This paper focuses on the value of reducing costs through outsourcing. This is only part of the equation used to understand the value of an effective outsource solution. Reducing cost alone should never be the reason why a company outsources any or all of their Call Centre. Adopting this paradigm alone is dangerous and is likely to create more problems and dissatisfaction with outsourcing as a concept.

Measuring dollar for dollar costs of an existing service and the outsource provider is important, but only two-dimensional. To get a robust three-dimensional view of the solution and the benefit to the organisation you will need to measure the 'above the line' (ATL) value that is provided with the right outsource provider. 'Below the line' (BTL) value is easy to measure, simply needing some factual figures and a good spreadsheet. ATL value is unique to every company and can only be measured by understanding the business drivers affecting the business.

These drivers are properly understood when communicated to the call centre professional who is then empowered to make the necessary changes. In Australia, we are beginning to see more Call Centre professionals actively involved with driving the success of the company itself rather than simply the operations of the call centre.

Contact 1-2-1 uses a methodology to identify the below and above the line values for every company. By conducting a number of workshops the key drivers identified are matched with a unique solution that can achieve measurable and sustainable value to the organisation. Contact 1-2-1 aims to properly understand the clients' Key Performance Indicators and any other measure of business performance, to demonstrate how the solution will positively affect them. A careful balance is required between BTL and ATL values which is achieved by prioritising the drivers of the company.

Initially, call centre professionals may not see the need to work with an outsource provider as the concept of outsourcing often meant loss of control, reduction in quality, and increased cost. These perceptions have changed over the past decade and are losing momentum as other types of outsourcing like Information Technology have become widely accepted. The key to accepting call centre outsourcing as a viable solution is to understand the value that it can bring to the client's company.

Outlined below are examples of three types of BTL and ATL values that an outsource provider can achieve for a company:

Below the Line:

• Reduction of operating cost

• Reduction of set-up charges for new or growing services

• Improvement of cash flow

Above the Line:

• Establishment of service as a key differentiator for the company

• Increase of revenue and retention for the company

• Increase of focus for Company's core competencies

These values are not new nor are they specific to outsource providers. Call centre professionals can deliver these values from an in-housel call centre, however there are some distinct advantages in working with the right type of outsource provider to deliver or exceed these same values.

As mentioned in the introduction the key is to work with an outsource provider who can offer your organisation leverage from years of experience and expertise gained by focusing on one single competency: delivering call centre solutions. Additionally, the right provider offers a consultant's unique perspective which is inherent to being external to the organisation.

Below the Line Values
These types of values can be measured by examining the direct costs associated with delivering a service. They are often transparent and can be evaluated by examining financial data. These values typically constitute the strongest drivers in a company as to whether the company should outsource a component or the entire functions of the call centre. Unfortunately, this perspective alone can lead to poor decisions when selecting the outsource provider and prove costly in the longer term.

Outlined below are examples of solutions that an outsource provider can deliver to an organisation to satisfy the business drivers and achieve measurable value:

1. Expected Value: Reduction of Operating Cost Sample Solution: Knowledgebase Implementation
It is estimated that approximately 70% of all call centre operating costs are directly attributed to labour. There is no denying that this can be a heavy burden for any company that is not properly utilising this labour pool. There are several strategies that can be adopted to reduce this operating cost. To identify which strategy to adopt the company should begin with examining how well aligned the core elements of the call centre are with the objectives of the business:

• people

• process

• technology

Once gaps are identified it becomes a matter for prioritising the strategies in terms of time frames and then project managing the changes to be undertaken. It is critical that these changes are supported at the highest levels within the company and that all key stakeholders are aware of the changes to be implemented. The underlying reasons for the change and the consequent benefits must be properly defined to ensure a successful project outcome.

There are a number of accepted industry practices that help reduce operating costs. Some of these are:

• better staff rostering through workforce management systems

• consolidation of call centres to create larger pools of agents and leverage from economies of scale

• relocate the call centre to a regional location that offers lower operating costs

• reengineer processes to streamline operations

• utilise self-service technologies to manage repetitive calls

Each one of these solutions would constitute a White Paper on their own. There are many factors to consider and return on investment (ROI) calculations to measure. An expert outsource provider can assist an internal call centre with all of the above solutions. Another solution, not widely publicised but has been utilised by Contact 1- 2-1, involves knowledgebase management. This solution, when properly implemented, can yield significant cost-savings.

Labour costs in a call centre are directly contributed to the length of a call and the volume of calls. A sound knowledgebase solution can provide the call centre with reduced call handling times and reduced volumes. This is achieved by providing the agents with a single repository of information. If properly designed and maintained on a regular basis the knowledgebase can be a powerful tool to the call centre agent, providing easy access to information and a faster response to caller's questions. The value of a knowledgebase is best realised in call centres that cater for a variety of different users and provide information about a diverse number of subjects. Typically, call resolution rates increase as callers are able to receive answers the first time as opposed to receiving the wrong information or having their queries escalated.

Call volumes can also decline as a result of increased first resolution rates. The knowledgebase solution is only effective in reducing operating costs if there are disciplined processes to ensure that the information is current, accurate and easily accessible. When recently implemented at Contact 1-2-1, the call centre was identified as the best place to retain the knowledgebase and ensure it remained current. The technology, whilst important, is only half the equation for the solution to pay dividends. The critical aspect of the technology is in its ability to accept documents of any format. A proper corporate knowledgebase will collect information from a diverse range of departments and must be incorporated into the knowledgebase without the burden of a laborious administrative process. Similarly, call centre agents will receive questions from callers that are not in the knowledgebase and this will need to be added and checked for accuracy.

The cost-savings for this type of solution can be numerous. The key ones that were identified in a recent installation were:

• A reduction in operating costs of 15-20%

• A reduction in call centre training of new agents by 50%

• A further reduction of 10-15% of operating costs compared to Sydney or Melbourne because the service was delivered from Adelaide.

The next phase for this type of solution will be to provide the knowledgebase in a format that will lend itself to self-service. This should further reduce call volumes and operating costs.

2. Expected Value: Reduction of set-up charges for new or growing services
Sample Solution: Rapid development environment
Call Centre professionals are often pressured by requests from the clients' various internal departments to establish new services or modify existing ones. These requests can be a burden to the call centre if not properly researched or implemented. The key areas of pressure may be:

• Cost of IT resources to establish or modify services

• Cost of new technology to enable the service

• Lack of appropriately skilled staff or not enough resources to deliver the service in a timely manner

• Lack of capacity or real estate

All these issues relate to costs. Frequently, the existing business is not able to finance the new service or there is no cost benefit equation to justify the expenditure. An outsource provider can often be the best option. An outsource provider will usually have access to a wide array of technologies that an internal call centre may not have. The cost of these technologies is usually amortised across a number of other services. It becomes cheaper to 'rent' technologies through an outsource provider than to purchase the technology outright. Other costs associated relate to the maintenance and support for the technology which can often be more costly than the initial purchase price. An outsource provider will have technical resources which can be made available on a 'user pays' system to further reduce any fixed costs associated with specific technologies.

3. Expected Value: Improvement of cash flow - Sample Solution: Co-source arrangement for call centre
Cash flow may be an issue for an organisation that is competing in an aggressive and highly competitive marketplace. Shareholders are often placing pressure on senior mangers to reduce costs and fund growth organically. This may prove to be difficult if the company is struggling with low margins and heavy fixed costs. One of the burdens of operating a call centre is its high consumption of labour, technology and real-estate resources. These fixed costs and necessary resources can be disposed of completely by outsourcing the entire call centre. This will effectively reduce fixed costs, head count and technology expenditure. A complete outsource of the call centre is likely to yield between a 20-30% cost saving on operating costs to the company. Consequently, this will ensure cash flow and fulfil financial performance measures, keeping shareholders happy.

Companies may not wish to completely outsource their entire call centre for a number of reasons. They may only wish to reduce the cost of real estate, technology and the support provided for both. This can be achieved through a co-source model. In a co-source model the client is provided with only call centre infrastructure and support. They manage the service using their own call centre staff. This ensures they have control. However, this is only feasible if they have the expertise themselves. Adopting this model releases the company from the burden of some of the fixed costs associated with operating a call centre whilst still retaining operational control. The need to return the service back in-house is often not considered as there is usually no business case to justify the move from a co-source arrangement. A company can save between 10-20% of operating costs by adoption of this model. On a large scale this could represent a saving in excess of $1,000,000. This improvement to the cash flow and the removal of debt and fixed costs from the balance sheet is an important financial strategy that can yield positive benefits to any large organisation wishing to become more competitive in the marketplace.

Above the Line Values
Above the line values can be less transparent, harder to measure and less convincing in Board room presentations. However, this does not make them any less tangible than below the line values. These values have greater merit over the longer-term to a company. They can greatly increase brand equity, competitiveness, customer advocacy and customer profitability. These values are becoming more widely known as call centre professionals enter the realms of managing the business outside of the call centre. These values are slowly becoming accepted in Australian business as senior executives become more aware of its significance to their organisations. Companies in the US and the UK have already undergone this transference of knowledge and trials have yielded positive results.

Internationally, Australia still lags in its acceptance of above the line values that can be delivered to the overall business from the call centre. Above the line values need an internal champion who understands and believes in the merit of making changes together with the call centre. A specialist outsource provider can work with the champion to add weight to the argument and to educate the senior executives of the value to the organisation. Often, these changes require additional expenditure and reallocation of budgets. Approval is usually conditional on the success of a pilot, to test the business case.

Outlined below are three examples of above the line values that can be provided by working with a specialist call centre outsource provider:

1. Expected Value: Establishment of service as a key differentiator for the company.
Sample Solution: Re-align call centre culture to meet customer value expectations.
There is strong evidence that companies can create a competitive advantage by establishing service as a point of differentiation. Kramer and Associates highlight that 60% of the 1975 Fortune 500 have disappeared from the list.

They have been replaced by companies that have made it easy for their customers to do business with them. These best of breed companies have aligned their internal processes to ensure effective delivery of products and services that are supported by excellent customer service.

Customer expectations are escalating as competition in markets intensifies. Most companies barely provide good service let alone service that exceeds customer expectations. Customer satisfaction is no longer measured immediately after the sale. Every touch point in the delivery process of a product or service and beyond to the second and consequential purchase becomes a true measure of customer satisfaction. A true understanding of the processes that affect the customer is critical to devising a call centre solution that will assist in providing excellence.

Each process needs to be mapped and the relationship existing between each one properly understood. Customer value can only be provided when it is understood what the customer expects during each process. The call centre provides a controlled environment to enable a company to standardise the level of service it provides during every customer contact process. This enables the call centre to take on a strategic role in the organisation by becoming the custodian of the customer experience. An interesting study conducted by the University of Michigan has linked shareholder value to customer satisfaction known as the American Customer Satisfaction Index (ACSI). This forms part of the growing evidence highlighting that it is no longer sufficient to provide "good enough" service. The level of service required to stand out from the competition has to be exceptional.

The solution to raising the service level bar begins with culture. The process mapping and technology will provide very little value if the organisation and the call centre do not have the right culture and environment to deliver exceptional levels of customer service. Changing culture can take years and become a very costly and painful exercise.

Companies that understand the effort involved in changing their internal culture chose the alternate path without hesitation. This involves outsourcing to a provider that has already invested heavily to create the right culture within the call centre. The value of culture can not be underestimated and will ultimately determine the success or failure of any service improvement initiative. Contact 1-2-1 has introduced a service culture focused around providing "6 Star" service. The concept is borrowed from the hospitality industry. Traditionally 5 stars denotes high quality and excellent service in hotels or restaurants. However, the research indicates that this is no longer good enough. The 6 star principle is all about providing service that is one level higher than the best. We regularly coach the actions which constitute 6 star service and highlight examples of call centre agents who have demonstrated this concept.

What does this have to do with cost saving through outsourcing? Everything. By embarking on a project to make customer service a differentiator the company is at the same time undertaking a project to convert the call centre from a cost centre to a profit centre. Increased sales, profitable customers and greater retention of customers are all the by-products of making customer service a point of differentiation.

2. Expected Value: Increase of revenue and retention for the company
Sample Solution: Contact management program for the lifetime sales cycle of the customer
Smart companies understand that it is much easier and cheaper to sell to existing customers than it is to find new ones. The irony is that very few companies allocate a budget to retaining customers as they do to finding new ones. Companies will spend millions on above the line marketing in traditional media such as television and print and very little on understanding and mining their database and communicating with their existing customers. This trend is largely attributed to levels of ignorance amongst senior managers about the value of regular and coordinated communication with their customers. The Rockefeller Institute conducted a study identifying why customers leave an organisation and go to the competitor. The results showed that 68% leave because they felt that the company did not care about their business. This is strong evidence, highlighting the importance of a carefully planned care program during the lifetime sales cycle of a customer.

Companies need to begin by understanding how frequently a customer is likely to purchase their product. This measurement is usually known as the Life Time Value (LTV) of a customer. A contact program needs to be mapped once the cycle is understood. Each contact must have relevance and value to the customer. Identifying the most appropriate medium is also important. A voice call, whilst more costly than an SMS, has far greater impact and relationship building capabilities than other mediums. The cost needs to be proportional to the value of the customer and the goods or services sold. For example, 10 contacts over a 3 year period at a cost of $80 to generate a $50,000 sale is money well spent.

Outsourcing can play an integral role in making this type of program work. The internal call centre of a company is usually focused on day-to-day calls from customers and does not have the capacity, resources or technology to conduct a regular contact management program.

3. Expected Value: Increase of focus for Company's core competencies
Sample Solution: Outsource transactional calls to a lower cost base
There has been much written in the business world about the benefits of focusing on core competencies and the importance of allocating resources to these competencies. The push over the past decade has been to outsource non-core activities to ensure the company can "stick to its knitting". The theory suggests that a company will become better at delivering products and services if it channels most of its energies into making those products and services and the processes surrounding its delivery more attractive than competitors. This theory has been proven time and time again with the rise of a number of smaller companies that have eroded market share from larger competitors. Their singular focus in producing better products and services at lower costs has only been possible because of their relationships with external outsource providers.

Strategic outsourcing is all about being able to leverage off the core competencies of the outsource provider to gain a positive business outcome. Outsourcing internal problems to another provider will only pass this problem on without resolution. Often clever start-up companies will outsource their non-core processes rather than attempting to do it themselves. This prevents having to deal with the added complexity of fixing problems before handing business to an outsource provider. One of the drawbacks of being a well funded company is that they feel almost compelled to do everything in-house and hire lots of staff in the process. The attitude that money is not an issue as there is plenty more at their disposal is their Achilles' heel. Once there is an economic downturn or sales are lower due to competitor activity the company is forced to re-visit its strategy. Often this will lead to downsizing and ultimately to outsourcing of non-core activities.

'Best of breed' companies understand this paradigm and address non-core processes before they become a burden. Outsourcing transactional calls to the call centre is one solution that will assist in helping the company regain its focus. These types of calls are considered low value to the organisation and therefore a low risk option in outsourcing. It is estimated that approximately 80% of all calls entering an organisation can be classified as transactional to some degree. The first step in determining which calls should be outsourced is to identify the various call types and the value they have in affecting business outcomes. Change of address or receptionist based calls are examples of call types that are considered transactional.

Other call types may appear transactional but can offer a sales opportunity that can lead to positive growth for the company. An example of this would be a literature request call. By working with an experienced outsource provider the company can leverage from the call centre's knowledge to better understand the various call types they are receiving and the best way to manage these calls.

Companies can receive a double bonus when they outsource to a provider that has a lower cost base. An Adelaide call centre will have a lower cost base than Sydney or Melbourne and the outsource provider is able to pass on this saving onto their customer. There should not be an issue with the geographical distance of the call centre as these types of calls are transactional in nature and usually no not require agents to be trained on a regular basis. By outsourcing transactional calls to a lower cost base provider the company is able to reduce costs and also channel energies and resources back into core activities. Consequently, this should lead to better business performance.

Cultures and Relationships
This White Paper has highlighted how call centre outsourcing can reduce costs and provide value back to the company. Two of the critical components in making outsourcing work beyond the solution or cost-saving are:

• Matching the culture of both companies

• Effective management of the outsource relationship

Over the years I have adopted a principle of never doing business with people I was not comfortable with, no matter how good their product or service was. This subjective principle has worked for me. I am confident that the future will see more research and evidence highlighting the importance of these two subjective components in outsourcing. Outsourcing is all about how two organisations with different areas of competencies unite for mutual benefit. The important point is that companies are comprised of people and not products or services. People determine the success or failure of a company. Call Centres are all about people and their interactions with others. Culture plays an important role in determining the quality and type of interaction. Similarly, the relationship the company has with the outsource provider can not be a master/slave situation. A spirit of cooperation, clear understanding of expectations, and regular communication is required to make the outsource solution work. Finding an outsource provider that has the right cultural match and managers that are like-minded is more important than the solution itself if outsourcing is going to work beyond the first week.

Understanding ROI
Return On Investment (ROI). These three words have become the latest buzzword in outsourcing. Everyone talks about ROI when discussing outsourcing. IT vendors regularly boast how their product has a higher ROI in a shorter time than their competitor. Vendor comparisons in IT are being reduced to ROI comparisons. Call centre outsourcing needs to demonstrate an ROI but companies must not fall into the IT Vendor trap and compare call centre outsourcing in the same manner. Understanding call centre outsourcing ROI is important in making an effective business case to senior managers of an organisation.

Below the line value solutions have clear and measurable ROIs. They tend to be short-term gains and therefore more palatable to an organisation experiencing immediate pain. Above the line value solutions are likely to have longer-term ROIs but a greater yield to the organisation. A proper understanding of the two forms of ROIs is integral to presenting the overall strategy to senior managers of the organisation and to get their buy-in and approval. A balance between the two is often necessary to produce a sustainable result to the business.

Conclusion
Call centre outsourcing is not simply about finding a provider with the lowest cost to meet a set of requirements. Finding the right type of provider and forming a strategic relationship to provide value to the organisation is an integral component to call centre outsourcing. The provider needs to be able to demonstrate that they can provide unique solutions that address both below and above the line values to the organisation.

A reduction in costs can be achieved by working with an outsource provider has the right cultural match and has formed a sound working relationship with the key stakeholders. An internal champion and support from senior managers is essential to making the project a success for a company.

About the Author
Joe Tawfik has over 17 years sales, marketing and management experience. He has been directly involved in Call Center outsourcing for the past 7 years. Amongst his achievements he was principally involved in winning and devising the strategy for the Sydney 2000 Olympic Games call center. He has designed solutions for major blue chip organisations such as Vodafone, NRMA, Microsoft, and Mitsubishi Motors.

About the Company
Contact 1-2-1 is in the business of providing services for companies seeking Contact Centre solutions. Contact 1-2-1 provides the complete outsource solution and consulting services for companies seeking to work with an external specialist provider. Contact 1-2-1 offers a range of cost-effective solutions for inbound and outbound multi-media contact centre outsource services. Contact 1-2-1 offers a solution for companies seeking a strategic relationship and would like the value-added benefits of working with a company that will assist them in growing their business