The Call Center Outsourcing Outlook
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TECHNOLOGY
The Call Center Outsourcing Outlook Developing opportunities in a commodity market By Victoria Furness
Victoria Furness Victoria Furness is a freelance technology and business journalist who has published work in Computer Business Review, Real Deals, Financial World, Information Age, MiD, and Marketing Week. Victoria also works part-time as a copywriter for Octopus Communications, whose clients include Adecco, Ariba and Websense.
Prior to her freelance career, Victoria worked for Marketing Week, and ComputerWire, where she wrote for its flagship magazine, Computer Business Review, the daily newswire Computergram and its research arm on her specialist area of enterprise applications. Victoria graduated with first class honors from Manchester University.
Copyright © 2005 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy.
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Table of Contents The Call Center Outsourcing Outlook
Executive summary
12
Key drivers
12
The EMEA call center outsourcing market
12
The US call center outsourcing market
13
Offshore outsourcing: India not the only destination
14
Call center outsourcing services
15
Competitive advantage: succeeding in a commodity market
16
Chapter 1
Introduction
20
What is this report about
20
Who is the target reader
20
Definitions Agent position (AP) ASP (application service provider) Call center Contact center CRM IP-architected call center Multimedia contact center Outsourcing
21 21 21 22 22 22 22 23 23
Chapter 2
Key drivers
26
Summary
26
Why outsource? Vendor recommendations
26 27
What should I look for in an outsourcer?
28
Key future trends
29
iii
Chapter 3
The EMEA call center outsourcing market
32
Summary
32
Market sizing Outsourced APs in EMEA
33 33
Country insight
34
Outsourcing traffic Inbound and outbound traffic
36 36
Vertical focus Introduction Communications Propensity to outsource Distribution and wholesale Propensity to outsource Entertainment, media and leisure Propensity to outsource Financial services Propensity to outsource Healthcare Propensity to outsource Manufacturing Propensity to outsource Public sector Propensity to outsource Retail Propensity to outsource Technology Propensity to outsource Travel and tourism Propensity to outsource Utilities Propensity to outsource
37 37 39 41 41 41 42 43 43 45 46 46 47 47 47 49 49 50 50 50 51 51 52 52
Competitive dynamics Traditional outsourcing competitors Non-traditional competitors
53 54 55
Strategic recommendations
56
Chapter 4
The US call center outsourcing market
58
Summary
58
Market sizing
59
iv
Country insight Impact of the TSR on outsourcers
60 61
Outsourcing traffic Inbound activity will increase as a proportion of total call center activity
63 63
Impediments to outsourcing growth in the US
64
Vertical focus Introduction Communications Education Entertainment Financial services Retail banking Insurance Investments and securities Healthcare and pharmaceutical Manufacturing Public sector Federal government State and local government Retail Technology Transport and logistics Travel and tourism Utilities Other vertical markets
65 65 66 66 67 67 67 67 67 68 68 68 69 69 70 70 70 70 71 72
Competitive dynamics Systems integrators Outsourcing providers
72 72 74
Strategic recommendations Adding more value-add services Penetrating new vertical markets Use technology as a competitive differentiator Establish a global network of call centers in offshore/near shore locations
74 74 75 76 76
Chapter 5
Offshore outsourcing: India not the only destination
80
Summary
80
Introduction Definitions
81 81 81 81
Near shore Offshore The evolution of offshore and near shore outsourcing Moving from capital expenditure to operational expenditure More demand for multilingual services Demand is growing and shifting eastward
v
82 82 83 83
Specific country requirements US UK France Germany Rest of Europe
84 84 85 85 86 87
Barriers to off shoring ‘Losing’ control The distance issue Cultural affinity Quality of service
88 89 90 90 91
Offshore outsourcing strategies
91
Offshore destinations The language barrier Dutch-speaking markets English-speaking markets French-speaking markets German-speaking markets Italian-speaking markets Spanish-speaking markets Profile of the Americas region Latin America Canada Profile of the Central & Eastern Europe (CEE) region Hungary Poland Baltic States Czech Republic Profile of the Middle East & Africa (MEA) region Morocco and Tunisia (North Africa) South Africa Turkey Profile of the APAC region India Philippines Malaysia Others
92 92 92 92 93 93 93 94 94 95 99 102 104 104 105 106 106 107 108 109 110 111 111 112 112
Future implications of offshore outsourcing One-stop shop for end-to-end BPO The shadow infrastructure
113 113 114
Offshore vs. onshore
114
Recommendations for vendors The quality sell Quality agents Quality processes Refine sales approach Carve a niche and partner for success Allay customers’ fears
116 116 116 116 117 117 118
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Chapter 6
Call center outsourcing services
121
Summary
121
What should you outsource? Inbound customer care Inbound sales Inbound technical support Outbound cold calling Outbound warm calling Outbound customer service call-back Outbound collections New Internet channels
122 122 122 122 123 123 123 123 124
Vendor strategies Expanding service portfolios New services New delivery models Evolving pricing models Risk / reward sharing Efficiency sharing pricing models
125 125 126 126 127 128 129
Chapter 7
Competitive advantage: succeeding in a commodity market
133
Summary
133
Introduction
134
The bigger picture Full service providers (FSPs) IT service providers Systems integrators Telcos Telcos with their own outsourcing facilities Telcos without their own outsourcing facilities Offshore and near shore specialists Technology vendors
134 135 136 136 136 136 137 137 138
Strategic recommendations New business generation Delivering best practice Back office and front office
138 138 139 139
Understanding customer concerns Procuring outsourcing Brand impact Managing risk Addressing regulatory requirements Focus on the Sarbanes-Oxley Act
140 140 140 140 141 141
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Focus on the Basel II accord Focus on data protection Future market outlook
Chapter 8
142 142 143
Key vendors
145
Competitive landscape The comfort factor
145 145
Competitive strengths of call center outsourcing vendors Accenture Service differentiation Capgemini Service differentiation CSC Service differentiation EDS Service differentiation HP with BT Service differentiation IBM Global Services Service differentiation ICICI-OneSource Service differentiation Wipro Spectramind Service differentiation
146 147 148 149 149 150 150 150 151 152 152 153 153 154 154 155 155
Index
156
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List of Figures Figure 3.1: Figure 3.2: Figure 3.3: Figure 3.4: Figure 4.5: Figure 4.6: Figure 5.7: Figure 5.8: Figure 5.9: Figure 5.10: Figure 5.11: Figure 5.12: Figure 5.13: Figure 7.14: Figure 8.15:
In-house and outsourced APs in EMEA, 2002 - 2007 The EMEA call center solar system Summary of call handling functions Outsourced APs in EMEA by vertical market Proportion of APs in the US, 2003-2008 Vertical market comparison, 2003 Barriers to offshore outsourcing Risk and reward matrix – the Americas region Canadian outsourced and in-house APs serving the US market Risk and reward matrix – CEE region Risk and reward matrix – MEA region Risk and reward matrix – Asia Pacific region Offshore outsourced APs are a threat to onshore outsourced APs Service offerings: how the pieces fit together Comparison of profiled vendors’ service delivery focus
33 34 36 39 59 66 89 95 101 103 107 110 115 135 147
List of Tables Table 2.1: Table 5.2:
Important factors when outsourcing, by country (EMEA) Main offshore and near shore outsourcing locations for the major outsourcing customer markets
ix
29 84
x
Executive summary
11
Executive summary Key drivers
Companies choose to outsource to cut costs, deliver greater efficiencies from given resources and focus on core competencies.
Efficiency has overtaken cost cutting as the single most important driver behind IT investment strategies.
HR or payroll in the back office, and call centers in the front office are the business functions most readily outsourced.
Managing clients’ expectations and satisfactorily delivering on their requirements are the principal challenges facing outsourcing providers today.
A number of key trends will have a significant effect on the outsourcing market over the next five years. These include expanding service portfolios, evolving pricing models, the growth of offshore and near shore, and the emergence of the ‘quality sell’.
The EMEA call center outsourcing market
The call center market in EMEA is still growing healthily, particularly when compared to the US. Between 2002 and 2007, the number of APs in EMEA will grow at a CAGR of 7%, and by 2007, there will be almost 1.8 million.
Spain is the clear European leader in call center outsourcing, with 31% of APs outsourced.
Outsourcing will be one of the fastest growing sectors of the call center market in EMEA over the next five years, growing at a CAGR of 13.9%.
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MEA and Eastern Europe will experience the most rapid growth over the next five years. Amongst the more developed markets, Italy will be the fastest growing.
In the more developed markets, the average size of outsourced call centers is decreasing as companies move towards more distributed environments and specialist centers.
By 2007, almost two-thirds of outsourcing traffic will be inbound.
The two largest verticals in EMEA are communications and financial services – combined they accounted for 50% of the market in 2002.
Communications, financial services and technology combined will still account for nearly 60% of APs by 2007.
Verticals that offer particularly good opportunities for outsourcers include the public sector, manufacturing and utilities.
The outsourcing market is highly competitive, with no one company dominating the market in any one country.
The traditional outsourcers account for the majority of the market in EMEA; however, the market is consolidating, particularly at an international level.
The US call center outsourcing market
By 2008, the value of the call center outsourcing market in the US will grow to $23.9bn at a CAGR of 4.9%.
Slow growth in US APs has resulted from a combination of tough economic conditions, outsourcing saturation in key verticals and expansion into offshore/near shore locations.
The region with the highest number of call centers is the South; accounting for 40% of all US outsourced call centers.
13
The TSR is expected to impede outsourcing growth, resulting in layoffs and a significant decline in APs, as telemarketing accounts for roughly 30% of outsourced APs.
In the next five years, the number of outsourced APs dedicated to inbound services will increase from 224,000 in 2003 to 274,000 in 2008.
The most promising verticals are two of the smallest – utilities and government – which will grow at a CAGR of 11.8% and 11.4% respectively.
The competitive landscape of the US call center outsourcing market is heavily fragmented with the top 10 US outsourcers accounting for roughly 30% of total revenues.
A growing concern among some outsourcers has been the entry of systems integrators into the call center space. However, most systems integrators do not present a long-term competitive threat to outsourcers, as call center services are not their core competencies.
Many outsourcers have expanded the breadth and depth of their offerings to complement their core customer care solutions.
US outsourcers must be in a position to offer their clients a global network of near and offshore countries. The growing Hispanic population can also be serviced in this way.
Offshore outsourcing: India not the only destination
The growth of offshore outsourcing has been driven by one factor: reduced cost.
The US leads the global market for demand in offshore-outsourced call centers.
In India, outsourcing providers are now themselves outsourcing to, or partnering with, outsourcing providers in other offshore markets in order to offer additional capabilities to their customers. 14
UK uptake of offshore call center outsourcing will grow strongly going forwards, with call centers moving to India initially, and to South Africa and Malaysia in the longer term.
There are a number of barriers to offshore outsourcing including conservatism, risk, lack of non-English or Spanish-speaking locations, apprehension about ceding control to a third party.
The key factor when selecting an offshore location is language.
India will continue as the largest English-speaking offshore market for the foreseeable future, growing at a rate of 19% up to 2007.
Mexico will overtake Canada as the biggest individual supply market for offshore outsourcing in the Americas during the course of 2005/6.
The new EU accession states are highly suitable as near shore locations for call center activity outsourced from within the EU in the short to medium term, before they reach wage parity with the rest of the EU.
Some call center operations are moving towards a dispersed operating model that leverages a blend of domestic onshore, near shore and offshore call centers.
Only 5% of the world’s 4.78m APs will be outsourced to an offshore location by 2007.quality concerns, domestic labor issues, bad publicity, and security and privacy concerns. Top of the list is a customer’s
Call center outsourcing services
Customer care is now the single biggest source of revenue for the outsourcing market, replacing the traditional outbound sales functions that were originally the basis of the industry.
Despite the move towards longer, more in-depth client contracts, for a large number of small firms telemarketing is their sole business. 15
The emergence of the Internet opened up a host of new customer channels, but despite the hype, new channels have not replaced the telephone.
Outsourcers have been forced to expand their service portfolios by either offering new services and applications or providing more flexibility in the delivery of these services and applications.
Outsourcers are increasingly moving into other areas of the enterprise such as HR, CRM and fulfillment.
Outsourcers need to be willing to offer flexibility on issues such as location, technology, agents, management, training, and HR/recruitment.
Managed services and technology hosting offer two alternative models for providing call center technology outsourcing.
The more demanding customers and the more innovative outsourcers now look for risk / reward sharing pricing models.
Some outsourcers are developing efficiency sharing pricing models that allow them to generate long-term client loyalty by passing economies of scale savings on to their clients.
Competitive advantage: succeeding in a commodity market
The systems integrator model is becoming outdated since IT service providers and FSPs offer more complete solutions for improving the efficiency of client businesses.
Telcos are well placed to act as primary technology providers to outsourcers and should build expertise in this area.
Call center outsourcing providers will adapt to the changing landscape by continuing to provide point solutions targeted at delivering high-cost efficiencies on 16
high transaction volume contracts for clients, delivering the call center component of the FSP’S offering, or expanding their own capabilities into the BPO space and perhaps beyond, into the realm of services offered by the FSPs.
Firms should look at their client base and implement the desired level of account management for each customer to leverage the maximum value from each relationship. Some companies have extended this to the point of becoming a ‘trusted advisor’ for their clients.
Within five years or so, the balance between front office and back office outsourcing is anticipated to reach a 50/50 split.
Outsourcing providers need to demonstrate that they not only comply with the technicalities of the guidelines, but also with the spirit of them too.
Over the course of the coming few years, traditional systems integrators will extend their service offerings to deliver a greater mix of higher-value professional services.
FSPs will offer the most complete range of services across the IT services and outsourcing spectrum.
Vendors and service providers that choose not to grow their capabilities organically will look to build alliances similar to the one announced by BT and HP.
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CHAPTER 1
Introduction
19
Chapter 1
Introduction
What is this report about The call center outsourcing market is a fast, maturing industry and many people regard it as a commodity business. As such, outsourcing service providers need to know where the growth opportunities exist and the strategies required to successfully target these.
This report provides valuable market forecasts for the call center outsourcing market in the US and EMEA by region and vertical industry, as well as in-depth analysis into the drivers and inhibitors of each market. It unearths key trends over the next five years and outlines go-to-market strategies for vendors designed to put them ahead of their rivals.
This report also takes a hard look at the contentious issue of offshore outsourcing, which has received much negative publicity in the press, and goes behind the headlines to find out what companies’ real concerns are and the tactics vendors must adopt to address these. In addition, it explores the global offshore outsourcing market beyond India and provides a comprehensive assessment of these markets.
Who is the target reader This report is of interest to anyone providing outsourcing services, as well as companies wishing to sell to or partner with outsourcing providers. It describes the present and future state of the call center outsourcing market in EMEA and the US, and makes targeted and actionable strategic recommendations based on these findings.
As such, it is aimed at global call center outsourcers, local call center outsourcers, technology vendors, offshore and near shore outsourcing specialists, telcoms and
20
service providers, systems integrators, consultants and BPO specialists. For all these solution providers, this report will:
Identify the fastest growing vertical and country markets across EMEA and the US;
Explain the effects of the growth in offshore and near shore outsourcing;
Define new types of service offering and pricing models;
Assess current and potential competitive threats and partnership opportunities;
Analyze the potential for managed services and technology hosting;
Identify potential partnership opportunities and competitive threats to vendors;
Determine where call center outsourcing fits into the broader set of BPO opportunities.
Definitions Agent position (AP) Terminals at which agents perform customer service, technical support, marketing, sales and other functions by making and/or receiving telephone calls, and writing and responding to emails to/from internal or external customers.
ASP (application service provider) A service company that is in the business of providing remotely hosted, centralized IT (applications, security, storage, and processing power, for example), on a one-to-many basis and on a rental ‘pay-per-use’ basis.
21
Call center The following features define a call center:
An Automatic Call Distributor (ACD) or Private Branch Exchange (PBX) with equivalent functionality overlaid (or soft ACD);
10 or more APs.
Specifically excluded from these figures are:
Public safety centers, which receive calls to the emergency services;
Air traffic control;
Financial trading floors;
Legal interception centers, where there is a law enforcement officer or other security worker listening in on a conversation in which they do not take part.
Contact center Often used interchangeably with ‘call center’, a contact center implies, however, that interactions between agents and consumers are able to occur over a variety of channels, including the Internet.
CRM Essentially a strategy to win, know and keep a company's most profitable customers.
IP-architected call center An IP-architected call center is one in which all forms of communication, including voice, are treated as data within a single enterprise network using Internet Protocol (IP). This is a protocol used in packet-switched data networks – including the Internet – in contrast to a circuit-switched network traditionally used for voice. In an IParchitected call center, the calls coming in from the PSTN arrive at a gateway. This 22
converts them into data packets for an IP network. Conversely, it also converts the voice data on the IP network into circuit-switched data for transmission on the PSTN. Other data arriving at the contact center, such as text chat or email, will travel over the same network to the agent’s desktop.
Multimedia contact center A multimedia contact center is a call center in which at least two channels of communication, including voice, are routed to the agent using the same set of business rules. The contacts do not need to be routed to a blended agent; it is not uncommon for agents in call centers to be given roles based on media type, as long as the routing of contacts are routed centrally based on the same set of business rules.
Outsourcing Outsourcing is allowing another company to handle specific needs of the primary firm, which that firm cannot or does not want to do. This allows companies to focus on their core competencies and contract out other types of services.
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CHAPTER 2
Key drivers
25
Chapter 2
Key drivers
Summary
Companies choose to outsource to cut costs, deliver greater efficiencies from given resources and focus on core competencies.
Efficiency has overtaken cost cutting as the single most important driver behind IT investment strategies.
HR or payroll in the back office, and call centers in the front office are the business functions most readily outsourced.
Managing clients’ expectations and satisfactorily delivering on their requirements are the principal challenges facing outsourcing providers today.
A number of key trends will have a significant effect on the outsourcing market over the next five years. These include expanding service portfolios, evolving pricing models, the growth of offshore and near shore, and the emergence of the ‘quality sell’.
Why outsource? Principally, companies choose to outsource to:
Cut costs;
Deliver greater efficiencies from given resources;
Focus on core competencies.
One of the ways in which companies are cutting costs today is outsourcing a part of their business that they no longer wish to run in-house. They hand over these operations to a third party because they deem it to be something that someone else can do better. It is often the case that sizeable economies of scale can be delivered back to
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the client due to the sheer scale of the outsourcing provider’s operations and the purchasing power they represent in the market.
These savings go straight to the bottom line, which many boards are keen on, but savings are not as massive as people have come to believe. While savings from labor arbitrage alone can perhaps cut between 30% and 35% of call center operational costs, it is certainly not the 60% to 70% that many had touted not so very long ago and, for this reason, should not be the primary factor given for outsourcing.
Some say that cost cutting per se has run its course. Instead, companies are looking for new ways to make operations leaner and more efficient; using outsourcing can make economic sense and it certainly offers companies the benefits of agility, flexibility and scalability.
In the wider outsourcing market as well, efficiency has clearly overtaken cost cutting as the single most important driver behind IT investment strategies. It is clear that while knee-jerk cost cutting was unquestionably the fundamental driving force behind IT strategies a couple of years ago, the focus has shifted towards developing a more efficient organization geared towards future growth.
Vendor recommendations Clients need reminding that they must look carefully at outsourcing before committing themselves. Human Resources (HR) or payroll in the back office, and call centers in the front office are the business functions most readily outsourced. But companies need to make sure that they find the right balance between in-house and outsourced operations. Outsourcing providers can, and should, assist in this exercise.
Perhaps understandably, plenty of clients choose to retain the most sensitive types of customer interactions, such as customer complaints handling, in-house. To address prospective clients’ concerns about outsourcing this kind of activity, outsourcing providers should:
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Provide referential case studies – it is important to encourage clients to open their doors to prospective clients and share lessons learned with them;
Develop quantitative service levels to measure the quality of service being provided, focusing on first call/contact resolution;
Encourage potential clients to take time to work out what it is that they want to outsource before looking at whom to outsource to and, lastly, where they want the work to be done.
While outsourcing has become increasingly relevant and the majority of companies have experienced some benefit from outsourcing, vendors need to be aware that managing clients’ expectations and satisfactorily delivering on their requirements are the principal challenges facing outsourcing providers today.
What should I look for in an outsourcer? In EMEA, a 2003 survey found that the most important factors to clients when outsourcing were:
Price;
Flexibility: expertise in the whole customer lifecycle and vertical expertise;
Technology and agent language capabilities were only of moderate importance;
Financial flexibility was less important, while geographical flexibility was even less so.
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Table 2.1: Important factors when outsourcing, by country (EMEA) Country
Top priority
Second
Third
Benelux France Germany Italy Spain Sweden UK
agent language capabilities price price vertical expertise price agent language capabilities price
technology contract flexibility contract flexibility contract flexibility vertical expertise customer lifecycle skills vertical expertise
customer lifecycle skills technology customer lifecycle skills technology customer lifecycle skills contract flexibility contract flexibility Business Insights Ltd
Source: Business Insights
Key future trends A number of key trends will have a significant effect on the outsourcing market over the next five years. These include:
Expanding service portfolios – outsourcers continue to expand their service portfolios to cover any combination of the following: managed services, technology hosting, back-office services, training and HR;
Evolving pricing models –more clients are demanding risk / reward sharing pricing models;
The growth of offshore and near shore –more companies are attracted by the potential cost savings of moving to cheaper locations;
The emergence of the ‘quality sell’ – in order to differentiate themselves from the local and offshore competition, outsourcers are having to distinguish themselves by the quality of their services.
29
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CHAPTER 3
The EMEA call center outsourcing market
31
Chapter 3
The EMEA call center outsourcing market
Summary
The call center market in EMEA is still growing healthily, particularly when compared to the US. Between 2002 and 2007, the number of APs in EMEA will grow at a CAGR of 7%, and by 2007, there will be almost 1.8 million.
Spain is the clear European leader in call center outsourcing, with 31% of APs outsourced.
Outsourcing will be one of the fastest growing sectors of the call center market in EMEA over the next five years, growing at a CAGR of 13.9%.
MEA and Eastern Europe will experience the most rapid growth over the next five years. Amongst the more developed markets, Italy will be the fastest growing.
In the more developed markets, the average size of outsourced call centers is decreasing as companies move towards more distributed environments and specialist centers.
By 2007, almost two-thirds of outsourcing traffic will be inbound.
The two largest verticals in EMEA are communications and financial services – combined they accounted for 50% of the market in 2002.
Communications, financial services and technology combined will still account for nearly 60% of APs by 2007.
Verticals that offer particularly good opportunities for outsourcers include the public sector, manufacturing and utilities.
The outsourcing market is highly competitive, with no one company dominating the market in any one country.
The traditional outsourcers account for the majority of the market in EMEA, however, the market is consolidating, particularly at an international level.
32
Market sizing There are currently nearly 1.3 million APs in call centers across the whole of EMEA. The call center market in EMEA is still growing healthily, particularly when compared to the US. Between 2002 and 2007, the number of APs in EMEA will grow at a CAGR of 7%, and by 2007, there will be almost 1.8 million.
Outsourced APs in EMEA
Proportion of agent positions that are outsourced
Figure 3.1: In-house and outsourced APs in EMEA, 2002 - 2007 100% 90% 80% 70% In house
60%
Outsourced
50% 40% 30% 20% 10% 0% 2002
2003
2004
2005
2006
2007 Business Insights Ltd
Source: Business Insights
Of the more than one million APs in call centers across EMEA, 149,000 of these were outsourced APs in EMEA in 2002, equivalent to 11.7% of the total number in the region. Spain is currently the clear European leader in call center outsourcing, with 31% of APs outsourced. Outsourcing will be one of the fastest growing sectors of the call center market in EMEA over the next five years and the growth of outsourced APs will outstrip the general growth of the market: while the total market will grow at a CAGR of 7%, the outsourcing sector will grow at 13.9%. This will create an extra 137,000 outsourced APs over the next five years. Some of these will be new APs, but
33
most will represent companies transferring agents from in-house to third parties. So by 2007, there will be 286,000 outsourced APs in EMEA, representing 16.1% of the total.
Country insight
High
Figure 3.2: The EMEA call center solar system Czech Republic
Tier 2
Russia Spain Austria
Portugal Turkey Hungary South Africa
Germany
Greece
Italy France Tier 1
Israel Average
Market growth, 2001 - 2007
Poland
Belgium Tier 3
Switzerland
Norway
Denmark Sweden Finland
Market size 2002:
Netherlands
Low
Ireland UK Low
Average
High
Market maturity Business Insights Ltd
Source: Business Insights
To a certain extent, the distribution of outsourced APs reflects the distribution of APs in general. The largest markets are still in Western Europe – UK, France, Germany, and the Netherlands, for example – but certain markets in EMEA have more significance as outsourcing markets than they do as call center markets in general. In particular, there are three markets that ‘punch above their weight’:
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Spain – the smallest of the six major call center markets in EMEA, but of particular interest to outsourcers due to the high propensity of Spanish companies to outsource their call center operations;
Eastern Europe – a rapidly growing domestic market, particularly in the EU accession states and Russia, but also a potential outsourcing location for Germanspeaking companies;
Middle East and Africa (MEA) – North Africa in particular is becoming a popular outsourcing location for French- and Spanish-speaking companies.
Over the next five years, all of the outsourcing markets in EMEA will experience significant growth, but MEA and Eastern Europe will experience the most rapid. Amongst the more developed markets, Italy will be the fastest growing, while more mature markets, such as the UK, Netherlands and Spain, will grow less.
Another trend to note in the more developed markets is that the average size of outsourced call centers is decreasing as companies move towards more distributed environments and specialist centers. At the same time, in the less mature markets – particularly Eastern Europe and MEA – outsourcers are building larger centers to generate economies of scale and deal with the low-value, high-volume business that will move to near shore and offshore locations.
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Outsourcing traffic This section looks at the type of traffic that call center outsourcers in EMEA deal with now and will handle in the future. Traffic refers to any media traffic that is dealt with in the call center – including telephone, email, Web-based correspondence and any other new channels – although the vast majority of traffic is still through the telephone.
Figure 3.3: Summary of call handling functions High
Average call value
Callback
Inbound sales
Technical support help
Warm calling Inbound customer care
Collections
Outbound Cold cold calling calling
Low Low
Call volume
High
Business Insights Ltd
Source: Business Insight
Inbound and outbound traffic Outsourced call center traffic is currently segmented roughly 50/50 between inbound and outbound. Outbound is higher than the European call center average (currently 16%), but this type of traffic is unpopular and requires particular skills. It is, therefore, more likely to be outsourced – and will remain so in the future.
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Over the next five years, there will be a moderate growth in outbound traffic – driven primarily by the growth of proactive services and up- and cross-sell activities – and there is no doubt that outsourcers will gain a lot of this business. However, the trend for outsourcers to offer higher-value services and take greater responsibility for customer care means that the growth in inbound traffic will by far outweigh the moderate growth in outbound traffic. Consequently, by 2007, almost two-thirds of outsourcing traffic will be inbound.
Currently, the majority of traffic (more than 90%) is either sales or service-related, with a relatively small amount coming from helpdesk (6%) and a tiny minority classified as ‘other’ (generally market research and collections). Over the next five years, most growth in traffic will come from customer service and helpdesk functions. While it is becoming increasingly hard to distinguish between sales and service, the underlying trend is a move away from low-value, ‘cold’ contacts towards deeper relationships and ‘warm’ contacts.
Vertical focus Introduction Over the past few years, having a verticalized sales strategy has moved from ‘nice to have’ to ‘must have’ for any company selling IT products and services to the enterprise sector. This is especially true in relatively mature markets, such as call center outsourcing. The early adopters have already adopted, and in order to sell to the more conservative majority companies must be able to prove a real business case and the value add of their products and services. One of the most effective ways to achieve this is to understand the vertical markets being targeted and to develop products and services that meet their specific needs.
The two largest verticals in EMEA, by a significant margin, are communications and financial services – combined they accounted for 75,000 APs in 2002, or 50% of the
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market. Aside from these two, the only other vertical market to account for more than 10% of APs was technology (12.1%). After technology, all of the other verticals were of a relatively similar size, with none containing more than 10,000 APs.
Despite slower than average growth expected over the next five years, communications, financial services and technology combined will still account for nearly 60% of APs by 2007. However, the rest of the verticals will begin to catch up and, by 2007, most will have doubled in size. In fact, over the next five years, more than 60,000 APs will be created outside of these three core verticals. There are a number of verticals that offer particularly good opportunities for outsourcers:
Public sector – the fastest growing vertical, although still relatively minor. The public sector remains under-exploited in EMEA, especially in continental Europe;
Manufacturing – one of the largest vertical markets for call centers in EMEA, but very few have yet been outsourced;
Utilities – deregulation is beginning to open up the market in Europe, and strong CRM strategies will be vital for companies that wish to succeed in the long run.
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Figure 3.4: Outsourced APs in EMEA by vertical market
Communications Financial services Technology Entertainment, media and leisure Manufacturing Utilities
2007 2002
Retail Travel and tourism Distribution and wholesale Public sector Healthcare Other -
10
20
30
40
50
60
70
80
Number of agent positions (000s)
Business Insights Ltd
Source: Business Insights
Communications Simply providing customer service is no longer enough in the B2C communications space. Outsourcers must be able to demonstrate expertise in the areas of customer analytics, segmentation and loyalty, with a particular focus on two main areas:
Churn reduction – this is the key metric for mobile operators, but is also a priority for fixed-line operators, ISPs and cable providers, all of whom are facing competition and an increasingly restless customer base;
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Service migration – driven by the need to increase ARPU, but also for fixed-line telcos, ISPs and cable operators wishing to up- and cross-sell additional services, especially broadband and, in the latter case, traditional telecoms services.
In order to succeed in this area, outsourcers not only need to have expertise in the technology – specifically analytical CRM and intelligent contact routing – but also must be able to provide experienced people and innovative pricing models that allow service providers to trust the outsourcer to achieve these aims.
The move by service providers up the value chain provides both a competitive threat and partnership opportunities. However, the core expertise of outsourcers remains the management of people, understanding business processes and, increasingly, pricing services. Therefore, outsourcers should partner with service providers as the business expertise of the former combined with the technology expertise of the latter makes a very compelling proposition.
Economic and financial pressures mean service providers are looking at ways to reduce capital expenditure, and outsourcing CRM activities is clearly one way of achieving this. However, there are a number of caveats that must be taken into account:
In general, service providers have a wealth of CRM expertise in-house and have already made significant investments in technology training. While in some cases this may prove to be an insurmountable barrier, most of the time creative agreements can enable service providers to continue to use their existing investments. This could include any combination of transferring ownership of technology and/or people, and integration with existing technology infrastructure and front- and back-office systems;
In many cases service providers are very geographically focused, but the market is becoming increasingly international and pan-European. As a result, service providers with these kind of ambitions will tend towards the pan-European outsourcers;
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Offshore or near shore outsourcing is particularly attractive to service providers because of the volume of traffic they deal with. Whereas in most cases Western companies would be ill advised to set up their own call center in an offshore location, it is not inconceivable that BT, Deutsche Telekom or France Télécom would wish to set up their own centers in India, Poland or Tunisia. However, it is still most likely that they would wish to do this with a partner, so European outsourcers with offshore facilities and expertise would be in the best position to exploit this opportunity.
Propensity to outsource Companies in the communications vertical have the highest propensity to outsource of any vertical market in EMEA. In 2002, for example, 19.4% of APs in the communications vertical were outsourced and by 2007, this will have increased to 26.8%, representing more than a quarter of all APs.
Distribution and wholesale Call centers and CRM are not core activities to companies in the distribution and wholesale business, and are considered cost centers in the vast majority of cases. Therefore, there is little chance of winning very high value contracts in this market, and deals in this sector will be very price sensitive, which in the long term works in favor of outsourcers with offshore presence. Vendors should also note that within each country, there will also be a handful of relatively large opportunities.
Propensity to outsource Distribution and wholesale is a relative minor vertical for call centers, and the number of APs that are outsourced falls below the EMEA average. In 2002, 9.8% of APs in the distribution and wholesale vertical were outsourced and by 2007, this will have increased to 13.5%, or 10,500 APs.
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Entertainment, media and leisure The entertainment, media and leisure vertical holds significant potential for more forward-thinking outsourcers. Currently companies in this industry use call center outsourcers in areas of their business that deal with large volumes of customer contact, such as subscription management. However, as with mobile phone operators, the real challenge is to migrate customers to next-generation services and, in many cases, reduce customer churn.
As such, there are number of ways in which call center outsourcers can assist companies in the entertainment, media and leisure sector:
Using proactive marketing expertise to up- and cross-sell, and/or encourage the use of new, interactive services. The type of services required to do this range from customer segmentation and analytical CRM to outbound calling and campaign management;
Many companies in the entertainment, media and leisure industry provide poor and inefficient customer service. Working with outsourcers will enable these organizations to benefit from economies of scale and develop more effective customer service strategies. Outsourcers can work with companies to get the best from the Internet, the call center and, in the long term, iTV channels. In the latter case, working together will benefit both parties: companies involved with iTV will learn how to exploit their new technology for customer service purposes, while the outsourcer will be able to develop expertise in the new channel;
For outsourcers wishing to offer a broader suite of CRM and eBusiness applications and services, there is an opportunity to sell content management and personalization services to the entertainment, media and leisure industry. The ability to integrate with existing infrastructure and demonstrate an expertise in content management will be vital in this area;
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As with any industry that is changing rapidly, in order to stay ahead of the game and offer the fullest portfolio of services, there is potential to sell partner relationship management services and applications into this industry.
Propensity to outsource One of the fastest growing vertical markets for call centers in EMEA, companies in the entertainment, media and leisure vertical also have a high propensity to outsource. In 2002, 18.7% of APs were outsourced and by 2007, this will have increased to 24%, or 18,600 APs.
Financial services Despite the historical perception of financial services institutions (FSIs) as extremely reluctant to yield control, companies in this vertical are gradually becoming more inclined to outsource, driven by financial needs and the increasing ability to demonstrate the business case for outsourcing. This is especially the case in the more established and mature outsourcing areas, such as desktop, network and data center outsourcing.
However, while the majority of FSIs do in fact outsource some function or other, by far the majority rejects each individual type of outsourcing. This suggests that FSI take-up of outsourcing services will continue to be gradual and FSIs will seek actual proof that the benefits promised can be delivered in terms of costs and reliability. Aside from the perception of risk, three significant inhibitors to outsourcing in the financial services sector are:
Regulation – lack of clear regulation on the topic creates uncertainty as to what can and cannot be outsourced;
Taxation – looks set to remain a great hurdle for outsourcing in financial services. Where the sector is VAT-exempt, only a small proportion of the VAT charges incurred can be passed on to customers (through charges and admin fees). The
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sector is consequently disadvantaged by outsourcing unless the outsourcing service provider is also VAT-exempt;
Centralized IT structure – organizations that have grown organically or invested heavily in streamlining infrastructure following merger activity often develop a strong IT culture and are more skeptical of using external skills.
Historically, the retail banking sector has been a bigger user of infrastructure outsourcing services, while the financial markets and insurance sectors have been more accepting of third-party business process provision (custody and elements of claims processing, for example).
Looking ahead, growth in the retail banking segment will be robust in most European countries, although the Nordic region, Switzerland and, to some extent Italy, will experience more moderate growth as they struggle with regulatory issues. The most significant growth markets are Spain, the UK and Germany, which will be driven forward by rapid growth in the BPO segment (including call center outsourcing), especially front-office operations and transaction processing.
The fastest growing markets in the insurance sector will be Spain, France and the UK. The lowest penetration levels can be found in the Swiss and German insurance sectors, which have been held back by stringent legislation and market regulation.
While financial markets is the smallest of the financial services outsourcing segments, there are important opportunities here, particularly in the UK financial markets where take-up of outsourcing services has been quicker due to more developed financial markets and a higher degree of deregulation.
The call center and CRM outsourcing markets in financial services are developing from traditional campaign execution into full customer contact center outsourcing, presenting outsourcers in this market with strategic as well as tactical challenges. In this transition the outsourcers will need to develop new capabilities and expertise, both 44
in financial services-specific areas and in terms of technology. Credibility of an outsourcer and its systems will be vital for FSIs to hand over the active customer relationship to a third-party provider.
Becoming a universal outsourcer to the financial services industry will no longer be feasible, thus outsourcers that have not yet reached this status or come close to it will have to target niche markets, which works to the advantage of companies that specialize in call center and CRM services. However, in order to consolidate this position, outsourcers must develop expertise in the following areas:
Analytical CRM – in order to win higher value work, outsourcers must be able to demonstrate expertise in customer retention and improved up- and cross selling rates;
Increased vertical / country expertise – regulation plays a significant role in the market and, despite European convergence; it will continue to vary by country for the foreseeable future. The same is also true by industry and each will require a different approach and a different set of skills;
Non-call center expertise – although call center outsourcing is a growth area in the financial services sector, many FSIs are currently focusing on outsourcing their back office and other IT functions, rather than their call centers. Therefore, vendors should look to partnering with the large offshore specialists in this area to act as the call center part of any larger IT or BPO outsourcing deals that are in the pipeline.
Propensity to outsource Financial services is the largest vertical market for call centers in EMEA and the second largest for outsourced call centers. Propensity to outsource is slightly higher than the EMEA average, but is gradually increasing. In 2002, 11.3% of APs were outsourced; by 2007 this will have increased to 15.6%, or 62,000 APs.
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Healthcare The healthcare market in EMEA is a relatively minor one. Compared to the US, the primary care sector is very conservative when it comes to technology spending. Restrictions on marketing non-OTC drugs directly to consumers mean that the primary driver of investing in B2C CRM simply does not exist in many cases. However, there are some opportunities for outsourcers:
Private healthcare insurance is growing in EMEA, and this presents an opportunity for outsourcers with an expertise in this area;
Pharmaceutical companies continue to invest in marketing for OTC drugs;
The importance of even basic contact management is gradually beginning to be understood in the EMEA healthcare industry, and there are a number of big projects available, such as NHS Direct in the UK;
Propensity to outsource Healthcare is a relatively small market for call centers in EMEA, but it is growing rapidly. Healthcare companies in EMEA also have a high propensity to outsource their call centers: in 2002, 13.3% of APs were outsourced and by 2007 this will have increased to 17.3% - rates well above the EMEA average.
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Manufacturing For manufacturers that have outsourced production and other functions, an outsourcer that can offer services covering the supply chain and fulfillment functions is an extremely compelling proposition. Much manufacturing and product development is now outsourced to offshore and near shore locations, so companies that have done this successfully will be less cautious about outsourcing their call center offshore. Therefore, outsourcers that have the facilities or the relevant partnerships in place will be best placed to exploit such opportunities.
Although many manufacturers are trying to get closer to their customers, and this clearly presents an opportunity for outsourcers with an expertise in customer service, the higher value business in the long term will come from providing supplier and partner-facing call center services.
Propensity to outsource Although it is one of the largest vertical markets for call centers in EMEA, the majority of manufacturing call centers tend to be small and isolated and, therefore, not often outsourced. In 2002, just 4.2% of APs were outsourced and by 2007, this will have only increased to 6.8%, although it still represents 18,500 APs.
Public sector In government, transparency is a top priority. Some IT investments are specifically made to ensure transparency of government spending for audit purposes, and systems that record transactions, interactions and so on, help the government to demonstrate accountability for its decisions.
Embedded suppliers, such as EDS, BT, ICL/Fujitsu and Accenture, have historically dominated public sector technology sales. However, across Europe, governments are beginning to open up to new suppliers, partly driven by legislation, but also due to a realization that broader tendering can generate better value, particularly when some of
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the more embedded suppliers have recently been involved in a number of high-profile failures.
Consequently, there has never been a better time for outsourcers to look to the public sector for new business. However, there are a number of factors that should be taken into account first:
Procurement cycles are shorter and more transparent than they used to be, but can still be long. One useful development is the OJEC (Official Journal of the European Community). OJEC and its online versions – TED and SIMAP – are specifically designed to provide transparency for large projects and are usually used when the agency concerned wishes to generate a large range of responses for projects. Yet despite more open procurement procedures, there is no doubt the political pressures will mean members of the ‘old boys’ club’ and national champions have an advantage for the foreseeable future. Therefore, local outsourcers have a clear advantage over foreign players, but if there are no strong outsourcers, partnering with a local company and/or a company with experience in the market will put outsourcers at a clear advantage;
Quality and transparency are vital when selling into the public sector. In the UK, for example, winning government contracts without ISO 9000 certification is unlikely;
The public sector is extremely price-sensitive – all public sector call centers are essentially cost centers, and in most cases, a call center will be set up to deal with a particular pain point or to comply with regulation or policy;
Public sector call centers are unlikely to be very high-tech. However, because the primary drivers to implementation will be compliance and cost reduction, outsourcers should be able to push self-service technologies into the public sector if they can be proven to reduce cost.
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Propensity to outsource The public sector call center market remains small in EMEA, but it is growing rapidly, especially in the UK. The inherent conservatism of the sector, however, means that it has a relatively low propensity to outsource. In 2002, just 7.1% of public sector APs were outsourced and by 2007, this will have increased to 10.2% - still below the EMEA average, but 9,500 APs nonetheless.
Retail Developing expertise in channels other than the traditional retail environment has proved to be a challenge for the vast majority of retailers. There is, therefore, a good opportunity for outsourcers to build long-term relationships with retailers in this area. In many cases this will probably mean starting small – offering basic inbound services for loyalty card customer service, for example – but given the amount of guidance required in the long term, the possibilities of becoming a trusted partner are potentially huge.
One of the reasons that CRM and call center uptake in the retail sector has been so low is the lack of customer data. The majority of purchases are anonymous and, while retailers have been successful at using aggregated purchasing data to influence store design and promotions, they are only now beginning to use more personalized customer data. The growth of loyalty cards and retailers, especially supermarkets, selling services such as banking and telecoms, means that they have more customer data at their fingertips. So far, however, they do not necessarily have the expertise inhouse that will enable them to use this data. This presents outsourcers an opportunity in assisting retailers in using customer data more effectively.
A large proportion of recent IT investments by large retailers have been in the supply chain, based on the belief that generating efficiencies in this area will enable them to remain competitive on price. As such, there are still opportunities in the area of supplier-facing call centers, particularly with retailers that have a large number of suppliers/partners, such as supermarkets and department stores.
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Propensity to outsource When it comes to call centers, the retail sector remains conservative, particularly on the area of outsourcing. In 2002, 9.1% of APs were outsourced, but the market is growing rapidly and by 2007, this will have increased to 13.2%, or 16,700 APs.
Technology Large technology companies that serve a number of markets in EMEA need to provide pan-EMEA support. Although the market for providing such services is well established, there is still scope for growth. Clearly, companies with a pan-EMEA presence are best placed to serve this market, but being flexible will give companies the edge, particularly with regard to servicing multiple sites and providing in-sourcing and co-sourcing services.
Outsourcing providers should also remember that offering high-quality technical support is clearly more than just providing niche customer service. As such, only companies with proven expertise will be able to win large, complex technical support contracts. Those outsourcers that want to win clients in the IT services space should develop expertise in Professional Services Automation (PSA), to address existing project management issues and cut costs.
Propensity to outsource Technology is the third largest vertical market for outsourcers in EMEA, and technology companies possess the second highest propensity to outsource. In 2002, 17.1% of APs were outsourced and by 2007, this will have increased to 25.7% or 32,000 APs.
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Travel and tourism Being able to provide a true multimedia contact center solution is almost a prerequisite in the travel industry. Supporting Web channels, particularly Web-based purchasing and email support, is vital, but the travel industry is also likely to be an early adopter of emerging channels in the future, such as mobile (particularly outbound SMS for confirmation and cancellations), iTV (for travel bookings and flight information), and speech recognition (for customer self-service as well as outbound information). In addition, the demand for multilingual call centers is rising as the industry becomes increasingly international and companies expand.
Customer loyalty and retention are very important to airlines, car hire providers and hotel chains. Therefore, outsourcers that can support innovative loyalty programs and price these in an appealing way will be at an advantage. The complex relationships with partners and suppliers mean that there is also potential for providing supplier relationship and partner relationship management services to the travel and tourism industry.
Vendors with proven integration expertise in travel booking systems such as Amadeus, Sabre and Galileo, will be at an advantage when selling to the travel and tourism industry.
Propensity to outsource Call centers in the travel and tourism vertical tend to be relatively advanced, but many have been developed in-house and the propensity to outsource is relatively low. In 2002, 6.3% of APs were outsourced and by 2007, this will have increased to 8.2% or 11,200 APs.
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Utilities The way in which the utilities market in EMEA has developed, and will continue to do so in the future, works in the outsourcing sector’s favor. Expansion of product lines, growth through M&A activity and gradual consolidation have created challenges and opportunities for all utilities companies when it comes to call centers and CRM strategy.
Utilities companies tend to have a fragmented call center infrastructure and consolidation has to take place, either by bringing centers together physically or through networking and virtualizing existing centers. Those choosing the former route are ideal targets for traditional outsourcers, while companies that choose the latter are more likely to look to telcos and technology vendors for assistance.
Improving customer service is clearly a driver for consolidating call center infrastructure, but, more importantly, utilities with expanding product portfolios need to present a unified view to the customer if they are to up- and cross-sell new products and increase ARPU.
Propensity to outsource The utilities vertical is significant for a number of call centers, and the propensity to outsource is slightly below the EMEA average. In 2002, 11.9% of APs were outsourced; by 2007 this will have increased to 15.2% or 18,100 APs.
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Competitive dynamics The following types of company all have an influence on the call center outsourcing market in EMEA:
Large pan-national outsourcers;
Large national outsourcers;
Small national/regional outsourcers;
Offshore outsourcing specialists;
Systems integrators;
Telcos.
As a whole and at the individual country level, the market is highly fragmented and competitive. There are ten pan-EMEA call center outsourcers, a handful with a presence in two or three countries and a large number of national champions, large and small. As a result, the outsourcing market is highly competitive; with no one company dominating the market in any one country. Amongst other things, this clearly exerts a downward pressure on prices for basic services.
France and the Netherlands have the largest number of pan-European outsourcers, as well as the headquarters of three of the four EMEA-based companies: Teleperformance, Nest Call Center Network (both in France) and SNT (the Netherlands). The Netherlands in particular is an attractive location for pan-EMEA call centers because of the number of languages spoken there.
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Traditional outsourcing competitors The traditional outsourcers account for the majority of the market in EMEA; however, the market is consolidating, particularly at an international level. To stay competitive, the ten pan-EMEA outsourcers identified need to expand across EMEA and possibly internationally, if the firm is of sufficient size.
However, there are other options: Vertex in the UK, for example, has taken advantage of the trend to move offshore by building centers in India, while Spanish Atento is expanding into the Americas. Another option for companies wanting to dominate a domestic market is to buy or merge with local operators.
Increasing geographical coverage is not the only reason to expand, however. The range of services outsourcers are now offering, and the number of ways in which these services can be provided, are growing rapidly, and in many cases the only way to keep ahead of the market is to expand or partner effectively.
All of the large vendors, whether national or international, are aiming at the goal of offering the complete customer relationship solution. This does not mean that all clients will purchase all aspects of this solution or even that any will. Instead, outsourcers will have to be flexible and fit the set of modules to the clients’ needs. To achieve this flexibility they will need a range of modules from which the clients can pick. Popular areas of specialization, for both small and large outsourcers, include:
Vertical expertise;
Functional expertise – being recognized as the best provider of outbound or helpdesk services, for example;
Back-office expertise –developing expertise in billing or fulfillment services, for example;
Human resources – providing highly trained people or external recruitment and training services, for example.
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Non-traditional competitors The nature of outsourcing is changing, and as companies demand more flexible services and technology, it presents a number of other types of companies a possible role in the outsourcing market.
Although the European call center outsourcing market will not shrink as a result of offshore outsourcing, there is little doubt that more and more companies will be looking to offshore locations to save money. Hence, outsourcers should look to partnering with offshore specialists for the relevant offshore expertise.
The very nature of call center outsourcing means that telcos play an important role in the market. As outsourcers essentially move towards developing expertise in providing business processes to their clients, expertise in technology becomes less of a core competency. Therefore, in the future, outsourcers will look to partner more closely with technology providers and telcos to provide technology expertise.
The nature of call center outsourcing means that it is a very labor-intensive business, and the nature of the consultancy market means that consultants are unwilling to employ large numbers of people who generate only minimal amounts of revenue. Therefore, systems integrators, which have begun to move into the call center space, will partner with call center outsourcers most of the time to provide the actual call center services (the one significant exception to this rule is EDS, which has its own global network of call centers).
Partnerships like this can prove beneficial to both parties: the systems integrator can add call center outsourcing to its service portfolio, and the call center outsourcer gains access to larger accounts and C-level executives and, therefore, the opportunity to sell higher value services based on customer satisfaction and retention.
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Strategic recommendations To compete effectively, outsourcers must:
Verticalize their service offerings;
Develop industry-standard best practices;
Employ personnel with industry experience, at both operational and sales and marketing levels;
Use industry standard and best-of-breed technology;
Develop relevant pricing models;
Partner to cover any services that are missing from their product range;
Build a portfolio of reference clients;
Develop joint offshore and onshore services, especially since there is little doubt that off shoring will be a requirement in a significant proportion of outsourcing deals in the future;
Offer a viable onshore / offshore model since most companies wishing to outsource are likely to want to keep a certain proportion of agents in Europe;
Be flexible in their approach to clients, in terms of both the services they offer and the way in which they deliver these services.
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CHAPTER 4
The US call center outsourcing market
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Chapter 4
The US call center outsourcing market
Summary
By 2008, the value of the call center outsourcing market in the US will grow to $23.9bn at a CAGR of 4.9%.
Slow growth in US APs has resulted from a combination of tough economic conditions, outsourcing saturation in key verticals and expansion into offshore/near shore locations.
The TSR is expected to impede outsourcing growth, resulting in layoffs and a significant decline in APs, as telemarketing accounts for roughly 30% of outsourced APs.
In the next five years, the number of outsourced APs dedicated to inbound services will increase from 224,000 in 2003 to 274,000 in 2008.
The most promising verticals are two of the smallest – utilities and government – which will grow at a CAGR of 11.8% and 11.4% respectively.
The competitive landscape of the US call center outsourcing market is heavily fragmented with the top 10 US outsourcers accounting for roughly 30% of total revenues.
A growing concern among some outsourcers has been the entry of systems integrators into the call center space. However, most systems integrators do not present a long-term competitive threat to outsourcers, as call center services are not their core competencies.
Many outsourcers have expanded the breadth and depth of their offerings to complement their core customer care solutions.
US outsourcers must be in a position to offer their clients a global network of near and offshore countries. The growing Hispanic population can also be serviced in this way.
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Market sizing The US market currently has 320,000 outsourced APs, representing 11.2% of the country’s total number. This is expected to grow by 12.7% to 361,000 by 2008, equivalent to 12.3% of total APs (see Figure 4.5).
Figure 4.5: Proportion of APs in the US, 2003-2008 Outsourced agent positions
3,500
In-house agent positions Agent positions (000s)
3,000 11.4%
11.2%
11.6%
11.8%
12.3%
12.0%
2,500 2,000 1,500 1,000 500 0 2003
2004
2005
2006
2007
2008
Business Insights Ltd
Source: Business Insights
In 2003, there were 1,891 outsourced call centers in the US, representing $18.8bn. By 2008, the value of the call center outsourcing market in the US will grow to $23.9bn at a CAGR of 4.9%.
Slow growth in US APs has resulted from a combination of tough economic conditions, outsourcing saturation in key verticals – communications, financial services and technology – and outsourcers’ expansion into offshore/near shore locations as an alternative to expansion in the US.
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These factors have led outsourcers to broaden service offerings, target new vertical markets and expand into offshore/near shore locations, in an effort to stimulate revenue and market share growth. In doing so, outsourcers are driving call center outsourcing in the US to evolve gradually from a cost containment to a strategic measure for forwardlooking companies.
Country insight The region with the highest number of call centers is the South; accounting for 40% of all US outsourced call centers, while the Midwest and West account for 25% and 20% respectively. The Northeast region accounts for 15%, reflecting higher labor and real estate costs. However, many financial services clients, in particular, have set up call centers in this particular region as they prefer to have call centers in close geographic proximity to their headquarters. For the most part, however, outsourcers have for more than a decade set up shop in regions of the US that support lower capital investment in call center maintenance and labor.
It is predicted that the Northeast region will witness negative growth, owing to its expensive labor rates. In contrast, the largest proportional growth will occur in the number of outsourced call centers in the West. Plenty of available and affordable real estate – outside major urban areas, such as San Francisco – and a slightly higher unemployment rate will contribute to the growth of call centers in this region. Denver, Las Vegas and Salt Lake City have further positioned themselves as viable call center locations, while Colorado, Nevada and Utah, as well as Arizona and New Mexico, offer low labor and real estate costs.
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Impact of the TSR on outsourcers In October 2003, the Federal Trade Commission (FTC) updated the Telemarketing Sales Rule (TSR), and opened the national Do Not Call registry, prohibiting telemarketers from calling numbers consumers have registered on this list.
According to opponents of TSR, the sheer costs and regulation placed on telemarketers will decimate their core business, revenues and resources. Proponents, meanwhile, argue that those who do not register for the ‘National Do Not Call Registry’ are more qualified sales targets for telemarketers, leading to an increase in the percentage of customer acquisition calls.
For outsourcers, the TSR has a number of implications. First, it is expected to raise fixed costs for outsourcers engaging in outbound telemarketing services, as they will have to purchase TSR-compliant technologies, such as predictive dialers, and hire relevant personnel to ensure regulatory compliance. This could cost a small-sized outsourcer up to $175,000, a mid-sized outsourcer up to $700,000 and a large-sized outsourcer up to $2 million.
The following highlights areas where outsourcers are expected to make sizeable investments in order to comply with the recent amendments to the TSR:
Hiring of personnel – outsourcers will require internal monitors to ensure regulatory compliance and IT personnel update and configure existing systems to check internal call lists against the national ‘Do Not Call’ list, and ‘scrub’ or delist, those phone numbers from the call lists once every 90 days;
Agent training – agents will have to undergo training in respect of new requirements for up-selling activity. When up selling customers in an external up sell, agents are required to disclose additional information pertaining to the identity of the caller, the purpose of the call and a variety of other related data. During an
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internal up-sell, agents are required to provide any new disclosures that were not identified in the original transaction;
Upgrading existing (or purchasing new) technologies – outsourcers will have to upgrade predictive dialers to reduce call abandonment – an outbound call is considered abandoned if the telemarketer does not connect the call within two seconds of the person’s completed greeting – and also call recording (including logging) for documentation and verification purposes. The TSR now requires outsourcers to provide audio records of transactions that carry express informed consent and express agreements by customers, such as free-to-pay conversion (transaction that involve the agent obtaining from the customer at a minimum the last four digits of the account to be charged, and the express agreement of the customer to be charged for the goods or services using the same account number.) As such, outsourcers will have to upgrade storage capacity to facilitate backlogging of audio records for a period of 24 months from the date the recorded transaction is produced, as stipulated by the TSR;
Annual fee – they will have to purchase the national ‘Do Not Call’ list for an annual fee.
The TSR is expected to impede outsourcing growth, resulting in layoffs and a significant decline in APs, as telemarketing accounts for roughly 30% of outsourced APs. Among the most affected will be smaller outsourcers whose core offering are B2C telemarketing services.
Larger outsourcers will also be affected and will downsize their workforce and facilities as well, although, unlike many smaller outsourcers, they possess the financial resources to cover the fixed costs for regulatory compliance. As a result of the capitalintensive environment brought upon by the TSR, outsourcers with stronger financial resources are better positioned to stay in business and redirect business activity to offer telemarketing services that are exempt from the TSR, and/or inbound customer care services in efforts to increase revenue.
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Outsourcing traffic Inbound activity will increase as a proportion of total call center activity In 2003, inbound activity accounted for 70% of outsourcers’ average total activity, an increase of 5% since 2000. The outsourcing industry is steadily offering more inbound services – such as customer service, helpdesk, direct response and tech support – as growing end-user demand and declining margins on existing outbound services predicate the need to expand product portfolios to boost revenues.
A number of outsourcers that have traditionally offered primarily outbound services will gradually increase their proportion of inbound activity as telemarketing legislation and higher revenues lead outsourcers to abandon outbound services.
Services for inbound activity generally have a higher market value than services for outbound activity. Thus, offering inbound services is more lucrative for outsourcers. In addition, contracts for inbound services are longer, ranging from three to five years, while outbound services are shorter, ranging from one to three years.
In the next five years, the number of outsourced APs dedicated to inbound services will increase from 224,000 in 2003 to 274,000 in 2008. The number of APs dedicated to outbound services will decrease from 96,000 in 2003 to 86,000 in 2008.
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Impediments to outsourcing growth in the US This section focuses on the three key impediments that have limited growth in the US call center outsourcing market:
Sluggish economic conditions – generally, a sluggish economy should drive growth in outsourcing as it provides a channel for companies to reduce capital outlay. However, sluggish economic conditions have severely affected numerous industries, causing a decrease in the client base of outsourcers. In addition, companies are exhibiting more caution, causing sales cycles for outsourcers to lengthen and sometimes delay a company’s outsourcing decision;
Maturation in traditional outsourcing vertical markets – outsourcing growth in the verticals of communications, financial services and technology is limited as a result of the maturity of these markets. Combined, these three vertical markets account for 67% of outsourced APs, so, consequently, sluggish growth in these markets has hampered growth for the overall US call center outsourcing industry;
Expansion outside the US – incessant pressures to cut costs and reduce capital outlay has triggered the offshore and near shore movements in the call center outsourcing industry. For outsourcers, labor accounts for the majority of overhead costs, roughly 66% of call center costs. In addition to lower labor costs, outsourcers are tempted to go offshore/near shore because it offers access to higher educated labor, lower agent turnover rates, undisrupted 24-hour customer service and access to Spanish-speaking agents.
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Vertical focus Introduction Modest growth in the US call center outsourcing market has been driven primarily by the traditional outsourcing markets – communications, financial services and technology – which have consistently had the highest proportion of outsourced APs (53.2% of the total outsourcing market). However, these vertical markets are mature and growth will be limited through 2008. The sheer size of the financial services vertical, however – 604,000 outsourced APs – means that it will continue to be an important market, especially in faster growing sub-sections of retail banking and insurance.
For outsourcers looking to expand, the most promising verticals in terms of growth are two of the smallest – utilities and government – with CAGRs of 11.8% and 11.4% respectively. However, the overall number of outsourced US APs will grow at a modest CAGR of 2.4%, due to sluggish growth in communications, financial services and technology. In efforts to increase profit margins in these vertical markets, outsourcers will be focusing on offering services that have a higher market value, such as inbound services.
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H ea lth ce In su ra nc In e ve st /S ec
En te rt G ov
C om m Ed u
Figure 4.6: Vertical market comparison, 2003
Call center size
Small
Outbound vs. inbound
Inbound
Customer focus
B2C
Customer service
Low
Help desk
Low
Direct response
Low
Collections
Low
Tech support
Low
Value-add services
Low
Business Insights Ltd
Source: Business Insights
Communications Outsourced call centers in the communications vertical market have a healthy mix of both inbound and outbound activity. Inbound activity consists of new customer inquiries, account queries and changes to service; outbound activity consists of the telemarketing of service packages. The communications vertical market, at 33.4%, accounts for the largest proportion of outsourced APs (106,900).
Education Outsourced call centers in the education vertical are typically small and focus on registration and financial aid inquiries. Customer interactions are almost entirely inbound. The education vertical market accounts for 0.3% of all outsourced APs (900).
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TLFeBOOK
Entertainment Outsourced call centers in the entertainment vertical market primarily offer inbound customer care services for booking and customer inquiries. The entertainment vertical market accounts for 0.9% of all outsourced APs (2,860).
Financial services The financial services sector represents the second largest vertical market, accounting for 19.8% of outsourced APs.
Retail banking Outsourced call centers in the retail banking sub-vertical offer primarily outbound customer acquisition and retention services for financial products and services, in addition to maintaining contact with inactive customers. The credit card industry makes up a large proportion of the retail banking sub-vertical. Customer interactions in the credit card industry are both inbound (customer care) and outbound (customer acquisition) in nature. Due to the high volume of financial activity, outsourced collections services are prevalent in this sub-vertical. Retail banking accounts for 68.7% of the financial services vertical, and 13.6% of all outsouercd APs (43,600).
Insurance Outsourced call centers in the insurance sub-vertical primarily service direct insurance, with the majority of activity being inbound from customers with insurance claims. Downtime may be filled by outbound activity to maintain contact with inactive customers. The insurance sub-vertical accounts for 25.8% of the financial services vertical market and 5.1% of all outsourced APs (16,300).
Investments and securities Outsourced call centers in the investments and securities sub-vertical provide primarily inbound customer care services to assist brokers and support clients. Agents in outsourced call centers are highly trained, as they must serve as a knowledge base to a
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financial niche market. However, the majority of companies in this sub-vertical have kept call center operations in-house, as customer service is a core competency of investment firms. The investments and securities sub-vertical accounts for 5.6% of the financial services vertical market and 1.1% of all outsourced APs (3,500).
Healthcare and pharmaceutical Outsourced call centers in the healthcare/pharmaceuticals vertical market primarily operate in a B2B environment. Typical inbound interactions include pharmaceutical sales, order processing and delivery status inquiries. The healthcare/pharmaceutical vertical market accounts for 2% of all outsourced APs (6,400).
Manufacturing Outsourced call centers in the manufacturing vertical market service provide inbound B2B and B2C inquiries. For example, manufacturers may provide helpdesks that distributors or retailers call for information on certain products. A small percentage of activities deal with one-off situations such as product recalls, which have been common in the automotive industry. The manufacturing vertical market accounts for 4.1% of all outsourced APs (13,100).
Public sector Outsourced government call centers are used primarily for customer inquiries and tend to handle inbound activities. Call center size bands range according to the size of the government agency. For example, an agency as large as the US Postal Service has a call center that supports roughly 750 APs. The government vertical market accounts for 2.1% of all outsourced APs (6,700).
Cost control measures taken by the federal, state and local governments will drive outsourcing growth in the government vertical. Specific opportunities relate to government-specific functions that are not ‘inherently governmental’, such as customer care and business processes, which include employee benefits administration, back-
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office and fulfillment services. As a result of the Federal Activities Inventory Reform Act (FAIR) Act of 1998, which essentially paved the way for the outsourcing of certain government functions that were not deemed ‘inherently governmental’, government agencies are able to outsource these services.
Federal government Outsourcing – the federal government uses the term ‘competitive sourcing’ – is provided through the Office of Management and Budgets (OMB) Circular A-76, which establishes the process for deciding whether work performed by a federal agency should be outsourced and to whom. In order to meet the OMB’s 2003 goal, the OMB must now complete public-private direct conversion competitions on 15% of the approved commercial workforce, the highest percentage to date. This broadens the pathway for outsourcing providers to contract customer care services with the federal government. As such, outsourcing customer care at federal government level will increase over the next five years, as outsourcing providers are able to deliver cost competitive bidding and greater depth of value-add billing and BPO services. Outsourced services will be based in the US, as opposed to being sent to offshore/near shore locations, as the US government is under extreme pressure to keep work within US borders.
State and local government Many state and local government agencies are plagued with budget deficits, understaffed workforces and rising healthcare costs, and have taken short-term solutions to solve these. Government executives understand that short-term solutions will not suffice in the long term, as there will be a degradation in customer service levels to constituents. As a result, outsourcing is gaining momentum in state and local governments as government executives see the long-term benefits of outsourcing. As agencies begin implementing long-term strategic initiatives in customer service and business processes, outsourcing opportunities will increase in this sub-vertical. For similar reasons to those of the federal government, state and local government agencies will be keeping outsourced services within the borders of the US.
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Retail Outsourced call centers in the retail vertical market provide primarily inbound order processing as well as customer complaint and inquiry services, to support retailers’ marketing campaigns in catalog and television–based home shopping. In addition, the increased penetration of Web shopping among customers has led outsourcers to offer value-add services such as Web-based self-service functions, order tracking and marketing services to provide a comprehensive solution for retailers. The retail vertical market accounts for 13.1% of all outsourced APs (42,000).
Technology Outsourced call centers in the technology vertical market offer primarily inbound B2B and B2C services that include helpdesk and technical support services to handle customer requests for assistance on a particular technology. Technology is the third largest vertical market and accounts for 13.8% of all outsourced APs (44,100).
Transport and logistics Outsourced call centers in the transport/logistics vertical market provide inbound customer care services that includes order tracking through phone and/or Internet, in addition to handling customer complaints and inquiries. The transport/logistics vertical market accounts for 1.5% of all outsourced APs (4,780).
Travel and tourism Outsourced call centers in the travel and tourism vertical market provide a mix of inbound and outbound activity. Inbound activity is comprised of mainly booking and customer service, while outbound activity is primarily telemarketing services for companies such as cruise lines and resorts. The travel and tourism vertical market accounts for 1.9% of all outsourced APs (6,060).
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Utilities With the deregulation of the utilities industry, increased competition will undoubtedly lead to a focus on customer service provision as providers attempt to differentiate themselves in a commoditized market. To create greater value in their utilities solutions, outsourcers have been verticalizing their solutions with the addition of valueadd services to core telephone and email customer service. These value-add services include Web-based self-service, billing, collections and back-office processes, such as service activation, service cancellation and service change. By offering verticalspecific offerings, utilities companies can outsource an entire customer service division to one outsourcing provider.
Outsourcers such as Aegis Communications, EDS, ICT Group, Precision Response, Sitel, Sykes, TeleTech and West, have already followed this strategy, offering specific utilities technologies, customer care services and value-add services. Sykes and Precision Response have further productized these solutions as Sykes IGS and PRC Energy. For example, Sykes IGS offers a portfolio of solutions, which includes geospatial mapping and wireless dispatching technologies, billing and collections, service initiation/cancellation, trouble reporting and customer care services.
The utilities vertical market accounts for 5.1% of all outsourced APs (16,300) and roughly one-tenth of the utilities industry has outsourced or plans on outsourcing some type of call center function in the next two years. Outsourcing customer care will become more widely adopted by utilities companies in the next five years as the benefits of reduced costs, improved efficiency, effectiveness and customer service are realized.
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Other vertical markets This category primarily consists of publishing and non-profit companies. Call centers in these markets engage in outbound telemarketing and direct response activities. ‘Other’ accounts for 2% of all outsourced APs (6,500).
Competitive dynamics The competitive landscape of the US call center outsourcing market is heavily fragmented with the top 10 US outsourcers accounting for roughly 30% of total revenues and deriving the majority of this from the communications, financial services and technology vertical markets. In fact, 85% of large and mid-sized outsourcers in the US are heavily concentrated in these vertical markets.
New entrants to the US competitive landscape include systems integration firms, such as Accenture and Computer Sciences Corp(CSC). These companies have recently begun offering call center services to complement their business process outsourcing (BPO), IT, systems integration and professional service offerings, and are competing with outsourcers on contracts in the utilities and government vertical markets.
Systems integrators A growing concern among some outsourcers has been the entry of systems integrators, such as Accenture, IBM and CSC, into the call center space. Traditionally, systems integrators assist a company in implementing and integrating CRM technologies with legacy systems, as well as with other customer-facing technologies. Many of the large system integrators offer a full suite of outsourced services covering IT, BPO and CRM. In addition to these core services, some systems integrators, such as Accenture and CSC, have added call center services into their product portfolios to provide a comprehensive solution to clients. This has led to a recent increase in systems integrators and outsourcers bidding on the same call center contracts.
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The following are some of the call center award wins announced by systems integrators in the past two years:
In 2002, Accenture opened a taxpayer call center for the Michigan Department of Treasury to provide Michigan taxpayers with customer care services;
Again, in 2002, CSC opened more than three global call centers for the US Department of State to handle the growing volume of visa inquiries and applications in different countries;
In 2003, Accenture signed a BPO agreement with Southern Company GAS. The services covered under the agreement include call center, billing, correspondence management, transaction management, revenue management, collections and exception processing operations.
Most systems integrators do not present a long-term competitive threat to outsourcers, as call center services are not core competencies for systems integrators. In fact, many outsourcers have strategic alliances with systems integrators, which benefit outsourcers by increasing their channel sales.
Due to the labor and capital intensive, low margin environment of the call center outsourcing industry, systems integrators in the long term will focus on their core competencies in systems integration, consulting, IT, CRM and BPO services, while adding call center services to their portfolios through partnerships with outsourcing providers. However, in the short term, expect more award wins from systems integrators in the burgeoning government and utilities verticals, similar to those highlighted above.
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Outsourcing providers Outsourcers have realigned their pricing and marketing strategies, increased the breadth of their value-add services, acquired other companies, invested in technologies and pursued labor arbitrage opportunities in near shore/offshore countries to remain competitive in the US market. With outsourcers’ continued expansion overseas, competition to service the US market will occur on a global scale, as outsourcers compete to offer high-value, low-cost solutions through their near shore/offshore call centers.
Strategic recommendations The challenges of acquiring new clients in the US market have outsourcers hard pressed to provide low-cost, high-quality, vertical-specific solutions to meet the needs of clients. As such, outsourcers adopting a number of different strategies.
Adding more value-add services Sluggish growth in core markets has predicated the need for outsourcers to broaden their product offerings. Many outsourcers have expanded the breadth and depth of their offerings to offer services such as billing; fulfillment, marketing, HR management, back-office processes and professional services to complement their core customer care solutions. With the addition of more value-add services outsourcers are able to penetrate deeper into the installed base, gain entry into new markets and sustain a solid overall business model.
Outsourcers are developing value-add services either through in-house development, partnerships with other companies or acquisitions. For example, in 2003 Aegis Communications partnered with WNS North America Inc to offer a full suite of CRM and BPO services to clients in North America. Larger outsourcers; such as Convergys and West, have opted to acquire companies to expand the breadth of their services. For example, in 2002, West acquired Tel Mark Sales, a professional marketing/sales
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services firm while Convergys acquired Cygent, a billing/order management software provider.
Penetrating new vertical markets Outsourcers,
who
serve
traditional
outsourcing
vertical
markets,
such
as
communications, technology and financial services, have found that these markets are approaching maturity in the US market and growth is slowing. This has predicated the need for outsourcers to look for new revenue opportunities in new vertical markets – such as government and utilities – which have not shown a strong propensity to outsource in the past, but are positioned to increase outsourcing of customer care business processes in the future. Outsourcing in the utilities vertical will be driven primarily by the need to differentiate on service as continued industry deregulation occurs. Outsourcing in government will be driven by cost containment measures taken by federal, state, and local government agencies.
It is logical that companies would seek an outsourcer that has relevant experience and proven success in providing customer care to its specific market. To serve the government market, customer care and BPO should be part of an outsourcer’s service offering, while outsourcers looking to enter the utilities market need to specialize their offering with a pertinent technology and service portfolio, which should include analytics.
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Use technology as a competitive differentiator Technology is increasingly becoming a competitive differentiator for outsourcers in the call center outsourcing market. However, having advanced technologies – such as speech recognition or IVR –will not suffice on its own as a competitive differentiator. Instead, competitive differentiating technology comes in the form of having and fully utilizing customized solutions that work intuitively and seamlessly with these technologies to create a more compelling solution for clients.
Outsourcers, through in-house or outsourced engineering efforts, are building proprietary applications to work in conjunction with technologies purchased from technology
vendors
and
offer
unique
solutions
to
clients.
For
example,
Teleperformance has developed an application called Enhanced Screen Pop (ESP), designed to gather information from customers via IVR – either through touch-tone or speech recognition – and sends the information, along with the customer’s existing records, to live agents as calls are transferred. This reduces agent time spent on a call, generating savings for the outsourcer while enhancing the customer experience.
Establish a global network of call centers in offshore/near shore locations US outsourcers must be in a position to offer their clients a global network of near and offshore countries. Global capability will enable the most enticing cost offerings and the growing Hispanic population in the US can also be serviced in this way. Establishing a global network of call centers in offshore/near shore locations will enable US outsourcers to offer:
Competitively priced services – outsourcers are able to leverage labor arbitrage opportunities in offshore/near shore locations to price their solutions competitively against outsourcers with existing offshore/near shore operations. Small and midsized outsourcers that lack the resources to expand their own operations to offshore/near shore locations should look to establishing partnerships with outsourcers in other geographies as a means to facilitate a global network of call centers;
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Services that meet the needs of large multinational corporations – outsourcers are able to service more customers in different geographies and multiple time zones through a global network of call centers. For example, a multinational US-based outsourcer with call centers in the US, Canada, Mexico, the Philippines, and India is better positioned to win a contract with a large multinational company looking to offer 24/7 customer service at optimal cost, minimize its number of vendor contracts and service its global customer base;
Multilingual services – call centers in offshore/near shore locations enable outsourcers to offer multilingual services to the US market. Outsourcers with call centers located in Spanish-speaking countries, such as Mexico, are able to leverage qualified, bilingual labor at lower cost and service the US’ sizeable Hispanic population of 40 million people.
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CHAPTER 5
Offshore outsourcing: India not the only destination
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Chapter 5
Offshore outsourcing: India not the only destination
Summary
The growth of offshore outsourcing has been driven by one factor: reduced cost.
The US leads the global market for demand in offshore-outsourced call centers.
In India, outsourcing providers are now themselves outsourcing to, or partnering with, outsourcing providers in other offshore markets in order to offer additional capabilities to their customers.
UK uptake of offshore call center outsourcing will grow strongly going forwards, with call centers moving to India initially, and to South Africa and Malaysia in the longer term.
There are a number of barriers to offshore outsourcing including conservatism, risk, lack of non-English or Spanish-speaking locations, quality concerns, domestic labor issues, bad publicity, and security and privacy concerns. Top of the list is a customer’s apprehension about ceding control to a third party.
The key factor when selecting an offshore location is language.
India will continue as the largest English-speaking offshore market for the foreseeable future, growing at a rate of 19% up to 2007.
Mexico will overtake Canada as the biggest individual supply market for offshore outsourcing in the Americas during the course of 2005/6.
The new EU accession states are highly suitable as near shore locations for call center activity outsourced from within the EU in the short to medium term, before they reach wage parity with the rest of the EU.
Some call center operations are moving towards a dispersed operating model that leverages a blend of domestic onshore, near shore and offshore call centers.
Only 5% of the world’s 4.78m APs will be outsourced to an offshore location by 2007.
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Introduction Off shoring has attracted much media attention in recent years – not much of it positive. However, the offshore call center outsourcing marketplace is maturing and will continue to grow strongly, as more businesses realize the benefits of leveraging real cost savings, true economies of scale and competitive advantage by outsourcing part of their call center operations to offshore markets.
Non-English-speaking countries are increasingly moving to the offshore outsourcing model. Currently, as is the case with Japan, these countries face a limited number of markets outside of their geographical region where they can locate offshore call centers. As Spanish and Chinese languages become more widely spoken this will change, however.
As the market evolves, a number of global outsourcing providers are emerging and it is becoming increasingly difficult to identify the portion of their operations that are offshore. The lines blur when one tries to distinguish whether they set up call centers in new markets to serve their offshore customers in the US, Europe or Asia, or whether they do so to establish a regional presence.
Definitions Near shore This relates to countries that are either close neighbors or that share a geographical border or boundary with one another. Examples of US near shore locations are Canada, Mexico and the Caribbean.
Offshore This is used to describe countries that are remotely located from the principal market, so India is an offshore location for both the US and the UK.
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The evolution of offshore and near shore outsourcing The growth of offshore outsourcing has been driven by one factor: reduced cost or, more specifically, cheaper labor. Generally, 59% of the cost of running a typical Western European call center is labor cost. Although the major cost saving is cheaper labor, often well educated, there are also other savings:
Real estate costs are generally lower, and this is often backed up by generous relocation grants and significant tax breaks;
The cost of call center technology – this is generally comparable to the cost in Western Europe or the US, but the cost of implementing technology is generally more expensive in these countries than the technology itself, and this is again an area where significant savings can be generated offshore.
Moving from capital expenditure to operational expenditure One very visible way of cutting capital expenditure involves moving to an ‘operational expenditure’ platform. Rather than committing a lump sum to a black-box project, expenditure is accrued on a monthly basis, improving the frequency and visibility of costs. This, in turn, makes departments and cost centers more accountable.
The outsourcing of call centers epitomizes this model. Monthly or annual fees and costs are agreed upfront with the outsourcing provider and can be forecast much more accurately going forwards. Over the entire life of the project, the outsourcer may not actually save much money, but it will have been able to report at any given time on the true cost to the business of running its call center(s) offshore.
Similarly, firms that outsource can leverage economies of scale and outsourcing providers’ infrastructure investments. Outsourcing providers build their business on a dedicated technology platform and a range of supported processes. As markets evolve, they make further technology investments to adapt and stay ahead of the game. By moving to an operational expenditure model and outsourcing, firms reduce these
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technology investments and their risk profile by placing the burden of responsibility for their technology platform on the shoulders of the outsourcing provider.
More demand for multilingual services Many firms that are in the market for offshore-outsourced services are there precisely because they need to support multiple languages and these services are well provided for by outsourcing providers that have operations in various countries.
The age-old argument of how to run multilingual support programs in call centers continues today. The challenge is to decide whether to locate all the agents in one place and pay higher salaries to attract multilingual staff, or instead establish a network of call centers in countries where the native population possess the requisite language skills.
As local origin outsourcing providers seek to increase their global foothold, they are attempting to attract new business from a number of different countries. The countries that are more likely to outsource have a large number with non-English primary language needs and unless the offshore countries can offer at least one major, large and truly multicultural city, they will find themselves at a disadvantage to the near shore locations that often boast a truly cosmopolitan make-up or at least sizeable migrant populations due to their proximity to the market in question.
Demand is growing and shifting eastward The US leads the global market for demand in offshore-outsourced call centers. But as was the case with IT outsourcing and BPO, where the US leads, the rest of the world follows, including the UK, Western Europe and Asia-Pacific.
In India, a market that led the charge to supply the offshore capacity, outsourcing providers are now themselves outsourcing to, or partnering with, outsourcing providers in other offshore markets in order to offer additional capabilities to their customers, such as multilingual operations. These outsourcing providers find that they need to 83
establish themselves in their target markets (principally the US and the UK) so that they have a real presence closer to their customers, and a hope of being considered as serious rivals to the traditional – and now global – outsourcing providers.
Specific country requirements As more countries start to send call center activity offshore, customer decision factors and demand drivers are evolving. This section presents the specific requirements of the major global customers of offshore outsourcing. Table 5.2 lists the primary markets that are used by the leading countries outsourcing call center activity overseas today.
Table 5.2: Main offshore and near shore outsourcing locations for the major outsourcing customer markets Major market
Main offshore and near shore locations
US UK
India, Philippines, Canada, Mexico, South Africa, Malaysia India, Malaysia, Philippines, South Africa, Australia, other Englishspeaking Africa Tunisia, Morocco, French Caribbean, other French-speaking North Africa Czech Republic, Poland, Turkey, other Eastern Europe Mexico, Argentina, Colombia, Chile, Morocco
France Germany Spain
Business Insights Ltd
Source: Business Insights
US The US outsources a huge amount of call center activity to foreign countries today, having realized enormous returns on investment (ROI). However, there have been teething troubles along the way. For instance, recent press stories covered Dell’s dilemma about moving the handling of certain types of customer service calls back to onshore call centers from India. This kind of situation is to be expected when the priority of the business, at least initially, is to deliver substantial cost savings. In the grand scheme of things, however, this example is an exception to the rule and the US as a whole, will continue to send increasing volumes of call center traffic offshore.
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In an attempt to reduce – or at least limit – the perceived public pushback of customers talking to call center agents with ‘strange’ accents, a sizeable portion of the call center activity has been put into markets such as Canada, a near shore location, or the Philippines, where the accent is the same and there is greater cultural affinity with Americans than in India. In addition, the number of Hispanic call center APs is going to increase in offshore markets such as Argentina – although Mexico will benefit from the majority of this move offshore – as outsourcers recognize the changing face of US customer demographics.
UK The UK’s adoption of offshore outsourcing is growing strongly. The issue today is how outsourcing providers and their clients can balance cost savings and deliver results that the stock markets expect, while keeping customers happy. Customers are at best only slowly growing used to the idea of talking to an increasing number of call center agents who have foreign accents. Having said that, the UK has a relatively strong degree of tolerance when it comes to foreign accents. This stems from the country’s close proximity to Europe, which is awash with accents, and the legacy of the former British Empire.
An increasing number of Britons are using call centers for high-end service fulfillment transactions. UK uptake of offshore call center outsourcing will grow strongly going forwards, with call centers moving to India initially, and to South Africa and Malaysia in the longer term.
France France’s use of offshore outsourcing is more mature than that of many other EU countries and the introduction of France’s legislation limiting the working week to an average of 35 hours has not had the negative effect on the market for domestic call centers that might have been expected. The overall growth in domestic usage of call centers means that many operations today are finding their way to North African
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markets, where French is spoken fluently by large parts of the population and wage rates and tax burdens are much lower than in France.
However, there is a cloud that hovers over the market regarding workers’ rights legislation that applies in France. The discussion centers on whether outsourcing providers use offshore outsourcing as a means of circumventing this stringent legislation and if there should be an obligation on outsourcing providers serving France from overseas markets to ensure that workers rights are on a par with those of their colleagues back in France. Outsourcing providers should note that this could become an ethical issue.
Overall, France will continue to outsource an increasing number of call center APs to the countries of North Africa, and, to some extent, to Eastern Europe.
Germany It is proving very hard to sell the idea of offshore outsourcing to German firms for a number of reasons. First, the major part of the German call center market is dedicated to service and support activities, which normally require a specialized and highly skilled labor pool, and it is felt does not lend itself readily to being sent offshore.
The next point concerns the fact that the majority of the global market supply of offshore call centers is English-language-based. If customer-facing staff do not need to speak English then there is little incentive to move work offshore. Some call center activity is in fact being transferred to Eastern European markets from Germany but this is incremental and only takes place after first moving the operations to more costeffective eastern parts of Germany. The additional attraction with this approach is that it avoids confrontation with trade unions since the work is staying within the country.
Finally, firms face many obstacles when they consider outsourcing to another country., namely related to German workers councils or trade unions, and tough labor laws that make it almost impossible to reduce headcount, even if this makes perfect rational
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business sense. Germany also has very strict privacy laws protecting call center agents against being monitored, which is a standard part of today’s call center operations to ensure a consistent quality of service and to cover against redress or even litigation brought by an end-customer.
Looking to the future, German businesses are coming to appreciate the real savings that can be made by outsourcing and there are signs of increased uptake in call center outsourcing to other countries. Financial services firms are moving towards operating models similar to those in other markets such as the UK, where back-office processing activities are being undertaken offshore, and the next logical step is to leverage economies of scale and the global economy by locating call centers offshore too. Longer-term, as Eastern European countries grow their operations and client base, more German firms will move their call center APs to these markets and reduce their costs further.
Rest of Europe Several of the Scandinavian countries have moved entire call centers to the Baltic States and Spain is looking to North Africa, as well as South America, for offshore outsourcing options. Moving forwards, this trend will only increase as customers’ service and support requirements develop.
Additionally, a number of countries in the EU, including those mentioned already, are perhaps less prone to use the latest self-service technologies in their CRM offerings. Some of the newer markets that are supplying call center outsourcing will have leapfrogged the technology platforms available today in the EU countries that are home to their clients and instead of making sizeable technological investments in the customers’ markets, outsourcing providers could perhaps instead use some of the more advanced offshore locations to handle low-touch (email) or high-touch (instant messenger Web chat technologies) customer interactions in a portfolio of blended services and locations.
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Barriers to off shoring Naturally, there are a number of barriers to offshore outsourcing. These include:
Conservatism – the majority of companies are still unwilling to outsource their call center full stop, let alone move it to a foreign country;
Risk – concerns include worries about agent skills, language abilities, communications connections and political and economic stability;
Lack of locations – not every language is as widely spoken around the world as English or Spanish;
Quality concerns – many companies still have concerns about the quality of service they will receive from offshore locations. Companies are concerned not just about the quality of the agents, but also the quality of the management;
Domestic labor issues – in many countries in Western Europe, making hundreds or even thousands of employees redundant is not only unpopular but expensive and could result in industrial action;
Bad publicity – moving jobs abroad can create very bad PR, especially if the company has a particularly strong national identity;
Security and privacy concerns – many companies are unable or unwilling to transfer customer data outside of their domestic market.
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Figure 5.7: Barriers to offshore outsourcing Loss of control / inability to monitor Geographic distance Offshore Telco QoS Security risks Accent/language issues Cultural barriers Risk of domestic strike/staff issues Bad PR Offshore govt instability Lack of offshore govt incentives 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Average importance rating (1-4 (1 Business Insights Ltd
Source: Business Insights
‘Losing’ control Top of the list of concerns about off shoring is a customer’s apprehension about ceding (perceived as ‘losing’) control to a third party and their inability to monitor this. An increasing number of customers are requesting functionality such as web cams, online real-time reporting tools and the ability to listen in to live phone calls with customers in order to assuage their concerns about agents’ abilities and assure themselves that their end-customers’ needs are being appropriately handled.
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The distance issue The proliferation of near shore alternatives to the far-flung offshore locations of India and the Philippines has much to do with the fact that clients are uncomfortable with their customer interactions being undertaken on foreign shores. They seem to feel that ‘out of sight is out of mind’. Therefore, as the proliferation of offshore outsourcing grows, outsourcing providers will find it easier to win business by moving clients to their near shore operations. Later, when ROI has been demonstrated and clients’ quality of service fears have been assuaged, they will find it easier to migrate the activity further offshore.
Cultural affinity Concern today is shifting away from a deep-seated dissatisfaction with foreign accents of call center agents to a concern at their ability to relate to the consumer on a cultural level.
Different techniques are applied to reduce animosity towards call center agents from overseas and to try and help them to better relate with the consumer by aligning them on a cultural level with the markets they are serving. For example, it has long been the case that call center agents have been trained to use ambiguous names, and/or ones that will be easily understood in the market that they are serving, such as ‘Dominique’ in call centers serving French customers.
Similarly, in an attempt to avoid cultural clashes, some Indian call center agents spend several hours as part of their training program watching British and American television shows so that they can better mimic the accents. By following the soap operas that are popular in the countries with which they are dealing; they are able to not only discuss these latest developments (while waiting for the PC to reboot) but also appreciate some of the cultural mechanisms at play. This enables them to relate far more meaningfully with the consumer and get closer to establishing a more personal bond during the call.
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Quality of service Today the challenge is ensuring service levels are defined for every kind of customer interaction and across every conceivable channel. Service level agreements (SLAs) need to be clearly documented and measurable in real-time. With increased awareness of what it is that needs to be measured, coupled with actual benchmarks of what is delivered currently, it becomes much easier to construct quality and service tracking mechanisms with an outsourcing provider upfront. The advantage long term is that realized ROI and quality of service (QoS) are much easier to quantify.
Offshore outsourcing strategies There are no magical solutions to offshore outsourcing, but there are lessons that can be learned. Many Fortune 500 companies take months to select the country that they are going to use. The process of actually setting up the operation can take anything from three months (with an outsourcing provider that has a shared service center already established) to between 12 and 18 months, if a new market capability is being developed or tapped for the first time.
Some of the key considerations and questions that outsourcing providers and their clients ought to consider during the country selection and due diligence phase include:
Picking the right country – find out how reliable the internal infrastructure of the country is, whether the country is stable, if its backup and disaster recovery infrastructure is adequate, whether it has the data bandwidth requirements for your call center and the skill sets required or if there are any issues with cultural affinity to the consumers’ market;
Picking the right partner – firms looking to outsource must not lose sight of the fact that the relationship will need to be managed in an ongoing manner over a long period of time – typical deals run for many years. Options include setting up captive capabilities in an offshore market, approaching local origin outsourcing
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providers in the target market directly, seeking advice from a consultancy or systems integrator, and talking to global outsourcing providers about similar operations;
Setting up an integrated technology platform – many firms today have made heavy investments in CRM solutions, but piecemeal approaches lead to dissatisfaction and unrealized potential and ROI. As the move to offshore outsourcing intensifies, further opportunities will present themselves for vendors and systems integrators alike to assist both the outsourcing providers and their clients in aspects of integration to ensure optimum ROI and create a seamless interface with consumers.
Offshore destinations The language barrier The key factor when selecting an offshore location is language – the country that you outsource to must have enough people that speak the same language as the country you are outsourcing from.
Dutch-speaking markets The only real Dutch-speaking offshore location for Dutch and Belgian companies is South Africa.
English-speaking markets India is the market that gets most of the attention as a location for British and Irish call centers, and there is no doubt that India will continue as the largest English-speaking offshore market for the foreseeable future.
However, there are other countries that can provide English-speaking services. Malaysia, Indonesia and the Philippines are all good examples. Australia is also a potential offshore market for UK companies; the cost savings will be less, but the risk
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is not, and cultural barriers are also less significant. Australia and Malaysia both make good locations for European companies wishing to open pan-Asian call centers due to the number of Asian languages that are spoken alongside English.
Finally, there is English-speaking Africa. However, aside from South Africa, there has been little traction in the rest of Africa, simply because of the range of other locations available. The East African countries (Kenya, Tanzania and Uganda) could emerge as potential locations over the next five years, as could a stable, post-Mugabe Zimbabwe.
French-speaking markets After Spanish and English, French is the most widely spoken European language around the globe and, as a result, French and Belgian companies have a significant choice for potential offshore locations. Currently the most popular location is Frenchspeaking North Africa – particularly Morocco and Tunisia, although not Algeria for the foreseeable future. These destinations have the advantage of being geographically close to France as well as politically relatively stable.
The French Caribbean (particularly Guadeloupe and Martinique) is also becoming increasingly popular, although distance makes it a less compelling option. Other parts of Africa are potential locations – such as Cameroon and Mali – although their viability depends very much on political and economic stability.
German-speaking markets For companies in Germany, Austria and Switzerland, Eastern Europe holds significant potential as a near shore destination, particularly the Czech Republic, Poland and Turkey.
Italian-speaking markets Italian is the only major European language that is not widely spoken outside its native country. As a result, Italian companies are limited in their choice of locations, although
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the Balkan states, particularly Slovenia, and Romania, do hold some potential for the future.
Spanish-speaking markets The main Spanish-speaking markets outside of Spain are in South America, particularly Mexico, Argentina, Colombia, and Chile. Despite economic problems in the region, these markets offer good opportunities for call center outsourcers looking to serve not just the domestic market but also the Spanish-speaking American markets. Northern Morocco is also a potential market for companies wishing to serve the Spanish market.
South America is also a potential opportunity for companies wishing to serve the Portuguese market. However, opportunity is relatively limited for a number of reasons: Portugal is a small, immature market where labor is still relatively cheap and there are EU grants available for companies located in Portugal.
Profile of the Americas region The total number of APs that are going to be serving offshore markets from the countries in the Americas region will grow strongly over the next few years, from 17,800 in 2002 to 53,900 in 2007. Mexico will overtake Canada as the biggest individual supply market for offshore outsourcing in the Americas during the course of 2005/6.
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Availability – Asian languages
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Figure 5.8: Risk and reward matrix – the Americas region
Argentina Brazil Canada Caribbean Chile Colombia Mexico
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Business Insights Ltd
Source: Business Insights
Latin America Outsourcing accounted for 107,000 of 336,000 total APs, or nearly 32% of the total Latin American agent population in 2003. Outsourcing will add nearly 110,000 APs by 2008 and total 217,000 APs, 29% of the total agent population. Outsourcing, especially in Brazil and Mexico, will grow based on the strength of domestic outsourcing. However, offshore outsourcing will drive gains in Argentine outsourcing.
Multinational corporations use Latin America, especially Mexico and Argentina, as destinations for near shore and offshore outsourcing. American outsourcers and companies use Mexico as a near shore location for bilingual Spanish- and Englishlanguage customer service out of the US, while Argentina is mostly used by American and Spanish firms as an offshore offering.
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Argentina The Argentinean outsourcing market will grow on the strength of offshore outsourcing. In 2003 there were 2,750 offshore agents serving customers in the US, Spain and various markets in South America. By 2008, the offshore agent population will number 10,000 APs and comprise a third of the entire agent population.
As a side note, Argentina is the only major Latin American market in which offshore APs outnumber domestically outsourced APs. In 2003, offshore-outsourced APs accounted for 58% of outsourced APs in Argentina.
Offshore accounts for such a large proportion of outsourcing in Argentina for two reasons:
Necessity – most outsourcers concentrated on the domestic market before 2001. After the crash some outsourcers were forced to cut capacity by as much as 45% because demand had been cut so deeply. Outsourcers who had partnered with multinational organizations stopped the bleeding by aggressively pursuing offshore contracts;
Labor arbitrage – de-pegging the peso initiated the crash in 2001. So, while it cut demand from the domestic market, Argentina gained a competitive advantage overnight. Offshore contracts are more stable and lucrative than domestic contracts so, in some cases, outsourcers tend to prefer offshore clients.
Systems integrators and call center equipment vendors not already in the Argentinean market should target multinational outsourcers currently operating in Argentina, since they will see some of the most rapid growth in the entire Latin American region.
Brazil Offshore outsourcing is not a significant portion of the Brazilian call center industry because Brazilian outsourcers have not been forced to attract offshore contracts. As of 2003, Brazil remained highly under-penetrated as an offshore destination with only 4 96
1% of the entire agent population engaged as offshore agents. In 2003 the offshore agent population numbered 2,500 APs.
However, Brazil has a lot of potential to attract offshore outsourcing. All the characteristics – a weak currency, high unemployment ensuring low attrition and low wages in existing centers, a highly developed telecommunications infrastructure, and a steady pool of bilingual call center agents – that make Argentina and India attractive destinations for offshore outsourcing, exist in Brazil. Government involvement should also help. In 2003 the Brazilian government undertook initiatives in connection with the US Department of Commerce to attract offshore outsourcing.
As such, the offshore agent population will grow at 26.2% CAGR to 8,000 APs by 2008. In the short term, Brazilian outsourcers and multinational outsourcers operating in Brazil would be well served to focus on the domestic market. In the long term, outsourcers are recommended to establish a foothold in Brazil before the market becomes saturated with outsourcers seeking to offer offshore outsourcing from Brazil.
Chile Chile is the least developed market in Latin America for offshore and near shore outsourcing. In 2003 there were 600 offshore-outsourced agents in Chile and 75% of them serviced US Spanish-language callers. Demand does exist for a South American near shore outsourcing location, but Chilean outsourcers have pursued offshore contracts out of the US and Spain because the margins are higher and there is greater market potential.
Near shore and offshore outsourcing is a small proportion of the total outsourced agent population. By 2008, the percentage of the outsourced agent population engaged in near shore or offshore outsourcing will have decreased from 19.3% to 11.5% of the outsourced
agent
population.
Offshore-outsourced
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communications, financial services, retail and consumer products calling.
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to
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Colombia In 2003, the Colombian near shore agent population numbered 1,000 agents, or 24% of the entire outsourced agent population. The offshore-outsourced agent population will grow to 1,900 APs by 2008.
Colombian near shore outsourcing will not realize substantial gains for a variety of reasons. First, organic growth from existing contacts will be limited. Colombian near shore agents primarily service calls from Venezuela, Ecuador, Peru and Bolivia. Second, to be successful as an outsourcer in Latin America one must have Englishlanguage capability. Colombia does not have a substantial bilingual agent population capable of handling English-language calls from the US. Even if it did, growth would be limited due to concerns over security. Colombia’s neutral accent does, however, mean that it shows potential as a near shore alternative to Mexico for Spanish-language calling.
Mexico Mexican near shore outsourcing will undergo substantial growth through 2008. Near shore outsourcing accounted for 25%, equivalent to 6,000 outsourced APs in 2003. By 2008, 23%, or 13,000 outsourced seats, will be near shore seats. This is because Mexico has emerged as the most attractive location from which to serve the US Hispanic population, the majority of which speak Spanish. By 2050, the Hispanic population will be the largest minority in the US, comprising nearly a quarter of the US population.
With an abundance of English-speaking agents, Mexico is also a competitive alternative to Canada as a near shore destination from which to serve US Englishspeakers. As a result, outsourcers with a substantial amount of bilingual calling looking to offer a lower-cost are recommended to use Mexico as a near shore destination in a regional and global outsourcing strategy.
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Near shore outsourcing in Mexico will grow 16.7% annually through 2008. This compares favorably with Brazil and Argentina as one of the fastest foreign outsourcing growth rates in Latin America. However, outsourcers need to be aware of the opportunity while being cognizant of the fact that near shore outsourcing will never become the dominant presence in Mexico that it is in Argentina.
Furthermore, it is estimated that between 65% and 75% of calls from the US handled in Mexico are English-speaking calls. By 2008, the percentage will not have substantially changed, which underscores the importance of bilingual agents for success in the Latin American outsourcing market.
Canada As
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Figure 5.9 shows, the majority of offshore outsourcing activity currently undertaken in Canada services the massive US market. The profile of Canada as a potential location for offshore call center outsourcing has been heightened as a result of the increased threat of global terrorism. Canada is perceived as a relatively safe country that did not support the 2003 US-led campaign in Iraq. However, despite the fact that new markets will be attracted to Canada as an offshore outsourcing location in the next few years, the number of new APs that it will create is relatively low and the main target market will remain the US.
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Figure 5.9: Canadian outsourced and in-house APs serving the US market
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Business Insights Ltd
Source: Business Insights
Accents and a multilingual workforce are big selling points for Canada. More important than accents though, is the cultural fit between the call center agents and the country they are serving. Canada and the US are very much aligned on this front. Furthermore, many Canadians speak French and in a number of Canada’s provinces have populations where the proportion of foreign language speakers exceeds 20%. This renders Canada particularly attractive to firms that need to support multilingual operations. One way that Canada could avoid losing out totally on serving the sizeable Hispanic American population would be to establish partnerships with outsourcing providers in other US near shore countries, such as Mexico.
Interestingly, a number of UK firms are currently looking at Canada as a location for the disaster recovery (DR) element of their global call center network. So long as the Canadian dollar remains stable, call center outsourcing in Canada will continue to extend its reach beyond the US to countries such as the UK, France, South Africa or even India.
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The number of APs servicing offshore accounts will increase at a CAGR of 12%, from 9,900 in 2002 to 17,700 in 2007. Over 90% of these positions will service clients in the US. It should be noted that in-house facilities are expected to be the major competitor for outsourced services within Canada through the coming four years. Many will forego the opportunity to outsource their customer care requirements, so as to maintain full control over recruitment and quality assurance, rather than tender these services to outsourced providers.
Action points for vendors Partnering networks should be explored, in which Canadian agents address complex customer queries, while those of an administrative nature are forwarded to inexpensive overseas facilities;
Canada-only outsourcers should look at smaller cities so as to save on overheads;
Cross-border outsourcers need to concentrate on making up for Canada’s lack of Spanish by forming strategic alliances with Spanish-speaking outsourcers in the US or Mexico;
Cross-border outsourcers should look at the cities of Calgary, Edmonton, Winnipeg, and Halifax for outsourcing needs, given their lower levels of costs, and neutral accents.
Profile of the Central & Eastern Europe (CEE) region Following the accession of ten new countries to the European Union (EU) in May 2004, it is becoming increasingly important to consider the countries on the edge of the present-day European space as potential locations for supporting call center outsourcing activity. Cheap, multilingual and well-educated workforces render the countries highly suitable as near shore locations for call center activity that is outsourced from within the EU. This is an even more important factor in the short to medium term, before the countries in question reach wage parity with the rest of the EU.
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Interestingly, several local origin players that are establishing offshore outsourcing operations today have been founded on principles and operating models of some of the leading North American outsourcing providers. This has the added advantage that industry best practices will become the norm in these new markets, making them more attractive to firms whose standards and CRM programs have become more demanding, often in anticipation of – and indeed in preparation for – outsourcing part of their business to third parties. Finally, given the fact that several of these countries are in the relatively early stages of call center market maturity, they tend to implement some of the latest technology platforms, such as IP telephony or combined voice and data networks.
The total number of APs that are going to be serving offshore markets from the Central and Eastern European countries will more than treble over the next few years, from 1,600 in 2002 to 6,000 in 2007. Strong growth will occur throughout the region, with Poland taking the largest share of the market. Almost all of the demand will stem from leading EU call center markets that take up offshore outsourcing to reduce their costs or to leverage niche call center services.
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Figure 5.10: Risk and reward matrix – CEE region
Baltic States Czech Republic Hungary Poland Key:
Low
High
Business Insights Ltd
Source: Business Insights
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Hungary The Hungarian economy continues to feel the pains of the strong currency appreciation and excessive wage rises of 2001-02, but today with membership of the EU club, the outlook is positive. On the call center front, although Hungary remains one of the smallest call center markets in EMEA with around 6,000 APs today, growth is set to continue steadily.
Hungary provides support for several European languages, including English and German, and a call center labor force that is competitively priced. However, it will not be long before the marketplace for call centers in Budapest is saturated. There is potential for a few secondary cities to help sustain the growth of call centers and, therefore, offshore outsourcing in Hungary, but their number may be limited to two or three, which could be a headache longer-term.
The greatest client base for Hungarian offshore call center exists in the Germanic markets of EMEA. The number of offshore outsourced APs in Hungary will more than treble from 400 APs in 2002 to 1,300 APs in 2007 – a CAGR of 27%. The fastest growth will occur in 2005 as the move to send outsourcing offshore gains momentum.
Poland Poland is the largest market in Eastern Europe and one of the most successful transition economies. The call center market in Poland will continue to grow on the back of an expanding economy, and the number of call centers is expected to increase from 471 in 2003 to 613 in 2007, making it the third fastest growing call center market in EMEA.
Poland has several factors in its favor. At the top of the list is the country’s proximity to the rest of the European countries that represent its primary markets, such as Germany, with which Poland shares a border. Companies also like the country’s political stability and the fact that, in an attempt to win business, some local origin outsourcing providers are offering very aggressive pricing strategies.
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The outlook for the future of the Polish offshore call center outsourcing market is bullish because the country offers a large educated, multilingual population that work in an economy under the rigors of EU membership. The growth in offshore work will continue, especially amongst outsourcing providers that service a number of different countries with differing language needs. Strong growth in the number of offshore outsourced APs in Poland is forecast between now and 2007 to almost triple to reach 2,600, growing at a CAGR of 29%. This growth is largely due to the strong development in the domestic market, which will attract more attention from global outsourcing providers and further expand opportunities for (near shore) offshore work to be delivered from Poland.
Baltic States Trade with EU countries now dominates the economies of all three countries. Similarly, Estonia, Latvia and Lithuania demonstrate high economic growth rates, low tax rates and rapidly growing productivity.
The call center industry is strong in Estonia, although it is still perhaps nine to twelve months behind Lithuania’s level of maturity. A number of languages are readily available including Russian, Finnish, Swedish, Norwegian and Danish, which explains Hilton’s decision to locate its reservations call center in Tallinn. Finally, Lithuania, which currently heads the pack, is cited as being a cheaper location than Poland for serving several markets and has seen strong demand for its Finnish-speaking staff, as well as those that service clients in the UK and even Australia.
A factor that is stunting growth today in some parts of the Baltics is the pace of telecoms deregulation. It is expected that it could take a further two or even three years before the entire region becomes truly price competitive in this respect. Going forward, it is predicted that the finite labor pool will limit the size of the call center markets of these countries, but the languages that are available, combined with the region’s inexpensive wages and good education levels, will make the countries attractive locations for niche multilingual services.
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As such, the number of APs in the Baltic States will increase sharply between 2003 and 2007, climbing at a CAGR of 31% from 300 in 2002 to over 1,000 by the end of the period.
Czech Republic The Czech Republic is currently the fastest growing call center market in the whole of EMEA and the number of call centers will more than double from their 2001 level of 226 to over 500 in 2007.
English and German are both widely spoken, especially in business circles, which is a definite attraction for companies searching for markets that can demonstrate an appreciation of their customers’ countries and cultures. The Czech Republic’s optimal location, two to three hours from just about everywhere in EU, makes it an attractive proposition.
The Czech Republic’s prospects as a European near shore location for call centers are positive and the number of offshore outsourced APs will quadruple from 300 in 2002 to 1,200 in 2007, growing at a CAGR of 34% The leading customers will be outsourcing providers that serve Germany and other countries with sizeable German-speaking populations.
Profile of the Middle East & Africa (MEA) region Turkey is the sixth fastest growing call center market in EMEA and, as such, the proportion of offshore call center outsourcing activity in Turkey is likely to increase. Several countries on the African continent also represent interesting outsourcing locations: they share the same time zone with several key markets in EMEA and the continent sits conveniently between the US and India. The majority of the demand for offshore services in these MEA countries will come from firms whose clients are based in EMEA.
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Availability – Asian languages
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Figure 5.11: Risk and reward matrix – MEA region
North Africa South Africa Turkey Key:
Low
High
Business Insights Ltd
Source: Business Insights
The total number of APs that are going to be serving offshore markets from the MEA region will grow strongly over the next few years, from 5,300 in 2002 to 17,500 in 2007. Strong growth will be particularly seen in South Africa, as well as in the North African countries of Morocco and Tunisia.
Morocco and Tunisia (North Africa) Due to historical ties, the Northern African countries of Morocco and Tunisia have become attractive propositions as offshore (near shore) outsourcing locations for the Mediterranean countries of France and Spain. Over the past five years or so, the two countries have made moves to modernize and become more attractive to business. The majority of new business will continue to originate from France, but English is becoming more prevalent as a business language, leading more of the global players to consider these two countries as attractive for expansion of their own operations.
Both countries seem fairly evenly matched in terms of what they offer to overseas outsourcing providers, but Morocco has a slight edge. There are initiatives afoot such
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as providing state-funded training programs to attract technology firms to the area, as well as (costly) infrastructure developments – for example, the Casablanca ‘Technopark’ and similar sites that are planned for Tangiers and Bouznika.
With an increasingly educated population and unemployment likely to remain high, the popularity of government training initiatives and other incentives aimed at attracting foreign business will prove beneficial to the offshore element of the call center industries of both Morocco and Tunisia. The number of offshore outsourced APs in North Africa will increase from 2,300 in 2002 to over 6,300 by 2007, growing at a CAGR of 22%.
South Africa Many believe that South Africa is the ‘hidden gem’ on the African continent in terms of offshore outsourcing. Indeed, South African outsourcing providers have witnessed a growing level of interest from firms in the UK and US markets, which are looking to balance their global portfolios now that their offshore operations are up and running in India or the Philippines.
South Africa is a truly multicultural country, with 75% of the population of African descent and the remaining 25% made up of white, mixed race and Indian minorities. In addition, the more South Africa’s currency, the Rand, stabilizes against the US dollar and the British pound, the more attractive the country becomes to foreign investment.
Other attractions include the country’s location, roughly at the mid-point between the US and India, and the fact that there are 11 official languages spoken with accents that are seen as understandable and agreeable in the main target markets of the UK and the US. Besides English and Afrikaans, German, French and Spanish are also spoken.
One or two issues hinder South Africa’s growth potential in the call center arena at present. Chief amongst these issues are the costs of data connectivity, which are approximately ten times higher than in India, and the fact that it is likely to take
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between 12 and 18 months before telecoms data and, to a lesser degree, voice call prices can compete on the same scale as the more inexpensive offshore outsourcing locations. South Africa also lacks substantial middle-level call center management skill sets. Therefore, overseas firms establishing their operational presence in South Africa will have to allow for this skill shortage in the marketplace and arrange for the appropriate knowledge transfer.
Given the positive outlook, it is forecast that the number of offshore outsourced APs will quadruple from 1,600 in 2002 to over 8,500 in 2007, growing at a CAGR of 39%.
Turkey Political and environmental stability are concerns in Turkey. This will undoubtedly play on the minds of companies that are considering whether to establish a presence in this otherwise attractive market. Turning a blind eye to these concerns, one realizes that Turkey is almost alone in having one foot in Europe and one foot in Asia.
Besides Turkey’s relative proximity to key European markets, there are a number of other factors that count in its favor when viewed as a potential offshore outsourcing location. For a start, its population of 70.3 million (2002) and 12 universities in Istanbul alone, means that there is a sizeable and well-educated workforce available in the country. In terms of languages, German is prevalent in Turkey, and English and French are also spoken quite widely. Also in Turkey’s favor is its fairly close alignment to Western business practices and, in some respects, to certain cultural behaviors, which is attractive to businesses looking to establish a presence in the country.
Growth rates will drop off more sharply in Turkey than other countries as a result of growing competition from alternative locations highlighted in this report and recent terrorist attacks. However, by 2007 the number of offshore outsourced APs will have more than doubled from their 2002 level of 1,300 to 2,700 – a CAGR of 16%.
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Profile of the APAC region As Figure 5.12 shows, India is the single biggest provider of offshore call centers today. Currently, 58% of the world’s offshore outsourced APs are located in India. What is more, if the APs located in the Philippines are added to the equation, then the two countries combined provide 70% of the world market. By 2007, this figure will have dropped to 64%.
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Figure 5.12: Risk and reward matrix – Asia Pacific region
Australia China India Malaysia New Zealand Philippines Singapore Thailand Key:
Low
High
Business Insights Ltd
Source: Business Insights
Malaysia is a country that has aspirations of attracting a good deal of outsourcing work from both within its own region and farther away in the UK and US. Some of the other countries in this part of the world already have a near shore or offshore call center outsourcing presence, such as Singapore, Australia and New Zealand. The latter two have maturing call center markets that present perhaps an opportunity as offshore locations although this is difficult to discern, as their wage costs are typically higher.
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With the biggest population on earth, China represents not only a phenomenal market force for the future as a buyer of call center outsourcing solutions, but also an interesting location for setting up regional and later, global call center operations.
Phenomenal growth rates will continue to occur in APAC, with the total market growing from 63,300 APs in 2002 to over 163,000 in 2007.
India India has a legacy as a leading market for offshore software development and backoffice BPO. It follows that front-office functions, such as call centers, can also be operated successfully from this country. India today is still the biggest market in the world for these services, although only really in the English language. India is itself now sub-contracting or outsourcing to other countries in order to support multilingual operations.
The Indian offshore call center market is entering a period of consolidation where many of the ‘also-rans’ will be absorbed or go to the wall as a result of underutilization, with the large-scale outsourcing providers dominating the landscape. Nevertheless, growth in the overall number of outsourced APs servicing offshore markets is still forecast to climb steadily from 51,000 APs in 2002 to 121,000 in 2007 – a CAGR of 19%.
Philippines The prevalence of spoken English (and some Spanish) in the Philippines, coupled with its cultural alignment with the US, makes the country particularly attractive for offshore outsourcing. Going forwards it is expected that other countries, such as the UK, will also find their call center operations outsourced here too.
Although the Philippines is perhaps as much as 12 to 18 months behind India on the offshore ladder, growth will be strong especially over the ensuing two years. The global outsourcing providers and systems integrators will lead the way. Growth rates 111
will peak in the next 12 months or so, tripling from 10,700 in 2002 to 33,600 in 2007, at a CAGR of 26%.
Malaysia Thanks to several initiatives aimed at minimizing red tape and the development of the Multimedia Super Corridor (MSC) – the Malaysian equivalent of Silicon Valley – the country is aggressively winning outsourcing business from customers in APAC (particularly with English-speaking operations), as well as abroad in the crucial markets of the US and UK.
Malaysia offers support for many different languages, including English, and several tens of thousands of Malaysians return every year from studying overseas at Western universities in the US and UK. These students bring back a view of the world that is aligned with Western markets, and Western business processes are often clearly understood.
Education levels, the Malaysian work ethic and the fact that wage rates, although price competitive, are not the lowest in the region, suggest that Malaysians are better suited to delivering high customer touch or high value-add services rather than more salesoriented and back-office tasks. The main potential inhibitors to growth are the relatively limited size of the captive population and the risk that wages will rise to unsustainably high levels (on a regional comparison) as demand rises. However, the outlook is bullish and the growth in offshore outsourced APs will be substantial, rising from 900 in 2002 to 5,100 in 2007.
Others The size of the Chinese market as a potential customer base is phenomenal and, with such a massive population, it represents an extraordinary location from which to operate call centers servicing offshore clients. However, this enthusiasm must be tempered with realism in terms of the timeframes involved and it is thought that the number of offshore outsourced APs will only reach 4,000 by 2007. 112
The call center market in Australia is large – the biggest in the region in fact – with over 121,000 call center agents in 2003 working in a network of over 2,100 call centers. The industry is also relatively mature in nature. Added to this is the fact that Australia is English-speaking and there is a sizeable Asian immigrant population in its biggest cities. This will generate strong growth in the number of offshore outsourced APs over the next few years, although domestic demand will continue to be the strongest factor. Perhaps 10% of APs will be servicing Asian near shore and global offshore markets going forwards.
Although much smaller by comparison – 18,000 APs spread across some 300 or so call centers – New Zealand shares many characteristics with Australia. However it is unlikely to develop much of a presence in offshore outsourcing, although there may be a market for handling some niche high-end operations.
Singapore will see some growth in its call center market as global uptake of offshore call center outsourcing occurs, but the country is more likely to become a buyer of offshore services rather than a supplier.
Future implications of offshore outsourcing One-stop shop for end-to-end BPO Clients are often looking to their outsourcing providers to become a lynchpin around which they build their outsourcing needs. Firms able to offer end-to-end expertise are better placed to take on such a consultative role. Ultimately, these service providers will be in a position to influence the decision-making process, and could gain further business for themselves. This domain is traditionally the stronghold of the system integrators and global outsourcing providers, particularly those that also offer backoffice BPO operations of their own.
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Players need to offer a greater portfolio of services to compete successfully, either by moving into BPO activities or by focusing on a niche market such as multilingual services or ‘collections’ in the financial services sector.
The shadow infrastructure Clients of today’s outsourcing providers should bear in mind the so-called shadow infrastructure that is required when operations are outsourced. It is not true that all associated costs are removed from the firm’s balance sheet by outsourcing to another firm. In fact, those that are responsible for running the outsourcing contract will need to ensure that mechanisms are in place to monitor the contract during the life of the project and that sufficient resources are allocated to monitoring and control, which costs money and manpower. This sort of ongoing quality of service checking will become increasingly important. Customer satisfaction will demand it and so will the industry regulating bodies.
Offshore vs. onshore Despite the outcry in the Western press surrounding the ‘massive’ number of positions that are being shifted offshore, doomsday for domestic call centers is a long way off: a mere 5% of the world’s 4.78m APs will be outsourced to an offshore location by 2007.
The balance between onshore and offshore activity, which is currently approximately an 80/20 split (2002), will shift to a 70/30 split by 2007. Of course, the irony is that the biggest outsourcing providers actually head the markets for both onshore and offshore call center outsourcing and, therefore, will grow either way.
Despite the barriers and the EU and government grants available, there is no doubt that more companies will look to offshore and near shore alternatives since the cost benefits are often too great not to consider them (see Figure 5.13). However, this does not mean
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the death of the European outsourcing market, rather the emergence of a combined onshore / offshore model.
Outsourced APs (offshore versus onshore)
Figure 5.13: Offshore outsourced APs are a threat to onshore outsourced APs
100% 90% 80% 70% 60% Outsourced offshore
50%
Outsourced onshore 40% 30% 20% 10% 0% 2002
2003
2004
2005
2006
2007
Business Insights Ltd
Source: Business Insight
Some of today’s leading-edge call center operations are moving towards a dispersed operating model that leverages a blend of domestic onshore call centers, near shore and offshore call centers. This phenomenon is likely to become more widespread, especially as the world adapts to living with terrorism that could quite feasibly be used to disrupt the global economy.
This means that outsourcers looking for larger contracts need to offer both onshore and offshore facilities for their clients, if not by themselves then through partnerships. Leading global firms operating in the outsourcing provider space have already established dedicated service offerings to meet this requirement: EDS’ offering is called ‘BestShore’ and Convergys’ offering is called ‘RightShore’. Expect others to follow suit.
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Recommendations for vendors The quality sell The need for outsourcers to distinguish themselves in a saturated market, combined with the growth of the onshore / offshore model described above, has forced many outsourcers, particularly small local players and those without significant facilities in offshore or near shore locations, to sell their services based on quality. There are two areas in particular where companies are looking to distinguish themselves: the quality of their agents and the quality of their processes.
Quality agents For outsourcers looking to move up the value chain and sell more than basic call center services, it is vital to provide a high quality service. This means recruiting the right agents, but more importantly, training your agents properly. If an outsourcer wishes to sell a deal based on the quality of its service, it must first gain the trust of the client by having a proven track record of quality service provision.
On average, a typical EMEA call center agent spends 1.7% of his or her time training; the average agent working for an outsourced call center spends 12.9% of his or her time training. The vast majority of companies use classroom or one-to-one training, and two-thirds of outsourced agents are estimated to have access to eLearning packages.
Quality processes Having one or more recognized certifications instills confidence in potential clients about the quality of the services that the outsourcer provides. For many large or public sector companies, it is often a pre-requisite for suppliers to have third-party certification. An offshore outsourcer that can prove itself compliant with any of the standards listed below will, therefore, be at a clear advantage.
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There are currently a number of external quality certifications and standards organizations that call center outsourcers can work with or towards:
Six Sigma;
ISO 9000;
COPC-2000;
EFQM (The European Federation for Quality Management).
Refine sales approach Outsourcing providers from offshore markets need to move away from selling their country. Rather, they should:
Go to market in target countries through partnerships with telcos, established systems integrators or local origin outsourcing providers that have a ‘Western face’;
Focus on demonstrating industry expertise and pedigree;
Establish a physical presence in key target markets so that they have people in the client’s home country that can be approached to discuss matters.
Carve a niche and partner for success As emerging markets mature, the number of outsourcing providers will consolidate. A number of local origin outsourcing providers will not have the critical mass needed to take on global outsourcing providers and should therefore:
Pick one thing they do well and carve a niche market for themselves;
Go to market through partners in target markets;
Pick partners with a well-recognized brand, for example 24/7 Customer or ICICI could partner with a well-known telco in the UK;
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Ensure the partner has vertically trained sales force personnel who understand client-specific processes.
Allay customers’ fears Many customers are very skeptical about handing over responsibility for customerfacing processes to an outsourcing provider. In order to allay some of the clients’ fears, systems integrators and outsourcing providers need to:
Realize that clients will not admit to their anxiety much of the time and use this fact to cover up their own lack of knowledge about their internal operations;
Ensure the extent of BPO is clear at the outset;
Create business opportunities by offering to carry out a (free) business process review;
Ensure that sales and negotiation teams are staffed with people who have a cultural affinity with the client and have solid business process re-engineering (BPR) credentials;
Provide a clear set of referential case studies.
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CHAPTER 6
Call center outsourcing services
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Chapter 6
Call center outsourcing services
Summary
Customer care is now the single biggest source of revenue for the outsourcing market, replacing the traditional outbound sales functions that were originally the basis of the industry.
Despite the move towards longer, more in-depth client contracts, for a large number of small firms telemarketing is their sole business.
The emergence of the Internet opened up a host of new customer channels, but despite the hype, new channels have not replaced the telephone.
Outsourcers have been forced to expand their service portfolios by either offering new services and applications or providing more flexibility in the delivery of these services and applications.
Outsourcers are increasingly moving into other areas of the enterprise such as HR, CRM and fulfillment.
Outsourcers need to be willing to offer flexibility on issues such as location, technology, agents, management, training, and HR/recruitment.
Managed services and technology hosting offer two alternative models for providing call center technology outsourcing.
The more demanding customers and the more innovative outsourcers now look for risk / reward sharing pricing models.
Some outsourcers are developing efficiency sharing pricing models that allow them to generate long-term client loyalty by passing economies of scale savings on to their clients.
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What should you outsource? Outsourcing has changed a great deal since the first telemarketing service bureaus were opened. Although traditional telemarketing still provides value, outsourcers now offer a wide variety of services in a number of different packages.
Inbound customer care Customer care is now firmly established as the single biggest source of revenue for the outsourcing market, replacing the traditional outbound sales functions that were originally the basis of the industry. The expansion of customer care has been the result of two main changes: customer care has moved from being considered a necessary evil to being seen as the core of a successful strategy, and outsourcers have recognized the opportunity to make higher margins by expanding their expertise into other areas.
Inbound sales Inbound sales – or inbound direct response – usually involve calls or other contacts that customers make in response to a marketing promotion or general sales enquiry line. As with outbound sales, increasingly outsourcers are offering fulfillment services as well as simply providing a list of sales for the client to deal with. Fulfillment services might involve billing, delivery and even simple assembly of parts.
Inbound technical support To a certain extent, inbound technical support is simply a specialized form of customer service. However, the provision of technical help is a highly complex business requiring tight integration between the client and outsourcer. On the outsourcer’s side, agents need to be highly trained and knowledgeable about the company’s product. On the client side, there is a need for up-to-date information on product faults. Technical support services can be provided in two contexts: supporting a technology vendor’s or service provider’s customers, or through in-house technical support.
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Outbound cold calling Cold calling for sales and marketing purposes remains a key feature of outsourcers’ portfolios, although most companies now prefer to say that they are involved in outbound sales lead generation and hence, warm calling. Despite the move towards longer, more in-depth client contracts, it is important to remember that for a large number of small firms telemarketing is their sole business.
Outbound warm calling This covers a range of possible situations between inbound sales and old-fashioned cold calling. In a sales situation, as opposed to market research, warm calling is often known as outbound sales lead generation. In some cases, outbound sales lead generation can involve highly skilled agents selling a very technical, and expensive, product. As with cold calling, these calls can be for market research purposes as well as sales. In particular, many outsourcers will provide a packaged customer satisfaction service.
Outbound customer service call-back Outbound customer service covers those situations where the customer has requested a call to deal with a customer service issue, which could include technical help. This kind of function is increasingly being offered by websites with a ‘call-me’ button or over email when a problem cannot be resolved in written form.
Outbound collections Chasing customers for non-payment is an unfortunate reality for all businesses, whether acting in the B2C or B2B space. The economics of debt collection (‘collections’) mean that the cost of chasing up non-payments in-house often exceeds the revenues gained from doing so. Consequently, large-scale debt collection is often outsourced to third parties, which can do it more efficiently through the use of skilled agents and automation, especially predictive dialing technology.
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New Internet channels The emergence of the Internet during the 1990s opened up a host of new customer channels. Previously the focus had been on moving customer contact to the telephone as a cheaper alternative to shops, branch networks and direct sales and service forces. With the arrival of the Internet, call centers looked expensive and labor-intensive, compared to email and Web-based interactions.
Internet channels that are used for customer contact include:
Email – the most popular new channel for customer contact, email can be used for inbound customer support as well as outbound marketing. In many cases, email can be more expensive to handle than telephone calls since more skilled agents are required to respond to customer requests. Automated email response applications can, however, reduce the cost of handling email in an increasing number of cases;
Web self-service – whereby customers visit the company's website and serve themselves without any agent interaction. Powered by a knowledge base, and integration with back-office systems, Web self-service tools, such as dynamic FAQs and order tracking, can save companies the cost of labor;
Text chat – allowing customers to interact in real time with agents over the Web can potentially save on agent costs if more than one session can be run simultaneously;
Online collaboration – essentially allowing the agent to control the customer’s PC. This is quite popular in technical support environments;
SMS – not strictly a Web-based technology, but a new technology nonetheless. SMS is proving increasingly popular as a marketing channel for companies in Europe, especially in the entertainment, media and leisure vertical, and among younger consumers.
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Essentially, the Internet provides companies with a greater variety of channels to choose from when contacting customers. Therefore, the main effect that new channels will have on outsourcers is to add new channels to their existing services. Despite all of the hype, however, new channels have not replaced the telephone – the majority of customer requests come through the telephone and only a small percentage through email (an estimated 6% of call center traffic in EMEA). Fortunately for outsourcers, the two channels that hold the greatest potential in the long run – email and SMS – can easily be billed on a transactional basis.
Bringing Web and email response capabilities into the call center environment has serious implications for agents, and outsourcers have taken varying approaches to this problem. Some have hired more qualified agents specifically to be Web agents, while others give writing skills training to their voice agents.
Vendor strategies Expanding service portfolios The growth of technology and the fall in margins on traditional services have forced outsourcers to expand their service portfolios in order to generate more revenue. This has occurred in two main ways:
Offering new services and applications;
Offering more flexibility in the delivery of these services and applications.
As the variety of services that outsourcers are able to offer – and the ways in which they can offer them – expand, only the largest companies can possibly grow rapidly enough to offer a full portfolio of services to the market. Therefore, most outsourcers are likely to specialize in particular areas, whether by country, vertical or business process. In order to win bigger deals, it will be necessary to expand, acquire or partner.
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New services Traditionally, call center outsourcers have focused on providing front-office services, such as sales, marketing and customer services. However, outsourcers are increasingly moving into other areas of the enterprise such as:
HR – increasingly, the quality of an outsourcer’s agents is becoming a key differentiator in the market. As a result, outsourcers that have developed recognized training programs can offer training services to clients that are unwilling to outsource their entire call center operations;
CRM applications – providing CRM applications, either as a service or on a hosted / managed services basis, is a potential revenue stream for outsourcers. Already outsourcers offer access to these applications as part of their traditional offerings, but the CRM applications market currently has a bad reputation and outsourcers could potentially exploit this;
Fulfillment – outsourcers taking orders over the phone or answering billing enquiries could offer fulfillment or billing services as a perfectly natural expansion of their existing services.
New delivery models In line with the increasing range of services being offered by outsourcers, there are also a number of ways in which these services can be delivered:
In sourcing and co-sourcing – not every client wants the traditional outsourcing model. As such, outsourcers need to be willing to offer flexibility on issues such as location, technology, agents, management, training, and HR/recruitment;
Managed services – under a managed services agreement, the technology provider owns and manages the technology, usually on the client’s premises, and provides it for a monthly fee. The advantage is that the client loses the ‘headache’ of managing and supporting the technology, and also gains transparency of cost and a reduction in capital expenditure by paying on a monthly basis;
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Technology hosting – service providers have long provided call center technology on the network. However, the emergence of IP and the move away from proprietary hardware towards software applications, mean that the whole call center infrastructure can now be hosted on the network. For smaller companies, those with multiple sites or large numbers of remote agents, a fully hosted call center offers the same management benefits as the managed services model, but with the added flexibility that IP brings;
Essentially, the challenges when providing technology on a managed services or a hosted basis are the same: the provider must develop the relevant expertise in implementing and maintaining the technology, and build a pricing model that is beneficial to both parties, easily billable and measurable.
Evolving pricing models Traditionally, call center outsourcing services have been priced using one or a combination of the following pricing models:
Per agent per day / hour – the outsourcer charges the client based on the amount of labor that is required;
Per call minute / time unit – the outsourcer charges the client based on the volume of call traffic;
Per transaction / call / email etc. – the outsourcer charges based on the number of calls / emails etc. it makes and / or receives.
These are essentially designed to allow the outsourcer to effectively cost and, therefore, price its services. However, traditional pricing models do not necessarily deliver the desired results to the client.
The primary aim of a call center is meet a business need, for example to sell goods and services, provide customer service or collect debts. The problem with the pricing
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models described above is that the client is essentially charged for the number of telephone calls made or emails sent, not for the number of goods or services sold or for the increase in customer satisfaction.
The emergence of CRM has placed a greater value on qualities such as customer satisfaction and up- and cross-sell opportunities that traditional outsourcing pricing models simply do not address. As a result, the more demanding customers and the more innovative outsourcers now look for risk / reward sharing pricing models that allow the client to measure the real aims and outputs of their call center – such as increased customer satisfaction or reduced customer churn – and for the outsourcer to be rewarded or penalized depending on its performance relative to these targets.
Risk / reward sharing The growth in risk / reward sharing pricing models has been driven by the need for outsourcers to offer a more compelling proposition to clients. In addition, as outsourcers attempt to move further up the value chain and take responsibility for larger proportions of their clients’ business, it is vital that the way they are rewarded reflects this newfound impact upon the client’s business.
Most of the time, one or both of the parties is not prepared to share all of the risk or all of the reward. Therefore, the most common model is for the outsourcer to charge a fixed cost per call / transaction / agent, and then be rewarded or penalized based on its performance against certain objectives and targets. There are number of ways in which the success of a customer service strategy can be measured:
Performance against SLA – the client can set the outsourcer service levels that it wishes the outsourcer to achieve (first-line call resolution rates, abandonment rates, time to answer an email and so on) and reward or penalize them based on performance against these objectives;
Customer satisfaction – the client and/or the outsourcer uses a trusted third party to measure customer satisfaction – usually through surveys at regular intervals – and
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reward or penalize the outsourcer based on the results. This model works well at measuring customer satisfaction but can be expensive, and finding a mutually trusted third party can be an issue. In addition, it relies upon the client having legacy data against which it can measure the outsourcer’s performance;
Churn reduction / customer retention – the outsourcer is rewarded or penalized based on its effect on customer churn and/or retention rates. These factors are slightly easier to measure than customer satisfaction, but again the outsourcer must ensure that its targets are fairly set based upon legitimate legacy data, and for both parties, flexibility is built into the contract to take into account the effects of marketing efforts, price fluctuations and so on.
In many cases a combination of models is most appropriate, for example a company may want to improve the quality of its call center, but also reduce customer churn at the same time. The end result is that in order to win the more valuable and long-term contracts, outsourcers need to develop pricing models and service contracts that include a number of rewards and penalties based on performance against targets. In order to price these types of contracts more effectively, outsourcers should develop an understanding of their in-house abilities to determine which targets can be reached and where they have proven expertise, and develop in-house pricing expertise or partner to do so.
Efficiency sharing pricing models One of the claims made of outsourcing is that costs can be saved by economies of scale. In many cases these economies of scale are achieved and the savings passed on to the client. However, the price will probably have been negotiated upfront, based on the savings the outsourcer could offer the client at the time the deal was signed. But what if the outsourcer continues to grow and achieves even larger economies of scale, generating greater cost savings?
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efficiency sharing pricing model works like this: the outsourcer determines the margin it wishes to make, for example 20% on top of the costs of providing the service. It then offers the client an outsourcing service for 20% on top of the price it costs to provide the service. The outsourcer then provides the service for the agreed fee and at an agreed time, the outsourcer reviews the costs of providing the service to the client. If these costs have reduced through efficiency gains, the outsourcer passes on these savings by reducing the price to reflect the new cost, plus the 20% margin.
Clearly this model is not suited to everyone because it involves a significant amount of faith from the client and a significant amount of openness from the outsourcer. However, for new entrants in the market and companies wishing to build trust with clients, it could prove to be a very valuable way of developing client relationships. To date, this model has only been in effect in the offshore market, where reduced cost is the dominant driver for outsourcing.
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CHAPTER 7
Competitive advantage: succeeding in a commodity market
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Chapter 7
Competitive advantage: succeeding in a commodity market
Summary
The systems integrator model is becoming outdated since IT service providers and FSPs offer more complete solutions for improving the efficiency of client businesses.
Telcos are well placed to act as primary technology providers to outsourcers and should build expertise in this area.
Call center outsourcing providers will adapt to the changing landscape by continuing to provide point solutions targeted at delivering high-cost efficiencies on high transaction volume contracts for clients, delivering the call center component of the FSP’S offering, or expanding their own capabilities into the BPO space and perhaps beyond, into the realm of services offered by the FSPs.
Firms should look at their client base and implement the desired level of account management for each customer to leverage the maximum value from each relationship. Some companies have extended this to the point of becoming a ‘trusted advisor’ for their clients.
Within five years or so, the balance between front office and back-office outsourcing is anticipated to reach a 50/50 split.
Over the course of the coming few years, traditional systems integrators will extend their service offerings to deliver a greater mix of higher-value professional services.
FSPs will offer the most complete range of services across the IT services and outsourcing spectrum.
Vendors and service providers that choose not to grow their capabilities organically will look to build alliances similar to the one announced by BT and HP.
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Introduction Call center outsourcing is a fast maturing business and many people regard it as a commodity business. This chapter of the report looks at how call centers fit into the service portfolio of full service providers, as well as the ways in which they are adding value with their various call center-related offerings.
The bigger picture Call center outsourcing has reached the stage of a largely commoditized business, with many deals decided on a cost basis alone. However, some of the providers have found that their customers want them to offer call center outsourcing capabilities as part of an overall BPO or full service package in a market that is growing ever more used to outsourcing.
According to some definitions, call center outsourcing sits within BPO, but establishing where the lines are drawn between BPO, call center outsourcing, consulting, systems integration and business transformation is challenging, as Figure 7.14 shows.
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Figure 7.14: Service offerings: how the pieces fit together
Strategy
Integration
Transformation
Operation
BPO APO
ITO
Business Insights Ltd
Source: Business Insight
Full service providers (FSPs) FSPs offer the most complete range of services, including typically some strategy capabilities, perhaps an element of call center operations, some systems integration work, and elements of APO, ITO and/or BPO. In many instances the transformational component lies at the center of the service offering. Accenture and IBM Global Services are good examples of FSPs. They have a wealth of experience from working with clients in different industries around the world. Not only are they familiar with specific industry challenges, they have also delivered huge numbers of solutions to address them.
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IT service providers Several firms in this space not only develop and integrate the IT systems solution for clients but the larger of them, such as HP or Capgemini, will also run the solution for the client. This may well involve the service provider hosting the solution.
Systems integrators Systems integrators are companies that specialize in building complete systems by putting together components from different vendors. However, the systems integrator model is becoming outdated. IT service providers and FSPs have acquired additional expertise or grown organically to move beyond pure systems integration to meet client demands for a more holistic approach, designed to improve the efficiency of their business.
With one notable exception, systems integrators are generally unwilling to run their own call centers. In cases where providing call center and CRM services may be required as part of a larger outsourcing deal, or as part of a broader CRM push, partnering with experienced call outsourcers is the best strategy for systems integrators to pursue. However, systems integrators should avoid partnering with the cheapest and most malleable partner. While this strategy may work when teaming up with an offshore outsourcing specialist – since reducing cost is the most important issue – it can be a dangerous strategy when dealing with outsourcers in Europe.
Telcos European telcos can be split into two camps: those that still have their own outsourcing facilities and those that do not.
Telcos with their own outsourcing facilities A telco’s competitive differentiator in the call center outsourcing space is its technology expertise and its network. One advantage the telcos have is that of owning a network, thereby increasing the potential breadth of their technology offering. 136
Particular solutions that are relevant include technology hosting (such as speech recognition, IVR and IP call centers), pre-routing and network call center services, and managed services.
However, there are some areas that traditional outsourcers are branching into – namely providing an increased range of BPO and HR services - that are not best suited to telcos with their own outsourcing facilities. The competitive differentiator of a telco is not its knowledge of BPO, therefore, in these instances, telcos should partner with systems integrators and other companies that provide these services.
Telcos without their own outsourcing facilities As traditional outsourcers move their focus from technology to business process expertise, they will begin to form closer partnerships with technology providers. Telcos are well placed to act as primary technology providers to outsourcers and should build expertise in this area. This means providing integration, technology, hosting, managed services and networking services for companies that operate in a number of countries. Providing a network that can stretch to offshore locations is also an important requirement.
Therefore, telcos that want to generate revenues from the growing call center outsourcing market should inform the market of their hosting and managed services, develop flexibly-priced solutions for outsourcing clients, educate the sales force to sell the telco’s value proposition to the market, and work with vendors to bring products to market that support hosting, multi-tenancy, carrier-grade reliability and multi-site support.
Offshore and near shore specialists It is important that non-European and non-American offshore specialists, particularly the smaller ones, partner with European companies in order to address concerns about offshore outsourcing and win business. In addition, being quality certified and having a proven track record with regard to agent and management quality is critical. 137
Technology vendors Technology vendors cannot avoid the fast growing outsourcing market and, therefore, need to increase their sales focus on the outsourcing sector, consider the trends discussed in this report and build solutions that suit the outsourcing sector. Particular considerations include multi-tenancy, multi-site support, scalability, flexible pricing and support for IP and hosted architectures.
Strategic recommendations Call center outsourcing providers will adapt to the changing landscape in one of three ways:
They will continue to provide point solutions targeted at delivering high-cost efficiencies on high transaction volume contracts for clients, although call center outsourcing is a low-margin business;
They will position themselves to deliver the call center component of the FSP’S offering, and the FSP will become the prime contractor for the client, which could help stabilize revenues;
They will expand their own capabilities into the BPO space and perhaps beyond, into the realm of services offered by the FSPs. This will enable outsourcing providers to grow future revenues on the back of increasing demand for BPO services as call center outsourcing revenue growth slows down.
New business generation Many leading players have created new business by developing strategic relationships with a number of their key clients. This, in turn, has led to sell-on opportunities and makes it easier to cross-sell work during long-running projects. Firms should take an overall look at their client base and implement the desired level of account management for each customer in order to leverage the maximum value from each
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relationship. More recently, some companies have developed a relationship with a number of their clients as a ‘trusted advisor’. Under this arrangement, the service provider is asked to leverage its expertise and assist the client with strategically important brainstorming and decision-making. The supplier can also bid for any resulting work, so long as it is ethical and compliant to do so.
For this kind of relationship to flourish, both companies must be clear about their expectations from their engagement together. Initiatives such as Capgemini’s Collaborative Business Experience™, add real value in this instance because they enable both parties to set out how they are going to work together beyond what is stipulated in the contract between them. Outsourcing providers also need to address client education if they are to help the outsourcing phenomenon and resulting revenues reach full potential.
Delivering best practice Companies are more inclined to outsource a part of their customer-facing operations to deliver best practice customer service either to leverage an outsourcing provider’s investment in leading-edge technology or to introduce an element of competition to their in-house customer service function. However, we have yet to see a single organization hand over its entire customer-facing processes to an outsourcing provider.
Back office and front office The balance between front office and back-office outsourcing is shifting. Transferring a call center to an outsourcing provider is seen as less complicated than transferring a back-office function. It is true that back-office work takes longer and can be more costly to transfer than call center operations. Nevertheless, firms that started life outsourcing call centers are now acquiring or establishing back-office capabilities and the same thing is happening for a number of legacy back-office BPO providers, which are offering their own call center outsourcing services too. Within five years or so, the balance between front office and back-office outsourcing is anticipated to reach a 50/50 split; such is the pace of growth in BPO today.
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FSPs are also increasing their reach in the call center outsourcing space and some backoffice BPO areas too. This poses a substantial threat to pure-play providers as they offer a more complete solution. This means FSPs are poised to take a share of the most lucrative deals that are out to tender – those that are centered on complete process transformation. Sheer scale and deep industry expertise will continue to hold true as the key selling points of the pure-play provider. As such, it is likely that pure-play call center and BPO providers will be approached by FSPs on the basis of fitting into an end-to-end service offering structured around an alliance or a go-to-market partnership.
Understanding customer concerns Procuring outsourcing Companies are slowly realizing the critically important role that their procurement function plays in the selection of partners and outsourcing providers. Therefore, outsourcing providers need to be able to address client concerns during the bidding process and be ready to discuss embedding control mechanisms, buy-back and step-in rights for the client in the contract.
Brand impact Many firms strive to ensure that it does not become public knowledge that they outsource operations to offshore countries. Therefore, firms need to ensure that they consider the effect that outsourcing could have on their brand, one of their key assets. Customers are prone to react for emotional reasons when they learn that a firm they deal with outsources to a third party, especially if offshore work is involved. Therefore, outsourcing providers need to help manage the risks and ensure the client undertakes communication both internally and externally to smooth the transition.
Managing risk Risk management represents an executive headache but it is also symptomatic of today’s more diligent business decision-making processes. Managing risk across the 140
client’s entire business is especially important where functions are outsourced or plan to be in the future. Some outsourcing providers, such as Xansa, have developed specific tools that they use to establish a firm’s ‘risk appetite’ or profile. This is a key selling point and will become even more important as clients realize the need to look at risk in a coherent manner.
Addressing regulatory requirements Following on from risk management, outsourcing providers are required now more than ever to ensure they comply with the letter of the law. Some of the most recent legislation to come into effect covers data protection, ‘do not call’ lists and financial risk. Outsourcing providers need to demonstrate that they not only comply with the technicalities of the guidelines, but also with the spirit of them too, which is often more difficult.
Leading-edge firms are using the prescribed regulations as a starting point for the development of their own in-house best-practice procedures, and outsourcing providers are often better informed than their clients in this regard. FSPs and other service providers can, therefore, add real value by sharing the lessons they have learned, while working with regulatory bodies in different sectors and markets.
Focus on the Sarbanes-Oxley Act In response to the advent of the Sarbanes-Oxley Act of 2002, which set out to strengthen the independence of firms that audit public companies, many of the auditing firms that offered consulting and outsourcing services have since sold off those parts of their business. Outsourcing providers will increasingly carry out the task of filing financial reports on behalf of themselves and their clients. But the outsourcer’s finance function needs to put stringent control mechanisms in place in order to demonstrate completeness, consistency and transparency to the regulator.
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Focus on the Basel II accord The Basel Committee was established in 1974 to encourage convergence towards common approaches and common standards in the financial services industry. The new capital adequacy framework known as Basel II makes life more difficult for firms that are outsourcing. Under the terms of the accord, outsourcing providers need to demonstrate to their clients that they have equivalent operational processes to the client’s own for the ongoing management of risk. Similarly, both parties need to clearly quantify the actual monetary value of risk that is being transferred between them under the terms of the outsourcing arrangement. This is proving to be particularly hard to do so and is also erecting a number of barriers to new entrants in the outsourcing arena.
Focus on data protection One of the trickiest and most sensitive areas of concern that comes to the fore when considering outsourcing is data protection. The US uses an approach whereby industry sectors rely on a mix of legislation, regulation, and self-regulation to determine data protection policy. On the other hand, the EU has established comprehensive legislation that stipulates government data protection agencies be established, databases registered with those agencies and, in some instances, prior approval be sought before personal data processing may begin, which has the potential to seriously delay or even derail outsourcing deals. Outsourcing providers must, therefore, ensure that strict procedures and security measures are embedded in processes that require the transmission and/or processing of personal data, particularly where work is undertaken offshore.
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Future market outlook As clients face up to complex business issues, outsourcing providers are taking a longterm view of their business and, in some cases, fundamentally transforming entire operational processes. Some of these changes include:
Over the course of the coming few years, traditional systems integrators will extend their service offerings to deliver a greater mix of higher value professional services, such as process optimization or transformation;
The emerging class of FSPs will offer the most complete range of services across the IT services and outsourcing spectrum;
At the same time, call center outsourcing providers, especially those that offer offshore capabilities, will tend to extend their service offerings to include a greater degree of BPO;
Vendors and service providers that choose not to grow their capabilities organically will look to build alliances similar to that announced by BT and HP in May 2004;
Clients will slowly grow more competent at procurement, although the market for outsourced procurement services will grow strongly;
Ensuring consistency between what is negotiated and what is subsequently delivered is crucial in a market where clients are increasingly likely to churn between service providers.
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CHAPTER 8
Key vendors
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Chapter 8
Key vendors
Competitive landscape Looking at the call center outsourcing competitive landscape the picture is quite complicated and certainly represents increasing competition and potential confusion. At one end of the scale are huge global firms offering consultancy and systems integration, with perhaps some call center outsourcing capabilities of their own, and at the other we find the pure-play BPO and call center outsourcing providers that also often offer their services on a very price-competitive model. Consider also the number of new local origin outsourcing providers that are focused on either call center or BPO.
Systems integrators and firms such as Accenture and IBM Global Services offer call center outsourcing services because of their scale and often because clients ask for it as part of the full service offering they provide. As such, call center outsourcing is not seen as a core delivery priority for the FSPs, but it does represent an area where they have developed a lot of skills and insight. This is why they will often act as the prime contractor on behalf of their clients and manage the call center operations delivered by specialist call center outsourcing providers.
The comfort factor A recent survey of European companies asked them which types of vendors they would feel most comfortable outsourcing to. Some of the findings are highlighted below:
Local call center outsourcers are significantly more popular than larger global and pan-European outsourcers;
Companies prefer traditional outsourcers, large or small, to telcos and systems integrators;
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Local call center outsourcers are the most popular choice in every country, except the UK, which prefers global and pan-European outsourcers;
Despite this, global and pan-European outsourcers are the second most popular choice in every country, except for Italy and the UK;
Systems integrators are most popular in Italy (where they are the second choice) and the UK;
Telcos are relatively popular in the Benelux countries, Germany, Spain, Sweden and the UK.
Competitive strengths of call center outsourcing vendors Figure 8.15 is intended to inform the reader about the overall completeness of service offerings proposed by the providers in question as well as illustrate where their priorities lie in terms of their business focus. The intention is not to rank the competitors against one another or to suggest that one firm is better at delivering a particular service than another.
The completeness of the Harvey ball is based on a combination of information, including revenue figures that are available in the public domain, market awareness of the providers’ solutions and findings into what these firms perceive their particular strengths to be. The more complete the Harvey ball, the greater the focus for that firm.
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Figure 8.15: Comparison of profiled vendors’ service delivery focus Strategy
Integration Transform -ation
Operation
ITO
BPO
APO
Accenture Capgemini EDS (ATK) IBM HP/BT CSC I-OneSource Wipro Spectramind None
High
Business Insights Ltd
Source: Business Insight
Accenture Initially called Andersen Consulting, Accenture was formally established in 1989 and took on its new name in January 2001. The founders were partners from the consulting division of the various Arthur Andersen firms and they established Accenture to deliver consulting and technology services focused on large-scale systems integration and business processes deals.
Today, Accenture is the world’s largest global management consulting, technology services and outsourcing company with 75,000 staff. The company’s capabilities lie in business consulting, technology and outsourcing.
Accenture has a global Delivery Center Network that delivers a full range of APO, ITO and BPO services, including call center outsourcing. Firms such as Accenture target the
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high-end of the market: the multi-year, multi-faceted (complicated) deals of global multinational companies. In the call center outsourcing space, target clients usually have in excess of 5,000 APs.
Service differentiation Within its CRM service line, Accenture has a go-to-market offering called Customer Contact Transformation, which offers clients a variety of value propositions relating to call center operations and outsourcing. These include:
Sourcing for and/or running the call center operation;
Managed services, such as vendor relationship management;
Creating innovative ways to transform customer interactions.
Accenture’s value proposition is structured around the three building blocks of Operate, Manage and Transform. The first two elements refer to the running of call center operations. Accenture uses its call centers as hubs for innovation and manages third-party vendors, which in turn deliver the large-scale back-office and call center operations. The ‘Transform’ element reflects the fact that businesses have moved beyond solely delivering cost reduction programs in recent years and are now consciously looking at ways to better integrate and transform their businesses to best leverage their infrastructure.
Given the maturity of the call center market, firms such as Accenture concentrate on using their call centers as centers for innovative practices. By managing call center delivery on deals that incorporate call centers, Accenture can set benchmarks and best practice standards for adoption throughout the remainder of the delivered operation.
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Capgemini Formerly Cap Gemini, Capgemini made its name in IT outsourcing and applications management, but added to its capabilities a few years ago when it bought the consultancy and systems integration arm of Ernst & Young. The recently re-branded Capgemini now offers a full range of services covering outsourcing, consultancy, technology services and also local professional services.
Service differentiation Capgemini has in excess of 30 years’ outsourcing experience and boasts a network of delivery centers (including call centers) in 20 different countries around the world – although its BPO services have only really taken off in the last 10 years or so. Nevertheless the skills that have been built up in that time, and those that were acquired from Ernst & Young, mean that Capgemini can compete in many respects with the other FSPs in the market, although its focus has perhaps more of a European bias.
Capgemini’s Right shore offering is not dissimilar to that of a number of other BPO providers. The basic idea is that once firms have come to terms with the concept of outsourcing, it matters less where the actual work is undertaken, allowing the outsourcing provider to offer its clients the opportunity to outsource to a portfolio of locations around the world. Its delivery network is also a strong selling point as it stretches from Toronto, via Scotland, Poland, Belgium and the Netherlands in Europe, across to Singapore, China, Hong Kong and Adelaide in Australia, not forgetting India.
In order to differentiate itself still further from its direct full service competitors, Capgemini has recently formalized its approach to client engagements under the ‘Collaborative Business Experience™’. By setting out upfront what the client and Capgemini define as success during the lifetime of the project, Capgemini reckons it has an advantage over other players. This approach certainly represents a step in the right direction but it remains to be seen how much actual new business revenue it will generate.
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CSC CSC has been in operation for more than 45 years. It became a major supplier of IT services, a leading integrator of computer and communications systems and a premier developer of custom software in the earlier years of its existence and built on that platform to service many of the US’ (and then the world’s) biggest commercial organizations and governmental departments. Today, it offers systems integration, consulting and also outsourcing services.
Service differentiation A number of clients have handed over parts of their call center operations to CSC on the understanding that CSC finds new ways to make those operations more profitable. This means that an increasing amount of that overall call center infrastructure is going to be turned outwards in the next few years to service a growing number of clients. Presently CSC boasts 17 fully integrated multi-client call centers.
The principle of making the centralized helpdesk a critical part of CSC’s successful IT outsourcing service offering means that as the BPO side of the business expands, it is possible, if not likely, that CSC will look to replicate the lessons it has learned by extending the scope of services offered from its 34 ‘Customer Support Services’ call centers to support other business areas and processes. A record of speedy project delivery coupled with broad industry experience also means that CSC is a serious player in the BPO market today.
EDS EDS is one of the largest IT and outsourcing companies. Over the past couple of years, EDS has hit the headlines because it has lost some important clients, such as the Inland Revenue in the UK and has struggled to generate a profit from its landmark US Navy Marine Corps Intranet (NMCI) program. In light of these challenges, a new management team has been put in charge and the company has become much more selective about the deals it competes on. The outsourcer is now on its way back and
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EDS has one of the strongest call center and BPO service offerings, as well as delivery infrastructures in the market today.
Service differentiation EDS has invested a lot of time, money and expertise in establishing a credible outsourcing methodology called BestShoreSM. All told, EDS presently has a network of more than 280 call centers that service its own operations and those of its clients. A number of EDS’ core service offerings incorporate a call center element, which explains why the firm has developed such sizeable capabilities.
Today EDS is receiving a growing number of enquiries for assistance with complex call center projects where firms are looking to consolidate often extremely ‘siloed’ call center operations running a variety of disparate IT applications and systems. These typically sit atop complex IT architectures and span multiple business units. But delivering these high-value services is what distinguishes EDS and other FSPs from their pure-play competitors.
Another differentiator in EDS’ favor is the interesting approach it takes to negotiating client engagements, whereby four roles – covering client relationship, project delivery, account sales relationship and client industry expertise – are assigned to members of EDS’ client-facing team to ensure complete and appropriate management of the relationship, and guard against over-promising and under-delivering on the client’s expectations. In particular, bringing a dedicated industry expert onboard is very well received by potential clients.
It is encouraging that clients see EDS as a ‘trusted advisor’, which often leads to EDS winning a share of the implementation work. The company still faces an uphill challenge today, however, with respect to some of its ambitions for the future. Transformational deals are a lot more complicated in many respects than traditional BPO or consultancy engagements and EDS needs to ensure its consultants receive
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adequate training in the arts and merits of transformational outsourcing in order to help it win large-scale projects in the future.
HP with BT A greater number of alliances are expected to come to market in the outsourcing space, particularly when competing for the biggest and most complex end-to-end projects. One such alliance was announced in May 2004 by HP and BT. Together, the two firms are looking to leverage their differing skill sets and value propositions in a combined go-to-market service offering aimed at providing big business with converged voice/data and IT infrastructure services on a global basis.
In May 2004, the two companies announced that they had signed managed services agreements with a combined value of $1.5 billion over the next seven years. HP will manage BT's midrange and desktop IT infrastructure in the UK, and BT will manage HP's voice and data network and product support call centers in EMEA. These agreements lay the groundwork for future collaboration and the companies are currently evaluating combined service offerings in the areas of infrastructure, application management, mobility, workplace solutions and call centers.
The two firms need to establish a common service delivery model in order to be successful in a combined go-to-market alliance. What is uncontestable though is that they bring scale and credibility to the market, boosted by their long-standing working relationship with one another.
Service differentiation Initially, the alliance will target European enterprises, the UK mid-market, consumer and small- and medium-size business (SMB) markets. Other markets will be targeted as the alliance matures.
Many clients are looking for global delivery partners and experience suggests that business solutions have traditionally been delivered along regional lines, so this 152
alliance with BT may well help expand HP’s market presence in European countries, as well as bring the combined ICT offering to market. Critical to the success of the alliance will be the way in which the two firms can work together to deliver their solutions. BT and HP need to ensure that their alliance does not lack the necessary transparency and integration in the delivery model, which is where previous alliances have failed. BT and HP believe that together they will deliver real value in this competitive market, but the jury is still out.
IBM Global Services IBM Global Services is the professional services arm of the world’s biggest IT hardware and services firm. It offers call center outsourcing as an element of grandscale BPO projects. It is also now able to leverage strategic consultancy services as a result of its acquisition in 2001 of PwC Consulting. The firm’s focus is on addressing the biggest and most complex challenges facing some of the world’s biggest firms.
As might be expected of a technology firm, the technology and telecoms sectors are the most sizeable markets for IBM Global Services’ call center business at present, with distribution, financial services and public sector also cited as very important to the business.
Service differentiation The Business Consulting Services arm of the global firm has a dedicated service offering that covers call center outsourcing. The service is called CRM business transformation outsourcing and aims to transform the way in which firms do business with their customers, in a world where consumers are growing ever more accepting of the multi-channel environment.
IBM Global Services brings its sizeable market presence to the table by leveraging a multitude of vendor relationships on behalf of its clients. The firm also operates a number of call centers. Where firms such as IBM Global Services differ fundamentally from the pure-play BPO and call center outsourcing providers, apart from in their size, 153
is in their ability to conceive, develop and deliver fundamentally different business operations. This is the transformation piece of the puzzle.
Through its acquisition of PwC Consulting, IBM Global Services gained a greater degree of boardroom access amongst many of the world’s leading firms. This enables IBM Global Services to develop strategies with its clients, which can lead to further opportunities to help design, build and/or transform the processes and technology in order to deliver the desired change.
ICICI-OneSource ICICI is India’s second-largest bank, which was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. More recently, and of more relevance to this report, ICICI-OneSource was established in 2002 to offer BPO.
A much smaller outsourcing player than IBM Global Services or Accenture, IOneSource has been included to illustrate a trend that is occurring in several of the offshore markets, whereby large financial services institutions or telecoms companies set up BPO or call center operations to service their clients and then turn a portion of their capacity outwards in order to tap into the global market for these services.
Through the acquisition of a couple of US and UK operations, I-OneSource now offers call center outsourcing as well as its core BPO offering. Understandably, financial services is the biggest industry vertical for I-OneSource to date, but the firm also has a number of strong relationships in the retail, telecoms and entertainment, media and leisure sectors.
Service differentiation Whereas some Indian pure-play BPO providers have established in-house call center expertise over a period of time, I-OneSource opted for growth by acquisition. Indian firms aiming to win BPO business, and in particular call center outsourcing work, need 154
to establish themselves in key target markets and not merely open an office that acts like a shop window. I-OneSource has heeded this advice and now needs to establish its credentials more clearly in the UK by winning more outsourcing deals as well as ensuring it has the capacity in India to service its expanding client portfolio.
Wipro Spectramind Wipro Spectramind is one of India’s largest IT services and BPO providers. Through its acquisition of Spectramind in 2001/2, Wipro gained the ability to offer a broad range of BPO services to its clients in a more rapid manner than if it had developed organically. Today, the company claims to be the largest third-party offshore BPO provider in India.
According to its industry expertise and customer base, Wipro Spectramind’s background is in financial services (banking and insurance) and the majority of its clients are still from this industry today. However, communications is another key industry vertical and Wipro Spectramind is well placed to offer specific services in other areas too.
With five centers in India and further operations in South-East Asia, Wipro Spectramind offers both voice and non-voice customer interaction management to its clients. These clients come primarily from the US and the UK, although there is an increase in Wipro Spectramind’s reach across the rest of Europe and Asia Pacific.
Service differentiation Today, the majority of new business (call center outsourcing) is coming from the existing client base that is growing accustomed to having outsourced operations overseas. It is also well positioned to benefit further from the continued thinning out of the Indian call center outsourcing marketplace, perhaps through further acquisitions to raise its own delivery capacity. As with other legacy BPO providers, deep industryspecific process and technology knowledge are the prime value-adds for Wipro Spectramind. 155
Index Accenture, 47, 72, 73, 135, 145, 147, 148, 154
ICT Group, 71
Aegis Communications, 71, 74
Nest Call Center Network, 53
Amadeus, 51
Precision Response, 71
Atento, 54
PwC Consulting, 153, 154
BT, 17, 41, 47, 133, 143, 152, 153
Sabre, 51
Capgemini, 136, 139, 149
Sitel, 71
Convergys, 74, 115
SNT, 53
Cygent, 75
Sykes, 71
Deutsche Telekom, 41
Tel Mark Sales, 74
EDS, 47, 55, 71, 115, 150, 151
Teleperformance, 53, 76
Ernst & Young, 149
TeleTech, 71
France Télécom, 41
Vertex, 54
Galileo, 51
West, 60, 71, 74
HP, 17, 133, 136, 143, 152, 153
Wipro Spectramind, 155
IBM, 72, 135, 145, 153, 154
WNS North America Inc, 74
ICICI-OneSource, 154
Xansa, 141
ICL/Fujitsu, 47
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