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Outsourcing communications applications helps enhance relationships between company and customer while relieving companies of significant management challenges. Benefits include improved customer retention and relationships, focus on core competencies, enhanced technological resources, and reduction in both operational costs and capital investment.

Trust is at the core of every organization’s decision to outsource a mission-critical task. Once trust is established, and the organization sees a clear link between resolution of its most pressing business issues and the decision to outsource internal functions, a strategic partnership often results.

Frank J. Casale, chairman and chief executive officer of The Outsourcing Institute states, “While outsourcing has been viewed as a viable means to achieve cost control and economies of scale, many companies are incorporating outsourcing as a strategy in business planning. Today outsourcing is a given, with growing popularity as an essential management lever for improved customer relationships, business innovation, and competitive advantage.”

Many companies are incorporating outsourcing as a business strategy. In this paper, we explore the trends and benefits of outsourcing customer communications as part of an integrated customer relationship management (CRM) strategy. Customer communications include – but are not limited to – bills, invoices, transaction-oriented documents, financial statements, trade confirmations, policy renewals, explanations of payments or benefits, newsletters, and direct mail.

Growth of Outsourcing

To be competitive companies must remain vigilant. They must be aware of current and developing market conditions, prepare effective strategies for acquiring and building customer loyalty, and develop products and services to rapidly grow and retain market share. These core functions are critical to a company’s survival.

Services that support these mission-critical functions are constant throughout many companies and fall into the following general categories:

• Technology Information – Data centers, application service providers, hardware and software services and repair, networking, database and data warehouse services, and training
• Operations – Human resources, accounting, customer service, technical support, facilities, and customer communications delivered across multiple channels, such as the Internet, paper, call center workstations, and wireless applications
• Manufacturing – Contract manufacturing
• Logistics – Travel, transportation, and distribution

According to the Outsourcing Institute, throughout the 1970s and 1980s, only low-level tactical functions, such as keypunching, were outsourced. Most organizations preferred to manage revenue-generating functions with in-house systems and dedicated personnel. In the late 1980s, organizations began outsourcing higher-level functions, such as facilities management and payroll processing, while leading companies like Kodak began outsourcing information systems and computer operations. Also during this time, many companies turned to strategic partners to help manage their communications in order to grow and retain customers.

The growth of outsourcing has been enormous. According to CapV, a document-outsourcing consulting firm, U.S. businesses spent $2.7 billion on outsourcing customer-oriented business communications functions like statements, bills, invoices, policy renewals, and stock trade confirmations in 2001. This figure is expected to grow to $4.7 billion by 2004.

Why Outsource?

In the past several years, a new type of company emerged, spurred by technology development that eliminated the distance barrier between businesses and customers. These companies have become strategic partners to businesses, specializing in communications applications that relieve corporations of numerous difficult management problems and help close the gap between company and customer.

Traditional examples, such as payroll and accounting firms, have expanded to include companies specializing in customer communications. For example, at DST Output customer communications are the core competency of business. Statements, invoices, trade confirmations, and direct mail are planned, designed, created, and delivered through a variety of channels. Companies outsource for the following reasons:

• Improve company focus
• Gain access to world-class capabilities
• Free internal resources
• Obtain resources not available internally
• Accelerate reengineering benefits

As information and communications technologies become more advanced, companies realize the disparity between the potential of these technologies and the ability of in-house staff to manage it. Customer-centric companies know that harnessing the value of rapidly advancing customer relationship technology helps retain loyal customers over the long haul.

The shortage of skilled personnel makes outsourcing even more compelling. It transfers the need for recruiting, training, and maintaining experts to a strategic partner, allowing the organization to direct staff toward more essential functions. Outsourcing also transfers the responsibility of keeping up with technological change to partners specializing in particular services.

Economies of scale allow strategic outsourcing vendors to invest in the very best technology and to spread the cost over a number of customers, providing access to personnel resources, technology, and systems that would not be a wise investment for a single company.

Barriers to Outsourcing

The barriers to outsourcing mission-critical customer communications are primarily focused around security and control, data and corporate knowledge, and the reversibility of arrangements after contracting for services.

Security concerns involve exposure of client data confidentiality. To ensure protection of data, the clients of outsourcing partners must demand secure environments. Staff must be trained to follow security measures outlined in contracts with outsourcing partners.

Control issues often relate to the responsiveness and flexibility of contractual arrangements. Many clients doubt that vendors can respond as quickly as in-house staff. However, many in-house departments are already overburdened and may be less responsive than the strategic partner. Performance-based contracts and proficiency at metrics measurements will ensure that strategic vendors deliver what is promised.

There is also a concern that strategic partners do not possess the industry expertise to handle the needs of the enterprise. Companies with specialized expertise in selected markets and hundreds of long-term client relationships can help overcome the corporate knowledge learning curve. Outsourcing partners, with their industry expertise, bring a greater understanding of what it takes to manage highly specialized data streams associated with clients in a variety of industry segments.

Lastly, many companies believe turning over critical internal functions results in a loss of skills and expertise within the organization. Often, the reverse is true. Companies turning to an outside source have more time to keep current on skills and technology and can better assess the options for a variety of situations.

Major Benefits to Outsourcing

Benefits to outsourcing customer communications typically fall into four general categories: improving customer relationships, maximizing operational capabilities, obtaining technology resources, and gaining financial benefits.

Customer Relationship Benefits

More often, customers are expecting companies to respond to their needs quickly and to communicate in meaningful, relevant ways.

A partner can help identify key opportunities in a company’s customer base in order to cross-sell customers’ existing products, educate customers on new programs and services, and create personalized outbound customer communications that build loyalty and return on investment (ROI).

Management Information

Outsourcing customer communications is more than managing the print or mail functions. It involves integrating data from disparate sources and building communications for delivery across a variety of channels. There is a marked shift from overseeing the daily demands of printing and mailing to creating a seamless flow of customer information across multiple channels (i.e., mail, Internet, email, workstation, and wireless).

Strategic partners can integrate data from disparate sources, such as call centers, primary data files, and third-party vendors, to personalize outbound communications.

Interactive Marketing Tools

Sophisticated technology solutions make it possible to communicate with customers at the individual level by inserting personalized messages and dynamic content directly into statements, invoices, trade confirmations, and other communications regardless of the final delivery channel.

Where limits on printing or electronic technologies may inhibit an in-house department from using dynamic messaging or developing content rich communications, a well-equipped outsourcing partner can accelerate marketing campaigns and apply them consistently throughout all business communications channels without in-house retooling.

Compelling Marketing Tools

High-quality statements that carry strong personalized images and messages are shown to improve customer interaction and increase customer loyalty. Whether it’s a print or electronic statement, an invoice, a viewable document at a customer service representative’s (CSRs) workstation, or even a newsletter or direct mail piece, these compelling tools can function as robust marketing vehicles.

Powerful Internet Tools

For electronic presentment of communications, the Internet provides an interactive opportunity that enables immediate two-way communication with customers and facilities self-help service.

Marketing opportunities also increase with an electronic solution that offers robust back-end functionality. Using customer information, companies can display personalized, clickable marketing messages to cross-sell and upsell to customers who log on to pay bills or receive business communications electronically. The immediacy of the Internet also makes it possible to test the impact of a message and pull it from the site or roll it out to a wider audience within hours. A well-equipped outsourcing partner can accelerate marketing campaigns throughout the organization.

Sophisticated Solutions

An outsourcing partner can afford to invest the staff hours and costly expertise in developing advanced applications. Instead of working within a limited technology range, a company can select from all available tools for graphic design, database management, delivery over multiple channels, advertising messaging and tracking, and other technologies that directly influence the effectiveness of customer communications.

Operational Benefits

Using an external resource to manage the customer communications process results in a number of operational efficiencies.

Process Control

One of the greatest concerns companies express when considering statement outsourcing is the fear of losing control over the process. Tracking tools that let customers watch as statements and invoices move through the process alleviate these concerns. Companies can track mailing dates and times, job performance, postage, transaction costs, turnaround time, and volume trends; options that are rarely possible with an in-house department.

Ability to Expand or Change Rapidly

Use of an external service provider removes the burden of growing or changing internal data systems when the business changes. A company can add a new product line, add new channel partners, move into a new territory, or absorb an explosive growth spurt without disrupting the business. The effort associated with rapidly hiring and training the skilled workforce necessary to expand into new territories or add new products is diminished with the right outsourcing partner.

No Risk of Late Billing

For billers, cost benefits extend to eliminating missed or late billing cycles that wreak havoc on revenue. A qualified customer communications partner immediately improves accounts receivables and increases a company’s ability to predict revenue flow and call-center traffic demands.

Reduced Call Center Traffic

A clear, easy-to-understand statement, bill, policy notice, or trade confirmation reduces call center traffic. According to the Gartner Group, each customer service call costs a company more than four dollars. Any tool that reduces such calls has a tremendous impact on operational costs. When customers have quick and thorough access to the information they need, they call less often and enjoy a higher level of customer satisfaction, which translates into customer loyalty.

Customer Service Monitoring

In addition to less traffic, CSRs gain tools that allow them to see a duplicate image of print and electronic statements. With both customer and CSR looking at similar images, questions are answered faster.

Technical Benefits

The velocity of change in technology seems to increase with each passing year. To keep up with the demands, every company in every industry is now forced to invest considerable resources into technology. But if a company’s core business is telecommunications services, for example, the most important investments should be to operate functions inside the core competence (i.e., maintenance and advancement of telecommunications specific technology).

Leading-Edge Technology

Many companies now outsource technology-heavy areas, such as statement processing, to companies that can afford to develop specialized systems. Just as the telecommunications company knows that advanced technology provides a competitive edge, a strategic vendor considers it imperative to remain at the leading-edge of its industry’s advances. 

Flexible Workload Schedules

Technology has also moved much of the world to a round-the-clock schedule. Electronic billing, for example, must always be operational to meet the needs of customers who may log on at any hour and from any location. This fast paced schedule also impacts in-house operations by delivering peaks that match demand rather thana typical 40-hour week schedule. Experienced outsourcing partners with flexible hours of operation can compensate for constantly changing workloads in ways not always possible with in-house operations.

Ability to Change Rapidly

As markets change and shift, increased capacities and new products and services are often added. A lone company may need to invest in additional equipment or data programming to match the demands that an outsource vendor can add with little effort. According to Frank Castle of The Outsourcing Institute, “In today’s business climate, the ability to move quickly to accommodate change may be the greatest advantage outsourcing offers.”

Established Alliances

Companies can also reap significant rewards from a well-established partner. Strategic outsourcing partners that have established relationships with third-party data providers are a huge asset in managing a company’s customer communications. The complexity of the data management across multiple channels is eradicated through an alliance with a reputable vendor.

Improved Quality

Outsourcing companies that process tens of millions of statements each month invest in quality-control systems, setting them apart from both the competition and in-house departments. Volume processing and the need to deliver a better-than-home-cooked solution drives investments in proprietary systems that provide comprehensive checks and balances to ensure accuracy.

Transitioning From Paper to Multiple Delivery Channels

A partner that delivers communications and messaging through the mail, the Internet, email, voice technology, and workstation applications enables a company to coordinate a synchronized program of communication with customers from one channel to multiple channels if desired.

Cost-Saving Benefits

Reducing Internal Resources

In eliminating a sizable in-house function, operational costs decline. The need to constantly add new technology or equipment to keep up with capacity and technology places a hidden cost pressure on customer communication functions. Outsourcing lowers capital outlay for technology and equipment, thereby driving down costs, reducing risk, and freeing resources for other use.

Creating Cost Efficiencies Through Volume

Any operation that dedicates itself single-mindedly has a greater likelihood of perfecting systems and business processes. A partner that specializes in customer communications can offer cost efficiencies, such as postal discounts for printed statements and strategic partnership advantages in the electronic arena. Innovations, including patented systems, allow companies to trim turnaround times while improving quality control.

Though compelling, cost efficiencies may prove to be one of the less important reasons for moving to an outsourcing solution when considering the opportunities outsourcing provides to drive revenue and increase market share through improved customer relationships.

Conclusion

In today’s business climate, lean enterprisesthat specialize in their core competencies generally outperform companies that keep all administrative functions in-house. An increasing number of companies are evaluating which functions external service providers can better perform to enhance the lifetime value of their customer relationships.

Customer communications is an ideal function to outsource because the benefits are felt across the enterprise. From increased sales due to personalized marketing to improved operational and technical capabilities to lower overall costs, outsourcing makes sense for companies with a vested interest in reducing customer attrition, developing loyalty, and expanding market share.

It is also smart to outsource customer communications as they require significant infrastructure and personnel investments. Even when established in-house at the highest level, it requires a continual money stream to keep operations functioning at peak efficiency and even that may not produce the quality or volume outsourcing offers.

The key to a successful outsourcing relationship is to choose a vendor wisely, and to jointly establish internal processes that support the relationship. During the selection process, it is wise to tour the facilities of potential vendors, talk with current customers, examine their processes, and ask plenty of questions.

Once a decision is reached, a company needs to establish metrics that determine the success of the relationship. This last step is critical because it sets a clear standard for expectations that all can agree to upfront. It also provides both companies with a benchmark to measure against in coming years.