Table of Content
1.1 Introduction to the Call Center Industry
1.2 Research Motivation
1.3 Problem Statement
1.4 Research Contribution
1.5 Research Approach
2.3 History and Evolution
2.5 Advantages and Limitations
2.7.2 Related Concepts
2.7.3 Trust and Outsourcing
2.7.4 Relationship with the Client
3 Call Center
3.3 History and Evolution
3.5 Special Characteristics
3.5.2 Relationship with the Client
4 Research Goals
4.2.1 Cultural Dimension (Hofstede and Trompenaars)
4.2.2 Competitive Environment (Porter)
4.2.3 Uncertainty of the Environment
4.3.1 Type (Mintzberg)
4.3.2 Strategic Global Orientation
4.3.4 Organizational Lifecycle
4.3.5 Competitive Strategy (Porter)
4.3.6 Organizational Structure
4.3.7 Corporate Culture
4.4.1 Labor Supply
4.5 Relationship with the Client
4.5.1 Orientation towards the Client
4.5.5 Data Security
5 Research Design
5.2 Research Objective
5.3 Research Method
5.4 Sample Choice
5.5 Research Execution
6.2 Mondial Assistance Deutschland GmbH
6.3 Harte-Hanks CRM Services Belgium N.V
6.4 eti Sales Support Europe B.V
6.5 PFSweb Europe B.V
6.6 cologne: callcenter gmbh
6.7 Maincom Telemarketing Services GmbH
6.8 Minacs Worldwide GmbH
6.9 Synovate GmbH
7.2.1 Cultural Dimension (Hofstede and Trompenaars)
7.2.2 Competitive Environment (Porter)
7.2.3 Uncertainty of the Environment
7.3.1 Type (Mintzberg)
7.3.2 Strategic Global Orientation
7.3.4 Organizational Lifecycle
7.3.5 Competitive Strategy
7.3.6 Organizational Structure
7.3.7 Corporate Culture
7.4.1 Labor supply
7.5 Relationship to the Client
7.5.1 Orientation towards the Client
7.5.5 Data Security
8.1 Summary and Conclusions
8.2 Managerial Implications
8.4 Future Research
9.1 Articles and Books
1.1 Introduction to the Call Center Industry
“Call centers have evolved to become the ‘first line of defense’, at the forefront of modern business” (TigerTel/UTR Research Group, n.d./2004, p.18). In today’s business world, call centers play a very critical role. “97% of business transactions take place over the telephone” (TigerTel/UTR Research Group, n.d./2004, p.3). Due to the increase in the call volume, call centers evolved as the medium to structure and strategically integrate the telephone contact between the firm and its customers. Today’s call centers fulfill a series of services. These range from simple tasks like providing standardized answers to the full customer service including complaint handling and from market research to lead qualification. The contemporary integrated call center environment is very complex. During the current economic slowdown, many companies underwent some breakdowns. Through the last year, 44% experienced some outages, within the last six months, 32% had to cope with failures (TigerTel/UTR Research Group, n.d./2004). Managing a contact center in these times proves to be a difficult mission, which nevertheless is of high strategic importance. Especially when it comes to customer service, a well-functioning contact center can turn out to be a powerful weapon in economically tough times.
The prevailing trend goes toward outsourcing the customer contact. In the last years, call centers as business process outsourcing (BPO) providers sprang up like mushrooms. “Outsourcing (…) has been most prevalent in information systems/technology (40%), real estate and physical plant (15%), and administration, human resources, customer service, finance, marketing, sales and transportation (30%)” (Logan, 2000, p.22). While some of these domains have been researched quite well, others have been quite neglected. The literature agrees upon the importance of the contact between the company and its client base. Yet, little literature addresses contracting out this division. Because of the affect of the contact centers on the customer base and therefore on the financial results of the firm, it is important to understand the major forces prevalent in outsourcing customer contact.
1.2 Research Motivation
Over the last years, the investment into contact centers has continued to grow. Apparently, companies understand the customers to be their most significant asset and hence started to compete on the amount of peripheral service they offer (Datamonitor, 2001). The call centers have developed into strategic interaction centers, which integrate all means of communication – such as phone, mail, email, fax, and web chat – in a way it creates a data base, which serves as a source for all different company functions, e.g. accounting, generating statistics, customer service, inventory handling, and so on. Yet, little structured research has been conducted to determine the main driving factors in this industry. The literature available covers outsourcing quite well and a lot has been written about call centers, but the connection of these two fields has been left rather unexplored. The academic literature therefore lacks a thorough overview about the industry of call centers as BPO providers. This is, where this study finds it niche.
1.3 Problem Statement
In order to provide a thorough overview about the industry at hand, several aspects have to be investigated. The environmental attributes, industrial features, organizational characteristics, production factors, and success factors will provide evidence for the shape of the industry. Summarizing, the following question will guide this research:
What are the factors determining the industry of call centers as BPO providers and what are the factors that influence success, when outsourcing the customer contact?
To facilitate the development of an answer to this question, several sub-questions have been established. They structure the research and provide a guideline for investigating the industry. They read as follows:
1. What does the external environment of call centers as BPO providers look like?
2. What are the organizational characteristics of call centers as BPO providers?
3. Which production factors determine the success of call centers as BPO providers? What are the special characteristics of this factor in the researched industry?
4. What factors determine the relationship between the call center and its client? How important is trust and what are call centers doing to establish trust?
The research will therefore be conducted from the outside to the core of the companies within the industry. Firstly, the environment – i.e. the industry – will be addressed. Secondly, the organizational featured will be investigated. Thirdly, the decisive production factor will be determined and analyzed, and, finally, the relationship between the BPO provider and its client will be monitored and particularities will be mentioned.
1.4 Research Contribution
As the literature review reveals, little research has been conducted about call centers as BPO providers. This study will present a detailed overview about this industry. Special attention will be turned to the aspects mentioned above in the sub-questions to the problem statement. As this study will never be able to be exhaustive, the systematic investigation will discover fields of further interest. This exploratory survey will research the existing academic literature in the field of call centers and in the field of outsourcing and develop – with the help of several economic theories – hypotheses, along which this industry will be investigated. The research part will then provide evidence for or against these statements and uncover fields for further exploration. This study will therefore prepare the ground for more detailed studies within the field of outsourcing customer contact.
Future researchers are not the only group, to which this study will be of interest. Many actors within the industry might be interested in the result of this thesis as well as current and future employees within the call center industry. Since the industry is growing and maturing, more and more jobs are created and a standardization takes place. Call center jobs changed from being the second best choice to an occupation with its own standards and pride. People wanting some information of this increasingly interesting profession, might find some answers to their questions here. Generally speaking, this thesis will provide a first insight into the industry, but leave room for further investigation.
1.5 Research Approach
The research of this thesis is based on a literature review in the domain of call centers and in the domain of outsourcing. It focuses on important factors from both fields and integrates them in developing an analytical framework for the more restricted industry of call centers as BPO providers. Part I contains a literature review and covers important theories. Part II lists the findings and provides answers for the hypotheses developed in Part I. It comprises a broad exploratory research, which consists of a case study based on face-to-face interviews with self-developed open questions. Part III closes with the synergy and conclusions.
Chapter 2 provides an overview about the literature in the field of outsourcing. While the definition, the history and the trends will present an introduction to the subject, the advantages, the disadvantages and the challenges will establish the topic more completely by characterizing the aspects to be taken into consideration when deciding to outsource business functions. Trust and its related concepts will be introduced, since it is a major issue in the outsourcing process.
Chapter 3 addresses the call center industry. A literature overview will provide an introduction by concentrating on the definitions, the history and the trends. Special characteristics of the industry will be identified and characterized, such as the personnel and the relationship to the client.
Chapter 4 – a rather extensive chapter – covers the four areas of the research and applies economic theories to explaining the driving forces within these areas. Firstly, the environment of outsourced call centers is investigated by addressing the cultural dimensions, the competitive environment, and the uncertainty of the environment. Secondly, the organization itself will be characterized with the help of following theories and frameworks: Mintzberg’s typology, the strategic global orientation, the nature of call centers, the organizational lifecycle, the competitive strategy, the organizational structure, and the corporate culture. Thirdly, the decisive production factor – the personnel – will be introduced while paying special attention to the labor supply, training and monitoring. The last area comprises the relationship with the client. It is analyzed by looking into the orientation towards the client, and issues relating to trust, the contract, the project design, and data security.
Chapter 5 covers the research design and addresses the research objective along with the methods used. The sample choice is introduced and the execution of the research is explained.
Chapter 6 comprises an overview about every company, which is part of this research. It commends on the heterogeneity of the sample by stating the nationality, size, age, strategic global orientation, and – if applicable – its position within the conglomerate. Further it describes the tasks of the interviewed call centers, which as well differ widely.
Chapter 7 is structured analogues to Chapter 4. It takes up every hypothesis developed in the Chapter 4 and presents the findings of the interviews. It discusses the outcomes and provides evidence for or against the hypotheses. In this fashion, the characteristic traits of the four areas – environment, organization, personnel and relationship with the client – evolve.
Chapter 8 comprises the conclusion of the study. It contains the answers to the four sub-questions and a solution to the problem statement mentioned above. Several managerial implications will be offered. Further, it states the limitations of this study and provides proposals for future research.
Part I: Literature Review
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In the last ten years, outsourcing changed from a tactical option to a standard business procedure and strategic management tool. While during the early 1990’s, outsourcing was considered the last resort, companies nowadays focus on their core competences and use contracting out as a device to streamline their operations. Today it is customary to have outside companies provide most of the peripheral services (like transport and IT) in order to be able to concentrate on primary business processes. In addition, several firms started outsourcing more central services as well. The best example in this context is Nike, a sporting goods company, who outsourced everything but the design and the marketing of its goods. Even manufacturing is contracted out. (www.handelsblatt.com)
This chapter will characterize business process outsourcing in depth. Firstly, the term and related concepts will be defined. Secondly, the history and evolution of contracting out will be outlined, before finally tracing the current trends. Part 2.5 provides a detailed overview on the advantages and limitations of outsourcing, while the following subchapter describes the challenges. Before a conclusion will summarize the illustrated facts, a concept closely connected to outsourcing will be portrayed, namely trust. The concerned subchapter – 2.7 – will define the term and related concepts, establish the relationship between trust and outsourcing, and illustrate the relevance of this model for this thesis. Applying trust to outsourcing customer contact, the focus will lie on the relationship between the BPO provider and his client.
The most common definition found in the management literature describes outsourcing as the procurement of activities and components from external and independent suppliers (www.commerce-database.com). This explanation seems to be lacking an important aspect, though. When following this definition, every purchase could be classified as outsourcing, would it be the acquisition of manufacturing components or of copy paper. The characteristic missing in the definition above is the feasibility of a potential in-house production. Companies outsource only in the case, when the in-house production is possible and economically reasonable and the company decides on the basis of existing chances and threats to mandate an independent supplier. Along this line of reasoning, Gilley and Rasheed (2000) distinguish two components of outsourcing, namely outsourcing through substitution and outsourcing through abstention. The first factor explains outsourcing as substituting internal activities by external acquisitions. The second factor means that the company abstains from the possibility of producing the purchased product or service itself. The company outsources only, if both scenarios are fulfilled.
The next important distinction in this context is the one between peripheral outsourcing and core outsourcing. While peripheral outsourcing is the contracting out of strategically less relevant activities, core outsourcing occurs “when firms acquire activities that are considered highly important to long-run success” (Gilley & Rasheed, 2000, p.767). Activities that are subject to peripheral outsourcing are the creation of the company’s IT network or the conducting of consumer surveys. Activities that are located at the core of a business are accounting, customer service or manufacturing.
In order to characterize a company’s outsourcing strategy it is important to be aware of the concept of breadth and depth. A firm is following a broad outsourcing strategy, when it commissions some parts of many activities. Depth is defined in this context as the “value of each outsourced activity” (Gilley et al., 2000, p.768).
Most companies follow a multi-sourcing strategy, “where a company does the core service in-house like enterprise-resource-planning (ERP) and outsource the non-core or context services like payroll” (Making the right, 2002, p.2).
The goals of outsourcing are manifold and can usually be found among the following: cost savings, operational expertise, staffing issues, reliability, support for internal users, knowledge transfer, support for customers, industry-specific expertise, speed to market, standardization, budget restructuring, innovation, cutting-edge technology, new revenue opportunities, just to mention a few (Dickenson, 2002). A deeper insight into the opportunities arising from outsourcing will be given in the section about advantages and limitations.
2.3 History and Evolution
There are two phenomena playing in concert in the evolution of outsourcing. One is the concentration of the companies’ core competences due to the extensive bankruptcies during the 1960 and 1970 (Quinn & Hilmer, 1994). Considering the higher risk because of narrowing markets, both financial theorists and investors began to support spreading the operational risk on more shoulders. Outsourcing parts of the organization is along the lines of this argument.
The second phenomenon influencing the development of outsourcing is the increasing pressure on businesses through the globalization (Feenstra & Hanson, 1996). The increasing size and responsibilities of transnational firms combined with the global competitive pressures forced the companies to concentrate on their core competences and the conduct of best practice in order to survive. Analogous, the potential to save money through specialization leads to the formation of markets for different services. Specialized firms were able to offer a certain product or service at a lower price and conglomerates were pushed by the arising worldwide competition into choosing the most cost-effective ways possible.
During the first wave of outsourcing decisions, certain rules of thumb were established. One of those was the standard not to outsource anything that is concerned directly with the customer (White, 2001). Another norm most companies applied is the basis on which the decision to outsource is taken. There were two aspects considered here: the strategic importance of the activity and the organization’s relative efficiency in performing the activity relative to competitors. Therefore, only those activities that were considered to be part of the outer ring of the organization were outsourced and only, when they portrayed a clear competitive disadvantage towards the other firms of the industry.
Today, the business environment has changed. The international pressure is as high as ever and only those companies that pursue best practices will have a chance to survive in these competitive times. More and more firms are monitoring activities of the inner ring and sometimes come to the conclusion that outsourcing is the most competitive strategy. Hence, a shift in the degree of strategic importance has occurred.
White, e.g., describes the trend of outsourcing the accounting department. When his article was published in 2001, GM had just struck a deal with Arthur Andersen by contracting out $335 billions worth of transactions (White, 2001).
Another trend is outsourcing as an HRM-strategy. During the last decade, the temporary employment agencies sprang up like mushrooms. Especially blue collar and unskilled workers are increasingly hired via such institutions. While the agency takes care of all the legal requirements, this system also has the advantage that many labor laws apply much later or not at all, when hiring workers this way.
Additionally, customer contact became subject of outsourcing contracts also. While smaller projects, like market research, have already been conducted by outside firms for quite some time, more complex and strategically important matters like customer service or customer acquisition are increasingly contracted out as well.
Forecasts predict that the propensity to outsource will increase. It remains to be seen, whether this trend is going to continue or whether at some point in time companies will start insourcing again.
2.5 Advantages and Limitations
Outsourcing has an extensive list of advantages and limitations. One of the most obvious advantages is the possibility of saving money. Not only can a company save by finding a supplier, which offers a competitive price, but also by freeing resources. Those resources can be the manager’s time, staff, training, cash and other assets, supporting departments’ time (e.g. IT, pay role, HRM). In this context Kirk (2001, p.28) argues: Outsourcing “frees financial and other executives from having to recruit and retain qualified back-office personnel and provide them with sophisticated technology”, and therefore lets “executives gain the freedom and flexibility to concentrate on what they do best”. Other benefits concerning the financial results of a company are the maximization of the return on internal resources (Quinn & Hilmer, 1994), the lower cost of capital due to the decrease in financial and operational risk (White, 2001), lower fixed costs and a lower break-even point (Gilley & Rasheed, 2000).
But considering only the chances of cutting costs would be too shortsighted. Another advantage arises especially when outsourcing the IT department, but it can also emerge with other activities. It concerns the company’s needed technology. Firstly, outsourcing “replaces a sunk-cost model by a rental model, when it comes to the rapid technological change” (Kirk, 2001, p.29), freeing financial resources in the short-run. Secondly it provides the chance to deal with the fast-changing technology standards. As Jonash (1996, p.20) states, “the pace of technology and product development continues to quicken and effective technology transfer becomes an increasingly critical success factor”. Furthermore, “the cost and complexity of new technology development also continues to increase”, they continue (Jonash, 1996, p.20). Summarizing, Gareiss (2002, p.38) argues that a company can “follow the technology curve much better with outsourcing”.
A third type of advantages arises from the centralization of the activity at the BPO provider. Due to arising economies of scale and scope does the BPO provider develop a wider expertise. This concerns the training of personnel, the infrastructure investment and the BPO provider’s innovative power (Quinn et al., 1994), the industry-specific knowledge, the operational skill and the range of services (Gareiss, 2002).
A last group of outsourcing’s merits could be labeled the qualitative advantages. Among those are the higher service levels (Make the right, 2002), strategic flexibility, the knowledge transfer between the company and the BPO provider, the standardization of services and the increase in the speed to market (Gareiss, 2002), the increased accuracy in business conduct and the reduced financial and operational risk (White, 2001) and the higher quality of the information, which results from the greater focus and timeliness (Kirk, 2001). Gilley and Rasheed (2000, p.766) mention additionally that outsourcing “tends to promote competition among outside suppliers, thereby ensuring availability of higher-quality goods and services in the future”. Many of the above mentioned facts are due to the establishment of a market for the respective service. But there are some less obvious benefits as well, which seem nevertheless to be of crucial importance. When purchasing a service or a product, the company will know how much it costs it. When producing it, the price will always depend on the allocation methods used by the accounting department and can never be as clearly stated as a purchasing price (Loudin, 2002). In addition can the competitive position of the company be strengthened since well-developed core competencies provide powerful barriers against present and future competitors (Quinn et al., 1994).
In the case of global outsourcing there exists another interesting advantage, namely the possibility to be 24 hours a day in business, when strategically choosing partners, which are situated in different time zones. When outsourcing parts of the R&D department, the company can reach continuous development and therefore increase the speed of its acceleration curve (Karp, 2001), when it comes to customer service the expensive night shifts at a 24-hour-hotline can be abolished. Any benefit arising here, however, calls for a highly integrated system.
The list of potential limitations is about as long as the list of potential benefits. The most common problems arise, when the BPO provider will not be able to live up to the company’s expectations. Examples for this are a bad cost to value ratio, lacking innovation on the provider’s side or inadequate strategic advice given to the company (Gareiss, 2002). Any of the above mentioned points might lead to the situation, where the disadvantages outweigh the advantages.
A potential danger, which is closely connected to benefiting from the supplier’s innovative power, is the missing protection of proprietary product technology. This is also called the diffusion risk and describes potential loss of knowledge (Sislian & Satir, 2002). This argument is linked with the possibility of losing critical skills or developing the wrong skills (Quinn et al., 1994). A last point to be mentioned in this context is the loss of cross-functional skills, which might happen when a whole department is outsourced and the knowledge and flexibility of the teamwork between this and other parts of the company is lost. These will all be opportunities to learn for the supplier, which will then serve as a monopolistic source for unique information capabilities.
The most obvious threat arises from a possible hold-up. The so-called agency theory explains the motivation for an agent to betray his dependent principal, in case his best interest collides with the best interests of the principal. This danger exists in every relationship, in which compromises have to be made. Since a company needs to give up its operational control over the outsourced activity, the risk of such a hold-up increases. The only real alternative here is a relationship based on trust, which will be examined more closely at a later point in time.
The benefit of flexibility finds its downside in the risk in price, quality and time, as well as in the loss of control over a supplier (Quinn et al., 1994). Everything provided by an outside source can of course not be controlled in the way a vertically integrated supplier could be. In addition comes the necessity to arrange all the mandatory interactions like planning, coordination, and scheduling very tightly.
A further problem is posed by the asset specificity (Quinn et al., 1994 and Logan, 2000). It is very likely that the company outsourcing requires a very distinctive activity. Only a small number of BPO providers might be able to offer exactly this service or product. Asset specificity results from three concepts, namely site specificity, technical specificity, and human capital specificity, and will almost always lead to market imperfections. Once both partners invested into the product, the chance of a potential hold-up increases, because the supplier could charge monopoly prices and the outsourcer could just turn to another supplier, who is willing to do the special investment. Which of these two powers is prevailing depends on the price of the investment and the availability of other suppliers. In order to overcome this problem, both parties should be willing to invest into a trustful relationship.
Many outsourcing companies will furthermore have to deal with what is often called the “Not-invented-here” problem (Jonash, 1996). The employees of the BPO provider might not put the same effort into providing the service or manufacturing the product, as they would, if it was the firm’s own process. This is especially problematic, when the employees are expected to change their established ways of working in order to fulfill a client’s order. The loyalty of the workers towards the employer might backfire here.
When it comes to global outsourcing, the relationship will be subject to cultural, technological and communicational issues (Karp, 2001). Especially the cross-cultural communication may be subject to many unexpected misunderstandings. This will require a lot of time and money to be overcome. Moreover, Gilley and Rasheed (2000) state, that low foreign wages and a strong dollar will lead only to a short-term success. In addition to this, facts like a less-developed infrastructure and unexpected weather patterns in overseas-countries might have a bigger impact on the success of the business partnership than assumed before. With some countries, tariffs will have to be considered as well.
These limitations will present lots of challenges a company deciding to outsource will have to face. Some of those will be described further in the next paragraph.
Resulting from the discussion about the potential benefits and threats of outsourcing, the question arises, what a company can do to alleviate its vulnerability. The headline under which most of the reviewed authors’ opinion could be summarized is something like “establish trust and commitment”. More specific advices are numerous.
Gareiss (2002) recommends the outsourcing company to set the overall strategy accordingly, to dedicate the right amount of management time, and to avoid the pitfall of too optimistic cost-saving estimates up front. Further suggestions include finding accurate service-level agreements with accurate penalties, viewing the BPO providers’ staff as part of the team and committing the right amount of flexibility to the relationship (Gareiss).
Kirk (2001) advices firms considering outsourcing to establish key performance indicators, to determine what will be acceptable as being reasonably timely, and to account for cultural differences. When deciding for a partner, the company should look for knowledge and experience, contact a provider at which the considered business process is a strategic part of the business and view it then as a true partnership. Special attention should also be paid to the human dimension. The people concerned with the outsourcing relationship should be valued highly, since this is were the relationship forms. According to authors will it be very helpful to select a company sponsor (also called internal sponsor or project manager), who will serve as the link between the company and the BPO provider. This will avoid what the authors call micromanagement. White (2001, p.52) follows this argument by asking for the establishment of a pool of internal staff members with oversight responsibilities, which will “strike balance between risk and benefit”.
In order to limit the risk of a hold-up, control measures will have to be established. The academic literature provides different suggestions. Quinn et al. (1994, p.48) recommend to “implementing a desired balance between independence and incentives for the supplier versus control and security for the buyer”. Loudin (2002, p.32) considers it necessary to “perform a good internal assessment”, while an anonymous source considers having “renegotiable contracts (…) [to] be good to have as well” (Making the right, 2002, p.1). Summarizing, it is obviously important to install some kind of control system, while making sure that the flexibility and the mutual trust will not be compromised.
Since the relationship between the BPO provider and the client is crucial to the success of the alliance and has to be most certainly based on trust, the next subchapter will have a close look on trust and its evident and potential influences on this relationship.
Although trusting is probably the first action humans do, it is a very complex and sensible matter. Numan (1998, p.35) defines trust as “a mental action. This action is an expectation which person A has of an actor B – that this actor B will act positively towards the goal which the trusting person A has. In this, the actor B, who has to be trusted, has the freedom to harm the trusting person A. The expectation is based on incomplete evidence.“ Hosmer (1995) quotes Barber (1983) by stating that trust is the optimistic expectation about a person’s behavior concerning an uncertain situation. According to Zucker (1968), the trust presents an expectation that the people trusting each other share. Rousseau, Sitkin, Burt and Camerer (1998) regard an acknowledged vulnerability as the basis for trust.
Based on these definitions, certain conditions of trust can be listed. Among them are the lack of complete information (Perks & Halliday, 2003), familiarity, the history of a reliable background, direction towards the future, relation to a certain referent, and the faith in underlying motives and intentions (Numan, 1998). When any of these conditions will not be met, a person will decide, not to trust. Complete information makes trusting redundant, while the lack of the other conditions might let the risk of failure seem to be high.
In order to get a better grip of what is meant by trust, two related concepts may be of help, namely the ones of faith and confidence. According to Numan (1998), faith resembles trust, but is based on a complete lack of evidence. Confidence, on the other hand, differentiates itself from trust by resting upon “definite evidence or logical operations on definite evidence” (Numan, 1998, p.36). When looking at trust against the background of these two concepts, Numan (1998) concludes that trust lies in the middle of the continuum of faith and confidence, being based on partial evidence.
So far, all the definitions and descriptions where based on interpersonal relationships. When applying the theory of trust to an organization, many of the above-mentioned aspects prove to be valid, because even on an inter-organizational level, people take the decisions. Although trust patterns are usually already established, when a new employee comes in, trust between the interacting people on both sides is still to grow yet. Trust fulfills certain functions, which play a crucial role in the complex and unpredictable business world. It decreases social complexity and increases strategic flexibility, adaptability, and predictability (Kirsimarja, Sanna & Martti, n.d.). Therefore, the business environment, which is too complex to be grasped by human nature, gets simplified and employees become able to take founded decisions.
2.7.2 Related Concepts
To understand the nature and functions of trust a little better, a number of related concepts will be of assistance. As mentioned before, trust decreases complexity. Complexity, in turn, is determined by the dynamics of a certain situation, the number of interacting elements, the degree of uncertainty and the dimension of risk (Numan, 1998). Decreasing complexity does therefore mean decreasing any of the four before-mentioned factors. But the company’s environment is not only shaped by its complexity, but also by its complication, which is composed of unpredictability, non-transparency, and little functionality (Numan, 1998). Other concepts related to trust are uncertainty, risk, beliefs and control. Uncertainty arises from incomplete information, like unreliable knowledge, lacking knowledge or vague information (Numan, 1998). The perceived risk consists of the probability of a negative situation and the seriousness of the negative situation (Numan, 1998). The lower these factors the lower will be the perceived risk. Das and Teng (1998) acknowledge risk to be a precondition for trust in their literature review. Rousseau et al. (1998, p. 395) describe this reciprocal relationship between trust and risk in saying that “risk creates an opportunity for trust, which leads to risk taking.” Beliefs are the basis of trust, since they comprise knowledge, experience and evidence (Numan, 1998). The better the former experiences and the greater the extent of knowledge and evidence, the higher will be trust. The last concept,control, is of a somewhat different nature. Das et al. (1998) define control as making the situation at hand more predictable by creating standards. Trust and control itself do not present such a mutual exclusive continuum like trust and risk, since even a trusting business relationship goes along with certain control measures. A clear relationship, however, exists between the level of trust and the perceived necessity for control: the lower trust, the more urgent the need for control.
When viewing the above-mentioned related concepts in relation to each other and to trust, the following mechanisms become vivid, as can be seen in figure 2.1. Complication and complexity are positively related to uncertainty and risk and negatively related to control. Trust, however, stands in the middle of these relations and has the capability to balance them. Saying, when trust is high, the perceived complication and complexity decrease and so do uncertainty, risk and the need for control (Numan, 1998). Since beliefs display the basis of trust, beliefs are also negatively related to complexity, complication, uncertainty, risk, and the need of control.
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Figure 2.1: Trust and its related concepts; Source: Numan (1998), adapted.
Dove (2000) describes that trust develops in three stages. During the first stage, trust is calculus-based, as risk and reward is calculated. Trust serves as an economic foundation. At stage two – the familiarity foundation – the behavior of the other party becomes predictable and trust is now knowledge-based. The stage with the highest trust level is the third, namely the empathy foundation. It is based on shared values and respect and leads to identification with the partner.
2.7.3 Trust and Outsourcing
Trust lies at the basis of every relationship, be it personal or business. As the business environment is usually very complex and information is almost never complete, a climate of trust has to be established in order to conduct any successful business operation, especially when it comes to outsourcing. Gareiss (2002) states that 85% of the outsourcing customers regard it as highly important. As per Kirsimarja, Sanna, and Martti (n.d.), communication, cooperation and performance have a reciprocal relationship with trust. Therefore, in order to establish trust members of the companies at hand have to interact on various levels. Shared flexible decision-making, goal-setting by a joint alliance board, open book accounting, and outcome-based rewards towards dynamic goals are – according to Hoecht (2002) – part of the strategy to establish trust.
One trap seems to be so important that it needs to be mentioned here. Trust can easily be undermined, if the expectations of the partners do not comply with the reality. It is therefore of crucial importance that the factors forming the expectations are based on reality. Before committing to an outsourcing relationship, cost-saving estimates need to be accurate and the estimate of the needed management time needs to be realistic (Gareiss, 2002). Otherwise expectations will be misleading and the companies will end up mistrusting each other, because set goals were not reached.
Since knowledge sharing is fundamental to a trusting business relationship, the greatest threat to it is presented by the potential loss of information, especially information that founds core competences. Throughout the academic literature, striking a balance between these threats and opportunities of trust is mentioned as the most important task, when forming an outsourcing relationship (Quinn & Hilmer, 1994 and Sislian & Satir, 2000). At the core of the threat stands what is called the agency theory. It states that “the principal delegates the responsibility to (…) the agent to act on the principal’s behalf” (Besanko, Dranove, Shanley, 2000, p.509). The problems that can occur in this context are due to moral hazard, imperfect observability, and risk aversion (Besanko et al., 2000). As long as the goals of the agent (the BPO provider) do not comply with the goals of the principal (the outsourcer), the chances for a hold-up increase. A trusting relationship between the principal and the agent will decrease the likelihood of a potential hold-up. Other measures countervailing a hold-up are contracts and monitoring. The problem with contracts is that they have to strike a balance between detail in order to cover all eventualities and the flexibility needed in an ever-changing business environment. Control mechanisms have to include devices to detect opportunism. These measures will be mentioned in more detail at a later point in time.
Kirsimarja et al. (n.d., p.1) find other authors attributing a list of further impacts of trust. “Trust is also believed to decrease social complexity (Arrow, 1974, Luhman, 1979), increase strategic flexibility (Young-Ybarra and Wiersema, 1998) as well as lead to greater adaptability (Lorenz, 1988) and predictability (Sako, 1994).” Later in their article they quote Ganesan (1994) on the effect of trust on a firm’s long-term orientation, Aulakh et al. (1996) on the interdependence of trust and market performance, Chow and Holden (1997) on the relation between trust and loyalty, and Doney and Cannon (1997) on the impact of trust on relationship commitment, cooperation, functional conflict, uncertainty, propensity to leave, and acquiescence (Kirsimarja et al., n.d). Summarizing, trust has a huge effect on business relationships be it the one with the customers or the one with a business partner.
2.7.4 Relationship with the Client
The need for trust will significantly be influenced by the perceived uncertainty and therefore by the perceived risk of the business relationship. The uncertainty will be influenced by the complexity and the dynamics of the environment, which will be discussed in more detail in chapter 4.2.3. The perceived risk arises from different sources. Firstly, the above-mentioned uncertainty of the environment plays a certain role. Secondly, the propensity to default on business conduct as stated by the agency theory increases the perceived risk for the client. Thirdly, the perceived risk on the BPO provider’s side will be stronger, the higher the needed up-front investment for the business relationship with a particular client. At large, the higher the perceived risk, the larger the need for trust.
Creating a trusting environment includes setting the corporate culture accordingly. To integrate the belief of trust being important into the corporate culture and therefore into all levels of the organization, Madel (2004) suggests a series of actions. In order to make sure that trust is recognized as a strategic asset by all the levels of the company’s hierarchy, management should include the employees in the implementation of the strategy, convincing them of the validity of the strategy rather than enforcing it without allowing it to be questioned. A second advice points at the job rotation. If the front line knows the problems the back office faces, less hard-to-keep promises will be made towards the customer, who in turn will not be disappointed. Applied to the relationship of a BPO provider and his client, the management of the BPO provider should know the capability of its workforce and the difficulties, agents are likely to face in the specific industry. Thirdly, management should serve as role model. If trust, authenticity, honesty and credibility are demanded from the agent, the members of the management should incorporate these values in their leadership styles. Integrating these values in the customer contact will lead to a true customer relationship management, where the customer will not feel catechized or cajoled.
Another measure to establish trust is the way the contract is written. As usual, the contract should walk the fine line between covering all eventualities and providing enough freedom to react to the unforeseen. When outsourcing customer contact, Gareiss (2002) considers service levels and penalties to present the crux of the matter. Service levels need to be strict in order to secure the service acquired since they represent the most reliable statistical measure. On the other hand they need to be flexible enough to be adapted as the company’s requirements change. The same applies to penalties. They need to be strict enough to keep the BPO provider’s attention. Penalties, which are formulated too strict, will in contrast undermine trust and increase the price of the service, since the BPO provider has to account for eventual charges. Almost analogue is the argument for control. The more control, the less trust and higher the costs. Too little control opens the way for fraud and misuse.
How strong the perceived uncertainty and the perceived risk are in outsourcing customer contact and what consequences this will have on trust and on the design of the business relationship will be analyzed in more depth in Chapter 4.5.2.
This chapter gave an overview about outsourcing as a business practice. It was defined by Gilley and Rasheed (2000) as substituting internal activities by external acquisitions and by restraining from the economically feasible in-house production. Contracting out arose, because the business risk needed to be spread among more shoulders (Quinn & Hilmers, 1994) and because the globalization forced the companies to conduct best practice in order to survive in the more competitive global market (Feenstra & Hanson, 1996). Nowadays, companies tend to outsource not only the peripheral services, but also core services, like accounting, customer service, or manufacturing. Forecasts say that the importance of outsourcing will continue to grow.
When deciding to outsource, several advantages and disadvantages should be viewed closely. The most prominent advantages are saving money by freeing resources, being able to follow the technology curve more timely (Gareiss, 2002), benefiting from economies of scale (Quinn & Hilmers, 1994), and being strategically more flexible (Gareiss, 2002). The prevailing disadvantages are the diffusion risk (the threat of losing proprietary product technology) (Sislian & Satir, 2002), the loss of skills (Quinn & Hilmers, 1994), a potential hold-up as the agency theory predicts, and higher prices due to market imperfections through asset specificity (Quinn & Hilmers, 1994, and Logan, 2000).
The challenges, a company deciding to outsource will have to face, are as follows. It should set the overall strategy accordingly in order to have realistic expectations (Gareiss, 2002). Kirk (2001) suggests establishing key performance indicators to be on the same level with the BPO provider. Special attention should in general be paid to the personnel. The control measures should be set in a way that they balance the need for control with mutual trust and flexibility.
Trust is based on shared expectations (Zucker, 1968). Closely related are complexity, uncertainty, risk, control, and beliefs. Since the business environment is very complex and information is almost always incomplete, the need for trust is quite large. In the relationship between the client and the BPO provider, certain measures can be taken to increase trust: setting the strategy accordingly, having the people rotate on the jobs, having the management serve as a role model, and setting the contract in a way that it is strict enough to cover all eventualities, but free enough to encourage flexibility.
Summarizing, outsourcing is a widespread business practice with its own dynamics, which, if used wisely, can support companies in their striving for organizational excellence in a very effective manner.
3 Call Center
The size of the call center industry is greatest in the country, where service plays a crucial role in everyday business. Currently, an estimated number of 70,000 call centers exist in the United States. About seven million Americans earn their living in the call center business. The amount of agents required is larger than in other industries, since 60% of all call centers provide 24-hour service. But also in Europe the industry starts to play an important role in the economic life. Currently, approximately 100,000 people are employed by service centers, the majority in Ireland and Great Britain (TigerTel/UTR Research Group, n.d./2004). Datamonitor (2002) predicts a compound annual growth rate (CAGR) for the call center industry in EMEA of 7.1% between 2001 and 2007. By 2007, they continue, 1.6% of all working positions in the EMEA countries will be found in the call center industry. In another study, Datamonitor (2003a) reveals that call centers accounted for six billion minutes on the phone per month in Europe, Middle East and Africa (EMEA) in 2003 and estimate this number to grow to nine billion by 2007.
The significance of call centers becomes even clearer when looking at the affects of the use of a profound customer service knowledge basis. It may result in significant cost reductions, happier customers, consistent answers across all channels, super-scalable capacity, greater staff-productivity and therefore also in increased revenue (TigerTel/UTR Research Group, n.d./2004). Consequently, having a thorough contact to the client cannot be underestimated.
This chapter will give an overview about the call center industry and its special aspects. Starting, the call center and related concept will be defined. In the following two sections, the history and evolution and the upcoming trends will be described. Subsequently, two special characteristics will be outlined, namely the personnel and the relationship to the client, before the chapter will end with a conclusion.
As a study of the Purdue University found out, 92% of US customers base their opinion of a company on their direct contact with its call center (TigerTel/UTR Research Group, n.d./2004). The importance of the call center in the company’s relation to the customer is therefore clearly visible. Parallel to the term call center exist a range of terms, which are used interchangeably, like contact center, customer service center or customer assistance center. A very simple definition describes a call center as a central service organization, which maintains a hotline for customer requests. However, increasingly, it is not only used for answering calls, but it is also accessible via e-mail or chat (Galileo Business, n.d./2004). Further, depending on its task, the call centers may take a more pro-active approach for customer contact by calling instead of receiving calls. For that reason, when defining a call center, the distinction between an inbound and an outbound contact center it is very crucial. The task of an inbound call center is to handle incoming questions and requests of customers. Normally, computer automation is used to be able to handle a large volume of incoming calls at the same time. Calls are monitored and put through to the particular well-trained customer service representative (CSR) (Commerce Database, n.d./2004). Among the fields are 24-hour-hotlines, customer service, complaint management, support services, order acceptation and the handling of claims (Die Deutsche Bibliothek, n.d./2004). Outbound call centers proceed more actively since the agents call the customers. They often do so on behalf of their clients. Prominent examples are telemarketing, making appointments, opinion and market research, the verification of customer addresses, customer acquisition (pre-sales) and the generation and supervision of subscriptions (Die Deutsche Bibliothek, n.d./2004). Datamonitor (2003a) estimates the percentage of outbound contact centers to be 20% by 2007, while inbound call centers will account for the other 80%.
For this study, the following definition will be applied: a call or contact center is a service organization, which leverages data handling processes in order to manage customer relationships. The center can serve inbound as well as outbound functions and combine all available means of communication to create an integrated workflow.
One further definition will be included here. Since call centers as BPO providers have two types of customers, namely organization in whose interest they conduct their business and the people, who the call center interacts with, the nomination will be as follows. The outsourcing organization will be called the client, while the people calling or being called are named the customers.
3.3 History and Evolution
The necessity to communicate with customers is as old as conducting business itself. Perreault and McCarthy (1996) describe the historic evolution of customer confidence as follows: During the simple trade era, which took place in the 19th century, the trading partners could communicate directly at the market place. With the dawning of the industrial age – called the production era, lasting till the 1920s – the number of middlemen started to increase. But since the demand was still higher than supply, consumers did not lodge many claims. This started changing during the sales era (till the 1950s), when carnival barkers and mountebanks sold the goods through gaining attention. The gap between supply and demand was closing slowly. Around the 1960s, commercials were increasingly used to sell the products and customers started to gain self-confidence. In this marketing department era, they started comparing products and using their purchasing power. It was then, when the need for the accessibility of companies arose. Since the end of the last century, during what is called the marketing company era, consumers are well aware of their rights and confident enough to fight for their claims. In these times it is more important than ever to provide customers with the service they expect (Perreault & McCarthy, 1996). The possibility to contact an organization, be it for information or for claims, is seen by today’s customer as a basic right. A second reason for the establishment of call centers and customer service departments in these times is the information a company can gain from the contact with a customer. A well-managed call center will therefore combine customer service with data collection.
Along the way of the history of call centers, several dates seem worth mentioning. In 1968, a federal court in the US sentenced Ford Motor Company to establish a toll-free phone line to the recall of a flawed car. The development of the first Automated Call Distributor (ACD) by Rockwell International in 1972 paved the way for the foundation of the General Electrics Answer Center in 1981. In 1984 and 1985, AT&T undertook the first large outbound telemarketing campaign, during which 16 million households were contacted (TigerTel/UTR Research Group, n.d./2004). During the first years, the contact established was only business to consumer (B2C). Later, many suppliers of raw materials started using call centers for establishing a business to business (B2B) connection.
Today call centers are used in more and more sectors, like government, utilities and retail, are accessible via more and more mediums, like phone, mail, fax, e-mail and the web and provide more and more services, like sales, customer support and technical help. As stated in a research paper conducted by the TigerTel/UTR Research Group (n.d./2004, p.3) “call centers (moved) from being a back office overhead item into a strategic entity by which businesses manage customer relationships, drive revenues and increase profits.”
The character of call centers evolved with time from a basic inbound call center, which answered a large number of phone calls aided by ACDs, via the virtual call center, which provided the same service split up at various geographical locations, to the data-driven call center. This type of call center started collecting client information and using interactive voice response (IVR) technology for answering frequently asked questions. From there on, the integrated CRM (customer relationship management) contact center developed, where customer information was not merely recorded, but used in order to meet clients demand more completely. The state of the art is represented by the unified enterprise contact center, which “will reduce development time, cut costs, and promote efficiency by providing a single management interface and a single rules engine to control all parts of the contact center system.” (Aspect, 2003/2004, p. 26). An end-to-end workflow, which integrates all steps taken by the center, is of crucial importance. (Aspect, 2003/2004)
A second view on the evolution of call centers comes from Datamonitor (1999). During the 1980s,switchboards were mainly busy with placing calls. In the 1990s,call centers started communicating with the customer and nowadays,communication centers are standard, providing their service through all available channels of communication. The trend for the following decade goes to the virtual customer interaction center, where multi-media based customer communication integrating all necessary databases will be aimed at.
Today, most customer service centers are in-house operations (TigerTel/UTR Research Group, n.d./2004). Depending on the size of the company, their size can range from a single clerk with a telephone to a hugh entity situated in several time zones, comprising a couple of hundred employees including support and technocratic staff.