Reprinted from CIO Review Magazine
By Jon Browning,
CEO, Strategic Sourcing Advisors
Strategic Sourcing Advisors helps companies determine their best procurement and site location strategies. Our matching process removes the guesswork from outsourcing and helps you find the right contact center outsourcing partner at no cost to you.
It’s not often that an organization will make a single decision to outsource their entire customer care or IT helpdesk, but this approach often evolves over a series of smaller outsource procurements.
Instead, having a well-planned outsourcing model prior to starting is often the best way to control the strategy and achieve outsourcing goals. Cost reduction is usually the primary driver in the decision to outsource but the allure of instant savings can cloud our perspective on the significant risks that a business undertakes during this process.
In my role leading contact center procurement at Microsoft and now helping other buyers find the right outsourcing models, I have witnessed the achievements and failures that often come with BPO strategy. Let’s look at a few strategic decisions that can drive success for contact center outsourcing buyers today.
What is the right number of outsource providers?
One of the biggest mistakes buyers often make is to add providers for a specific business need without full consideration of the impact to the overall outsourcing model. “Provider sprawl” eats away at a well-intentioned BPO strategy very quickly. Instead, find the balance between maximizing your buying power vs. spreading the business volume to reduce risk.
For larger buyers, it’s important to cultivate a team of providers with the right capabilities and scalability to meet your needs well into the future. Having this balance will encourage healthy competition between providers but also enable book of business discounts and other leverage from the business volume you give to each of them.
Book of business discounts are a recent trend with larger buyers. This is simply a schedule in the contract that says if you spend a certain amount with the provider they will apply an additional discount to the contracted price. The more you spend, the higher the discount percentage.
You might expect this model would cause providers to automatically increase their base price to account for the discount. But this should not be the case, you still have the leverage of providers competing against each other, and increased volume will enable new cost efficiencies and many providers will share these with buyers if asked.
Paralyzing BPO providers with too many contractual metrics
Many larger buyers are moving away from the traditional long list of metrics in a statement of work and instead focusing on just a few primary drivers for what is most important to their business. Providers are often frustrated having to choose between which contractual metrics to hit or miss when they conflict with each other. For example, what is more important, first contact resolution or average handle time? Providers often must chase insignificant metrics at considerable expense to be contractually compliant and eligible to win new business. These costs are almost always passed on to the buyer in one way or another.
Many buyers are now choosing to hold providers accountable only for the primary drivers of the goals for the contact center.
- Customer satisfaction (Will customers repurchase based on their support experience?)
- Resolution rate (How effective is the contact center?)
- Cost per transaction (How efficient is the contact center?)
We should continue to monitor other metrics because they can be good leading indicators for potential issues and can offer insight for why key goals are missed. But we should refrain from burdening providers with contractual liability for second-level metrics if they are not primary enablers for the key goals.
Contact Center Outsourcing Risks
When working with buyers I am often asked about the hidden costs and complications of outsourcing. Buying decisions are often based primarily on comparisons between insourced and outsourced agent labor cost. But buyers must consider the full cost impact to the business including management resource changes, facilities costs and additional travel required to accurately estimate the savings from outsourcing. Buyers should also account for outsourcing risk. This is more difficult to estimate but vital in the decision to outsource:
Outsourced labor attrition rates can vary from 10 percent to over 100 percent annually. Buyers must understand attrition rate averages for their type of business and how this will impact their costs and performance quality. High attrition rates can often be attributed to ineffective site management and are a red flag when evaluating a new location.
In highly-concentrated BPO locations like the Philippines, there’s an intense demand for good agents. These agents will often create their own promotions by moving to a competing outsource provider after only a few months on the job. But good site management can reduce this migration. For this reason, I give site management the most scrutiny when evaluating a new location.
Increasing Cost Base
Investing in offshore and nearshore locations can yield significant savings, not just for English but for European languages as well. However, these benefits can diminish over time due to many factors.
Adverse currency movements can quickly drive up costs. For example, the Philippine Peso or Indian Rupee to USD exchange rate can fluctuate by as much as 10% or more in a year. Many providers use currency hedges to limit their exposure and buyers should also reduce their risk by adding contractual language that lessens the impact of currency fluctuations.
The decision to outsource a contact center should help reduce costs while driving consistent quality of performance, flexibility and scalability. The key for reaching these goals depends on buyers developing a holistic outsourcing strategy that considers risks as well as benefits and is designed to scale with their business needs.
Read more about the five procurement best practices and why you shouldn’t focus only on cost to determine the right outsourcing strategy.
About Strategic Sourcing Advisors (SSA)
SSA helps buyers of contact center services find the right providers and locations for their specific needs at no cost or obligation. Our team of former Microsoft leaders have decades of experience buying contact center services and we understand the difficulty of finding a great outsource partner in an ever-changing market.
We’ve managed over $700 million of annual global contact center business, working with many of the best providers in the industry. The SSA team of contact center buyers are uniquely positioned to help you navigate the outsourcing industry and make the right choice. This has been our business for over 20 years. Put our experience to work for you.