Outsourcing: Rick Ferry, COO of C3 (Part 7)

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.

This segment is part 7 in the series : Outsourcing: Rick Ferry, COO of C3
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