A new acronym for the call center: Total Cost of Outsourcing (TCO)

Outsourcing has become the topic for call center and CRM professionals. Call center functions have been outsourced, including out of the country -- for many years and for many reasons. The need to handle calls at lower cost, to address a staffing challenge or peak volume issues, or to provide a specialized function such as outbound calling have triggered companies to find outsourcing partners. Companies have also defined their strategy, identified their core competencies and decided to focus their energies on other things, while letting "experts" at customer contact represent them over the phone, via e-mail, and on text chat. These outsourcing strategies have been good decisions for many companies.

In spite of a long track record of successes, outsourcing has become a dirty word -- or at least a highly politically charged one -- of late. Recently, as our calls are answered by people with less familiar accents than Midwestern or Canadian ones, we seem to have gotten upset about these decisions by business leaders of how best to meet the demands of their various stakeholders -- customers, employees, boards of directors and shareholders. And undoubtedly, the political visibility and media attention, both for and against outsourcing, have fueled the debate.

I am neither a proponent nor a detractor of outsourcing. I am a fan of good business decisions. So as I've pondered the outcry over offshore outsourcing (and engaged in some interesting discussions with colleagues, friends and family), I have considered what has driven these business decisions, and what drives the change when such services are yanked back to the United States.

It appears that for most companies, the drive to outsource has been the lure of tremendous savings -- labor costs are quoted at a small fraction of the costs in the U.S. At least for some, the trigger to bring it back is the risk of losing high value customers who are upset about where their calls are going. For others, the realization that the savings aren't quite as high as they thought, combined with the political and customer defection risks, has caused them to reconsider.

So this brings me to an acronym I think we should apply to outsourcing considerations: TCO. TCO is typically defined as the "total cost of ownership" and applied to technology. TCO as "total cost of outsourcing" is a similar look at a different entity.

Total cost of ownership for technology generally includes not just the obvious costs of hardware and software, but also the cost to implement, manage and maintain the system. It includes both internal costs and external costs. So one-time costs, including professional services and implementation fees, training, change management and lost productivity, are considered. The impact on peripheral or related systems (or "ripple effects") might be considered as well (for example, requiring an upgrade at the desktop to implement a new CRM system). Costs for ongoing maintenance, internal resources, consultants, contractors and upgrades over the lifetime of a technology are considered as well. TCO can be valuable in comparing various options that may appear highly similar or highly different. Often the costs played out over a lifetime of managing and maintaining show a more clear and appropriate distinction.

We should apply the same sort of analysis to total cost of outsourcing. The cost of outsourcing to India, the Philippines or China isn't just the labor costs or service fees paid to the outsourcer at a fraction of the costs in the U.S. It also includes costs to implement, manage and maintain the relationship with the provider and the quality of service that customers expect. That cost can include relationship managers, procurement (contracts and legal) and training staff. It can require time, resources and money up front to define, streamline and document processes. Call center staff have to be trained on products and services, as well as on operations and culture.

Additional technology to provide scripting or a knowledge base, or monitor and manage performance may also be part of the cost. Across the lifetime of the relationship, as changes are made to the business, these costs continue and can be very high in a dynamic environment with many new products and services. TCO analysis should also include the travel costs for managers to visit the outsourcing partner routinely.

TCO analysis for outsourcing may even include some sensitivity analysis to "what ifs," such as "What if we lose 5% of our customers because they choose to do business with a company that serves them out of the U.S. or Canada?" A CFO and CEO may be willing to take such a risk if the payback is clear. But the decision must be made with a true accounting of the costs.

A thorough and complete TCO analysis is important to making the right decisions about outsourcing, just as it is with technology investments. Such an analysis is also valuable in recognizing the factors that will play a part not only in the financial success of the decision, but the operational one as well.

Lori Bocklund is president of Strategic Contact Inc. in Beaverton, Ore. She has more than 16 years of experience in the call center industry, eleven of them as a consultant. Her book Call Center Technology Demystified (Call Center Press) is popular among call center managers and technology professionals.