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Table of Contents

How to Select an Alliance Partner

Remote Customer Service Agents Make Call Center A Big Hit With Clients

The Critical Success Factor of Managing Growth

Outsourcing's Role in the Delicate Balancing Act Between Growing and Shrinking

Outsourcing Makes Virtual Management Real

When a buyer and a service provider agree on an outcome and then craft an outsourcing agreement to reach that result, both parties benefit handsomely. A recent insurance engagement serves as a blueprint for how to find the appropriate alliance partner and structure a win-win transaction.

With the relaxation of the 1933 Glass-Steagall Act, which did not allow banks to sell securities and brokerage firms to become bankers, the lines between financial service providers are blurring. Currently, banks can sell insurance, and insurance companies can sell stocks and other financial services. However, both groups must learn new skills and develop new products. Both aim to become a one-stop, full service financial services company for their respective customers.

Many of the agents of an Everest Group client - a large insurance company - wanted to sell new financial products to their wealthy customers. In insurance jargon, anyone with $1 million in assets, excluding their primary residence, belongs in the "advanced market." This insurance company had few of the new products available to sell to this group.

Time to Market Drove the Decision

Time to market was a critical consideration in determining how to enter the advanced market. Today, the baby boomers are concerned about their imminent retirement as well as financial planning for their estates. According to the Spectrem Group, a Chicago, Illinois-based research group specializing in the affluent market, 47,000 people became millionaires every month during 2001. It estimates $12 trillion of "intergenerational wealth" will transfer from parents to their children in the next 20 years.

This is a huge group with a vast amount of money. Currently, these wealthy customers have to visit their lawyers, accountants, stockbrokers and life insurance agents to come up with a cohesive retirement and estate plan. But the agents of the insurance company felt they could handle everything themselves...if they had the right products.

Marketing wasn't an issue, since the insurance company estimated that 25 percent of the advanced market was already its customers, having home or auto policies. The agents figured they could crack the advanced market just by approaching their current customers.

How to take advantage of a great market opportunity in a hurry was the question.

Outsourcing Passes Risk To The Supplier

Everest's client had never outsourced its product development before. But the advanced market was a new arena. Although the company believed serving the advanced market would be a successful strategy to increase its competitive advantage, there was no guarantee of the results. Moving into new territory was risky. It wanted to invest as little money as possible until it had market signs these new products would sell.

Because baby boomers aren't getting any younger, the insurance company knew it had to move fast. But its internal IT group said it would take between three and five years to build the programs for these services. That was too long to wait. Management realized the baby boomers would have selected another provider in that timeframe. It had to move immediately.

Additionally, because insurance companies are regulated by the state in which they do business, the company would have to obtain approval from every state's insurance department for each new product the company offered. As this process is typically frustrating and slow, outsourcing to a company that already had approval for its products would remove this hurdle.

It was clear the insurance company had to outsource to solve this business challenge. It decided to outsource development of the advanced market products it needed to a service provider who could enter the market quickly because it already had the necessary approvals and experience.

The second requirement was sales support. The insurance company agents, (stars at property and casualty products) were uncomfortable talking about charitable giving and estate planning. (It's like asking an obstetrician to perform heart bypass surgery.) The service provider's sales staff needed to be NASD-registered representative who could support the agents. The agents wanted to present their clients' individual situations and have the service provider prepare a proposal that addressed their problems.

Selecting A Strategic Business Partner

The insurance company set out to select what it considered a strategic business partner. Everest helped it to focus on a limited number of potential service providers. Five bid on the package after release of the Request For Proposal (RFP). There were four supplier presentations, and final negotiations with two service providers before awarding the work to its new strategic partner.

In addition to a great cultural fit, the service provider agreed to provide the requisite reports for all requests and only be paid when an agent actually writes a policy. The service provider doesn't receive a dime if the client rejects the proposal. This is motivational for the service provider and cost effective for the buyer.

The outsourcing partnership benefits the service provider in that it eliminates the need for expensive marketing campaigns for the new products. The insurance company agents already know the clients who qualify for advanced market service and have established relationships with them. The service provider, therefore, recognized it wouldn't waste time doing reports for people who don't qualify.

A key success component for this outsourcing arrangement necessitated the insurance company curbing its haste. Recognizing no service provider could handle the volume of requests from its thousands of agents if all of them called on day one, the insurance company agreed that only its top selling agents in its winner's circle 200 in all -- could use the service at the outset.

Also, the insurance company agreed to a 12-month pilot program to reduce the volume of requests in the early days. The insurance company selected two regions and introduced the program slowly. Although the buyer was in a hurry, it realized it had to give the service provider time to learn how to work with the buyer's agents.

The year-long pilot program worked well. The nationwide rollout will begin in the third quarter of 2002.

This was a win-win situation for both parties. They viewed their outsourcing agreement as a strategic alliance and structured the deal so both could prosper. And that's exactly what's happening.

Lessons from the Outsourcing Journal:

• Achieving the buyer's and service provider's goals has a higher success rate when both parties determine an outcome and then jointly work toward it.
• Both sides have to make concessions to make the arrangement work.
• Outsourcing may be the best way to solve time-to-market problems, especially in the insurance business where regulatory approval and product development can take a long time.
• This outsourcing alliance allowed each company to leverage its partner's sales channel.
• Finding a good cultural fit is important in making alliances work.

Publish Date: June 2002

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Copyright © 2002 - Everest Partners, L.P.

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