May 2002

The European  Outsourcing Market Heats Up

By Kevin Wilzbach, Convergys Corporation

European companies ' like their American counterparts ' are learning that doing a job well doesn't necessarily mean doing it themselves. Case in point: customer care.

Since 2000, Datamonitor research indicates the market for outsourced customer care services has grown by one-fourth as cultural resistance to the practice eases and economic competition intensifies. Ten percent of companies in Europe and 13 percent of companies in the U.S. now contract with outside organizations to handle this essential part of their business.

Outsourcing is gaining traction in part because of the declining influence of traditional European national monopolies. As a growing number of companies began, within the last decade, to operate outside their own countries and acquire or merge with firms in other nations, significant efforts were focused on reinventing key business processes. To compete effectively, these emerging corporations were forced to create new and more flexible cost structures, get to market quickly with their products and services and explore new strategies such as outsourcing.

Another contributing factor is the volatility in many European economies. With increased pressure on revenues ' and profits ' outsourcing non-core functions is emerging as a viable solution to demonstrate return on investment (ROI).

The recent rise of mobile virtual network operators (MVNO) and the success they are realizing in the wireless communication space illustrates this point. These companies, which do not own their own networks, rely on outsourcing to support large portions of their operations. Their experiences and the confidence they place in their providers as business partners are helping to reshape perceptions of outsourcing.

There are, of course, complications. Many European companies consider customer care a core function and, until fairly recently, felt that not handling it in-house sent the wrong message to customers. These concerns, combined with the belief that an outsourcer could not have the same depth of customer knowledge, fueled fears that service would also suffer.

What these reluctant companies did not immediately see were the advantages outsourcing offers. Most notably, they could retain control of defining the overall customer care strategy without having to manage the day-to-day customer interactions.

Firms specializing in customer service tend to be the most up-to-date in terms of best practices and technology, enabling them to deploy customer relationship management programs that meet or exceed internal capabilities. Helping these providers achieve best-in-class status are the cumulative learning and operational expertise that come from their focus on customer service and the successful implementation of multiple programs with multiple clients.

As the benefits of outsourcing customer care become clearer, traditional attitudes that slowed the adoption of outsourcing in Europe are going by the wayside.

Choosing Locations And Recruiting Personnel
With the favorable shift toward outsourcing in Europe, American and European customer care firms winning new business must decide how they will organize their operations and recruit employees. Do they locate in one European nation and hire native speakers from the countries they serve, or do they create separate contact centers for each country in which they do business to address only customers in that nation?

Establishing local contact centers is the most popular method, although outsourcers may vary the exact setup depending on what the client wants. At the same time, there is a general trend toward consolidation to reduce costs and increase efficiency, especially in the business-to-business field. Each approach has its pros and cons.

Outsourced service providers hoping to work with a pan-European clientele can operate centralized contact centers that recruit native, multilingual personnel from various countries. This approach helps standardize several business practices, beginning with human resources, for large companies that prefer to apply the uniform standards across their operations.

Local labor laws, however, can complicate matters. Working practices within Europe typically are subject to more state regulation and control than in the United States, leading to a higher cost of entry for customer care firms and contributing to a slower rate of adoption for outsourcing. Most European countries have mandatory 35-hour work weeks, for example, and some nations have laws that guarantee maternity leave for up to two years.

Operating smaller, separate centers, meanwhile, adds cost because many functions are inevitably duplicated when running eight centers in eight countries versus operating a single facility. Consolidation similarly simplifies training and helps preserve brand integrity when the staff is located in one spot, receiving the same instruction. There are also technological efficiencies created when all employees use the same platform and have access to the same data.

Outsourcers with this kind of setup need to ensure their contact center agents are fluent in the languages of the countries they serve. Most providers have detailed linguistic tests to evaluate employee competency.

Centralization also runs the risk of failing to address a given country's unique perspective and identity. Working with the client, outsourced care providers can help their contact center agents stay current with important local market issues. Progressive companies may go so far as to encourage their representatives to read local publications and visit specific Web sites.

Even so, certain programs and countries require intimate local knowledge, something only agents working in local contact centers can provide. Some countries, such as France, prefer to be served by local representatives. In this case, an outsourcer that prefers to run a centralized operation would be well-advised to open a local center in France as well.

There also are particular programs that work best when coordinated out of local centers, notably transaction-based consumer or customer service programs. Supporting out-of-the-area customers with these initiatives offers less of an advantage because the client has a large customer base and tends to serve many customers with both similar needs and similar geographical characteristics. Two prime examples are financial services customers with credit cards from the same national bank and wireless customers served by the same regional provider.

When serving such wide consumer audiences, the specific skills training that can best be conducted in a central location becomes less important than having a frame of reference as close to the customer's as possible. In these circumstances, it's most vital to share the consumer's geographical 'footprint.' Common topics are both easier to come by and valuable for building a sense of empathy to underpin the business-customer relationship.

Where the centralized model becomes most valuable is in business-to-business sales and technical support, areas where shared technology and training provide clear advantages. Examples include high-tech and other high-value environments such as financial services or IT equipment and software that often entail more complex interactions than traditional consumer-driven customer care. Contact center representatives may find themselves replacing a field sales force, working with franchises and resellers and servicing large accounts.

Succeeding in this demanding, fast-paced setting means having immediate, in-depth knowledge of the company, its products and services, the vertical markets it serves and countries in which it does business. It's not uncommon for such a program to begin in one country and expand to other nations as similar needs are recognized. The more smoothly the outsourcing firm can expand the same service to those countries, the more they and their clients gain an economic and business edge.

American Outsourcing In Europe
Beyond the question of local versus pan-European operations is the challenge of coordinating programs between the United States and Europe. Many American outsourcing firms are active overseas and capable of supporting the same clients, some of whom begin with multiple international locations before consolidating to a pan-European operation as they reach critical mass.

International U.S.-based outsourcing firms with a solid track record of providing good domestic service tend to have the edge in winning business from international U.S.-based companies. This advantage holds true for several reasons, many of them similar to the efficiencies gained from pan-European programs.

Working with a known quantity helps to minimize risk. Eliminating the time spent establishing new business relationships shortens time to market, and familiarity with the client's products and services minimizes both the 'knowledge gap' and the time and money that must be spent to educate staff. Also valuable to American firms is knowing that their American and European operations share systems and technology.

Another type of American-European coordination brings together domestic and international contact center capacity. Such a 'follow-the-sun' strategy allows providers to offer around-the-clock customer service without the expense of additional shifts. Calls can be pushed to the overseas center, permitting the provider to offer high-quality customer service at a cost advantage.

Underlying the outsourcing trend is an emerging sense of 'geographic agnosticism.' Customer care providers ultimately will be judged not on their physical location, but on the type and quality of service they deliver.

In a market driven by competition, companies ' and the consumers they serve ' have greater choices and higher expectations. A firm's reputation and references must now stack up globally. The momentum behind business globalization has been undeniable for some time, and customer care outsourcing is no less a part of it than any other market segment.

Kevin Wilzbach is a director in marketing at Convergys Corporation. He is responsible for developing new products and programs for Convergys' integrated contact center business. Convergys operates 47 customer contact centers, supporting more than 1.2 million separate customer contacts each day, both live and via electronic interaction.

[ Return To The May 2002 Table Of Contents ]

Outsourcing Offshore Without Getting Burned

By Peter Gurney, Kinesis; and Bill Price, Driva Solutions

Not too many years ago, the idea of outsourcing customer service seemed fairly risky. Using someone else's employees to handle key points of contact ' surely customers would notice a difference in quality between dedicated employees and hired guns. In addition, there were concerns about basic logistical issues, such as systems integration and call allocation.

Over time, these concerns were satisfactorily answered and contact center outsourcing became an acceptable option for many companies. Outsourcing now accounts for about 12 percent of the total customer care market, a statistic that has remained stable for the past few years.

A new trend is emerging, however, which seems even more risky and exotic ' offshore outsourcing.

An increasing number of companies are farming out customer care services to countries such as India, the Philippines, Northern Ireland and Barbados, which raises additional concerns. Can developing countries supply the necessary infrastructure to support state-of-the-art contact centers? Will American consumers react negatively to unfamiliar accents and idioms? Will foreign governments change the rules and put companies' investments at risk?

Despite these concerns, an increasing number of North American companies are choosing foreign suppliers to handle at least a portion of their customer support. These companies are motivated by a variety of factors, including coverage, cost, quality and capacity.

Coverage was initially the most important issue for many organizations. Consumer demand for service accessibility has accelerated during the past 15 years, to the point where around-the-clock service is no longer a novelty but a basic expectation. To meet this demand, companies in the airline, banking and computer industries pioneered a 'follow-the-sun' strategy, opening contact centers in widely spaced sectors of the globe to ensure continuous, overlapping coverage. Other industries have followed suit, increasing the demand for suppliers in complementary time zones.

Cost savings, while not originally the primary motivator, have made foreign outsourcing increasingly attractive. Labor and overhead costs for agents are substantially lower in emerging economies than in North America, although the savings can be mitigated by higher telecom, infrastructure and internal management costs. Even taking these additional expenses into consideration, many companies have realized significant savings when using foreign outsourcers.

A more surprising motivator is quality. Foreign contact center agents have shown they can match, and in some cases exceed, their North American counterparts in key productivity and quality measures, despite not speaking English as their primary language. One reason is because foreign suppliers are able to attract extraordinarily well-educated and qualified agents, particularly for technical support positions. India, for example, graduates 100,000 engineers each year, many of whom are available and willing to work as support agents. Contact center agents in Asian countries are typically college educated, highly respected and paid well relative to the country's standards. The average turnover rate in North America is in excess of 30 percent ' more than twice the rate reported by many Asian outsourcers.

The issue of capacity is closely related to quality. With more than 70,000 contact centers in North America, qualified agents are often difficult to find and retain. In some regions, the available labor pool is nearly tapped out ' a situation that is unlikely to occur for some time in countries such as India and the Philippines, which have large populations, high unemployment and a large pool of qualified workers.

Despite these advantages, offshore outsourcing is clearly not for everyone. The complexity of setting up operations with a foreign supplier can be significantly greater than using a domestic company. Issues of routing, scheduling, systems integration, human resource management and vendor relations all become exponentially more difficult when dealing with a supplier halfway around the world.
That said, companies can keep a number of best practices in mind as they navigate the various stages of the process, from vendor selection through maintenance and evolution of the relationship.

Vendor selection. Create a multifunctional taskforce to review and vote on RFPs, including representatives from such areas as IT, finance, legal/tax, operations, quality and training. When the top bidders are identified, members of the taskforce can meet with their supplier-side counterparts, exchanging site visits to establish mutual credibility and a positive working relationship. The selection process should also include hiring counsel in the countries of top bidders to advise on tax and legal implications and to review the suppliers' books.

Negotiation. Consider a multiyear contract rather than the one-year renewable term that is commonly used with domestic suppliers. This sends a signal that your company is fully committed to the relationship, giving the vendor more freedom to invest in adaptations that will make the partnership a good fit. The contract should be tempered with a strong 'kicker' tied to quality standards. Clear measurements and targets should be identified, with penalties if the targets are not met by a specified date, and a cancellation option if they are repeatedly missed.

Pre-implementation. Both companies should agree on hiring and training criteria before hiring begins. To ensure consistency between in-house and outsourced service quality, help the vendor replicate your company's recognition and reward programs with the agents it assigns to your business. Consider flying a high-level executive to the vendor's site periodically to recognize top performers.

Measurement and reporting criteria should also be clearly spelled out in the pre-implementation phase. Productivity and quality variables should be identified, and the method and frequency of reporting specified.

Implementation. Assign an 'away' team to spend from two weeks to three months with the vendor during implementation. This team typically includes members of the original selection taskforce, ensuring continuity in the process and internal commitment to the selected vendor's success. The away team reinforces the cultural fit, solidifies contacts and processes, shares best practices and acts as a conduit for resources and communication. It may also test agents as they come through training and recommend early-stage adjustments to training content and focus.

Before going 'live,' it is advisable to include a short test period using dummy contacts. During this period, agents' responses can be evaluated and shared with the vendor, and necessary changes put in place.

Steady-state. Assign a dedicated relationship manager ' preferably someone who was on both the selection team and the implementation team. Plan frequent, formal communications with the supplier's project team, including weekly scheduling calls and quarterly face-to-face meetings.

Research should be conducted periodically to ensure service consistency between offshore and domestic support. Research studies may include mystery calls that compare agent responses between contact centers, content analysis of customer feedback to determine if accent or usage problems are evident, analysis of call monitoring recordings, and transaction-based customer satisfaction surveys.

Evolution. Consider migrating customer contacts to the supplier in small steps, by incrementally expanding contact channels, complexity and/or volume over time. For example, many offshore vendor relationships begin with e-mail support before adding chat or voice.

Keep the vendor fully informed about new products and features long before they are rolled out. Customer support for new products and features should be tested with in-house agents before being assigned to the outsourcer.

Finally, be open to advice and information from the vendor team. They understand the challenges of offshore outsourcing better than anyone, and are just as committed to the project's success as you are.

Peter Gurney is managing director of Kinesis (www.kinesis-CEM.com), a developer of customer experience strategies. Peter has worked with dozens of brand name companies, including Expedia, E*Trade, Westin Hotels, Starbucks, Microsoft and Bank of America, among others. He can be reached at pgurney@kinesis-CEM.com. Bill Price is founder of Driva Solutions, a strategic consulting and operational implementation firm. A contact center veteran, Bill has more than 22 years of service industry consulting and operations expertise, most recently at Amazon.com as the company's first vice president and general manager of global customer service. Bill can be reached at bill@drivasolutions.com.

[ Return To The May 2002 Table Of Contents ]