Call Center Outsourcing on the Rise – Some Lessons Learned

Industry research firm Horses for Sources reported recently that 49% of the companies it surveyed were planning to outsource call center services for the first time, or expand the scope of their existing call center outsourcing, over the next year. With call center outsourcing on the rise, we wanted to share a few of the lessons Pillsbury has learned from negotiating these deals over the past 20+ years.

Baseline Data is Critical to Effective Pricing. Make sure you provide potential suppliers with detailed, accurate historical and projected workload volumes. The data should include:

• Number of contacts broken down by type (call, email, web chat, fax, white mail)
• Hourly, daily and seasonal variations
• Contact handling times
• Spikes (nature, frequency, size, advance notice)

Try to gather at least twelve months of historical data and project the workload volumes for the initial term of the contract. This data, together with key performance requirements, is essential for suppliers to develop proposed staffing plans and respond with firm pricing. Without it, you’re more likely to receive proposals with generic descriptions of supplier capabilities and T&M rates, all qualified by many assumptions to be validated after contract execution – in other words, a waste of your time.

Performance Requirements Drive Behavior and Cost

Balance. The cost of contact center services is driven largely by staffing requirements, which in turn are driven by contact volumes / patterns and performance requirements. Service levels such as speed of answer and abandon rates drive staffing needs and can have a dramatic impact on cost. Give careful consideration to the trade-offs between performance and price to achieve the balance that best meets your business needs. To better understand the trade-offs, consider seeking alternative pricing proposals from suppliers based on various performance levels.

Behavior. Service levels influence supplier behavior. For example, an aggressive call handle time service level may lead agents to end calls quickly at the expense of customer service. The outsourcing contract should contain the right combination of service levels to ensure that suppliers are motivated to achieve the desired level of performance in all relevant categories, including:

• Speed – (e.g., call answer times, abandon rates)
• Efficiency – (e.g., call handle times)
• Quality / Effectiveness – (e.g., first call resolution, call monitoring, user satisfaction surveys).

Precision. Define performance measures with precision. Even the most commonly used service levels can have a variety of different measurement methodologies. For example, call answer time service levels can have a number of possible start times, ranging from the time the call hits the switch to the time the call is placed in the queue after the IVR option is selected by the caller. These differences can have a significant impact on supplier staffing and pricing. Define service levels in a clear and precise manner as early as possible in the procurement process to enable the suppliers to design solutions that will meet your needs.

Pricing Metrics.
There are a variety of metrics that can be used to price contact center services, including FTEs, productive work hours, contact volumes or business unit (e.g., per seat or per member) volumes. There are also hybrid pricing models that combine various elements of these metrics. Each pricing metric has advantages and disadvantages in terms of financial incentives, predictability of charges, ease of administration and other considerations. Before establishing a pricing structure for contact center services, understand and prioritize your pricing objectives including transparency, risk balancing, behavior influencing, etc.

Underlying each of these pricing metrics is a staffing model and associated cost for delivering the services. Require suppliers to disclose their proposed staffing model during the procurement process, together with the personnel rates and other costs that form the basis of their pricing proposals. This information will enable you to validate (e.g., through your own workforce management tools) that the proposed staffing is reasonable and affords a direct “apples to apples” comparison of personnel rates across all suppliers. Once the parties have discussed and agreed on the optimal staffing plan and associated personnel rates, the supplier’s charges can be converted into the desired pricing metrics.

Spikes in Call Volume.
Spikes in call volumes present a difficult challenge from a performance and pricing perspective. Spikes are either planned (e.g., a new marketing campaign that is likely to generate a surge in calls) or unplanned (e.g., a service outage).

Planned Spikes. With sufficient notice, most suppliers will commit to increase their staffing to continue to meet service levels during a planned spike. The central question is whether it is worth paying the additional cost for the supplier to meet service levels during the spike. You may determine that the optimal balance of performance and price would allow for some degradation in service levels during the spike. Mechanisms should be included in the outsourcing contract that will permit you to recalibrate service levels during planned spikes.

Unplanned Spikes. The initial position of many suppliers to unplanned spikes is that, if call volumes during a month exceed baseline volumes by more than a specified percentage (e.g., 10%), then the service levels do not apply for the month. Yet, the supplier expects to charge you for handling the excess contacts. This approach is a “lose-lose” for you and can be avoided by establishing appropriate counting rules for excess contacts and limiting the supplier’s ability to charge for excess calls which are not counted in the service level measure.

People and Process are the Key.
The key drivers of effective performance of contact center services are people and process. While technology plays an essential enabling role in the delivery of services, it is not typically a differentiator among suppliers (i.e. all of the major supplier can bring sophisticated voice technologies, contact management systems, etc.). In evaluating supplier service delivery solutions, we would recommend focusing the lion’s share of attention on people and process issues, including:

• The supplier’s ability to attract a well educated, high quality workforce
• The level of agent training provided by the supplier
• Supervisor / team lead to agent ratios
• Processes for monitoring and managing agent utilization and performance
• Historical performance data at the supplier’s delivery center such as first contact resolution rates
• The supplier’s bench strength and processes for handling planned and unplanned spikes in workload volumes
• The quality of the supplier’s knowledge management resources