22 Mar IT outsourcing according to Tom Koulopoulos, part 2
After his keynote at the Fusion2006 CEO-CIO Symposium, WTN caught up with Tom Koulopoulos for more of his views on IT outsourcing and when it’s a good idea. Read part one.
WTN: You have spoken about outsourcing as a way of distributing the risk of development to other organizations. But doesn’t outsourcing also introduce risk, through the loss of control?
Koulopoulos: Probably the second most likely area of concern is giving up control. We did some survey work not too long ago where we asked people “Why don’t you outsource?” And the top two reasons were, “I don’t understand the business process well enough to describe it to someone else” and this sense of lost control and the risk that introduces.
It’s a very real concern. It is real in that, one, you lose control by losing some agility because you can’t respond quickly enough if a business condition changes. You can’t respond by building an IT solution to the business condition. And two, you introduce risk because you have someone who is an outsider, who may not necessarily understand your business well, creating solutions for your business.
There are are a couple of responses to that. One is, you partner with someone – go back to our model of what’s core versus non-core – you partner with someone who has demonstrated core competency in those areas, so you’re not buying bodies in India or China or the Philippines, you’re buying an operation that understands that particular element of your business.
WTN: What else can you do to reduce the risk?
Koulopoulos: Basic project management ends up introducing more risk than practically anything else in an outsourcing arrangement. So what you want to do is make sure you have in place exceptional project management capabilities, people, and tools.
I would say to take an incremental approach that first looks at how you can transform the process, get the partner involved in that transformation, and then transition it, which is sort of the opposite of what has happened historically.
Historically in outsourcing you transitioned first, then transformed. So you take the CRM operation, take it as a black box, ship it 8,000 miles away, then transform and reengineer the operation. High-risk operation. The first step should be, get the partner involved in transforming it. Now they develop an intimacy with the process.
WTN: Is there anything that’s always core?
Koulopoulos: I’d be careful with that, because I can see situations where virtually anything could be core or might not be, and it depends entirely on the legacy, the history of the organization, how it’s grown up.
So much of this is cultural. What ends up being core competency has been defined over long periods of time, usually by very strong committed leadership. Where you have core competency. Where you don’t, it’s probably been a lot of lack of direction and miscommunication. But where you do have it, it could be almost anything that defines the core competency of the organization.
If there’s anything that’s consistent, it would probably be a very good ability to understand the processes that represent the interaction between the company and its markets. Now, is that marketing, is it sales, is it relationship management? It could be any one of those. But in any successful company that has defined its core competency there is always an element of managing the relationship with the consumer, whether it’s B-to-B or B-to-C, that’s exceptional. And the reason why it’s exceptional could vary.
It could be a religious marketplace, as is the case with Apple. It could be a generational attachment, as is the case with Colgate or Gilette; it’s what my parents use, so it’s what I use. But there’s some aspect of the relationship with the consumer that is always part of that core.
You’re not going to outsource that, because it’s constantly evolving. Everything else is probably fair game.
WTN: Can a company outsource something like their call center, which is on the front lines of a lot of customer contact, and still keep that really great relationship?
Koulopoulos: That’s been one of the poster children of outsourcing, and it’s also been the one that’s taken the most dings. Everyone talks about the fact that when they call their favorite consumer products company they get someone in India.
But I’m not sure that despite all the social backlash, that necessarily is creating risk in that relationship we just talked about, because you manifest the relationship not only in the call center but in the entire approach the company takes to the marketplace – in its advertising, in its messaging, in its positioning, maybe in aspects of social responsibility. So that’s an important piece of it, but that’s not all of it.
Can you risk or even damage the relationship there? You absolutely can. But I’ve seen many cases where the external call center has created a higher satisfaction because they’ve actually have had more time and more resources to deal with the customer.
So think of it this way: I’m a company and right now I have a voice response system. And I’ve frustrated the daylights out of my consumers because they have to hit 23 key codes before they finally get to a human being, if they ever get to a human being.
An alternative would be, for a similar or lower cost, to get human beings on the phone who are highly trained, who are motivated, who are incentivized to treat you well, and who are empowered to make some decisions. So when you call and you’ve got a problem, they can make a decision about it. It seems to me pretty clear in that hypothetical that having a human being would be a better option.
WTN: The same people who are annoyed by phone menus don’t necessarily react well to those call centers, either.
Koulopoulos: A lot of the reason is that it’s cultural. We’re not outsourcing inside the United States. By and large, we are outsourcing offshore. There are cultural issues, and they start to play a role in how you assess the effectiveness of the call center, but I think over time that will start to mitigate itself.
WTN: But don’t organizations sometimes go too far in outsourcing something that actually was core?
Koulopoulos: The FBI did that recently with case management. They brought in SAIC, they spent $200 million, to create a case management system for their field agents, and they pulled the plug on it after $200 million.
The reason they did is that they realized that the process of case management really was an internal core competency that they understood that was nearly impossible to convey to someone external.
Make sure that you understand the process before you ask someone else to understand it for you.