Outsourcing analytics has pros, cons for customers

Nearly buried in customer data, many companies are hard-pressed to get a good fix on their social analytics. Some companies find that they need to give the job to someone else.

Nearly buried in customer data, many companies are hard-pressed to get a good fix on their social analytics. As a result, some companies are finding that the only way to make sense of this information overload is to give the job to someone else.

Industry experts agree that outsourcing customer social analytics is a good plan for most companies, as long as they do not hand over the strategic component of assessing trends, identifying issues and creating action plans based on those results.

Further, some analysts suggest customer analytics outsourcing may be a good short-term or ramp-up strategy, but it may not be cost-effective or strategically sound in the long term. The up-front investment in training staff in social media skills is costly, but once data analysts and customer service staff become proficient, the investment goes down. Outsourcing costs, however, tend to increase over time, as vendors charge more for their services.

“The reason some people don’t do this is it is expensive,” said Zach Hofer-Shall, an analyst with Forrester Research Inc. in Cambridge, Mass. “Reports can cost from $15,000 to $150,000 on a single report basis. Or monthly, you may be paying under $10,000, but that will get very costly over time.”

Companies need to clearly determine which pieces of the analytics job are best given to a third party and which belong in-house. If a company outsources the entire operation, “it takes a company a step away from the data analysis,” Hofer-Shall said. “The vendors are getting good at strategic guidance, but you still need an internal touchpoint.”

Give the outsourcer the heavy lifting

Hofer-Shall and other industry observers recommend turning over the heavy lifting of customer analytics, such as the data collecting and reporting. For example, Hofer-Shall said one of his retailer clients uses an outside vendor to handle the job of listening on social channels. By offloading the day-to-day listening to a third party, the retailer has the time to analyze the data and use the information to make changes to its stores.

“The upside is, theoretically, the company that you've outsourced to is an expert in the area and will do more refined, sophisticated and accurate reports and will also be sure that the data is clean and of high quality,” said Paul Greenberg, president of consulting firm The 56 Group in Washington, D.C. “The downside is that you're exposing valuable data and highly competitive results to a company that isn't you.”

But many companies do not have social analytics expertise in-house, and that is precisely why they look for outside help in the first place. In addition, companies often need to quickly ramp up a customer analytics campaign, and third parties may be the fastest way to make this happen.

“The tools are getting easier to use, but someone still has to get into it and understand the algorithms, and those people can be hard to find,” said Rebecca Wettemann, a vice president at Boston-based Nucleus Research.

Create in-house expertise while outsourcing

Forrester’s Hofer-Shall said companies can build “social intelligence” on staff even while outsourcing to develop this skill set over time. He said a company needs to designate a project leader, who could come from either the customer service or marketing segments of the business, to spearhead a small initiative. Then, that leader should be supported by a data analyst and a report administrator. As a team, the employees can tackle a focused customer analysis effort.

“This could be one person doing all of this,” Hofer-Shall  added, noting that some companies may lack the funds to set up a formal group but could still kick off a social-intelligence initiative with one in-house go-to person.

Outsourcing customer reports is not new, and companies have long relied on third-party vendors, including research, advertising and public relations firms, to conduct surveys and focus groups. Text analytics and listening tools are also not a new phenomenon. But the difference now is the sheer volume of customer data on social channels that must be filtered and turned into actionable results.  

“Sometimes, you can sit down at one of these dashboards and you can be struck by thousands of conversations,” Hofer-Shall said. “It is really time-consuming.’’  

Wettemann of Nucleus Research said she believes the cloud computing trend could boost interest in outsourcing customer analytics. Many companies are now more at ease with the concept of allowing a vendor to host their applications or data.

“We are seeing a change now with people putting their data in the cloud, and so now they feel more comfortable with someone else doing [analytics],” Wettemann said.

 Even within the cloud model, however, companies should not take a hands-off approach to customer analytics. Wettemann cautioned that companies need to make sure they are still able to “access their data and do their own modeling.”

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