Is there a future in Contact Center Outsourcing?

I was recently invited to share some perspectives on growth opportunities in Contact Center Outsourcing. The presentation was to a leadership team of a top 10 firm in the industry. This gave me an opportunity to examine an industry which has grown leaps and bounds in the last decade. This is an industry which I covered as an analyst very early in my career (:-).

With US$50 billion in annual sales and a growth rate of about 6 percent it is clearly a big big opportunity. But it is also an industry faced with massive transformation issues. The industry grew exponentially based on a few growth drivers:

  • the simple arbitrage opportunity of moving calls from an expensive developed economy to a developing one;
  • the availability of well developed hardware and software applications that enabled these companies to standardize, productize their offerings and scale rapidly;
  • the rapid pace of globalization of large global enterprises;
  • the ability of outsourcing companies to provide scale and specialized customer service capabilities
  • helping leverage global capabilities very efficiently – thus unleashing the full potential of global resources that could be offered to scale the business.

Many companies grew very rapidly and achieved scale. In recent years, there has been a wave of M&A activity driven by the premise that scale offers cost benefits and some differentiation. The industry is consolidating rapidly. Under pressure however is the EBIT margins. Average industry margin seems to hovering around 6 percent, with the top company delivering about 12 percent. Many companies are unprofitable!! Numerous challenges are confronting this industry:

  • customers are moving away rapidly from making voice calls for customer service to self service and social media
  • the technology providers who served so well in delivering voice solutions to the outsourcing companies have been slow with providing credible offers for self service and social media applications. Many of these vendors are fighting other battles in networking, unified communications and as such have not been able to deliver product innovations fast enough. Several others, have been busy in working out strategic initiatives rather than focus on product innovation;
  • the contact center outsourcing companies are not able to differentiate their offerings significantly.resulting in pricing wars and eroding profitability

Where are the growth opportunities? Does this mean the end of the road for this industry?

Our global survey of organizations indicate that around 35 percent of companies have used some form of outsourcing. More importantly many of this 35 percent are looking at expanding their outsourcing efforts. There is about 6 percent growth expected in seats outsourced. Clearly there is a lot of unmet demand. The challenge seems to be in the ability of the outsourcing companies to cope and meet the expectations of customers. We see growth in the following areas:

  • In new verticals such as government, healthcare and retail. Governments around the world in particular are enhancing their capability to connect better with citizens
  • Innovate aggressively to drive the non-voice business. Social media, analytics, self serve – there is so much to be done.
  • Addressing opportunities with medium sized businesses. Existing clientele have been large global corporations. We need to simplify the entire process from lead, to fulfillment and delivery so much more. This is the only way we can get mid sized businesses to leverage the value of outsourcing.

In summary, I strongly believe we have done a poor job in integrating technology better to serve our customers in the last 5 to 6 years. Helping large customers to make better use of technology, helping them to co-create value together with their customers is the biggest untapped market opportunity. CIO’s of outsourcing providers will need to play an important role if these companies have to see continued growth and profit improvement in years to come.



Leave a Reply