United Parcel Service (UPS) delivers three million packages a day. While the delivery company had no trouble managing its enormous fleet of brown trucks and the location of its packages, it had difficulty capturing the billing data on those packages. It took 14 days before the company had the billing criteria for any package, information necessary to begin the accounts receivable process. Two weeks is a long time to be without its hard-earned cash.
UPS decided to concentrate on its core focus and outsourced its billing data process to ACS, a Dallas-based business process outsourcing (BPO) vendor. ACS set up an intricate satellite transmission system to capture the billing information faster and cheaper. Today ACS captures the necessary billing information in 24 hours. And it can do so with 50 percent fewer employees, according to Lesley Pool, director of corporate marketing for ACS.
You can’t be good at everything. Companies need to invest their time, money and people in the functions that distinguish them in the marketplace. Outsourcing allows companies to hand over the responsibility for a support function to an expert who is investing its time, money and people in that function. “Outsourcers have knowledge about the latest, greatest stuff and have the people to run it,” Pool explains.
Technology is a prime candidate for the experts. “Information technology is rarely a core competency for most firms,” says Richard Sherman, senior vice president, visoneering, for EXE Technologies Inc., a Dallas-based software firm that writes warehouse fulfillment and distribution software. “Companies gain greater flexibility and more options in terms of deployment when they outsource this to us.”
The speed of technological change is another reason companies want to leave the technology learning curve to them. “Buyers feel they can’t keep up with technology, which today is advancing faster than it ever has. It’s inconceivable for a company to attempt to keep up if it isn’t its core business,” says Tom Jones, president and CEO, StrataSource Inc., a supplier in Freemont, California. StrataSource becomes the virtual system administrator for its buyers.
Cost becomes a major consideration, too. Outsourcing vendors can perform the task at a lower cost because they have economies of scale, more cutting edge technology and better control of the process than departments who do the same tasks in house.
Young companies with limited venture capital know they have to direct as many dollars as possible into their core business to get them off the ground. They are eagerly turning to outsourcing to keep their non-core costs as low as possible.
“We outsourced from the day the lights went on,” says Brian Hoshiko, vice president, engineering, eCatalyst One in Newport Beach, California. “As a start up, we knew we couldn’t host or monitor our database. We knew it would be too expensive. We couldn’t afford to build a data center or have it monitored around the clock.”
The cost is even higher for a company like eCatalyst, a network infrastructure provider that supplies a cash payment method for Internet merchants. ECatalyst has a fiduciary responsibility since it actually accepts cash from its customers. “We can’t afford to let someone hack in and get our customers’ money,” says Hoshiko. At the same time, the Web site has to be operational 99.99 percent of the time since customers want to be able to pay for their purchases online whenever they choose to shop.
ECatalyst hired StrataSource to monitor its servers and maintain its database remotely. StrataSource’s software checks to make sure eCatalyst is receiving the correct amount of network bandwidth. “We want to make sure our customers’ customers can reach every Web page 24/7,” says Hoshiko.
And outsourcing vendors can do it better. “They are looking for our expertise,” reports Steve Rockwood, president and co-founder of Alpine Access LLC in Golden, Colorado, an outsourcing vendor that specializes in providing customer care in call centers.
The vendor has the responsibility to recruit, train, retrain and retain the proper personnel. In today’s tight labor market, buyers view call center staffing “a human resource nightmare,” says Rockwood.
“The outsourcer is responsible for job skills,” adds Gary Klemens, director of application outsourcing implementation services for Keane, Inc ., a Boston eSolution and application management development vendor. “The strength of an outsourcing vendor is its ability to identify the necessary skills and then deliver them to the client. Vendors can find those skills when the buyers can’t because vendors provide more long term career options,” Klemens continues.
Alpine Access solved the personnel conundrum by eliminating the brick and mortar call center and moving its facility to the Web. Historically, call center operators could only recruit employees within a 20-mile radius. The Web allows the supplier to cherry pick its 430 employees, who are retirees or stay-at-home moms and who can live anywhere. “My agents would never work at a call center no matter how much we paid them,” says Rockwood. He is able to hire only 15 percent of his applicant pool; most call centers are forced to hire “anyone who is breathing,” he says with a laugh.
Alpine Access’ novel approach allows it to offer its buyers more flexibility. The vendor can work with clients who only need a single agent for a short period of time or a buyer who wants a steady stable of 100-plus people.
Klemens tells the story of one client who could never close its books on time. The company decided to scrap its legacy finance and accounting system and purchase a leading enterprise resource planning (ERP) application. The company budgeted $10 million for the ERP implementation.
In the meantime, the company outsourced its legacy finance and accounting system to Keane so its internal staff could concentrate on the new ERP system. The outsourcing contract extended until the ERP system was in place and operational.
Within three months Keane’s staff was able to close the month on time, the first time ever. “We cleaned up the application so it became useful. Then we added functionality,” Klemens explained.
The company was so excited it decided to scrap its ERP implementation. The client ended up pocketing the $8 million it didn’t have to spend and applied it to its core business.
Finally, outsourcing vendors, the process experts, can make things happen faster because they already have the people and the infrastructure in place. “It would have been impossible to do it on our own within our time frame,” Hoshiko of eCatalyst says. He estimates he would have to budget at least six months to get a data center operational. But he didn’t have six months to spare. In his experience, “outsourcing is the best way to get going quickly.”
In a world rocked by change, outsourcing helps companies remain competitive. You can’t be good as everything, so you might as well be good at your brand. As Jones of StrataSource says, “People must grow their businesses in this economy. To do that, they must focus on their competency and not their IT infrastructure. What does a company want to be when it grows up?”
Lessons from the Outsourcing Primer:
- Outsourcing allows companies to concentrate their time, money and people on their core functions.
- Vendors are concentrating their capital investment in the process, so they can do it better than you.
- Vendors are able to attract the top talent.
- Vendors already have the infrastructure in place, so they can ramp up quickly.
- Vendors can use leverage to lower cost to all buyers.
- You can’t be good at everything!