a new way for businesses to operate - dialamerica · outsourcing “is seen as a key contributor to...

A NEW WAY FOR BUSINESSES TO OPERATE

2 ThinSourcing: A New Way for Businesses to Operate

THINSOURCING: A NEW WAY FOR BUSINESSES TO OPERATE

Introduction

Over the past 20 years, a lively discussion has taken place about the merits – and demerits –of outsourcing. Driven by the desire to reduce costs and focus on core business imperatives,many companies have shifted functions such as manufacturing, software development andcall centers to outside vendors operating domestically and, increasingly, internationally. Theemergence of cost-effective technology and telecommunications platforms has greatlyfacilitated the outsourcing movement, which author and journalist Thomas L. Friedmanbrilliantly described in The World Is Flat: A Brief History of the Twenty-First Century, hisbestselling book analyzing the growth of global interconnectedness and commerce.

While many companies have embraced outsourcing, others have adopted an oppositestrategy: insourcing. Insourcing is the establishment of an in-house unit that provides a discreet service to a larger corporate enterprise – but operates autonomously, often with a lower cost structure. While both outsourcing and insourcing provide advantages, they also have distinct drawbacks. A newly emerging approach – ThinSourcing – overcomes these problems.

This paper details the recognized strengths and weakness of traditional outsourcing andinsourcing relationships and then explains the principles of ThinSourcing as a business concept. It also outlines the operational pillars on which an effective ThinSourcing model is built and provides current examples of successful ThinSourcing relationships in the marketplace today.

Outsourcing

Outsourcing is a business relationship in which one organization transfers management andimplementation of an operational function to an external vendor. Typical goals of outsourcingprograms include lowering costs, focusing on core competencies and accessing resources notavailable in-house.


Business functions that have traditionally been outsourced include manufacturing, information technology, accounting, human resources, real estate management, software development, call center management and food service, among many others.

In outsourcing these kinds of functions, many companies have contracted with off-shoreresources – often in developing countries – where labor and overhead costs are far lower thanin the U.S., and technical skills are rapidly improving. For example, capable softwaredevelopers can today be found in India, China and The Philippines, as well as in many EasternEuropean countries.

Cost reduction is perhaps the number one goal of most outsourcing relationships; however,companies also choose to outsource so that they can focus their efforts on mission-criticalimperatives, relieving management of the burden of overseeing non-core activities.

One of the world’s largest travel service providers, Thomas Cook, provides a good example ofoutsourcing. As part of a sweeping business transformation designed to eliminateredundancies and gain competitive focus, it centralized and outsourced all back-officefunctions – including information technology, finance and human-resources.¹

This initiative reduced annual expenses atThomas Cook by more than $220 million. According to Ian Ailles, managing director of specialists businesses and former group finance director,outsourcing “is seen as a key contributor to the firm’s success…and has helped us focus moreon our core competency – the travel business.” ¹

Despite the many advantages of outsourcing, there are clearly drawbacks. These include the“hidden expenses” of integrating and managing an outside vendor, as well as higher thananticipated operating costs related to faulty planning assumptions or lowball biddingpractices. Furthermore, productivity loss during the initial transition period to an outsourcedrelationship should be expected, as it takes time to staff and train workers, transfer knowledge and organize efforts. Oftentimes companies don’t consider these costs, but they are very real and should be incorporated into the decision-making process surrounding a potential move to outsourcing.

Other serious concerns regarding outsourcing relate to the commitment and openness of theoutsource vendor. For organizations accustomed to handling all of their operations in-house,outsourcing relationships often reduce transparency and control and complicate quality assurance procedures. Companies that outsource an externally facing function face an addedchallenge: ensuring that customers receive a level of service and sensitivity that is consistentwith their brand’s standards of customer care.


Insourcing

Insourcing is essentially the opposite of outsourcing. It seeks to replicate the cost-saving benefits of outsourcing with an in-house arrangement. Insourcing is typically defined as contracting in, or delegating a discreet business function or job to an internal but standalone entity that specializes in that operation. This approach, which is quite different than operating an internal department, is often performed with workers who receive different compensation and benefits than parent company employees and operate under different time requirements and work conditions.

Examples could include a hotel’s business center, a corporate headquarters’ day care center or a bank’s customer call center. Each of these discreet, specialized, non-core functions operates autonomously – but within the realm of a larger business entity.

For example, The Walt Disney Company operates its own police department for all Disney theme parks and resorts. At Walt Disney World in Orlando, Florida the Disney Police Department consists of over 800 employees and is responsible for 47 square miles of Disney property.

The Disney Police force operates in the same manner as public officers, controlling crime, protecting property and maintaining order. Through insourcing its own police force, Disney maintains complete, internal control over an important function and ensures that its guests are protected.

In considering an insourcing solution, companies should recognize that insourced functions, though operating autonomously, will likely require a significant degree of management oversight. Additionally, it may be difficult practically and legally for a business to truly treat its insourced unit as if it were an outside contractor, i.e. one not governed by the parent company’s human resources policies, operating practices and cost accounting principles.

Perhaps most importantly, the parent companymay find it difficult to hire and retain qualified employees, maintain specialized equipment and technology, implement best practices and comply with changing government regulations. These difficulties directly affect the quality, productivity, risks and costs associated with an insourced function, leading many companies to seek an alternative solution.

ThinSourcing

ThinSourcing overcomes the drawbacks associated with both outsourcing and insourcing. It is an intimate business relationship between two companies that provides a cost-effective


third party service and delivers that service in a manner that is virtually indistinguishable from the way the company itself would provide it. With deep knowledge of the company, the product and the service, the ThinSourcer imperceptibly functions as an operational and brand extension of its client’s business. In a ThinSourcing relationship, there is, in effect, a very thin line between the vendor and the client.

ThinSourcing as a business model is built upon five key pillars: a custom business solution; aseamless, secure technology platform; an advanced recruiting, training and retentionprogram; a comprehensive, timely, transparent reporting system; and an impeccable compliance process.

• A custom business solution

ThinSourcing relationships require custom solutions that precisely meet the needs ofcontracting companies. The process starts with a ‘strategic infusion’ through which theThinSourcing vendor rapidly absorbs the goals, strategies, culture and brand essence of its client’s business.

At this stage of the relationship, the ThinSourcer acts very much like a managementconsultant, assessing needs and formulating a detailed plan of action. Unlike a consultant, however, the ThinSourcer will implement the agreed plan and all its components in accordance with a clearly defined service level agreement and performance metrics. These will likely cover ongoing management, staffing, timing, technology, production, reporting, quality assurance and, of course, cost.

• A seamless, secure technology platform

Seamless, secure technology is critical in a successful ThinSourcing relationship. Flawless integrationwith the client’s IT systemenables the ThinSourcer to operate indistinguishably from the contracting company – both internally and externally. For example, agents in a ThinSourced customer call center should be able to access all necessary data and avoid time-consuming delays that result from toggling between multiple programs or screens. If necessary, they should be able to instantly ‘hot transfer’ a call – including its full, up-to-date computer record – to personnel in the client company in a manner that is imperceptible to the customer.

InsourcingOutsourcing


ThinSourcers need to be able to quickly adjust software programs and operating protocols to meet rapidly changing client requirements. Additionally, they must employ extraordinary data security procedures. Today, many businesses fear that in outsourcing a service, they may jeopardize the security and privacy of their corporate and customer data. Companies worry that outsourcing partners have less invested in protecting customer privacy and are therefore less diligent in protecting data.

To address this concern, ThinSourcers must take extraordinary measures that encompass technology, data encryption, training, employee policies and enforcement. These measures, which should be periodically tested by outside security consultants, ensure the highest possible levels of information security.

• An advanced recruiting, training and retention program

Hiring, training and retaining a high-performance workforce is perhaps the ThinSourcer’s greatest challenge. It is also the area where a ThinSourcer can provide the greatest value to its client.

Intimately understanding the demanding requirements of its own business, aswell as the needs of its client company, the ThinSourcer employs a skilled, focused and motivated workforce. Operating in strong labor markets and using well defined selection criteria, the ThinSourcer exclusively hires high potential individuals.

These employees receive progressive, modular training programs that teach job skills and provide knowledge about the client’s company, product and brand experience. Through close supervision, incentive-based compensation and an empowering work environment, employees are extraordinarily productive, and retention rates are exceptionally high.

• A comprehensive, timely, transparent reporting system

Another crucial factor in a ThinSourcing relationship is the ongoing reporting process.Operating indistinguishably from the client company means providing performance data and analytical information on a continually updated and fully transparent basis.

This real-time reporting enables the ThinSourcer and the client to accurately track progress, engage in an open exchange of ideas and rapidly adjust program implementation, if necessary, to achieve business and brand objectives.

Client-specific reporting protocols are established at the outset of a ThinSourcingrelationship and typically employ a custom technology application, such as a dashboard with incoming data streams that enables all authorized individuals from the ThinSourcer and the client company to access and evaluate ongoing program performance data.


• An impeccable compliance process

ThinSourcers must fully understand all relevant laws and regulations that affect their client companies and adopt operational practices that fully comply with these requirements. In many cases, ThinSourcers must track and adhere to multiple federal and state regulations that cover its own business practices as well as those that govern its clients’ operations.

An example is a call center serving a health insurance company. The ThinSourcer mustcomply with regulations regarding the National Do Not Call Registry aswell as regulations contained in the Health Insurance Portability and Accountability Act (HIPPA). In the financial services sector, ThinSourcing vendors must operate under the standards contained in the Sarbanes-Oxley Act.

ThinSourcing vendors take compliance very seriously. They have independent compliance departments that monitor changing regulations, mitigate risks and guide business practices. They maintain a comprehensive compliance database and run ongoing training programs to familiarize their employees with the latest rules, regulations and operating procedures. Ultimately, they provide client companies with an exceptionally high degree of confidence that their business practices fully meet all relevant laws and regulations.

ThinSourcing – Examples in the Marketplace

Although ThinSourcing as a codified business approach is new, several progressive companies are operating in a manner that is consistent with its principles and practices.

• United Parcel Service (UPS)

Best-known as a package-delivery company, UPS is rapidly expanding into supply-chain management. A recent story in Time Magazine² explains how UPS helps Royal Canin, a natural dog and cat food manufacturer, not only move products from place to place but also store goods and interact with customers – all without Royal having to get involved. This highly integrated arrangement beautifully illustrates ThinSourcing and the ‘thin line’ that separates UPS (the vendor) from Royal Canin (its client company).

In a similar manner, according to the Time article, UPS supports Nike. UPS employees in a Kentucky facility quality check each pair of Nike shoes prior to their shipment to retailers around the world. This step enhances quality control and enables Nike to focus on other aspects of its global business.


• ADP

For more than 10 years, ADP has provided payroll and records management services toWyndham International, one of the largest hospitality and lodging companies in the U.S. with over 25,000 employees.¹

ADP has become an extension of Wyndham, according to Karen Sparks, senior director of accounting at the hotel company. “Their staff is an extension of ours. We collaborate with them whenever needed – typically many times every day.”

With a custom solution, ADP supports Wyndham’s unique business structure in whichlarger properties have on-site HR, payroll and benefits administration operations, while smaller one receive these services fromthe corporate headquarters. The entire operation is managed via a common ADP platform, which gives Wyndham complete, system-wide information transparency and data access.

Frequent property sales and acquisitions create a fluid environment, one that the ADPrelationship complements perfectly. “Keeping up with the constant change is almost aseasy as flipping a switch. There’s a vibrant, ever-changing relationship between Wyndham and ADP,” says Sparks.¹

• DialAmerica

DialAmerica, a teleservices solution provider, conducts a subscription renewal programfor Highlights, a leading children’s magazine publisher. Having operated its own internal subscription renewal program for 25 years, Highlights recognized the challenges of conducting such a program internally and sought a resource that could interface with their subscribers at a high level and comply with stringent privacy guidelines. Most importantly, Highlights desired a partner that could make it feel like there was no change in who was conducting the promotion.

DialAmerica handpicked a group of telephone agents and put them through a training that was adapted from Highlights very own agent training. These reps receive rigorous training regarding Highlights’ business objectives, brand messaging and customer sensitivity.

This program continues today, with DialAmerica functioning as a fully integrated subscription renewal arm of Highlights.

In describing the DialAmerica-Highlights ThinSourcing Relationship, Vice President of Corporate Communications, Pat M. Mikelson, says, “As a vendor, DialAmerica is a true advocate for us. They listen to and understand our needs and work with us in a


proactive way to meet all of our objectives. The staff at DialAmerica is very responsive to what is most important to our organization – consistently giving us excellent results and service both within the call center and at the account management level.”

Further support for ThinSourcing as a valid business model comes from a September 2008 survey that DialAmerica in collaboration with the American Teleservices Association (ATA) recently conducted with 24 major U.S. companies that outsource over $300 million in customer acquisition and customer care functions. Among the key findings were these:

{ The number one reason for outsourcing functions – cited by 77 percent – was to enable companies to focus on their core business imperatives.

{ 94 percent said it was important that outsourcers have business experience in their industry sector.

{ 95 percent said it was important that outsourcers understand the rules and regulations of their industry.

{ 91 percent said it was important that outsourcers having an impeccable compliance record.

{ The number one concern in assessing the value of outsourced customer care programs – cited by 94 percent – was customer satisfaction.

{ 41 percent expressed dissatisfaction with off-shore outsourcing vendors.

Conclusion: Evaluating the Sourcing Continuum

This paper has discussed the continuum of sourcing solutions available to businesses today – from outsourcing to insourcing to the newly emerging option of ThinSourcing. In evaluating the sourcing solution that best fits a company’s business needs, the following questions may be helpful:

• What is the major goal for which a sourcing solution is needed, e.g.:

{ Reduce costs?

{ Enhance operational efficiency?

{ Improve quality?

{ Provide better customer service?

{ Focus on core capabilities?

• How discreet is the function or functions that are to be sourced?

• Would a customized sourcing solution be advantageous?


• Will existing corporate policies/practices make it difficult to source the function internally or externally?

• What legal/regulatory requirements govern the operation of the function?

• What reporting process will ensure transparency into the performance of the sourced function?

• How difficult will it be to staff, train and retain employees for the sourced function?

• How will customers be affected by the sourced function?

• How much management time will be required to oversee the sourced function?

• What technology requirements will need to be deployed to support the sourced function?

• What hard and soft costs will the sourced function add to, or remove from, the business?

• How long will it take to implement a sourcing solution?

• How will the sourced function’s productivity impact the larger organization short-and long-term?

• Will the sourcing solution potentially result in a loss of control, a reduction in quality or a diminution of customer service?

• Can the sourced function be fully integrated with existing operations?

In answering these questions, companies may well conclude that ThinSourcing represents thebest solution, as it most closely reflects a business’ own operating principles, practices andprocedures, while shifting the burden of managing/running a function to an outside vendor.


As companies look to improve their operational efficiency, serve customers more effectively, reduce costs and compete aggressively, ThinSourcing represents a powerful, growing solution – one that will likely be embraced by thousands of businesses in the future.

References & Resources

The following resources contributed to the development of this paper:

¹ Fortune Special Section (2003). An Inside Look at Outsourcing. Fortune Magazine.

² Donnelly, Sally B. (2004). Out of the Box. TIME Magazine.

Elizabeth E. Joh (2004). The Paradox of Private Policinghttp://www.questia.com/googleScholar.qst;jsessionid=LyyQ02tLHCy81JZRFLMtJ1DYN6TH0g1vvJjq2y5j67115vyRpnnF!-1469840406?docId=5008791036

Doscher, R. & Simms, R. (2001). The DialAmerica Teleservices Handbook. Chicago, IL: NTCBusiness Books.

Fowler, B. (2007). Is Insourcing the New Outsourcing? CSO Online.

http://www.csoonline.com/article/221017/Is_Insourcing_the_New_Outsourcing_/2

Frankland, D. (2007). The Direct Marketing Services Ecosystem. Forrester Research.

Friedman, T. (2005). TheWorld Is Flat: A Brief History of the Twenty-First Century. New York,NY: Farra, Straus and Giroux.

Gearhart, B. (2006). Insourcing, extending the capabilities of your Technical CommunicationDepartment. CIDM Information Management News http://www.infomanagementcenter.com/enewsletter/200612/third.htm

McGovern, G. & Quelch, J. (2005). Outsourcing Marketing. Harvard Business Review.

Overby, S. (2007). The ABC’s of Outsourcing. CIO Magazine. http://www.ciomagazine.com.

Wikipedia -The Free Encyclopedia, “Insourcing,” http://www.wikipedia.com.

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