Market Assessment Call Center Outsourcing

Market Assessment: Call Center Outsourcing Industry in the U.S.
David Coleman Alexander Edlich Fernando Fanton Somesh Khanna Tolga Oguz Sanjeev Somani Achi Yaffe
776002 April 2010
CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Document overview
This document provides a strategic perspective on the US Call Center

Objective outsourcing industry, from a BPO service providers point of view Emphasis has been laid on pain points and value proposition in 3 verticals: Telecom/Media, Banks, and Utilities
Working Draft - Last Modified 7/27/2011 12:23:35 PM Printed
What is included?
The document contains: Market overview Competitive landscape Vertical-specific pain points and value proposition Capability self-assessment score cards Detailed Appendix on key companies in verticals, recent BPO deals,
and key BPO vendor profiles
How could it be used?
Can be shared with ED approval Intended for teams working with either existing BPO&O service
providers, or large insourcers looking to become providers, on topics such as market entry, growth strategy, and offering development
What is not included?
Bottoms-up model for developing 5-year revenue and operating profit

projections; please contact the authors if interested
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Section overview
Key insights 1 Market overview
US Call Center outsourcing market in Media/Telecom, Financial Services,

and Utilities verticals is large (~$14B in 2009), and growing at ~10% CAGR Media/ Telecom and Financial services account for ~40% of spend Low levels of outsourcing in Utilities (~5% spend) due to unionized work force, regulation (e.g., cost-plus pricing creates disincentives for cost cutting in most regulated markets), and obligation to serve local community
2 Competitive landscape
Majority (~70-75%) of contact center work is still in-house: Large insourcers (>10,000 seats) have scale advantage; cost arbitrage not
sufficient to offset outsourcing risk Call segmentation used to manage outsourcing/ offshoring risk; multiple vendors employed Current market dominated by lower margin standard deals, majority of which are under $50MM Premium programs (e.g., cross-selling) largely onshore and in-house Offshore represents ~15% of total market, but growing faster than onshore
3 Value proposition
Future outsourcing waves likely driven by strategic goals: Given sluggish growth in new subscribers, Media/ Telecom clients want to
increase revenue per existing customer by converting service calls to sales Given recent M&A, Financial services clients want to drive greater synergies across product lines (e.g., increase product penetration per customer) As smart meter adoption picks up, Utilities will become an attractive mid-term opportunity due to need for flexible capacity to handle call volume spikes
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US contact center BPO market is large and growing; opportunity exists for onshore service provider
US contact center BPO revenues, by activity $ Billions +10% p.a. 33 5 13 15 2009
Helpdesk/support Customer service Sales and Marketing
Size 37 5
15 16 2010
40 6 14 20 2011
45 7 17
49 7
18
21 2012
23
US contact center BPO market is large (~60% of WW contact center BPO spend), and projected to grow at 10% CAGR Majority contact center resources are still inhouse and onshore, suggesting growth opportunity exists for onshore service provider with competitive cost structure and differentiated value proposition
13
Outsourcing and offshoring Percent of contact center FTEs 25-30 10-15
Outsourced
Offshored
SOURCE: IDC; interviews; team analysis
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Telco/ MSOs are amongst largest outsourcers of contact centers; most resources are in-house and onshore due to quality considerations
US contact center BPO spend $ Billions
ESTIMATES
Size
6.1 0.9 2.5 2.8 2009 Key companies 6.7 1.0 2.8 3.0 2010
+11% p.a. 7.4 1.1 2.6 3.7 2011 8.3 1.2 3.2 3.9 2012
Telco/ MSO is amongst the top verticals in terms of spend, representing ~17% of contact center outsourcing market Contact centers considered strategic touch point with customer, potentially explaining high level of in-house and onshore resources
Companies outsourcing contact center work Percent

40 50
Outsourcing and offshoring distribution Percent of contact center FTEs 25-30 10-15
2009
2011
Outsourced
Offshored
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Financial services firms outsource contact center work significantly; penetration expected to double by 2011
ESTIMATES
Size
5.7 2.3 2.6 0.8 2.6 2.8 6.3
+11% p.a. 6.9 0.9 1.0 2.4 3.4 7.8 1.2 3.0 3.6
2009
Key companies
2010
2011
2012
Financial services is amongst the top verticals in terms of contact center BPO spend, representing ~16% of contact center outsourcing market Continued focus on cost reduction explains above average level of outsourcing/ offshoring

70 35
2009
2011
Outsourced
Offshored
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Utilities have not been outsourcing as much in comparison, but significant growth expected in mid-term
ESTIMATES
Size
2.0 0.9 0.8 2.2
+11% p.a. 2.4 2.8 0.9 0.4 1.3 2012 1.1 0.4 1.2
0.3
0.3 1.0
0.9
2009
2010
2011
Utilities do not currently outsource contact center work as much (representing only ~5% of contact center outsourcing market) Regulated markets (e.g., cost-plus pricing) and unionized work force probably explain currently low degree of outsourcing/ offshoring; only ~25% residential market deregulated
Key companies
50 15
2009
2011
Outsourced
Offshored
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Motivation (and barriers) for outsourcing differ by vertical

Key market dynamics Telco/ Media
Among the highest users of outsourcing/ offshoring (~17% of outsourced spend) Quality of service is key Large players (>10,000) seats have in-house scale advantage Willing to pay more for proven, reliable quality Slowing growth implies revenue per customer key economic driver Contact centers considered strategic touch point; premium programs (e.g.,
churn management) largely onshore and in-house
Financial services
Amongst highest users of outsourcing/ offshoring (~16% of outsourced spend) Cost reduction has been primary driver for outsourcing/ offshoring Rapid industry consolidation has outpaced value capture due to synergies (e.g.,
desire to increase share of wallet by cross-selling across BUs)
Utilities
Traditionally low use of outsourcing (~5% of outsourced spend) ~75% residential market regulated; regulation (e.g., cost-plus pricing) creates
disincentive to reduce costs in the short-term Unionized work force slows outsourcing (e.g., attrition replacement vs. layoffs) Obligation to serve local community makes outsourcing difficult, even onshore Smart grid/ meter adoption in mid-term likely to outpace contact-center capacity
SOURCE: Interviews; team analysis
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Majority deals are under <$50 million, and sizeable number are competitive, indicating deal volume is key revenue driver
Majority deals under $50 million 2007-09 deal distribution1, by total contract value (TCV) Percent 100% = 57 >500M 100-500M 50-100MM 4 11 21 22 5 5 29 3 10 10 32 6 0 33 ..and contract renewals and extensions form significant portion of market 2007-09 deal type1 Percent 100% = 57 22 29 6
Existing customers2
28 39 55
33
Majority deals are below $50 million in TCV terms (average ~$100 million3), implying need for significant deal volume Significant deals involve incumbents, potentially implying lower win rates and price competition
33 <50MM 65 76 New customers 72 61 45 67
59 33
All
Comm, Fin Svs Utilities Media
All
Comm, Fin Svs Utilities Media
1 Announced/publicly known deals in telecom/media, financial svs, and utilities in the US (57 recorded deals in IDC deals database, representing ~15% of total 2007-09 contact center BPO revenues) 2 Includes contract extensions, expansions, and renegotiations 3 2007-09 TCV average of all telecom/media, financial svs, and utilities contracts in IDC BPO deals database was ~$100M SOURCE: IDC global deals database; team analysis McKinsey & Company
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Deal characteristics comparison

Standard deal Premium value-share deal Key comments
ESTIMATES
$25-30/hour;
Revenue/ pricing $50-60K/ FTE/year
$35-45/hour;
$70-90K/FTE/year Includes value sharing arrangement $43-49K/ year 70-75% direct cost
Blended service/ sales

calls require superior agent skills
Labor: $16-20/hour;
Cost structure
Labor: $22-25/hour;
Higher salaries and

commissions for sales agents
$32-37K/FTE/year 65-70% direct cost
10-12%
Margin
15-25%
Value pricing boosts

margins, despite higher labor costs
Typical contract value per year
$15-25MM Bonus/ penalty: +/- 5%
$20-30MM Bonus/ penalty: +/- 20%
Larger scope due to end

to-end relationship management Greater risk-reward sharing
processes to achieve goals, consistently (i.e., ability to tie compensation to performance)
Critical capabilities
Competitive cost structure Distinctive operational

metrics (e.g., FCR, AHT, utilization) Integration with 3rd party systems
Customizable CRM-driven
offer engine Scalable sales infrastructure with low defects (e.g., hiring, performance management) Case studies on comparable 3rd party clients
Proprietary tools and
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Section overview
Key insights 1 Market overview
Highly fragmented market Top 20 players account for <30% market Top player (Convergys) has just 3% of WW horizontal BPO market Competitors have adopted various business models to optimize
2 Competitive landscape
profitability; typical EBITDA margins of 9-16% Hybrid onshore-offshore delivery to boost margins Convergys made its money from developing and maintaining billing solutions, while providing related contact center services; ~25% of Convergys revenues now come from IT outsourcing
3 Value proposition
Leading providers offer a full suite of contact center solutions, including

sales/ marketing, customer service, and help desk Most players offer non-voice services (e.g., HR, procurement) to optimize asset utilization
Since inception (1998), Convergys has not exceeded $320MM (2000) in

earnings; leading, listed BPOs are yet to exceeded $300MM in earnings
Most BPOs took at least 10 years to get to $1B in revenues; significant

portion (>40%) from few, marquee clients concentrated in 2-3 verticals Winning and retaining showcase clients in target verticals is key Need to offset high revenue risks (e.g., can lose large client overnight due to industry M&A)
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Worldwide BPO market extremely fragmented; typical EBITDA margins 9-16% depending on offshore-onshore strategy
Convergys, the largest horizontal BPO services1 provider, has just 3% of the market 2008 worldwide BPO spend2 $ Billions 100% Others StarTek EBITDA margin %
22 20
Total number of work stations (2008)
There appears to be a correlation between BPO vendor profitability and degree of offshore presence
109B
85
0 0 0
18 16 14 12 10 8 6 4
WNS
1 1 1
TeleTech Sitel West Aegis Teleperformance Convergys
2 2 2 2 3
2 0 0 20 40 60 80 100 120 140
2008
1 Horizontal BPO market includes contact center, finance and accounting, HR, and procurement services 2 Assuming 2006-08 CAGR of 10% SOURCE: IDC; analyst reports; Bloomberg; team analysis
Offshore work stations % of all work stations
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Most major competitors provide a full range of contact center offerings

Indicative offerings/ services (not exhaustive) Sales and marketing
NOT EXHAUSTIVE
Upsell and cross-sell Outbound and inbound telesales Direct marketing and co
marketing CRM analytics Campaigns and promotions Segmentation Account management Complaints and grievances Billing and payments Order management Specialty help-desk (e.g., trouble shooting technical product issues)
Customer service
Helpdesk/ technical support
Customer retention1
Loyalty and rewards program Churn management program Customer satisfaction surveys (Voice of Customer)
1 Part of Sales and Marketing SOURCE: Vendor web sites; team analysis McKinsey & Company
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Leading BPO providers took at least 10 years to get to $1B in revenues

BPO provider Convergys Teleperformance Teletech Genpact Sykes Mphasis BPO WNS ICT Group First Source EXL Service Holdings Year of inception 19853 1978 1982 1997 1977 1998 1996 1983 2001 1999 Year of going public 1998 1998 1996 2007 1996 1999 2006 1996 2007 2006 Revenues1 $MM 2,827 2,577 1,168 1,120 846 881 540 428 411 191 Years to $1B in revenues (since inception) N/A 25 20 10 352 122 152 352 92 172 Operating margin1 Percent (4 ) 10 9 15 8 12 5 (6 ) 7 13
1 Most recent available financial data 2 Projected, based on historical CAGR 3 Estimated year of formation of Matrixx Marketing and Cincinnati Bell Information Systems, which got merged into Convergys SOURCE: Annual reports, team analysis McKinsey & Company
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Most pure-play, listed BPOs have not yet crossed $300MM in earnings; Convergys high was $320MM in Yr 2000 (1/2)
Operating profit $ Millions Convergys 400 300 200 100 0 -100 Teleperformance ACS2
400 350 300 250 200 150 100 50 0

02 03 04 05 06 07 08 2009 1999 2000 01 02 03 04 05 06 07 08 2009
900 800 700 600 500 400 300 200 100 0

1999 2000 01 02 03 04 05 06 07 08 2009
1999 2000 01
ClientLogic Sitel1 400 350 300 250 200 150 100 50 0 1999 2000 01 02 03 04 05
Teletech
Genpact
400 350 300 250 200 150 100 50 0

1999 2000 01 02 03 04 05 06 07 08 2009
400 350 300 250 200 150 100 50 0

2005 06 07 08 2009
1 Merged with ClientLogic in 2007 2 Acquired by Xerox in Feb 2010 SOURCE: Annual reports; team analysis McKinsey & Company
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Most pure-play, listed BPOs have not yet crossed $300MM in earnings; Convergys high was $320MM in Yr 2000 (2/2)
Operating profit $ Millions Sykes 400 350 300 250 200 150 100 50 0 1999 2000 01 02 03 04 05 06 07 08 2009 WNS Global Services 400 350 300 250 200 150 100 50 0 2004 05 06 07 2008 0 1999 2000 01 02 03 04 05 06 07 2008 100 200 300
ICT Group
400
Firstsource Solutions 400 350 300 250 200 150 100 50 0 2002 03 04 05 06 07 08
MphasiS BPO
Exlservice Holdings Inc
400 350 300 250 200 150 100 50 Series 0

2001 02 03 04 05 06 07 08 2009
400 350 300 250 200 150 100 50 0

2004 05 06 07 08 2009
SOURCE: Annual reports; team analysis
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Section overview
Key opportunities
1 Market overview
Telecom/ Media clients have sophisticated needs, mixed outsourcing

experiences
Willing to pay premium for proven quality (e.g., low FCR, high CSAT) Opportunity for value sharing in cross- and up-sell programs (e.g., 4x
performance difference between leading wireless telco and industry average)
2 Compe-titive landscape
Varying performance on strategic programs (e.g., churn management),

kept largely in-house due to tight interface with business and product strategy
Financial services clients want scale efficiencies across siloed product

groups
3 Value proposition
Super agent for selling multiple products to high value customers Increase utilization and FCR through cross-skilling and unified WFM Multi-channel integration to reduce cost per customer and increase CSAT
Utilities looking for flexible capacity to address anticipated call volume spikes
due to smart meter adoption in the near- to mid-term
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Value proposition
Pain points and potential value proposition
Media/Telecom
High-level capability gap assessment

Mini case studies
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Large Telco/MSOs insourcers want to increase cross-selling/upselling on service calls, but ensuring high customer satisfaction is just as important
Key pain points Revenue/ customer Potential opportunity/ value proposition Propensity to outsource
Low cross- and up-sell

attach rates; in-house contact centers lack sales capability to convert service calls into sales
Improve performance of sales

programs through proprietary tools and training
High; by increasing offers

made/call and accept rates by just 100 BP, an average wireless telco can double gross profits from cross-sell/ up-sell efforts
Mine consumer insights to improve segmentation and tailor offerings
Retention
Increasing churn as subscriber growth is slowing down
Reduce churn through proprietary tools (e.g., predictive algorithms); proactively identify at-risk customers and take preemptive action Improve performance of retention programs (e.g., segmentation, save capabilities) Improve AHT and FCR through proprietary tools (e.g., call flow, knowledge management, CTI) Increase utilization through world class WFM capabilities and flexible capacity
Medium Although data sensitivity is an issue for telcos, churn management is a big opportunity (e.g., T-mobiles monthly churn in 2009 was 3.2%, versus 1.4% for Verizon) Medium Large telcos/MSOs (>10,000 seats) are consolidating contact centers in low-cost U.S. cities to drive further cost reduction
Cost/ customer
Increased competition creating need for reducing costs without compromising customer experience Key cost drivers (e.g., AHT, FTR) getting tougher to manage due to increased product complexity
SOURCE: Merrill Lynch Global Wireless Matrix; interviews; team analysis
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Telco industry benchmarks confirm improvement potential on cost, quality, and revenue fronts
Performance metrics 80% calls answered in (seconds) Inbound Average time in queue (seconds) Average talk time (including hold time) in minutes FCR rate (calls resolved on first attempt) Agent occupancy Percent of sales calls that results in sale Do you engage in cross-/up-selling Cost per call Dollar Cost per sale Dollar Sales per hour Average sale value Dollar Average revenue per agent per year Dollar
SOURCE: Purdue 2008; team analysis
Industry average 29.53 45.13 4.71 65.83 76.34% 23.23% 50% 5.66 22.2 3.49 115.21 113,602
Best in class 19.69 26.27

3.48 82.23 79.05% 17% 47.73% 2.86 23.31 0.59 82.35 178,917
Average talk time in telcos is higher than others verticals, suggesting greater need to reduce cost/hour Significant spread in FCR rates suggests need for standardized work practices and greater automation (e.g., knowledge management) Low attempts to cross/upsell as most telco call centers not equipped to be high- performance sales teams
Outbound
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Telco performance improvement levers and implications for value proposition (1/2)
Contact center pain point Lever Cost per hour What we heard High cost (predominantly onshore) but atscale operations, with average infrastructure utilization
Desirable elements of a compelling value proposition
Multiple screens/systems lower productivity Variability across agents (tenure, skill group) due to lack of skills-based routing Opportunity to leverage technology to increase FCR rates First call resolution rate Desire to lower support cost by improving trouble-shooting capabilities and reduce false alerts to field support staff Cross-industry FCR average1 is 70% Average Handle Time Cost
Channel (contact) management
Good self-self service levels across channels (IVR/Web/Email/Chat) Basic call segmentation in place Good utilization levels due to at-scale centers, but poor skills-based routing (e.g., all agents get all calls) Competitive industry, unwilling to compromise on SLAs
Utilization
On-shore FTE cost-competitiveness and high infrastructure utilization Standardized work practices and proprietary tools (e.g., CTI) to improve agent productivity and reduce AHT Knowledge management tools, triaging process, and skills-based routing to increase FCR rates Call segmentation based on lifetime value of customer and likelihood to buy, such that high value customers go to most experienced agents Effective workforce management and flexible staffing models (e.g., shifts, part time) to drive higher utilization and better demand-supply matching
SLAs
Fraud and delinquency 1 McKinsey proprietary benchmark database
Collections does not appear to be a major point as yet
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Telco performance improvement levers and implications for value proposition (2/2)
Contact center pain point Lever Number of contacts What we heard Traditionally weak on outbound campaign capabilities
Examples follow
Desirable elements of a compelling value proposition
A Revenues
Offers made per contact
Offers made per service call is low or highly variable per agent; agents not welltrained to sell Conversion rates are low or highly variable per agent; incentives often not aligned to maximize cross-selling
Conversion rate
Average cross-sell conversion rate: 3-4% (cross-industry average1) Contribution/order Opportunity to improve average $ per order through higher up-sell, cross-sell rates
Superior sales infrastructure (tools, training, culture) to improve average offers per call, accept rates, and crosssell/up-sell rates Joint marketing and targeted outbound campaign execution capabilities Proprietary tools (e.g., CRM analytics) and proprietary customer knowledge that could drive higher campaign response rates and marketing ROI
Customer satisfaction B Customer loyalty Retention
Inconsistent customer experience, and often not tailored to lifetime value of customer Constant threat from competitors and alternate technologies (e.g., IPTV, VOIP)
High performance team culture

1 McKinsey proprietary benchmark database
Across the board opportunities to improve management systems and processes
Low agent turnover rate, optimal staffing ratios (front-line, support), and world class recruiting, training, and retention programs Proprietary tools/ processes for continuously improving customer experience and satisfaction across multiple touch points Track record in designing effective loyalty and churn management programs (e.g., predictive technology to proactively identify at-risk customers)
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A Cross-selling: significant performance variation amongst wireless telcos confirms opportunityEligible is real
calls2 Millions 26-28
ESTIMATES
Top 5 carriers (avg)

Sales transactions (average1) Millions
Offers per eligible call (average1)
5.3
4X Best-inclass
1.4
Industry average
1.5
Industry average Accept rate (average1) Percent 3.0-4.0 Industry average
3.0
2X Best-inclass
6.5-7.2 ~2X Best-inclass
1 Includes contract renewals, handset upgrades, accessories, additional lines, roadside assistance 2 Assuming subscriber base of ~80-87 million SOURCE: Expert interviews; team analysis McKinsey & Company
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A Considerable value creation opportunity for BPO provider with superior cross-selling capabilities
Number of sales transactions1 Millions Accept rate Percent 3.5 0 1.4 1.9 2.4 4.50 5.5 0 2.2 3.0 3.7 6.50 Contribution margin1,2 $ Millions Accept rate Percent 3.5 0 25.52 34.02 42.53 4.5 0 32.81 43.74 54.68 5.50
ESTIMATES Industry average Best in class
1.5 Offers made per eligible call 2.0
1.8
2.4 3.0
2.6
3.5 4.4 Offers made per eligible call
1.5 2.0
40.10
53.46 66.83
6.5 0 47.39 63.18 78.98
2.5
3.0
2.5
3.0
2.8
3.6
4.5
5.3
51.03
65.61
80.19
94.77
1 Assuming number of eligible calls = 27 million 2 Assuming average contribution margin per sale = $18 SOURCE: Expert interviews; team analysis
By increasing offers made/call and accept rates by just 100 BP, an average wireless carrier can more than double contribution margins from cross-sell/ up-sell efforts
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B Wireless telcos: Verizon leads in terms of customer satisfaction and has lowest churn rates in the industry
Overall satisfaction1 with mobile service operator Percent Verizon AT&T T-Mobile MetroPCS Sprint Nextel U.S. Cellular 26 25 25 28 21 20 31 27 25 19 24 21 Average churn2 Percent
Highly dissatisfied Dissatisfied Somewhat dissatisfied
Somewhat satisfied Satisfied Highly satisfied
22 22 23 44 22 23
13 4 4 16 6 3 15 6 6
35
1.4
1.5 3.2 5.9
Potential opportunity
to pitch Higher quality customer care to telcos lower on customer satisfaction (e.g., US Cellular) Proven churn management capabilities to telcos experiencing high churn (e.g., T-Mobile)
2
2.1 (post-paid)
23
64
13 13 10
N/A
1.9 (average across wireless telcos)
1 Satisfaction being measured as the sum of Highly Satisfied and Satisfied 2 Average monthly churn in 2009 SOURCE: McKinsey iConsumer research 2009; Merrill Lynch Global Wireless Matrix 2009; team analysis McKinsey & Company
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B Cable/Satellite players: Verizon FIOS leads in terms of customer satisfaction

Overall satisfaction1 with cable/satellite provider Percent Verizon FIOS DirecTV AT&T U-Verse Cox Dish Network/ EchoStar Time Warner Cable Comcast Cablevision 33 25 24 22 21 18 17 14 32 33 32 38 36 31 42 33
Highly dissatisfied Dissatisfied Somewhat dissatisfied
Somewhat satisfied Satisfied Highly satisfied
Average churn2 Percent

23 26 30 28 29 30 31 35
1 82
2.0
1.5
Potential opportunity to
pitch higher quality customer care to MSOs lower on customer satisfaction and experiencing high churn (e.g., Comcast)
11 4 2
10 3 1 2.0
1 15 3 N/A
9 12 1
3 0 1.7
N/A
Increasing triple-play
penetration through superior cross-selling can help reduce churn (single service customer segment has highest churn)
3
2.6
13 6 3 90 0
2.0
1 Satisfaction being measured as the sum of Highly Satisfied and Satisfied 2 Average monthly churn in 2009 SOURCE: McKinsey iConsumer research 2009; Merrill Lynch Global Wireless Matrix 2009; team analysis McKinsey & Company
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Value proposition
Pain points and potential value proposition Financial Services High-level capability gap assessment Mini case studies
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Financial services firms want to broaden relationships by crossselling products, while optimizing operations to minimize costs
Key pain points Revenue/ customer Potential opportunity/ value proposition Propensity to outsource
Limited cross-selling due to siloed product centricorganizations
Superior performance in sales programs enabled by proprietary tools and training Improved segmentation and skillsbased routing to match highest value segments with most seasoned agents Shared services capabilities to achieve economies of scale in areas such as WFM, training, and recruiting Flexible capacity by balancing workload across different groups Integrated multi-channel capabilities with aligned incentives to migrate customers (e.g., share savings for reduced call volume)
High BUs have different contact centers, hence agents often not able to cross-sell products to high-value customers
Economies of scale
Minimal consolidation across different BUs and product lines to drive down unit costs Lack of standardization in processes across delivery centers Providing seamless communications across channels (e.g., branch, call center, web/email) while migrating customers to lower cost channels
High
Crosschannel integration
Medium Banks are looking to provide seamless customer experience across all touchpoints, in a cost-effective manner
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Banking industry benchmarks confirm opportunity to improve FCR and sales conversion rates
Performance metrics 80% calls answered in (seconds) Inbound Average time in queue (seconds) Average talk time (including hold time) in minutes FCR rate (calls resolved on first attempt) Agent occupancy Percent of sales calls that results in sale Do you engage in cross-/up-selling Cost per call Dollar Cost per sale Dollar Sales per hour Average sale value Dollar Average revenue per agent per year Dollar
Industry average 15.83 39.66 3.43 70.36% 77.79% 13.90% 67.18% 5.31 33.89 1.35

2.6 79.37% 78.26% 11.63% 74% 4.77 15.25 0.25
Low average FCR rates suggests need for standardized work practices and greater automation suggests need for better sales infrastructure (processes, talent, tools)
Low sales conversion rates
Outbound
6,224.71 3,367 119,860 147,500
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Value proposition
Pain points and potential value proposition Utilities

Mini case studies
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Given the rollout of smart grids and smart meters, Utilities need to revamp their billing systems, & plan for capacity to handle growth in call volumes
Key pain points Billing / statements Potential opportunity/ value proposition Propensity to outsource
Current billing systems inflexible with long time to market for new products Ability to bill on smaller time increments (Smart Meter)
End-to-end billing solution that provides faster time to market and lower cost of ownership Greater accuracy/ quality, to mitigate risk of customer escalations to regulatory bodies
High
Existing billing systems are antiquated, and cannot support smart meter implementation over next 5 years
Flexibility/ capacity
Expected surge in volume for players installing smart grid technologies
Robust workforce management to handle unpredictable call volumes Flexible work force management to manage demand fluctuations without having to deal with union issues (i.e., complement, not replace, existing work force) Superior performance in care programs that track CSAT Strong CSAT management practices (e.g., after-call survey with feedback loop)
Medium Majority utilities are regional,

and feel obliged to keep jobs local; however, opportunity exists to partner for attrition replacement and demand spikes
Customer satisfaction
Players in deregulated markets (e.g., Texas) need to improve customer experience to manage churn
Low to Medium Majority (~75%) residential market is regulated, customer satisfaction norms not as stringent
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Utility industry benchmarks confirm need for flexible capacity, efficient work practices, and greater automation
Performance metrics 80% calls answered in (seconds) Inbound Average time in queue (seconds) Average talk time (including hold time) in minutes FCR rate (calls resolved on first attempt) Agent occupancy Do you engage in cross-/up-selling Cost per call Dollar Cost per sale Dollar Sales per hour Average sale value Dollar Outbound calls that result in sale Percent
Industry average 51.05 42.6 3.92 68.80% 75.82% 23.68% 6.69 0.5 0.04 0.5 0.5

3.63 66.43% 80.03% 28.57% 3.24 1.00 0.1 1.00 1
High time to answer and time in queue suggest need for flexible capacity to handle demand peaks more efficiently Low average FCR rates implies need for standardized work practices and greater automation
Outbound
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Value proposition

Mini case studies
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Provider self-assessment contact centers for Telco, Utility, and FIG verticals (1/2)
Capability required to win share Cross-selling and up-selling Description Provider selfassessment
Capability gap Strong fit
Support for self-assessment
Ability to segment accounts based on lifetime value and attitudinal behavior Experience in designing and executing high ROI, segment-specific marketing campaigns Strong performance on cross-selling and upselling metrics (e.g., offers made and accepted per call) Effective incentive structure (e.g., distinct difference between payouts to top performers and bottom performers) Robust sales training program (e.g., published training calendars)
Cost competitiveness
Competitive cost structure on per unit basis Strong performance on key quality metrics (e.g., utilization, AHT) Streamlined hiring, training and retention processes (e.g., onboard agents in batches, database of prospective hires)
Multichannel support
Support for multiple types of inbound-outbound channels (e.g., IVR, chat, email) Ability to tailor contact strategy based on segment (e.g., incentivize least valuable customers to use web self-service)
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Capability self-assessment contact centers for Telco, Utility, and FIG verticals (2/2)
Capability required to win share Front-line effectiveness Description Provider selfassessment
Capability gap Strong fit
Support for self-assessment

Proprietary tools and processes
Minimal performance variability across agents of similar tenure Skills-based routing to maximize FCR Highly trained and motivated customer-facing staff (e.g., attitude tested during hiring and emphasized during performance reviews) Frequent coaching sessions and low supervisor to agent ratio (e.g., < 1:15) Robust performance management processes (e.g., daily team huddles, visual management) Low attrition rates across agent tenures Knowledge management system (e.g., systematic way to address issues resulting in higher FCR and lower AHT) CRM system (e.g., determine lifetime value of customer, track customer satisfaction) Call segmentation based on lifetime value and complexity Self-service channels (e.g., IVR, Web) to reduce call volumes Work force management and flexible staffing to improve utilization Scripted call flows and single agent desktop to minimize non-value added tasks and to provide consistent experience across touch points Capability to hire, train and onboard large (~300500) number of FTEs per month
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Value proposition

Mini case studies
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Sophisticated customers are using hybrid offshore-onshore strategies to proactively manage and mitigate risk
Key challenges with offshoring Mitigation strategy Customer differentiation Direct high value customers to on-shore call center, others to offshore location; direct cosmopolitan city customers to India; direct calls by age group Call differentiation - Direct complex calls to onshore location, simpler calls to offshore (screen calls using upfront IVR) Hybrid model - Combine use of near-shore, home-shore (call centers run from operators home), and offshore to achieve optimum mix; use outsourcing vendors for special requirements (e.g., special languages) Example companies Description Does not offshore calls from top 200 customers Routes corporate customers to onshore center
Loss of control of key

customer facing processes
Lack of understanding of
processes
Security/privacy risk Language barriers/accents/

cultural differences (e.g., unaware of local customs, sports teams)
High employee turnover at

offshore call centers
Hidden costs (e.g., additional

coordination, travel, disaster recovery preparation)
Sends unstructured calls (that require more expertise) to UK, others to India; Sends dealer calls to UK center Has five global centers across the world including US, India, Australia Has multiple global centers to provide 24X7 coverage
Reputation risk, i.e. negative

public perception
Counterparty risk Geopolitical risk
SOURCE: Press scan; industry publications; team analysis
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Telco/MSO: mini case-studies

Brief company description Call-center operations
Key priorities
Views on outsourcing
Direct broadcast TV provider
13,000 FTEs Completely inhouse
Reduce cost per hour, but not average call time (to maintain high customer satisfaction)
Looking to cut costs, and will potentially outsource if quality is not at risk Open to comarketing, as long as customer experience remains consistent Looking to increase outsourcing to 3540% Experience with offshoring not smooth due to long lead times involved in implementation and training
US-based subsidiary of global provider of wireless telecom and data services
20,000 FTEs 25% outsourced, some of which is offshore Offshore cost/ hour is approx. half of onshore cost/hour
High customer satisfaction Reduce cost per call
SOURCE: Expert interviews; team analysis
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Capgemini entered into long-term agreement with TXU Energy with a view to enter Utilities outsourcing market
Key Details Deal Details: Present Status
PRELIMINARY
10-year partnership signed on May 18, 2004 with a value of $3.5 billion Services provided: Outsourcing services for customer care, human resources, finance and accounting, revenue management, supply chain, and technology functions. Culminated in the formation of Capgemini Energy LP, a limited partnership formed by Capgemini and TXU ~ 2,700 TXU employees transitioned to Capgemini Energy Cost reduction. Capgemini Energy charged with reducing TXUs run rate of costs by a factor of 30% Improved customer satisfaction: Help TXU emerge as a best-in-class service provider to its current and prospective customer base Provided Capgemini entry into the U.S. large-utility outsourcing market
Terminated the fourth quarter of 2008; Energy Future Holdings Corp (EFH) acquired TXU Energy and decided to terminate the relationship Services be transitioned back to EFH or another service provide by December 31, 2010 (June 30, 2011, in the case of information technology services)
Rationale for TXU
Rationale for Capgemini
SOURCE: Press search, IDC, team analysis
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Accenture and BC Hydro partnered to achieve operational efficiencies and to pursue North American Utilities market
Key Details Deal Details: Present Status Deal has helped BC Hydro in:
PRELIMINARY
10-year partnership signed on 2003 with a value of $1.45 billion Formed a new BC-based company, Accenture Business Services of British Columbia Limited Partnership to provide BC Hydro with Customers Services, Westech IT Services, Network Computer Services, Human Resources, Financial Systems, Purchasing, Building and Office Services 1543 employees were transferred to Accenture Cost savings (expected saving of 250 million USD in 10 yrs) and performance improvements Will allow BC Hydro to focus on Core Business BC-based business to help Accenture to aggressively pursue North American utilities services
Cost Savings: Realized gross cumulative savings of $76.2 million in the first four years of the contract Service improvements: 99 percent of service level metrics achieved Improved customer satisfaction: Ranked second among Canadas largest power companies in the first customer satisfaction study of Canadian electric utilities, conducted by Californias J.D Power & Associates in 2007 Improved internal client satisfaction: Internal client satisfaction survey results showed an overall improvement of 9% in 2008
Rationale for TXU
Rationale for Accenture
SOURCE: Company website, Press search, team analysis
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Appendix
Key companies Recent BPO deals Key vendor profiles
Telco/Media
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Telecom and media industry highly consolidated; top-3 players account for 70-90% of industry revenues
Telecom Wireline providers (~40% revenues is residential) 2008 revenues $ Billions 62 48 Market share Percent 50 38 2008 residential lines Millions 31 21 17.2 Wireless providers (~70% revenues is consumer) 2008 revenues $ Billions 44.4 42.6 27.5 18.9 3.9 1.7 2.4 Market share Percent 27 26 16 11 2 1 1 2008 subscribers Millions 77 1.4 72 49 33 6 4 5 11.6 37 14.1 Provider Satellite providers 2008 revenues $ Billions 19.7 Market share Percent 63 2008 subscribers Millions 18.6 2 2.98 7.2 6.5 10 9 10.6 12.7 24 35.2 Media Cable providers 2008 revenues $ Billions 34.4 Market share Percent 48 2008 subscribers Millions
Provider
Provider
65.5
Provider
1.0
SOURCE: Annual reports, Pyramid, SNL Kagan, Gartner, UBS, team analysis
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Appendix
Credit card issuers
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The card issuer market is consolidated, with Top 10 card issuers accounting for 90% of outstandings ...
Card issuer
1 2 3 4 2008 outstanding $ Billions 183. 3 160. 0 106. 2 96.3 60.1 54.5 36.4 29.4 18.5 2008 active accounts1 $ Millions 52.0 29.0 40.6 26.1 31.8 20.7 6.8 15.3 5.3 2008 cards $ Millions 119.4
76.6 91.6 54.0 46.3 57.1 17.3 37.3 11.2
5
6 7
8
9
10
1 Defined as account used at least once in past 12 months SOURCE: The Nilson Report; team analysis
16.6
2.3
5.1
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... while top 50 regional and private label issuers account for 90% of remaining 10% outstandings
Card issuer 1 Barclays Del. 2 Target (Retailers Natl) 3 Advanta 4 First Natl Bank Omaha Nebr. 5 PNC Bank 6 Navy FCU 7 GE Money Utah 8 RBS Natl Conn. 9 Fifth Third 10 Cabelas WFB 11 CompuCredit 12 State Farm Bank 13 BB&T Ga. 14 Nordstrom 15 Associated Bank 16 Pentagon FCU 17 Town North National 18 Credit One Bank Nev 19 Merrick Bank 20 First Financial 21 ICBA Bancard 22 SunTrust Bank 23 Commerce Bank 24 First Premier 25 Suncoast Schools FCU 2008 outstanding $ Billions 11.0 8.6 5.0 4.9 4.3 4.2 2.9 2.5 2.3 2.3 2.1 1.6 1.5 1.4 1.4 1.3 1.2 1.2 1.1 1.0 0.9 0.9 0.9 0.9 0.7 2008 active accounts1 $ Millions 4.8 4.2 0.8 1.2 1.1 0.8 2.9 0.9 0.8 1.2 2.5 0.4 0.5 0.7 0.1 0.2 0.5 2.0 0.8 0.5 0.6 0.3 0.3 3.2 0.1 2008 cards $ Millions 10.9 23.4 2.3 6.2 3.4 1.6 16.5 2.2 2.1 2.3 3.8 1.1 1.5 1.6 0.1 0.5 0.8 2.0 0.8 0.6 1.3 0.8 0.9 3.6 0.2 Card issuer 26 TIB 27 Compass Bank 28 BECU Wash. 29 Golden 1 CU 30 SchoolsFirst FCU 31 America First CU 32 BMW Bank of North America 33 M&I Bank 34 First Hawaiian 35 PA State Empl. CU Pa. 36 Digital FCU 37 VyStar CU 38 First Citizens Bank 39 Columbus Bank & Trust 40 TD Bank 41 Wescom CU 42 Arizona FCU 43 Patelco CU 44 UMB Bank 45 First Horizon 46 Security Service FCU 47 Zions Bank 48 Redstone FCU 49 State Employees CU 50 Virginia CU 2008 outstanding $ Billions 0.7 0.6 0.6 0.0 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.1 0.3 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 2008 active accounts1 $ Millions 0.5 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 N/A 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.1 0.1 N/A 0.1 0.1 0.0 0.0 2008 cards $ Millions 0.7 0.4 0.2 0.2 0.2 0.2 0.2 0.3 0.3 N/A 0.1 0.1 0.3 0.3 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.3 0.1 0.1 0.1
1 Defined as account used at least once in past 12 months SOURCE: The Nilson Report; team analysis McKinsey & Company
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Appendix
Utilities
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Residential utility market is fragmented, top 30 utilities account for only 40% subscribers (1/2)
2008 revenues Number of consumers $ Billions Millions Deregulated US state Ownership 6.21 4.59 4.16 3.74 3.28 3.12 2.83 Virginia Electric & Power Co 2.72 2.71 2.27 2.08 2.00 3.99 4.23 4.62 1.93 3.44 1.54 2.31 2.02 2.04 1.45 1.83 1.21 No No No Yes Yes Yes Yes No No No Yes No Yes Yes No FL CA CA TX IL TX NY VA GA FL NJ AL PA MD NY Investor Owned Investor Owned
Investor Owned Power Marketer Investor Owned Power Marketer Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned Public
McKinsey & Company
1.92
1.87 1.87
1.40
1.08 0.99
| 46
Residential utility market is fragmented, top 30 utilities account for only 40% subscribers (2/2)
2008 revenues Number of consumers $ Billions Millions Deregulated US state Ownership 1.76 1.71 1.67 1.57 Niagara Mohawk Power Corp. 1.49 1.47 1.46 1.43 1.04 1.56 1.95 0.97 1.27 1.22 0.99 1.58 Yes No No Yes Yes Yes No No CT NC MI NJ NY PA AZ MI Investor Owned Investor Owned
Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned Investor Owned
1.43
1.35 1.25 1.23 1.06 1.05 1.03
1.08
1.05 1.21 0.85 0.72 0.94 0.79
No
Yes No No No No Yes
NC
MA CA AZ NV WA MA
Investor Owned
Investor Owned Investor Owned Public Investor Owned Investor Owned Investor Owned
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Appendix
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Recent Telecom and Media BPO deals (not exhaustive)

Customer Vendor Contract value $ Millions Scope 100 72 Contract start mm/yy 01/09 09/09 Contract length Years 5 3 Contract type Extension Extension
Statements, customer communication Billing, customer support
71
Tier-1 tech support to video customers (1,400 FTEs) Technical support to internet subscribers, Voice of the Customer program e-billing Retention, customer care, technical support Business/operational support, billing Customer care, technical support, order mgmt
10/09
Extension
55
10/09
Extension
50 25 300 55
03/09 05/09 10/08 08/08
3 5 5 5
Extension Expansion New New
30
Provisioning/activation and user mgmt, billing

Customer care, technical support Customer care, technical support Customer service
08/08
Extension
15 640 75
09/08 02/07 01/07
3 3 3
New New Extension
SOURCE: IDC BPO deals database; team analysis
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Recent Utilities BPO deals (not exhaustive)

Customer Vendor Contract value $ Millions Scope 60 Contract start mm/yy 09/09 Contract length Years 4 Contract type New
Smart-grid billing, customer management and collections Call center services
01/09
Expansion
130
Customer service, back-office, statements
01/08
10
New
76
Customer service
07/08
Renegotiation
350
Customer service process improvement, IT enhancements, workforce management, F&A Customer care, statements, collections
09/07
10
New
05/07
New
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Recent Banking BPO deals (not exhaustive)

Customer Vendor Contract value $ Millions Scope 3 80 67 Contract start mm/yy 11/09 02/08 07/08 Contract length Years 3 5 7 Contract type Extension New
Direct marketing services Customer care and collections support Call center, payment processing, skip tracing, pre-default collections Customer management, backoffice
New
US Financial Institution
26
08/08
Extension
25
Customer management services
09/07
New
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Recent Insurance BPO deals (not exhaustive)

Customer Vendor Contract value $ Millions Scope 110 Contract start mm/yy 03/09 Contract length Years 10 Contract type Extension
Customer service, transaction processing
14 10
Policy administration, customer service Claims processing, billing, mail room
09/09 09/09
5 5
Extension
New
160
Call-center, reporting, and payment processing
08/08
15
New
115
Back-office processes
09/08
10
New
40
Customer relationship programs
05/08
Expansion
30
Customer service
05/08
New
15
Call center, billing, document management
10/08
Extension
14 50 20
Call center operations Call center services Customer service, billing
05/08 09/07 09/07
5 5 10
New New New
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Appendix
McKinsey & Company
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Key vendor profiles
Convergys Sitel Teleperformance

TeleTech
West Sykes Genpact
IBM Daksh
WNS Firstsource (ICICI Onesource) Aegis Exl Services Infosys BPO (formerly Progeon)
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MNC, specialists (BPO)
Convergys
History/background Recent customer deals Employees
FTE, thousands -3%
Formed as a division of Cincinnati Bell and spun off in 1998 Leading provider of business process outsourcing (BPO) services, such as billing, human resources administration, and customer care
Rodale (February 2009): Portfolio of customer care and relationship management solutions. First contract win combining both, Convergys and Intervoice solutions since Convergys acquired Intervoice in Sept., 2008. Brazilian wireless carrier Vivo (January 2009): Extended five-year partnership with a new two year contract to provide production operations support Orange UK (December 2008): Extended contract for Convergys customer management solutions Federal Deposit Insurance Corporation (FDIC) (December 2008): Five-year agreement to provide customer management support
75
~ 75
70
Locations
84 customer contact centers IndiaBangalore EEBudapest (Hungary)
2007
08
2009
Revenue
US$, million
Latin AmericaSao Paulo (Brazil),

OthersPhilippines, Russia, Spain, China, England, Malaysia, France, Australia, Singapore, Japan
0% p.a. Recent Organizational Highlights
Service offerings
July 2008: Merger of Convergys and Intervoice announced May 2008: MVNO enabler (MVNE) Visage Mobile announced the sale of its subscriber management business to Convergys
2,844
2,785
2,827
Customer Management: Provides agent-assisted services, automated self service and technology solutions Information Management: Provides business support system and operational support system (BSS/OSS) solutions for Communication and Media Providers Human Resources (HR) Management: Provides global human resource business process outsourcing (HR BPO) solutions
2007
08
2009
Key customers (functions supported)
AT&T (billing and customer care support ) ComCast (customer care services) DirecTV (customer service) Time Warner (billing, customer care) Wachovia (customer care services) T-Mobile (billing solutions) Schering-Plough ( Customer Care ) Starbucks ( Human Resources ) AnnTaylor Stores ( Customer Care )
SOURCE: Press search; company website; Onesource
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Strengths and weaknesses

Strengths Recognition and Awards
Increased focus on ITO representing around 25% of the total revenue
Unique product offering like Web-based solutions Strong business models characterized by 90%+
recurring revenue and strong operating leverage
Placed in Leaders Quadrant in Gartner Magic Quadrant for CRM Contact Center BPO for North America in December, 2009 Named to the Top 10 of the Global Outsourcing 100 list (Rank: 6th) compiled by International Association of Outsourcing Professionals Rated as one of Americas Most Admired Companies by Fortune Magazine in 2009
Key acquisitions such as Employease and VirtualEdge to expand in markets beyond core HR BPO
Wins National Award from the Quality Council of India Named Top HRO Performer by Global Services
Magazine; Also Cited in BPO, Contact Center Categories Weaknesses
Additional competitionforeign contact center companies buying North American presence (i.e., TransworksMinacs deal) Continuing consolidation in the telecom space could result in a consolidating client migrating off of Convergys platform Overdependence on North America, with 86% of the revenue in 2007
Honored with Two Awards of Excellence from Customer Interaction Solutions Magazine Positioned as a Leader in IDC Leadership Grid, Worldwide Contact Center Services, 2008 Awarded 2008 North American Contact Center Outsourcing Industry Innovation & Advancement of the Year Award by Frost & Sullivan
SOURCE: Analyst reports, IDC
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MNC, specialists (call center BPO)
Sitel
History/background Recent customer deals Employees FTE, thousands
Was founded in 1985 as a result of the purchase of HQ800, an answering service company owned by United Technologies In 2007, SITEL announced a merger with ClientLogic Is privately held by private equity funds
Locations
27 countries including: India, Singapore, Philippines, Belgium, Bulgaria, Denmark, France, Germany, Spain, UK, Brazil, Canada, Chile, Mexico, Panama, USA Provides solutions across 155 Facilities Service delivery from Europe is the largest of Sitels global delivery portfolio, followed by North America
Travel management (January 2009): BPO services Major U.S. newspaper (January 2009): Integrated customer support Home entertainment (December 2008): Wide range of services for the company and its 4,000 store locations Satellite teleservices (September 2008): Customer care and technical service support Choice Hotels (September 2008). Expanded its relationship with Sitel, currently handling inbound reservation services Satellite teleservices (June 2008): Customer service support The Haier Group (June 2008): Multilingual customer care and technical support solutions
+41%
60 42 30
2006
07
2008
Revenue US$, million
+22% p.a. Recent Organizational Highlights
Service offerings
Customer Care Technical Support Customer Retention Acquisition and Sales Collections and receivables management solutions Back Office Services Professional Services Transaction Processing
December 2008: Established a BPO services facility in Bangalore as part of a joint venture (JV) with ITC Infotech November 2008: Expanded operations in Nicaragua with the opening of its second facility in Managua for customer service, technical support, sales, and backoffice services September 2008: A new customer care facility opened in Berlin, Germany. Throughout 2008: U.K. offices closed.
1,700 1,200
1,800
2006
2008 (est)1
GM ( Customer care services ) Dell ( Customer care ) Philips ( Contact center services ) Well Care ( Customer care) Wireless customers account for the largest percentage of revenue, followed by ISPs, and then the technology space
1 2008 revenue reflects some clients shifting some work to lower-cost operating locations in the Philippines, Latin America, North Africa, and Eastern Europe
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Fraud Prevention and Investigations group reflects Sitels understanding of the high importance of the issue of security to its clients Merger with ClientLogic has created impressive synergies in geographies such as India and the Philippines as well as in verticals Has an impressive global reach through its Global Delivery Model; 2008 expansion in the United States, Panama, Nicaragua, Morocco, Germany, and the Philippines have increases service delivery capabilities considerably Well diversified and not being dependant on any one client, industry, or geography; discovering new business in emerging markets, such as Brazil, is a savvy strategy
Selected in the Leaders Category of IAOP's 2009 Global Outsourcing 100 by International Association of Outsourcing Professionals Best Performing Contact Center Award in The Global Services 100 list, brought out by Global Services and neoIT in 2009 Selected for the Gold Award in the International Operations category by ABT Association in 2009 2009 Consumidor Moderno Award for Excellence in Electricity Category Excellence Award recognizing global sourcing in 2008
Eight-time winner of Customer Inter@ction Solutions' CRM
Best Performing Contact Center category for 4th consecutive year by Global Services Magazine in 2008 Black Book of Outsourcing named Sitel the Best Global Contact Center in 2008
Weaknesses
Intense competition in highly competitive and fragmented business process outsourcing industry Percentage of concentration of revenue from specific customers is very high
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Teleperformance
History/background Customer deals Employees
Formed in 1978 in Paris by Daniel Julien Worldwide Leader CRM Contact Center Outsourcer Over 1 billion customer contacts handled annually
UK's Identity and Passport Service (July 2007): Extension of customer care contract Financial Services Authority (June, 2007): Consumer contact center contract Environment Agency (April 2007) : Establishing a comprehensive message management service to support their emergency telephone helpline The Training and Development Agency Schools (March 2007): Contact center outsourcing
FTE, thousands
+8%
85
88
100
Locations
248 contact centers Presence in 46 countries, servicing more than 75 markets and 7 nearshore and offshore locations Europe accounted for 55% of 2008 revenue, North America 39% Key locations: Argentina, Brasil, Canada, Chile, Jamaica, Mxico, USA, France, Russia, Ukraine, Czech, Poland, Germany, Switerland, Austria, Asia- Pacific: India, China, Australia, Indonesia Recent Organizational Highlights
2007
2009
+9% p.a.
Service offerings
Customer Experience Solutions Customer Acquisition Customer Care Customer Value Growth Debt Collection Technical Support Market Research Business Transformation Solutions: Buy-Out Management & Support Services Business Economic Model Solutions Business Partnership Solutions
January 2010: Opened Seventh Contact Center in Philippines and launched operations in Costa Rica January 2010: Entered "Face-to-Face" Contact Services Process Outsourcing Through 50% Acquisition of TLScontact December 2009: New center set up in Colombia September 2009: Launched third center in India December 2008: Acquired "The Answer Group", strong tech support company in the USA
2,227
2,622
2,654
2007
2009
Sprint Nextel: Top client, representing more than 8% of revenue Telecom and Internet clients represented more than 50% of revenue Alliance One ( Debt Collection services ) Banque Casino ( Customer care ) Eurobank ( Customer Care ) SNFC ( CRM services )
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Company has a large footprint with 281 contact centers, 75,000 work stations, and presence in 45 countries, servicing over 75 markets Provides a diversified offerings ranging from customer to business management services Diversified client base Consisting of some 1,000 companies. 20 of the top clients now account for 48% of revenue
Placed in the Leadership Quadrant in IDC Leadership grid: Worldwide Contact center Services BPO Market 2009 2009 North American Customer Contact Outsourcing Company of the Year by Frost & Sullivan in 2009 Ranked on the top of 2008 Contact Center Outsourcing Rakings by Data monitor Frost & Sullivan - 2008 North American Contact Center Outsourcing Industry Innovation & Advancement of the Year Award 2006 Product of the Year Award from Technology Marketing Corporations Customer Inter@ction Solutions magazine. Highest Dunn & Bradstreet rating (5A1)
Weaknesses
Percentage of concentration of revenue from specific customers is very high Concentrated Revenue from Inbound Activities which accounted for around 70% of its revenue
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TeleTech
History/background Recent customer deals Employees FTE, thousands +8%
In 1982 Kenneth Tuchman founded TeleTech. Set up the first call center in an abandoned nursery school. The company moved to Denver in 1993 and went public in 1996 Headquartered in Denver, Colorado
Locations
89 delivery centers in 18 countries across North America, Europe, Asia-Pacific and Latin America Operations in Argentina, Australia, Brazil, China, England, Germany, Malaysia, Mexico, New Zealand, Northern Ireland, Scotland, Singapore, Philippines and Spain, UK, and the US
Growth of homeshoring in the United Kingdom (October 2008): Expansion of TeleTech@Home dispersed workforce solution in the United Kingdom with a Global 500 communications client Medicare Part D (October 2008): Support open enrollment program for the fourth year in a row Big box retailer (October 2008): Full suite of customer management services, including technical troubleshooting, general customer service, and backoffice support (Renewal) Broadband inside sales (September 2008): Direct Alliance, a wholly owned subsidiary of TeleTech Holdings and BPO provider of inside sales and marketing solutions, to provide outsourced inside sales
47
53
55
2006
2008
Service offerings
Customer management services Real-time analytics Customer interaction management Workforce management Quality assurance Knowledge management Disposition management Retail voice portal Human capital services Direct sales services Professional services Technology integration Managed services
November 2008: Attained Payment Card Industry compliance in its global operations July 2007: Received a letter from the Nasdaq Stock Market confirming the Nasdaq Listing
1,210
1,369
1,400
2006
20081
Serves 100 global clients with more than 250 BPO programs Verizon (customer care) Qantas Airways Limited (customer care) Telstra Corporation (customer care) Meridian Energy (customer care) Ford (customer contact services) Allstate (customer contact services) Retail Company ( Sales & Marketing )
1 Estimated $70 million in new revenue primarily from expanded client relationships
McKinsey & Company
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Impressive mix of outsourcing services and technology (TeleTech OnDemand being one example) Recent expansions in locations such as South Africa, Costa Rica, and the Philippines, reflects its balanced delivery portfolio and global outlook Launch of new services such as TeleTech@Home in US and UK
Direct Alliance, a wholly-owned subsidiary of TeleTech Holdings, Inc. selected as a finalist in four different categories for the annual Stevie(R) Awards for sales and customer service in 2010 Chosen as the one of the world's leading outsourcing services companies on the Global Outsourcing 100 list in May 2009, 2008 CRM Excellence Award from Technology Marketing Corporation's (TMC) Customer Interaction Solutions magazine Chosen as a finalist at the third annual Contact Center World Awards in the Top Performers in Asia Pacific in 2008
Weaknesses
The company is highly dependent on limited number of customers. The companys five largest clients represented 40% of revenue in 2007 Weak performance in the US and Canada in 2007 Intense competition in highly competitive and fragmented business process outsourcing industry Strengthening of U.S. dollar relative to currencies of certain foreign subsidiaries
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West
Founded 1986 as an inbound telemarketing service bureau Headquartered in Omaha, Nebraska
Not available
FTE, thousands
-1%
42
47
41
Locations
North America: US, Canada Asia: India, China, Hong Kong, Philippines, Singapore Europe: Switzerland, UK Australia Customer care facilities located in the United States, Canada, the United Kingdom, Switzerland, the Philippines, India, Singapore, China, Hong Kong, and Australia Recent Organizational Highlights
2007
2008
2009
+6% p.a.
Service offerings
Communication services Customer Acquisition Customer Care Direct Response Upsell and Cross-sell Business-to-Business Public Safety Conferencing services Receivable management Services First party Third party Portfolio Purchasing Legal services
December 2009: Acquired the assets of Stream57, LLC ("Stream57"), a leading provider of fully customizable web event and streaming media solutions and services November 2008: Acquired IPC's Command Systems Segment May 2008: Acquired complete ownership of Genesys, leading global multimedia collaboration service provider April 2008, Acquired HBF Communications, Network support and solutions company
2,099
2,247
2,375
2007
20091
Three biggest verticals are telecommunications, financial services, and healthcare Leading Healthcare provider ( Customer Care) Restaurant Chain ( Customer Care ) Wireless communication provider ( Customer Care ) HSN ( Customer Care ) ShopNBC ( Contact Center services )
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Strong market presence as is one of the leading providers of outsourced contact center and conferencing solutions Strong Financial condition even in this economy Significant increase in demand for conferencing services is expected "West at Home" shifted from a contractor model to an employee model some time ago, making the offering even stronger
Received the 2010 Frost & Sullivan North American Contact Center Outsourcing Company of the Year Award West Interactive, a subsidiary of West Corporation named 2008 Market Leader in Professional Services by Speech Technology magazine West Interactive's IVR & Speech Solutions Named '2007 Product of the Year by Call Center Magazine
Weaknesses
Companys operations are concentrated around the US. The company generated more than 90% of its revenues from the US Its experiencing increase in labor costs and turnover due to lack of resources in low cost locations
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Sykes
History/background Strengths/advantages Employees FTE, thousands
Formed in North Carolina in 1977 as a small technical engineering firm, initially providing design and engineering services to industrial companies In 1993, the company reorganized and moved its headquarters to Tampa, Florida
No client represents more than 10% of revenue and the combined top 10 clients represent 38% of its revenue Healthy mix of revenue growth from new and existing customers Has a more diverse geographic revenue distribution than most of its competitors
+12% p.a.
30
33
Locations
North America: US, Canada Latin America: Argentina, Brazil, Costa Rica, El Salvador Asia: India, Philippines, China Europe: Germany, Finland, Denmark, Scotland, Italy, Hungry, Slovakia, Spain, Sweden, Netherlands South Africa
2007
2008
+19% p.a. Weaknesses/challenges
Service offerings
710
Revenue is usually varied on a quarterly basis, depending on the launch of new contracts and renewals of existing contracts Has a very high attrition rate of approximately 60%.
819
574
Customer Contact Management Customer Care Technical Support Acquisition services Enterprise Support Services Fulfillment Services
2006
2008
AT&T (Customer care)
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Indian, specialists (BPO)
Genpact
History/background Recent customer deals Employees FTE, thousands +10% p.a.
Started operations in 1994 as a captive unit of GE Saved around $300 mn for GE annually GECIS changed its official name to Genpact in Sept 2005 in a re-branding exercise to position itself as a third party player
Locations
India: Gurgaon, Jaipur, Hyderabad, Bangalore, Kolkata China, Hungary, Romania, Spain, the Netherlands, Mexico, the Philippines, UK, and the United States
Bengal Aerotropolis Projects Limited (March, 2010): Hosted IT application and infrastructure services contarct Walgreens (January 2010): Accounting Services agreement Max New York Life Insurance Company Ltd. (January 2010): Three year contract to provide customer service related solutions in select geographies, employing multiple regional languages and sophisticated technology AstraZeneca (December 2009) : Fve-year contract to provide global Finance & Accounting (F&A) services Unitech Wireless (November 2009): 5-Year contract to manage customer service operations for India United Biscuits (UB) (Augist 2009) : Seven year contract to provide multiple finance and accounting (F&A) services UCB (August 2009): Five-year contract to provide multiple finance and accounting (F&A) services
32
36
39
2007
2009
Recent Organizational Highlights
+17% p.a.
Service offerings
General Back Office CRM BPO, Customer Services, Sales & Marketing Analytics F&A, Financial Services Collections HR: Enterprise App Svcs & Program Mgmt, Learning and Content Management Services Information Technology Services Supply Chain & Procurement Vertical Specific Banking/Finance Insurance Manufacturing Transportation Automotive
February 2010: Acquired Symphony Marketing Solutions, Inc. (SMS), a leading provider of analytics and data management services October 2009: Opened New Remote Operations Center in Hyderabad, India June 2009: Launched a new line of services to help U.S. mortgage lenders and servicers satisfy the unprecedented demand for loan modifications August 2008: Acquired a delivery center in Guatemala City from GE Money December 2007: Completed Acquisition of Axis Risk Consulting
1,040 822
1,1201
2007
2009
Kimberly Clark (procurement) GlaxoSmithKline (finance and accounting) Penske (finance and accounting) Nissan (procurement) Wachovia (finance and accounting)
1 42%- BFSI, 42%- Manufacturing, 16%- Others
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Strong financial condition ( first Indian BPO with more than $ 1 Billion in revenue) Offers an extensive global delivery network and leverages a multilingual talent base Extensive experience in transitioning and operating a wide range of business processes Uses advanced analytical methods to address customers' needs and to increase productivity
Ranked as a top revenue-generating service provider by CRN Magazines Fast Growth 100 list in October, 2009 Listed by AMR Research in 2009 Executive Guide to Selecting BI/PM Service Providers report Ranked Top Procurement Outsourcing Provider in Black Book 2009 Annual Survey Announced as the Best IT Service Provider and Best SMS Provider in Chinese Enterprise Informatization Top 500 Conference in 2009 Providers in 2009 by IAOP
Ranked among the World's Top Outsourcing Service

Weaknesses
Organization is built around horizontal capability; vertical/domain focus required for successful third party play Challenge of retaining middle management To sign up new clients and reduce dependence on GE Gross margins of 20% are lower than peers
Placed in the challengers quadrant of Gartner's Magic Quadrant for Help Desk Outsourcing, North America report Named 'Best Performing BPO Provider' & 'Best Performing Finance & Accounting Outsourcing Firm' in the 2009 Global Services 100 Survey Named Best Business Process Outsourcing Provider in Europe by IQPC in 2008
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MNC, specialists (call center, F&A BPO)
IBM Daksh
Established in 2000 Turned cash positive in the first year and profitable in the second year of operations Awarded the Frost & Sullivan Market Engineering Award for Customer Service Leadership 2001
Locations
Airtel (October 08) : Six-year contract for outsourcing contact services to IBM's Managed Business Process Services (MBPS) unit, involve augmentation of Airtel's sales, customer service, and back office capabilities MakeMyTrip (April 2008): 15 million-dollar agreement to outsource entire contact services such as customer support and after-sales for ticketing and hotel portfolio for a five-year period Orange (2008) : Customer service support contract
FTE, thousands
+50% p.a.
27
20 12
India Bangalore, Mumbai, Chandigarh, Pune, Kolkata, New Delhi EE Budapest, Krakow, Sofia, Bratislava, Brno Latin America Brazil Others: China, US, Philippines, Australia
2005
2007
Service offerings
F&A BPO Accounts payable processes Order-to-cash process Record-to-report processes CRM Inbound Customer care Consumer Tech support Collections Back Office Telecom Banking/FSS Insurance (health)
September 2009: Acquired privately held research and analytics services company, RedPill Solutions 2007: Merger of the sales team of IBM with IBM Daksh 2007: Set up new centers in Vizag
285 160
328
2006
2007
2008
D&B (F&A, Customer service and collections services) Makemytrip (contact services) Amazon (customer and technical support) CitiMortgage (Customer care, F&A) PayPal (Customer care) Yahoo! (F&A)
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Greater integration of IBM Daksh sales and marketing teams with the parent Collaboration with IBM to create new tools such as Sensi (HR tool)
Recognised as the 2009 Contact Center Outsourcing Service Provider of the Year by Frost & Sullivan Recognized as the "Most respected BPO Company in India" as per the Businessworld Special Issue on "India's Most Respected Companies by Sector Toped the 2007 Global Outsourcing 100, IAOP's (International Association of Outsourcing Professionals) annual listing of the World's Best Outsourcing Service Providers
Weaknesses
Dependent on pure play Internet and telecom companies for a significant portion of its revenues Need to move away from transactional voice based work to high end work
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WNS
History/background Recent customer deals Employees FTE, thousands
Set up in 1996 as a captive back office of BA Started serving third party clients from 1999 and voice services in 2000 WNS spun off from BA in May 2002
Locations
India -Mumbai, Pune, Gurgaon, Nasik Europe Bucharest, Romania, Switzerland, UK Latin America Others US, Sri Lanka, Philippines
Sabre Holdings (January 2010) : Contract renewal. To provide comprehensive front, middle and back office services to Sabre Holdings and its affiliates including Travelocity SITA (January 2009): Five year contract (renewal) to optimize supply chain management and enhance service levels for SITA Centrica (December 2008): Three year contract (renewal) to provide offshore customer service and billing support for Centrica's subsidiaries - British Gas and Direct Energy. Also provide finance and accounting services SAS (December 2008): Six-year contract (renewal) to provide passenger revenue accounting services Biomet (September 2008) : Multi-year contract to provide healthcare revenue cycle management services T-Mobile UK (2008): Customer Care services contract
+21% p.a.
22 15 18
2007
2008
2009
Service offerings
Customer care Finance and accounting Legal services Procurement Research and analytics Technology solutions
February 2010: Appointed Keshav Murugesh as Chief Executive Officer January 2010: Launched a new delivery center in Manila November 2009: Launched delivery center in San Jose, Costa Rica July 2008: Bought A viva Global for $228 mn April 2008: Acquired Call 24/7 Ltd., an auto insuranceclaims-processing services provider in the United Kingdom January 2008: Launched Delivery Center in Bucharest
459 352
539
2007
20091
T-Mobile Aviva (insurance-specific processes) SITA (supply chain knowledge management) Virgin Atlantic (finance and accounting) Church's Chickens (finance and accounting)
1 Till 3rd Quarter SOURCE: Press search; company website; Onesource McKinsey & Company
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Successful targeted acquisitions to enter new verticals and extend service offerings Global footprint with delivery centers in Eastern Europe and Latin America Deep domain expertise in varied industries like Travel and Leisure, Banking and Financial Services, Insurance, Transportation, Manufacturing and others Strong experience across 600 processes for around 190 clients
Won the Best Project Achievement in Green Six Sigma Award at WCBF, USA on 14th Oct 2009 Awarded the 2009 Shared Services Excellence Award for Best New Outsourced Services Delivery by the Shared Services and Outsourcing Network (SSON) for Integrating Aviva's Offshore Operations Received 2009 Golden Peacock Eco-Innovation Award for Green Lean Sigma Program Special award for Innovation in IT Infrastructure for Storage Solutions by IDG's CIO magazine. Named ''Best Performing FAO Provider'' in 2008 Global Services 100 List WNS Executive Receives Market Maker Award from FAO Today in 2007
Weaknesses
High client concentration: WNS continued to derive in excess of 50% of its FY2007 revenues from its five largest clients. Further, the composition of the top five has not altered much over the last few years given the recurring nature of services Loss of big clients like First Magus and IndyMac due to the sub prime crisis High Attrition rate at 30%
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Indian, specialists (call center BPO)
Firstsource (ICICI Onesource)

Set up in December 2001 as a subsidiary of ICICI Group Headquartered in Mumbai, India Largest shareholder is ICICI Group. Other major shareholders include Metavante Corp, Temasek Holdings, and WestBridge Capital Partners
Over 60 leading organizations as customers, including 13 Fortune 500 and FTSE 100 companies Dedicated process excellence team that uses Six Sigma, Lean and COPC frameworks for continuous improvements in operations Presence of in-house software team that develops customized software
+25% p.a.
22 14 17
Locations
India: Mumbai, Bangalore, Chennai, Trichy, Kolkata, Hubli, Kochi, Indore UK: London, Belfast USA: Amherst, Fort Scott, Louisville, Rockford, Salt Lake City, Reno, Kingston, Colorado Springs Philippines: Manila Argentina; Buenos Aires
2006
2008
Revenue US$, million +26% p.a. Weaknesses/challenges
331 185
Service offerings
293
Top clients just contribute 20% of the total revenues Heavy concentration of its revenue in US markets
General Back Office HR CRM BPO: Customer acquisition and customer care Transaction Processing, Billing & Collections Business research and analytics Vertical Specific Banking & Financial Services Telecom & Media Healthcare
2006
20081
BT global (knowledge process outsourcing ) Airtel ( CRM BPO, Collections ) Barclays ( Customer care ) Vodafone ( Customer care ) LSE (knowledge process outsourcing )
1 Till 3rd Quarter SOURCE: Press search; company website; Onesource McKinsey & Company
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Aegis
History/background Strengths/advantages Employees
Founded as Kenneth Resources in 1985 to sell zip code directories. Became ATC Communications in 1993-94 and decided to concentrate on teleservices outsourcing.
Is focused on end-to-end customer lifecycle management Uses a Transformation Approach for process improvement Its Global Delivery Model offers a great deal of flexibility in supporting a number of deployment scenarios using on-shore, near-shore, and off shore capabilities
Total Employees strength of around 29000, with People support having around 8,500 employees and Aegis with its 20,000 employee strength
Locations
India: Gurgaon, Delhi, Noida, Kolkata, Hyderabad, Bangalore, Mumbai, Pune, Hyderabad US: Texas, West Virginia, New York, Arizona Kenya: Nairobi Philippines: Cebu, Makati City UK: London
Weaknesses/challenges
Service offerings
+58% p.a.
Interaction Services Customer acquisition and care Order Provisioning Account acquisition and care Back Office Services Service warranty completion Process analytics Sales verification and validation Value Added Services Knowledge Services
Dependent on large clients for a major portion of their revenue Nearly 80% of the revenue from USA, with Europe contributing only around 1 %
450
181
212
2006
AOL ( Customer care ) Verizon ( Customer Care ) CapitalOne ( Mortgage processing )
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EXL Services
History/background Strengths/advantages Employees FTE, thousands +8% p.a.
Headquartered in NY EXL Service India was set up in 1999, initially as a wholly-owned subsidiary of EXL Service Inc Public ownership. Listed on NASDAQ in 2006 Recognized by the Black Book of Outsourcing as one of the Top 50 Best Managed Global Outsourcing Vendors
Offers a broad range of outsourcing and transformation services including BPO, decision analytics, risk and financial management Developed expertise in transferring and servicing more than 400 BPO processes
11 8
10
Locations
India: Noida, Gurgaon, Pune US: New Jersey Philippines: Manila Singapore
2006
2008
+36% p.a.
Service offerings
BPO Finance & Accounting Collections & A/R Management Legal Process Outsourcing Customer Service Research & Analytics Risk Advisory Services Process Advisory Opportunity Identification Solution design & implementation Value Added Services Business Performance Management Cost Management And Activity Based Costing Enterprise Risk Management
Leverage Analytics BPO acquisition to enter higher margin BPO services Plans to initiate talks with a number of insurance companies following the end of its build-operate-transfer (BOT) contract with UK insurance major, Aviva Has a limited number of clients and provide services to few industries. In 2008, approximately 34.0% of the total revenues came from two clients
152 98
181
2006
20081
Aviva ( Insurance Specific back office work ) British Gas ( Back office Operations ) Orange UK ( CRM )
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Infosys BPO (formerly Progeon)

Founded in April 2002 as subsidiary of Infosys Technologies Originally called Progeon, now renamed as Infosys BPO
One of first BPO companies to develop platform based BPO Low cost due to presence in low cost locations
+51% p.a.
16
11 7
Locations
India Bangalore, Pune EE Brno, Warsaw, Lodz Latin America Mexico Other China, Philippines , Australia, Canada
2006
2008
+56% p.a.
Service offerings
Achieving scale to compete against global majors Leveraging the Infosys brand effectively to gain client traction
235 168 96
F&A BPO Procurement BPO HR BPO Customer Service Outsourcing Legal Process Outsourcing
2006
20081
Royal Phillips (finance and accounting) Ingram Micro (finance and accounting, technical support services, inside sales) Fidelity Capital (mortgage services) BT (back-office processing, inbound/outbound calls)
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References
PD # 761874
Document title Outsourcing and Off-shoring Primer Vendor immersion
Authors Anupam Agarwal Nikhil Dhar Lakshminarayanan KG Barnik Maitra Vikrant Shirdade Kara Sprague Anjalee Sujanani
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End of document
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WORKING DRAFT Last Modified 7/27/2011 12:23:35 PM India Standard Time Printed
Market assessment: call center outsourcing industry in the U.S.

David Coleman Alexander Edlich Fernando Fanton Somesh Khanna Tolga Oguz Sanjeev Somani Achi Yaffe This presentation contains an abstract. If you are viewing the downloaded version, please click on Notes Page in the View menu April 2010
CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

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Market Assessment: Call Center Outsourcing Industry in the U.S.

776002 April 2010

This document provides a strategic perspective on the US Call Center

How could it be used?

What is not included?

Bottoms-up model for developing 5-year revenue and operating profit

McKinsey & Company

US Call Center outsourcing market in Media/Telecom, Financial Services,

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Helpdesk/support Customer service Sales and Marketing

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Outsourcing and offshoring Percent of contact center FTEs 25-30 10-15

SOURCE: IDC; interviews; team analysis

McKinsey & Company

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Companies outsourcing contact center work Percent

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Companies outsourcing contact center work Percent

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Companies outsourcing contact center work Percent

Motivation (and barriers) for outsourcing differ by vertical

Working Draft - Last Modified 7/27/2011 12:23:35 PM Printed

SOURCE: Interviews; team analysis

McKinsey & Company

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33 <50MM 65 76 New customers 72 61 45 67

Comm, Fin Svs Utilities Media

Comm, Fin Svs Utilities Media

Deal characteristics comparison

Blended service/ sales

Higher salaries and

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$32-37K/FTE/year 65-70% direct cost

Value pricing boosts

Typical contract value per year

$15-25MM Bonus/ penalty: +/- 5%

$20-30MM Bonus/ penalty: +/- 20%

Larger scope due to end

Competitive cost structure Distinctive operational

Proprietary tools and

SOURCE: Interviews; team analysis

McKinsey & Company

Leading providers offer a full suite of contact center solutions, including

Since inception (1998), Convergys has not exceeded $320MM (2000) in

Most BPOs took at least 10 years to get to $1B in revenues; significant

Total number of work stations (2008)

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TeleTech Sitel West Aegis Teleperformance Convergys

2 0 0 20 40 60 80 100 120 140

Offshore work stations % of all work stations

McKinsey & Company

Most major competitors provide a full range of contact center offerings

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Helpdesk/ technical support

Leading BPO providers took at least 10 years to get to $1B in revenues

400 350 300 250 200 150 100 50 0

900 800 700 600 500 400 300 200 100 0

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400 350 300 250 200 150 100 50 0

400 350 300 250 200 150 100 50 0

Exlservice Holdings Inc

400 350 300 250 200 150 100 50 Series 0

400 350 300 250 200 150 100 50 0