Managing Outsourced Call Centers: Getting the Payment Model Right

Cost pressures, a lack of specialized skills and insufficient flexibility to manage a large workforce have driven many companies to aggressively outsource and offshore their call centers. Yet, the benefits often come hand in hand with poor customer experience and increased churn. How do you get better customer service out of your call centers without micro-managing their business? One way is to get strategic about how you compensate your call center providers.

Companies are quick to point fingers at their call center providers, blaming poor customer experience on a lack of agent training, language issues (accents), or inadequate incentives for agents. This often results in micro-managing the provider's day-to-day operations. More likely, however, the root cause lies in how the relationship with the provider is set up to begin with. It's time to pull back and allow call center providers to run their own businesses. The question is how to step away while also ensuring that providers deliver high-quality service. One key is to take a fresh look at the commercial construct that determines how you compensate your providers. By applying the following six principles, the commercial construct can dramatically improve outcomes.

1. Preemptively Manage Adverse Provider Behavior

When developing a commercial model, a logical approach is to break it up into its basic components: unit rate, key performance indicators (KPIs), incentives, and targets. The right solution at any given time depends on many factors: Strategic priorities, maturity of call center operations, relationship and degree of collaboration with the provider, and ability to measure performance should all be taken into account.

There is no perfect approach; each has its own tradeoffs. For example, a cost-per-call unit rate is easy to track and creates incentives for providers to reduce call times. However, it creates an incentive for providers to end calls quickly rather than resolve the problem and must be managed by KPIs such as first-call resolution. On the other hand, a cost-per-minute rate encourages providers to spend sufficient time with customers to resolve the call the first time. But handling times are likely to increase under this model, and companies may perceive that there is less budget predictability. As a result, average handling time must be continually monitored and clearly linked to provider compensation.

We find that for mature, complex call center operations, a cost-per-minute framework offers a more effective means of protecting the customer experience while reducing downstream costs resulting from low resolution and high transfer rates. Over time, handling times normalize under this model, improving the ability to predict budgets, and it offers a unit rate that is more comparable across diverse call types than under the cost-per-call framework. It also places responsibility for driving down handling times onto clients who have far more control over process improvements than providers.

There are many other approaches to provider remuneration, such as cost per customer, cost per incident and cost per resolved call. They sound good in theory but become increasingly difficult to reconcile and require clear definitions and careful implementation. A cost-per-resolved-call model, for example, can result in ongoing disputes about which calls were truly resolved.

Regardless of the approach chosen, incentives need to be meaningful enough to counterbalance the natural tendencies created by the unit rate. For companies thinking about changing their approach, they also must weigh the benefits of a particular model with transition costs, including the need to rewrite contracts, revisit budgets, and potentially experience performance challenges as both they and their providers learn how to manage the new construct effectively.

2. Get the Revenue, Service and Cost Balance Right

Figure: From call type, to business objectives, to strategic priorities

Commercial models must balance all three strategic dimensions—revenue, service, and cost. The balance varies depending on corporate priorities and the nature of different call types. For example, incentives for a sales call should emphasize revenues over costs, while incentives for a technical support call should place more emphasis on service. It seems simple but can be challenging when you're juggling hundreds of queues. One approach is to create buckets for similar call types. At a high level, these might include outbound sales, inbound sales, customer service and support, credit and collections, and back office. Once you agree on the priorities, you can start drilling down into more detail (see figure).

3. Keep It Simple and Easy to Manage

Don't fall into the trap of creating multiple commercial models to manage different call types or adding performance measures to manage day-to-day headaches. Managers often fail to prioritize or distinguish operational KPIs from strategic KPIs, which result in a proliferation of "dumb" performance indicators. We frequently see cases in which companies are managing more than 10 KPIs for individual call types; they often overlap, are unnecessary or cannot be measured properly. The result is needless complexity, which drives higher administrative costs, confuses the provider, and ultimately hurts performance.

4. Focus on Outcomes, Not Inputs

It's easy to fall into the habit of micro-managing providers, particularly when focusing on metrics that have little bearing on whether or not the provider is meeting key business objectives. For example, why hold the provider accountable for the number of agents on the floor when wait times are tied more closely to the customer experience? Such measures may be essential to running a call center, but they are none of your business in an outsourced environment.

5. Set Realistic Targets with Real Upside (and Downside) Potential

Do not set unattainable targets or continually "move the goal post" as a way of controlling budgets. Budgeting to penalize sets a dangerous precedent, leading providers to pad their rates to avoid a hit on their margins. It is also misguided; paying an extra 20 percent bonus to a provider may hurt the budget in the short term but can dramatically improve your top and bottom lines. While you focus on the costs of serving customers, losing customers through poor service can cost the business many times more in the long run.

6. Walk Before You Run

The latest trend is to change the paradigm, tying remuneration clearly to the bottom line while increasing the provider's accountability for managing the customer relationship. Outcome-based approaches offer a powerful means of transforming the provider into a true partner and reducing the need to manage intermediary issues such as call length or volumes. However, these models require trust that develops as outsourced operations—and the provider relationship—mature over time. If you are still learning how to work with your call center providers, then a more traditional commercial construct may be a better idea, at least for now. Establishing the right provider engagement model and developing a clear, long-term commitment to a primary business objective can create the right environment to unlock step-change improvements down the road.

A Systematic Approach

Commercial models are only one aspect of provider management and do not replace the need for ongoing oversight or the importance of establishing a collaborative relationship. Yet, commercial models are a powerful tool to encourage providers to perform at their best. The right model may exist as a snapshot in time, but you may need to reevaluate your approach to provider compensation along with your call center portfolios every two or three years. A systematic, keep-it-simple approach will allow for balancing strategic priorities, focusing on outcomes rather than inputs, and getting the most out of your providers.

Authors

Alex Liu is a partner in the San Francisco office.

Adam Dixon is a partner in the Sydney office.

Raghu Viswanathan is a consultant in the Toronto office.

Rashid Ahmed is a consultant in the San Francisco office.