Approach to Strategic Outsourcing from Large and Evolved Brands
People often ask what is the best approach to be used by organizations who have taken the strategic outsourcing decision for their non-core business processes – like back office, clerical activities, customer services and care activities, retention and outbound campaigns, KYC and customer on-boarding solutions, documentations, data entry, verification works, customer contact centers, digital care, social media solution etc.
As it’s a well-established fact, the overwhelming advantages of outsourcing speak for themselves. More companies are drawing up plans to outsource work. Many companies now base their entire business plan around the delegation of functions to external service providers. According to industry experts, outsourcing is not simply a way of cutting costs; it is now a business model. Once the organization has taken the outsourcing decision, the business group will liaise with the procurement team to release an RFP; or if there are service providers who meet the eligibility criteria as specified in the RFP, invite them to submit technical and commercial proposals.
Without going into too much detail about the pricing models, which in themselves are huge subjects of deliberation, let’s jump directly into the stage where the commercial proposal has been submitted by the service vendor and the core / RFP / Tender committee at the client’s organization is reviewing the proposal for its financial viability. Let’s assume here that the Outsourcing is being proposed for complete contact center outsourcing – in a non-hosted model, meaning fully outsourced model – where the service vendor will provide for premises, office space, IT and non IT infra, desktops, LAN/WAN wiring, cabling, facility, admin, manpower, supervision, management, CCT applications, hardware, sever etc and all associated infra. In this model, the biggest advantage for the client organization is that there is no heavy capex investment to start the contact center operations for providing world class customer experiences, as the service provider is doing the investments and converting into an opex model, which is payable through the process of monthly invoice / billing systems.
Let’s assume, for the sake of simplicity and easy understanding, the pricing is on the Per FTE Model – (Full Time Employee – FTE). In other words, this denotes the number of hired resources or manpower or full time employees (standard is 8 hrs. of productive login per day) required to handle the forecasted volume of work. Hired FTEs include the total number of full time employees including shrinkage – planned and unplanned absenteeism, week offs, national holidays etc.
Now let’s also assume the pricing Per FTE proposed by the service provider is USD 1000 per Hired FTE per month. This is an overall pricing which includes all the above mentioned set up costs – like premises, facility, ICT and Non ICT infrastructure, manpower or agents, supervision, quality and training, management, HR, legal etc costs. All these set up costs are summed up and divided by the number of hired FTEs required for the forecasted volume of work, assuming an industry standard of 85% efficiency.
The no. of hours spent by each of these cross functional management resources should be calculated for the month. Let’s say the management team spends 40% of their time and energy in the running and management of the in house contact center operations. Then the method of arriving at the shared management costs should be 40% of the monthly CTC (Cost to Company) of the concerned shared management resources.
Once you have all these line item costs and totalled it, divide it by the total no. of hired agents you have in the captive contact center operations, you will get an idea of entire captive contact center operations costs on a per Hired FTE basis, which will be required by you to do an apple to apple comparison.
Now let’s assume for example the costs per hired FTE of your current operations are USD “A” per Hired FTE. (Please note this is not the costs of salary of the agent employed, but entire end to end costs of the captive contact center, divided by hired FTE/agents).
This derived cost per hired FTE (USD “A”) is already provisioned in your current Annual Operating or Budget Plan (generally known as the AOP in most organizations), meaning it’s already sanctioned for the current year, as you are incurring the same costs as actuals at present.
By now, you also know the service provider per hired FTE cost. The stage is now set for the apple to apple comparison, on the costs or financial perspective. If USD A is greater than USD1000 (from our example above) the organisation will benefit from outsourcing as TCO (Total cost of Operations) shall come down post outsourcing. If on the other hand, USD A is considerably lesser than USD 1000, the organisation is better off and there is no immediate pressing need for taking the outsourcing route. Remaining Captive will make more business sense in such a case. Besides, the obvious cost advantages Outsourcing brings to the table, there are many more value additions like CSAT and Customer Experience enhancements, better utilization and efficiency and releasing of management bandwidth for the organisation that resort to outsourcing.
Let’s conclude with a quote on outsourcing by Alphonso Jackson – “The other part of Outsourcing is this: it simply says where the work can be done outside the better than it can be done inside, we should do it”
By: Sourin Buragohain