Outsourcing Proved Its Value on Straightforward, Readily Quantifiable Processes, but Has Underperformed on Complex Tasks Like Renewals.
An article in The Economist (The good, the dumb and the desperate, 28 June 2018) argues that Britain’s outsourcing model, copied around the world, is in trouble: that “High-profile fiascos and dwindling cost-savings are making many questions whether the idea has run out of steam.” The main focus of the article was on government outsourcing to private enterprise, but much of what it said applies equally to the wider business market.
The article explains that the model, championed by Margaret Thatcher in the 1980s, proved so successful that by the next decade it was eagerly adopted by the business. Since then, management schools across the world, have taught a whole generation the benefits of outsourcing non-core functions to specialist providers.
“Outsourcing” the drudgery to automated systems instead of humans is proving highly effective, and is freeing up experienced employees for better customer relationships.
Four years ago (July 2014), the same magazine claimed that “As traditional industries are declining, outsourcing, offshoring and subcontracting are booming”. The tide began to turn when Europe, the world’s largest IT outsourcing market, began to cut back spending – by 8% in 2015 and 12% in 2016. Those boom days are now over.
Especially in the challenging economic climate post-2014, outsourcing promised everyone an alluring “sugar hit” to the business bottom line – a chance to prune whole departments and replace the burden of capital investment with a more agile OpEx funding model. And yet in certain areas – such as the process of outsourcing renewals quoting and management – outsourcing has failed to deliver sustainable and significant improvements. Why is this so?
Having outsourced the administrative and financial burden to a dedicated provider, it is easy to forget that those specialist agents themselves need training: not just in your company’s technology and nomenclature, but also in the often complex pricing logic (price discounts, partner discounts, rebate application, bundling). The burden has shifted from your shoulders but has not gone away. It can take weeks of dedicated training to get up to speed even before the first dollar of incremental benefit has been recouped.
Even when the training is complete, there is no guarantee that the trained team will remain with your provider. What’s more, you must allow ramp time to ensure maximum productivity. Experience shows that it typically takes 90-120 days before the providers become fully effective – quotes take time to get right, revisions take time, 7-11% of all human-generated quotes have an error. All this impacts revenues and takes the shine off that balance sheet boost. Those are just some of the reasons why that alluring “sugar hit” has led to poor long-term results.
The Burden Has Shifted, but Not Gone Away
Let us give the outsource provider the benefit of the doubt and assume that it has managed to build, train and retain a competent team that quotes efficiently, never makes a mistake and never takes a holiday. But the challenges faced by the new team are exactly the same as the challenges your in-house team once addressed. Maintaining, measuring and optimizing productivity is a dark art: how many quotes went out today? At what value? Generating what profitability? And what about cross-sell and up-sell opportunities?
“That which gets measured gets done”, is a familiar saying and immediately applicable here. Measuring the team’s productivity, daily profitability and general contribution to the business is difficult. It yields inconsistent results and is prone to misinterpretation. As the original The Economist article quoted above points out, the immediate eye-catching benefits from government outsourcing all came from simple, easily quantified functions such as waste disposal – there the benefits are so clear that they obscure the fact that outsourcing other more complex functions produced far less consistent results.
When it comes to delivering and preparing quotes, the human operator will issue a single quote to a customer – a bill of materials, with a single renewal term, for example, a 12-month term. But what if the client is considering a longer-term, or a different renewal type? This requires the quote to be revised, re-issued and then chased again – a re-quote cycle that costs money and reduces overall profitability while extenuating the closure process and reducing customer satisfaction. A quote SLA of 7-14 days has no place in today’s agile business environment.
When the Tail Wags the Dog
Every Sales department understands the “long tail” dilemma. Faced with complex decisions, humans prioritize tasks on relative revenue, complexity, and ease. We naturally reach for the low-hanging fruit. This means that the outsourced operatives will tackle the largest revenue value quotes first, the easiest and swiftest to issue. Having reached their target, there will be a natural tendency to de-focus on the unquoted opportunities that remain in the “long tail” of smaller contracts.
The problem remains the same for any human team, whether in-house or contracted: it is not uncommon to discover that of 100 renewal opportunities no more than 10 opportunities are issued, leaving 90 opportunities available for closure. Although each offers less upfront financial reward, these smaller contracts often promise higher profits than big contracts that were only won by hard bargaining.
That long tail is too often a wasted opportunity – for a significant profit, revenue, and customer growth. Rather than solving the issue and generally improving the renewals process, outsourcing merely transports the problem to a provider – treating the symptoms not, the cause.
Perhaps there is a better way to approach this issue?
“Outsourcing” to an Automated System
Applying automation to the process of issuing support, maintenance and licensing renewals is already outperforming the traditional outsourced option. It not only lifts the burden and reduces the need for a traditional outsourcing solution, but it can also make better use of your in-house team’s knowledge and experience by providing a platform for their involvement in supporting and optimizing the process – rather than simply being the process.
When deploying a SaaS platform that integrates Machine Learning and Intelligent Automation with a client’s own pricing logic to issue support, maintenance, and licensing quotes, it doesn’t require those weeks of initial human training. Using automation is more efficient, it does not require “time out” for agents to understand pricing and quote preparation.
There is no ramp-up time while the machine learns to get quotes delivered and learns from errors. Unlike human staff, an automated service is not intoxicated by larger-value quotes – everything gets quoted, delivering superior revenue and margin contribution to clients. It also uses Machine Learning to provide multiple quote variants for the end-user – different time periods, different support or renewal types, add materials and even co-term renewals across multiple different opportunities – all at the touch of a button. Clients no longer have to wait 7-10 days for a quote, they enjoy immediate satisfaction and you get maximum engagement and renewals.
What were the key drivers for traditional outsourcing, and how does an automated solution satisfy them better?
The immediate “sugar hit” of outsourcing has been a reduction in fixed costs and a net profit boost – good in the short term. But, unless quality, accuracy and customer satisfaction are maintained, there is little long-term advantage. Choosing the right automated renewal service offers far better prospects. For example:
- Is the service paid from Cost of Sale (ie only when a deal closes)? This will shift a previously fixed cost into a variable cost – another balance sheet benefit.
- The fundamental benefit of automation is to deliver more quotes that any human can, with greater accuracy.
- It also offers more control, improving client satisfaction by providing immediate closure of the opportunity.
- It promises enhanced revenue capture and net profitability.
- Being monitored in real-time, it provides a platform for informed decision making.
- Although automation could be just a better way to get that downsizing “sugar hit”, progressive companies are using it to lighten the burden of long-tail renewals, and allowing valuable in-house experience to focus more on upselling and improved customer relationships.
So why pass on all that routine labor to an old-world outsource service when a state-of-the-art automated service can reap real profit from the “long tail”, and do a better job quicker?