Thesis:  How to invest for the future of AI disruption in Customer Service.


Issue: Traditional Customer Service Support Organizations are likely to be significantly disrupted by technology like never before.   Business Process Outsourcing (BPO) and Contact Center Outsourcing firms have heard this for more than 20 years, but the introduction of Generative AI tools and the varied impact of the technology are very likely to accelerate this disruption.

Rationale: Estimates range between 20% and 40% revenue reduction, largely influenced by the complexity of the transactions handled today, with very complex transactions being less likely to be disrupted.

Given the increased awareness and desire of large enterprises / Brands to place Customer Satisfaction, Retention, and Experience at the top of their strategic roadmaps coupled with their desire to reduce costs and leverage new technology like Generative AI, outsourcing organizations have a unique opportunity to provide strategic and high-end value-added consultative services in these areas.



  • Build a high-margin advisory service on the back of a high functioning traditional outsourcing organization creating an opportunity to bring new services to existing and new clients and rebrand from “BPO” to Strategic, Value-Added, CX change agent.

  • Transition, at least partially, from traditional human-usage cost models to recurring revenue tech-enabled services models that rely on transaction pricing at higher margin (by percentage) along with overall go-to-market and pricing strategy changes.



A deeper dive on the issues that are about to face traditional BPO organizations:

The introduction of Generative AI is the main catalyst for disruption among BPOs and their clients.   BPOs are seeking ways to use the technology to be more efficient and differentiate themselves, and clients are looking for ways to reduce volume and effort, and therefore costs.

Here are a few ways generative AI could negatively impact and transform the customer service industry:


Automating more conversations

Generative AI digital agents can handle increasingly complex customer queries. This reduces human workload.  The introduction and use of Generative AI digital agents is not necessarily an easy task and perfecting these applications will take effort and time.   Once constructed and deployed, however, they will have a meaningful impact on the volume reaching human agents and therefore on the top line revenue of the BPO.

Customers prefer a more “effortless experience” and competitive pressure will push Brands and BPOs into more conversational automation with more comprehensive understanding.


Personalizing support

AI can synthesize information and language tailored to each customer for more contextual, empathetic conversations – and it can do it in real-time.


Customers expressly prefer organizations that “know them” and understand the services and offerings the company possesses, how they use them, and predictably, why they may be contacting them.   Human agents struggle to digest this vast array of information in a reflective and personalization-affirming dialog, but digital agents do it well and will get better and better at this.


Irrelevant menu prompts based on incorrect assumptions about why the customer is calling will become unacceptable and organizations that don’t reflect this personalization will suffer and be forced to compete primarily on price, not value.


Augmenting agents

Human agents can be equipped with AI tools to help draft responses, summarize issues, suggest solutions, and access information faster – again, in real-time.


While this is an obvious advantage to Customer Service organizations, it is also likely to be a commodity quickly that does not differentiate one service provider from another, even though it will be very disruptive.


While obvious and easier than other areas, it does also require change management and risk assessments depending on the contact use-case.


Lower costs

Automating routine conversations and augmenting agents could significantly lower human support costs.  Lower support costs mean lower revenue to the vast array of BPO organizations, each who will be looking for ways to recover top-line revenue.  Those that fail to act quickly will cause additional price pressure in the outsourced market, hastening a slide to the bottom as it relates to pricing and margins.


Cost-per-call model pricing can be enhanced by making agents more efficient however Brands will want to participate in these savings, which will also put pressure on pricing and margins.


What exactly will be the financial impact of Generative AI on the BPO market?

Each organization is different, and each organization has many factors that influence not only the impact but the ability to navigate through it.
Here are the parameters to consider relative to the size of impact of Generative AI on BPOs.


  • Size of the outsourcer's operations (number of agents, volume of inquiries etc.)
  • Types of customer service channels currently supported (email, chat, voice, social media etc.)
  • Complexity of typical customer issues and queries
  • Diversity of industry capabilities
  • Impact of regulated markets such as healthcare, financial services, and recruiting.
  • Maturity level and proliferation of existing automation and AI capabilities
  • Potential /opportunity of reduction in average handle time per inquiry, largely based on complexity.
  • Upfront and on-going costs of developing or licensing AI technology and the ability to share these costs with customers or across customer delivery teams.
  • Amount of change management and retraining costs for human agents


While the exact impact is uncertain, some indications are that mature generative AI solutions could potentially reduce customer service costs by 20-40% by automating routine inquiries and augmenting agents. However, realization of benefits requires thoughtful planning and implementation. Large outsourcers should invest now in developing solutions tailored to their needs.

It is also true that the introduction of technology as a disruption to the BPO marketplace is not new; the introduction of Generative AI is new however, and its ability to materially reshape the industry is more acute and recognized than previous technologies.

At a macro level, there are three ways Generative AI will be used to change the industry:


  • Through commoditized summarization and content creation, real-time and otherwise.
  • Through reduction in cost to implement automation due to better and faster tools.
  • Through materially different ways of doing business using new solutions to old problems (ex. training).


A thought about BUY vs BUILD before we continue. 

When a Brand is determining their strategy, including the CX strategy, they must also make a decision about what capabilities they will develop themselves and which they will seek professional outside help.

There are four key questions an Enterprise should ask itself relative to outsourcing in general and now, with the introduction of these highly enabled but complex technologies, specifically regarding the intersection of AI and CX.


  • Does my organization have the core-competencies to deliver on the vision?
  • Does my ownership and deployment of this ourselves create a differentiation in the marketplace for my organization?
  • Can I execute the vision cheaper on my own?
  • Can I get it to the market faster?


A “no” to any one of these insinuates that the organization should look to outsourcing the capability.   A “no” to all four creates a lasting opportunity for the BPO.

Large Brands will be more likely to see number 2 on the list as a key “fork in the road” strategic decision upon which the other three answers could be invalidated with the right investment.  Therefore, choosing the right target clients for the BPO will heavily rely on an understanding of where the prospect fits on this BUY vs BUILD four-question survey.


So, how can BPOs transform to blunt the impacts and take advantage of the technology and differentiate themselves from their competitors?

Here are some potential value-added services a customer service outsourcer could look to develop and offer to offset the impact of core business reductions from AI automation:


Professional services

Expand into advising clients on customer experience strategy, journey mapping, persona development, voice-of-customer analysis, and contact center technologies.

Unlike traditional Management Consulting firms, customer service outsourcers have unique domain expertise in CX and enabling technologies.   On the one hand, this should be largely true, but often, BPOs do not actually have these skills or customers don’t see them that way.  Ie, they should, but they don’t – and this is the opportunity.

Paradoxically, these same Professional Services will have the unintended consequence of accelerating the changes and issues described above on the core business of human agents.   Success, defined as executing a credible Professional Services strategy, will mean that advice around reducing customer effort and increasing customer satisfaction, will likely mean fewer human-handled calls and the associated reduction in revenue.  It should, however, translate into much higher margin (as a percentage) but will also likely lack the re-occurring revenue characteristic that these organizations count on.

Therefore, the ideal Professional Services model includes not only credentializing the organization as the best in terms of CX advisory, but also leads to recurring revenue in the form of technology usage fees.   The Professional Services organization is the on-ramp for technical services recurring revenue.

It may be possible that a true end-to-end enterprise CX strategy delivered to a client will also uncover new opportunities for high-touch, human oriented services at the upper-end of BPO services offered today, creating wholly new revenue.

The ideal end-state is having enterprises view BPOs as strategic CX partners rather than commodity vendors.



Custom application development and management with recurring revenue

Build customized mobile apps, portals, self-service experiences, integrations with client systems.


On the one hand, some of these services are themselves somewhat commoditized already, however CX today is all about the journey enabled through self-help and that means technology.   The distinction here is that, as the go-to-partner for CX, the BPO leads the way in terms of depth and confidence and experience as it relates to designing and deploying these solutions.


Consumers are less concerned about the platform for interacting with the brand and more concerned about the effort.  Was it easy for you to do what you needed to do today?


Having said that, there is more of a generational divide appearing where younger consumers simply do not want to have to speak to a human – under any circumstances.   They are also primarily interacting with their phone and therefore, brands must have a mobile first strategy (nothing has changed here).   This strategy means, however, enabling the capabilities within their mobile app as well as fostering the support capabilities to drive the consumer to the areas of the app that will get the job done.  


Bottom line, brands need to enable as much functionality as possible in their website and/or app and then employ digital engagement means to direct consumers to those capabilities, even walking them through the process.   If they do choose to call, then adopting an “inter-modal” engagement framework where the consumer is conducting one conversation potentially via both digital and voice interactively. 


The BPO has perfected the ability to handle the fallout from these interactions. Now is the time for them to differentiate themselves by virtue of leading the strategy and execution around the entire customer journey.   To be clear, for most Brands, this means seeking help from the BPO on integrating their core systems with the “inherent support” through digital means, and not taking over the core or enterprise systems themselves.   Tight collaboration and integration is the key.



CCaaS Deployments

One of the largest technology migrations in ages continues on relative to the journey to the cloud and cloud telephony or Contact Center As-A-Service is no exception.


Deployment in this market is finally gaining significance and the major players such as Nice, Five9, Genesys, and Avaya have significantly benefited from this migration.


In addition to the actual transition to the cloud, these platforms make it easier for other cloud best-of-breed solution integrations to take place.  It is sort of a knock-on effect for CX applications.   Many of these are IVR, Chatbot, QA, and AI/ML type systems.   The proliferation in this Customer Interaction Management (CIM) software category is extensive and the broad category of AI / Generative AI enabled solutions for CX is by far and away the largest in terms of Private Equity and Venture Capital based investments over the last few years.   More on these best-of-breed solutions in a moment.


As for CCaaS, many implementation firms have been created to support the professional services side of these companies, who, after all, would rather stay pure SaaS and avoid lower margin services revenue.   While the CCaaS vendors themselves will benefit from the recurring revenue associated with these newly migrated customers for the long term, the professional services firms will ultimately face more growth pressure as the market begins to be saturated, both by these implementation firms, but also because there will be fewer and few on-premise implementations to migrate.   There is some runway before this becomes an existential threat, but implementation firms that bank on this once-in-a-lifetime migration to go on forever, may be caught off-guard.


Having shared some concerns relative to CCaaS, it should also be noted that firms with these skills are also likely the same firms that can aid clients through comprehensive self-help implementations illuded to above and discussed next.



Best-of-Breed AI and digital self-help solution implementations

The first obstacle for best-of-breed solution implementations is a Brand that is still operating on on-premise technology.   To really get the benefits of true AI and Digital self-help, they likely need to be on a cloud telephony platform – thus the previous section.


Beyond that, BPOs should not pivot to becoming a software vendor, but instead, become an expert at bringing the right combination of technology to the client.  Each technology selected to solve specific parts of the customer journey.   The big-4 management consulting firms are good at defining the customer journey but most of these firms do not have sufficient on-the-ground experience with anything except the largest players who can funnel enough PS revenue to support their practice.  Therefore, it is very likely large Brands who engage these firms are likely to mostly get the middle of the road capabilities, albeit robust from the likes of Google, Amazon, Microsoft, Salesforce, etc, missing out on the most unique and disruptive solutions.


The CIM space is riddled with incredible point solutions that are designed to augment the larger cloud players (Google, et al), and it is somewhat surprising that there has not been more consolidation in this space.  Competing forces around ecosystem, Return on Investment (ROI), and not-invented-here have blunted this to-date.


This item specifically goes to both the Brand and BPO strategy around how to “eat the elephant” or how to develop the right strategy using all the AI technology and opportunity for effortless out there.    Consistent advice on this topic has been that organizations should start to “crawl” or “walk” by beginning with back-office and other tactical solutions, slowly growing to more customer facing and more complex solutions.


As such, BPOs should start to adopt these technologies and apply them to their own organizations while simultaneously adding them to the repertoire of capabilities in their newly-created CX practice.  If this creates disruption to the “butts-in-seats” business, then necessarily, there should be discussions with clients around value based vs human based pricing.   Predicably, most traditional BPOs will be slow to adopt these technologies for the pure outsourcing business for fear of revenue leakage, but regardless, they should absolutely build their CX professional services around these capabilities.  Also, areas such as recruiting and training may have the right balance of opportunity without also negatively impacting the core.


If the concept makes sense, but the truth is just too hard to hear, then BPO organizations can consider bifurcating their customer base such that the two sides of the business do not necessarily share clients, but instead the digital side is there to disrupt competitor’s core BPO business.



Recurring transaction services revenue

The key opportunity here, although buried in this list, is the ability to design, build and ultimately run these CX solutions for brands.   The later “run” capability carries with it the traditional “Managed Services” model but if established correctly, can also bill on a usage basis as well.   The usage billing would provide the Brand with the assurance that someone is minding the system as well as providing update, continuous improvement, and security related services.  Again, in the outsourcing selection model above, Brands of the right size do not want to be in this business anyway.



Contact center analytics

Offer rich analytics dashboards, customer journey analysis, predictive modeling services to identify areas for self-service and improvement.


Many BPOs offer this service today, although usually only as it relates to their own services.


By contrast, this service can be universal and more importantly, the introduction of new tools, often aided by Generative AI can offer greater insight than before.


Brands need to have a realistic view on the results of these analysis and be prepared to actually implement the recommendations.  Very often, the insights are valid but Brands tend to not act on them due to budget or strategic limitations.


Brands should also be prepared to have a full-time effort associated with continuous improvement.  Over the next decade, the role of contact center agent may be heavily augmented by new knowledge workers that are guiding and correcting the “robots” that serve their customers.


The key is leveraging existing expertise in customer interactions and augmenting with high-value strategic, analytical, and technology services beyond just call handling.

Another hard truth is that Brands are unlikely to trust a BPO as their CX thought leader.  Historically that just has not been the role these BPOs play.   An analogy: Imagine you own a Chevy car and want to get the oil changed.   You are likely to go the Chevy dealer for this, but if you own a Toyota, you are unlikely to get your oil changed at the Chevy dealer.  Instead, you might go to Jiffy Lube, an independent source.   In this way, BPOs should establish their CX advisory business more in the Jiffy Lube model than the Chevy service center model to make their offering more appealing to Brands of all sorts regardless of who they currently use for human BPO services today.  They should use their resources to establish this CX business but brand it separately for wider appeal.



By positioning themselves as customer experience experts, outsourcers could deliver high-value advisory services and consulting around technology, operations, analytics and strategy related to contact centers. This leverages their operational experience while reducing dependence on volume-based services that AI aims to transform.

Ideally, the technically solutions can be delivered in a way that allows the outsourcer to provide ongoing management and continuous improvement which would allow for a recurring revenue model.

Importantly, most BPOs will not want to cannibalize their own human centric work, but instead they could use this strategy to disrupt competitors while growing higher value recurring revenue.