Customer service can make or break some businesses. Yet customer service is something that businesses often outsource to companies like C3. C3 handles customer communications for corporations that see customer service as one of the most important aspects of their businesses. C3’s leadership team has about 30 years of customer management experience between them. C3 has locations spread throughout North and South America, Europe and Asia, but the company’s corporate office is in Plantation, Florida.
Sramana Mitra: Hi Rick. Let’s start with an overview of C3, your background and just some general context.
Rick Ferry: Sure, that sounds great. It’s one of my favorite subjects. C3 is a company that we operationalized about 20 months ago, in mid-April of 2010. We put the company together by bringing back together six partners who were together in a previous life at a company called Precision Response Corporation (PRC). The six of us had come together there. It was also an outsourcing firm, a BPO, if you’ll have it, that was begun in 1982. I joined that group of investors and entrepreneurs in 1993. We took the company to about $15 million a year in revenue. Over the span of the next six years, we took it from that $15 million up to about $50 million in revenue. We took it into the public marketplace to capitalize growth. We were fairly successful in the IPO and two follow-on offerings. The six of us still maintained majority control. Then in 2000, we sold that company for about $750 million to Barry Diller at what was then USA Networks. It’s now called Interactive Corporation.
It was a very successful venture. We were able to take the company from roughly 350 people in total in 1993 to about 22,000 people and a nice international footprint by the time we all left. We went in separate directions, and I ended up a few years later, coming together with some folks from Mumbai, India, the SR Group. Mr. Ravi Ruia was interested in putting together a plan to make an entry into the BPO space. If you’re familiar with the SR Group, they are part of the Pan-India industrial complex. They wanted to penetrate the softer side, the service business in BPO. So, we came together and bought a publicly traded company in the US called Aegis Communication Group. I took the post there as the chief executive officer. It was a failing company, losing quite a bit of money. It had about 1100 employees here in the US. Over the next six years, we were able to take that company, turn it around and add to it significantly. When I left two years ago, we were doing about $800 million in top line revenue.
After we left that, we saw a great deal of upside and a great deal of opportunity in the BPO space. We’re all serial entrepreneurs so we formed the company called C3. After about 20 months worth of operations, we are now approaching 7,000 employees with outsourcing facilities in Manila and the Philippines. There are four facilities here in the United States. We have a facility in Glasgow, Scotland and another facility in Sofia, Bulgaria. We are present in Dalian, China. We have a number of satellite facilities in Latin America.
The way approach the business is we take the approach that the customer interaction, on the business side, is the most valuable interaction and therefore, a rare resource. We put a lot of training resource into making that customer interaction as valuable and as lucrative as possible. We put a lot of effort into our training program. In fact, our training program as a stand-alone product offering is award winning. Back in October 2011, we, along with our client TMobile, were awarded the chief learning officer award for excellence in practical training worldwide. It was a nice kudo to get after being in operation for a relatively short period of time.
On the employment side, we also put a great deal of resource behind hiring the right people, and actually inviting people to join the company in the spirit of family values around the world. In fact, if you’ve seen some of our advertising, it surrounds the word love. It isn’t meant to be love in any sense other than just enjoying and being enthusiastic about what you do every day. So, the recruiting campaign and then the ethos by which we manage is everybody should love to come to work in the morning, love what he does all day, love the people he works with, love the company he works for and be pulling in the same general direction for success.
SM: What kind of outsourcing work do you do?
RF: It’s primarily complex customer service interactions and primarily voice.
SM: So, it’s a voice contact center?
SM: And the entire workforce of about 7,000 people, spanning some locations in the US, Philippines, Latin America, Bulgaria, etc. are all voice call centers?
RF: That’s correct.
SM: Let’s get some context on the business. In the US, what kinds of customers do you work with?
RF: In the verticals that we are involved in in the US include health care and the licensed and general customer service support in the health care industry. We also are involved in the telecommunications and financial services industries, and transportation and hospitality primarily.
SM: Fortune 500? Mid-market? What’s the size of the customers?
RF: Primarily Fortune 500.
SM: And outside of the US, what kinds of customers are you catering to?
RF: A similar footprint outside the US in terms of customers. In fact, most of our client base are with us here in the US and abroad.
SM: Does the Philippine call center cater to the US?
RF: The call center in the Philippines is supporting both US customers and local Philippine customers as well as customers from Australia.
SM: And what about Latin America? Is that a Latin American customer base or Latin America catering to the US?
RF: It’s Latin America catering to the US primarily.
SM: And Bulgaria?
RF: Bulgaria is actually supporting European activity.
SM: And what percentage of your business is European customers?
RF: The percentage of business in the Europe theater is about 10% of the overall book of business.
SM: So, the bulk of the business is still catering the United States, yes?
RF: It is. That’s correct.
SM: So, talk to me about how the call center industry, from a talent point of view, has evolved. And what are you doing to keep up with that evolution, lead the evolution, whatever way you look at it?
RF: Excellent question. The unemployment rate in the US, in point of fact around the world, probably in all geographies other than the Philippines, in which we operate, has escalated dramatically over the last several years. What happens in that period of escalation is the supply grows but also the level of sophistication of the workforce increases. What we found in our history, as we go through these cycles, particularly here in the US, is that many companies miss that significant point: the elevation of the sophistication of the workforce.
So, the workforce comes in, and there’s a higher level of education. And in return, their expectation is a higher level of training and development to be offered so that the training and development is actually more meaningful and therefore, more effective. Additionally, in our European operation, both Glasgow and Sofia, the workforce is highly educated. The unemployment rate in both of those geographies has led to many college graduates looking for work outside of their fields. But they are still excited and eager to get into an opportunity in the contact center and, by extension, the marketing disciplines that the contact center can provide background for. So, we’ve significantly upgraded our training and development staff in order to cater to and take maximum advantage of that resource that’s out there.
Our performance optimization group, for example, is a group that presents us with an opportunity not only to satisfy the needs I just described of that sophisticated workforce that we’re taking advantage of, but it also offers us the opportunity to provide a standalone product for prospective clients and current clients. So, we’re able to offer our training and development staff to that client base. It’s worked out well for us. We think it to be a unique approach to training in and of itself, just setting aside the unique attributes it provides for the overall call center business. The way we approach to training and development is unique.
Sramana Mitra: What is your sense of what will happen to the call center industry in the U.S. over this decade? Obviously, the cost structures are changing in Asia. For instance, the cost structure for India is changing substantially. There is some level of burnout going on because of the time zone issue. You can talk about what’s happening in the Philippines as well. What do you think is going to happen to call centers catering to U.S. customers, based on those dynamics, and what is a trend that you see?
Rick Ferry: Timely questions. What we see going on right now –I have to add a caveat by saying that this clearly is opinion, however well researched. It represents our opinions of the business. In Asia, outside of China, there is increasing pricing pressure. The arbitrage between North American and Asian pricing, albeit still sizable, is shrinking. It’s significantly less favorable than it was 10 years ago, for example.
To underscore what you’ve said, what we’ve seen in India in particular, is that there is a high level of turnover due in some part to the time zone issues, the countercultural issues, if you will. By that I mean what we refer to as graveyard-type issues where people are working overnight. It’s disruptive to a normal lifestyle, and that’s not for everyone. We’re also seeing increasing wage pressure as wages and salaries continue to escalate. To a lesser extent right now, in terms of its acceleration curve, we’re getting that a bit in the Philippines as well, although the Philippine economy is much more dependent on BPO revenue, so there’s a different cultural acceptance in Manila and in the Philippines at large.
The other dynamic that’s in play right now is a repatriation effort, for lack of a better word, of many applications that are U.S.-indigenous back to the United States for a variety of reasons. Some are more subjective reasons, and they are the reasons of having a greater affinity to culture. Others are more practical reasons. For example, monitoring, the progress of deployments in Asia may require staff to be kept on the road for extended periods. Some U.S.-based companies are taking a look at the time value and expertise of that staff, asking if it can be more effectively deployed in the U.S. And what’s the cost of keeping so many people in transit for such extended periods? How is that offset by some of the other factors that may cause them to repatriate?
We’ve seen a good mix right now. We’ve seen some U.S. companies in our client book going offshore for the first time. We’ve seen many more that are reconsidering their offshore deployments and pulling back into areas in the U.S. What we’ve done in particular is gone out to areas around the United States where for a number of different reasons, the areas may have been hit a little harder by the 2008 downturn. We’ve been able to go into these areas and find a wonderfully adept workforce that can compete on a cost basis with some of the international implementations. For example, among our centers here in the U.S., we’re located in Twin Falls, Idaho; in Tucson, Arizona; and McGregor, Texas. The biggest city that we’re in is Salt Lake City.
SM: What is the cost structure ratio between your U.S. call centers and a Philippine call center or a Latin American call center?
RF: For the U.S. versus the Philippines, in our best comparative on a cost basis, [the U.S.] is still about three times higher than the Philippines and about 2.5 times higher than in most of our Latin American sites. Sofia, Bulgaria, lies right in between. Glasgow, Scotland, is a bit more expensive than the U.S.
SM: What needs to happen? Is there anything that could happen policy wise that would give you a reason to have more presence in the US? Or are there geographies in the US where you could do better cost structure wise?
RF: I think so. And that really gets to the heart of the debates that go on around the world. I think that there will always be an offshore requirement. I really do. There are certain economic drivers that will always be economic drivers. For example, if we look at the Philippines, I think we’re a long way off for the pure economics to be unattractive in Manila. That said, there is a feeling on the part of some US companies that are off-shoring such as First Call Resolution, for example, are better affected in the US. That is an opinion, but many companies have a relatively strong feeling about that. If a call if off-shored, and the feeling is that it takes two or three calls to satisfy a customer’s concern because of a cultural difference, then the economics work favorably toward the US. But I think that moreover, there’s a fine line between economics and policy. [I question] the wisdom of dictating a policy that might create an isolationist type [atmosphere] in the BPO world. If economics are economics, there are those who take a hard stand, that say, “Jobs are being taken offshore and therefore, taken away from the US.” That’s a bit of an extreme position. I don’t that that’s a position that anyone should embrace.
The fact of the matter is, to find qualified labor, that is willing to work for what price the market will accept and without perverting the large client base, there just isn’t that labor available in the US today without going completely off the economic charts. So, there’s always going to be a good salary arbitrage that is available or for the next ten years, or for the time frame that we’re talking about, the rest of this decade, then for the next six years. I think that play is always going to be there. But there does have to be a reasonable mix. There are just certain cultural aspects where colloquialisms are used, where spending convention, credit convention, for example, is pertinent to the execution of a transaction. Sometimes that is lost a bit in translation when we go off boarder. We find that in Europe, for example, in our multi-lingual, multicultural center in Sofia, which is just blessed with a high level of education and sophistication with many people who have been educated outside of Bulgaria as well as within Bulgaria. When they’re speaking in language to a neighboring country, there are still cultural affectations that don’t come across clearly.
For relatively sophisticated local applications, there will always be the need. Now, that said, the environment in which we work can provide a great deal of relief to some of the areas in the US that are hard hit by significant unemployment. If the funding authorities at the local, state and federal governments were to come together to underwrite and offset some of the cost differences and some of the cost benefits that can be realized, companies like ours, in this industry can certainly provide a great platform to get people back to work, get people re-trained perhaps, and to get people into an area where a career path is visible.
SM: If you look at the industry, based on all the dynamics that you just described of what still needs to be offshore just because of the cost structure differentials and what can be reasonably in the US, how many jobs are you talking about? How many jobs can be in the US in this industry if proper training and proper policy or whatever has been worked out?
RF: My goodness, I wish I could calculate that finitely. It’s certainly in the hundreds of thousands, and it may be more. Just from a standing start, without taking business away from any of our folks that are now our competitors, we’ve created almost 7,000 worldwide, close to 4,000 here in the US alone, in less than two years. And we’re still building. By the end of this year, I fully expect that our US complement may be approaching 10,000. So, if you take us as just one relatively tiny company in the industry, the multiplication effect that you would have, just based on that one example is staggering. It can be a game changer.
SM: Now, talk to me about the training. Especially, in the political debate right now, it comes up all the time that there are plenty of jobs. There are not enough skilled people to fill them. Talk to me about that in respect to your industry, which has traditionally been quite good with on-the-job training. It sounds like your company in particular is focused on that.
RF: We are absolutely dedicated to that thesis. We think if we can accelerate the learning curve, make people feel comfortable about the job, take away that queasiness that all of us have when we’re starting in new jobs and, in this case, for many people, a brand new industry, then they become more comfortable, and they’re able to look at the different aspects of the job, the enriching aspects of the position more quickly.
To that end, and again, keeping in mind our conversation a little earlier about this whole community of love-what-you-do, love-who-you-work-with, love-the-company-you-work-for, we put that all together in our performance area using a technique that’s not entirely different from the music technique of the Suzuki approach to music from some decades ago. I’m sure you’re familiar with the story. Suzuki is a mathematician who had a love for music and went in and developed a mathematically precise approach to education. We’ve kind of gone down that same path but enhanced it a little bit.
We don’t do any types of PowerPoint significant, lecture-based learning, primarily to get people engaged in the educational process right from the beginning. We use – if you’ll forgive the simplistic nature of the description – a boot camp approach where everybody is involved. We all have to pay attention right from the beginning because we can be called upon at any given point in time to provide a spontaneous answer. The whole approach is getting the foundation established through rapid rote so that the basic abilities, the innate knowledge required becomes if not automatic, autonomic from a response standpoint, just from repetition. We make it fun. We’re fully engaged. And then on top of that, what it allows the student to do is then focus more on the conversation and the execution of the transaction. So, I don’t have to think about breathing, for example. That happens automatically. I can stop myself from breathing, but I don’t have to think about taking my next breath. That comes automatically. We do the same thing with the knowledge base, so that knowledge is inculcated into the environment early on. It’s got a rapid fire, high energy type of approach, full involvement, full engagement.
So, the students in the training class, by the end of the third day of training in a typical four-week training program, they absolutely have a solid background as to the rote portions, the basic knowledge that’s required to execute the job. Everything on top of that is refinement. Everything on top of that looks at why is the customer asking this question? What is in the caller’s mind? How do I project the empathy? Let me concentrate on being empathetic and sympathetic to the customer. Let me also concentrate on exploring the customer’s greater need, because if she has a greater need, and I define that greater need for her, then I’m able to promulgate more of my client’s product to the customer. It makes her a stickier customer and a more loyal customer.
That’s basically an approach to new-hire training. Well, we continue that throughout the employment life-cycle. We think that the continuous improvement process is necessary because it keeps moving the horizon. It provides a greater near-term, mid-term and far-term horizon for those people who want to stay with the company. And it encourages people to do that because they see at each step that they’re getting something more back personally. And it’s preparing them for whatever their next step in life might be.
It’s typically not a terminal profession, in the United States anyway. By that I mean people are coming to work in the environment, for the most part – probably 80% of the people, 75% perhaps – are coming in for a particular situation at a particular time in their lives. They’re coming to work because they have a particular need at a certain point in time. They are looking to bridge circumstances. But what we get out of that is during that period of time, if it is, in fact, to be finite, full productivity. And in many cases – even in our short history, and we found this in our last engagement as well – that when those people determine that they have to move on geographically, what they want to do is see if they can stay with us remotely. They want to stay with the training program and to see if there is an opportunity to seed a new geography.
Interestingly, over 90% of our promotions for our management jobs are fulfilled from within. That’s an impressive number. We also are engaged now in discussions with three major universities about expanding our relationships with the universities in order to take them to the next level and be able to offer people in our organization to matriculate in a degree program from fine universities that will definitely result in prolonging their stay with us. But also when they do choose to leave us, they leave much better prepared than when they came in. We think it’s a compelling story here in the US. We also are engaged in the wounded warrior program here in the United States.
Sramana Mitra: Let me clarify a few things. Universities are not known to train call center reps. What are you talking about?
Rick Ferry: Not so much training the call center rep per se, but training the student with a desire to matriculate in a related field. So, maybe in computer engineering, computer sciences, marketing, sales and marketing management, that type of thing. For example, take a specific vertical, hotel/motel management. There are many universities around the world, ranging from Ivy League universities like Cornell in Ithaca, New York, to the University of Glasgow, that have degree-oriented programs in hotel/motel management. They place very highly educated people throughout the world. Well, one of our core verticals is hospitality management.
It’s self-serving for the company, the university, and the client that we might represent to do something in concert with us. The other attraction for the university is when we’re dealing internationally, to have a United States–based university pulled into a relationship, with C3 as a mediator, to a university housed in the Philippines or in Bulgaria, there is some attractiveness to that. So, it is something that is self-gratifying for us.
Twin Falls, Idaho, is a wonderful case study because it is small-town America. It’s representative of more than of 40% of the population concentration in the U.S. The College of Southern Idaho is based there. It is a junior college that offers associate degrees. It’s a feeder college into the rest of the University of Idaho system. The student population, to me, was staggering. It’s more than 8,000. The administration at CSI is extremely forthcoming, cooperative, and engaged in building the local economy.
SM: For your kind of business to pair up with community colleges to do field development that flows directly into jobs is fantastic. That should be a core strategy for the United States.
RF: I could not agree more. I’ll tell you, the absolute perfect example of that is the CSI, College of Southern Idaho. When we originally had our start-up in Twin Falls, we were hiring somewhere just shy of 1,000 people. So, we only had so much training space, even though it’s a large facility. There’s only so much training space available. CSI offered us the training space. They offered us the support of the faculty. That support was not only offered in program content development, but also instructional assistance. We are discussing with them now, putting parts of our training curriculum into their overall curriculum, and then offering at least a certificate-level program. It really helped out the community, and they are a tremendous partner.
SM: As I listen to you, I’m thinking what I would really like to understand is what are the verticals where there are specialized cultural nuances that favor U.S. call center reps.
RF: A good question. The first thing that pops to my mind would be health care. Navigating through the complex and nuanced U.S. healthcare system really does require a lot of knowledge that has to be somewhat a part of the people coming into the workforce. It is unique to the U.S. Many of the large health care providers have attempted to go offshore. Some have been successful, most have not. There are also some regulatory issues that requirements of certain states to have the health care formats serviced here in the U.S.
Although the financial services industry has enjoyed a great deal of international and offshore support, there are products in the industry that have a great deal of local nuance to them, especially the meltdown on the mortgage side since 2008. There are many mortgage providers, mortgage underwriters, and banking institutions that feel compelled to keep business in the U.S. because of the cultural issues.
With certain academic programs, there’s a feeling they need to be kept here as well. They are part of the local culture.
Sramana Mitra: The sectors that you talked about, are these sectors that you have major strategies to penetrate with onshore offerings?
Rick Ferry: Yes, we do. We identified those fairly early on. We’re working with the companies that have accepted our services, thankfully, not only to bring them up here in the U.S. and do the best job that we can do for them here, but also because there are certain subsets of those programs that we can’t offshore. Then when you blend that type of rate, there’s a significant savings that can be represented by blending. That’s another approach to the strategy. I don’t think any strategy has to be a one-way strategy. It doesn’t have to be an all-in type of strategy. There are certain parts of any of those applications that I just spoke of outside of the ones that have a regulatory requirement to be serviced in the U.S. that can be bifurcated.
We can take some of the applications that require the cultural affinities and keep them in the U.S. Yet there are others that don’t have that requirement that can be executed on a lower economic basis offshore. The reward for that comes back to the client organization where – and a lot of us missed this in the overall analysis – if it becomes less expensive for a client in the U.S. or anywhere in the world to offer customer service, he can return that money to the bottom line and put it back into the company, thus increasing the level of spending in the company on aggregate. That creates more jobs in whatever region company is located.
SM: I’m interested in exploring where U.S. job growth is going to come from. Right now, we’re in a dire situation, and we do need to find pockets where there can be job growth in serious numbers.
RF: I couldn’t agree more with that.
SM: Personally, I’m not a believer in protectionism. But at the same time, the U.S. is in a pickle. Something has to be done.
RF: I agree. I’ll give you a good example of how attitudes are changing. About five years ago, I was with another company. I went to the capital of one state, and I had the need to build a call center that would eventually, and relatively quickly, employ about 1,000 people. I sat with the governor’s office, and they came back and told me, “We really can’t offer you any incentives because you are bringing jobs to the state that pay less than $12 per hour.” So, they couldn’t give me any incentives or help with defraying any of the construction expenses. They thanked us very graciously and sent us away. Now, five years later, that same state is offering incentives that are extremely attractive to bring in any type of work the state can bring in.
SM: I think it’s a smart thing for them to offer incentives. What kind of incentives are they offering?
RF: They’re offering payroll tax relief, real estate tax relief, and an underwriting of the build-out, which is expensive, as you might imagine, and a certain amount of incentives for training people for each trainee who comes to the company and is still employed with it six months later.
We found that some states would offer incentives in smaller areas that were economically deprived. But now what we’re finding is more states are getting more aggressive and more progressive in their look at what this industry can do in terms of job creation and the impact of those jobs on the local economy.
SM: That’s good. I’m glad to hear that somebody is at least thinking about these things. I spoke with a couple other companies that are creating large-scale jobs. One of them was in Atlanta. That person said there was no initiative from the government to offer the kinds of incentives you were talking about, payroll tax relief or something that is a direct incentive that helps to balance out the ratio disadvantage you have with the choice of going offshore. Although I did hear of other Georgia companies that were offered incentives.
Helping find office space and such, to me, is not a hard-core, bottom-line-driven incentive.
RF: I would agree. The real P&L-impacting incentives would be the payroll tax relief.
SM: Yes. The numbers are large. If you’re going to create 1,000, 2,000 or 5,000 jobs in a particular state, payroll tax implications are huge.
RF: They really are staggering.
SM: Would you talk about what your traditional payroll tax has been in various U.S. regions?
RF: Sure. The overall payroll taxes, including federal taxes, are usually 11% to 12% of all monies paid out. So, the multiplier becomes fairly large. In Salt Lake City, for example, we have 1,200 employees, 900 in Twin Falls, Idaho and another 860 or so in Tucson. So, when you start multiplying that out, it gets to be a significant number fairly quickly. And we’re not the largest employer in any of those areas other than Twin Falls. Our industry brethren are out there in good size as well.
SM: Shaving 10% to 12% off the P&L is big.
RF: It’s huge, yes. The payroll component of the P&L on the expense side is almost 70%. So, if I can take 10% of the 70% and drop it to the bottom line, it’s a game-changer on my profit and loss statement.
SM: Absolutely. Well, this has been an interesting and timely discussion given where we are today. Thank you for taking the time.
RF: It’s my great pleasure. We’re honored and humbled that you thought of us.