A FRESH LOOK AT OUTSOURCING

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1 A Results Companies White Paper expect greater. 499 East Sheridan Street Dania, FL TheResultsCompanies.com A FRESH LOOK AT OUTSOURCING HOW TO BEST USE CALL CENTER OUTSOURCING TO GROW YOUR COMPANY S PROFITS Michael Schein January 2010 GLOBAL CUSTOMER CONTACT SOLUTIONS

2 Overview Outsourcing is here to stay. According to a Gartner study, companies that successfully contract with third party providers to handle their customer service and technical support can lower their costs by at least 25 to 30 percent. 1 On the other hand, a company that mishandles its outsourcing strategy can do irreparable damage to its brand, customer loyalty, and bottom line. This white paper will examine the growing need for outsourcing in today s economic climate, mistakes that many firms make when choosing an outsourcer and best practices to ensure that any outsourcing program will have optimal results. The Growth of Outsourcing A company that mishandles its outsourcing strategy can do irreparable damage to its brand, customer loyalty, and bottom line. In light of the recent financial crisis, many analysts predicted that firms would cut back their outsourcing initiatives. In fact, the opposite has occurred. According to Brendan B. Reed from Customer Interaction Solutions, [In] the current economic climate To cut costs clients are focusing more than ever on their core competencies, which has led to more of them knocking on BPOs [Business Process Outsourcers ] contact centers. At the same time they are seeking more in the way of service and quality from BPOs at competitive pricing so they can retain more of their clientele and maximize the value from them with the limited resources available. 2 Many experts believe that outsourcing also increases long term planning ability and predictability. 3 According to an analysis conducted by Frost & Sullivan: Revenue for the outsourcing market was $20.7 billion in 2006 Revenue for the outsourcing market will reach $27.5 billion by Projected Growth of Outsourcing 30 BILLION 25 BILLION BILLION 1

3 The Economic Argument for Outsourcing Of the many ways that contracting with a BPO enhances efficiency, the most significant might be the ability of an outsourcer to maximally manage agents nonproductive time. It is easy to lose sight of how even the most basic personnel expenses add up to truly profit-damaging cost when not dealt with according to the appropriate strategy. For example, during the course of an agent s tenure he or she will invariably receive pay for: Break-times (typically two 15-minute breaks per day) Vacation and sick time Training time (attrition, additional product knowledge) Holidays Reviews, coaching sessions, call evaluations Over 200 agents, the decision to use an outsourcer would save the client $7.6 million per year. A Case In Point: The Numbers Behind the Savings In-house call center: Since a company operating an in-house call center is responsible for all of an agent s time, both productive and nonproductive, the assumption can be made that the company will be paying for the 2,080 hours per agent that make up a standard work year. This translates into 124,800 minutes. At sixty cents per minute, the cost per agent would be roughly $74,800. 2,080 hours x 60 minutes = 124,800 minutes x $.60 = $74,800 Outsourced call center: Since companies that use outsourced call centers are typically only responsible for paying for the time that agents spend talking on the phone, the assumption can be made that an average company using an outsourcer will only pay for one thousand hours per year per agent. This translates into 60,000 minutes. As a result, at sixty cents per minute, the cost per agent for the client is roughly $36,000 per year. 1,000 hours x 60 minutes = 60,000 minutes x $.60 = $36,000 cost per agent per year The difference in cost per agent per year would be roughly $38,800 per agent. $74,800 - $36,000 = $38,800 Over 200 agents, ($38,000 x 200 agents) the decision to use an outsourcer would save the client $7.6 million per year. While agents naturally deserve this pay, the truth is that these periods generate practically no direct financial or operational benefit to the parent company. Because firms that operate in-house call centers do not specialize in managing these costs, they generally end up eating these nonproductive hours. 2

4 Out of an agent s 2,080 hour work year, 440 hours (roughly 21%) are spent on nonproductive time. The companies that run these centers pay one hundred percent of that cost. Furthermore, call center agents typically spend only 60%-70% of the time during which they are logged into the system actually talking to customers. In other words, only about 1,000 of the approximately 1,640 hours that agents sit ready to take calls are productive ones. An advantage of hiring an outsourcing firm is that it takes on the responsibility of managing the cost of nonproductive time as well as productive time. A core competency of BPOs is forecasting the periods during which call center agents will receive the most calls and scheduling them accordingly to drive maximum profits. Productive vs Nonproductive Hours Within a Work Year 21% Nonproductive A core competency of BPOs is forecasting the times during which call center agents will receive calls and scheduling them accordingly to drive maximum profits. Many business leaders have recognized that they cannot afford to give up the savings and efficiencies gained through outsourcing. Companies are increasingly choosing to focus their time, talent, and dollars on producing the core product or service that brought about their initial success and leaving the management of phone service staffing to organizations that specialize in that field. But there is a flipside. Among many customers, there has been a backlash in regards to outsourcing - namely the growing perception that outsourced call centers equal subpar quality. Increasingly, companies are looking to gain the advantages that come with outsourcing without having to sacrifice the relationship they have with their customers. 60% to 70% Productive time The New Outsourcing Mindset A Change In Strategy Although outsourcing is on the upswing, the picture of success for BPO providers is far different than that of even a few years ago. In the not too distant past, many companies selected outsourcing firms with massive thousand-plus seat call centers, most of which were located in countries with minimal cultural ties to the U.S., such as India. Over the last few years, though, the outsourcing industry [has continued] to grow - but with an emphasis on nearshoring. 5 In other words, companies that are choosing to outsource, if they are looking for an international solution, are tending to pick locations closer to home, either geographically or culturally. 3

5 Quality Issues: Foreign and Domestic One reason for the backlash against the old model of offshore outsourcing is that with unemployment at nearly 10%, customers have become especially sensitive to inferior performance from agents who clearly lack a connection to the U.S. Although this attitude has recently reached its peak, the sentiment has been steadily building for the better part of a decade. According to Ginger Conlon in her article The Great Outsourcing Debate, Those who are against [outsourcing] say that companies lose control of important functions, add complexity to the outsourced business processes, and increase the risk of problems and errors. Additionally, they cite offshore outsourcing as a drain on the U.S. economy and job market. 6 One Company s Wrong Turn It is essential that non-domestic agents have both the cultural familiarity and linguistic aptitude needed to deliver truly stellar customer service. One example of a company that was forced into a costly change of direction to its offshore strategy is the Midwestern insurance firm Conseco, Inc. Conseco bought Indiabased ExlServices for $52.6 million in 2001, anticipating savings of $60 million a year in call-center costs. But customers complained they could not understand the heavily accented call agents Conseco sold ExlServices at a $20 million loss. 7 Stories like Conseco s are common. Domestic customers have been growing more and more irritated by even the slightest deviation from top quality service and mutual understanding. Therefore, it is essential that non-domestic agents have both the cultural familiarity and linguistic aptitude needed to deliver truly stellar customer service. Brand Damage While the negativity toward outsourced customer service is most acute when customers believe that the agent is handling the call from a distant location such as India, it can also come up when the outsourcer is domestic. In many cases, the problem stems more from the operational philosophy of those running the call centers than from the inherent abilities of the agents. While contact center operators generally accept that outsourcing customer service can improve dealing with clients, reduce costs and boost operating efficiencies, some also believe it doesn t help reinforce brand essence Too often, outsourced customer care is evaluated as a basic operational decision in contact centers [with the] primary concern to save money and increase operating margins The risk of this approach is the huge potential for failure, not to mention the devastating effects a poorly executed program can have on a company s long term customer satisfaction. 8 The focus on lowering costs at the expense of all other factors has become a pervasive mindset in much of the call center outsourcing world. Massive call centers make it hard for supervisors to give agents the attention they need to perform well. Plus, it is often difficult for agents in these mega-sites to identify with the brand of the company they are servicing when there are so many different client programs under the same roof. 4

6 While controlling costs is always important, the loss in future revenue that results from the damage to a company s brand is immeasurable. In a constantly online world where poor word of mouth spreads like a virus, bad customer service can bring a company to its knees in no time. An Increasingly Expensive Proposition Another factor in changing the traditional outsourcing dynamic is that locations like India are no longer as inexpensive as they once were. With so much competition in these popular spots, agents are now demanding more money. As a result, companies that choose this solution must keep increasing their wage rates to stay in the game. In a constantly online world where poor word of mouth spreads like a virus, bad customer service can bring a company to its knees in no time. Many experts see change on the horizon. According to one, As wage inflation has set in improving productivity and training keeps [outsourcing] costs attractive. Therefore, outsourcing isn t about making one decision anymore It s become a portfolio of choices. 9 Today s decision makers must develop a comprehensive plan that takes the unique concerns of the new business landscape into account. A Revised Approach There are a surprising number of international and domestic alternatives that address today s most common outsourcing challenges. New Locations for a New Experience One way that a firm can utilize an international outsourcing solution without jeopardizing its brand identity is to select a location where the population has a true understanding of American culture. For example, even though the Philippines is a country many miles away from the United States, there is a connection between the two nations stemming back to the period between 1898 to 1946 during which it was a U.S. colony. 10 To this day, English is taught widely in schools there, and many Filipinos use the language as a means of everyday communication with each other. The nearly accent free English spoken by Filipinos is one of the main reasons that American customers report a much lower rate of dissatisfaction when talking to Filipino customer service agents. However, it is important to choose the right location in the Philippines. With the rapidly increasing popularity of the country for call centers, the competition is increasing at a rate that rivals India just a few years ago. Many of Manila s sites are located in crowded proximity to one another, with multiple centers often in the same high rise buildings. It is common for managers and HR departments of the various outsourcing firms to jockey to hire from the same labor pool. To truly gain the benefit of the Philippines unique advantages, an outsourcer should analyze the following features of a location before making a site selection: 5

7 Immediate competition Labor pool vs. call center concentration Transportation flows into the area Physical workplace availability It is also worth keeping in mind that the Philippines is not the only option. A number of cities in Mexico, for instance, are close to the U.S. border, which translates into another largely fluent labor base. Domestic Outsourcing 2.0 In order for a company to truly leverage the advantages of outsourcing, the BPO firm it chooses to work with should have a domestic option at least as strong as its international presence. In order for a company to truly leverage the advantages of outsourcing, the BPO firm it chooses to work with should have a domestic option at least as strong as its international presence. Many companies and outsourcers avoid domestic call centers because they assume they will be too expensive. While there are ways to control wages domestically, it is a mistake to view the rate paid to agents as the primary concern. [Despite] the stigma often associated with it, outsourcing [is] not always about finding the cheapest solution. The smartest businesses farm out the functions that aren t their core expertise, which adds value and saves money. 11 Rural Locations - Where Caring and Empathy are a Way of Life Many U.S. call centers suffer from the same problems as their foreign counterparts too many employees, an overcrowded labor market, high attrition. To a considerable number of agents working in big city call centers, the job is a stopover point to whatever their ultimate career will be. A better option is the small town call center. In many small rural communities, the call center is among the town s largest and most prominent employers. Residents of these towns often view being an agent as an ideal work opportunity in that it offers the chance for career advancement that many regional employment alternatives do not. As a result, employees at rural call centers typically work harder and more diligently than their big city counterparts. The cost of living is lower in rural communities, which makes it easier for employers to control their labor expenses. Furthermore, many small rural communities are tight knit, leading to an atmosphere of civility and friendliness. For agents in these areas, caring and empathy are not simply skills taught in a training class - they are a way of life. Small Dedicated Facilities The final piece in the puzzle of delivering superior service through outsourcing is the practice of using small dedicated sites. By keeping the headcount in call centers to a few hundred agents or less, managers can give every agent the attention they need to succeed. With only one or two client programs per facility, agents come to identify with their project s brand and deliver service comparable to an agent working directly for the client in-house. 6

8 How The Results Companies Can Help The Results Companies is a customer contact solutions provider for many Fortune 500 companies. Established in 1990, The Results Companies provides services through over 4,000 Customer Contact Agents located in 12 domestic and international locations worldwide. Results is an organization with a proven track record in customer service and sales performance. With a foundation rich in technology and innovation, Results has developed systems to improve call management, enhance service, increase performance and deliver an ideal end experience to the customer on every call. For 20 years, Results has partnered with organizations to grow their customer base and increase their market share. The Results Business Model - A Better Customer Experience Results offers clients looking for an outsourced customer service, technical support or sales solution a wide array of international and domestic options to best fit their needs. The Results model creates a contact center culture that revolves around maintaining customer satisfaction, as well as meeting and exceeding client goals. Results Global Presence Results has sites located in a number of nearshore and offshore locations, all of which have been selected based on the availability of employees with top-tier English language ability and cultural affinity with the United States. Facilities include the Silver City, Eastwood, and W Building locations in Manila, Philippines. Each facility was selected based on an in-depth analysis to ensure that the sites are desirable work environments easily accessible by public transportation but far enough from popular call center hubs to avoid the problem of an overly competitive market. Another Results location is Hermosillo, Mexico, which is located only three hours by car from the Arizona border. All international agents undergo extensive screening to ensure they have the ability to communicate with customers on a level that is on par with or exceeding that of agents in domestic call centers. Results Domestic Centers Results domestic business model is based on the concept that it is more effective to operate a number of smaller interlinked centers in less densely populated rural areas, than to operate just a few large centers in metropolitan locations. The Results model creates a contact center culture that revolves around maintaining customer satisfaction, as well as meeting and exceeding client goals. Top Employer - Results selects locations for its centers where it is able to quickly become at least one of the top five employers in the community. This strategy allows Results to find agents and managers that view working with the company as a career rather than a transitional job. 7

9 Lower Attrition - The desirability of employment as a Results agent translates into a markedly lower level of attrition as compared to the typical large metropolitan call center. Results selects locations for its centers in which being an agent is a position that people go out of their way to obtain, view as permanent, and do whatever they can not to lose. Culture of Caring - Results believes that customer service agents are the voices and hearts of clients in the minds of their customers. It is because of this philosophy that Results chooses areas for their domestic centers that are inhabited by people with a strong work ethic, friendly attitude and empathetic outlook. Career Development - Results employees have risen from positions on the call floor to high-level executive management. Agents learn about the possibility of growth early on, and site leaders reinforce this message as often as possible. Site directors and Human Resource managers know their communities inside and out, which allows them to find the right people for the right positions whenever necessary. Abundance of Eager Quality Agents - Unlike most large metropolitan call centers that struggle to fill vacant seats, Results domestic call centers often have to turn away candidates. Site directors and Human Resource managers know their communities inside and out, which allows them to find the right people for the right positions whenever necessary. To Learn More To learn more about The Results Companies or its programs, please call or send an to Geri.Green@resultstel.com. 1 Goasduff, L. (March 2005) Retrieved from Gartner Press Release web page: 2 Reed, B. (Nov. 2010). BPOs: Doing More With Less. Retrieved from Customer Interaction Solutions website: 3 Conlon, G. (Feb. 2004). The Great Outsourcing Debate. Retrieved from CRM website: 4 Musico, C. (March 2008). Re-shoring Contact Centers. Retrieved from CRM website: 5 Musico, C. (March 2008). Re-shoring Contact Centers. Retrieved from CRM website: 6 Conlon, G. (Feb. 2004). The Great Outsourcing Debate. Retrieved from CRM website: 7 Heller, M. (June 2004). A Call-Center Scam Prompts Greater Scrutiny. Retrieved from Workforce Management website: index.html. 8 Vander Putten, J. (Jan. 2005). Call Center Technology: Image on the Line. Retrieved from Direct website: 9 Hyatt, J. (Oct. 2006). The New Calculus of Offshoring. Retrieved from CFO website: 10 Srivastara, M. (Dec. 2010) Philippine Call Centers Overtake India. Retrieved from Bloomberg Businessweek website: htm?chan=magazine+channel_news+-+global+economics 11 Hughes, I. (July 2010). Not Just Cheaper. Retrieved from Entrepreneur website: 8