Market is changing for contact center outsourcing, according to Gartner

Dec 15, 2000
Gartner

By C. Amuso

Contact center outsourcing continues to be a viable option for enterprises, but the breadth of offerings and suppliers has dramatically changed to include new channels and players—particularly ASPs.

Enterprises are now starting to appreciate the role that customer service plays in the retention and extension of customer relationships, and this has changed their relationships with outsourcers. Contact center outsourcers have had to address the impact of CRM, contact centers, and the Web on their clients. They have also had to contend with the entry into the market of ASPs and Web-based outsourcers, which are enticing enterprises with a new model for call center services.

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Typical CSS outsourcers (partial list)
Although many of the outsourcers listed below are expanding their services and blurring the lines between categories, this list represents the historical background of the service providers.

Traditional: (includes telemarketing/selling via the phone, although mainly inbound in nature): Apac TeleServices, Teletech Holdings, Sykes Enterprises, West Telemarketing, RMH Teleservices, TeleSpectrum Worldwide, ICT Group, Sutherland Group, Teleperformance, Sitel, Convergys
Web-based: People Support, Safe Harbor.com, Brigade Solutions, Cornerstone Integration
ASPs: USInternetworking, Pandesic, Sento, AristaSoft, Breakaway Solutions, Synchrony, LivePerson, Facetime Communications, Island Data, Kana Communications, eGain Communications, Quintus, Octane Software, netstore.net

Outsourcers as an extension of customer service
The selective outsourcing trend in this market has been changing as the variation in outsourcing contracts increases. Enterprises are using outsourcers to supplement internal staff, support client segments, perform certain outbound campaigns, manage the contact center infrastructure, and handle customer e-mails or collaborative chat sessions.

Enterprises should not think that selective outsourcing equals risk reduction; customer relationships can be irreparably damaged by a single badly managed campaign or outsourced activity. Increases in the types of outsourced services make it more important for enterprises to assess the risks and benefits of outsourcing.

Value- or business-based pricing for outsourced services is increasing, particularly where the outsourcer works with the customer directly. Percentages of revenue, commissions, and stock incentives are becoming part of the outsourcer's compensation; however, value-based pricing is not the same as cost- or delivery-based pricing, which is the usual method, and it needs to be managed differently.

SLAs are not tied to outsourcer compensation in value-based pricing, since it is less dependent on delivery and will not be affected by noncompliance with SLAs.

Part of the negotiation for value-based pricing for outsourcing contracts needs to involve "gates" that outline enterprise and outsourcer responsibilities. These gates can limit the risks or rewards an outsourcer can make based on the deal and are different from the standard SLAs used by contact center outsourcers. An example would be a deal between an outsourcer and a train operator in which one of the gates could be a clause limiting the penalties given to the outsourcer if an operators' strike should occur. In this example, the outsourcer has limited input and responsibility for this action.

Financial penalties and incentives must still be part of SLA negotiations, but they need to be based on service delivery costs. Nonetheless, individual agreements may contain both value- and service-based pricing elements and SLAs.

SLAs and the contact center outsourcer

When an outsourcer regularly exceeds SLAs, it is time to renegotiate the service levels. Also, bear in mind that service levels are not "one size fits all"—different channels and different services will require separate SLAs.

The Internet as catalyst again
Customer demand for support via the Internet has caused many traditional outsourcers to rearchitect their infrastructures to become more flexible. The need to integrate into clients' infrastructures has caused outsourcers to become SIs, bringing together disparate systems, databases, and channels.

Selective outsourcing and the Internet have added complexity to managing the people, processes, and technologies associated with the contact center. Integration is needed to ensure that what is captured in one channel is accessible via all channels, outsourced or insourced.

The Web has also brought to the market several new players that are wholly Internet-focused. These outsourcers offer services ranging from answering e-mails to hosting e-service Web sites and providing collaborative chat. One main difference is that they are unencumbered by legacy outsourcing infrastructures and have been able to respond quickly to the growing need for e-service outsourcing, whereas their traditional counterparts have been playing catch-up to address their customers' needs.

Many e-service outsourcers are beginning to find, however, that customer requirements dictate that they expand their services into traditional contact center activities in order to compete; outsourcers that do not expand their capabilities across traditional and electronic channels will not be viable beyond 2003 (0.8 probability).

ASPs—Renewing interest in outsourcing
It would be a mistake to neglect the impact that ASP services have had on the outsourcing market. Although ASPs are a subset of outsourcing for contact centers, the interest given to this service provision by clients, vendors, and investors has led many traditional and Web-based outsourcers—which mainly provide personnel to handle customer queries—to try to expand into ASP services. However, ASP services are not for every enterprise. Enterprises considering ASP services should compare these services with outsourcing in order to determine the best fit and to ensure that customer needs are met.

ASP services in CSS and CRM will provide the most benefit for smaller enterprises or those that are extremely cost-conscious. We estimate that, through 2004, these services will be viable for only 20 percent of projects (0.8 probability).

Acronym key

ASP: Application service provider
CRM: Customer relationship management
CSS: Customer service and support
SI: System integrator
SLA: Service-level agreements

Bottom line
Contact center outsourcing is still a viable option for enterprises looking to supplement current capabilities. However, the market has changed to reflect new channels, new participants, and new requirements. Therefore, enterprises considering outsourcing must first assess internal capabilities and weigh the value of internal vs. external investment.

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Gartner originally published this report on May 2, 2000.