Call Center Management Review - October 2001Online at www.incoming.com (subscription only)
Co-Sourcing Update:
New Vendors and Expansions in European Marketby Masha Zager
Last year, we reported on co-sourcing, a new option for call centers in European markets that generated quite a bit of reader feedback and interest. Co-sourcing is an arrangement in which companies lease fully equipped call center facilities and staff them with their own personnel.
Advocates of co-sourcing claimed it combined the best features of outsourcing and in-house management. Companies could reduce the risk of investing in call center facilities while still retaining control over their operations. Recently, we decided to follow up to find out how the co-sourcing trend is developing.
Co-sourcing in Europe seems to be on the rise. In the past year, several new vendors have entered the market, while others have expanded or built new facilities. About 10 European firms are now in the business, some operating several facilities.
What’s offered?
Since one goal for co-sourcing is flexibility, arrangements vary from vendor to vendor, sometimes even from client to client. At a minimum, the vendor supplies office space outfitted with furniture, telephones, automated call distributors and networked workstations, as well as electricity and telephone service. Sometimes included are interactive voice response systems, multimedia capabilities and software for managing workflow and customer relationships.
Support services typically include building maintenance and systems support and may also include recruitment, training, administrative support, strategic consulting, script design and day-to-day management advice.
The Belgian company Brucall, probably the oldest firm in this new field, stresses the "transfer of know-how" as an essential ingredient of co-sourcing. At the outset of client relationships, Brucall is often extensively involved in setting up and managing the call center. Over time, clients usually assume responsibility for day-to-day management, while Brucall gradually takes on a consulting role: monitoring the call center’s quality and effectiveness and suggesting improvements and new directions.
Brucall began as a call center incubator – a consulting firm specializing in helping companies start up call centers – and found that some of its clients needed more than advice. Other vendors, such as Kingston Incontact in the UK, were originally outsourcers who found that some of their potential clients needed facilities but didn’t really need staff. Still other companies, such as Austria’s ViennaCall, started out in business as co-sourcers. ViennaCall was founded by the City of Vienna as an economic development project, intended to help make the city a magnet for call centers. (Once launched, the company was partially sold to private investors.)
Co-sourcing clients have followed even more diverse paths. Some choose co-sourcing from the start; others come across the idea in the course of planning for in-house or outsourced call centers, and decide it’s right for them. The following three scenarios have led companies to choose the co-sourcing option.
1. Startups –
VDAB, a Belgian human resource services agency, was opening its first call center. Since they had no call center expertise, they looked for a hosting solution. However, they wanted to use their own staff and the call center to use the same computer systems used by the office-based staff. Co-sourcing allowed them to meet all these objectives. Another company opened a new call center while still uncertain about the volume of calls they would receive. They were reluctant to build a facility until they had a better estimate of their needs, and decided to co-source in the interim.
2. Short-term needs –
Siemens AG was planning to open an in-house call center in Ireland, but could not accomplish this in time to meet their marketing schedule. According to consultant Barbara Phelan, the Irish co-sourcing vendor Call Center Solutions "would have our operations up and running quickly while the permanent facility was being completed." The staff hired and trained at the co-sourcing facility could be moved to the permanent facility when it was ready.
Morgan Stanley Dean Witter Card Services also used co-sourcing as an interim solution while their own UK call center was being built. Like Siemens, their primary motivation was rapid entry into the European market. They also note two other benefits: First, they could start out small and grow the new call center while paying only for the resources they actually used. Second, in the words of Steve Edwards, the center’s general manager, using their own staff meant "establishing our business processes and IT, and installing our own company philosophy from the outset – making it all easier to migrate." A financial institution started a project requiring a specialized call center for about a year. Their corporate call center facility was fully occupied, and leasing and equipping space for such a short term was impractical. However, they wanted to maintain control over the project rather than turning it over to an outsourcer.
3. Expansions and upgrades –
Eurocall, a large traditional outsourcer, was turning away new clients because they could not expand their facilities quickly enough. Through co-sourcing, they were able to keep pace with their clients’ demand for services. "Now all we have to concern ourselves with is personnel," says Michael Delloye, the director of Eurocall.
Powergen, a British energy utility with experience managing both in-house and outsourced call centers, needed to expand their call center capacity. A strategic review of their call centers showed that their in-house centers were more effective, but that building new facilities entailed significant risk and delay. Co-sourcing removed the risk and delay, while enabling them to run the center as if it were in-house.
Several companies’ in-house call centers had become technologically obsolete. They wanted to keep their experienced agents, both because they had invested in the agents’ training and because European employment laws discourage laying off staff. However, they did not want to invest in upgrading their facilities, or even in deciding how to upgrade their facilities. In some cases, the call centers were small and technical upgrades would have been prohibitively expensive; co-sourcing facilities, which were much larger, took advantage of economies of scale.
Choosing the Right Co-Sourcing Partner
Selecting the right co-sourcing vendor depends on several factors. Chief among these is location. Companies retaining their call center personnel look for nearby facilities. Companies starting new call centers try to locate them near large pools of suitable labor. (In Europe, this often means multilingual labor pools.)
Other factors include the vendor’s ability to provide turnkey facilities within the client’s timeframe, as well as the vendor’s expertise and flexibility in accommodating the client’s needs.
Some companies that choose co-sourcing as an interim solution terminate their contracts once the short-term project is finished or the new in-house facility is built or call volume has stabilized enough to make building their own center less risky. Other companies stay on, finding co-sourcing less troublesome and less costly than running call center facilities themselves. "All they have to think about is their own service delivery," says Isabella Nameche, CEO of Brucall.
A Flexible Relationship
Co-sourcing contracts, like outsourcing contracts, include service level agreements. Typically, these specify system uptime, availability of the center and response time for system support or disaster recovery. But there’s more to the relationship between client and co-sourcer than is covered in the service level agreement.
"A co-sourcer must recognize that every client is different," explains John Finnegan, managing director of Call Center Solutions. Since many clients choose co-sourcing so their call centers will reflect their corporate cultures, the co-sourcer must be sensitive to those cultures. In a multilingual facility, clients from different countries may even have different ideas about office heating and lighting. "The upside," Finnegan says, "is that there’s a great fertilization of ideas." The co-sourcing vendor is exposed to many different ways of running call centers, and can help transmit good ideas from one client to another.
Glenn Hurley, chairman of the British company Portal, says co-sourcing clients tend to regard his company as a strategic partner. Because clients are actively involved in managing their call centers, they see the co-sourcer as a critical supplier. Portal has found itself participating in clients’ long-term planning exercises, and coming to understand the clients’ goals and vision to a far greater extent than outsourcers would expect to.
Brucall’s Isabella Nameche says that while companies outsourcing their call centers may be tempted to leave management up to the vendor, co-sourcing clients don't have that option. "The failure of outsourcing is often the lack of client involvement," she says. "The provider can’t know the client’s business better than they do." One advantage of co-sourcing, according to Nameche, is that it forces the sort of active partnership that ought to be the norm in outsourcing.
What are the costs?
The relative costs of in-house, co-sourcing, and outsourcing call centers vary depending on specific circumstances. However, co-sourcing’s proponents claim that it has inherent cost advantages. Hiring staff directly is usually cost-effective, since outsourcers’ markup on staff time is high. And leasing infrastructure is usually cost-effective because of the economies of scale. (In some countries, there may also be tax advantages to leasing infrastructure.)
Making price comparisons can be tricky because companies often forget about the ancillary services provided by co-sourcers. "If everything is included," says Oliver Jonke, CEO of ViennaCall, "all the support services and programming, then co-sourcing comes out ahead."
Vendors show a cautious optimism about the future of co-sourcing in Europe. They expect it to grow, but not to overtake outsourcing in terms of revenues. One limitation on its growth is that so many potential co-sourcing clients are looking for only temporary solutions. "Co-sourcing complements outsourcing very well," says Steven Cooper, business support director at Kingston Incontact, which offers both outsourcing and co-sourcing.
And what about the future of co-sourcing in the United States? We were unable to identify any U.S. companies in this market (in the U.S., "co-sourcing" usually refers to an outsourcer taking overflow calls from in-house call centers during peak periods).
European vendors offered several theories about why co-sourcing hasn’t caught on here yet: short-term facility leases are more easily available in the U.S.; it’s easier for American companies to lay off employees and use contract employees for critical functions; European call centers are more sophisticated than American ones, or vice versa. Some believe that a co-sourcing market could develop in the U.S. over the next few years and that, once the option becomes better known, it could prove to be as popular here as it is in Europe.