The future of outsourced contact centers

outsourced contact centers

Companies are preparing for a new wave of computerization. The use of virtual reality, artificial intelligence and chatbots are at the top of the wish lists, according to a news article by Oracle. Customer interaction will also radically change again in the upcoming period. The role of live agents will not become less important. On the contrary. But the volume of live contacts will decrease. This puts the business case for outsourcing customer interactions to outsourced contact centers – the service providers through which companies can conduct their customer contact – in a different perspective.

The most important challenge for outsourced contact centers is in focusing on added value. In order to maintain the distinctive capacity they will have to do more than deliver better operational results. Many experts expect that the job of customer service employees will change in the upcoming years – many expect that they will be supported in decision making by computerized systems. The argument behind this point of view is that artificial intelligence is not yet able to understand the question behind the customer’s question (the intention).

However, this point of view ignores the fact that a great many interactions can be computerized in more depth. With this ongoing computerization as one of the leading trends I expect that the business model of general and technical facilitators will start to visibly crumble in the next three years. There are various trends that make it clear what the effects of the digitization of interactions will be on outsourcing.


Technology suppliers assigned a different role

We will start with a look at the IT industry, more or less where outsourcing was invented. Until a few years ago IT service providers were fully committed to long-term and large-scale contracts with values that could amount to hundreds of millions of dollars. Classic outsourcing came down to delivery of services for the management of software, workplaces or infrastructure, based on economies of scale and standardization: ‘your mess for less’. In many cases this involved transferring personnel from the principal or previous service provider.

However, times are changing. The major IT service providers are on the brink of a great transformation. An increasing number of elements of the traditional portfolio of IT service providers are automated – the automation of IT – and IT outsourcing contracts are becoming shorter and more flexible. They become increasingly in the hands of smaller niche players. It is not unthinkable that IBM or Accenture (now both with approximately 375,000 employees) could be halved in size a few years from now. These companies are therefore working hard on both reorganizing and creating new business, for example in artificial intelligence and digital customer experience.


Customer interaction remains open to computerization

This ongoing automation is also visible in customer interactions. In the nineties the role of the telephone switchboard operator was made redundant by the rise of automated routing (ACD, IVR). This was followed by the rise of self-service and then e-commerce. With the use of bots and speech recognition, another part of the interaction between customers and businesses has been automated, and this leads to a reduction in the number of contact center employees.

Comparable changes are visible in retail, where online models are the primary growth factor now. In combination with Fintech, applications are created for frictionless payment (cash registers are no longer required). The digitization of both customer interactions and transactions is moving increasingly in the direction of mobile, integrated App platforms (Facebook Messenger, LINE and WeChat). Within WeChat there are already more than 500 bots for orders, reservations, transactions, communication, news provision and entertainment.

Cost-savings is one of the drivers of further digitization, but there is also another reason why businesses benefit from the expansion of digital interactions. They are relatively easy to control and they generate lots of data. That also applies for live interactions, but the step from speech to usable business intelligence is much more complicated for the time being.


Effects of digitization have been visible in the labor market for many years

That digitization is continuing in BtC service delivery can also be seen in the development of employment. In the Netherlands 15,000 jobs in the financial sector will disappear between 2014 and 2019, according to an analysis of UWV – the national social security service provider in The Netherlands – conducted in 2014. We have seen the headlines on redundancies at banks such as ABN AMRO and ING. In April 2016, recruitment and selection agency Hays concluded that 60 percent of the professionals working in the financial sector expect employment in the sector to decrease further. 40 percent of them even think that their job will no longer exist in 2030. Cloud software and artificial intelligence are regarded as a threat to employment by 80 percent of the financial professionals.

The travel sector is a good example of digitization. Between 2007 and 2013 the number of jobs in the Dutch travel sector dropped from 18,740 to 14,100. In the least two years the number of jobs has started to rise again, but the emphasis has shifted to online marketeers and e-commerce managers. In short: it is not about human customer service, but about IT.


Consumer behavior

The second trend concerns consumer behavior. According to KIRC, a foundation that analyses the Dutch contact center market, the (worldwide) volume of live contacts has decreased since 2014, in the favor of volumes of online self-service: both volumes are now equal in size. The use of e-mail is gradually decreasing and the number of companies ‘closing’ the e-mail channel is increasing, while app care is growing. 2016 was the year in which in the US the number of Millennials exceeded the number of baby boomers. The ageing of the population in the Netherlands will reach a peak in 2035, and the relative number of baby boomers will decrease for the first time half way through the 2020s. Although the channel preferences of consumers depend primarily on the situations (and the customer’s age to a lesser degree), younger generations such as Millennials and generation Z will have an increasing impact on online interaction.

In the meantime, the number of mobile subscriptions is increasing, just like the number of interactions between mobile users. In 2017, 8.3 billion mobile messages will be sent, of which 90 percent can be read in less than 3 minutes. Half of consumers currently expect that businesses must be ready 24×7 to answer customer’s questions. More than half (almost 64 percent) believes that companies should be accessible via messaging Apps. This text-based online communication is the perfect departure point for automation.


Costs of customer interaction

The possibility to generate distinctive capacity in terms of price or product has been decreasing for years. Enormous rounds of consolidation have taken place in the utility, telecom and e-commerce sectors. If players such as Amazon or Alibaba work at full strength in the European market, competition in European e-commerce will increase still further. So companies can primarily make the difference in added value such as speed and the quality of customer service. As the complexity of live contact is constantly increasing (and thereby the duration and the costs) in customer service, the necessity to implement further cost savings remains important. What can be automated will be automated.

After IVRs, online self-service and e-commerce websites, companies are now working on the following step in automation. The Swedish bank Swedbank succeeded in handling 80 percent of all standard questions via chat bot Nina, and this represents 30,000 calls per month. Converted, this is – depending on the average conversation duration – 20 to 30 FTE on a monthly basis. TacoBot at Taco Bell is able to handle orders completely independently.

When will the tipping point come in general and technical facilitating customer contact?

The total Dutch contact center market now has roughly 87,000 workplaces – the number of people working in the sector is approximately double this amount. Dutch contact center analyst Hans Bach indicates that the local third party contact center market will still grow from 642 million Euros in 2016 to 691 million Euros in 2017. The big question is when will this growth reverse as a consequence of changing choices of their principals, in which technology – alongside employees – becomes a second ‘production factor’ when handling interactions. Some companies are already anticipating, as is shown in the partnership that third party contact center Webhelp recently joined with Recast.AI.

My impression is that all lights are green. Consumers have no objections to chat bots and the technology is available. The volume of live interactions will decrease, and processing fewer calls of greater complexity requires a higher level of education and more training in contact centers. This contradicts the contact center service provider business model – based on economy of scale and standardization of processes. Add to this the striving of companies for innovation, acceleration, customer centricity and a better connection to internal IT and data processes. All of these developments will reinforce each other in the upcoming period. The speed with which companies respond to these developments will be the determining factor for the future of classic, large-scale third party contact centers. It is certain that they will decrease in size and undergo a transformation.

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