Industry Commentary

Outsourcers Need to Prepare for Different Recession Scenarios

By March 31, 2020January 10th, 2024No Comments

As COVID-19 ravages countries across the globe, outsourcers has risen to the challenge, with testimonials abounding about maintaining service levels for consumers while also ensuring the health of agents.  And, no one should expect any less from such a vibrant collective of providers.  But, post-pandemic the BPO community needs to keep its eye on what the ensuing economic outlook will hold in store.  With economists predicting potentially dire scenarios, planning resource allocation strategically will be key for front-office operators.  There is immense uncertainty about how the ongoing pandemic will impact end-user demand. Yet, having a game plan for different possibilities will be imperative to the long-term success of third-party players.

Moving into Q2 2020, there can be little doubt that both mature and emerging demand markets will be hit by a recession.  Executives, academics and government leaders are anxiously awaiting signals on the extent of a contraction. Sadly, the domain of economics often fails to offer exact prognostications, but the direction of the slowdown looks to be dire.  This was encapsulated in a March 27th economic commentary that was published by BMO, which predicts that Q2 will see US growth decline by 25%, after a drop of 5% in the first quarter.  Similar trends are being observed in the UK and other European countries.   And, while some are anticipating that the second half of 2020 will see a sharp “V-shaped” growth curve, such models assume that COVID-19 is brought under control soon. It also assumes that there is little hangover from the current drop in economic that has seen unemployment claims surge and consumer activity crater.

But the exact form of the current recession is the broader question for the outsourcing community as it eagerly awaits a rebound.  Should it prove to be V-shaped, with demand racing back to pre COVID-19 levels, outsourcers will be well placed to capitalize on increased interaction volumes.  In certain verticals such as travel & hospitality and retail, this could be significant as customers rush to make purchases that they postponed due to the COVID-19 pandemic.

However, if the recession takes on a more U-shaped progression, one in which the trough lasts longer than expected, front-office BPOs need to be ready.  Long term joblessness and a hangover from the stress, fear and uncertainty of COVID-19 will mean a slow return to buying. That would all but certainly minimize volumes of calls and digital interactions. It is remembered that many in the outsourcing community (including providers and market analysts) predicted in 2008-2009 that the slowdown from the global financial crisis would lead to a boom in third-party front-office contracts. Instead, the opposite happened, due to the limited requirement on the part of enterprises for assistance in managing customer contacts, which dwindled due to a lack of commercial activity.

Most likely, neither a V-shaped or U-shaped recession will play out in textbook form. The economy probably find its footing somewhere between both these ends of the spectrum.  Still, outsourcers need to plan for how they are to weather the coming slowdown by gaming out all possible scenarios.  For example, having too much capacity on hand is as bad as not having enough. Certainly, being able to react to changes in the consumer economy in agile fashion will be a competitive advantage. By contrast, simply reacting as things progress, with no game plan as the recovery takes (or does not take) hold, simply will not work.