Industry Commentary

Front-Office BPO Diversification Key to Strong 2018

By May 14, 2018July 25th, 2023No Comments

If the Q1 results are an indicator, 2018 is off to a good start for publicly-traded front-office BPOs. Anecdotal discussions with executives in this space bolster optimism for the rest of the year.  However, in order for these same providers (as well as those that are not being traded on equity exchanges) to continue 2018 positively, leadership cannot lose sight of driving topline growth and enhancing profitability via cross-value chain service offerings. Executives should also aim to penetrate emerging vertical opportunities, as well as find opportunities in different geographies.

A look at first quarter results among outsourcers listed on various public exchanges tells a robust story.  Among US-denominated providers, TTEC saw its revenue grow 11% in Q1 2018, relative to the same period last year.  This was driven by a 16% leap in its Customer Management Services segment, which offset declines in its consultative and digitally-oriented offerings over the same period.  Sykes was also a good news story among US providers, with its revenues increasing year-on-year this past quarter to $414m, up 8% relative to Q1 2017.  What is interesting in Sykes’ results is that its turnovers are not only up across all geographic segments, but that it continues to increase the EMEA proportion of its business, which now accounts for nearly a fifth of the firm’s total revenues.

Atento posted positive results in Q1 2018, with its revenues up 5% compared to Q1 2017.  The European-based provider’s performance was strong in each of its geographic regions, the exception being EMEA where it was hit by decrease in revenues from a major telco client.  Equally, Teleperformance had a strong first quarter, with its revenues up 7% relative to Q1 2017.  This was due to particular strength in its specialized service offering, with much growth from its TLScontact line of business.

However, some firms did not have positive revenues in Q1.  Convergys’ turnovers fell 7% over the period compared to the first quarter last year, due mainly to challenges in its communications, financial services and technology vertical business lines.  StarTek’s revenues dropped roughly 11% from the same period last year, with that firm citing among other reasons lower volumes in the wireless telco sector.

One takeaway from the first quarter results is that outsourcers need to keep a laser focus on revenue diversification.  By finding clients in different sectors, countries or revenue magnitudes, providers will be less vulnerable to sudden drops in demand that can have debilitating impacts on performance.  Notwithstanding the undeniable influence of financial analysts, the perception of an outsourcer that looks to be struggling financially can lead to perceptions of instability among buyers.  Prospecting business in new segments can guard against such eventualities.

The other lesson that needs to be considered from the first quarter’s results is for providers to grow their functional lines of businesses.  With margins on traditional contact center work flat as pancakes, there is an urgent requirement for providers to come to the market with offerings that complement front-line work, require less personnel, and that drive profitability.  Analytics, consultative services and channel strategy are but a few examples.

In order to stay relevant in 2018 and beyond, the only way forward for outsourcers is to add considered solutions that will drive business and help ensure strong margins.  It is just that simple.