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Table of Contents

Finance & Accounting Outsourcing Picks Up Speed as Suppliers Offer Wider Value

If a Business Process Outsourcer Improves a Function, Is It Business Transformational Outsourcing?

Outsourcing Email Proves To Be a Wise Investment for Schwab

Keane's Application Outsourcing Keeps Toyota Motor Sales Running Smoothly

Advantages of Physician Credentials Outsourcing

What Is the Cost of Owning an In-House HR System?

Customizing Service Level Agreements in Call Center Outsourcing Yields Better Results

Reduce Costs and Improve Performance -- Simultaneously

The Impending Information Technology Refresh: Navigating through Change and Mnaximizing ROI

How to Make Full-Service HRO Work for You

Managing Your Customer Relationships with Business Process Outsourcing

How check truncation legislation could transform banking

Sole Source Outsourcing

An increasing number of US companies have decided to outsource their call centers to third-party facilities to reduce operating costs while maintaining or even improving customer service. These companies are outsourcing to service providers with operations within the United States as well as offshore facilities in India, the Philippines, Ireland, Canada, and Mexico, among other countries.

While outsourcing call center facilities has the potential to reduce costs and improve service, positive results are by no means a certainty because buyers inherently give control over the call center to a third party. To improve the likelihood that you will achieve your goals, it is critical to establish appropriate service level agreements (SLAs) with the outsourcing supplier. By establishing appropriate SLAs up front in your contract with the supplier, you more clearly define the levels of performance the call center operator is obligated to meet, as well as your rights and remedies in the event the supplier does not achieve those levels. These SLAs increase the probability that the operation of the outsourced call center will meet your expectations.

Focus on Service Levels that Make Sense for Your Organization

It is important to establish service levels that are appropriate to your company's business and that are customary in the applicable industry. While many facets of a supplier's performance can be measured, focusing on those items that are uniquely business-critical for your organization will provide the best evaluation of service quality. In addition, it is best to choose service levels that you can easily measure on an objective basis. By focusing on a limited number of clearly defined key metrics that lend themselves to uncomplicated measurement, the parties are able to keep the time and expense in administering the service levels to a minimum and reduce the likelihood of disputes over whether the supplier met them. Typical call center service levels include:

• Average Speed of Answer
  This service level measures the average speed in which agents answer calls. By requiring the supplier to answer calls within a given period of time (such as 20 seconds), the company reduces customer dissatisfaction since they won't spend a lot of time on hold at the outset of the call. Often, the parties agree to exclude "abandoned" calls (where the customer hangs up in a shorter period of time).
• Percentage of Calls Answered
  This service level measures the percentage of inbound calls agents answer. By requiring the supplier to answer at least a set percentage of inbound calls, the company increases the likelihood that the overall abandonment rate remains low. As with the average-speed-of-answer service level, the parties often agree to exclude abandoned calls.
• Hold Time
  This service level measures the total amount of time a customer spends on hold. The measurement includes initial hold time (i.e. before the call is first answered) as well as the time in which a customer is placed on hold after initially speaking with a customer service representative. This service level can be important because customer satisfaction is significantly reduced if they are placed on hold for long periods during the course of the call.
• Handle Time
  This service level measures the total amount of time it takes an agent to handle a call. By requiring a supplier to maintain an average handle time below a certain threshold, the company not only increases the likelihood of customer satisfaction but also increases the likelihood that the customer service representatives are handling calls efficiently.
• Occupancy
  This service level measures the amount of time agents spend handling calls. This measurement is particularly relevant in call center deals where the fees paid by the company to the supplier are related to the number of customer service representatives employed by the supplier at the call center facility. By requiring customer service agents to be occupied with phone calls for a specified amount of time, the company increases the likelihood that the call center is appropriately staffed and that the company is not being over-billed.

Establish Appropriate Levels of Performance

Once the parties agree on which facets of the supplier's performance to measure, the next step is to reach agreement on the levels of performance that need to be met. Typically, the service levels strike a balance between the customer's needs and the supplier's capabilities. When negotiating base service levels, push for performance standards that meet or exceed your expectations. At the same time, understand the supplier will evaluate whether it can meet the proposed performance standards with its call center technology and resources. Remember the supplier needs to operate the call center at a profit.

It is not unusual for suppliers to suggest that buyers use their existing call center performance levels as the base for service level standards. Not a good idea! You are engaging the supplier to provide services at a higher level at a lower cost than you can do on your own. Further, it does not make sense to compare your existing call center facilities to the new supplier call center because the centers may function differently.

Suppliers may also try to convince companies to set service levels by measuring the performance of the supplier's call center during a trial period. This too is problematic because a supplier's performance is often lower during the early periods of an outsourcing engagement as the company and supplier transition call center operations.

Accordingly, the base service levels, if properly negotiated, will reflect both your needs and expectations as well as the supplier's capabilities, taking into account the supplier's technology, the resources dedicated to the call center, and the economics of the deal. You can retain flexibility to adjust the service levels by mutual agreement at a later time, particularly to reflect modifications to the call center operations. However, consider adjustments only after the transition to the supplier call center has been completed.

Agree Upon Form, Format, and Frequency of Reports

In order to track the supplier's performance, you need to have access to periodic reports of the service level measurements. The parties should agree up front on the form, format, and frequency of these reports. Though reporting structures will vary depending upon the complexity of the reports and the company's needs, service level reports are most commonly provided to the company in electronic format on a monthly basis. To the extent possible, however, it is wise to request real-time electronic access to the report data.

Establish Service Level Credits

If the supplier does not meet the service levels, insist on receiving service level credits, which constitute a reduction in payments for sub-par performance. As one might expect, the amount of the credits to be issued is often the subject of intense negotiation.

It is important for the credits to be substantial enough to provide an incentive to the supplier to meet the service levels. At the same time, the credits should not be so great that the supplier will be unable to provide its services profitably. Accordingly, when establishing the amounts of service level credits, the parties need to take into account the economics of the deal as well as the effect of service level failures on the customer's business.

The parties should also consider creating a matrix that increases the service level credits based upon the severity of, or the repetition of, service level failures. Furthermore, in the event there are severe and/or chronic service level failures, it is critical for the customer to have the ability to terminate the agreement.

In summary, while outsourcing call center operations presents the possibility of reducing call center costs and increasing the quality of customer service, properly drafted service level agreements increase the likelihood that the supplier will achieve these goals and provide companies with the flexibility to terminate if they are not.

Lessons from the Outsourcing Journal:

• Focus service levels on metrics that are most important to the company's business.
• Choose objective service levels that can be measured easily.
• Require the supplier to meet levels of performance that reflect both the customer's needs and expectations. SLAs should also take into account the technology and resources the supplier is dedicating to the call center and the economics of the deal.
• Agree up front on the form, format, and frequency of service level reports.
• Insist on credits for service level failures that are substantial enough to encourage compliance but not so substantial that every failure turns into a blame game. The incentive for both sides should be to solve problems, not find fault.
• Insist on the right to terminate in the event of severe or chronic service level failures.

Kevin Boyle is a partner and Jeffrey Tochner is an associate at Latham & Watkins LLP, a global law firm. Both are members of the firm's Technology Transactions and Outsourcing Practice Group. Contact Kevin at kevin.boyle@lw.com and Jeffrey at jeffrey.tochner@lw.com.

Publish Date: February 2004

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Copyright © 2004 - Everest Partners, L.P.

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