Introduction

Most industries know long term trends. The best-known example is Moore’s Law for the microprocessing industry. Today, I would like to examine some trends in the Business Process Outsourcing industry for Customer Service a little bit closer. Outsourcing here is evolving, where cost originally triggered it, a second wave followed where control became the main objective, whereas the advanced outsourcers are already moving one step further, with the focus on quality and the effect on the whole value added chain.

The cost drive

Initially, non-core activities of Western concerns were outsourced for mainly obvious financial reasons: large concerns with extensive secondary employee compensation packages tried to save costs by outsourcing these tasks to suppliers with significantly lower cost levels. Typically, services were outsourced to several suppliers who had to compete – sometimes even on a weekly basis – to get the business. The negotiating power of the purchasers was exploited here to the fullest.

An interesting example of the drive to cut secondary employment costs, and driving it to the top was the initiative from KPN in The Netherlands, which bought a large supplier of call centre services, and merged SNT with it’s in-house call centers in a (largely failed) try to get rid of its pension liabilities for the in-house call center staff.

After the simple national outsourcing, the lower costs of developing countries was utilized, and countries like India and The Philippines made great inroads in the Business Process Outsourcing industry. Ironically enough, it was the history of colonial exploitation that provided them with the competitive advantage to corner the BPO market: a large language speaking capability inheritance made the difference and enabled India and the Philippines to each develop a multi-billion dollar business.

The control drive

After these ‘quick wins’ were realized, it turned out that they might have been fairly ‘quick’, but not always a long term ‘win’. Increasing cost levels in developing countries sent manufacturing scurrying for new, unspoiled areas for manufacturing sites. Unspoiled here means still low cost. In addition, an ever increasing dynamism in the market required shorter lead times, where transportation times and cost from mainly Asia to the Western World became an ever increasing concern. I have once been in a position where a client of mine resisted moving the activity away from the city to the countryside because of the 2 hour ride to reach this new facility. Finally, it turned out that the management of a facility on the other side of the World is quite a different cup of tea from managing the same next door.

The reduction of the price advantage combined with the desire for increased control led for significant parts of the market to ‘near-shoring’. The fall of the Iron Curtain also made access to new supplier of cheap labor, and many sites were moved back to Europe again. So far, this is fairly common knowledge, but it sets the stage for the third trend that one now can see coming up in BPO.

The quality drive

Although control can not always be translated into bottomline directly, it paved the way for further insights: more and more concerns are realizing that cost is not everything. Everybody knows of companies in their own market that got into ‘rough weather’ because the Customer Service Department could not handle the orders for new products, resulting into backlogs for new customers, sometimes double work for installation engineers and – lo and behold – evaporating earnings.

In several industries the cost of Customer Service is only 2% of their sales price. However, when that process is messed up it endangers the whole value chain with a significant multiplier-effect. This notion makes several more sophisticated parties realize that cost cutting on this activity may look good for really short term ‘quick wins’, but it loses out on durability – and here I use the word without any environmental meaning: How much advertising spending is needed to overcome a customer service botch-up? Whether all investments in customer service always bring the returns of their Business Cases I sincerely doubt, but it has become clear to more and more parties that pinching every penny in this activity may be ‘pennywise but poundfoolish’.