Organizational Governance Organizational Governance

Why Outsourcing Customer Service Kills Purpose-Driven Brands

In 2013, TOMS made a terrible mistake: We outsourced Customer Service. If you’re building a purpose-driven business and considering a major “cost-cutting” decision, please learn from our mistakes. The “soul” of your brand may be at stake!

By Jake Strom | Published 4 years ago | About a 7 minute read

In 2013, TOMS made a terrible mistake: We outsourced Customer Service.

Like the Portland Trailblazers selecting Sam Bowie in the 1984 NBA draft, TOMS’ outsourcing decision might have turned out well. Lest we forget, Bowie was a tantalizing prospect at the University of Kentucky — but he also had the bone density of aluminum foil … and was drafted one spot ahead of a guy named Michael Jordan.

Turns out, in the shoe business — as in professional basketball — the best laid plans don’t always work out.

In the sections that follow, I describe why TOMS outsourced Customer Service; how the mistake could have been avoided; and more broadly, why “remarkable” brands apply tender loving care to every customer interaction. If you’re building a purpose-driven business — and considering a major “cost-cutting” decision — please learn from TOMS’ mistakes. The “soul” of your brand may be at stake!

Background

Fueled by the AT&T commercial, TOMS experienced hyper-growth from 2009 to 2012. During that period, we:

hired 200+ employees
became the #1 best-selling shoe brand at Nordstrom (by units sold)
received 14,000 applications for a Summer Internship program with 20 positions
upgraded from a rickety Santa Monica warehouse to the company’s first “professional” office (Hello, working printers!).

While TOMS was extremely good at selling shoes, we frequently experienced hiccups with the less sexy aspects of the business — particularly Supply Chain and Customer Service.

Heading into the 2012 holiday season, the Customer Service Department’s KPIs were dangerously concerning*.* On average, returns and exchanges took 15+ days to be processed. During peak calling periods, customers frequently waited 20+ minutes to speak with an agent. The department’s challenges — initially glossed over by TOMS Leadership Team — soon became the company’s most urgent problem.

The problem

A myriad of factors combined to create TOMS Customer Service’s struggles:

Technology: In 2013, TOMS.com utilized the e-commerce platform Magento. Unlike the plug- and-play solutions now available, Magento circa 2013 was woefully inadequate for a business scaling as quickly as TOMS. Because of Magento’s limitations:

Customer Service Agents (CSAs) required specialized training to learn a complex and non- intuitive system
CSAs manually processed EVERY return and exchange
Managers lacked automated tools to track CSA performance (ex: What percentage of returns and exchanges did John process correctly?)

TOMS’ e-comm department was actively working on replacing Magento; but given the project’s immense complexity, the new platform wouldn’t be ready for 9-12 months.

Manpower: At the most basic level, the CS Department needed more people answering phones, responding to emails, and processing returns and exchanges. If staffed properly, the department could have made the best of Magento — albeit, in an inefficient/costly manner. By conservative estimates, the department needed to expand from 20 FTEs to 50+ people.

Second-class citizens: Because of how backlogged Customer Service was, TOMS’ Leadership Team made the cringeworthy decision to exclude CSAs from the company’s beloved, camp- themed “All Staff” retreat. While other employees partied at Camp TOMS, CSAs were stuck at TOMS HQ processing returns and exchanges.

For already overworked and stressed-out employees, missing Camp TOMS created deep resentment. CSAs worked in the same building as TOMS’ salaried employees — but felt isolated and mistreated, relative to other departments.

Morale: Due to overwork and the intensity of the job, several CSAs began experiencing stress- related medical conditions. Once-passionate employees became disgruntled and burned-out; and in many cases, left the business to pursue other opportunities. The situation was unequivocally bad for employees, customers and the company’s financial bottom line.

Our solution

After evaluating multiple options (ex: staffing-up full-time employees; hiring an influx of part- timers; opening a dedicated call center in Las Vegas), TOMS’ Leadership Team decided to fully outsource Customer Service to a 3rd-party vendor.

Like a scene from Up in the Air — minus the charisma or handsomeness of George Clooney — TOMS’ HR Department unceremoniously fired the majority of CSAs, re-assigned a handful of employees to other departments, and retained one CS Manager to assist the outsourced vendor.

Outsourced agents in New Mexico and Florida now handled the entirety of TOMS Customer Service. The new representatives weren’t TOMS employees, didn’t participate in “All Staff” events, and would never experience international Giving Trips. For TOMS’ Leadership Team, the “Customer Service problem” was fully out-of-sight, out-of-mind.

Ramifications

After a few initial hiccups, the outsourced partner solved TOMS’ immediate Customer Service needs: Agents responded to emails and phone calls in a timely manner. All backlogged returns and exchanges were processed. The department expanded its hours of operation, and began offering support in Spanish. Muy bien!

In the longer term, however, outsourcing Customer Service created deep collateral damage that continues to haunt TOMS’ business/culture:

Employee morale: When a business talks of being a “family,” but lays off an entire department with calculated precision, employee morale tends to precariously decline. Put another way: If your once-beloved employer was suddenly more concerned with profits than people, how loyal would you be?
Social proof: Consider a cynical customer asking the question, “Does TOMS really give shoes to children in need? Given an FAQ sheet, any outsourced agent can regurgitate the correct answer (“YES. With every pair of shoes you buy, TOMS gives a pair to a child in need*.”)

Now, imagine an alternative scenario, where the CSA just returned from a life-changing Giving Trip. What could have been a short response instead becomes an engaging conversation — with the CSA enthusiastically sharing his/her favorite Giving Trip memories. By conventional metrics, long customer service calls are “inefficient” — but is there any doubt which interaction is more “remarkable” and/or likely to increase brand loyalty?

Movement vs. Business

At its best, TOMS is a movement that turns customers into fans and evangelists. At its worst, TOMS is a business that offers deals, discounts and promotions to sell shoes.

Businesses prioritize revenue growth over everything else. Movements stand for something that matters, and actively recruit believers to join their cause.

Revenue-obsessed businesses worry about losing customers to copycat competitors. Movements grow because of the dedicated action of obsessed followers.

With that in mind: Does outsourcing Customer Service feel like the thoughtful action of a people-focused Movement? Or the cost-cutting decision of a transactional Business?

Revisionist history

With the benefit of hindsight, I would have solved TOMS’ Customer Service problem in the following manner:

In-house employees: No outsourcing companies — either domestic or international — would be utilized. Instead, the CS Department would be comprised entirely of full- and part-time TOMS employees. During the holiday season, Customer Service would ramp up with additional part-timers.

All full-time CSAs would attend a Giving Trip after their 1st year of employment; part-time CSAs would attend a Giving Trip after their 2nd work anniversary.

The Customer Service Department would remain a “farm system” for the rest of the company. The most hardworking + passionate + knowledgeable CSAs would be handpicked for promotions within the business.

Technology: In the short term, extra manpower would compensate for Magento’s limitations. In the longer term, the e-comm department (working closely with Customer Service) would continue the arduous process of re-platforming.

Dedicated home: In 2012, TOMS moved from our “rustically charming” Santa Monica warehouse to a new office in Playa Vista (10 minutes away). In retrospect, I would have retained the warehouse lease, converted the space into a dedicated Customer Service Center and transitioned all other departments to Playa Vista.

With two offices in close proximity, we could have:

maintained a unique, work-hard/play-hard culture across the entire company
continued regular communication between TOMS’ Leadership Team and CSAs
eliminated friction between CSAs and the company’s salaried employees.

In The World Is Flat (2005), Thomas Friedman presciently describes an increasingly digital world where developing countries compete for skilled jobs like never before.

“It’s certainly difficult for individuals to think about ‘their’ work going away, being done thousands of miles away by someone earning thousands of dollars less per year,” Friedman cautions. But in a competitive marketplace constantly searching for faster/cheaper, “every person, just as every corporation, must tend to his or her own economic destiny.”

With no offense to Friedman (or Flat Earth enthusiasts), I’ll leave you with this:

If you’re building a faceless corporation that sells inexpensive widgets — by all means, optimize for bottom-line profitability. But if your goal is turning customers into fans and evangelists, the most meaningful “drivers” of your business may not be quantifiable.

Every customer interaction is a precious opportunity to grow your tribe. Saving pennies today may destroy your purpose-driven business. Movements cannot be outsourced!

Jake Strom

Jake Strom, former Head of Impact Investing at TOMS, is an investor in companies combining Profit + Purpose. His obsession is finding the most incredible entrepreneurs, and helping scale world-changing businesses.

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