Are BPO's becoming Digital Competence Centers?

In the business process outsourcing (BPO) sector, growth, market share, and profitability are often the catalysts for organizational change. Executives face the challenge of navigating change in a landscape where capital expenditures are limited, and success is quantified by growth metrics and EBITDA. The real concern arises when change doesn't translate into growth, or even more concerning, when it results in a decline in revenue and/or profitability. These scenarios pose a critical question for BPO leaders, one that carries significant financial implications.

In the constantly evolving business landscape, comprehending the future business model of BPO's is vital. This discussion aims to shed some light on the prospective trajectory of BPO and provide industry insights. Additionally, it offers guidance for brands that outsource or consider outsourcing. Although the impact of AI on the BPO sector was a subject I delved into previously within one of my articles, over the past two years, AI has progressed from being an innovative concept to becoming increasingly an industry standard soon.

The novelty lies in the hype surrounding AI and the resultant push for transformation in BPO, propelled by client demands and the competitive industry landscape. It's not solely AI reshaping the industry, but rather the expectations regarding AI's capabilities within CX, such as cost reduction through automation, learning curve optimization, hyper-personalization, cross and upsell enhancement, efficiency improvements, contact deflection, and issue resolution to name a few. The pressing question is: what is the optimal route for BPOs to maintain their business, ensuring growth and/or profitability, and for brands employing BPOs to maximize value for their enterprise and their customers through technology?

Having begun my career as a customer service agent in the early 2000s, like many BPO and CX professionals, I have observed significant changes in the CX industry over the past ~20 years. The current rate of change presents a unique challenge, unprecedented in its velocity. Presented here are the current levels of AI technology adoption within global contact centers, as indicated by COPC research involving over a thousand global CX executives:

Data confirms what we observe, AI and digital still puts high pressure for actions on executives and their operational teams. More than half of the surveyed executives stating that their organizations are focused on implementing new technologies over the next 24 months. However, per surveyed executives, phone is still the most popular channel among customers for resolving their customer care issues. Also, 64% of executives have stated that their organizations have witnessed an increase in popularity for Self Service Technologies (SSTs).

While digital isn't really anything new in CX and BPO's space, with solutions such as RPA existing already for more than a decade, many BPO's still struggle to overcome their hesitation to truly enter the digital arena. And that has a lot of reasons, of which two I consider most relevant:

1. Since the invention of outsourcing, there has always been opposite interests when it comes to cost optimization. Simplifying, the costs of brands for their outsourcing engagements are the BPO's revenues. Since BPO's are measuring success based on their revenues, by reducing costs for their clients/brands they would reduce their revenues too. Logically, why would a BPO want to put a lot of effort into reducing their own revenues and profitability risking revenue loss and erosion?
2. Historically, BPO's have never really been technology companies. Their main expertise and core business model was always people driven. Specifically, to recruit and manage the right talent, with the right skills, at the right time and location, at the right cost for their clients. While capable in optimizing process and operational performance, technology is posing a major challenge towards BPOs not only from a revenue and CAPEX perspective, but from a skill and governance perspective too.

Putting these two together, means a major transformational challenge for BPO's. Long term, either BPO's adopt change and transform and sustain relevant with their business providing competitive solutions for brands, or technology companies will potentially make BPO's redundant while growing and replacing BPO's market share. Therefore, the cross-cutting topic remains, how do BPO's ensure to maintain or grow their market share while reinventing their traditional people centric BPO business model? And from a brands perspective, how do they leverage their partnerships with a BPO regarding technology: develop technology in-house, buy it directly from a technology provider, or use the BPO's technology capabilities available?

The answer to the above question will mainly depend on the priorities of the brands who outsource, I think there are three potential directions how a BPO may approach their transformation to meet their differentiated clients expectations. What I have skipped but was discussed in more detail in another of my articles, is the technology in-house development vs buy decision and associated benefits and risks. Worth to notice, this may impact future BPO's pricing significantly and their profitability.

The three trajectories outlined are not necessarily distinct paths but rather represent three phases of BPO digitalization, offering a perspective on the technological capabilities of BPOs. However, there are countless variations between these phases, creating a "grey zone" of possibilities. Given that not all BPOs possess the necessary capital or internal technological expertise to invest in such advancements, the pertinent question is at which phase a BPO will choose to halt their business transformation. Here are my thoughts regarding the 3 trajectories BPO's may transform into:

1. Sustain a people-focused BPO renowned for recruiting complex agent/employee profiles, such as level 3 tech support or outbound sales, along with superior process capabilities that enhance data management, control, and optimization. Employ chosen AI-based technologies for onboarding, training, and coaching, in addition to advanced quality monitoring using techniques like sentiment analysis. This strategy commits to a "human-centric BPO," emphasizing service to brands and business sectors that are intricate or less amenable to automation.
2. Transform into a "hybrid BPO provider" that balances a people-centric approach with a technology focus. This entails exceptional people and process management and optimization, combined with advanced automation capabilities. "Hybrid BPOs" possess a suite of technology/AI solutions ready to be implemented according to client business requirements. The aim is to evolve into a BPO provider that can support brands with both high-touch human-centric services (like third-level tech support, outbound sales, etc.) and substantial automation capabilities for activities that are less demanding, thereby driving automation and reducing costs targeting organisations who want to work as a long term partner and are concerned with the investment of creating their own AI based solutions.
3. Transform into a "tech-savvy BPO" provider boasting top-tier in-house and external tech development capabilities. BPO providers on this path undergo the most significant shift from their traditional human-centric business model. In essence, they pivot to a more tech-centric approach, cultivating exceptional technology capabilities through both internal and external tech solutions that rival those of dedicated technology providers. This shift necessitates advanced process capabilities in data management, control, and optimization to remain competitive against traditional "human-centric" BPO providers. Additionally, it involves integrating a specialized technology layer within the BPO framework, offering brands the dual advantages of cutting-edge technology and human and process excellence from a single, comprehensive source. This will require the greatest level of trust and partnership as the client will now be entirely reliant on the BPO.

While all of the 3 trajectories use technology and AI, each trajectory presents distinct value propositions and unique selling points. As a brand seeking a reliable outsourcing partnership, its therefore critical to understand which BPO to choose, or potentially to transfer to another BPO, that better fit the brands priorities. For brands who own or have high-end technology in-house, a "human centric BPO" might be better suited. For brands who have no technology available and no plan to purchase or develop in-house, a "hybrid" or "tech-savvy" BPO might be preferred. For brands who seek customized technology solutions combined with service delivery, a "tech-savvy" BPO would be likely the preferred choice.

However, the selection of a BPO may be very difficult to make, since almost all BPO's are currently advertising their services as a "hybrid" BPO, which unfortunately very often is more marketing than reality and makes it hard for brands to differentiate. Additionally, as I have mentioned in another article, choosing BPO technology is also associated with signifcant risks for brands, in terms of pricing as well as contractually.

While some BPO’s may chose to remain human centric focusing on complex services and high demanding skills with limited automation potential, other may truly become "Digital Competence Centers" designed to serve their brands with both, automation, and human centric service:

At the end of the day, the market will verify which of the 3 trajectories will drive market share and/or profitability the most, through focusing on the brands core requirements. Some BPO’s may prioritize market-share over profitability, others profitability over market share. Whichever trajectory a BPO will choose, it’s important to find the right balance. If you ask me, there is no right or wrong with the 3 trajectories, the "wrong" as a BPO is to not have any direction at all to differentiate itself in its value proposition for brands and their customers. It's worth to notice, all the 3 directions have one thing in common, which is the requirement for data, control and process capable to truly integrate human and technology into a single solution creating a powerful symbiosis of people, process and technology.

With that said, across all trajectories, the real challenge today isn't technology or AI alone, but lies in assembling a team comprising people from various cultures, backgrounds, expertise levels, and geographical locations, and coupling them with processes and technology that only a few truly understand, such as AI. Therefore, the true enabler of AI is not just the technology itself but having the ability to operationalise it through structured processes. Making a seamless/ effective environment which benefits customers, employees and importantly the BPO's and their brands business goals.

Such a framework, akin to an operating system, have the capacity to seamlessly integrate human and technological potential into solutions that benefit all parties, employees, and customers as well as the BPO provider and their clients and customers. From a pragmatic standpoint, implementing processes capable of measuring and managing people and digital performance as a unified entity is far more critical than adopting isolated technologies. Technology and AI in isolation are ineffective, just as people working in silos without technological support fall short.

The symbiosis of people, technology, and processes can provide new, seemingly complex measurement and ways of management which fosters data-driven decision-making. This will result in tangible, real benefits such as cost reduction and improved profitability. This is also reflected within the COPC framework, connecting strategy (driver), processes and people (enabler), and performance (results), including technology with collaboration across all areas being the cornerstone of success:

CX Operations consist of various departments such as OPS, HR, L&D, IT, WFM, QM, and many more. Similar as with your phone or computer consisting of so many parts. You may have the most brilliant and expensive hardware in it, most expensive processor, super-fast and large hard drive, ultra-fast memory and cache. In a nutshell, every piece of your hardware or technology is the best of the best. However, the true potential of hardware components is only unleashed when an operating system effectively binds them together, facilitating efficient communication and coordination of their functions.

Without such a system, the individual pieces remain underutilized, failing to deliver their full value. An operating system is the linchpin that transforms a collection of parts into a cohesive and functional unit.

Effective customer experience requires teamwork to assemble a complex puzzle, where each department's well-trained members and technology such as AI are essential pieces. Collaborating across all departments ensures that the final picture of exceptional service seamlessly comes together, transcending departmental boundaries to drive the customer experience forward:

So, while hardware and technology such as AI holds significance in CX operations, the framework/operating system holds just as much importance, independently from the BPO being a human centric, hybrid or tech-savvy BPO. With a robust "operating system" in place, brands and BPO's can upgrade and modernize components of their customer experience while maintaining full functionality in their operation and partnership.

As technology solutions become more sophisticated, traditional KPIs and business performance strategies must also advance. New KPIs such as autonomous handle rate and recognition accuracy are essential for assessing and overseeing the performance of digital solutions. The "operating system" serves as a critical interface, enabling brands and BPOs to integrate AI and technology into their people operations smoothly. This integration is achieved by utilizing proven methodologies for the measurement and management of digital channels. This approach is more efficient than restructuring operations with each technology upgrade.

In conclusion, BPO and outsourcing partnerships are certainly experiencing a fascinating and challenging transformation. While I am convinced of its vast potential for both brands and BPOs, I remain hopeful that customer experiences will not be compromised along the way. How do you envision the evolution of BPO and outsourcing partnerships? Are BPOs transitioning into "Digital Competence Centers"?