers, such as positive health impacts - Stop Smoking Line, targeted assistance impacts - Redundancy or retraining lines, benefit uptake - changes to qualification criteria or increasing penetration - Promoting Child Benefits, etc.

Key interventions for success: It's all about Customer Experience Management, especially with Health interventions and the like. Completing the loop would provide better information to more touch-points and providing better linkage between service provision areas would help customer self-routing - joined-up government in common parlance. Some areas better than others - targetted or ring-fenced initiatives tend to be able to organise better compared to ongoing activities (e.g. Inland Revenue) with legacy systems and processes. Linkages between calling lines and "e" government initiatives often poor.

Channel use: F2F such as Passport office, phone, web self service (esp. online form filling), email. Online activity set to expand hugely but largely disjointed at present. Hugely challenging range of services and delivery mechanisms to get to grips with. Diverse range of delivery partners also, from government departments, local government, private sector, etc.

Typical outsource tasks: response handling, helpline management, research and service management. Mix of long term projects (three year placement is typical) and ad hoc or project based projects. Heavy use of tendering, even for simple tasks.

Suitability for Risk Reward:

• Process based tasks, such as VAT processing, 2/10


• Project based tasks, such as Stop Smoking Line, 4/10


• Due to the work objectives, RR less suitable in this sector

Regulation and compliance: data protection, Ofcom dialling limits, specific departmental compliance standards, e.g. VAT regulations. Privacy and discretion of critical importance. 100% call recording will normally be required. Administration normally in-house, due to legacy infrastructure.

Track record: 4+ years experience and national award winning campaign

The Take-Away

Sector is relatively new to outsourcing and practices are less well developed than some others, with the exception of simple research or response handling tasks. Big task areas are the preserve of EDS, Accenture, BT, IBM Global Services, etc. and offer good opportunities but on a massive scale. Very high reputational risk for providers that fail to perform. Audit Commission reports regualarly picked up in the press and delayed, flawed or over budget projects get mainstream news coverage. Large opportunity for innovation and testing and many opportunities exist for introducing new practices into customer experience management. Change has to be managed carefully as there continues to be a legacy of role demarcation and cynicism towards new approaches.

Copyright 2006 Robert A Innes

Automotive Segment Analysis for Outsourcing

Factors Influencing Successful Outcomes

ARPU drivers: make, model & age; retention; profile and finance & insurance. Profit of manufacturer and dealer network are linked but not aligned, so priorities for one often are not priorities for the other.

Acquisition Dynamics: Online lead management, retail lead management, retention, offer and finance. Heavy hand of manufacturers weighs on channel. Poor use of information and cynical view of customer management exists throughout channel. Poor systems integration in-channel and between channel and manufacturer. Exciting product but uniquely still sold on a “deal” basis.

Key interventions for business growth: Retail up/cross sell, non-retail customer management, service extras, retention and finance. Completing the loop would provide better information to more customer touch-points and exposing suitably populated data sets to all points would result in improved customer outcomes and take advantage of opportunities that are largely wasted today.

Channel use: Retail, phone, web sales, email. Some intermediary activity and set to increase – web based leasing companies grab customer attention before accessing dealerships – e.g. Sainsbury’s Bank Drive tie-up with What Car? Large promotional activity to drive retail sales – heavy use of local press weekend press and red-tops. Increasing consolidation of dealerships.

Typical outsource tasks: re-solicitation, response handling, lead management and service management. Manufacturers buy strategically, dealerships buy tactically.

Suitability for Risk Reward:
Acquisition 2/10 – wide range of legacy channels, poorly organised customer touch-points
Management (Development & Loyalty) 9/10 – huge opportunity to develop customers and keep them out of the market, however, data intelligence not consistently used. New contact strategies with personalisation and improved targeting results in improved outcomes.
Retention (6/10) – great deal of information available during lifecycle to leverage in retention but customers get bored with non-retail sales process.
Regulation and compliance: data protection, FSA, Ofcom dialling limits, company compliance standards. 100% call recording not normally required. Finance administration normally in-house.

Track record: 3+ years experience and national award winning campaign

The Take-Away

Sector is relatively new to outsourcing and practices are less well developed compared to, say, Mobile. There is a huge opportunity for innovation and testing and many opportunities exist for introducing new (more profitable) practices into customer management. Change has to be managed carefully as there continues to be a legacy of role demarcation and cynicism towards new approaches. Very strong profit opportunity for outsourcers that can get it right. Surprising absence of successful retailing practice and ongoing communications are confused, typically relate to obvious vehicle events.

Copyright 2006 Robert A Innes

Utilities Segment Analysis for Outsourcing
Factors Influencing Successful Outcomes


ARPU drivers: household configuration, package, promiscuity index and retention

Acquisition dynamics: Telephone and Field Sales led, offer led, no service distinction, previous history of little interest to competitors (except risk profile), hence simple proposition development

Key interventions for business growth: lag from acquisition to enabling – require good communications to keep customer on track, duel-fuel cross sales, package lock-ins, DD migration and package add-ons (e.g. boiler care)

Channel use: third party intermediaries act as non-processing introducers. Brands themselves mainly use retail, web (third party switchers) and phone. Typically, paper based follow-up. After commencement, ongoing communications are typically poor and this contributes to customer disengagement (particularly in some segments), encouraging switching.

Typical outsource tasks: response handling, re-activation, billing enquiries, cross-sell and add-on development.

Suitability for Risk Reward:
Acquisition 5/10 – heavily dependent on offer and third parties, heavy cancellation burden
Management (Development & Loyalty) 6/10 – not much to distinguish different operations, few cross-sale opportunities beyond obvious in core product but there is value in add-ons. Direct Debit customers more valuable than cash/cheque customers. Improved contact strategies would improve customer outcomes.
Retention 7/10 – loss is expensive, therefore strong motivation to retain. Few lock-ins exist and switching is dependent on offer rather than brand values.

Regulation and compliance: Ofgem, Ofcom, data protection, company compliance standards, 100% call recording required.

Track record: 3 years experience in designing RR outsource projects

The Take-Away

Due to the relative simplicity of the sales and marketing model (same core product), there is little to distinguish suppliers other than price. This is both a problem and an opportunity as the price focus drives low investment in customer intelligence whilst at the same time driving smart operators to improve acquisition and retention practices, resulting in opportunities for outsourcers. Largely overlooked is the opportunity for super-bundles for HV/UHV customers by entangling core product with other services, e.g. internal supply such as boiler maintenance or external supply such as broadband and cable TV. Also overlooked is ongoing communications strategy to work as an anti-churn mechanism.

Copyright 2006 Robert A Innes

Mobile (B2C Contract) Segment Analysis for Outsourcing
Factors Influencing Successful Outcomes

ARPU drivers: price plan, profile segment, contract duration, extras and retention

Acquisition dynamics: Device, price plan, offer and channel contribute to a highly fragmented market. History of customer interactions is an advantage for current provider to tactically retain better customers but churn remains an issue. There is heavy reliance on indirect channels that are largely out of the control of the operator. Monthly offer and proposition cycling results in frequent campaign changes.

Key Interventions for business growth: Retail up/cross sell, welcome up/cross sell, drive self-service uptake, content unbundling for discrete charging and targeted content up-sell.

Channel use: Heavy spend across channels including retail, dm, voice/video calls, SMS, WAP-Push, email, web sales & self-service and on device. Indirect marketing spend is separate and uncontrolled (aside from brand guidelines).

Service Points of Pain: bill shock, content extras, device problems, roaming charges, upgrade device charges and low general service levels.

Typical outsource tasks: customer help desk, bill enquiries, upgrades, retention and promotions

Suitability for Risk Reward:
Acquisition 5/10 – heavily dependent on device/price/offer, competitive landscape, cancellations and apathy/aspiration by segment
Management (Development & Loyalty) 8/10 – some low-grade tasks not valued by operators and are bought on price, however, rapid content and proposition changes gives many options for cross/up sell, dependent on segment and such tasks are valued higher. Some services difficult to sell without ATL support, e.g. Mobile TV
Retention 6/10 – loss is expensive (for HV/UHV), therefore some motivation to retain, incumbents have an information advantage over competitors, success dependent on offer/retail activity (some offers difficult to sell remotely, esp. for new devices where “touch” is important)

Regulation and compliance: data protection, Ofcom dialling limits, company compliance standards. 100% call recording usually required.

Track record: 6+ years mobile experience and national award winning campaign

The Take-Away

There are many high-volume projects in this sector (some workstreams are low-margin). Many projects are available on 2+ year outsourcing contracts and are subject to an extensive RFP processes. Most customer service projects are highly controlled and it is sometimes difficult to extend role of outsourcer. Sales and sales-through-service projects, however, have more scope for innovation and testing and are well suited to risk/reward approach. Ongoing customer communications is well established and generally well executed, however opportunity for greater personalisation and targeting exists, given the richness of information available.

Copyright 2006 Robert A Innes