A version of this article appeared in the February 2013 print issue with the headline: The root of all upheaval.
Reducing costs is the strategic guiding principle in the location, operation and management of commercial call centers — today known as "contact centers," because they use voice, e-mail and text communications.
Even though contact centers are the key interface between customers and corporations for sales, service and support, "most senior executives see them only as cost centers, with expenses that need to be minimized," said Donna Fluss, president of DMG Consulting, a firm based in West Orange, N.J., that specializes in contact center analytics.
"Few companies appreciate the value that effectively run contact centers bring to the business," Fluss explained. "So, CEOs and CFOs do whatever they can to reduce their contact-center costs, even though it may hurt their corporate relationship with customers."
This is not a new phenomenon, according to Colin Taylor, CEO of Taylor Reach Group, a contact-center consulting firm in Toronto.
"The focus on reducing contact-center costs underlies the entire history of this segment," Taylor said. "This is why call centers have migrated from downtown locations to the suburbs, to small towns, and ultimately to third-party-run sites in other countries."
A gigantic global industry
There's a good reason for CEOs and CFOs to worry about contact center costs: this segment is gigantic, in terms of the people employed, equipment used, and bandwidth required.
"It is huge," said Bruce Belfiore, CEO of BenchmarkPortal, a contact-center training and consulting firm in Santa Barbara, Calif.
"There are over 50,000 call centers in the United States alone, employing over 3% of the working population," Belfiore said. "Similar statistics apply to several other countries, so customer contact is an important component of economies around the world."
That said, nobody really knows just how big the contact center industry is, according to Fluss. "This is because it embraces both formal and informal contact centers, with anywhere from two to 1,000 people," she said.
However, one clear metric does exist that speaks to the size of the segment.
"The call center technology industry today is valued at approximately $8 billion," said Mariann McDonagh, chief marketing officer at inContact, a Salt Lake City provider of cloud-based contact center services. "With the advent of new technology in social media and mobile communications, industry estimates place this number at approximately $12 billion by the end of 2015." McDonagh added that these figures do not take into account workforce expenses, which typically represent 75% of a contact center's budget.
How it all started
When most people think of call centers, they imagine football-field-sized rooms packed with customer service reps (CSRs) sitting side-by-side at computer/telephone workstations in the Philippines, India, or some other non-U.S. location.
There is a lot of truth to this stereotype, given the rise of these English-speaking countries as offshore contact-center hubs. But this is only one stage of a complex evolution that began decades ago.
The history of contact centers goes back to the 1920s and switchboard operators, who initially were employed by large financial services firms and insurance companies, according to Taylor.
"These operators tended to handle large volumes of local calls, as long distance was too expensive," he said. "The companies would open smaller branch offices in other markets where they operated, or would install 'tie' lines to connect to the major center office."
That was for inbound calls. For outbound calls, companies hired at-home workers spread across the U.S., to deal with people in their local calling areas.
"These people received lists of local numbers to call from their corporate employers, brought to them by messengers," Taylor said. "They would sit at their kitchen tables and work the phones, filling out forms by hand. These forms would then be picked up by the messengers, who would drop off more names, and return the completed forms to headquarters."
This wasn't a great system. Moving information back and forth was extremely time-consuming, inefficient and costly. In addition, supervising home workers in the pre-Internet Age was a nightmare for managers. Still, it was the best contact system that was possible at the time, and corporations made do.
When long-distance telephone rates began declining in the 1970s, it became economical for corporations to bring their contact centers in-house. By doing so, managers were able to speed up their customer-response times, improve employee management and cut costs.
At about the same time, consolidated contact centers became popular with companies that spent a lot of time interacting with their customers. Then and now, this includes sectors such as financial services, insurance, consumer electronics, health care, and travel and hospitality, according to Belfiore.
By the 1980s, information technology began to make its way into the business world. Specialized applications designed for contact centers began to appear that let enterprises further reduce costs while boosting productivity. Eventually, this technology would lead to the introduction of automated voice-answering systems, which forced callers to interact with computers rather than people. Again, the emphasis was on saving money, rather than improving service.
As the 20th century came to its close, contact centers had become an expensive part of American corporate life — one that many CEOs and CFOs perceived as eating away at the bottom line.
Fortunately for these executives, the IT and IP eras had arrived. With very inexpensive long-distance rates and sophisticated contact-center technology — now integrated digitally with companies' enterprise management systems — it now became possible to move costly contact centers to cheaper facilities in the suburbs. The next logical step was to move the centers to even cheaper locations in small-town America — and then out of the country entirely.
The offshore boom
The idea behind the outsourcing of call centers is simple. Because customers already are accustomed to dealing with CSRs in a remote location, why not move those representatives to places where personnel and facilities are inexpensive?
Granted, those offshore workers have to be able to speak English, and their countries must have the necessary communications and IT infrastructure to support the servicing of callers from other countries. But if they do, CEOs and CFOs reasoned, then there is no reason to not move contact centers offshore.
So, many of them did.
"Outsourcing was driven by two market conditions," McDonagh said. "The first was the need to reduce contact-center and customer-service cost structure. The second was the corporate sentiment that contact-center work was non-strategic and not core to business growth."
The move to offshore outsourcing began in earnest in 2000, "when countries such as India, Vietnam, the Philippines and others experienced tech booms and acquired both the communications infrastructure and middle management talent to offer outsourcing services," he said.
However, it was Canada that initially became home to many U.S. call centers, according to Beverly McIntosh, president of McIntosh & Associates, a contact-center consulting firm in Lewis, Texas.
"That was when the Canadian dollar was only 67 cents against the American dollar, making Canada a logical site to move to," McIntosh said. "But, as the Canadian dollar began to rise and cheaper offshore alternatives became available in India and the Philippines, U.S firms elected to migrate significant workload from Canada to overseas locations."
By moving contact centers offshore, companies dramatically reduced their costs per call, lowered headcounts, reduced physical-plant expenses, and gained the ability to scale their contact centers quickly.
Of course, this sometimes came with a price. Companies that use offshore contact centers operated by third parties often have trouble ensuring a consistent branded customer experience; they encounter difficulties in managing and training agents who often are located on the other side of the planet; and often are unable to provide service that is reflective of company culture, McDonagh said.
Nevertheless, with advocates of offshore contact centers promising savings up to 50% compared to U.S.-based facilities, many CEOs and CFOs were willing to risk their companies' reputations to save a boatload of cash — especially executives leading publicly traded companies with profit-minded shareholders.
It has become part of modern culture to make fun of offshore contact centers, with the comedy usually taking shots at heavily accented CSRs that exhibit a poor command of English and an even poorer level of customer service. But this stereotype is not really fair, Taylor said.
"There are many Indian and Filipino contact centers that are extremely well run, with competent CSRs who have personal experience with American life and culture," he said.
Paradoxically, it is the very success of some offshore contact centers that have been their undoing, according to McIntosh
"Demand for CSRs is so high in some areas that contact centers have trouble finding good staff, and instead spend their time stealing each other's employees," she said.
Add in the difficulties inherent in working with any third-party suppler that is not integrated into a corporation's culture and management, and it is easy to see why problems occur. It doesn't help that many outsourcing clients put cost above service.
"Some U.S. corporations will switch outsource providers just to save 2 cents a call," Fluss said.
"In the past several years, some leading organizations have struggled with poor customer satisfaction as a result of offshore outsourcing, as many customers are turned off by non-American accents and the lack of skilled contact handling has created customer churn," she said. "In essence, you get what you pay for."
Joe Mangiaracina knows all about this fallout. Today, he is vice president of service at Stewart/Xerox, a regional company operated by Xerox Corp. to service the New Jersey and Philadelphia tri-state area.
"We have a 12-person, in-house contact center that prides itself on providing local service to our customers," Mangiaracina said. "When we bring people in to tour our plants, chances are they already know one or two of the CRSs on the floor."
Before coming to Stewart/Xerox, Mangiaracina oversaw a contact center for a competitive local exchange carrier (CLEC).
"Our big hook was in being local, as compared to AT&T being a national carrier," he said. "So, when the company decided to outsource its contact center overseas in a bid to save money, it really hurt that image."
The problem was due to what Mangiaracina calls a "cultural disconnect." Even though the CRSs in the Philippines spoke English reasonably well, "callers knew that they were being dealt with by someone non-local, and local was the reason they had signed up with us," he said. "Even though we tried to 'localize' the overseas service with a number of processes we put in place, our customers weren't fooled."
While the CLEC did indeed save money on its contact center by going offshore, it alienated numerous subscribers and undercut its core marketing message.
"Was it worth it? I'm sure it was from a financial point of view," Mangiaracina said. "But it definitely lost us customers and hurt our credibility."
Head in the cloud
Fallout from using overseas contact centers has caused some firms to bring these operations back home.
"Dell, American Express, the major telco and wireless carriers — they've all brought their contact centers back to the United States," Taylor said.
The fact that these companies have done so is, to some degree, a statement of dissatisfaction with offshore contact center performance. However, the desire to save U.S.-based jobs, spurred by local tax incentives, also has provided companies with additional motivation to bring their customer-service functions back to American call centers, McDonagh said.
Still, the cost imperative has not fallen by the wayside.
"One of the biggest incentives to keep contact center jobs in the U.S. is the shift in technology that is making contact centers more affordable than ever before," McDonagh said.
"By shifting contact-center operations from traditional, premise-based software to the cloud, companies can transition from prohibitively expensive, capitally intensive spends to pay-as-you go monthly operating expenditures," she explained. "The cloud enables variability of volumes over time, so — like the offshore outsource model — it's easy and cost-effective for organizations to launch new campaigns, initiatives and programs only when they need them."
The move to the cloud means that contact centers no longer need to aggregate their workers in large telephone-equipped warehouses. And with the ubiquity of broadband, corporations now can create virtual contact centers. To the customer and the manager alike, these virtual contact centers are as well-connected and corporately integrated as any bricks-and-mortar facility. But they don't have the bricks-and-mortar costs that go with real facilities, which makes them far cheaper to run.
The irony is that cloud-based contact-center technology supports at-home agents that provide a low-cost, high-performance alternative to expensive bricks-and-mortar agents or bargain-basement offshore agents who don't understand the business or culture, according to McDonagh. In other words, IP-based technology has now made it affordable for people to once again provide contact-center service from their kitchen tables.
Granted, today they are using networked computers tied directly into company databases, and are communicating by voice, e-mail or text over commodity-priced IP connections. But the at-home model is otherwise the same, and for a very good reason. As was the case 50 years ago, it is cost-effective based on current prices and technologies.
A mixed approach
To be fair, the advent of cloud-based contact centers does not spell the end either for offshore contact centers or bricks-and-mortar operations in the U.S. When it comes to contact centers, no one size fits all.
This truism is underscored by Stewart/Xerox's commitment to having an in-house contact center.
"Being local matters to our customers, and talking to real people who they know also matters," Magiaracina said. "That's something that has value for our business, even if it is hard to quantify."
"It's a big, marvelous mix of things right now," he said. "Operations are going offshore, coming back — or, as we saw recently with one client — moving from one offshore country to another.
"The overall trend we see is 'right shoring.' That is, understand your business needs first, analyze the different functions performed by your contact center, and then determine where to perform them most effectively and efficiently. That may mean having the bulk of your operations onshore but off-shoring certain tasks, or vice versa. Keep in mind, however, that most facilities that service North American customers are still in North America, and will stay here."
While the solutions may vary, the key factor shaping contact-center strategies has stayed the same: All things begin equal, cost will remain the driving force.
"It's all about the bottom line," Fluss said. "The actual ways in which contact centers are deployed and operated may change over time, but cost will always be a primary factor."