How to Evaluate Service Bureaus (1,440 words)
By Jim Wheaton
I participated in a comprehensive evaluation of service bureau capabilities back in 1986, and then again last year.
Last year, I wrote a Request For Proposal for a client and received nine written responses from service bureaus. The participating bureaus represented a complete spectrum, from the largest organizations to a couple of regional niche players. Ultimately, we interviewed four companies and invited three to participate in a test job.
1986 vs. 2000
It was fascinating to witness the changes that have transpired in the intervening 14 years. Data and reports, for example, generally now are transferred electronically and often in the form of Word and Excel documents. However, the evaluation also confirmed my long-standing impression that, in many ways, the service bureau world is stuck in a time warp.
Processing, for example, generally is still performed on mainframes, and some of the record matching algorithms basically are unchanged. More importantly, many service bureaus haven't fully confronted the challenges of today's dynamic database marketing environment. Often, account people operate as reactive order-takers rather than proactive strategic partners. Generally, these people have never been direct marketers, and often view their assignments from a narrow processing perspective.
Typically, whenever an account rep encounters a job request that can't be handled by off-the-shelf application software, he or she forwards it to the service bureau's standalone programming department. Invariably, the programmers have even less exposure to direct marketing than the account people. Often, they're also faced with a backlog of programming requests. This can make it difficult for them to complete their assignments accurately and on time.
Some service bureaus have differentiated themselves by enhancing their merge/purge algorithms to such an extent that they're able to squeeze a couple more percentage points of deliverable, unduplicated records out of the raw names and addresses they process. During the evaluation, for example, one firm introduced us to a separate specialist for each major merge/purge function. Throughout the presentation, the focus was on the small increments of improvement that could be had by placing one's business with this service bureau.
This approach, however, can be likened to carefully shining a rotten apple. I recently chatted with a direct marketer who uses this same service bureau for his merge/purge processing. When I noted that his vendor has the most sophisticated merge/purge software in the business, he said the quality of the algorithms is irrelevant because his account manager at the bureau is a simply a button-pusher.
The marketer said he'd gladly trade a couple of percentage points of scrubbing prowess for a company that would act as a truly proactive and innovative data-processing partner. All in all, the marketer said he is disenchanted with this blue chip service bureau, and is looking to make a change.
New Paradigm Needed
This direct marketer's complaint is similar to what I've heard from others. It's apparent many such firms have evolved to optimize the processing of standard, batch direct mail jobs. However, they're not adept at responding with creativity and innovation to one-off, ad hoc requests, which are the norm in today's demanding, ever-changing database marketing environment.
Many service bureaus have become large, unwieldy battleships. There's a shortage of nimble PT boats—firms that recognize there's a solution to just about every data-processing problem, and that often it's just a matter of mixing available applications with some creative thinking and custom programming.
Consider the example of a modestly sized, pure-play cataloger. It uses a service bureau that says it specializes in working with small catalogers. Recently, an unusual opportunity arose that required: multiple distance calculations from each customer's residence to specific, physical entities scattered across the country; and the creation of intricate, distance-driven analysis files.
This is a type of project with which retailers and retail-oriented service bureaus are familiar. However, it generally has no application to small, pure-play catalogers. So this service bureau didn't possess the files required to do the work.
This wouldn't have been a problem, except the bureau took about a week to conclude it wasn't equipped for the work, and then made no effort to find a creative solution to the problem—for example to locate a subcontractor or secure temporary access to the needed files. The cataloger had to scramble to find another service bureau to perform the necessary distance calculations so that an independent consultancy could produce the analysis files.
The cataloger ran into similar problems with another project that required the assistance of the bureau's programming department, which was swamped with work and pressed by deadlines. As a result, it took more than five weeks to complete what should've been accomplished in a few days. Throughout the ordeal, the cataloger had to prod and cajole the bureau to focus on the project.
Getting back to the service bureau evaluation, my client was frustrated with its incumbent bureau for similar reasons. While it did a solid job on batch processing requests in support of the cataloger's direct mail drops, problems ensued whenever the bureau was asked to assist in ad hoc projects. The bureau did its best to satisfy my client's special requests, but it failed because its employees were narrowly focused data-processing professionals. No one involved with the account had the database marketing perspective to provide my client with what he truly needed. Instead, the service bureau mechanically executed the required job steps.
Consider, for example, a request to perform a series of complex, one-off steps to create files for specialized back-end analysis. The service bureau ran the job multiple times during many weeks before finally getting it right. So the failure wasn't due to a lack of effort. However, the request was initiated to support a data-mining initiative, a topic with which the account team wasn't familiar. Working in a knowledge vacuum made it difficult for the team to be successful.
Current State of Many Service Bureaus
Why have so many service bureaus failed to fully adapt to the times? I think because merge/purge has been perceived as a commodity for years, and therefore has become a self-fulfilling prophecy. In such an environment, service bureaus tend to compete on price. And often, direct marketers get exactly what they pay for in terms of quality.
In contrast, the 1986 service bureau evaluation with which I was involved generated immense industry interest. We were invited to present the results of our study at a Direct Marketing Association trade show. Also, the editor of a leading journal attended the seminar and published our findings in a series of articles.
By the early 1990s, however, the focus on service bureaus and merge/purge algorithms had vanished. The industry had moved onto other topics such as neural networks and open systems data warehousing technologies. Merge/purge had become a perceived commodity not worthy of attention.
Increased Need for Data Hygiene
Ironically, cutting-edge service bureau work is more critical today than it was in 1986, because the quality of the data, I believe, is worse than it's ever been. In the 1980s, most direct marketing orders arrived via the mail. Now, inbound call centers capture the bulk of transactions, many of which contain glaring misspellings and address element omissions. This is particularly true of small to mid-sized firms that can't afford to integrate real-time hygiene technologies into their CRM infrastructures. And Internet data presents its own name and address quality nightmares.
Powerful merge/purge software is essential for correcting many of these problems. Name and address hygiene has significant ramifications for data mining and quantitative analysis. It's important to identify records that correspond to multiple orders by the same individual and consolidate them into a single customer view.
Consider the analytical ramifications of two legitimate duplicates that aren't consolidated. During the building of a predictive model, a multi-buyer will appear to be two separate—and less desirable—single buyers. Likewise, during a lifetime value analysis, one relatively valuable customer will be represented as two not-so-valuable individuals. (The opposite, of course, will be true whenever an illegitimate consolidation takes place.)
What was the most important lesson I learned from the evaluation? First, when choosing a service bureau don't get hung up on the data processing "bells and whistles," even if they provide a few more percentage points of deliverable names and addresses.
Instead, concentrate on what's really important. Look for a company that will become your valued and proactive database marketing partner, one that will rapidly respond to your requests with creativity and innovation.
Jim Wheaton is a principal at Wheaton Consulting Group, specializing in direct marketing consulting, data mining, and the creation of data warehouses and marts and related business intelligence subsystems. He can be reached at (919) 969-8859 or firstname.lastname@example.org.