Outsourcing Customer Service

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Outsourcing Customer Service

Debunkingthe Myths of Outsourcing Offshore:A Delphi Research Study by University of Pittsburgh Katz School of Business and Knight Research Orlando1

Where is Outsourcing Offshore Going in the Contact Center Industry?

As the graphic below illustrates outsourcing offshore is still growing exponentially. However, the trend to outsource offshore contact center services is cooling. The Delphi Research Study findings presented in this paper clearly indicate the trend started to reverse 18-to-24 months ago.

Abstract:

The business case to that would lead a Company to reconsider outsourcing offshore contact center services is validated by a simple model developed by the Delphi Research Team. This model predicts that a 1% decrease in customer satisfaction can cause a 0.6% decrease in customer loyalty. Hence, a 10% drop in customer satisfaction can lead to a 6% drop in customer loyalty. This is significant when you consider that companies such as Johnson & Johnson and 3M consider 50% to 55% to be world class customer loyalty ratings.

In addition, just the direct impact on contact center operating costs of below average FCR (< 80%) from comprehension issues with the cultural context of inquiries means that 25%-to-30% of the total contact center operating budget is applied to handling those repeat callers seeking an answer to their first inquiry. The frustration of not resolving inquiries on first call affects morale and lowers employee satisfaction, leading to costly employee turnover too.

The data driving the simple model and study recommendations were aggregated from 12 independent studies and forecasts from contact center industry experts.

1 Katz School Professor Dan Dennehy (BS, MBA) International Marketing and Franky Supriyadi (PhD Candidate, Strategy) and Knight Research, Sara Lamason (BA, MBA) and Lou Musante (BA, MLS).

This research was funded in part by a grant from the Contact Centers of America (CCA), Founder Mr. Joe Jacoboni, a pioneer of the contact center movement in the 1980s. See Side Bars pages 6 and 16 for more information on CCAs philosophy and new contact center model.

Table of Contents

Cover Page and Abstract.....................................................................................1

Table of Contents...............................................................................................2

Executive Summary .........3

Detailed Findings: Contact Center Industry Environment ....................4

Root Cause of Customer Dissatisfaction .................5

Side Bar: Contacts Centers of America: 21st Century Model for Contacts Centers .....6

Industry Change: Globalization ..........8

Delphi Secondary Research Data Summary ...8

Blogosphere Speaks Out on Outsourcing Offshore of Contact Center Services ..13

Sample of Cost Escalation Calculation using the Simple Model .....15

Real Economic of Customer Dissatisfaction Driven by Brand Loyalty Erosion ..15

Recommendations for Call Center Operators ..16

Side Bar: The Hidden Costs of Offshoring vs the Long term benefits of Onshoring ..16

Appendices:

Appendix A: What is a Delphi Study? ............18

Appendix B: Simple Brand Loyalty Impact Model ..20

Appendix C: Contact Center Benchmarking Tool and Calculator ..22

Appendix D: McKinsey and Nexaweb on Call Center Operational Economics .......23

Appendix E: Annotated Bibliography ....23

End of White Paper .....26

Executive Summary

The contact center industry is undergoing unprecedented technological, social and economic change both domestically and globally. This white paper focuses on the impact of global social change relative to customer brand loyalty and the economics of contact center operation.

Estimates from the Call Center Satisfaction Index2 (CCSI 2008) and other industry sources indicate that when a U.S. caller has reached a contact center, between 15% and 20% of those think they have contacted an offshore contact center. Contact center location impacts about one in two callers relative to the decision with whom they want to do business.

Offshore contact centers have improved significantly but still score far below their domestic counterparts even if issues were resolved on the first call. The customer satisfaction gap between onshore and offshore remains large, 75 versus 59 (CCSI 2008) on a scale where 0 = Low and 100 = High using the American Customer Satisfaction Index. Customers who believe they are dealing with an offshore contact center are more than twice as likely to sever relations with the company.

The University of Pittsburgh, Katz School of Business and Knight Research in Orlando, FL have designed a Delphi Research Study to identify and aggregate a sundry of studies and data sets on globalization trends in the contact center industry and its impact on customer brand loyalty. The data has been used to develop a simple model for forecasting the impact of offshoring on brand loyalty. The model has three major parts: First Call Resolution (FCR), Assurance & Empathy and Abandonment.

In particular, language barriers are leading to lower offshore productivity and extended call times and are a prime cause of customer frustration as well. Problems with comprehension occurred in an average of 18% of offshore contact centers (about one-in-five) compared to 4% of calls in onshore contact centers. Each of these problems is estimated to extend the length of the call (LOC) by between 39% and 105%.3

Many offshore contact centers have worked on accent neutralization. However, the issue goes deeper, into comprehension and understanding the callers exact problem and situation in the context of a U.S.-based culture. Many of the behaviors that Americans intuitively expect from a customer service representative are literally and figuratively foreign to international representatives, according to Frieda Barry, Chairman of the Call Center Industry Advisory Council.4 Representatives need to be able to empathize with customers and respond in a culturally-appropriate manner.4

2 Teodoru, Sheri. How Contact Center Customer Satisfaction Impacts the Bottom Line, Contact Center Satisfaction Index 2008, CFI Group North America.

3 Scarott, Scott. Offshore Call Centers Are Damaging Reputations, Compass Management Consulting, May 13, 2007.

4 Barry, Frieda. Why Some International Call Centers Have Failed, Call Center Industry Advisory Council (CIAC), 2006.

Brand Loyalty = Repurchase + Recommend + Overall Satisfaction

Satisfied and loyal brand customers exhibit two critical behaviors that drive business success: they do business with the same company repeatedly (repurchase), and they tell their friends (recommend) and promote the company brand. In addition, their attitude toward that company brand (overall customer satisfaction) is very high (9 or 10 on a scale where 10 = High). Conversely, dissatisfied customers exhibit the opposite behaviors. Relative to the two key building blocks of brand loyalty, the CCSI 2008 indicated that:

95% of the customers who have a satisfying contact center experience will do business with the same company again, compared to only 35% of dissatisfied customers

92% of the customers who have a satisfying contact center experience will recommend that company to others, compared to only 9% of dissatisfied customers

The business case against outsourcing offshore contact center services is validated in the simple model developed by the research teams (see Appendix B). This model predicts that a 1% decrease in customer satisfaction can cause a 0.6% decrease in customer loyalty. Hence, a 10% drop in customer satisfaction can lead to a 6% drop in customer loyalty. This is huge when you consider that companies like Johnson & Johnson and 3M consider 50%-to-55% to be world class customer brand loyalty ratings.

Customer Satisfaction Determinants in Contact Center Performance Simple Model

These three critical operational determinants have a statistically significant influence on customer (caller) satisfaction.

{empathy + First Call Resolution + abandonment Rate} u Trust u Customer Satisfaction u Brand Loyalty

In addition, just the direct impact on contact center operating costs of below average FCR can mean that 25%-to-30% of the total contact center operating budget is applied to handling those repeat callers seeking an answer to their first inquiry. The frustration of not resolving inquiries on first call affects morale and lowers employee satisfaction, leading to costly employee turnover.

Detailed Findings:Contact Center Industry Environment

The contact center industry is undergoing unprecedented technological, social and economic change both domestically and globally.

The Delphi Research Team believes that consumer spending in the U.S. remains weak and the economy appears to only be starting to bottom out. The situation appears the same and in some regions, worse, globally. Hence, many organizations are focusing on customer retention and less on new customer acquisition. As the faceless interface with customers, contact center employees can make or break the customer experience. In many industries, contact centers foster the supplier-customer relationship and bear the bulk of the responsibility for maintaining and building customer loyalty.

Satisfied and loyal brand customers exhibit two critical behaviors that drive business success: they do business with the same company repeatedly, and they recommend the company to others. Conversely, dissatisfied customers exhibit the opposite behaviors. Relative to the two key building blocks of brand loyalty, the CCSI 20081 indicated that:

95% of customers who have a satisfying contact center experience will do business with the same company again, compared to only 35% of dissatisfied

customers

92% of customers who have a satisfying contact center experience will recommend that company to others, compared to only 9% of dissatisfied customers

The behavior of dissatisfied customers can have a dramatic impact on both the top line and the bottom line of contact centers, especially when considering the Life Time Value (LTV) of a loyal customer. Not only does customer defection increase significantly after a negative experience, the Net Promoter Score (NPS) or the customers willingness to refer or promote a brand to friends and family decreases even more dramatically.

According to the CCSI 2008, offshore contact centers have improved significantly, but still score far below their domestic counterparts even if issues were resolved on the

first call

Customers who believe they are dealing with an offshore contact center are more than twice as likely to sever relations with the company

The numbers of customers who think they have contacted an offshore call center increased significantly between 2007 and 2008, from 11%-to-15%, or about

one-in-six calls. Customers perceive a rise in offshore contacts centers in the banking, cable and satellite TV, computer and retail industries

The customer satisfaction gap between onshore and offshore remains large 75 versus 59 for telephone-based transactions

Before we drill down further on the onshore-offshore debate, lets review some background on other issues driving contact center customer dissatisfaction.

Root Cause of Contact Center Customer Dissatisfaction

According to the Wikipedia, a call center is a centralized office used for the purpose of receiving and transmitting a large volume of requests by telephone. A call center is operated by a company to administer incoming product support or information inquiries from consumers. Outgoing calls for telemarketing, clientele, product services and debt collection are also made. A contact center is one that, in addition to being a call center, handles collection letters, faxes, live chat, and e-mails (multi-channel) at one location.

Contact centers were born in America, emerging out of the need to centralize customer service operations and save money in the early 1980s5. As the recession faded, the economy improved and business boomed, competition became heated as customers became smarter and moredemanding. Service and contact centers were a means to differentiate, in the hope that handling customer concerns quickly and efficiently would increase brand loyalty.

SIDE BAR Contacts Centers of America: 21st Century Model for the Contact Center Industry

CCA is an organization that recognizes the correlation of offshoring and impact on customer dissatisfaction. Formed specifically to bring jobs back to the United States, CCA utilizes next-generation technology platforms to provide innovative services to increase customer satisfaction and loyalty.

CCA is headquartered in Orlando, Florida, and provides customer contact management solutions to Fortune 5000 companies around the world, primarily in the communications, financial services, healthcare, technology, transportation and leisure industries. CCA currently provides service/support only from the U.S.

One of the many ways CCA differs from other contact centers is through their employee training and advancement programs, which result in high employee retention and service assurance. Internally, management works with each team member to define career goals and develop long-term career paths. This means representatives want to work with CCAs clients and more importantly, serve customers customers.

College Program: CCA works with colleges to integrate its offerings into the students program of study. This gives students the opportunity to earn college credits, have a paying job while building their resume and working in their field of study. On top of the experience the student gains, CCA provides job placement assistance upon graduation with the company they have been representing - a win-win for both the student and potential employer.

Remote Representatives: CCAs remote representatives primarily include stay-at-home parents, retirees and disabled veterans. This group is one that is comprised of smart, talented individuals with a strong work ethic and high moral standards, a perfect fit to servicing and understanding the needs of your customers! Remote representatives have a great deal of experience in professional organizations, serving the greater good of the country and are the backbone to the American population.

In-Center Representatives: At headquarters, CCA employs in-center representatives that are determined to provide customers customers with resolution and enter on a career path in the contact center industry.

5 Software Support Inc. founded by Joe Jacoboni was the pioneer of the first technical support contact center company. See www.ContactsCentersOfAmerica.com Press Release, Orlando, FL, May 22, 2009 Contact Centers of America to Re-Invent the Contact Industry. See Side Bar on CCA.

Almost all organizations today will tell you they are customer-centric, service minded and realize that contact centers are much more than a necessary cost of doing business. However, the CCSI scores for the past two years (2007 and 2008) hovered around 71 on a scale where 100 is high. Hence, in the U.S., customer service is almost an oxymoron, and average at best. Who wants just average service? The industry is not walking its talk.

The push for efficiency (more FCRs in less time) has helped produce these low satisfactions. Three major issues are at the heart of this trend in dissatisfaction according to VendorSeek.com6.

Employee Turnover:1. The job of call center employees has always been difficult. Customers are more sophisticated today than ever before. They expect much from the companies with which they do business, including customer service. But the call center work environment is difficult on employees. Most call centers are run under efficiency principles that dictate that agents must constantly be on the phone, with no breaks to decompress after handling a difficult call. Turnover in the industry is traditionally very high.

Automated Voice Systems:2. The need to save money has led to many evolutions in the call center industry, some of which undermine companies desires to solve customer complaints effectively. One of these is the automated voice system. Developed in order

to allow customers to solve problems without the help of an agent, the idea was that companies would need fewer agents, and agents could spend less time on simple requests and more time on complex customer complaints. However, the automated system does have drawbacks, a major one being its capacity to enrage customers who just want to talk to a human being. A significant development in automated voice technology is voice recognition, which allows customers to speak directions into the phone. The voice recognition system will recognize the directions and deliver the customers requested information. Businesses hope that, with voice recognition technology, customers will feel more like they are interacting with human agents. However, the most successful call centers are still those that allow customers to contact an agent quickly.

Offshore Outsourcing:3. One of the most significant changes in the call center industry is outsourcing. In the early days of the industry, call centers were managed in-house or

outsourced to local American companies. However, businesses soon discovered that by outsourcing to countries like India and the Philippines, where employees can live comfortably with wages up to 90% lower than American call center employees are paid, they could save millions of dollars annually. As a result, many customers calling American companies today have their calls answered by call centers thousands of miles away.

Theres no getting around the resentment this can among American customers. While businesses have been outsourcing their customer service to American call centers for a long time, the term outsourcing has been generally linked with the practice of outsourcing work to other countries, often less-developed ones where employees will

work for dramatically less. Many Americans feel betrayed by companies who lay off their local workers to move their operations overseas. Call center employees in countries

such as India are often coached in speaking English without an accent and encouraged to tell customers that they are U.S.-based in order to avoid [verbal] abuse.

6 VendorSeek.com See www.VendorSeek.com/Changes-in-Industry.asd

Experts have conflicting opinions on whether outsourcing your call center overseas is good for the American economy as a whole, good for the country where you are outsourcing, or good for your customers. However, U.S. customers consistently have been shown to prefer local call centers that stick to the basics of customer service: short waits, efficient service, and human contact. If your business delivers, your customers will thank you for it.

The new administration in Washington, D.C. is pushing Buy America. Clauses and riders attached to emerging infrastructure funding, as well as legislation in development, will most likely favor onshoring and drive repatriation of contact center services from India and the Philippines.

Industry Change: Globalization

There are three kinds of lies: lies, damned lies and statistics, at least from Mark Twains perspective. We are not implying that anyone is lying, but when it comes to trying to determine if the trend in outsourcing offshore contact center services is increasing, decreasing or flat, one can search the web and find statistics to support just about any viewpoint.

The University of Pittsburgh Katz School of Business7 and Knight Research in Orlando, FL8 have designed a Delphi Research Study to identify and aggregate the sundry of studies and data sets on globalization trends in the call center industry and its impact on customer brand loyalty. See Appendix A: What is a Delphi Study?

This Delphi Research Study used secondary research data in developing a simple to forecast the impact of outsourcing offshore contact center services on brand loyalty in the U.S. The simple model is used in this research. In total, data from 12 creditable research studies and forecast are included in this white paper. A summary of those studies follows.

Delphi Secondary Research Data Summary:

Comprehending Cultural Context Trumps All Satisfaction Determinants:1. Drilling down on the CCSI 2008 study cited earlier and Customer Service Representative (CSR) skills and attributes reveals a critical piece of intelligence in trying to debunk the Onshore-Offshore issue. The simple model developed for forecasting brand loyalty (see Appendix B,) has three key parts: FCR, Assurance & Empathy and Abandonment.

Offshore contact center interactions contribute to customer dissatisfaction because CSRs in these locations are perceived to be less adept at communicating effectively. But, even when customer issues are resolved by offshore CSRs, customers are still less satisfied. Perhaps a Buy America or cultural issue is in play.

Language barriers are one of the root causes of this dissatisfaction, even though many offshore contact centers have worked on accent neutralization. However, the issue goes deeper into comprehension and understanding the callers problem and situation in the context of the U.S. culture. Many of the behaviors that Americans intuitively expect from customer service representatives are literally and figuratively foreign to international representatives, according to Frieda Barry, Chairman of the Call Center Industry Advisory Council. Representatives need to be able to empathize with customers and respond in a culturally appropriate manner.

7 Katz School Professor Dan Dennehy (BS,MBA) International Marketing and Franky Supriyadi (PhD Candidate Strategy).

8 Knight Research, Sara Lamason (BA, MBA) and Lou Musante (BA, MLS).

The SSCI 2008 study indicated a significant majority of customers believe that they have reached a contact center located in the U.S., but the percentage of those who think they have contacted an offshore call center increased to 15% in 2008, up from 11% in 2007.

Although offshore call centers have achieved significant gains in satisfaction between 2007 and 2008, as was mentioned earlier, the customer satisfaction gap between on shore and offshore remains large 75 versus 59.

Offshore Call Centers = Low Trust Levels:2. According to a recent Harris Interactive survey, four out of five UK adults feel negative about the trend of locating contact centers overseas, with more than half feeling very negative particularly those who have used an overseas contact center.

The survey found that 47% of adults have less respect for companies that outsource contact centers overseas and 50% do not trust giving their personal information, such as financial details, to overseas contact centers. This may have a negative impact on the centers productivity as well as its reputation, says Harris.

Almost a third of respondents (31%) claimed they have either refused to give their business to or have switched away from companies that outsource overseas; suggesting short-term cost savings could turn into long-term loses.9

Comprehending Cultural Context Trumps Language Barriers3. : The Call Center Industry Advisory Council (CIAC) in a paper by Frieda Barry, President and Chairman of the

Board, outlined some of the main reasons CIAC sees some international contact centers failing. The most obvious issue is CSRs with heavy accents and hard to understand

names. Through accent neutralization training and by issuing easier-to-understand monikers, these challenges can be readily resolved. According to the CIAC research,

when a representative makes a connection with a customer, the accent is irrelevant.

The deeper challenge is cultural. Many of the behaviors that Americans intuitively expect from a CSR are literally and figuratively foreign to international reps. U.S-based customers expect a representative to offer empathy, but some of those traits are deemed offensive to the CSR, which means that you cannot expect an overseas representative to instinctively employ them. Representatives need to be able to empathize with customers and respond in a culturally appropriate manner. If not, the representative can come across as unfeeling and disconnected.

Comprehending Cultural Context Trumps Language Barriers (Confirming Data)4. : Pepperweed Consulting (St. Joseph, MI) reports it is Time to Offshore Call Centers Home10. A number of firms, including AT&T Home Internet, are bringing overseas contact centers back to the U.S. Their hoped-for benefits of reducing costs did not materialize. Three services challenges were identified that negatively impact brand equity. These are language barriers, culture and resolution.

9Harris Interactive Poll of 2,300 United Kingdom adults.

10Spafford, George. Offshore Call Centers: Time To Bringem Home, October 11, 2006.

Offshore Outsourcing Call Center Services to Continue:5. According to Collin Taylor, a 33-year call center industry veteran and author of the Call Center Perspectives blog, the majority of the estimated 40,000 representative positions lost in the U.S. between 2006 and 2010 will be a result of more nearshore and offshore locations.11

Repatriation U.S. Call Center Jobs Forecast = High Growth6. : King White, founder of the Site Selection Group, (Dallas Texas) believes numbers can be deceiving. On the surface, offshore locations appear to remain popular and represent the vast majority of

new staff employment; over 10,000 of 17,225 positions created worldwide were in the Philippines, Romania and Nicaragua. Yet, White feels the U.S. is the strongest location,

with room to grow, even though it saw only 5,800 new jobs openings in May 2008, compared with nearly 10,000 in the Philippines during the same time period.12

11www.CallCenterPerspectives.Blogspot.com September 20, 2007.

12White, King. Call Center Absorption Report, Press Release June, 2008.

The value of the U.S. dollar, labor market saturation, growth of the middle class in BRIC (Brazil, Russia, India and China) countries as well as language and comprehension barriers will drive repatriation from there.

Below is a summary of market share data for the major global call center regions.

World Region Growth Share 2006*

United States High 50%

Canada Low 2%

Philippines High 22%

India Low 12%

Latin America Moderate High

All Other Geographies Mixed

Easter Europe & Africa Growing

Western Europe Declining

U.S. Metropolitan Areas Declining *Share = Job Creation as determined by Site Selection Group 2007

Offshore Call Centers = No Cost Advantage:7. An analysis of 50 offshore and onshore call centers, by Compass Management Consulting (Greenwood, Indiana) found that any cost

benefit of offshoring decreased substantially over a three-year period, compared to onshore environments where improvements had been implemented. The study had a financial services focus.

In particular, language barriers were leading to lower offshore productivity, and as a result, extended call times were a prime cause of customer frustration. Problems with comprehension occurred in an average of 18% of offshore contact centers compared to 4% of calls in onshore contact centers, the report found. Each of these problems could extend the LOC by 39- to-105%.

The Delphi Team concluded that comprehension of cultural context was one the main reasons, if not the number one reason, outsourcing offshore is cooling in the U.S. and other English speaking countries.

Compass found in earlier work that outsourcing providers were winning business by pricing contracts in such a way that produced savings up to 18% in the first year compared to the cost of doing the work in-house. But, costs quickly began to climb in subsequent years, reaching 36% above comparable top quartile internal operations by year three.

First Call Resolution Makes or Breaks Operational Costs:8. Focusing on First Call Resolution by Greg Levin13 Service Quality Measurement (SQM) Group found that, with each call back a customer must make, customer satisfaction drops an average of 15%. A study of 150 contact centers conducted by SQM Group found that centers which had achieved world-class customer satisfaction ratings (85% of customers are very satisfied with their experience) had an FCR average of 86%, while centers that were not among the elite in customer satisfaction had an FCR of only 67%.

It is hard to believe but if you are running at 67% FCR, you need to understand that somewhere around 33% of your total call volume is coming from customers calling back.

First Call Resolution Makes or Breaks Operational Costs:9. Research findings from Down Under (Australia) directed by Niels Kjellerup of four large contact centers (more than 200 seats each) found a minimum of 20% of all calls were repeat calls from customers needing an answer or help they did not receive the first time. The cost of a complaint call not handled at the point of entry escalates by 500% when it is referred, while an unhandled query costs 350% more than a call resolved on the first attempt.

Down Under estimates that 25%-to-30% of a contact centers operating costs are spent on dissatisfied customers that is, no FCR, then spending to rectify it.14

Offshore or Onshore Customer Satisfaction = Biggest Challenge10. : A survey published by McDaniel Executive Recruiters (M.E.R.)10 on December 12, 2008, with approxi- mately 800 respondents (85% North American), indicated that 67% of the participants had conducted offshore outsourcing of contact center services within the last year. In addition, 17% had pulled back offshore programs due to the economic downturn.

When asked, What do you see as the biggest challenge for the call center industry over the next 24 months?, 40% responded customer satisfaction and another 36% cited quality of service. The question was designed to allow multiple answers and 66% answered operating costs.

Employee satisfaction was cited by 40% of the respondents as the biggest challenge as well. To that end, 36% of the respondents had a virtual @home representative program. Furthermore, 31% of the sample was considering implementing work-at-home representatives within the next three years.

Most Companies Not Receptive to Offshore Outsourcing Call Center Services:11. The second edition, 2008, of the U.S. Contact Center Operational Review of 204 randomly

selected U.S. contact centers is derived from more than 4,000 contact centers that account for over 1.8 million professionals worldwide.15

Negative views on outsourcing are rather stark as revealed in an outsourcing study sponsored by Altitude Software, a contact center supplier. The study found that 71% of companies are not very receptive to offshoring customer contact. More specifically, 39% strongly disagreed with that statement and another 32% disagreed.

13Levin, Greg. Focusing on First Call Resolution, Call Center Management Review, April 2005, 3pgs.

14Levin, Greg. Focusing on First Call Resolution, Call Center Management Review, April 2005, 3pgs.

15 American Teleservices Association (ATA). U.S. Contact Center Operational Review, 2nd Edition, 2008, Chapter 3 Outsourcing.

Balancing Costs, Revenue and Quality = Call Center Success:12. McKinsey: A Pioneer in Outsourcing - January 23, 2009 According to McKinsey16, every Fortune 500 company

has at least one call center and, on average, employs over 4,000 call center agents. Rising customer service costs, combined with lost service revenues and high agent turnover are forcing companies to modernize their Call Center operations. But, consoli dating call centers may require companies to re-train and re-equip agents, which can disrupt and/or lower the quality of customer service. Additionally, making corporate IT systems available to Call Center agents in new call centers -- especially those that are offshore/remotely located -- is expensive and time-consuming to administer.

Call centers have become essential to the marketing and customer care strategies of many businesses over the past 30 years. But our experience shows that most of these facilities dont maximize their usefulness. No one can argue with the need to keep a firm grip on costs, but indiscriminately moving customer traffic to a companys Web site or haphazardly outsourcing call centers can make them less rather than more effective. The key is to develop a customer service strategy that successfully balances costs, revenues generated, and quality. Only then can companies transform their call centers into strategic assets that provide a competitive advantage and promote growth.

Companies that get the most from their call centers act on three imperatives. They define a customer service strategy that goes beyond merely providing good service at low cost. To deliver their strategy, they put in place an infrastructure that uses outsourcing and technology in a judicious way. And they ensure the best possible execution by their workforce in all interactions with customers by investing time and money in coaching and in performance-management systems. These companies can reap big benefits, increasing revenue from call centers by 20% to 35 % while cutting costs.

16 McKinsey Quarterly excerpts 2005 2009.

Blogosphere Speaks Out on Offshore Outsourcing of Contact Center Services

To reinforce the findings in the Delphi study the three following excerpts from various bloggers regarding experiences with American Express, Dell and HP offshore contact centers are presented for review. They are a sampling from literally hundreds of thousands of blogs postings reflecting the emotions and customer dissatisfaction with offshoring. These posts have not been edited. In the view of this Delphi Research Team, the negative impact of offshoring on customer loyalty trumps any supposed cost savings.

On a Customer Complaint forum about American Express Gift cards:1. http://www.consumeraffairs.com/credit_cards/amex_gift_cards.html#ixzz0GjYqdNOV&B I received a $100.00 gift card. I used it for a merchant online purchase and paid my utility bill with the balance. The merchant for the online purchase charged the card twice, I sent an email to customer service, then I called the number on the AMEX web site. Someone who wasnt even from this country, repeated a script over and over again that I would have to wait 7 days and AMEX automatically reverses the duplicate charge, the customer service person had no idea what she was talking about.

And to make matters worse she didnt answer my questions at all and kept repeating the same answer. How bizarre! There isnt an email address for AMEX so I am stuck for 7 days. Kim of Fresno, CA March 23, 2009 Hewlett-Packard Company Complaint

If You Want Tech Support In India - This Is The One For You - Hewlett Packard Notebook Computer Posted By: Shelley101 on 5/3/2009 Location: Albuquerque, NM

Dear Sirs:

I bought a HP Pavilion Notebook for my daughter Lila and have sent it back, knock on wood, at least 7 times, because of various problems.

They have paid FedEx to and from and the only satisfaction I have is that whatever profit they had in it is long gone. The initial problem was that when you opened the notebook, the lights in the seem go on, but the screen remained black.

When I told the, what they laughingly called tech support, the problem, he told me to (and I am NOT making this up) adjust the brightness. I asked him what part of black do you not get? He just didnt get it.

They lie to you and actually tell you that their name is Mark Johnson. I told them look Vijay or Rahim, I dont know what your real name is, but it is NOT Mark Johnson. I finally got a supervisor on the phone and she sounded American. After 4 aggravating transfers, I said Please tell me you are an American. She replied No, I am a Canadian. I told her Close enough and got the problem solved.

Ask where their Tech Support is, the next time you buy a computer. If it is not in the good old USA, DONT buy it. Believe me, you will avoid future aggravation. Because Hewlett Packard has Tech Support in India, which they dont readily admit, I will NEVER buy another of their products, nor should anyone else. Those jobs belong to Americans. See the movie Slumdog Millionaire. The main character works at a call center. BUY AMERICAN !!!

The following post is from:2. http://news.cnet.com/Dell-drops-some-tech-calls-to-India/2100-1022_3-5110933.html by dckca February 17, 2009 4:55 AM PST

Ive had a similar experience. I e-mailed tech with a very simple question. The e-mail was returned, advising me to call so I did. I spoke to not 1 but 7 people with an Indian accent, some I just could not understand at all. They kept putting me on hold and saying they had to check with someone else. In the end they said I didnt have a problem, my computer would work fine as is although I was missing a part. After an hour of conversation with associates I couldnt understand I gave up and hung up. Ive e- mailed again and hope I get results this time. I hate to ask this but does anyone know how I can get to speak to an English person? The whole experience was very frustrating.

Sample of Cost Escalation Calculation using the Simple Model:

Assume an offshore agent has a base pay of $12.00/ hour

Assume LOC increase of 40% due to contextual culture comprehension issues

Then $12.00/ hour now equals $16.80/ hour

Assume FCR = 80%

This FCR implies 20% repeat callers

Then the $16.80 X 20% now equals $20.16/ hour

Hence overall cost increase equals + $8.16/ hour

Assume incident rate due to contextual culture comprehension issues 20%

(1 in 5 calls)

For every 1000 contact sessions 20% equals 200 calls

200 calls X +$8.16/ hour = +$1,632.00*

*This number should be considered a minimum based on the data aggregated for this Delphi Research Study

Real Economics of Customer Dissatisfaction Driven by Brand Loyalty Erosion:

Increased contact operating costs for outsourced offshore contact center services are only the tip of the iceberg. The real economic impact of outsourcing offshore is the lost revenue due to brand loyalty erosion. As seen in Appendix B the simple model predicts that a 1% decrease in customer satisfaction can cause a 0.6% decrease in customer loyalty.

Hence, a 10% drop in customer satisfaction can lead to a 6% drop in customer loyalty. This is huge when you consider that companies like Johnson & Johnson and 3M consider 50%-to-55% to be world class customer brand loyalty ratings.

Thus for every 1000 customers, a 10% drop in customer satisfaction triggers a loss of 60 customers. Assume a customer spends $250 a year on a particular brand with an expected customer life time of 10 years. Then the Life Time Value (LTV) of a loyal customer is $2,500.00. This translates into lost revenue of $150,000.00.

But the losses dont stop there. Then consider the lost of revenue from missed-referrals from those 60 loyal customers as well as the number of prospects that are turned-off by service horror stories from your dissatisfied customers. See Blog entries for samples of these horror stories. Once these stories are reported on the web you can not remove them.

Recommendations for Contact Center Operators:

Based on the data compiled and analyzed for this Delphi Study, contact center operators 1. cannot afford to outsource offshore contact center services. The impact on brand equity

and customer loyalty far outweigh any supposed cost savings.

Comprehending the cultural context of inquiries is a major issue in building trust with 2. customers and prospective customers. Screening during recruiting and measuring

customer service representatives performance on this critical factor is recommended.

The talent now available using virtual representatives and hosted models can significantly3. impact FCR and overall employee satisfaction. We believe you cannot have happy loyal

customers if you first do not have happy, loyal employees. Experiment with this model.

Consider benchmarking your internal customer satisfaction metrics with the CCS. It is 4. the most definitive set of data available to contact center operators today.

Consider benchmarking your call center operational cost metrics against the 5. Contact Centers of America (CCA) benchmarking model.

SIDE BAR: by Joe Jacoboni, Contact Centers of America

The Hidden Costs of Offshoring VS the Long-term Benefits of Onshoring

The Hypothesis

Contact Centers of America has underwritten the development of this research study in an attempt accurately represent the current state of the Contact Center industry and to correct a fundamental misperception that offshoring your customer service is cost effective and strategically wise.

In fact, CCAs hypothesis is that Customer Service has been in a state of decline since the accelerated trend of offshoring customer service and that many US brands have experienced a precipitous decline in customer satisfaction tied to the lack of quality interactions with customers. In fact, poor customer service has a negative impact on brand and has an effect on brand purchasing behavior.

CCA believes that offshoring vs onshoring and the overall state of the call center industry is in need of a major overhaul. Our view is the outsourcing done right starts with an onshore approach around a local, or in-country, team that adheres to the following criteria:

Analyze the customers needs, the value of the customer relationship, and design the appropriate, cost effective support strategy

Use best of breed technology to create ideal solutions and efficient processes Hire Inspired and Knowledgeable workers who can serve as your brand ambassadors

Contact Center Forecast

Are business managers getting what they pay for from todays contact center offerings? This is the question that former Software Support Inc. President Joe Jacoboni pondered as he mulled his re-entry into the contact center industry, after selling his company to a leading conglomerate.

According to CCA President Joe Jacoboni, Contact centers today are a commodity service and thats wrong. The customer is what business is all about, and were trying to cut every cost out of that relationship. In the end, the client care doesnt mind if their support representative spends a little more time with the customer as long as the dialogue yields an enthusiastic customer who will, in turn, stimulate strong word-of-mouth loyalty, which ultimately leads to higher revenues.

Were appealing to the finance-minded executive who wants to not just cut costs but wants to maximize topline revenues while reducing bottom line expenses. The fact is that first-call-response and resolution are important, but not the most important measurement of an effective contact center operation.

Jacoboni added, Like any business metric, the key is not cost, but value. Who cares about what average call times are - the key is the customer satisfaction, and driving toward extreme customer satisfaction from your contact center experience.

Appendices:

Appendix A: What is a Delphi Study?

Appendix B: Simple Brand Loyalty Impact Model

Appendix C: Benchmarking Tool and Cost Calculator

Appendix D: McKinsey: Thoughts on Call Center Costs and Strategy

Appendix E: Annotated Bibliography

Appendix A: What is a Delphi Study?

Many people consider the Delphi Technique one of the most powerful market research processes in use today. The United States government and the Rand Corporation developed the Delphi during World War II for gathering and sharing intelligence with the Allies. It was a classified technique until the early 1960s; however, by 1986, the Delphi was cited by the Harvard Business Review as one of the top 10 forecasting techniques used by American business.

Delphi really an opinion gathering mechanism is designed to secure the best performance of experts and specialists when their minds are focused on specific questions or issues. It is a forecasting technique based on refinements in group estimation techniques. Actually, its purpose is to avoid the basic limitations of face-to-face groups in order to achieve a reliable consensus from a group of knowledgeable people on specific future events, products, or trends.

The Delphi technique may be summarized as follows: since one expert may be wrong about the future, averaging the opinions of several experts somehow approaches the true outcome.

One essential condition of Delphi research is its dependence upon persons who are reasonably knowledgeable about the business environment, market or product under investigation. One can argue that those who are experts also help shape future trends (through investigation or opinion); therefore, a convergence of expert opinions is a reflection of tendencies which, already in the making, do eventually emerge.

Appendix B: Simple Brand Loyalty Impact Model

Model:These three critical operational determinants (shown on left) have a statistically significantinfluence on customer (caller) satisfaction.

Empathy & Assurance (ability to understand and comprehend cultural context of inquiry)

Offshore Assurance Incidence rate = 18% + Offshore Location Incidence Rate = 15% - 20% Offshore Location Impact Decision to do Business =

52% Defect

Resolution on the first call (Percentage of calls closed on first

contact)

World Class Rating = 86% Industry Average = 80% Offshore = Significantly Lower Offshore LOC = +39% - 105%

Customer Satisfaction *

Onshore = 75 Offshore = 59 Onshore with FCR = +38% Offshore with FCR = -52%

ESAT ! CSAT

Onshore Employee Turnover = 25

-35%

* Call Center Satisfaction Index (CCSI)

2008

Customer Loyalty*

Repeat Brand Buyer

Satisfied = 95%

Dissatisfied = 35%

! = 60%

Recommend Promote Brand

Satisfied = 92%

Dissatisfied = 9%

! = 83%

4X Cost to Recruit New vs.

Retain

* According to Johnson & Johnson and 3M, World Class Customer Loyalty =

50% - 55%. Abandonment rate (Percentage of callers who

hang-up or disconnect prior to answer)

World Class = 2% Industry Average = 5%

Trust

Model Calculations:

Relationship between Customer Satisfaction, Loyalty, and Costs

Customer Satisfaction Impacts on Customers Loyalty1.

Data:

Ninety-five % of the customers who have a satisfying contact center experience will do business with the same company again, compared to only 35% of dissatisfied customers. (Contact Center Satisfaction Index, 2008)

Formula:

Assume the above relationship is linear, then:

10% change (decrease or increase) in customer satisfaction will change (decrease or increase) customer loyalty by 6%.

Or CL = 0.6 * CS

Where:

CL = change in customer loyalty CL = change in customer satisfaction.

Customer Satisfaction Impact on Customer Recommendations2.

Data:

Ninety-two % of the customers who have a satisfying contact center experience will recommend that company to others, compared to only 9% of dissatisfied customers. (Contact Center Satisfaction Index, 2008)

Formula:

10% change (decrease or increase) in customer satisfaction will change customer recommendation to others by 8%.

Or CR = 0.8 * CS

Where:

CR= change in customer recommendation of the company to others CL = change in customer satisfaction.

First Call Resolution Impact on Operating Cost3.

Data:

A minimum of 20% of all calls are repeat calls from customers needing an answer or help they didnt get. The cost of a complaint call not handled at point of entry escalates by 500% when it is referred. (Levin, 2005. Focusing on first-call resolution)

Formula:

If we assume a linear relationship between repeat calls and costs, then:

A 10% increase in No First-Call Resolution (NFCR) will increase the total cost of complaint call by 40%.

Or NFCR = 4 * CC

Where:

NFCR= change in No First-Call Resolution CC = change in total cost of complaint

If on average a call center operates at 25% repeat calls (or 75% FCR), its cost of complaint will increase by 100%.

Appendix C: Benchmarking Tool and Cost Calculator

Small Center

Medium Center

Large Center

National Average

CCA Model

CCA Difference

Facilities 74.9% 75.7% 74.7% 75.1% 52.2% - 22.9%

Fixed Labor 5.4% 4.4% 6.4% 5.4% 0.7% - 4.7%

Technology 2.6% 4.4% 5.9% 4.3% 4.4% + 0.1%

Telecom/Net-working

4.6% 5.0% 3.9% 4.5% 0.6% - 3.9

Facilities 7.2% 5.2% 3.8% 5.4% 5.0% -0.4%

Miscellaneous Overhead

5.3% 5.2% 5.3% 5.3% 4.6% -0.7%

Source: Bocklund, L, and Hinton, B. Cost structure and distribution in todays contact centers. White Paper Strategic Contact, March 2008.

Appendix D: McKinsey and Nexaweb on Call Center Operational Economics

Reduce Costs by lowering the average time it takes agents to retrieve or update billing information, service histories, product and promotional offerings, and other information from back-end systems. This can reduce service costs by up to 25% (source McKinsey). Also, a transaction that costs $2 to $10 when handled by a live representative will cost just $0.02 to $0.10 (source: McKinsey) if the customer can serve himself on-line; making customer service information and applications available on-line is imperative.

Increase Revenue by allowing representatives to quickly access customer segmentation or sales and promotional information. Making this information easily available can increase service revenue by up to 35% (source: McKinsey).

Slow Representative Turnover by giving representatives access to the information they need to service and sell, eliminating frustration for them and customers, and giving representatives a better opportunity to make their commissions. With average on-boarding expense at $15,000 per representative, turnover costs employers millions of dollars annually in added recruiting and training expenditures. Within the average Fortune 500 company, every one-point drop in the representative attrition rate lowers representative on-boarding costs by $600,000 per year (source: McKinsey).

Appendix E: Annotated Bibliography

Adam, B, and DeVine, JC. 2009. Maintaining the customer experience. McKinsey Quarterly, Issue 1: 58-60.

The article discusses how to intelligently maintain or improve customer service. In many industries, the conventional metrics to measure service levels may not reflect what customers actually find important. For example, at one, contact center research determined that over certain intervals, customers are indifferent to improvements in call-waiting times. The authors suggest that companies will thrive that figure out what matters most to customers, eliminate the investments that don not matter, and finance the one that do.

Axtell, CM, Parker, SK, Holman D, Totterdell, P. 2007. Enhancing customer service: perspective taking in a call center. European Journal of Work and Organizational Psychology, 16(2): 141-168.

The paper proposes that an important prerequisite of helping customers is the capacity to take the customers perspective. To investigate the factors that might facilitate perspective taking, 347 customer service representatives in a UK contact center are surveyed on the antecedents and outcomes of customer-oriented perspective taking. The results show a positive relationship between perspective taking and self-reported helping, and this relationship is partly mediated by empathy. Enhancing employees perspective taking and their integrated understanding of the organizations service might enhance the quality of customer service.

Bennington, L, Cummane, J, and Conn, P. 2000. Customer satisfaction and call centers: an Australian study. International Journal of Service Industry Management, 11(2): 162-173.

This paper investigates the level of customer satisfaction with a very large human services contact center operation. The results indicate that customers have slightly higher satisfaction levels with in-person service than with contact center services. The paper also provides attributes of a best-in-the-world contact center operation to guide those who design and mange contact center services.

Bocklund, L, and Hinton, B. Cost structure and distribution in todays contact centers. White Paper Strategic Contact, March 2008.

This white paper explicates what the costs really look like in todays economy of low cost, but potentially high functionality telecommunications networks, high cost labor (with correspondingly high turnover), robust technology and high-cost real estate. The authors thought it is critical to understand the structure of the cost of a contact center, as it could influence strategic investment decisions, organizational process, technology changes and tactical adjustments that might have more wide-ranging impacts on overall operational costs. They also thought it is important to base these numbers not on surveys or historical data, but rather on modeling analysis that uses operating costs that are representative of todays contact centers and looks at true cost to the business. To achieve this, their approach was to model contact center costs for three representative centers small, medium, and large using a process-based analysis approach and comprehensive modeling tool. The goal in this analysis is to drive out clear, consistent cost breakdown numbers, as well as cost per contact numbers that represent best practices and show the impact of key changes.

Burgers, A, de Ruyter, K, Keen, C, and Streukens, S. 2000. Customer expectation dimensions of voice-to-voice service encounters: a scale-development study. International Journal of Service Industry Management, 11(2): 142-161.

This study develops a measurement instrument that identifies key customer expectation dimensions with regard to call center representative behavior. Based on the service marketing literature, 13 potential attributes are empirically tested on an effective sample of 206 respondents. The result suggests that the model consists of four different sub-scales, namely adaptiveness, assurance, empathy and authority.

Cleveland, B. The measures every successful contact center should have. Call Center Magazine, April 2007: 6.

The article proposes seven types of measures that should be in place to manage a contact center successfully. They are strategic value, customer satisfaction and loyalty, employee satisfaction, quality and first-call resolution, service level & response time, forecast accuracy and schedule adherence.

Ekinci, Y, Dawes, PL, Massey, GR. 2008. An extended model of the antecedents and consequences of consumer satisfaction for hospitality services. European Journal of Marketing, 42(12): 35-68.

This paper examines the impact of self-congruence on consumer satisfaction with services and develops a conceptual model of the antecedents and consequences of consumer satisfaction in the hospitality industry. Findings reveal that ideal self-congruence and desires congruence have positive effects on consumer satisfaction. In contrast, it is shown that actual self-congruence is not related to consumer satisfaction. Moreover, it is demonstrated that the two dimensions of service quality physical quality and staff behavior have a positive impact on both desires congruence and consumer satisfaction. Importantly, consumer satisfaction is found to be a better indicator of the consumers overall attitude to the service firm than service quality. The study confirms that consumer satisfaction mediates the relationship between the two service quality dimensions, ideal self-congruence and intention to return.

Feinberg, RA, Kim, IS, Hokama, L, de Ruyter, K, Keen, C. 2000. Operational determinants of caller satisfaction in the call center. International Journal of Service Industry Management, 11(2): 131-141.

This paper undertakes an empirical assessment of the relationship between caller satisfaction and a number of critical variables. The results show that of all the critical operational determinants, only first-call resolution and average abandonment have a significant, albeit weak, influence on caller satisfaction.

Robinson, G, Morley, C. 2006. Call centre management: responsibilities and performance. International Journal of Service Industry Management, 17(3): 284-300

This paper investigates contact center management from the perspective of the managers, particularly what the key management responsibilities are in managing contact centers and the key performance indicators (KPIs) used in managing contact centers. The findings show there is confusion over the strategic intent of contact centers. Centers are primarily used by organizations as a means of reducing costs, with

Teodoru, S. 2008 Contact Center Satisfaction Index 2008.

This report examines the most important issues facing contact centers in an effort to determine the drivers for customer satisfaction, the impact of contact centers on future consumer behaviors, and the effect of contact center off-shoring on customer satisfaction. It uses the methodology of the University of Michigans American Customer Satisfaction Index (ACSI) to measure customer satisfaction. The report quantifies the impact contact centers have on customer satisfaction across the following industries: banking, cable & satellite TV, cell phone services, government, hotels, insurance, retail and personal computers.

Yieh, K, Chiao, Y, Chiu, Y. 2007. Understanding the antecedents to customer loyalty by applying structural equation modeling. Total Quality Management, 18(3): 267-284.

The paper employs structural equation modeling to find linear structural relationship related to customer satisfaction and customer loyalty. The empirical results show that perceived price fairness, the level of employee-customer interaction, and perceived quality have the direct, positive impact on customer satisfaction. Further, customer satisfaction is positively related to customer loyalty both directly or indirectly by helping customers create trust.

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