Successful commercial enterprises seek to provide a product or service at a quality level better than their competition. The competitive advantage, we call it. The more an enterprise can concentrate on the core tasks that directly contribute to the bottom line, the better chance it has of maintaining, or increasing, that competitive advantage.
But how do you consistently prevent the peripheral, albeit necessary, functions whose continual encroachment on company time and resources threaten to undermine the focus on core competencies? The best solution may be to outsource to a company whose core competencies are your peripheral functions. That is what Underwriters Service Agency, Inc. (USA, Inc.) did when it contracted with Results International Systems (RIS) to process and maintain its insurance policies.
Outsourcing Offers Greater Expertise at Less Cost
Steve Harvey, president and founder of USA, Inc., had always intended to outsource as much of the company's business processes as possible. Founded in 1992 to provide independent insurance agents in Oklahoma and parts of Missouri access to standard and non-standard markets in the personal, commercial property and general liability, and transportation insurance lines, Harvey wanted to concentrate solely on growing the operation by aggressively pursuing new policies and lines of business.
But as a broker for independent agents--USA is not a licensed insurance company--his company would have to supply all the support operations a licensed insurance company is expected to provide for its own agents: make filings, handle claims, collect the money, do the billing, and provide customer service.
USA's small, in-house information technology staff was no match for its growing base of independent agents and the business they generated. Harvey realized the company had to invest in a true "carrier-class" insurance processing system. Already a "virtual" company by design--it outsources most of its business and operational processes--USA decided to put its IT in the hands of Results International Systems, an IT outsourcer with a proven background in the insurance industry.
"We had to find an outsourcing partner whose system we could use so we could truly act like an insurance company," Harvey explains. And he needed the technology yesterday. Because of his tenure with a previous employer who had outsourced its program business to RIS, Harvey knew it already had the technology and a lot of the information necessary to process his work. He estimates it took about four weeks for RIS to create a customized insurance processing system for him. "Those guys (at RIS) pulled some rabbits out of their pouch and were able to really do the impossible and get us up in a very short order of time," says Harvey admiringly. "It was incredible."
Because USA was conceived as a virtual company, outsourcing IT was a foregone conclusion. However, Harvey admits that buying or leasing processing systems can sometimes be cost prohibitive. "There are companies that specialize in certain phases of the industry, but it's extremely expensive for a general agent to truly employ a full company system. But RIS, because of its technology, was a perfect fit," he says. Also, according to Atul Saxena, CEO of Results International Systems, "mass customization" allows his company to provide individual insurance processing solutions that are not cost prohibitive.
Understanding the Customer's Business
Computer people are notorious for assuming they know what the best IT solution is for the customer, regardless of their lack of knowledge about the clients' business. This often leads to customer dissatisfaction. Not so with USA's collaboration with RIS. "These guys have an insurance background, so they are really pretty unique in the industry. They really understand what you want," he says.
Sharing the Risks and the Rewards
Because outsourcing carries a risk, establishing proper metrics that insure accurate accountability and adequate protection against service failures is paramount. USA minimized its risks by directly tying RIS's ability to make money to USA's ability to utilize its services. "If they don't process, we don't get paid," Saxena says.
RIS has a backup system impervious to service failure. The data center, located in Dublin, Ohio, has a battery backup unit in case of a power failure. A natural gas generator is also located onsite in case of a protracted power loss. The service provider backs up data files daily and stores them in a secure, offsite facility. USA has access to its processing system and customer data via redundant connections routed through different cities as insurance against communication outages. RIS also offers what it calls a "hot" backup site in a different state as one final safeguard against service failure.
But RIS goes even further to protect the interests it shares with its customers. At least once a year the company declares a disaster, then practices recovery for every customer, says Saxena. "If the system were to go down or we were hit by a tornado, we know we will be up and running with their work in 48 hours."
RIS usually seeks five-year contracts with its customers. It has a one-year contract with USA Inc., which demonstrates its commitment to partner with them on their terms. "These guys are extremely easy to work with," says Harvey. "They wanted an agreement that runs for a period of years and we were just unable to do that being new out of the box and, frankly, just being unsure of what the track record would be in the future, or financially how the program would work." Harvey seems to be convinced, divulging that he plans to continue the relationship into the foreseeable future in anticipation of expanding his business into New Mexico and, possibly, Arizona.
Understandably, Harvey has nothing but praise for RIS. "We rely on them 100 percent. We bring up the application on the Internet, go in and do our thing. It gives us exactly what we need. You get more reports than you could possibly use. Frankly, we couldn't have done without them, certainly not in that period of time and for the cost."
Lessons from the Outsourcing Journal:
- Outsourcing IT can be a cost-effective remedy for a company whose in-house IT department has insufficient time and staff to develop appropriate business process solutions.
- An outsourcing service provider should base its solution on what it knows about the customer's business and develop an application that serves it best.
- The best outsourcing relationships are true partnerships. The financial reward of the service provider is directly connected to the financial success of the customer.