Outsourcing 101

Outsourcing is a valid business strategy but the language of outsourcing can be jargonistic. This article explores the key terms involved in outsourcing.

  • The Basics
  • Working with a BPO

 

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The Basics

Definition

Companies come in all sizes from one person to thousands of employees.  When companies grow to certain sizes, specific pieces of work can arise, where it is more cost effective to let another company do the work for you rather than do it yourself.

A common example is cleaning services.

Companies can choose to employ people to clean or they can choose to outsource that work to another company.

Often the work has a high rate of staff leaving as the job is not particularly fun to do, like phoning people to collect debts.  The company has to hire new people to relace the staff that have left.  This joining and leaving effect is the turnover of a department.

When companies grow even larger it can make sense to outsource entire departments to another company.

Offshoring is outsourcing work to a company that operates from a different country.

 

Primary reasons

The choices facing the company doing the outsourcing include:

  • Cost.  Lower operational and labour costs are among the primary reasons why companies choose to outsource. When properly executed it has a defining impact on a company’s revenue recognition and can deliver significant savings.  The section called the numbers below explains why.
  • Focus.  Companies also choose to outsource or offshore so that they may continue focusing on their core business processes while delegating mundane time consuming processes to external agencies.
  • Broader skills.  Outsourcing and offshoring also enable companies to tap in to and leverage a global knowledge base, having access to world class capabilities.
  • Freeing Resources.  Freeing up internal resources that could be effective elsewhere.
  • No skills.  Many times stranded with internal resource crunches, many world class enterprises outsource to gain access to resources not available internally.
  • Funding.  Outsourcing, many a time is undertaken to save costs and provide a buffer capital fund to companies that could be leveraged in a manner that best profits the company.
  • Challenging work.  By delegating responsibilities to external agencies, companies can remove themselves from the day to day operations that are difficult to manage and control while still realizing their benefits.
  • Risk.  Outsourcing and especially offshoring helps companies mitigate risk.
  • Process re-engineering.  Outsourcing also enables companies to realize the benefits of re-engineering processes.
  • Closer to users.  Some companies also outsource to help them expand and gain access to new market areas, by taking the point of production or service delivery closer to their end users.

 

Business Process Outsourcing

Businesses outsource business processes which are specific, defined and focused.  Business Process Outsourcers (BPOs) are companies who specialise in doing work for other companies.

One of the most common processes outsourced is answering the phone.  Answering the phone for a company requires someone to always be at the phone ready to take the call.  The person must also be able to answer the call effectively.  An Agent takes calls or does work for the BPO.

A Call Centre is a team and infrastructure set up primarily to allow teams answer the phone.  For years, phone calls were the only process that required large numbers of people to be instantly available to customers.  As technology made email and live web site chatting more available to users, call centres evolved into Contact Centres hence large numbers of staff can answer different forms of contact from the customer.

 

The Numbers

In Ireland at the start of 2014, minimum wage was €8.65 per hour while in India at the start of 2014, a call centre wage was about €1.25 per hour.  In Ireland in 2018 the minimum wage is €9.55 per hour while €2.07 is the minimum wage in some parts of India in 2018.

For large volumes of agents it is far more cost effective for the company to outsource work to India than Ireland.

In 2014, 100 agents at 8 hours per day, 5 days a week, in Ireland it costs €34,600 but in India costs €5,000 not to mention holidays, benefits and other costs.

Business Process Outsourcing isn’t the answer to everything.  Some companies such as Dell outsourced to India but had to pull it back due to customer complaints.

Other companies such as Santander have also returned from India.

 

These examples highlight the highly volatile nature of BPO contracts, with processes being moved back and forth as the core company requires.  It importantly shows that cost is not the only factor in outsourcing.

 

Working with a BPO

Attrition

As a BPO however, the primary requirement is be more productive than the company doing the work themselves.  The BPO tends to be very work focused and also can be a high stress environment for staff to work in.

The BPO staff must always be polite and courteous on the phone as they are taking to another company’s customers consequently for these stress reasons staff often find the work is not for them and will leave.  This rate of people leaving and replacements having to be hired is called churn or attrition rate.

Churn is a percentage of people leaving divided by the total work force for a selected time period.

Attrition rates in Call Centres              https://dairyofacallcentreguy.wordpress.com/2013/08/

There is a culture in working in a contact centre that has an agent needing to learn to deal with customers effectively.  Phone skills are often referred to as soft skills.  Here is an example of a collection of soft skill training videos in a list called “Life at a Call Centre”

The outsourcing company constantly scrutinise the BPO’s delivery and quality of the services provided.  Most BPOs will enter into a contract and performance is reviewed every 1 to 5 years.

Not all businesses outsource their call centres / contact centres consequently referred to as keeping it in-house consequently companies can establish their own teams for managing customer contact and often do.

There is no definition on the minimum number of phones that constitutes a contact centre, so even one phone would make a call centre.  The term contact centre outlines the roles and tasks delivered.

 

Contact Centre Services

There are a number of services which a contact centre can offer therefore the primary definition of the services stems from which party is doing the contact.

Inbound activity happens when a customer contacts the center.  If the agent contacts the customer this is outbound activity.

A campaign is activity is only for a limited time period, such as marketing activity.

A marketing campaign may drive inbound or outbound activity for a time limited process and as a result is a primary driver of large volumes of contact.  BPOs are often engaged when there is temporary volume adding a lot of agents for a limited time period.

Some examples of inbound campaigns are

  • Brochure request campaigns
  • Advertising campaigns
  • Engineer call outs

The primary challenge is availability of agents.  With live marketing all the contacts will arrive in at the same time.  Measuring call duration is called average handling time (AHT).  So if the AHT for an agent is 5 minutes, an agent could take 12 calls in an hour and 96 calls in an 8 hour working day.

However if ad goes out on the television all the calls will arrive at the same time.  Customers don’t hold for long periods and as a result marketing activity is lost.

If the marketing campaign generates 100 simultaneous calls (a burst), 100 agents are required for just those 5 minutes in the day.  The balance between agent availability and volume of contacts is not a precise discipline.  It is also why for smaller companies, rather than employing 100 agents, it is more cost effective to outsource to a contact centre.

 

Metrics

A metric is a number, an objective measurement and above all outsourcing lives on metrics.

Some examples of outbound campaigns are

  • Telesales
  • Surveys / Questionnaires
  • Debt collection
  • Data Cleaning

The primary measurements of a BPO is the Service Level Agreement (SLA).  The SLA is a contract which has conditions in it.  The SLA states

  • responding to calls in X seconds,
  • the max AHT
  • and other key parameters.

Key Performance Indicators (KPI) is the collective term for these metrics.  When operating an inbound handling line, bursts of calls due to marketing activity are the hardest to manage.

Marketing schedules can help managers to plan to deal with the burst with appropriate staffing levels.

Outbound contact activity can be far more planned than inbound activity.  Usually there is a list of people who need to be contacted, but these can be contacted over a more balanced time window irrespective of inbound or outbound two systems are required to facilitate the activity.

  • One which facilitates being able to communicate with the customer, usually a phone.
  • One which records the details of the contact activity.

In the days of modern computer systems, computers can be used to remove a lot of the recording and reporting administration overheads.

 

If there’s anything in this article you’d like to chat to me about you can contact me here or on social media.

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