Should You Outsource Data Warehousing: A Checklist

Increased competition and a sluggish market have produced a scenario in which catalogers must embrace and preserve their customer base. Indeed, creating loyalty and optimizing each customer’s profitability are the key ingredients to growing your corporate revenue and ensuring your company’s long-term health.

But nurturing customer relationships is no small feat. With customer bases in the hundreds of thousands—or even in the millions—determining the amount of attention to pay to each customer interaction can be daunting. The task leads many business executives to implement an advanced technology infrastructure and targeting strategy for each communication or transaction.

However, developing that ability can be an expensive and confusing endeavor, involving new customer database design and implementation; advanced analytical processes; and methods to leverage data and knowledge through traditional and electronic channels of communication and commerce. Trying to build these capabilities internally often leads to ineffective customer relationship management (CRM) applications—and sometimes overall failure and consequent financial losses.

CRM Operations

These and other issues are forcing some executives to consider another option: outsourcing some or all of their CRM operations. Following is a checklist to help discern if outsourcing is right for you.

* You crave speed to market. Everything takes time, often more than expected, when implementing new CRM applications—time most catalogers don’t have. Effective CRM implementations may involve the following tasks: deploying new hardware; selecting software; centralizing customer data; training existing staff or hiring new CRM experts; integrating communications channels among departments; and reconfiguring legacy systems and applications.

Outsourcing some or most of these activities may facilitate the process, enabling companies to be operational in 10 percent to 25 percent less time than building the same operation internally.

* You require operational freedom. Catalogers must focus on critical resources based around their core business. Becoming an expert in CRM operations isn’t easy. Although properly handling customer relationships has a positive impact, achieving this operationally—day in and day out—may not be within the core competency of your organization. Outsourcing CRM activities may help.

* You want to boost performance. Time-proven methodologies can help you achieve positive return on investment (ROI) from CRM initiatives. These methods often require expertise in practices and disciplines not present in your staff.

Also, legacy systems, a confusing CRM marketplace, archaic processes, disparate departmental responsibilities and corporate silos handling various channels of customer interaction all challenge the effectiveness of a CRM operation. Outsourcing may help you achieve a positive financial impact by applying more expertise and taking many of the internal corporate issues out of play.

* Financial flexibility is paramount. The entry cost for an in-house CRM infrastructure (e.g., staff and applications) can be substantial. In fact, up-front investment in the millions of dollars is normal. When you add in the time for implementation, ROI may take years. Outsourcing companies often mitigate most or all of the up-front costs for annual commitments from companies. With an annual commitment, a cataloger can budget a CRM investment. And since an outsourcer’s technical infrastructure, staff and applications are leveraged, the client company’s annual expenses and fixed costs can be reduced dramatically.

* You want to reduce risk. With no capital expenditure on software, hardware and personnel, catalogers either can test or fully engage new technologies and methodologies with minimal impact to their existing environment and bottom line. Adding the experience provided by an outsourcing facility and its responsibility to the client to make the program a success reduces the overall risk to a cataloger as well as to managers making critical CRM decisions.

* Scalability is crucial for future growth. As companies ease into more sophisticated CRM operations, it becomes difficult to budget for current needs, plan for future operations and keep immediate ROI goals intact. This can lead to a CRM implementation that isn’t scalable for future requirements.

As a cataloger expands its CRM activity, systems often must be replaced, requiring more investment, usually exceeding what normally would be invested. Outsourcing CRM may help a cataloger avoid this dilemma be enabling a company to scale up or down as needed, without the penalty of further investment.

In short, while a primary concern is to create loyal and profitable customers, achieving this through internal operations may not be financially feasible or even necessary.

Data Warehousing

Similarly, while many viable arguments can be made for outsourcing a data warehouse, none offer the type of long-term stability and business sense obtained from an in-house option. Following is a summary of the advantages of building your data warehouse internally.

* Stability derives from a long-term and continuous system operation in an environment controlled by an organization. We’ve all read of, and many of us have experienced, the difficulty of the Application Service Provider (ASP) model for various outsourced technology offerings.

To attract customers, ASPs must price aggressively, and often will price services at a loss intending to make it up in volume. As such, you can assume the following: (a) the outsourcer must buy the same hardware, software and support infrastructure you would to in-source the solution, and (b) to achieve a cost savings from scale, your system and data either will be commingled with those of other ASP clients, or the system will be under-powered.

* Scalability means a system can support growth commensurate with a company’s success level. Historically, this has implied data scalability (i.e., the ability to house and support increased data in the warehouse). But there’s one critical issue to consider: It doesn’t incorporate the scalability needed in the transport mechanisms for the data.

Data volumes will continue to grow. Particularly with Web log data or other event-based, high transactional count sources, organizations are seeing the need to process tens of gigabytes of data per day. How will you transport that data to your out-sourced service provider? If your warehouse requires only monthly loads, a tape mechanism may work fine. But if you require daily or more frequent loads (particularly as your warehousing operations become more “real-time”), the update frequency for large amounts of data dictates very high bandwidth transport mechanisms.

* Solidarity implies that a cataloger’s needs are understood implicitly and factored into every design, support and operational decision made by warehouse administrators. Internal support organizations may provide better support than an outsourced provider. But owning the warehouse support means the business consistently retains both responsibility and accountability for the continuous operation of the warehouse and can respond appropriately when faced with a new business challenge.

* Security serves as the clincher to the in-house argument. Information remains the lifeblood of the modern business, and any loss of control of a company’s information clearly represents a competitive, not to mention a legal, risk. Virtually no security paradigm can be guaranteed 100-percent safe in this modern age of hackers and unknown software faults. With a solid organizational focus on security, however, you can minimize your risks from outsiders by keeping data safely behind your corporate firewalls, secured by your employees on your hardware.

Of course, we can’t state unequivocally that there’s never an appropriate time to outsource portions of your data infrastructure. For most companies, an in-house plan remains the long-term option for success.

And as for your CRM initiatives, outsourcing all or part of those operations to companies that have the infrastructure, applications and expertise often can be the most cost-effective and efficient way to go.

Gene Ferruzza is president of Quaero SpringBoard, a service that addresses companies’ needs for strategic customer communication services without incurring large up-front costs. Steve Meyer leads Quaero’s data warehouse implementation services practice. Some of Quaero’s clients include The Limited, AT&T, Sprint and JP Morgan Chase. For more information, call (877) 570-2199, or visit www.quaero.com.