Publication: Chimo Canada
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
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 blue-chip clients.
Convergys, 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.
in the middle
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 Web site makes that company’s 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 brand.
IBM’s approach 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
IBM’s 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 after thought.
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.
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 bluechip clients no longer
want to buy bits and pieces of service offerings from a jumble of separate
suppliers. It’s 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.
Escaping 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, aren’t 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 it’s 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.
Will It All Lead?
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, it’s 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 a biweekly occurrence for the IT professional
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 themselves geeks.
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