Outsourcing the call center: Building a business case

Creating and operating a call center is a complex and expensive exercise. Today more and more companies are looking at outsourcing as an alternative. In this business case, Richard Snow, VP and research director at Ventana Research, outlines some compelling reasons why outsourcing might be the right choice for your call center.

Q: "I'm the call center director for a midsized business. I have to give a presentation for the front office next...

month, and I'd like to convince them that outsourcing the call center is the right choice for our organization. Can you help me design a business case for outsourcing the call center?"


Richard SnowRichard Snow, VP & Research Director – Contact Center Performance Management, Ventana Research
Richard leads Ventana Research's Contact Center Performance Management research practice, which is dedicated to helping organizations improve the efficiency and effectiveness of multichannel call centers. He conducts research exploring the people and process issues behind customer operations management, the new customer interaction technologies now available to support customer interaction management, ways in which companies are reviewing their strategies for customer relationship management (CRM) and the emergence of its second generation. He also works with senior business operations and IT managers to ensure that companies get the best performance from today's highly complex application products. Richard has more than 25 years experience working in the IT services industry, including service with eLoyalty, Price Waterhouse, Sema Group and Valoris.



A: Creating and operating a call center is a complex and expensive exercise. Today more and more companies are looking at outsourcing as an alternative. There are three main reasons a company should consider outsourcing their call center:

1) To avoid distracting the company from its core business.
2) To avoid the high levels of capital investment required to create a call center.
3) To reduce costs involved in the ongoing operations.

Despite these compelling reasons, there are a number of issues to be addressed before a final decision about outsourcing the call center is made.

1. Business focus

For most companies customers are their life blood -- and today, one of the most popular ways of interfacing with them is through a call center. But running a call center is unlike any other part of the operation because it requires special skills, different ways of working, and a great deal of highly-complex technology. So for more and more companies the solution is a completely outsourced call center. These centers already have the people and the technology in place to provide customer service on behalf of their clients. Many of these operations are now well established. They have survived in a competitive market by developing best practices to provide first-class service.

Outsourcing services grew out of the success achieved in the early 1990s by companies, especially in India, that initially offered offshore services to outsource a wide variety of back-office business processes. These companies recognized that call centers rely heavily on business processes and the skills of the agents. To fill that need they adapted operations to provide call center services, and they found a ready supply of highly-trained resources willing to work in their centers. Coupled with their lower cost structure, they are able to provide full services at very competitive rates, allowing companies to focus on their core business and the outsourcer to provide these specialist services.

2. Up-front investment
Creating a call center is a time consuming, expensive and risky project. The first requirement is to decide how large the center needs to be in order to find offices to house the staff and equipment. Many experienced people say this is a "black art" because there are no hard and fast rules. The primary consideration is the number of agents required. This depends, amongst many other things, on the number of expected calls, the probable average length of calls and the pattern of calls -- all unknown quantities until you get practical, operational experience. Add in factors such as other forms of communication (email, fax, letters, chat etc.), number of call backs, the number of outbound calls etc., and the calculation becomes highly complex.

Having acquired the office space, it must be fitted with furnishing suitable for a call center environment -- telecommunications and data networks to allow agents to receive telephone calls and other forms of communication, and IT systems to support the resolution of interactions. Each of these tasks is time consuming, capital intensive and high risk. Then there remains the biggest tasks – recruiting agents and their supervisors, defining the operational processes and procedures, training, and defining the performance measures required to achieve an effective operation.

Outsourcers have all of these operations in place. As far as technology is concerned, all the company will need to do is work with the outsourcer to put in place the data communication network required to transport data to and from their site and possibly to allow access to corporately housed IT systems. Again the outsourcer will have agents already in place familiar with working in a call center so the company will need to create and participate in training them in the company's specific processes and procedures. None of this will come at zero cost but it will be a much lower cost, less risky and faster project.

3. On-going operations
Creating a center is expensive but operating the center is where the costs really accumulate and where the real benefits of outsourcing become apparent. Over the expected lifetime of the center, companies need to take into account depreciation, office, staff, hardware and software maintenance, telecommunication costs, and the need for some technology enhancements or replacements. All of this is avoided by using an outsourcer.

First of all, the normal model for an outsourcer to conduct business is on a fixed, all-inclusive rate for each seat used. This allows the company to start with a small number of seats and grow the number as demand increases; to start with a limited number of services and expand as the model is refined, and to align the number of seats with actual demand as the outsourcer will have the ability to re-assign agents between contracts. Another benefit is that there is always the option to bring the service back in-house if circumstances change.

Secondly, the cost-per-seat will be lower than the cost of any in-house resources. An agent in North America will cost in the order of $45,000 per annum, whereas the offshore cost will be only 10-20% of this figure depending on where the outsourcer is located. In the U.S. model, the cost of agents will typically represent 60-65% of the total operational costs, whereas off-shore is it likely to be only 30-35%.

Thirdly, there will be no overhead or reoccurring costs such as management, additional IT resources to support the specialist technologies, capital depreciation, software maintenance charges, and the cost of replacing agents that leave -- which can be quite high, as attrition rates can be nearly 20% per annum. The outsourcer will carry these costs, but again they will be lower as the outsourcer will be able to take advantage of economies of scales and their ability to negotiate prices.

Concerns to be addressed
For most companies protecting the brand image is important, especially with prospects and customers. Most outsourcers, however, have the technology available to identify which customers are calling and so they can easily respond according to specific processes and procedures set down by their clients. These can easily be tied down in a Service Level Agreement (SLA) that is bound within the contract.

The same SLA can include what levels of customer satisfaction must be achieved, speed of response to customer interactions, and overall performance.

After recent reports in the media about some offshore agents misusing customer information, one of the major concerns lies around the security of data. It is inevitable that outsourcers and their agents will have to be given access to highly-sensitive customer data if they are going to execute the required level of service. This data needs to be protected physically by means of encryption and password protection, but it also needs to be protected from misuse by the outsourcer's employees. The SLA and embedded guarantees offer some defence against such circumstances but in the end it will require building a level of trust in how the outsourcer works and how they recruit and manage employees.


Don't miss the other installments in this ROI series
* Remote call center agents: Building a business case by Donna Fluss
* SaaS and on-demand CRM: Building a business case by Dan Merriman
* Web self service: Building a business case by Allen Bonde
* Customer satisfaction surveys: Building a business case by Richard Snow


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