In February, industry veteran and CEO of SYKES, Chuck Sykes, commented during the earnings call on CX services market trends: ‘… in the U.S., at least in my time, there is no time in the company's history that I can recall seeing this level of labor challenge. And it actually is something that you're going to see in a lot of developed countries around the world.’* In this blog, I look closer at the nature of the CX workforce challenge.

Pressures on the labor market

Multiple forces have contributed to a CX labor gap, including traditional issues such as the negative reputation of contact center careers and the highly demanding nature of customer service work. However, several factors are putting new and lasting pressures on finding, recruiting, and retaining CX employees:

• Low unemployment rate. In the U.S., the unemployment rate slid to a near 18-year low; in the U.K., it is around 4%, the lowest since 1975; and in certain parts of Germany, local unemployment rates reached as low as 1-2%
• Minimum wage increase. Governments, often at the local level, have significantly increased the minimum wage in many U.S. states, Canadian provinces, and the state of Karnataka, India, to name a few. Other countries such as South Africa are working towards introducing a minimum wage for the first time
• Global delivery network maturity. Very few suitable delivery destinations remain unexplored and offer the required combination of skills, scale, cost arbitrage, security, connectivity, and the other factors for establishing CX centers. Places such as Cyprus, Georgia (the country), Kosovo, and some Sub-Saharan countries are attracting multinational CX services providers willing to pioneer delivery. However, with limited scale, they cannot offer a true alternative to more mature markets
• Increasing demand for employee skills. The traditional agent profile, with language proficiency and basic computer skills is no longer sufficient. Client programs now seek new hires with an industry background, and demand digital skills and the ability to engage and lead unscripted conversations. The agent who takes inbound support calls is not necessarily the one who works on webchats and is likely different from the one who supports Facebook Messenger inquiries.

Immediate impact & vendors’ initial reactions

The immediate reaction of CX services vendors is to increase agent salaries, often absorbing the initial impact on margins, while re-negotiating the cost structure with existing clients, or at least planning for increases when it comes to contract renewal time. Labor market pressures are also driving more active selection of bids, including walking out of existing underperforming programs (e.g. Conduent, Convergys).

Another approach is to increase use of nearshoring and offshoring, even in industries which traditionally shied away from the model, e.g. brick and mortar retailers, airlines, and utilities. Certain destinations such a Jamaica, Colombia, Romania, Malaysia, and the Philippines continue to benefit, but often by expanding into tier 2 and 3 cities.

RPA and intelligent automation is probably the most underused opportunity, with CX services vendors increasing its adoption across multiple contact center processes, from traditional back-office work to front-office tasks. Providers and clients have significant runway to reach the balance of machine and live agent support and to achieve scale and maturity of automation and cognitive analytics deployments in contact centers. Still, the adoption of this technology will not dramatically alleviate the shortage of skilled agents, as live support moves to higher value, more complex interactions.

Alternative contact center models, employee engagement & the rise of work-at-home  

Employee recruitment, performance management, and engagement combined is another area where CX vendors are making investments to counter labor challenges, utilizing technology and analytics such as recruitment bots (e.g. Alorica), mobile learning (e.g. Sitel), coaching bots (e.g. C3), engagement apps (e.g. Concentrix), and career development (e.g. Teleperformance University).

As part of these strategies, vendors are also increasingly focusing on the work-at-home model. Providers such as Transcom in the U.S., HGS in Canada, and SYKES in Western Europe are actively employing the work-at-home model for full-year programs, gaining access to new talent, often with specific industry skills such as healthcare, insurance, and travel (e.g. Intelenet), or creating presence in untapped labor pools such as Alorica’s military veterans and spouse programs.

Another vendor initiative is opening small-scale urban contact centers to cater for the labor pool in these locations. Such micro centers with less than 50 people are being developed by transcosmos in Japan and Invitel in Germany.

And a further opportunity

Companies managing internal CX operations are facing the same labor market pressures. This situation creates an opportunity for outsourcing providers to differentiate based on their ability to source talent and place it in the right delivery model; but also based on their ability to engage employees, transform the nature of support work, and elevate the role of the CX agent.

* Taken from the Seeking Alpha Earnings Call Transcript: SYKES Q4 2017 Results

NelsonHall recently published its Digital CX Services market analysis report, available to CX Services program subscribers. For access, please contact NelsonHall Client Services Director Keith Maclean.