Outsourcing of the Customer Dialogue

Is it better to do call center activities in-house, or outsource? The first part of this new, three-part series looks at the Make or Buy question.
Rising demands on call center activities, caused Make or Buy decisions and outsourcing projects to become increasingly complex. In the first part of this new, three-part series we take a closer look whether outsourcing of the customer dialogue actually makes sense. Considerations for search and selection of service providers and how to integrate and control their services then follow in Parts 2 and 3.

Whereas third party supply means the single and limited procurement of a service, outsourcing means the transfer of business functions to a (call center) service provider. The supplier becomes part of the business function of the client. The source of outsourcing is the Make or Buy question, whether to do it on house or whether to outsource the call center activities. Because of the long-term relationship with the service provider, the Make or Buy question goes beyond questions of cost and economy, but also includes decisions about strategic benefits. Even business without previous call center activities can make this decision In this article we will look at the Make or Buy decision with regard to specific criteria for outsourcing projects.

Outsourcing does not only transfer the individual tasks, but also the knowledge needed to do these tasks. Call center activities are therefore core competencies, through which we can obtain and develop specific capabilities and achieve specific customer relations and through that a competitive advantage that sets us apart from competitors and forms the basis for the development of new products and services. If call center activities have a high core benefit, which brings an increase in customer value then they become core competencies of the business and should not be outsourced. For example a business might be very good in the collection of customer information, which leads to new products or services.

However, if these capabilities are only secondary in the eyes of the clients, then outsourcing brings a good chance of maximizing potential. A competent service provider can increase customer acquisition and retention.

Looking at feasibility it should be checked whether any potential service provider or the client itself has enough resources, time or funds in order to deal with the call center activities efficiently. For longer-term projects or higher budgets, this evaluation can change quickly. Below we look at the soft criteria of the Make or Buy decision.

Most of the time clients have a know-how deficit with regard to the service provider, which can put them into a weaker position for negotiation. But on the other hand, clients do not always choose service providers, which will help them to advance their business. Outsourcing transfers the risk of knowledge and technology becoming outdated to a third party. On the other hand, a service provider needs to be able to work with possibly dated knowledge and technology structures. The problem of data security can be amplified through outsourcing and there are several pieces of legislation regarding this.

Outsourcing can bring a reduction in staffing numbers and social consequences such as possible redundancies need to be taken into account. The identification of such staff might be low at the beginning but may increase through time. On the other hand staff of the service provider might be more motivated through involvement in different projects, than internal staff. The client’s effort of personnel management can be reduced, including contractual and financial obligations.

For the business, outsourcing means one more interface – with the service provider, through the necessary reconciliation of processes and structures, as well as project management. On the other hand, outsourcing may push the need for the definition of processes and structures and create chances for improvement. Time to Market for products and services can be adhered to even if there are no sufficient internal resources. The time for the realization of call center activities is usually a lot more condensed when outsourced.

Service activities and service quality can usually be increased through the experience of the service provider in call center management. Necessary staffing capacities sometimes take time, before they become evident.

Direct control reduces through outsourcing but can be managed through appropriate service and cost control. Standardization of activities and services can lead to loss of differentiation from the competitor, but can also bring significant chances for an increase in efficiency. Often the business culture influences the decision whether to outsource or not. In this case, it can become very difficult to move against the grain.

The costs for Make or Buy need to be identified and compared. We will take a closer look at the basis for calculation of costs for service providers in Part II. The tables show a comparison of the start-up cost and running cost for Make and Buy. The individual cost factors might vary in reality. Despite the complexity, Make or Buy decisions should be looked at with the relevant effort by management, in order to minimize any potential follow-on cost and risks and to maximize any development potential. The diagram on page 3 gives an overview of the discussed decision factors.

Comparison of Start up cost for Make or Buy scenarios

Comparison of running costs for Make or Buy scenarios

Overview of hard and soft factors in Make or Buy decision