Call Center VendorsPosted: September 30, 2009
Until recently, I worked for a customer service vendor called Nordia as a customer service agent. Although I did not particularly like the job, I should say I spent a few good months there making good money. Nordia was created in 1999 as a partnership between J-Telecom Interests and Bell Canada (who now owns 100% of the company) for outsourcing customer services, such as the 411 directory assistance. Doing so reduced substantially Bell’s cost structure and increased overall productivity. Transferring the responsibilities from inside the company to an external vendor has many advantages, both financial and technical, because of the way the contracts are built and allocated as well as how the external companies are managed compared to the main company. In this blog post, I will explore what is behind this cost difference.
First and most obviously, the vendor’s agents are usually paid far less than their counterparts working for the company, sometimes 3 to 4 dollars an hour less, probably more if we consider bonuses and social advantages. Hence, each call made to the company’s customer service costs far less than what it would be expected to cost if it were handled by agents of the company. The salary difference does not make sense on a strictly comparative point of view. What justifies such a difference? Vendors usually hire their employees at market price. The skill set associated with the job is worth, market wise, about the hourly price they pay to their employees. That is, they are able to hire enough employees who match the necessary skill set to fill all open positions without increasing the salary they offer. The vendor does not have any incentive to increase the salary since it would mean a) an useless increase in applications and b) an increased cost. They do not have any incentive to lower the salary since it would mean not enough applicants for the job. Simply put, offer for work matches demand for work.
In the situation representend by the graph above, the vendor hires Q employees at an hourly rate of S. This is in contrast with Bell and big telecom companies who are usually unionized and do not have the flexibility vendors have, which means they pay more for a comparable skill set. The conclusion we can extrapolate from these simple facts is that it is the main company’s employees who are overpaid and not vendors’ employees who are underpaid, at least according to market economy principles. Below is a graph that represents this situation. S’ is the salary fixed by the collective agreement, meaning the work offer for the job will be Q’.
If investors feel that they are able to make a profit while paying their employees at market price, they will go in business provided there are vendor contracts available on the market. All this seems easy, but it’s really not. Paying employees an hourly salary is not all you need to do to keep a call center running. If a call center obtains a poor performance, such as a high wait time for clients or low quality of service, the contract linking the company and the vendor stipulates it will be paid less, or sometimes nothing. This is a clear incentive for a culture of excellence as the difference between a vendor losing and making money is the performance of its agents. This incentive is not present, or at least far less present in the company’s own structure. Even though the company can pay performance bonuses to its best agents, the extra money is far less valued since they are already paid a higher salary than their vendor counterparts. Furthermore, on an administrative level, there is clearly a bigger incentive in keeping the company profitable since its only source of revenue is determined by the call volume it handles and how well it handles it. The fact that there is competition in the vendor field also forces vendors to get the most out of their employees if they want to stay in business.
The clear end result is that the company is spending less for the same service provided to its clients, whilst losing less money if poor service is provided to its clients, making it a situation where it always wins, even though it has to keep a close eye on the quality provided by its cheap vendors to ensure customers are still getting acceptable service. It should be noted that this level is not necessarily the level of service deemed acceptable by the customer, but the level of service at which the company makes the most money, but that’s a whole different story.