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Does outsourcing help or hinder business strategy?

Posted on May 28 2009
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Outsourcing company Sitel is predicting one third of travel company call centres will be outsourced by the first quarter of the next financial year.

The forecast comes as the company experiences increased demand from travel businesses looking at ways to reduce operating costs while maintaining or clawing back call booking volumes during the current recession.

Sitel business development director for the travel sector Ray McDiarmid says many traditional travel companies have high fixed costs tied up in owned call centres, and in many cases have yet to realise the benefits of outsourcing. Its current clients include Iberia, Air Berlin, Continental Airlines, Travelocity, Expedia and Park Resorts.

He says: “There is an unprecedented level of urgency in outsourcing now, and a lot of businesses are under pressure to reduce costs. Travel companies are carrying excess in-house cost and it is eroding their profitability.”

The company claims to be able to reduce call-centre costs by around 20% and improve revenues by 10%-15% and points at the ability for firms to manage their workforce in line with the seasonal nature of holiday bookings more effectively.

Based on a company employing 300 full-time employees, Sitel says a call centre can cost an operator £6.8 million a year, including premises’ costs. This equates to a cost of £11.66 per hour or £22,741 per annum for each full-time employee or equivalent.

Carrying extra staff to manage the peak season is a cost travel firms could do without, he argues. Sitel claims it can convert bookings at a rate of 32%-35% compared to an average of 25% by operators. Other outsourcers agree there is a trend in the industry towards outsourcing but say the recession is not speeding up the process.

David Grieve, general manager for Bosch UK Business Process Outsourcing, which has just joined the ABTA Travel Industry Partner scheme, says: “The present economic climate has slowed it up a bit because people are taking time to see what they are investing in and what impact the recession has on call volumes. It can become more expensive to outsource but there is definitely a trend in the travel industry. By the same token companies are looking carefully at what parts of the business they want to outsource.”

While some companies see outsourcing as the answer to reducing costs and freeing up expertise for other projects, some companies are taking resources back in-house because they would otherwise be making redundancies, he added.

McDiarmid says the fact the travel sector has been slow to take up outsourcing is in part due to perceptions the knowledge of in-house staff cannot be replicated by a third party, as well as existing infrastructure. He says: “I don’t think it’s a coincidence TUI Travel and Thomas Cook are running in-house call centres. It’s a combination of legacy systems and perceptions.”

The view may jar with traditional tour operators, which for years have placed faith in the product knowledge, service and experience of their own staff. Hoseasons business development director Pali Badwal argues outsourced call centres are unlikely to be able to sell the holiday experience in the same way as staff. The operator employs 100 staff in Lowestoft, who visit the parks, lodges, cottages or boats they sell twice a year.

He says: “Even with our normal level of staff we have an average of 10 years’ service. It’s the richness of experience – no outsourcing company would be able to add that amount of knowledge. In downturns we do fam trips and staff training.”

Badwal admits outsourcing has its place to sell certain products but he does not believe this covers a holiday experience. “There is a time and a place for outsourcing depending on what you are selling and the knowledge required to sell it.  This is a holiday experience we are selling and customer service is key.  An outsourced centre cannot sell to the level we are doing,” he argues.

Unsurprisingly perhaps, online travel agencies disagree. As new start-up companies, it has been easier and cheaper for them to embrace outsourcing. Expedia recently struck an outsourcing deal to run a call centre out of a former Thomas Cook-owned call centre in Accrington, which was home to brands such as Cresta, Tradewinds and Swiss Travel Service.

Vice-president operations worldwide for Expedia-owned and Venere Karl Marriott says: “OTAs have embraced outsourcing faster; we did not have shops and call centres already, so we could look at how to run the business efficiently.”

In his view it bears no relation to any less focus on the holiday experience, product or service. “We invest heavily in the customer experience and in our customer service. With outsourcing, we set targets on performance and have developed our own way of scoring outsourcing companies before we engage or consider them.”

Other more traditional travel companies have also begun outsourcing elements of their business. Hotel chain Ramada Jarvis began outsourcing evening, morning and overflow call-centre calls three months ago to manage its peaks more efficiently and claw back lost revenue.

Director of operations for distribution and e-commerce Rachel McNamara said: “We were losing thousands of calls a year and research shows up to 50% of customers do not call back. We also struggled with recruitment and didn’t feel we had the capability to open until 11pm.

Although the jury is still out on whether outsourcing can produce better results than its own staff, McNamara said the company is already looking at whether to outsource booking processes such as inputting email and fax reservations. “We have seen some good signs of how much profit you can make per call, although they are not selling as accurately as we do. We are talking about what other processes we can outsource.”

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