Deciding When to Outsource

As if it weren't enough making sense of the FCC, placating zoning boards and fending off competitors, being a successful wireless carrier first means being a savvy businessperson.

Michael Penn, Enterprise Communications director of sales and marketing, is preparing for a late third-quarter launch of PCS in two Georgia and Alabama markets. Building an entire system from scratch is consuming enough capital and personnel, so Enterprise, like both established and start-up wireless carriers, is looking to outsourcing as a way to cut costs.

"It's going to cost me a quarter-million dollars for a modest call center," Penn said. "Five years down the road, that's nothing. But right now, I'm a start-up, and that's a lot."

In order to make the most effective and efficient use of its resources, Enterprise is considering outsourcing telemarketing, billing and collections. Cost is the main consideration, Penn said, "but it's also the best way to use manpower."

A favorite saying in the outsourcing industry is, "Do what you do best, and let others do the rest." Farming out adjunct operations, such as call-center management, marketing and billing, makes good business sense because it allows you to focus on your core business: providing wireless service to your customers.

"It's picking up a lot," Yankee Group analyst David Berndt said of outsourcing. "In certain areas, it's the way most carriers do business."

Outsourcing offers several advantages, including:

*Greater flexibility and responsiveness. An unlimited sales staff, for example, means being able to roll out new products or enter new markets quickly.

*Precise budgeting. Depending on the contract with the outsourcing company, an unexpectedly busy holiday season, for example, doesn't mean having to hire additional sales staff.

*Efficient management. With another company handling day-to-day operations, you are free to focus on core operations.

CUTTING COSTS Outsourcing ultimately is about cutting costs, even when the intention is to get expertise that isn't available within the company.

"If I'm going to run my own billing system, I'm going to need some software engineers who focus exclusively on billing," Berndt said. "That's a waste of my resources. There are so many changes going on in the market that the carriers can't afford to keep the staffs on hand to keep their in-house billing functioning."

Until a few years ago, most industries mainly saw outsourcing as a way to cut costs. Today, outsourcing companies are landing clients based more on their expertise and less on their bids.

"One of the reasons that companies are outsourcing is to gain access to outside expertise and technology," said Anne Gilroy, The Outsourcing Institute director of strategic communications.

One company looking to ride that trend is Dean & Company, which in May announced it was joining forces with LCC International to provide support services such as network monitoring, inventory management and leasing. Dean & Company estimates that wireless carriers can reduce their expenses by 20% to 30% by letting specialists handle back-office operations. A small carrier, for example, can take advantage of the economies of scale when its operations are pooled with those of other carriers who use the same outsourcing company.

"You get better use of the assets," said Jim Smist, Dean & Company executive vice president. "You get better utilization of the people. You get a lot more benefits by having a large-scale operation. And I think that logic will hold to quite a bit of the operations that they provide for themselves."

Smist said he thinks outsourcing will prompt carriers to reconsider how they define their core operations.

"I think you could have the envelope as broad as operations and assets management," he said, envisioning a day when carriers might begin outsourcing their network-operations centers and field services. "I'm not sure it's going to be even two years on some of these things."

Smist said wireless is starting to mimic the information-technology industry, where outsourcing network operations became commonplace as competition mounted.

"People were seeing that it wasn't core to their business," he said. "It was a large cost area. And as soon as margin pressures began to mount, people had to look for ways to manage costs better. Outsourcing became a very interesting option."

The same could happen with wireless as more carriers start up, in turn driving down price points. Maintaining margins will mean closer scrutiny of how costs are managed, and outsourcing will continue to be an attractive option. Ultimately, operations that currently are outsourced, such as customer service, might eventually be brought back in-house. As carriers are less able to distinguish themselves in terms of coverage and technology, they will look to customer service to differentiate themselves.

TURNKEY & START-UP Among the latest buzzwords in the outsourcing industry are "growth-enabler" and "change agent." They reflect the shift away from outsourcing strictly as a means to cut non-revenue-producing overhead.

"We've noticed a considerable change in the last couple of years," said The Outsourcing Institute's Gilroy. "Now, outsourcing is practiced by organizations of all sizes. For many of the smaller and mid-size companies, it's actually a growth-enabler."

Turnkey operations can provide a convenient way to hit the ground running.

"A small, start-up PCS doesn't want to spend a million-plus to put together its billing system when it can go to a CBIS or a SEMA Group or an EDS," said The Yankee Group's Berndt. "Instantly, I don't have to worry about all that software and expertise. So it cuts down on the non-essential things involved in launching a service."

Some wireless companies are supplementing their sales staffs through outsourcing in an effort to remain flexible during seasonal peaks or new-product roll-outs. "Rent-a-reps," as they are sometimes called, also can help when there is a need for local expertise to reach new markets.

Last Christmas, in an effort to increase its visibility and sales in the Baltimore-Washington area, AT&T Wireless hired Sales Staffers International (SSI) to operate an aggressive sales campaign. AT&T trained 50 SSI salespeople, who then ran the company's kiosks in Circuit City and Best Buy stores. The campaign increasedretail sales by 11% in three months, according to Sales Staffers CEO Robert Stockard.

AT&T opted to use finesse rather than force by going with a small, tightly focused strike force instead of renting a couple hundred extra reps for aggressive but broad campaigns.

"We're seeing more and more customers come to us and say, 'Give us 20, 30 people' for longer periods of time, rather than the 60- or 90-day scenario," Stockard said.

Whatever the approach, successful outsourcing requires three things: clearly defined objectives for what you want to achieve, an outsourcing company that is experienced in its field and a contract that is flexible enough to accommodate changing technology and circumstances. As Berndt put it: "What are we doing? We're in the business to provide wireless communications, and anything that isn't consistent with that focus can be outsourced."

According to The Outsourcing Institute, companies use outsourcing to:

1. Focus on core operations, especially in the face of shrinking profit margins or cutthroat competition.

2. Reduce operating costs by leaving specialized and therefore costly operations to the experts.

3. Improve adjunct operations, such as customer service and telemarketing, that have suffered from a lack of funding because they siphon off resources from the core business. At the same time, turning them over to companies that specialize in those areas means those operations can take advantage of the latest technologies and methodologies.

4. Get access to resources and expertise not available in-house.

5. Increase the resources available to core operations.

6. Increase capital by selling software and equipment to the outsourcing company.

7. Free themselves from operations that are difficult to manage or out of control.

8. Reduce risks, such as investing in new technology.