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Call center offshoring performance management: Investigating

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Article in Strategic Outsourcing An International Journal · November 2013

DOI: 10.1108/SO-07-2013-0013

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 Strategic Outsourcing: An International Journal
Call center offshoring performance management: Investigating opportunistic behavior in BPO
Sherwat Elwan Ibrahim Ahmed Hanafi
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Sherwat Elwan Ibrahim Ahmed Hanafi , (2013),"Call center offshoring performance management", Strategic Outsourcing:
An International Journal, Vol. 6 Iss 3 pp. 292 - 312
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SO
6,3 Call center offshoring
performance management
Investigating opportunistic behavior in BPO
292
Sherwat Elwan Ibrahim
German University in Cairo, Cairo, Egypt, and
Ahmed Hanafi
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Maastricht School of Management, Maastricht, The Netherlands

Abstract
Purpose – This study aims to detect and mitigate opportunistic behavior in call centers through
proper performance management and to provide companies considering outsourcing and/or offshoring
their call center services with the important performance factors.
Design/methodology/approach – The study introduces performance management as an
important mediating process affecting BPO performance, and presents insights to the performance
management of call centers, particularly related to detecting opportunistic behavior. Building from
contractual and agency theory, KPI data from two different companies using two different pricing
schemes was analyzed. The data represented 107 weeks under each contract type covering specific
Service Level Agreement measures.
Findings – The study indicates the importance of having in place a performance management
system to manage BPO, and presents the notion of proxies to detect difficult to measure service level
performance targets. The study confirms the existence of opportunistic behavior from the vendor side,
and offers a structured method to detect and control for opportunistic behavior.
Research limitations/implications – The research is limited to the call center outsourcing in the
telecom industry. Price per call (PPC) and price per time (PPT) were the only pricing models studied.
Practical implications – The study supports telecom companies that are interested in outsourcing
their call center services with the important factors they need to consider during the outsourcing
process, particularly in light of the vendor opportunistic behavior.
Originality/value – The study contributes to the limited literature on performance management in
BPO, and offers a structured method to test for the existence of opportunistic behavior.
Keywords Performance management, Agency theory, Business process outsourcing, Offshoring,
Call centers, Contractual theory, Opportunism, KPIs, Service level agreements
Paper type Research paper

Strategic Outsourcing: An
International Journal
Vol. 6 No. 3, 2013
pp. 292-312
q Emerald Group Publishing Limited
1753-8297
DOI 10.1108/SO-07-2013-0013
1. Introduction
Business process outsourcing (BPO) is an important ingredient of organizational
restructuring and business enhancement initiatives, where companies search beyond
firm boundaries seeking performance improvements (Kremic et al., 2006; Busi and
McIvor, 2008; Saxena and Bharadwaj, 2009; Handley and Benton, 2009; Gewald, 2010).
The trend towards outsourcing – both onshore and offshore – has been strongly
marked in the area of business services. As a matter of fact the growing spread of
outsourcing service providers is driving the trend towards outsourcing. BPO
phenomena is developing as companies transfer the responsibility of complete
functions like human resource management, IT, and finance to outsourcing vendors –
sometimes called “unbundling” (McIvor et al., 2009). The BPO market has grown
 significantly over the past decade and the spending for IT-BPO services is estimated to Call center
be about $976 billion, with growing focus on the BPO component (NASSCOM, 2009). offshoring
Continuous improvements in telecommunications and information technologies,
together with the availability and variety of skilled global workforce, have impacted
the service delivery value chains (Apte and Mason, 1995; Mithas and Whitaker, 2007;
Metters, 2008). Components of the service value chain have been grouped under
business processes (BP) defined as a “set of logically related tasks performed to achieve 293
a defined business outcome” (Davenport and Short, 1990, p. 12). This trend has led to
an emerging phenomenon of business processes outsourcing (BPO) where services are
being contracted to third party service providers (Narayanan et al., 2011). BPO is
defined as “the management of [a] specific business process [. . .] by a third-party,
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together with the IT that supports the process” (Halvey and Melby, 2000, p. 1).
The paper begins with a review of the literature on service supply chains, offshoring
and opportunism, followed by an elaboration on the underlying theories related to BPO
performance and performance management. Call center performance is then presented
with some industry specifics, followed by the research framework, data analysis, and
conclusion.

2. Literature review
Business process outsourcing (BPO) assert strong origins with the literature on service
supply chains and service operations, where the outsourced processes create short
client-vendor nodes in the larger supply chains, and where the nature of the outsourced
processes can be classified according to service operations literature into front-office
and back-office processes. This classification leads to the discussion on which
processes are most candidates for offshoring. Performance management issues related
to offshoring and outsourcing is reviewed with emphasis on vendor opportunism.

2.1 Service supply chains and operations

Traditional manufacturing supply chains are relatively linear with items typically
flowing in one direction from suppliers to customers (Sampson and Froehle, 2006). The
unified services theory indicates that service supply chains are bidirectional and tend
to be short as customers act as suppliers of inputs to service provider processes
(Gaither and Frazier, 1999; Sampson, 2001). While service providers tend to interact
directly with consumers of the services, Sampson acknowledges the possibility of
service providers employing other service providers to supply particular services and
depicts it by a two-level bidirectional supply chain where the service provider acts as
an “agent” for the customer when dealing with outside suppliers (Roth and Menor,
2003; Sampson and Froehle, 2006; Fitzsimmons and Fitzsimmons, 2006). In business
process outsourcing a user company (client) hires an external service provider (vendor)
to provide staff and systems to serve the client’s customers. Figure 1 outlines the
different supply chains indicating the different revenue streams. A BPO supply chain
is different from a physical goods supply chain and a typical service supply chain in
that when a unit is sold to the customer, the retailer or service provider gets the
revenue directly. While in a BPO supply chain when the service is provided, the service
provider (vendor) does not get the revenue directly but it goes to the user company
(client) who in turn compensates the service provider (Figure 1).
 SO
6,3

294

Figure 1.
Supplier-buyer
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relationships in different
supply chains

Consistent with the service operations literature, uncertainty increases due to “customer
contact” leading to variability in the process (Larsson and Bowen, 1989; Chase, 1981).
Unified services theory (UST) argues that variability in the processing and outcome is
primarily caused by variability in the process inputs; specifically customer inputs
(Sampson, 2001). A viable way to reduce variability in service processes is to reduce and
control variability in customer inputs (Sampson and Froehle, 2006). A concept rooted in
customer contact theory is front-office/back-office differentiation (Metters and Vargas,
2000; Shostack, 1984, 1987). The classification of high- and low- customer contact can be
traced in the works of Shostack’s (1984) “line of visibility” in a service blueprint, and the
ability of the service designer to disaggregate high-contact processes from low-contact
processes. Traditionally, the front-office had been described as “where the customers
are,” while the back-office included the processes where the customers were not directly
involved. Back-office business processes had no need to be located in close proximity to
the customer. “De-coupling” included identifying low-customer contact activities carried
out by the front-office, standardizing them, and removing them into the back-office in
hopes of increased efficiency (Metters and Vargas, 2000).
Removing the customer’s physical existence from the service process does not
exclude customer contact, nor does it necessarily decrease the variability of the
customer’s inputs (Froehle and Roth, 2004). In 1999, Internet Protocol telephony was
introduced and ended the state monopoly on international calling facilities (NTP, 2006),
resulting in what can be called the “golden era” of the IT-enabled services and business
process outsourcing (Burns, 2008). According to Youngdahl and Ramaswamy (2008)
call centers fall in the “low knowledge emmbedeness”, “low customer contact” category
of back-office services, and is therefore primarily motivated by cost considerations.
Sampson and Froehle (2006) used call centers as an example to describe service
situations where the customer and service provider were not physically co-located
during the contact episode. Stratman (2008) indicated that basic call center activities
that limit the extent of customer interaction by using a “standardized script” have a
high potential for offshoring.

2.2 Offshoring
Developing countries are gaining importance in global trade and global outsourcing
(Hansen et al., 2008). Even countries beyond India and China are expected to become
 important players in the global business and IT services market (Lacity et al., 2008). Call center
Professional services offshoring is growing very rapidly and the trend is expected to offshoring
continue (Apte and Mason, 1995; Ashok and Kroll, 2006; Roth and Menor, 2003). While
UNCTAD (2004), reported offshoring of services to be “still in its infancy”, the industry
is expected to grow rapidly. Services outsourcing have taken off, and spending is
expected to continue to rise in all global sourcing markets. Mainstream BPO
expenditure is reported to likely grow worldwide by 10-20 percent a year, from $140 295
billion in 2005 to potentially $350 billion by 2010 (Lacity et al., 2008).
Youngdahl and Ramaswamy (2008) examined the evolution of offshoring, and
indicated that given a basic and reliable telecommunication infrastructure and a labor
pool that is properly schooled; especially with respect to language skills, many offshore
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providers may advance from simple transactions and straightforward customer

service, into providing complete service solutions. Although the phenomenon of
business process offshoring has grown in the past decade, many organizations have
experienced contradicting results and some have failed to recognize the performance
goals they were seeking. Especially in operations where power had shifted to the
service providers leading to loss of control over costs (Amaral et al., 2004, 2006). The
transactional costs of transferring, coordinating and monitoring offshored service
processes in some cases can greatly overshadow the potential cost savings (Stratman,
2008). Ellram et al. (2008) in their study of offshoring professional services show a
continuum of governance structures ranging from “doing things internally” to
“complete business process outsourcing.” Transaction cost theory (TCT) provides
insights into which business processes are best suited for offshore outsourcing, and the
probable risks and how to mitigate them (Ellram et al., 2008). Challenges of offshore
governance range from differences in time zones, language, culture and local business
norms and regulations (Rao, 2004; Sheu et al., 2004), but the focus of this study will be
on the challenges related to opportunism by the service provider.

2.3 Opportunism
Opportunism refers to decision makers acting with guile and out of self-interest
(Williamson, 1975, 1985). One of the key behavioral assumptions underlying
transaction cost theory (TCT) is opportunistic provider behavior, where the players in
the marketplace are limited by their own bounded rationality, and are subject to the
possibility of opportunism by other players (Williamson, 1985; Clemons et al., 1993;
Aron and Singh, 2005; McIvor, 2009). Vendors acting opportunistically, is one of the
most common risks identified with the outsourcing decision (Willcocks et al., 1995;
Willcocks and Currie, 1997; Lonsdale, 1999; Kakabadse and Kakabadse, 2000; Kremic
et al., 2006; Holcomb and Hitt, 2007; McIvor, 2009) and in some cases will cause firms to
not outsource (Greenberg et al., 2008). Ellram et al. (2008) identified supplier
opportunism to be at its highest when the buying firm cannot specify or does not know
what it wants, and when the buying firm cannot accurately assess whether the supplier
is actually honoring its commitments. Lacity et al. (2008) contribute opportunistic
behavior to misaligned incentives, as every dollar out of a client’s pocket typically goes
into the supplier’s pocket. In turn, clients are incented to demand more services from
the supplier without wanting to pay more, and suppliers are incented to squeeze as
much profit from existing contracts or to sell additional services to increase revenues.
 SO 3. Research context and theory
6,3 BPO operations are characterized by additional complexities that go beyond
traditional services. This section aims to understand what drives BPO performance,
and the supporting theories that relate to BPO performance management.

296 3.1 Drivers for BPO performance

Narayanan et al. (2011) studied BPO performance drivers and explained that
integration between the client and service provider, and within the service provider, are
important factors impacting performance. Ellram et al. (2008) identified initial
assessment of risk, and good management controls to directly affect PBO performance.
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Handley and Benton (2009) identified “strategic evaluation” coupled by “contractual

completeness” on one hand, and “relationship management” on the other, to be the
main drivers of BPO performance (Figure 2).
When making an outsourcing decision, the firm is required to go through a
comprehensive capability valuation and risk assessment to evaluate the strategic
implications of outsourcing a particular process (Handley and Benton, 2009). Resource
based view theories (Penrose, 1959; Richardson, 1972) and transaction cost theories
(Coase, 1937; Williamson, 1975, 1985) have contributed to this stage of outsourcing
decision making where processes and providers are assessed (Watjatrakul and
Drennan, 2005; Handley and Benton, 2009; McIvor, 2009). While a proper strategic
evaluation is one of the main detriments to the success of a BPO experience, our focus
in this study will be on contractual completeness and relationship management, and
how they relate to one another and to performance.
3.1.1 Contractual completeness. Contractual completeness is the extent to which the
firm and outsourcing provider create a contract which effectively coordinates
resources and addresses inter-organizational risks (Handley and Benton, 2009; McIvor,
2009). An outsourcing contract provides a legally bound framework in which each
party’s rights, and responsibilities are codified and specified. A comprehensive
contract becomes a reference point specifying how the client and vendor relate (Kern
and Willcocks, 2002). A complex contract specifies “promises, obligations, and process
for dispute resolution” (Poppo and Zenger, 2002). A complete outsourcing contract
should have the purpose of facilitating exchange and preventing opportunism
(Gottschalk and Hans, 2005).

Figure 2.
Handley and Benton
(2009) – conceptual model
– adopted
 Governance theories address the notion of incomplete contracts. Contracts are explicit Call center
written agreements between two or more legal entities that are enforceable through a offshoring
third party. A contract is incomplete, if no third party can verify to what extent the
parties complied with their contractual duties (Hart, 1988). Not all possible incidents
can be predicted, and even if they could be, bounded rationality would make it too
expensive to include in a contract (Alchian and Demsetz, 1972; Fama, 1980). The model
of incomplete contracts was developed by Grossman and Hart (1986) and Hart and 297
Moore (2007). A complete contract reduces opportunism and provides protection
against ex post performance problems by restricting each party’s ability to follow
private goals at the expense of common benefits (Gottschalk and Hans, 2005). An
incomplete contract causes ambiguity and offers a chance for shirking responsibility
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and shifting blame (Luo, 2002). Contracting aims at deterring opportunistic behavior,
but the contract in itself does not ensure a successful business relationship (Kern and
Willcocks, 2002).
3.1.2 Relationship management. Relationship management refers to degree to which
the outsourcing firm has strived to establish and maintain a mutually beneficial
relationship with the chosen supplier or vendor (Handley and Benton, 2009). The client
should be able to verify that the service provider (SP) is producing the services as
agreed according to set prices, productivity, and quality (Lillrank and Särkkä, 2011).
Principal agent theory (Ross, 1973; Jensen and Meckling, 1976) offers an alternative
view to transaction cost theory in the decision to outsource (Busi and McIvor, 2008) and
investigates the agency problems that occur when two parties have different goals.
One party, the principal (the client) delegates work to another, the agent (service
provider) who performs the work. Agency problems arise when the goals of the
principal and the agent conflict, and when it is difficult or expensive for the principal to
monitor and validate what the agent is actually doing (Eisenhardt, 1985). The major
concern in agency relationships is making sure that the agent is acting in the best
interests of the principal (Eisenhardt, 1989). Both parties in the relationship have their
own profit motive, and only the agent knows how hard he is working (Balakrishnan
et al., 2008). The principal cannot monitor the actions of the agent “perfectly” and
“without cost” (Sappington, 1991). Agency costs arise as a result of the misalignment of
objectives between the principal and agents (Lacity and Hirschheim, 1993). Agency
costs include the costs of constructing, putting together, and monitoring a set of
contracts between agents and principals. The focus of agency theory is on developing
the most “efficient contract” governing the principal-agent relationship where the cost
of enforcing the contracts does not exceed the benefits of the contracts (Logan, 2000).
3.1.3 Contractual completeness and relationship management. There are two types
of internal uncertainty firms’ face when outsourcing; not knowing exactly what they
want, and not being able to verify whether a supplier had performed as promised
(Ellram et al., 2008). Contracting requires the firm to accurately define levels of service
within bounded rationality realms (Alchian and Demsetz, 1972; Fama, 1980; Grossman
and Hart, 1986; Hart and Moore, 2007) and relationship management aims to ensure
that the agent is acting in the best interests of the principal (Eisenhardt, 1989;
Balakrishnan et al., 2008). Poppo and Zenger (2002) investigate formal contracts and
relational governance as the two main perspectives in their research on
interorganizational relationship management. Goo et al. (2009), in their empirical
study confirm that formal contracts and relational governance functions are
 SO complements rather substitutes. Handley and Benton (2009) in the conclusion of their
6,3 study recommended that future empirical efforts should investigate whether a more
complete contract when used in conjunction with other “enforcement” practices
(e.g. monitoring, inspections, audits) would significantly influence performance
outcomes. In this study, we argue that this relationship is mediated by performance
management, and that performance management is a product of the iteration between
298 good contracting and proper vendor relationship (Figure 3).
Eisenhardt (1989) discussed that the agent is more likely to act in the interest of the
principal when the contract is “outcome-based”, and when the principal has more
knowledge about the agent’s activities. Karten (2004) identified service level
agreements (SLAs) as formal negotiated agreements that enable clients and vendors
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to collaboratively identify, discuss, and manage service expectations. Outsourcing is

not recommended when the outcome cannot be easily measured with respect to cost or
quality (Lee et al., 2002). It is reasonable to assume that the majority of clients would
prefer outcome-based contracts that can be measured and monitored (Gottschalk and
Hans, 2005).

3.2 From performance measurement to performance management

Busi and Bititci (2006) call for a shift from performance measurement to performance
management, specifically collaborative performance management that focuses on both
efficiency and customer satisfaction. We will review the needed shift from performance
measurement, to performance monitoring, to performance management in business
process outsourcing.
3.2.1 BPO performance measurement. A main obstacle in assessing an outsourcer’s
performance is not having a set of solid performance measures to begin with (McIvor
et al., 2009). Better and complete specifications and measurement systems should be
developed where feasible to improve performance (Narayanan and Raman, 2004;

Figure 3.
Performance management
as a mediating driver to
outsourcing performance
 Amaral et al., 2004). In order to measure the actual performance level of a BPO in Call center
comparison to the target level, both the client and vendor need to identify the essential offshoring
performance indicators (Glykas, 2011). Key performance indicators (KPIs) should be
developed to allow for a later comparison between the target values and the output
results. Data collection is an essential practice to complement this phase. During the
data collection period it is important to define the target value, measurement period,
owner of the data, measurement formula, unit of the data and starting time of the 299
collected data (Pedro et al., 2012).
Outcome measurability is a critical requirement for effectively controlling the
business outsourcing process (Williamson, 1991; Kirsch, 1996; Kirsch et al., 2002).
Establishing performance metrics at the outset of a contract allows a client firm to link
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incentives and penalties to vendor performance (Harrison, 1988) Measurement

difficulty is a critical characteristic of principal-agent relationships (Wuyts and
Geyskens, 2005). When the performance of the vendor cannot be clearly measured, it
becomes difficult to write complete contracts that adequately govern the business
outsourcing relationship, thereby exposing the client to considerable risk of agency
conflicts (Alchian and Demsetz, 1972).
3.2.2 BPO performance monitoring. Uncertainty regarding performance of the
contract exists when the contracting parties have no assurance that the other party has
actually fulfilled its obligation and performed as specified (Williamson, 1975, 1985).
Monitoring the behavior of the vendor is an important part of process control that
discourages potential agency problems (Kirsch, 1996) Recent empirical work indicates
that close monitoring is an important antecedent to successful outsourcing
performance (Koh et al., 2004). Performance Monitoring refers to the extent the
outsourcing firm has developed clear processes and appointed required resources to
monitor and control performance. Firms need to allocate specific resources for
monitoring the outsourcer performance (Tate and Ellram, 2009). Performance
monitoring is considered one of the main outsourcing management competencies from
the client side (Saxena and Bharadwaj, 2009; Pedro et al., 2012).
Firms may be paying for something and not actually getting what they paid for.
This is referred to as “lack of observability” (Narayanan and Raman, 2004). Kirsch
(1996) referred to vendor behavior observability as the extent to which vendor
employee behaviors can readily be monitored during the outsourcing process. Projects
in which vendor behavior observability is lower create opportunities for agency
problems and shirking by vendor employees (Tiwana and Bush, 2007).
3.2.3 BPO performance management. Busi and McIvor (2008) refer to the need for
developing a collaborative model for outsourcing performance management where
boundaries are surpassed and partners behave as a single unit. McIvor (2009) in his
outsourcing framework integrates a number of performance management techniques
into the outsourcing process and discussed managing the outsourcing relationship.
Managing the outsourcing relationship entitles clients and vendors to access
performance information beyond their own firms (Holmberg, 2000; Busi and Bititci,
2006). Successful business process outsourcing occurs when service providers act
collaboratively on behalf of the contracting firm. Busi and Bititci (2006) analyzed the
issue of collaborative performance management and its implications in the area of
operations management, and business process management/engineering, and
 SO indicated that that outsourcing is not about giving up management, but about
6,3 managing in a different way.

4. Call center performance management

This section discusses two service level dimensions that are important for meeting the
needs of call center customers; quality and accessibility. Service level for quality (SLQ)
300 refers to the “on the phone experience” that the customer encounters with the agent,
and service level for accessibility (SLA) refers to the amount of “waiting time” the
customer encounters till reached by an agent.
Service level for quality (SLQ) is usually monitored through call audits, mystery
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calls, and post call customer satisfaction surveys (Gilmore, 2001; Bain et al., 2002). The
vendor firms are expected to be highly responsive to the needs of the end customers
since customer satisfaction issues take priority (Narayanan et al., 2011). Independent
quality control centers or market research agencies are hired to judge the quality of the
call in reference to particular preset assessment guidelines, and to fill out periodic
reports that provide quality scores (Hasija et al., 2008; Ren and Zhou, 2008). The SLQ
measure is mainly derived through subjective judgment and customer perception of
the following:
.
the welcome;
.
understanding and taking the request;
.
processing the request;
.
waiting time while processing request;
.
behavior and helpfulness;
.
other additional services;
.
customer information gathering; and
.
the closing.

Service level accessibility (SLA) can be monitored by collecting data with respect to;
lost call rate, ratio of calls answered within a specified period of time, average holding
time, and average queuing time (Milner and Olsen, 2008; Baron and Milner, 2009).
Sampson (2001) compares “customer waiting time” to traditional manufacturing
inventory “holding costs”, where customers “queue” or “wait in line” to be served. He
considers customer inputs in this case to become “inventory” until sufficient server
capacity becomes available (agent becomes available) or until the customer decides to
withdraw his or her inputs from the process (lost call). Clear objective KPI’s are set for
SLA and are usually associated with a well-defined penalty system.
Figure 4 demonstrates the two service level dimensions, and indicates an opposing
operational relationship between SLQ and SLA; for a given fixed capacity level
(e.g. number of agents £ effective capacity of agent per shift). Conceivably, if an agent
is busy taking care of a customer they are unable to respond to another call. In the same
sense, the average handling time (AHT) an agent spends on the phone with the
customer can be used as a proxy to predict SLQ and SLA.
Average handling time (AHT) measurement includes talk time, after call work, and
holding time, per call. AHT targets are commonly used in call centers to indicate
quality of service (SLQ), typically, the longer the time spent with the customer on the
 Call center
offshoring

301

Figure 4.
Service level dimensions
in a call center
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call, the higher the service level. On the other hand, AHT negatively corresponds with
accessibility to service (SLA), as for a given call center capacity, the longer the time
spent with the customer on the call, the less available the agent will be to respond to
other callers. While this delegation seems crude, it provides for an objective measure
for predicting SLQ, and becomes useful in detecting agent opportunistic behavior when
related to SLA measures. Table I lists examples and definitions of the most common
KPI’s used in call centers related to SLQ, SLA, and AHT.

Area KPI Definition

Service level quality Call quality audit Report filled in by quality agency
(SLQ) evaluating an audited call in terms of
a quality score
Customer satisfaction score Compiled report of after call customer
service surveys expressed in terms of
a quality score
Mystery call perception Report filled in by quality agency
evaluating a mystery call in terms of
a quality score
Service level Lost call rate (LCR) Total abandoned calls/total number
accessibility SLA) of received calls
Percentage answering within 20 sec ratio of calls answered within a
(SLA) – queue time specified period of time, e.g. 20 sec
Average queue time Average waiting time in the queue
Average hold time Ratio of calls with holding time, and
the average duration of the hold
Average call handling Average handling time ¼ total call Talk time þ after call work þ hold
duration
Talk time Duration of the call
After call work Forced waiting time between two
calls
Percent of call transferred Percentage of call transferred to
another agent (assist/second line . . .) Table I.
Re-call Closed cases with a new call within Key performance indices
ten days (KPIs) for call centers
 SO Under the price-per-call (PPC) contract term, the outsourcer gets a fixed fee from the
6,3 client for each call the vendor answers. Under price-per-time (PPT) contract term, the
outsourcer pays for the vendor per unit of time spent serving the customer (could be
hours or minutes). PPT contracts are always accompanied with penalties in case AHT
are not achieved. Using a well-designed contract to “get it right first time” has a
significant value for the outsourcer when compared with very costly alternatives such
302 as full on-site monitoring of the vendor or renegotiation the contract terms, where the
outsourcer uses the contract to influence the “unobservable behavior and poor contract
design” (Hasija et al., 2008). Lack of understanding the outsourcing economics and poor
coordination with the outsourcer are important reasons that not all companies get the
expected benefits from outsourcing (Ren and Zhou, 2008).
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5. Research framework
This research aims to detect vendor opportunistic behavior under different contact
arrangements. Previous theory indicated that complete contracts and proper relationship
management (along with strategic evaluation) would lead to better BPO performance
(Handley and Benton, 2009). The authors argue that this relationship is mediated by
performance management. Performance management encompasses the ability to measure
performance and have clear, specific and measurable KPI’s in a contract on one hand, and
the ability to monitor vendor performance according to client – vendor relationship
guidelines on the other. If managers are to aim for successful BPO performance, they
should not ignore the connection between both. Measures that are initially determined and
listed in contracts need to be carefully monitored. Feedback from this monitoring should
in turn lead to better revised contracts, and even better monitoring practices. A
performance management system for detecting and mitigating opportunism in call
centers outsourcing is proposed (Figure 5). The authors use the prominent notion of

Figure 5.
A framework for detecting
and mitigating
opportunistic behavior
 opportunism to demonstrate how iterative measuring and monitoring developed under Call center
performance management principals can lead to better call center performance. offshoring
The framework predicts that opportunistic behavior under contracts for specific
pricing schemes would result in specific reactions that can be tracked by using the
performance measures and proper monitoring. In particular, it outlines the
opportunistic behavior with respect to two different pricing schemes (PPC and PPT)
and how it affects call center performance. Under the first scheme (PPC), the vendor is 303
expected to opportunistically decrease the average handling time (AHT) of the
incoming call aiming to increase the number of answered calls. This can also be
detected in the higher ability to meet preset service level accessibility (SLA) targets.
Under the second scheme (PPT), the vendor is expected to opportunistically increase
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the average handling time (AHT) of the incoming call. This can also be detected in the
lesser ability to meet preset service level accessibility targets (SLA) for a given fixed
number of customer service operators. Following are the two hypotheses:
H1. Pricing scheme and average handling time. There is a significant difference
between the effects of different pricing schemes on average handling time
(AHT) in the call center industry.
H2. Pricing scheme and service level. There is a significant difference between the
effects of different pricing schemes on service level accessibility (SLA) in the
call center industry.

5.1 Data and analysis

The researchers had access to real call center data from a Telecom Holding company
owning subsidiaries in more than ten countries worldwide. Records related to two
subsidiaries with outsourcing experiences were analyzed. Subsidiary A had been in the
business for more than ten years, and had begun to partly outsource their inbound call
service businesses eight years ago. Their experience allowed them to have better
forecasts for their incoming calls, and they had decided on using price-per-call (PPC) as
the main pricing scheme for their outsourcing contract. Subsidiary B had been in the
business for almost two years, and had begun to partly outsource a portion of their
inbound calls since the first day of operation. With no history of call trends, and a
superior quality mission, they had decided on using price-per-time (PPT) as the main
pricing scheme for their outsourcing contract. While both contracts were selected for
different purposes and were contracted under two different pricing schemes, both
outsourcing experiences were offshored, and were of similar size, and both handle the
same type of business. The data obtained represents 107 weeks for each contract type
investigating two popular call center KPI’s, namely, average handling time (AHT) and
service level accessibility (SLA). Table II shows the data related to the two subsidiary
contracts.

Subsidiary Contract type/pricing scheme AHT target SLA target

A PPC 228 seconds 70%-20 sec Table II.

B PPT 350 seconds 70%-20 sec Performance targets
 SO The data obtained was processed in order to test the research hypotheses as follows.
6,3 For H1, the independent variable is the “contract type” where two pricing schemes
were identified and compared namely price per call (PPC) and price per time (PPT), the
dependent variable in H1 is the average handling time of calls (AHT). The data where
the researcher used the result of deducting the target AHT objective from actual AHT
achieved data (actual – target).
304 As shown in Table III, the researcher used 214 weekly results from two different
companies, operating and using two different types of contracts. One way ANOVA
technique was used to test the hypothesis at P , 0.05, two tailed sig. The result came
highly significant as the mean of AHT associated with the PPC scheme fell short by
2.37 seconds of the targeted AHT, while the mean of AHT associated with the PPT
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scheme exceeded the targeted AHT by 29.34 seconds.

For H2, the independent variable is the “contract type” where two pricing schemes
were identified and compared namely price per call (PPC) and price per time (PPT), the
dependent variable is the service level accessibility (SLA). The researcher used the
result of deducting the target service level accessibility targets from actual service level
accessibility achieved data (actual – target). As shown in Table IV, the researcher used
214 weekly results from two different companies, and using two different types of
contracts. One way ANOVA technique was used to test the hypothesis at P , 0.05, two
tailed sig. The results came highly significant as the mean of SLA associated with the
PPC scheme fell short by 0.93 percent of the target SLA, while the mean of SLA
associated with the PPT scheme exceeded the target SL by 6.71 percent.
The above analysis shows a significant difference between the two pricing schemes
PPC and PPT in terms of average handling time (AHT) and service level accessibility
(SLA). This confirms the existence of opportunistic behavior by the vendor side.
Vendors tend to decrease the actual AHT compared to AHT targets when using PPC
contracts to answer more calls and increase overall revenue, while they tend to increase
the actual AHT compared to AHT targets when using PPT contracts to increase their
revenue compensation. We can also observe that under PPC scheme the vendors
tended to barely meet the SLA objective or in some cases fell short, while the vendors
under PPT schemes tended to exceed service level accessibility SLA objectives. This
could be explained by the fact that vendors using PPC suppliers usually adapt a cost
conscious approach leading them to strictly control the number of agents in the call
center thereby in some cases failing to meet the quality the target, while vendors using
PPT schemes tended to hire more agents to guarantee the highest service time possible
in order to maximize their revenues.

6. Conclusion and discussion

This study emerged from the hounding issue of vendor opportunism that has
shadowed outsourcing experiences for decades. It presents performance management
as an important mediating process affecting BPO performance, and displays that
through cyclical iterations between measuring and monitoring performance, the
quality of contracts can improve, and in turn affect the client-vendor relationship.
Building on contractual and agency theories and using a performance management
approach, data from two companies using two different pricing schemes in their call
center outsourcing contracts were analyzed. The data represents 107 weeks for each
contract type covering different service level KPI’s. Under the first scheme (PPC) the
 Downloaded by GERMAN UNIVERSITY IN CAIRO At 23:47 10 September 2014 (PT)

Test of homogeneity of variances

Descriptive statistics ANOVA for AHT AHT
n Mean Std deviation Sum of squares Df Mean square F Sig. Levene statistic df1 df2 Sig.

229.650 1 212 0.000

PPC 107 22.37 4.158 Between groups 53796.491 1 53796.491 67.506 0.000
PPT 107 29.34 39.706 Within groups 168944.935 212 796.910
Total 214 13.48 32.338 Total 222741.425 213
offshoring
Call center

305

Actual – target for AHT

Table III.
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6,3
SO

306

Table IV.
Actual – target for SLA
Test of homogeneity of variances
Descriptive statistics ANOVA for SLA SLA
n Mean Std deviation Sum of squares Df Mean square F Sig. Levene statistic df1 df2 Sig.

107.294 1 212 0.000

PPC 107 2 0.9252 5.70782 Between groups 3124.684 1 3124.684 17.043 0.000
PPT 107 6.7171 18.27838 Within groups 38867.929 212 183.339
Total 214 2.8959 14.04095 Total 41992.613 213
 vendor tended to decrease the average handling time (AHT) of the incoming call, in Call center
order to increase the number of answered the calls and boost revenue. In the second offshoring
scheme (PPT) the vendor tended to increase the average handling time (AHT) of the
incoming call aiming to increase their revenue. Results also showed that PPT schemes
tended to exceed service level accessibility (SLA) objectives while PPC scheme tended
to partly meet the SLA objective or fell short. This could be explained by the fact that
outsourcing vendors using PPT schemes tend to hire more agents to guarantee the 307
highest time possible in order to maximize their revenues while PPC vendors usually
adapt a cost conscious approach leading them to strictly control the number of agents
in the call center which explains their failure to meet the target. To confront
opportunistic behavior, better complete contracts need to be written. This can only
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happen through proper monitoring and management of the vendors’ performance.

Subsidiary B (identified in the study with a high occurrence of opportunistic behavior
as a result of using PPT as their pricing scheme) changed the terms or the contract
after the second year of operation to PPC and added unique service level quality (SLQ)
measurements. This could have only happened through solid performance
management practices that closely monitored and directed the business process
outsourcing experience.
Average handling time (AHT) measurements that emerged from call center
management practice demonstrate how certain quantitative measures can guide
service level performance. Service quality is heavily loaded with subjective measures,
highlighting the need for identifying better proxies to quantify and predict behavior.
The paper highlights the contradicting service dimensions that are inherent in call
center service operations and opens the research to define more appropriate service
quality proxies. Future research can relate to develop the exact shape of the AHT curve
in relation to service quality subjective measures. Performance management which
combines both measurement and monitoring is required if outsourcing firms are to
expect better performance.
The study supports telecom companies that are interested in outsourcing their call
center services with the important factors they need to consider during the outsourcing
process, particularly in light of the vendor opportunistic behavior associated with
different pricing schemes (PPT vs PPC) and its impact on the different service level
dimensions. These factors when identified should help companies build a win-win
relationship with the outsourcing vendor and allow them to enjoy the outsourcing
benefits. It is recommended that the client closely monitors the outsourcer headcount
levels to ensure that they are sufficient to achieve the required service level.
Researchers interested in the field of call center outsourcing should shift their attention
toward overall performance management of the business outsourcing process, in terms
of identifying better developed service level agreement variables and effective
client-vendor relationships.

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Corresponding author
Sherwat Elwan Ibrahim can be contacted at: sibrahim@stevens.edu

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