More than one company has fallen back
on the reasoning that outsourcing can be a temporary
solution, especially during recessionary or tight economic
19, 2002. Outsourcing IT services -- or, for that
matter, any business function, such as billing, procurement,
human resources or even research and development -- has
become the cost-control method of choice for many companies
as they grapple with tight budgets and flatlining revenues.
is a certain logic to this business model. Vendors have the
size and overhead to provide the service in question and the
economies of scale to offer it at a competitive but
profitable price. For their part, companies just have to
worry about a monthly bill that can be much lower than if
the service were generated in-house.
Group research director Stephen Lane told CRM Buyer Magazine
that companies in some industries are realizing cost
savings of 30 to 60 percent as a result of outsourcing .
In spite of these clear advantages, many companies exhibit
reluctance to cede control to an outsourcer -- especially
over anything customer-related.
Jewels. "Outsourcing more complex projects
that involve databases with sensitive customer information
may make a lot of sense, but it can be psychologically
challenging to take that leap and hand it over to someone
else," Jim Scurlock, senior manager with Cap Gemini
Ernst & Young's financial services sector, told CRM
can be downright impossible if a customer service operation
or customer data is considered the corporate crown jewels,
procurement or IT executives pitching an outsourcing
proposal, the argument ultimately comes down to bottom-line
factors. "Budgeting for outsourcing has to be done on a
unit-cost basis," Scurlock said. "It must be clear
that it can be provided for less cost than what a company
can do in-house. Also, it helps if the outsourcer can offer
a value-add component."
cost issues have been nailed down, though, there are three
other arguments an IT executive can make in order to win
budgetary approval for an outsourced CRM project:
'Our Competitors Are Doing It.' Marc Benioff, CEO
of Salesforce.com and self-appointed evangelist of the
online CRM business model, suggests that executives point to
other successes in their particular industry, specifically
competitors that have outsourced their CRM and sales force
automation processes using an online service provider. More
and more enterprise-size companies are using online CRM
services , making the business strategy a competitive
factor, especially for small and mid-size companies that are
trying to compete in the same space, he told CRM Buyer.
CRM aligns the risk with the reward," he said.
"Companies do not have to spend US$10 million up front,
not knowing if they will ever get a return on their
investment. You might as well go to Las Vegas."
'Others Can Do It Better.' Outsourcing
allows a company to concentrate on its core competency. It
also means a company does not have to maintain in-house
hardware or software or, for that matter, a large IT staff.
(Nasdaq: NXTL) chief service officer Kathy Bradley told CRM
Buyer that the decision to outsource customer service was
based more on core competencies -- of the outsourcer -- than
on cost. "We could have spent a long time sorting
through the technology, sorting through vendors and
deploying a system," Bradley said. "But
[outsourcing] has allowed us to leap the learning
'It Can Be Temporary.' More than one company has
fallen back on the reasoning that outsourcing is not
necessarily a permanent solution, especially during
recessionary or tight economic times. Also, an outsourcer
can be tapped to handle certain projects on a mid-term
basis. Scurlock tells of one client that retained an
outsourcer knowing full well it would not renew the contract
when it came up again.
had four to six CRM systems that it wanted to pull together.
A vendor low-balled the project and offered to run it on an
outsourced basis. It took a year for the outsourcer to clean
up the databases. About 18 months after that -- when the
contract was up -- the outsourcer wanted to renew it for
five years, but the company said, 'No, we want our CRM
outsourcer made a huge assumption that because it did good
work, the client would want to retain them. But because the
client thought of their CRM operation as their crown jewels,
they did not want to leave it in the hands of others -- not
to mention the fact that cleaning up the databases would
have been cost-prohibitive and the company did not have the
in-house capabilities for the job."
be fair, a company should be open with the outsourcer about
this from the onset. "These arrangements need to be a
win-win for both sides," Scurlock said.