When Andrea Ayers left her position as a customer service representative at a savings bank in Ogden, Utah, to join Matrixx Marketing as an entry-level trainer in 1990, her motivation was simple. I am a single mom, and frankly, I needed to be able to buy my son his special formula because he was allergic to everything else, says Ayers, 50, who has a BA in management and administration from Louisiana State University. The money was better, so I took the job.
Twenty-four years later the Shreveport, Louisiana, native is running the company, which was renamed Convergys Corp. in 1998 after parent Cincinnati Bell spun off its Matrixx customer service management operation and information systems unit in an initial public offering. Convergys is the U.S.s largest provider of customer experience management; its agents handle billions of calls and online interactions a year for companies like AT&T Corp. and DirecTV.
Ayers, who spent the first half dozen years of her career working in various call centers in Utah before moving to the companys corporate headquarters in Cincinnati, has long had a reputation as a troubleshooter. In 2008 she was promoted by then-CEO David Dougherty to lead Convergyss customer management business, which had seen a decline in its operating margin as it had expanded to some 60,000 employees globally. By 2009, under Ayers, the groups adjusted operating margin had increased 240 basis points, to 7.1 percent, as a result of cost reductions, productivity growth and new revenue.
A year later Dougherty was out as CEO, replaced by Jeffrey Fox, a onetime investment banker who had been COO of Alltel Corp. before Verizon Communications bought the Little Rock, Arkansasbased wireless phone service provider in 2008. At Convergys, Fox implemented what Ayers describes as a simplification strategy, selling its human resources and information management divisions to focus on its customer management operation, which had always been the largest of the three businesses. We determined that we would do better for our shareholders if we concentrated on the business where we could command a leadership position, she explains.
In November 2012, Ayers was elevated to CEO of the refocused Convergys and Fox became chairman. As chief executive, she runs a tight ship no easy task given that her company has 150 call centers and 125,000 employees in 31 countries. Ayers picked up 40,000 of those employees in March, when Convergys paid $820 million for Stream Global Services, an Eagan, Minnesotabased provider of business-process-outsourcing services, including customer support for technology companies like Dell and Microsoft Corp. The Convergys CEO expects the Stream acquisition to add approximately 35 cents in earnings per share in the first 12 months as the deal expands her companys global reach and diversifies its client base.
A self-described operations geek at heart, Ayers holds a war room meeting every Friday morning for a dozen or so of Convergyss most senior executives, including the heads of hiring, operations and information technology. Were all there to make sure that the meeting is very problem-solving-focused, she says. My job is really to make sure everyone knows what good looks like and that they have the tools they need to get there.
Ayers, who is a huge Aerosmith fan and uses the bands classic ballad Dream On as her cell phone ringtone, recently spoke with Institutional Investor Editor Michael Peltz about changes in the customer-management-outsourcing business, Convergyss acquisition of Stream and the greatest risks facing her company.
Institutional Investor: Has the contact-center business changed much since you joined Convergys?
Ayers: Its changed an incredible amount. There are a lot of misconceptions about the contact-center-outsourcing business, one of them being that its fairly easy. Its a deceptively complex industry. Were open 365 days a year, 24 hours a day, handling between 4 billion and 5 billion transactions a year not all voice; many of them are over the web, e-mail, chats, things of that nature.
The biggest change Ive seen since I started 24 years ago is how much technology has influenced consumer behavior and how that has influenced and enabled our business. This business is getting more complicated by the day.
Can you elaborate?
Ill give you an example. Think about the access you now have to information about your credit card account versus ten years ago. I dont know about you, but I interact a lot more with my bank because I have access to a lot more information and my expectations as a consumer have grown exponentially. I expect my bank to be able to do more for me across any channel, and I expect it to be done right.
In our world that has very direct implications on the technology we use to support your interaction with your bank, because thats what we do. So all of that technology has really changed, and all of that increased complexity has really changed everything, from how we invest in technology to the people we hire.
Are there other changes?
The second thing that has changed the industry is offshoring and the need to be able to support large tier-1 clients. We do business with over half of the Fortune 50 companies. We serve them in 31 countries, speaking 47 languages, and they measure us in 15-minute intervals in terms of how were doing. Twenty-four years ago offshoring hadnt come in vogue and the contact center was fairly close to where the client was located. And you didnt have as much complexity around how to manage that globalization or that remoteness.
The third thing thats changed is that more companies have become a lot more comfortable with outsourcing. In the early days more of our clients were very committed to doing it themselves. As the technology has changed and those investments have become more important and more costly, many of our clients have determined this may not be their core competency. It was really the cutting-edge companies that did it at first; now its very much more mainstream. Its now every industry.
So your potential market is growing.
It is. The market is estimated to be about $55 billion worldwide and growing. And its an interesting market because its still pretty fragmented. Were considered the largest in the U.S.; were the second largest globally. Right now I think that the top ten providers are only 43 percent of the share of that market.
What was the motivation behind the Stream acquisition?
Once we had gone through the simplification of our business, we really wanted to make sure that strategically we were very focused on having the ability to serve our clients in any transactions they do with their consumers whatever it is, wherever they want it done and that we needed to be able to do it at scale. We were growing, but we had some gaps in terms of some of our European and Latin American assets and footprint.
Stream was, frankly, a company that we had been following for five years or so. They had a very nice European business, and they also had a very strong Latin American presence. We did not have a whole lot of client overlap, which I considered to be a big plus. Together we form a $3 billion [in revenue] company with 125,000 people. There is no question that we can pretty much handle any transaction at scale.
The Stream deal helps diversify both your client base and geography?
Its really nice. Our top three clients, for instance, were 47 percent of our revenues, and now they are 33 percent. So it was good in terms of that. It also strengthened our technology [business] and grew it by two times. That now represents 18 percent of our revenue thats technology clients in the technology space.
I read that AT&T, Comcast and DirecTV are your three largest clients.
They are; theyre great clients. And the neat thing about our clients the other thing people dont understand very well about our industry is that when we have a client, we normally do multiple lines of business for that client and multiple types of work in multiple geographies. We do everything from acquiring new subscribers for someone to very technical support work for that same client to collecting. So it gives a lot of variety within an account. Were very lucky in the clients that choose to trust us with what I think is one of their most important things, which is the contact with their customers.
Are mergers like the proposed combination of Comcast and Time Warner Cable a threat or an opportunity for you?
Normally, I find those things to be opportunities. If you assume were performing well, which we darned well better be, then that just gives us a broader organization to show our capabilities and add value to. So normally, I would say those things create opportunities.
Does most revenue growth come from existing clients?
Yes, they represent about 80 percent of our growth, which is normal for our industry. And then about 20 percent of it is new customers that we want to add, and thats something we changed our approach toward a couple of years ago pretty dramatically. We went through an exhaustive exercise of identifying what type of relationship is the best for us where we deliver the most value and where, frankly, we make the greatest return for our effort. We came up with a list of clients that we dont have in our portfolio that we want to work with, and then we put together a team of people to mine that list. We call these potential clients baby elephants.
How many baby elephants are out there?
Quite a few. Weve still got [industry] verticals with some room to go. Our team is focused on winning the baby elephants, and Im confident theyll get them.
Whats the biggest risk for Convergys today?
I think the biggest risk for any industry-leading company is that you become complacent. Part of my role is to make sure were never complacent. Industry leaders that become complacent quickly find themselves no longer industry leaders. So Im spending a lot of time with our team making sure we always have that healthy respect for our competition and that were always on edge. I think that tension is important.
About 80 percent of your managers have risen through the contact-center ranks. Do you require them occasionally to man the phones?
We absolutely do. I can still take a call. Culturally, it is very important to me that we all spend time on the front line. We should never forget how we earn our money, and we should never forget what our clients pay us to do. Serving their customers is the only thing in this company that matters; we dont shrink-wrap anything and put it on a shelf. When were growing, were creating jobs and were hiring those front-line people. Its what they do. And we should never forget that. I am grateful every day that I started where I started.