Evolution is nothing new in business process outsourcing (BPO) – witness, for example, the gradual and ongoing trend towards offshoring. However, the speed of change in the last 12-18 months has been particularly startling, most notably in the customer experience (CX) part of the sector.
Change has been driven in part by developments in generative AI. It's a year since Klarna announced – to much fanfare – that its new OpenAI-powered virtual assistant was already doing the job of 700 full-time agents.
Chatbots that use traditional AI to triage customer queries – by following a simple set of rules for different inputs and providing standard responses – have been around for some time. But what's different about GenAI is that it can provide much richer, more nuanced answers to far more complex customer queries, further enhance the overall customer experience via more efficient routing, and potentially drive greater upsell or cross-sell opportunities.
12 months on from Klarna's bold launch of its virtual assistant, and despite a continuing trend towards the use of AI and autonomous agents, the extent to which human operatives will still have a role to play remains a topic of debate. It's important to stress this is not a binary choice – many traditional operators are taking a balanced approach and incorporating elements of AI into their strategies – for example, using generative AI to augment accessibility and rapid insights gleaned from knowledge management resources, helping to reduce handling time and lower costs. Further potentially beneficial applications within the customer care journey are outlined below.
Deconstructing the customer journey – how and where GenAI is poised to disrupt
Drill down further and there are fundamental questions that remain unanswered, such as: What is the real value of generative AI from a CX perspective? How much revenue is actually at stake? Who is best placed to reap AI's rewards and why? The answers to these questions are also muddied by cyclical weakness and a continued hangover from the pandemic.
The longer-term trend towards offshoring reflects the fact that BPOs operate in a sector where customers expect service providers to seek continuous efficiency and pass those productivity gains on to them. Some customers themselves are under cost and margin pressure. With so much uncertainty about how disruptive generative AI will prove to be, decisions about whether or not to invest significant capex in AI capabilities are therefore weighing heavily on BPO companies and their clients, ultimately having an impact on investor sentiment.
The BPO perspective
The CX part of the BPO market is becoming both more competitive and more fragmented.
Traditional operators are being challenged by new arrivals, including AI-driven firms like UiPath and Zendesk. Whilst the overall market is still dominated by a number of larger players, change brought about by generative AI brings with it the possibility of increasing fragmentation as traditional call centres, larger BPO operators, disruptor tech firms, and hybrid operators all jostle for position. At the same time, larger companies argue that they are best placed to invest in new technologies and squeeze out smaller competitors.
Developments in generative AI are also impacting negotiations with clients. While many clients hold a genuine interest in AI (and some, such as Klarna, are actively pursuing in-house AI solutions), AI is also being used by some as a bargaining tool when discussing economic terms – putting further pressure on BPOs' margins.
Buying cycles are also becoming longer, as clients become more cautious about large-scale transformation, and are pausing to assess the impact of AI.
The investor perspective
Investors, too, are understandably cautious about how developments in generative AI will play out in the CX BPO space. It is clear that investors have concerns about whether or not traditional providers – and perhaps the CX BPO sector more generally – is equipped to keep up with the pace of change. While most investors don't expect generative AI to make BPO companies obsolete, they do think it will impact profitability in the near term. The costs of customer service solutions are expected to be squeezed by about 5-6% a year for the next three years, potentially reducing the sector's overall revenue growth rate from its historic high single digits to just 3% or 3.5%.
Forecasts about the number of customer service jobs that could be replaced by AI solutions over the next five years range considerably, but some industry figures believe up to 40% or even 50% of jobs could be at risk. From a turnaround/restructuring perspective, this adds another layer of complexity, as some of the BPOs that have offshored their CX business will own offshore customer service centres, while others will merely operate them.
Disrupt or be disrupted
BPOs are left with a stark choice – be part of the disruption or be disrupted. But many are embracing this challenge.
Generative AI, and in particular the burgeoning role of autonomous agents, offers traditional BPOs an opportunity to reinvent themselves and deliver better customer service for their clients, for example, by dealing with customer queries not only 24/7 but in multiple languages. BPOs also recognise an opportunity to capture efficiency gains through their own AI solutions.
Scale and innovation will be critical success factors for BPO companies when it comes to maximising AI opportunities and building more durable relationships with clients.
What next?
For all those with interests in the BPO space, crucial decisions lie ahead.
- For BPO companies, those decisions relate to investments in technology, and understanding what impact this will have on their product, operations, culture and talent.
- For customers, we can expect to see increasing scrutiny of their suppliers' technology investments – both from a product roadmap perspective, and also in terms of how these investments will enhance service quality and value.
- And for investors, the challenge is evaluating which BPO firms are strategically positioning themselves for a future in which generative AI will play a much larger role in service offerings.
For each of these groups, there will be a feeling of heading into the unknown, but at the same time, a recognition that successful decision-making could depend largely on the ability to predict the speed and direction of travel for generative AI.
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