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Most companies prefer their own staff to talk to customers on the telephone, rather than trust such a sensitive activity to a third party.

Yet those opting to use an outside supplier are growing in number. According to Datamonitor, outsourcing will account for 11 per cent of all UK call centre activity next year, rising to 14 per cent in 2007.

Financial services and utilities lead the way, particularly with high volume and repetitive activity. Many charities, retail and holiday companies also outsource at least part of their activity. And local authorities are looking for outside expertise in their drive to raise customer service levels.

Smaller companies can benefit from the economies of scale, state-of-the-art technology, and efficient workflow management that agencies offer, which they would struggle to emulate on their own. But larger organisations may also have important reasons to outsource.

For instance Philips and Procter & Gamble both take the view that handling customer enquiries is better left to specialists, leaving them to concentrate on their core competencies of product development, sales and marketing.

This is also the case with Honda UK, which two years ago handed its call centre activities to iSKY Europe in a bid to sharpen up its customer dialogue.

"We need to focus on the manufacture and distribution of cars, bikes and power equipment, and use outside expertise to ensure we talk to our customers correctly," says Honda head of customers Steve Oliver. By choosing a partner carefully the company could be confident its brand philosophy would be fully implemented, he adds.

Agencies also increasingly find themselves handling outbound marketing and sales campaigns for clients. The skills required are somewhat different to customer service, and are often harder for companies to source themselves.

The data requirements are also more complex, especially with large campaigns that involve up to four million prospects. "As well as cost effectiveness, companies can benefit from the consultancy we offer with the input of real data experts," says Phil Coley, outbound call centre manager at Broadsystem.

Sometimes it is useful to outsource only the trickiest aspect of a campaign and handle the rest in-house. For instance, luxury holiday company Page and Moy gets Broadsystem to ring customers with special offers and transfer the calls to its in-house staff once the customer has expressed an interest.

But when it comes to customer service, many companies consider only their own staff can guarantee the quality they aspire to. This is the case with Boden which, according to operations director Ben Dreyer, is "obsessive" about how customers are handled.

"When the customer calls it may be the first time we make live contact with them, and having this in-house gives us more control over the experience," he says.

Outsourcing is not always the answer

Proximity to the centre of activity also counts for a lot, Dreyer adds.

Boden's call centre is located right next to its marketing and merchandising departments, which makes it easy to swap information on customer needs and future plans.

"This seamless communication would be very hard to recreate with a third-party operation, and without it you would get poorer service levels," he points out.

It's the same story at Yorkshire Building Society, which regards its call centre as a crucial first line of contact for customers. "Keeping it in-house gives us complete control over the recruitment, training and management of staff performance, which would be much more difficult if it was outsourced," says head of member call centre Caroline Cole.

But in some cases a company is so out of its depth handling customer calls that outsourcing is a logical step. This was the case with the UK Passport Service five years ago, when a serious backlog led to a surge in telephone calls that staff were unable to handle.

New management was brought in to resolve the crisis and one of its first actions was to outsource the handling of customer calls to MM Group. As a result, the organisation's call centre is now considered one of the best run in the public sector.

Outsourcing is best used where a definite need can be established. "If the operation works in-house then there is no reason to change it," argues Penny Bousfield, director of outsourcing at CM Insight, which advises companies on the best course to follow.

Where its call centre functions poorly, a company may naturally think that outsourcing is the answer, but this is not necessarily the case.

"A lot of failed calls may indicate that something is wrong elsewhere in the organisation, and giving the work to an agency will just make things worse," Bousfield says.

On the other hand a company that chooses to set up an in-house call centre faces some obvious hurdles. One common problem is a lack of management expertise. "Running a call centre is a specialist role and appointing someone who merely has a good track record as a process manager means you will soon come unstuck," says Roy White, managing director of Sitel Consulting.

"Here you are dealing with complex people and technology issues in real time, and often have to respond instantaneously. For example, if call queue numbers suddenly jump and the level of service is falling, you have to decide quickly the best action to take."

The problem is especially acute with public sector call centres, where the pressure of call centre work can come as a bit of a shock. "Culturally, it's a very different model," White says. "Staff have to be there when customers call, which means they can't always knock off for a scheduled break or go home on flexi-time at 3.30pm as they are used to."

Another common mistake is to focus on hard performance measures, such as how many calls are answered, and how quickly, but ignore the overall quality of the customer experience. This requires frequent monitoring and coaching of agents, which again is a specialist job.

Technology is also an issue, as many in-house call centres buy expensive software to forecast volume, then fail to use it properly.

"If they know what they are doing, managers can change the call queuing structure, or discover the likely impact on the service level of anticipated staff absences," White says. "This will help them decide whether to move resources around or run with a lower level of service for a while. But all too often suppliers set up the equipment and then walk away, so companies fail to get the full benefit."

It is not always necessary to opt either for an in-house or outsourced operation - there are alternatives. Some call specialists have made 'insourcing' deals, in which they equip and run a call centre, then pass it back to the client once it is well established.

Western Power took over Welsh water company Hyder three years ago. It recognised that it did not have the resources to talk to customers in the region and entrusted the task to Bristol-based MM Group. The agency created a dedicated centre in Cardiff and ran it for two-and-a half years.

Working as a partnership

"The client needed time to assess the requirements and gain understanding of the peaks and troughs of demand," says Rachel Robinson, MM Group business development director. "After a period it had acquired the necessary expertise and was able to manage the centre itself."

Similarly, Sitel Consulting offers on-site services where the operation is part of the client organisation but is run by its own staff, an option, it says, that is increasingly favoured by local authorities.

Broadsystem too provides 'co-sourcing' arrangements, where it will oversee both its own agents and those of the company working in separate centres.

"Over the past 18 months this has been the way forward for many companies, as it gives them more feeling of control," says Coley.

However, if a company decides to outsource it does not mean sitting back and letting someone else do all the work. Agencies say their best work results from a genuine partnership based on trust.

"Projects tend to fail where the client just gives us the brief and tells us to report back in three months," says Coley. "In other cases they may try to impose total control. The most successful campaigns are where the client takes an active interest and works with us to get things right."

CALL CENTRE EXPO 2004

Call Centre Expo is coming up on 29-30 September at Birmingham's NEC, and will be a key event for anyone involved in the contact centre industry. Organiser CMP expects more than 7,000 visitors at what it claims is the largest show of its kind in Europe.

The show will offer a wealth of information on business, management and technology issues for companies that run their own centres. But this year there will also be an increased focus on outsourcing, with offshore suppliers well represented.

More than 200 exhibitors will be present, covering a full range of in-house and outsourcing solutions. Major CRM and telecoms suppliers Siebel and Siemens will be present for the first time, while others, such as Alcatel and Rockwell are returning after an absence, a sign of the upswing in the market.

A full conference programme will provide ideas and case studies, many encouraging a shift from cost centre to profit centre. "The industry has mainly been about customer service, but there is a growing interest in using centres for sales and marketing," says CMP portfolio director Mark Snell.

"Visitors can learn how well their call centre is aligned to their brand and marketing objectives, capturing the best marketing intelligence and making the greatest use of cross and upsell opportunities," he says.

Among the conference speakers, Peter Mooney, operations manager at Holiday Extras, will describe how the company boosted its centre's cost efficiency and performance, as well as staff motivation. "Hopefully other attendees can benefit from our experiences and use them to improve their own working environments," he says.

And Bruce MacLellan, director of operations at Capital One, will argue that call centres need to break free from the culture of command and control.

"Call centre management constantly puts rules in place for its own benefit, instead of looking at the world from the customer's view point," he says.

To register for Call Centre Expo, visit: www.callcentre-expo.co.uk

THE PROS AND CONS OF OUTSOURCING

Outsourcing can cut costs, releasing cash for investment in your business. However you need to ensure your supplier offers real savings.

- It can increase efficiency and capacity, benefiting from economies of scale. Also, an outsourcer can share the expertise and ideas it has gained from working with other clients. The potential downside is that you are handing over complete responsibility for customer contact to a third party. You need to ask: can an external supplier replicate your company culture on site? This is important, especially if your customer support needs are complex.

- HR costs can be reduced, but this may involve making redundancies internally.

- Outsourcing to telemarketing experts allows you to focus on core business.