Allgemein, ISG Insights

Quarterly ISG Index: Digitally-Driven Global Growth

Bruce Guptill, Stanton Jones Research Alerts

What is Happening?

The third calendar quarter of 2017 delivered record-breaking global ACV of $4.7 billion for As-a-Service sourcing, up 43% over the prior year. That performance was enough to lift the global market by 16%, to $10.7 billion, even with only modest 2% growth in traditional sourcing, which registered $6 billion in ACV for the quarter. One piece of good news: The pie is truly getting bigger, as more aspects of enterprise IT and business are being sourced to services providers than ever before.

At a global level, the traditional and As-a-Service markets held steady with continued growth in As-a-Service, primarily driven by public cloud adoption (led by Amazon and Microsoft). Modernization is driving applications to the cloud, and new products are being created.

Key Insights

Figure 1: Key Insights – ISG Quarterly Index, 3Q2017. Source: ISG Inc., 2017.

As we’ve discussed in previous calls, we see digital transformation — the convergence of physical and digital worlds — having a major impact on the IT and business process outsourcing industry. One influential and disruptive area for digital transformation is Call Center outsourcing, driven by sweeping changes in customer expectations and exponential improvements in IT.

Why is it Happening?

Contact Center outsourcing differs from other towers since it’s the connection point between a brand and its customers. Up until fairly recently, a call center was still primarily viewed as a cost center, given how labor intensive it is. Such thinking is changing very rapidly for a few reasons:

  • Customer demographics are changing rapidly. Millennials have significant buying power, and they expect a seamless, omni-channel experience that can take place across a physical store, a mobile app, and an Instagram session, for example.
  • Swapping one brand for another can be done with a few swipes on a mobile app. Therefore, companies are trying to find ways to improve customer stickiness by creating a personalized brand experience that surfaces the right products and services to customers at the right time and place.
  • Technologies that can understand human intent and can hold a human-like conversation have improved dramatically over the past 12 months. Contact center executives tell us that conversational AI is rapidly moving beyond prototypes and into production-ready products – something our latest Insights research confirms. We predict that adoption of virtual agents and chat bots is going to double over the next two years.

These dramatic changes are one of the reasons we’re seeing increased interest from enterprise buyers in smaller technology vendors like Creative Virtual, Live Person and Nanorep. These companies are building next-generation customer experience software — a basket of technologies we’re collectively calling intelligent assistance.

Traditional call center outsourcing providers like Concentrix, Convergys and GenPact are also making changes by partnering with intelligence assistance technology vendors, or building their own intelligent assistance solutions. They’re also quickly ramping up their at-home agent services so that they can staff up or down using work-from-home agents as business demands change.

Net Impact

ISG’s quarterly index calls provide a snapshot of sourcing industry health based on analysis of our Contract Database, compiled from more than 350 publicly available sources, alongside confidential information shared with us by leading service providers, and from the data from all the deals on which we ourselves advise. These sources provide the thorough and accurate data-set from which we draw conclusions and make projections.

In terms of the Contact Center market today, it’s trending in the mid $60 billion range at a roughly 2 to 3 percent growth rate, and we think this is going to flatten over the next 2 to 3 years, for a couple of reasons.

Given the increased focus on customer experience, we see some large companies undertaking call center repatriation projects. In fact, our buyer-behavior research indicates that over half of IT and business leaders we surveyed feel that intelligent automation will bring back in house more than half of the work they currently do offshore. That said, we also see call center providers struggling to staff these positions, especially in the U.S., so in some ways there’s actually a labor shortage for these higher skilled agents. We think this could accelerate the shift toward an intelligent assistance operating model, whereby technology plays a much bigger role in the customer experience. The downstream effect of this is more technology buying, and less services buying. If this is the case, then contact centers will likely start to mirror what is happening in ITO — i.e., a flattening of the Traditional market, while As-a-Service grows.

Digital Drivers

Figure 2: Digital Drivers in Contact Center Transformation. Source: ISG Inc., 2017.

Ultimately, we believe that service providers will be successful if they can leverage new technology, combined with a higher skilled workforce, to create business outcomes for call center buyers, such as increased customer retention and brand awareness. This is a really big change from today, where much of the focus is on near-term cost reduction. To accomplish this, it will require an entirely new technology platform and a new operating model — one that puts the customer first, but is also intelligent enough to know what channel each customer wants at that particular engagement touchpoint — and most importantly, when a human agent needs to get engaged.

 

We cover many of these dramatic changes in more detail in our newest ISG Provider Lens Report on Contact Center Outsourcing, as well as a forthcoming Buyer’s Guide to Intelligent Assistance, which we’ll be publishing later this quarter.

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