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Contact centre outsourcing: Costs vs customers?

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22nd May 2009
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The outsourcing of contact centre duties is on the rise again. But are firms overcoming their preconceived notions about providers and embracing them as tools to build profitable relationships - or only turning to them to cut costs?

By Neil Davey

Anecdotal evidence suggests that the number of organisations outsourcing their contact centre duties is showing strong growth at present, as firms look to cut costs. But contact centre outsource vendors now offer far more than just a way to slash customer service costs, with providers presenting a range of added value services and expertise. The question is, can firms see past the preconceived notion of outsourcers as ‘cost cutters’ and embrace them as tools to build profitable customer relationships with?

As has been documented by MyCustomer.com's Jennifer Kirkby before, one of the problems that blighted contact centres historically was that cost was the biggest consideration – they were viewed as a burden to be reduced, rather than an opportunity to build value. “KPIs revolve around calls rather than outcomes,” wrote Kirkby two years ago. “The cost of resources (e.g. staff, technology, operations) are easy to measure but relationship value and what affects it, is not. Those who have responsibility for building relationship value (e.g. marketing, customer experience) have little link with the contact centre, which comes under operations. The contact centre is the central engine of a listening, learning, adaptive organisation, but few view it that way.”

"Historically, there probably were a lot of providers that were focusing more on getting the metrics looking right than ensuring a good customer interaction."

Peter Ryan, Datamonitor.

In keeping with this mindset, outsourced contact centre vendors seemed to provide an appealing destination to farm off this misunderstood department, with offshore agencies in particular offering far lower costs of operation than if they were in-house. “If you are looking at outsourcing historically, either onshore or offshore, the main emphasis was to try and equalise costs as much as possible, and obviously from the standpoint of working with a third party, the price argument certainly was very popular with a lot of companies,” says Peter Ryan, lead analyst focusing on contact center outsourcing and services at research firm Datamonitor. “Historically, there probably were a lot of providers that were focusing more on getting the metrics looking right than ensuring a good customer interaction.”

It’s perhaps not surprising that in the ensuing years, the ‘contact centre’ became a byword for corporate indifference to customer service. Whilst reputations aren’t fully restored and there hasn’t been a revolution in thinking, most organisations now concede that contact centres can have valuable qualities. Dimension Data executes an annual benchmarking study of the contact centre sector and as this year’s data is being analysed, some interesting trends are emerging.

“One of the questions we ask is how the contact centre is perceived in the organisation – is it a cost centre or a profit centre,” explains Martin Dove, Global Head of CIS at Dimension Data. Whilst there hasn’t been a significant shift from last year to this year, we do see a recognition that the contact centre represents an opportunity to generate value. The difference compared to the last recession is that, back then, firms responded by trying to get costs out of the contact centre and how they seem to be viewing the contact centre as a primary interface to the customer base. They are looking at how they can use the channel to acquire more customers, how they can drive churn reduction and also how to increase the amount of cross and upselling they are doing in the service environment.”

Naturally, this has also had a knock-on effect as to the type of outsource vendor demanded by businesses according to Ryan: “I don’t think there is any question that people who are clients of outsourcers want to ensure that they work with somebody who is going to be cost-effective, but now they want to work with an outsourcer at the same time who has a good idea of what customer satisfaction and a good interaction actually means.” The vendors themselves have evolved in accordance with this, and the large global players in particular now offer suite of outsourcing solutions, from onshore to offshore, and from self-service to multichannel service.

Creating value

Nonetheless, despite these changes, this has not heralded a wholesale reappraisal of the role of outsourced contact centres. Dove acknowledges that the evidence shows that if organisations want to drive costs out of the contact centre then the outsourcer is attractive, but if they want to create value from the contact centre by developing the service proposition, then the department is likely to be kept in-house.

“Traditionally, organisations have said that commodity transactions - the very basic informational calls - will either be pushed down to a self-service channel or handled as cheaply as possible by an outsourcer, keeping the value-based transactions within their captive operations,” he says. “What the outsourcers are looking to do is win contracts that do value-based work because that is where the greater margins are and that is where they believe they can demonstrate more value to their customers. But in this climate, organisations want to get as much out of their internal assets and resources as they can before looking to outsource.”

"There is a danger that people will pile in to get services as cheap as possible because of the recession, and the suppliers have got to respond – if they lose enough contracts they might go bust so they try to respond and do it as cheaply as possible."

Martyn Hart, chairman, National Outsourcing Association.

“Outsourcing is going up, but it is being driven by reducing costs of course,” says Martyn Hart, chairman of the National Outsourcing Association. “There is a danger that people will pile in to get services as cheap as possible because of the recession, and the suppliers have got to respond – if they lose enough contracts they might go bust so they try to respond and do it as cheaply as possible.”

But Hart warns this could increasingly create a scenario that is neither good for the company nor the provider. “Some suppliers have worked out it is cheaper to pay penalties than it is to meet the service level agreements, so they will win the contract knowing they can meet 80% of it and if they can’t make the other 20% the penalties are better than not supplying it,” he explains. “So going for price isn’t always the best thing.”

Polarisation

These pressures have created a polarisation of the outsourcing contact centre market. The large global vendors are successfully offering full suites of outsourcing solutions to those who want high-end services, whilst at the other end of the scale, the smaller vendors providing niche offerings, such as specialist customer retention skills or very specific sales capabilities, are also enjoying some success. But the traditional outsourcers that have historically thrived on low-risk commodity transactions are now struggling.

“The biggest challenge for outsourcers is how to demonstrate they are adding value, over and above just answering calls, by bringing innovation,” says Dove.
And he believes there are several innovations that could be signposts for the future direction of the industry. “Outsourcers are looking at creating hybrid models offering self-service, bundled with their traditional human agent outsourcing offerings, in order to say to their customers 'we can do more than just handle your calls'. Increasingly, the successful outsourcers are building more end-to-end process outsourcing capability.

"Rather than just taking a customer service element or just a bit of back office activity, they are creating a full business process capability including all of the business applications that you need in order to deliver those solutions. If you do just a component, that is the bit that is commoditised, but if you are dealing with a full end-to-end business process, you are taking the whole problem away from the customer and giving them a solution as a one-stop-shop.”

A recent Datamonitor report, ‘Managing outsourced contact center functions during the economic slowdown’, identifies several other ways in which providers are adapting, including new ways of delivering customer service, marketing and sales, and technical support. Data collection and mining presents another opportunity according to Ryan.

“This is the type of thing that I think outsourcers can excel at,” he says. “Not only do they have the understanding of the technology behind the data analytics and the data mining, but outsourcers are known for exceptional training of agents, so it won’t be a case of perhaps an agent simply going out and asking information - which can sound prying. Rather it could be a situation where an agent is taught to properly mine data and do it indirectly; do it below the radar so they can figure out what somebody might be looking at purchasing over the next few years, over the next few months or imminently. That way they can target campaigns effectively, as well as the fact that they are getting to know the customer to figure out exactly what they need, as opposed to just pushing offers at them.”

Changing mindsets

But for these innovations to be embraced, businesses may have to open their minds and change long-standing preconceived notions of outsourcing. Anne Marie Forsyth, chief executive of the Customer Contact Association, believes there are some rudimentary benefits that could be enjoyed by such a sea change. “I hear a lot from the chief execs at outsourcing companies who have invested in the latest technology and have some great experience under their belts, but don’t often get the chance they would like to take that a stage further with clients,” she suggests.

“There is a chance to take some time and explore some new ideas. They can also take account of some of the experience that the global players have internationally. If you look at Sitel, it has done similar things in lots of different countries and you can’t tell me there is no learning that can be gained from it.”

"Businesses and outsourcers will only work well if they work truly in partnership. And for that to happen, they have to have trust, patience and a decent framework to start with."

Anne Marie Forsyth, Customer Contact Association.

Evidence from the Dimension Data benchmarking report indicates that businesses could be reappraising the role of the outsourced contact centre provider – although it is early days. Around a quarter of participants said there has been a strategic decision to outsource what they perceive as non-core functions, whilst more than a third of participants said they outsource due to a lack of skills. Dove expects both figures to climb in the coming years.

“That trend will continue, and more organisations will decide that some of the contact centre functions are not core,” he says. “And also organisations will gradually realise that this is a specialist skill and will increasingly look to outsource because they don’t have that capability themselves.”

Ultimately, however, Forsyth concludes that it takes two to tango – and both sides will have to reapproach the traditional outsourcer-supplier relationship if it is to meet its potential in the future. “There are two sides to every coin,” she concludes, “but there is a large opportunity to use the economic cycle to work out some of the things that need sorting out.

"Businesses and outsourcers will only work well if they work truly in partnership. And for that to happen, they have to have trust, patience and a decent framework to start with.”

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By kturner50
26th May 2009 15:52

Every business needs to think about how it can reduce costs and inevitably customer service will not escape the financial director’s scrutiny. But businesses should be cautious about jumping on the offshoring band wagon. Outsourcing to foreign lands may cut overheads but it comes at a price. A recent survey found that Brits are an irascible lot; over a third (37%) claim to find themselves getting angry with foreign call centres. This is echoed by our own research which found that over a quarter of consumers complain that agents are difficult to understand due to language barriers.

The cardinal rule in business is to listen to the frustrations of your customers – even more so in a recession. Short-term cuts may very well lead to long-term losses. For instance customers who have an “exceptional” contact centre experience are 72% more likely to do more business with that company in future than customers who have a “typical” experience (Aspect 2007).

Companies must not be fooled into thinking that offshoring is the only option available to them. Implementing a call-steering system, that enables customers to describe their needs in their own words and move directly to their destination would result in a 50% reduction in the time it takes to route calls, a 60% drop in the average number of misroutes, and significant savings for the business. Removing complex menus and quickly routing calls to the right place first time would also have a dramatic effect on customer satisfaction, which is vital when we consider that 68% of customer defection takes place because customers feel poorly treated, (Source: TARP - CSM).

A key element of call centre success is actually being located here in the UK rather than abroad. It’s no coincidence that Powergen’s customer complaints dropped 90% after moving from India back to the UK.

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