Publication: Economist Intelligence
Wants Call Center Capacity
Richard Mills CFA, Chairman
couple of months ago, IBM announced that it was purchasing a 9,000-person
call center named Daksh, with operations in India and the Philippines. The
acquisition is interesting for two reasons. First, IBM previously had no
significant call center capacity and with this one purchase has become a
major player in the booming offshore industry. Second, the price IBM paid
was considered by most people to be irrationally exuberant. According to
investment banking firm Avendus, the price was roughly 15 times last year's
earnings (or three times annual revenues). Clearly, IBM felt that owning
(rather than just leasing) call center capacity was an absolute necessity
for its long-term business strategy.
Earlier in the
year, Accenture hired a senior call center executive away
from the contact center company ICT Group. When I spoke to
this executive about his new job, he said he was hired to be
"responsible for the world's single largest call center
offshore initiative," which involves 6,000 call center
seats. Apparently, Accenture is moving into the call center
business in a big way as well.
Traveling in the
opposite direction, the large call centers are moving into
the IT services business, although in a somewhat less
grandiose manner. Sykes is a worldwide contact center
organization with many service lines, including managing
tech support for clients like Microsoft and Intel. It has
done such good IT support work that it has moved into
full-blown IT outsourcing. In the Philippines, Sykes is
hiring software developers by the hundreds to do software
programming work for its bluechip clients.
another large contact center organization, has hired ICT
heavyweights to oversee the company's Information Management
Group. Its objective is to focus on developing the company's
"higher-value service offerings" in the IT and
business process outsourcing (BPO) spheres.
Another area of
budding togetherness for IT and contact center services, BPO
is considered the mother lode of outsourcing because it
encompasses everything that can
be imagined as being outsourced. It is a very big field.
A quick look at
the Accenture Website makes that companyís direction
clear. It now provides 18 categories of services. Some of
the new BPO subsidiaries that have been incorporated over
just the past few years are Accenture Finance Solutions,
Accenture HR Services, Accenture Learning, Accenture
Procurement Solutions, Accenture Business Services for
Utilities, Accenture eDemocracy Services and Navitaire -- a
bewildering number of extensions to the core Accenture
is to keep all BPO work under a single company umbrella, but
its BPO focus in the booming Asia-Pacific region is obvious
by its hiring practices. As one example, recent full-page
employment advertisements in the Philippines are being used
to hire boatloads of people required for IBMís outsourcing
operations. The advertisements emphasize the need for
"previous experience in the areas of customer care,
human resources, employee and payroll services."
Requirements for IT skills are stated farther down on the
page, giving the appearance of being an afterthought.
On the call
center side, Convergys is promoting services like billing
and employee care (payroll, benefits and other human
resource services). Sykes says it delivers "total
solutions" to "complement" its CRM services.
The large call center StarTek is probably the most bold. It
comes right out and calls itself a BPO company.
So what is going
on? Why does everyone want to be in each other's business?
There seem to be
two main reasons these companies are broadening their
product lines into areas that are clearly outside their core
expertise. The first has to do with customer requirements.
Large blue-chip clients no longer want to buy bits and
pieces of service offerings from a jumble of separate
suppliers. Itís just too complicated and expensive to
manage it all. They want to buy a broad range of outsourcing
services from a few suppliers (or even just one).
This trend has
been happening in the IT sector for some time now. According
to Gartner Inc. and most of the major analysts, large
outsourcing deals have been the "main engine of
growth" over the past couple of years, and this trend
is expected to continue.
commodization is another reason companies are expanding to
new frontiers. The most successful IT companies have become
so large and their project management procedures so reliable
that, to a large and sophisticated client, their service
offerings can be difficult to distinguish from those of
competitors. In other words, they have become commodity
providers -- not that much different from farmers selling
pork bellies. This situation has been apparent in the call
center industry for some time. The IT companies, on the
other hand, arenít used to thinking of themselves in such
a manner and probably don't like it very much. But what
unique selling feature could there possibly be among
high-quality companies like Accenture, EDS, HP, CSC or IBM,
other than price?
In order to
escape this dead end, everyone wants to move aggressively
into new businesses. BPO seems exciting because itís new
to everybody and industry standards for service levels and
pricing are not yet well developed. As a result, the sales
process is more consultative in nature (rather than just a
discussion of price) and there is much more value to add. In
such an environment, the opportunities for higher margins
are greatly enhanced -- as any salesman would appreciate.
Where Will It
It is very
evident that both the large contact center companies and the
IT services organizations will continue to expand their
product lines into BPO and each other's
businesses. However, itís the IT companies and not the
call centers that sign the big outsourcing deals -- anyone
who reads the business journals knows this. Announcements
for billion-dollar outsourcing contracts are becoming almost
occurrence for the IT professional services companies.
As well, my
information indicates that throughout the fast-growing
Asia-Pacific region, it is almost always the IT companies
that are looking to acquire call center capacity (i.e., buy
call center companies) and seldom the other way around. If
the past is an indicator of the future, then a lot of people
from the call center industry might soon be calling
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