The German Contact Centre and CRM Service Market An ... · internet-enabled TVs, scales, alarm clocks, washing machines, refrigerators, thermostats and wearables, such as portable

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The German Contact Centre and CRM Service MarketAn analysis of the environment, perspectives, competitors and maturity levels

The German contact centre and CRM service market is undergoing profound changes. Providers of outsourcing services have to meet new requirements for digital services. If they want to endure the high pressure on margins, they must rise to the challenges of the digital transformation.

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The German contact centre and CRM service market is undergoing profound changes. Providers of outsourcing services have to meet new requirements for digital services. If they want to endure the high pressure on margins, they must rise to the challenges of the digital transformation.

The German Contact Centre and CRM Service MarketAn analysis of the environment, perspectives, competitors and maturity levels

© August 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved.In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.

The German Contact Centre and CRM Service Market

Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft

By Matthias Riveiro, Prof. Dr. Nikolas Beutin and Raphael Heiner

August 2018, 70 Pages, 35 Figures, Soft cover

All rights reserved. This material may not be reproduced in any form, copied onto microfilm or saved and edited in any digital medium without the explicit permission of the editor.

This publication is intended to be a resource for our clients, and the information therein was correct to the best of the authors’ knowledge at the time of publication. Before making any decision or taking any action, you should consult the sources or contacts listed here. The opinions reflected are those of the authors. The graphics may contain rounding differences.

The German Contact Centre and CRM Service Market 5

Table of Contents

Table of Contents

Table of Figures ........................................................................................................6

A General market development ............................................................................81 Strong growth in services and customer requests ..............................................92 From phone service to customer experience management ...............................103 New channel mix requires digital transformation ...........................................114 Heterogeneous provider structure and potentially dominant market

participants .....................................................................................................135 CRM services are the new, central component to value creation ...................... 146 The most important questions for clients .........................................................15

B Market situation and growth opportunities in Germany ..................................161 Significant growth – especially in outsourcing ................................................172 White label solutions are becoming more popular ...........................................203 CRM market develops differently in different sectors ......................................214 Improved negotiating position for BPO providers ............................................26

C German CRM/CXM outsourcing services as an investment market .................351 Market growth, supplier diversity and low interest rates attract investors .......362 Bertelsmann disinvested Arvato shares, while Ströer Group and

Regiocom make acquisitions ...........................................................................383 Now non-German competitors also want to profit from the

German market ...............................................................................................394 Financial investors put pressure on traditional industry representatives .........395 Global companies with in-house units and technology consultants

could expand ...................................................................................................40

D Maturity of the analysed competitors ..............................................................421 Detailed strategy analysis reveals different orientations .................................432 Maturity model provides orientation for performance improvement

measures .........................................................................................................463 Maturity levels in leadership and organisation are much worse than

in IT/technology ..............................................................................................48

E Summary of the results on market and competition ........................................55

F Profitability and viability ................................................................................571 Large differences in revenue among CRM providers in Germany ....................582 Ways to higher profitability .............................................................................59

G Human success factor in the contact centre environment ................................611 Increasing qualification requirements for service centre agents ......................622 Declining availability of service centre agents and other skilled workers ........633 Rising wage levels due to minimum wage and shortage of skilled workers ......644 Above-average fluctuation and sickness rates ..................................................64

H Summary and recommendations for action .....................................................65

Contacts .................................................................................................................68

6 The German Contact Centre and CRM Service Market

Table of Figures

Table of Figures

Fig. 1 Service growth .........................................................................................9

Fig. 2 Development of service centres ..............................................................10

Fig. 3 Service portfolio .....................................................................................11

Fig. 4 Development of the channel portfolio ....................................................12

Fig. 5 Options for automation ..........................................................................13

Fig. 6 Market participants ................................................................................ 14

Fig. 7 Market forecast ......................................................................................17

Fig. 8 Global outsourcing market for customer experience1 2015–2020 ..........18

Fig. 9 Contact centre mix 2010 vs. 2016 ...........................................................18

Fig. 10 Market shares by industry ......................................................................22

Fig. 11 CRM vertical breakdown ........................................................................23

Fig. 12 Growth of 1.0 vs. 2.0 services .................................................................23

Fig. 13 Industry profile ......................................................................................24

Fig. 14 Estimated development of average EBIT margin in the German outsourcing contact centre/CRM market ................................................26

Fig. 15 Buying power analysis ............................................................................28

Fig. 16 Purchasing power key performance criteria (KPC) .................................29

Fig. 17 From CRM to CXM .................................................................................30

Fig. 18 Top trends that will reshape the contact centre/CRM industry within the next five years .......................................................................34


Table of Figures

Fig. 19 CRM benchmarking in Germany ............................................................37

Fig. 20 Outside-in observation of the German CRM market ............................... 41

Fig. 21 Maturity of competitors ..........................................................................43

Fig. 22 CRM benchmarking in Germany ............................................................44

Fig. 23 Comparison of innovative power ............................................................45

Fig. 24 PwC maturity model ..............................................................................46

Fig. 25 Maturity by function ..............................................................................47

Fig. 26 Leadership and strategy .........................................................................49

Fig. 27 Organisation ..........................................................................................49

Fig. 28 Process excellence ..................................................................................51

Fig. 29 Human Capital .......................................................................................51

Fig. 30 IT and technology ..................................................................................53

Fig. 31 Quality and performance .......................................................................53

Fig. 32 Commercial excellence and innovation ..................................................54

Fig. 33 Profitability cluster.................................................................................58

Fig. 34 Availability of agents ..............................................................................62

Fig. 35 Availability of agents based on educational level and life cycle ...............63


General market development

A General market development



1 Cf. Federal Statistical Office of Germany, Statista, accessed on May 10th 2018; value in relation to the year 2016 and across all industries.

2 Cf. Frost and Sullivan, Growth Opportunities in the European Customer Management BPO Market, Forecast to 2021, 2017; PwC’s own analysis.

3 Sales in 2016; of this total, around €7 billion were generated by in-house contact and service centres, as well as around €3 billion by external providers specialising in CRM services.

1 Strong growth in services and customer requests

Germany has become a service economy. The value added by services has long been higher than that of the manufacturing industry. According to figures from the Federal Statistical Office of Germany, the domestic service sector generates around €2 trillion in revenues in about 43 billion hours per year, thus comprising 69% of the German gross domestic product (GDP).1 Around €10 billion in sales2 account for customer relationship management services (CRM services).3

These CRM services include all services and customer interactions that occur before, during and after an information request or transaction related to a product or service (eg, insurance, bank account, streaming subscription, energy supply or room rental) that customers use. This includes information and questions about the product or product service use, operating and navigation aids, instructions, configuration requests, address and account changes, appointments, complaints, warranty and goodwill requests, and agreements to name a few things.

Due to the increasing digitalisation and virtualisation of physical products (eg, credit cards, tickets, keys, access cards and ID cards) as well as the automation of processes (eg, shipment tracking in e-commerce and goods dispatch), the number of customer service requests has clearly been increasing since 2015.

Fig. 1 Service growth

in billions of € +20%

2010 2011 2012 2013 2014 2015 2016 2017

1,605 1,666 1,698 1,752 1,816 1,887 1,951 2,020

Source: Federal Statistical Office, Statista.


Other growth drivers include products and solutions that customers activate to receive digital benefits or to start the warranty period. These include, for example, internet-enabled TVs, scales, alarm clocks, washing machines, refrigerators, thermostats and wearables, such as portable devices, or textiles such as smartwatches, fitness trackers and smart textiles.

2 From phone service to customer experience management

CRM services are provided by specialised business units such as service centres or service hubs. Until now the bulk of customer requests by phone have been answered in call centres. Now, more and more requests are being served via digital channels, such as online applications, text and voice messengers, or product-integrated contact channels as part of the Internet of Things (IoT)4. As a result, modern call centres continue to develop into multichannel contact centres and customer experience centres.

Fig. 2 Development of service centres

• Artificial Intelligence(AI)-based technologies will be able to handle increasingly complex tasks.

• Important success factors for the customer experience centre are the human-centred co-design and the intelligent transfer of tasks from machine to person.

• The necessary transfer point between machine and agent continues to shift as applications and robots become smarter.

• AI, Super AI, self-coding and new algorithms are the main drivers for service intelligence.

Call centre• Human-centric, location-based and seat-based operating model• Isolated systems and allocated data sources• Non-integrated channels and touchpoints mainly by telephone,

e-mail and fax

Contact centre• Hybrid model• Multichannel/touchpoint approach by adding

web-based contact channels, first self-services• First task-based routing (early-stage AI)• Customer interaction supported by digital technologies

(RPA, virtual assistants, chat bots, analytic engines)

Customer experience centre• Digital and self-service-oriented operating model• Real ominchannel and multi-touchpoint management

(web, mobile, intelligent chat solutions, social CRM)• Extended task-based routing and service request (load)

balancing (late-stage AI)• Automated machine-to-agent interfaces• Agents solve mostly complex tasks (consulting)• Scale-up of advanced as-a-service and platform models


4 For example, a refrigerator or a similar device can autonomously respond to a service request by interacting with a contact center.


The service portfolio of contact centre providers continues to evolve: while traditional call centre models focus on customer relationships, complaints and master data management, today’s contact centres are turning integrated customer experiences into reality. The pioneers of such services are already taking the next step and developing interactive, 360-degree customer experience processes as part of a new customer experience management (CXM). As a result, today’s contact centres are more likely to talk about CXM services than CRM services. However, most providers or centres are still a long way from implementing such holistic CXM.

3 New channel mix requires digital transformation

Our project experience shows that the channel mix is changing significantly, as call centres and contact centres evolve into a CXM model. Depending on the number of products, services and channels as well as the complexity of the service requests, implementation is difficult. Particularly relevant factors here are time, existing qualifications and know-how. In addition, technological infrastructures, including interfaces to upstream and downstream, and internal and external systems must be taken into account. In the long term, however, transformation is inevitable. Speech dialogue systems, automated services, intelligent and algorithm-based systems, mobile apps, messenger services and chatbots are gaining ground as phone and e-mail services decline.


Fig. 3 Service portfolio

Number of products/services and touchpoints

Co

mp

lexi

ty a

nd

num

ber

of s

ervi

ce r

eque

sts

CXMCRM

Contact CentreCall centre



Fig. 4 Development of the channel portfolio

Interaction by touchpoint

Telephone/agent79%

IVR5%

E-mail11%

SMS/messenger1%

Webpage4%

2005Telephone/agent

54%

Automated services2%

E-mail14%

IVR11%

Web chat3%

Social media2%

Mobile app2%

Webpage4%

Service kiosk2%

Video chat1%

SMS/messenger2%

2016

Telephone/agent45%

Webpage2%


E-mail4%

Interactive voice response (IVR)11%

Web chat8%

Social media5%

Mobile app8%

Service kiosk4%

Video chat2%

SMS/messenger1%

2025 Telephone/agent45%

Webpage3%


E-mail10%

IVR13%

Web chat7%

Social media4%

Mobile app4%

Service kiosk4%

Video chat2%

SMS/messenger3%

2019

CRM and CXM services are still mostly provided by people, and the call centre or contact centre agents. At the same time, though, their operating areas have already changed in recent years as a result of new developments in technology and business models. They are being increasingly used only where human-to-human interaction is necessary, where emotions play a role or where they contribute to customer loyalty.

In other areas, customers interact with technical (self-)services, algorithm-driven, self-learning solutions (eg, artificial intelligence) or robots (see more on robotic process automation, p. 32). These new technologies independently recognise, at the first point of contact, whether they need to forward customer requests or interactions to human agents and what value the customers or their request are to companies. This process is called “intelligent value risk-cost routing”.



Trained contact centre agents are a significant cost factor. Moreover, companies need to be technically innovative if they want to deliver efficient, differentiated and personalised services in the digital world. As a result, more and more centres are facing the challenge of finding the right balance between agent and technical services.

4 Heterogeneous provider structure and potentially dominant market participants

At this point at the latest, companies must also consider whether they want to provide CRM/CXM services themselves, ie, in-house, or outsource them to specialised CRM/CXM service providers. Outsourcing can potentially reduce their costs and make processes more efficient and effective. However, they also pass on sensitive customer interaction processes to third parties and thus lose direct control over central customer contact points (ie, service touchpoints). Nevertheless, these touchpoints are becoming increasingly important to the customer experience, brand perception and retention because they play a key role in the success or failure of companies, brands, products, market presence and market entry. Along with this, the optimal purchase or acquisition of services and the sourcing strategy are becoming increasingly important.

Yet specialised CRM service providers differ significantly in size: There are smaller providers with up to 400 agents and around 350 seats. They are typically focused on traditional call centre services and regional customers.

The mid-sized providers have up to 2,000 seats, which are regional, national and sometimes even cross-border, but generally not global. They can serve larger call and contact volumes, several regional key accounts, a special segment (eg, only premium customers), major international customers or a special industry (eg, energy, telecommunications).

The global CRM service providers also take over the management of entire process chains or (sub-)business models. These providers are referred to as (full) business process outsourcing (BPO) providers. They operate locations worldwide, often with more than 10,000 seats and 15,000 agents, serve global Fortune 500 clients and develop customised service models with them. Due to greater customer requirements, especially for digital and automated (technical) services, these providers are in transformation processes towards digitally and technically, horizontally or vertically integrated service providers. In addition to technical solution and platform operations, they also offer their own development and consulting services.

Fig. 5 Options for automation

RPA/chatbot-to-agent routing

IVR-to-RPA-to-agent

IVR-to-agent

Chatbot-to-IVR-to-agent


As a result, the competitive environment of CRM providers is changing dramatically. The top companies are increasingly competing with vertically integrated technology and solution providers such as IBM, Xerox or Salesforce.com and horizontally integrated consulting companies such as Accenture or Tata Consultancy Services (see p. 40). Whether even larger companies such as Amazon, Google, Facebook and Apple will offer their CRM and especially CXM competences on the market remains to be seen. This would particularly affect technical CRM/CXM services that are highly scalable. Amazon already offers its marketplace participants standardised chatbots, recommendation engines and automated Customer segmentation as a Service.

Fig. 6 Market participantsC

apab

ility

for

imp

lem

enta

tion

Integrity of vision

Niche Visionary

Challenger Market leader

Bosch

KiKxxlCCC

Webhelp

TeleperformanceD+S

Capita

Convergys

arvato

regiocom

Sykes

Ströer

Accenture

TataIBM

Globally and vertically integrated technology/solution providers

Classic contact centre and CRM service providers

5 CRM services are the new, central component to value creation

CRM services are becoming increasingly important in customer- and service-centric business models such as mobility, smart city, e-government and personalised health services. Therefore, the customer-centric transformation, together with digital transformation, is one of the biggest challenges for companies, especially in the CRM/CXM service market. In the meantime, customers demand maximum customer focus, regardless of whether they are end customers (B2C services) or business customers (B2B services). They all expect fast, easy, effective and personalised services today. CRM services are thus of utmost importance. They are a central element of the customer experience with a company or a brand – above all with regard to product usage. This also means that CRM services have become an important part of the value chain.



The accessibility, reaction speed and quality of CRM services have long determined the satisfaction of customers – and their overall satisfaction with products and services. It is even more surprising then that companies still invest around 75% of their marketing and sales costs5 in customer acquisition and advertising rather than service design and operation. Companies that recognise that good service experience is a key success factor in brand awareness, revenue, customer satisfaction and profitability are today’s winners. The world’s most valuable companies, best-known brands and most innovative pioneers such as Amazon, Netflix, Fedex, Microsoft as well as Coca-Cola, IBM, Nestle and Lufthansa put CRM services at the centre of their business models.

6 The most important questions for clients

To efficiently integrate call and contact centre services or CRM/CXM services into a business model, or to offer and operate them as a business model, clients need to find answers to these key questions:• How important are CRM services for our business model?• How many products have integrated or additional service components that should

be served via CRM services? Which products are they?• Which services should our own company develop and offer – and which ones

should CRM providers provide?• Can external service providers provide other business processes related

to the service or service processes (spin-off of complete processes or full business process outsourcing)?

• Which providers offer high-quality services at fair prices?• How can externally delivered CRM services be priced into our offer and what are

the price weights of these services?• What is the optimal sourcing strategy for CRM or BPO services?• What impact do externally delivered CRM services have on our market or

trade positioning and our brand?• What is the current market environment for CRM and BPO services?• What profitability and, if necessary, viability can be achieved with

CRM services in Germany?• What influence do the digital transformation and new technologies such as

mobile and messaging, digital assistants and chatbots, artificial intelligence, interactive self-services and robotics have on our service model?

• What capabilities must CRM service providers or operators possess to be successful for us?

Answering these questions – which we have put together based on our extensive project experience – is not easy and the answers will vary depending on the company’s perspective. CRM providers (ie, service providers) will get different answers than producers or investors, but so will service providers who operate CRM services independently (eg, with self-service or in-house services).

We would like to help you to answer these essential questions about the German contact centre and CRM market and to consider appropriate measures for action.


5 Cf. PwC, German Entertainment and Media Outlook 2017-2021, 2017.


B Market situation and growth opportunities in Germany

Market situation and growth opportunities in Germany



1 Significant growth – especially in outsourcing

CRM services are developing very dynamically at the moment. The market will grow from about €9 billion in sales volume in 2016 to about €12 billion by 2023. The outsourcing sector (ie, the CRM service provider market) will benefit particularly with a compounded annual growth rate (CAGR) of 8.5% or €1 billion to more than €4 billion. This trend can not only be observed in Germany, but also on a global level, albeit at a slower growth rate. The global outsourcing market is showing an increasing outsourcing rate of 3% (up from 31% in 2015 to 34% in 2020). Along with this, there will be a reduction of in-house service centres.

Fig. 7 Market forecast

Estimated market size for contact centre/CRM services in Germany, in millions of €

In-house Outsourced

5,913

2,675

6,275

2,997

6,764

3,273

7,263

3,563

7,763

3,859

8,236

4,149

2015 2016 2017 2018 2019 2020

8.5% CAGR

7.0% CAGR

Sources: Global Industry Analysts; Frost and Sullivan, Growth Opportunities in the European Customer Management BPO Market, Forecast to 2021, 2017; PwC’s own analysis.



Fig. 8 Global outsourcing market for customer experience1 2015–2020

Market size in billions of $

66.1 68.171.1

75.178.8

82.6

2015 2016 2017 2018 2019 2020

+4.6% CAGR


1 Customer experience services include customer support, technical support, customer acquisition, debt collection, social media and analytics as well as associated BPO services.

Fig. 9 Contact centre mix 2010 vs. 2016

In-house Outsourced

2010 78% 22%

2016 75% 25%

+3%


The high growth forecast for outsourcing services in Germany is mainly due to the following factors:• Strong growth of service-centric business models

(eg, e-commerce, mobility services, IoT-based models)• Digitalisation of public administration (e-government with

the government programme called Digital Management 2020)• New, data-driven business, as-a-service and analysis models• Products with integrated service components (solutions)• Clouding and software with faster product or service life cycles

(integrated cloud and software services)• Increase in digital, cross-channel sales and consulting services

(eg, omnichannel sales, telesales and telemedicine)• More outsourcing due to increasing profitability pressure on established

service providers (eg, telecommunications, energy, financial services)• Increase in highly scalable platform and asset-light business models



The growth is especially driven by the demand for CRM services from providers (originators) of service-centric business models such as e-commerce and cross-border mail order services, e-mobility and mobility services, identity services, digital financial services, smart home services, digital public administration, and care services driven by demographic change such as ambient assisted living.

In addition, more and more products are being offered with integrated service components (in particular, software updates), composite products (ie, solutions) or entire service platforms and marketplaces (eg, Booking.com and Trivago, Otto and Amazon, Daimler Mobility Services and Uber).

Excursus on China: What Tencent integrates into its service ecosystem

In China, Tencent offers a whole service ecosystem together with the WeChat platform and mobile app. Since the end of 2017, WeChat serves as a replacement for ID cards and purses. The application handles e-commerce, mobility, payment and messaging, and is the central access point to all connected social media. In theory, WeChat can interact with any digital assistant currently available, be it Google Home, Amazon Echo/Alexa, Apple HomePod/Siri or Microsoft Cortana. A configurable, mobile, in-app assistant (ie, an avatar) that users can individually configure is planned for the next release.

New digital and cloud-based business models such as Software as a Service (SaaS), IT Infrastructure as a Service (ITInfraaS), Platform as a Service (PaaS), etc., as well as subscription-based business models – such as Amazon Prime, Netflix, Sky, Spotify, SoundCloud or Apple’s iTunes and iCloud – are driving demand for qualified service providers and service staff. The increasingly simpler and faster way to create, combine, analyse and store data leads to more knock-on effects.

Data-driven service models are further boosting demand.6 The sharing economy7, ie, the sharing of music, texts and photos on the internet, must be controlled, managed and protected from unauthorised or improper use via new, integrated services. There is more service growth because of increasing regulation; other privacy and security issues; the associated generation, allocation, management, renewal and retention of passwords, digital keys and other credentials; as well as the synchronisation of IoT interactions (ie, handshakes).

6 For example, Salesforce.com, Terradata, SAP, Apple, Netflix, Spotify.7 Cf. PwC, Share Economy – Representative Population Survey 2015, 2015.



Another growth driver is the outsourcing of services that are not directly part of the core area of new business models. Thus, in the new mobility services area, we expect vehicle and customer management (ie, account management, localisation, matching, reservation, digital key transfer, vehicle relocation and maintenance/servicing), the identification of the best and cheapest route, and the downstream placement of the best transport to take place through the providers themselves. However, invoicing, payment transactions, account and address changes, etc. are likely to be handled by contact centres or self-services administered by CRM providers.

2 White label solutions are becoming more popular

After an initial period of an estimated three to five years, when companies gain experience with a new business model, they can outsource key business model elements such as operations, technical service and platform maintenance, or even entire business models. Then CRM/CXM, BPO or full BPO providers operate the outsourced areas on behalf of the client. Users and consumers usually do not notice this, as the CRM service providers act on behalf of the provider (eg,, an automobile manufacturer).

The increase of white labelling (eg, the licensing of products, service components, entire solutions and even business models for operating under the name of the licensee) as well as the trend towards having the leanest possible lean-asset or asset-light operations (eg, by outsourcing cost-, employee- and administration-intensive processes and assets) promotes full BPO and increases demand for CRM/CXM services and providers.

Excursus on Facebook: How regulation benefits CRM service providers

Various regulations are forcing Facebook to use specialised CRM service providers that can erase inappropriate, unethical, unauthorised or anti-competitive content. Due to the EU Data Protection Regulation (EU-GDPR), which came into force on May 25th 20188 , Facebook must theoretically also delete content that violates personals and privacy rights or untrue content on the legitimate request of users. Imagine this mammoth task: the site has 1.4 billion active users per day who share around 1 million links, upload around 5 million photos and write 5.8 million posts every 20 minutes.9

8 TCf. Art. 98 of the GDPR, https://gdpr-info.eu/.9 Cf. www.zephoria.com, accessed May 11th 2018.

www.zephoria.com



Excursus on Paris: How the city wants to earn more money with public parking

Since early 2018, the city of Paris has been managing public parking via a smart parking platform by an international car manufacturer through a third party. Parking spaces can be reserved, monitored and paid for by using the app.

Additionally, Paris wants to outsource the so-called parking enforcement in 2018. This includes activities such as handing out fines, blocking parking spaces or towing vehicles with parking fees that are unpaid or not paid on time. When all is said and done, a whole area of public infrastructure management will be spun off in a two-stage full BPO process. Outsourcing is expected to bring in greater revenues (through digital enforcement) to the city, substantial cost savings from reducing public payroll costs, and more efficiency in collecting fines.

Another argument in favour of a growing CRM market is increasing margin pressure (based on the earnings before interest and tax, or EBIT) in service industries such as telecommunications, energy, tourism or rental car providers. Bloated management and administrative organisations as well as compliance processes and infrastructures, especially when introduced into regulated industries, are now causing exorbitant costs, especially for staff. As regards margin-increasing reorganisation projects, outsourcing potentials are increasingly raised.

The processes downstream of the product and service purchase as well as the initial use of the product or service (such as customer loyalty programmes) are now being jointly developed with CRM service providers from the beginning of the reorganisation and then outsourced.

3 CRM market develops differently in different sectors

Looking at the various industries, there are very different growth scenarios for the CRM market.

Traditional service models and industries are under pressure because they need to (re-)grow organically or significantly increase their profitability (ie, their EBIT margin). Only if they succeed can they remain interesting for shareholders, investors and increasingly for business partners. For example, we expect a slight downturn in telecommunications, traditional media10 and power generation, hence a slight decline in CRM service volumes.

10 Traditional publishing, film and television rely largely on analog one-way push models and traditional supply chain models.



The expected decline in the outsourcing share of the telecommunications industry can be attributed, among other things, to the expected decline in sales of traditional industry representatives. The expectation for the outsourcing share with classical financial services and online trade is exactly the opposite.

Telecommunication

Financial services

Retail and consumer goods

Healthcare

Public sector

Travel and hospitality

Internet/high-tech

Others

Fig. 10 Market shares by industry

Share of total market volume of outsourced contact centre/CRM services by industry

2015 2016 2017 2018 2019 2020

22.7%

15.3%

14.1%

11.4%

10.4%

8.7%

5.9%

23.1%

15.7%

13.9%

11.0%

10.3%

8.4%

5.8%

11.7%

22.8%

15.5%

13.5%

11.2%

10.5%

8.4%

5.6%

12.5%

20.8%

15.5%

14.3%

11.7%

10.8%

8.2%

5.6%

13.1%

19.0%

14.8%

14.7%

12.2%

10.8%

8.7%

13.9%

6.0%

16.3%

14.6%

15.0%

13.0%

11.2%

8.3%

6.5%

15.1%11.5%


While in 2015, the largest share in the German-outsourced CRM service market was held by the telecommunications industry, which accounted for 23%, its share is predicted to fall to 16% by 2020. By contrast, the share of the healthcare industry is predicted to increase by 1.5% to 13% over the same period. Also, more outsourcing of CRM services is expected in commercial and especially in long-distance trade (eg, in e-commerce or omnichannel commerce). The internet and high-tech industry will see the largest increase in outsourcing, with a 4% increase. Germany is an important location in Europe for global high-tech players (Facebook, etc.), as it is the entry point into the European market. This is especially relevant to the providers of contact centres and CRM services, as these growing companies offer opportunities for new partnerships, business models and sales potential.

The CRM outsourcing industry is evolving from providing simple solutions to more complex services with higher value for customers (see the development towards the CRM 2.0 service market). On the other hand, the industry distribution is only expected to change slightly.



There is a high demand for innovative CRM services to support digital business models and automated services such as configurator and chatbot management or automated content creation and moderation. This applies, in particular, to segment-, product- or service-specific data analysis, telemedicine and digital distribution. Demand for consulting services and Contact Centre as a Service (CCaaS) is also increasing. Overall, we expect the share of digital services in Germany to rise from 6% to 18%.

Fig. 11 CRM vertical breakdown

2016–2020 industry growth for outsourced contact centre/CRM services, in millions of €

8.5% CAGR

2016 Telecom-unication

Financial-services

Retail andconsumer

goods


Healthcare Internet/ high-tech

Public sector

Others 2020

2,996

–16

135 204

275

209 15697

934,149


Fig. 12 Growth of 1.0 vs. 2.0 services

Growth per service type for outsourced contact centre/CRM services in Germany, CAGR 2015–2021

6%CRM 1.0

18%CRM 2.0


Highly scalable business models such as internet/high-tech are expected to generate disproportionate revenue growth of €275 million. High-growth business models such as integrative financial services and healthcare services are in different demand: the growth will be €209 million in the healthcare sector and €135 million in the financial services sector. By contrast, traditional services such as billing, account information, account or card changes, insurance rate and address changes are automated, digitalised or processed via interactive self-services. As a result, companies are reducing their classic CRM services, which they used to have done by call centres.



Fig. 13 Industry profile

Drivers Impact Drivers Impact

Expansion and outsourcing of services based on new technologies (eg, virtual reality, AI, RPA)

Diminishing buying power and increase of price levels

Complete automation of highly standardised services – increase of return on seat

Big players concentrating on most profitable areas and core competencies – outsourcing of non-core-competency services

Extended value based bonuses and kickbacks (eg, for sales of new signed customer contracts over online sales platforms)

Strong outsourcing of CRM 1.0

Main driver (2016–2020)

CAGR of –0.6% EBIT margin increase by +1.6% (2016–2020)

Telecommunication

Reorganisation to stronger customer centricity – increase in service volume

Complete automation of thighly standardised services

Flexible price models and reduced buying power

Need for new service oriented (digital) products and management of these services

Lower price sensitivity for AI-based services

Increase of demand for high value services


CAGR of 6.5% EBIT margin increase by +5.4% (2016–2020)

Financial services

Further increase and relevance of e-commerce related services

Increasing buying power

Omnichannel density is growing rapidly – complex management of networked channels

Price decline due to strong increase in volumes


CAGR of 10.4% EBIT margin decrease by –0.6% (2016–2020)

Retail and consumer

goods

Travel market is growing > 10% p.a. High demand for automated services

Digital transformation of established players in the market

Buying power decreases (account specific)

New personalised service models rising and stronger service demands of platform based providers (eg, Booking.com) and innovative technologies (eg, Blockchain, RPA, AI)

Shift from low to high value services (stronger focus on customer care) and provision of value added services/persona-driven design to customers




No impact Little impact Moderate impact High impact Very high impact

In our view, the increase in volume of 2.0 services is due in particular to the incubation period for new service- and data-intensive business models such as mobility services, personalised healthcare services, smart home services, interactive entertainment and media services as well as the expansion and networking of e-commerce (IoT commerce). The median development and incubation period is about three years.



Fig. 13 Industry profile

No impact Little impact Moderate impact High impact Very high impact

Drivers Impact Drivers Impact

Increased use of devices as personalised medical and diagnostic tools

High volumes of high value, personalised services

New business models for telemedicine and telediagnostics

Ambient assisted living services – increase of pay per use models

Shorter clinical test phases and product life cycles lead to more recalls

E-health regulations foster service provision



Healthcare

E-government regulation commits authorities to digital transformation

Increased demand for high value services

More service requests and lack of tcapacity to provide services

Authorities less experienced with sourcing – balanced selling and buying power

Greater privatisation of civil and precautionary services

High degree of automation – existing tools and systems can be easily adopted



Public sector

Medium-sized companies in various industries outsource customer-related services

More smaller players with lower buying power need support for their customer service

Consolidation pressure in various industries leads to increasing outsourcing of non-core activities

More high value and personalised services across different sectors

Establishment of service-intensive new business models in the manufacturing industry (eg, Product as a Service)

Less price sensitivity for solutions based on digital technologies



Others

Continuous development of new business models (eg, service-oriented companies in the area of shared economy)

New emerging and smaller market participants with less bargaining power

Trend in software and technology driven companies to outsource non-core activities (including customer-related services)

Trend towards 24/7 customer support in online business will increase dependence on contact centre services and positively influence willingness to pay

Less price sensitivity for high quality, personalised services and solutions based on digital technologies



Internet/ hightech



Given the growth factors outlined above, it is crucial for service providers and investors to understand which of the sectors will, from a profitability perspective, be attractive in the future. The healthcare sector is particularly noticeable, with an almost 8% percentage of EBIT margin development by 2020. Financial services are also expected to grow strongly by more than 5%. While the telecommunications industry does not expect a significant increase in profitability (1.6%), the internet and high-tech industry will far outstrip 2020 with an average EBIT margin of 9.9%. Also, the travel and hospitality sectors as well as the public sector, with expected profit increases of more than 2%, will be more attractive to service providers and investors. Overall, the German outsourcing contact centre/CRM market recorded an EBIT margin increase, from 4.8% to 8.3%, in the period from 2016 to 2020.

4 Improved negotiating position for BPO providers

Not only is market growth relevant for CRM service providers – so is the development of margins. Along with the rising demand for CRM services and cost structure optimisations, a third major driver of positive margin development is emerging in Germany: the negotiating position of larger BPO providers with clients is improving.

Average EBIT margin

Fig. 14 Estimated development of average EBIT margin in the German outsourcing contact centre/CRM market

Sources: PwC’s own market model; interviews with industry experts.

3.5%

5.1%

2.6%

6.6%

5.5%

5.6%

6.3%

6.1%

5.1%

10.5%

2.0%

14.2%

7.9%

7.7%

9.9%

11.6%

4.8%

5.7%6.2%

7.5%

8.3%

2016 2017 2018 2019 2020

Tele com-munication

Financialservices

Retail and consumer goods

Travel andhospitality

Healthcare

Internet/high-tech

Public sector

Others

2016 2020



Until now, the obviously superior bargaining or buying power has been in the clients’ hands. This was mainly due to five factors: the market share in their industry, the brand impact, the advertised CRM service sales volume, the attractiveness of their entire industry ecosystem and their technological and innovative strength. The clients’ purchasing departments were well aware of their good negotiating position. So the BPO providers faced the following challenge: • The more sales volume they could arrange,• the more additional sales potential they suspect (due to the large market share

and comprehensive ecosystem of a client),• the more a client brand adorns its reference list and• the more access they receive to innovations from a technologically advanced

client,the more concessions they must make in terms of service and margin.

In addition, if CRM service providers are small, they certainly do not have a good negotiating position. This has happened to many BPO providers in recent years. However, from our point of view, this overwhelming dominance of clients will diminish by 2020. The main reasons are, on the one hand, more consolidation in the industry and, on the other, new digital service and solution options. Moreover, the competitive environment of CRM providers is changing dramatically.

The growth of CRM services is raising the interest of new, usually large, global technology and consulting companies. Established service providers are merging or taking over other providers, creating larger, more flexible and independent BPO providers that can negotiate with large clients on equal footing.

Service providers can boost their buying power when they develop new digital technologies and bring them to market. While this requires considerable skills and investment, it ultimately pays off: BPO providers who can replace traditional call centre services with flexible substitutes such as self-services, personalised and interactive menu guides, chatbots and artificial intelligence (AI), can significantly reduce staff costs. They do not need to be concerned with as many working time regulations and have less recruiting and qualification work for agents. Measures in this area are very expensive, especially since the turnover of call and contact centre agents is still very high. Technical substitutes are already available for many services, and their use will continue to increase for traditional contact centre services as well. Further, margin erosion in the traditional CRM market will continue. Our analysis has also shown that high-tech CRM services will be much more profitable than traditional contact centre and CRM services.



Fig. 15 Buying power analysis

Strategic buying power evaluation “Contact centre and CRM services in Germany”: 2017 vs. 2021

Product specification improvement

Supplier collaboration and integration

Volume concentration

Supply market leverage

Attractiveness of supply market for clients

Bu

yin

g p

ow

er o

f cl

ien

ts in

Ger

ma

ny

2020

High

LowHigh

2017

Lever categories from buyer perspective

Number of suppliers relative to number of customers (demand/

supply ratio)

Human production to digital production

capacity ratio

Availability of substitutes (services/suppliers)

Degree of regulation and status of digital

transformation

Attractiveness supply market for

clients in Germany

Attractiveness of the procurement market for customers

HighLow

2017 2020

Note: Size of bubble relative to procurement volume; numbers are exemplary and not represen tative of actual procurement volume

Sources: PwC’s own analysis and interviews with leading procurement departments in Germany, on the basis of A. T. Kearney and Arthur D. Little.

Buying power of customers in Germany

HighLow

Vertical market share and brand attractiveness and

business arbitration power

Buying power of customers in Germany

Technological knowhow transfer from partnership

Market or ecosystem access control or

dominance

Service provider degree of dependency (volumes/

contractual life span, upfront invests)

2017 2020



Fig. 16 Purchasing power key performance criteria (KPC)

Contact centres – important purchase criteria, 2017

KPC Importance TrendRelevance

Broad service portfolio/BPO

Decision factor

International presence

Decision factor

Industry specialisation

Decision factor

Nearshore capacity

Decision factor

Financial stability

Prerequisite

Quality Decision factor

Flexibility Decision factor

Price Prerequisite

1 3 5 Very

important

0 Not

important

2 4

Furthermore, we see seven operational trends that have a lasting impact on the CRM/CXM market and support market growth:

1. The switch from services with low customer value to complex services with high customer value

2. An increase in self-service and service automation in the human-machine interface based on AI

3. An increase in volume of automated service requests through IoT, machine-to-machine (M2M) applications and digital assistants

4. People in co-operation and dialogue with machines to optimise the operating model (RPA)

5. The provision of e-government services6. Contact Centre as a Service (CCaaS)7. Traditional core sales in outsourcing



Trend 1: The switch from services with low customer value to complex services with high customer value In the future, clients will require more complex services from professional contact centre and CRM service providers. The increasingly powerful self-service options will result in a shift towards complex services that are often performed by humans.

Demand will shift from less complex, traditional 1.0 services to more complex ones. Innovative and powerful technologies and self-services (see Trend 2) will increase the demand for complex services, which will lead to comprehensive integration of both digital and analogue customer processes. Service providers will take more responsibility for the management of entire processes, channels and customer touchpoints, and will take on new usage measurement techniques (eg, cost per customer and installation; reduction and cost of bounce and exit rates; upsell and cross-sell revenue per customer; customer satisfaction at customer touchpoint). Together with comprehensive process/channel, business and technology competences, providing these complex services requires a particular end-customer perspective. This is characterised by the fact that it meets the requirements of customer or user-centricity as well as the optimisation of the customer experience. Our project experience shows that clients are highly dependent on the experience and expertise of professional service providers when it comes to managing these holistic and complex services. However, at present, only a few service providers are able to master the balancing act between traditional contact centre competence and innovative, holistic process management.

Trend 2: An increase in selfservice and service automation in the humanmachine interface based on AISequential, semi-automated CRM services are increasingly transforming into personalised, interactive CXM services. Automation and digitalisation as well as the integration of intelligent self-services play a key role here.

Fig. 17 From CRM to CXM

From To

CRM

Push Pull

CXM

Procurement and sales dualism

Contract work

Analogous

Multichannel

Integrated systems

Co-operation

Co-creation and design

Digital

Omnichannel

Platforms



For CXM services to generate positive personalised customer experiences, companies need to have sufficient information on customer behaviour first, ie, they need to generate data and data points. They must filter, categorise and, if possible, standardise such data in order to be able to answer requests individually and personally. Categorisation and standardisation are essential prerequisites for structured knowledge management, process automation, and the integration and expansion of intelligent, algorithm-enabled self-services.

These include web-based and mobile self-service applications such as automated dialogue boxes and FAQs, virtual agents, chatbots, customer communities and forums, which are getting better thanks to AI. Curated content solutions as well as intelligent speech and voice recognition can be implemented, in particular using structured knowledge management.

With the advancing expertise of AI-based solutions, CXM services can be complemented by self-learning cognitive or semantic solutions, or generated through self-evidence-based recommendation management. CXM vendors therefore need to bring more and more technical skills to client and end-customer needs.

Trend 3: An increase in the volume of automated service requests via IoT, machinetomachine (M2M) applications and digital assistantsThe Industrial IoT (IIoT) is changing products and services by enabling communication between connected products. This opens up new horizons for companies and service providers to redesign their customer-side processes and rethink products or product-service combinations. With innovative solutions, contact centre and CRM service providers can participate in this future market and help manufacturers of corresponding products and services optimise their value creation.

Connected products and applications send important information back to manufacturers and consumers via the internet. This makes it possible, for example, to anticipate necessary maintenance or reduce a system’s susceptibility to failure. This is an important innovation in after-sales services, as this information has an effect on activities such as proactively scheduling service appointments, diagnosing product issues more accurately, or predicting storage location and time. Services or product/service combinations can be offered on the basis of additional data, which is measured and later aggregated, eg, by sensors, clients and end-customers’ new smart products. This technological transformation has an impact on the entire value chain: manufacturers of durable products, machines and plants benefit from considerable revenue opportunities and users enjoy intelligent services.



Trend 4: People in cooperation and dialogue with machines optimise the operating model (RPA)The operating model of today’s CRM/CXM service providers is changing from a local and location-specific concept (ie, a central unimodal model) to a connected, virtual and distributed model (ie, a multimodal model). This is leading to more and more supra-regional and internationally connected characteristics, with which pooling effects and cost advantages of nearshore/offshore sourcing can be best exploited. Increasingly, integrated human-machine models are being used.

Designing the agent operating model and automating CRM services are key challenges for operators. In a local call or contact centre, fixed-level stationary agents focus on telephone services. In a multimodal model, however, stationary and non-stationary agent pools as well as virtual agents (bots) are combined with each other over several levels to build modern production and co-operation models, depending on the request volume and complexity. New technologies, such as robotic process automation (RPA), support process automation. Auto-messaging, interactive dialogue boxes and intelligent chatbots enhance the automation of customer dialogue: they enable a reduction in personnel while at the same time increasing customer satisfaction. When using virtual agents, deep-learning solutions ensure that they can recognise when to submit a request to a human agent.

These new integrated human-machine collaboration models help reduce CRM service costs and increase vendor profitability: solutions such as work from home, real-time brokers, broker services for agents and intelligent routing mechanisms can all be found here. These models can also help improve the working environment of the agents.

Trend 5: The provision of egovernment servicesIn Germany, digital administration is making progress. It is enabling public authorities and citizens to further optimise time-consuming and cost-intensive services. CRM service providers can contribute to this development, in particular through integrated, cross-channel e-government solutions. Ideally, they connect authorities efficiently and securely.

From various online applications to electronic tax returns, more and more internet users in Germany are making use of e-government services. High, sometimes double-digit growth rates for such services prove this trend. Our analyses also show that more than almost every second online user in Germany already uses such online services, even though they are not yet very satisfied with many of them. In addition to having complex requirements (such as data protection, security and data management, management of multiple identities and biometric features), authorities and operators of e-government services have increased their demands for external support from professional IT, contact centre and CRM service providers. Aside from improving the customer experience, attractive economies of scale and cost advantages speak for the reliance on previous experiences and applications of professional partners. Developing new services in co-operation with other authorities (eg, cities, municipalities) can also help improve cost and efficiency advantages by sharing know-how.



Trend 6: ContactCenter as a ServiceCCaaS provides clients with a cloud-based customer experience solution that enables them to benefit from the software components and services of CRM service providers.

With the growing potential of advanced software solutions in the area of customer interaction and experience management, companies are increasingly turning to modular technology and software solutions that meet their individual needs. Clients enjoy a significant reduction in the total cost of ownership for certain business models, as these solutions not only reduce costs for their own IT support, but also their investment, implementation and training costs. Moreover, clients of corresponding services can benefit from know-how and special solutions, eg, for selected applications in individual industries, and can respond flexibly to changing customer needs. Previously complex services that have to be configured or implemented such as omnichannel customer experience, customisable voice dialogue systems or persona- and skill-based routing can now be used more cost effectively with a CCaaS, which could also lead to reduced operating costs.

Trend 7: Traditional core sales in outsourcingMore and more automated marketing and sales processes are being outsourced in Germany. This applies in particular to outbound services (contact centre-operated remote and telephone sales [telesales]). These telesales used to be an additional distribution channel, which was often operated by external service providers due to high personnel costs, while its own employees were responsible for the classic direct or external sales. This will become interesting due to new technology solutions for outsourcing services. These include automated performance marketing, scalable distribution platforms with integrated up- and cross-selling based on recommendation engines (eg, next-best-action models) as well as an automated, contextual customer journey analysis for better control the customer segmentation and sales activities. In the future, these solutions will reduce the number of employees in traditional direct and external sales.

Beyond that, dynamic, performance-based pricing models are appealing for both sides: clients can save costs for sales staff or reduce visiting frequencies and times. The freed-up capacities can then be used to service real A customers. CRM service providers benefit from success bonuses and kickbacks for successful customer acquisition.



Accelerated deployment of e-government offerings

Increased human dispatch/case handling by and for humans

Increase of self-service and service automation with task differentiated machine-to-human routing and handover

Shift from low value services to high value but complex services

Fig. 18 Top trends that will reshape the contact centre/CRM industry within the next five years

Estimated impact

Increase of auto service requests from IoT, M2M and digital assistants

Contact Centre as a Service (CCaaS)

Increased interest in traditional core sales for outsourcing

No impact

Low impact

Moderate impact

High impact

Very high impact


C German CRM/CXM outsourcing services as an investment market

German CRM/CXM outsourcing services as an investment market



1 Market growth, supplier diversity and low interest rates attract investors

The CRM/CXM outsourcing market in Germany, which is the CRM service volume provided by CRM service providers, amounted to around €3.3 billion in 2017.11 Thanks to its dynamic growth – the market is expected to go from €900 million to €4.2 billion by 2020 – the market will also interest institutional financial investors and especially private equity (PE). Germany is also a stepping stone to the developed Central European service markets for global CRM/CXM services and BPO providers. For example, we expect Chinese investors or originators (eg, Alibaba, Tencent, Huawei, DJI) to make targeted acquisitions that will better serve their customers from Germany and other European countries.

What’s more, agencies, consulting firms and service originators are increasingly trying to round off their own portfolio by making acquisitions or growing inorganically. With the service originators, ie, providers that have their own service products, who run their own CRM service or contact centres, they can strategically use acquisitions to accelerate their transformation from cost centre to profit centre. As profit centres, they then generate their own value contributions in-house and have their own budget and profit and loss responsibility. The scaling of services is in the foreground since high initial investment in new technical capabilities and infrastructures often pays off.

The still very fractal market accommodates acquirers with CRM service providers of varying sizes (in terms of employees and service seats), different levels of maturity (based on service offers), technical equipment and operating model.

However, the biggest drivers for acquisitions are low interest rates, excess liquidity, expected margin increases (see Chapter F: Profitability and viability, p. 57) and the desire to round off one’s own business model.

Since 2013, there have been over 20 medium and large-scale transactions and mergers.12 Six transactions involved private equity firms or other institutionalised investors. In addition, more than 40 financial investors are currently engaged to varying extents with CRM service providers or are looking for a suitable investment.

11 Cf. Frost & Sullivan, Growth Opportunities in the European Customer Management BPO Market, Forecast to 2021, 2017.

12 based on PwC’s Analysis 2017.



Fig. 19 CRM benchmarking in Germany

Investment history of the German BPO/CRM market

Takeover of majority share-holding of CCC by Silverfleet

Acquisition of avocis by Capita

Acquisition of T-Systems DDM

GmbH by regiocom

Acquisition of 3C Dialog

by Capita

Acquisition of DIGIMONDO

GmbH by regiocom

Acquisition of EVB Billing und Services GmbH

by regiocom

Acquisition of tricontes by Capita

Acquisition of Scholand

and Beiling by Capita

Acquisition of Perry and Knorr (Walter

Services) by Webhelp

Acquisition of buw by

Convergys

Acquisition of snt Deutschland AG

by regiocom

2013 2015 2016

Announcement from Bertelsmann: sale of

the CRM division Arvato

Acquisition of D+S 360°

and DV-COM by Ströer

20182017 20192014

Sources: Mergermarket; Markus; Amadeus; company websites.

List of investors investing in the global BPO market

• Advent International• Apollo Global Management• Ardian• Ares Management• Bain Capital Investors, LLC• BlackRock• Cinven• CMP GmbH• Creadev• CVC Capital Partners• General Atlantic• General Electric Capital

• H.I.G. Capital• Huntsman Gay Global Capital• ICICI Bank Ltd.• kgb• Kinnevik• KKR• Livia Group• NORD Holding Unternehmens-

beteiligungs gesellschaft mbH• Nippon Telegraph and Telephone• Oak Hill Capital Partners• Onex Corporation

• PAI Partners• Permira• Pritzker Group Private Capital• Providence Equity Partners L.L.C.• RP-Sanjiv Goenka Group• Sequoia Capital• Silverfleet Capital• State Street Global Advisors• Temasek Holdings• The Blackstone Group• The Carlyle Group


2 Bertelsmann disinvested Arvato shares, while Ströer Group and Regiocom make acquisitions

In late January 2018, the Bertelsmann Group13 announced that they wanted to break away from parts of their Arvato business with CRM services. Their German CRM business was also for sale. Arvato CRM Germany is Germany’s market leader, with about 25 locations, 11,000 employees and 12,000 seats.14 The company is hardly known to end-customers, but performs a number of services in almost all industries.

Besides traditional call centre services, Arvato also provides next-generation CRM services (CRM 2.0). These include technically sophisticated and innovative services such as content and media moderation, AI-based content creation, customer and context analysis, AI-based recommendation management, management of automated 360-degree loyalty programmes, healthcare prevention and analysis, on-site e-search optimisation and automated bot dialogue management.

Almost simultaneously, on January 29th 2018, the Ströer Group, listed on the MDAX index, announced an acquisition: the Europe-wide provider of online marketing and out-of-home advertising had acquired D + S communication centre management, a CRM service and contact centre specialising in dialogue and direct marketing. D + S also owns D + S 360 media World GmbH. The D + S Group alone manages 11 call centre locations with approximately 3,000 agents and 2,600 seats.15

Moreover, the Ströer Group acquired DV-COM GmbH, an outbound and telesales specialist. Just one year earlier, the Ströer Group had acquired the telesales and dialogue marketing service provider Avedo Köln GmbH, with seven call centre locations, and about 2,000 employees and 1,800 seats, as well as Ranger, a direct marketing agency.16 All service providers are now bundled in the Ströer Group. With these four takeovers, the Ströer Group has inorganically increased its external sales and come much closer to its strategic goal of becoming one of the leading, vertically integrated media companies with a 360-degree service portfolio. This portfolio will consist of an interactive customer approach and analysis, branding, performance, dialogue and content marketing. This means that the Ströer Group, with revenues of around €1.4 billion, is developing into a serious competitor of Arvato Bertelsmann (in 2016, its sales totalled about €3.82 billion).17

In order to withstand the strong consolidation pressure, the Magdeburg-based regiocom GmbH took over snt AG from Hamburg in 2017. With 22 locations, 5,000 employees and annual sales of around €230 million18 . Thanks to this enlargement, regiocom Group now has an average market weight and is now among the top ten German BPO/CRM service providers. It specialises in the energy sector and, as a BPO-service provider in particular, handles customer management tasks for public utilities.

13 Cf. Bertelsmann, press release from January 31st 2018, www.arvato.com, www.bertelsmann.com, accessed on May 10th 2018.

14 Cf. www.crm.arvato.com, accessed on May 11th 2018. 15 Cf. www.ds360grad.com, accessed on May 11th 2018.16 Cf. www.avedo.de, accessed on May 11th 2018.17 Cf. www.stroeer.com, accessed on May 11th 2018.18 Cf. www.regiocom.com, accessed on May 10th 2018; Turnover projected for 2016.


www.arvato.com

www.bertelsmann.com

www.crm.arvato.com

www.ds360grad.com

www.avedo.de

www.stroeer.com

www.regiocom.com


19 Cf. Statistisches Bundesamt, Statista, accessed on May 10th 2018; from December 2016.20 Cf. www.capita-europe.com, accessed on May 10th 2018; from December 2014.21 Cf. www.3c-dialog.de, accessed on May 11th 2018.22 Cf. www.crm.arvato.com, accessed on May 11th 2018; PwC’s own analysis.23 Cf. www.convergys.de, accessed on May 11th 2018.24 Cf. www.ardian.com, accessed on May 11th 2018.25 PwC’s own analysis, 2017.26 Cf. www.yourccc.com, accessed on May 11th 2018.27 Cf. www.webhelp.de, accessed on May 11th 2018; Bundesanzeiger; Markus, Amadeus; PwC’s

internal data and own analysis.

3 Now non-German competitors also want to profit from the German market

Consolidation pressure is also increasing among non-German CRM service providers. For example, the global number 419 of the BPO and CRM service providers, the French company Teleperformance SE, acquired in Germany years ago and has bundled their acquisitions in the Teleperformance Deutschland Group.

The British Capita plc took over the leading German customer contact and outbound marketing service provider Avocis AG starting on January 1st 2015. Avocis operates 12 locations with approximately 6,000 employees20 and 5,300 seats. In mid-2016 Capita Europe acquired another call centre provider: 3C Dialog GmbH from Cologne, with two locations and around 400 agents.21 Capita Customer Service (Germany) GmbH, which belongs to Capita Europe, is now ranked two in the German market with 11 locations, 6,100 employees, 5,600 seats and around €144 million in annual sales. The only larger CRM provider in Germany is Arvato CRM Solutions.22

In August 2016, Convergys Corp. from the US, ranked sixth globally, also entered the market in Germany and Europe when it acquired the German buw Group, with 16 locations and about 6,000 agents and 4,500 seats.23

4 Financial investors put pressure on traditional industry representatives

In 2018, we expect the next stage of German market consolidation or the entry of a new competitor. This could come from the environment of institutional financial service providers. One example is Ardian S.A.: this PE company belonged to the French AXA Group until 2013 and manages more than €60 billion in fund assets.24 In November 2017, Ardian took over the Essen Competence Callcenter GmbH (CCC), a mid-sized CRM service provider. CCC is ranked number 825 in the German outsourcing market26, with around 4,200 employees, 3,200 service stations and €78 million in annual sales.

In 2016, the New York-based private equity company KKR & Co. L.P. invested a majority share in one of the leading French CRM service providers, Webhelp S.A. Prior to this, Webhelp acquired Perry & Knorr GmbH after the dissolution of the former market leader Walter Services GmbH & Co. KG and in 2016 o|con Office Concept GmbH from Stuttgart, which specialises in the local automotive industry. The management of these acquisitions has now been taken over by Webhelp Deutschland GmbH, a subsidiary of the French Webhelp Group. Today, Webhelp Germany GmbH is ranked number 9 in Germany, with around 2,600 employees and €70 million in annual sales.27


www.capita-europe.com

www.3c-dialog.de

www.crm.arvato.com

www.convergys.de

www.ardian.com

www.yourccc.com

www.webhelp.de


A takeover of CRM service providers may make sense depending on the structuring of the fund’s assets. When investors acquire a CRM/CXM service provider, they gain access to the customers of the acquired service provider and can achieve leverage effects. Low-margin fund companies can optimise their margins by outsourcing their own CRM services and handing them over to the fund’s own CRM service provider. This produces synergy effects within a fund and leverage effects through better EBIT/EBITDA ratios on the level of the outsourced company. In addition, there will be better multiples in case of a sale. Indirectly, a proper CRM/servicer/originator combination can also lead to an exit acceleration and leverage of fund assets.

5 Global companies with in-house units and technology consultants could expand

We also expect global companies with in-house units such as General Electric or Bosch to drive further consolidation. Bosch, ranked number one globally in the supply industry and an industry 4.0 pioneer, is an absolute heavyweight28 with annual sales of €78 billion. From the perspective of a CRM outsourcing market player, Bosch is the clear number two in Germany in terms of CRM employees and seats. From an adjusted sales perspective29, Bosch is ranked third, with around €250 million.

It is also possible that the Irish global management and technology consulting firm Accenture – currently ranked number three among the global BPO providers – the US technology group IBM or Tata Consultancy Services Limited, which belongs to the Indian Tata Group, are participating in the market consolidation. These three companies are not commonly regarded as direct competitors in the outsourcing market yet.

However, this could change in 2019. In particular, with the traditional CRM 1.0 services becoming integrated and technically sophisticated CRM 2.0 and CXM service providers, previous market companions could turn into real competitors. This is becoming more and more likely given the need for large-scale BPO platform projects such as smart cities and e-government to have integrated solutions with innovation and financial power. These can only be provided by international and vertically integrated CXM service providers of the next generation.

28 Cf. www.bosch.com, accessed on May 11th 2018.29 Cf. Federal Statistical Office of Germany, Statista, Annual Report 2017, accessed on May 11th 2018.


www.bosch.com


In terms of sales, Arvato, Bosch and Capita are the top dogs in the German CRM market. The very likely ongoing market consolidation will lead to new market allocations in the coming years.


Fig. 20 Outside-in observation of the German CRM market

Sources: Bundesanzeiger; Markus; Amadeus; internal PwC databases; PwC analysis.

1 2016, unless otherwise stated.2 Market share calculation based on the German outsourcing market volume of

€2.997 million in 2016.3 Appraised by call centre expert €1.3 billion in sales worldwide.4 snt was taken over by regiocom in 2017.5 Forecast for 2018 after acquisition of DV-COM and D+S 360°.

CompanyRevenue in Germany (in millions of €)1

Market share in Germany

(in %)2

Locations in Germany1

Nearshore locations for

Germany

Arvato –3 14 34 5

Bosch 248 8 4 4

Capita 259 9 12 2

CCC 78 3 8 6

Convergys 166 6 12 4

D+S 93 3 11 0

KiKxxl 46 2 4 1

regiocom 151 5 16 4

snt4 80 3 6 1

Ströer 1955 7 25 1

Sykes 76 3 5 4

Teleperformance 139 5 8 12

Webhelp 70 2 8 10


Maturity of the analysed competitors

D Maturity of the analysed competitors



1 Detailed strategy analysis reveals different orientations

The dynamic development of the market has already been described in detail. With every disinvestment and acquisition, the cards are reshuffled. What a newly divided German CRM/CXM service market could look like in the future can be assessed with regard to the (strategic) positioning of the top ten competitors. The top ten combine around 60% of the German market.

Fig. 21 Maturity of competitors

Average

Virtual star

Best market participant

Worst market participant

Industry focus

BPO project development

Relationship oriented/inbound (Customer care, complaint)

Service portfolio CRM 1.0 vs. 2.0

Technology consulting

Transaction-oriented/outbound

Information management

Criteria

0% 20% 40% 60% 80% 100%



Fig. 22 CRM benchmarking in Germany

Sources: Company websites; PwC’s own analysis.

CompanyBackground and structure

Positioning Strategy

1. Big and profitable

CCC• Founded 1998 in Vienna• HQ in Berlin

European BPO service provider currently offers mainly CRM 1.0 services to a variety of industries; focus on high-tech

Extension of service offerings to CRM 2.0 services to increase revenue and profitability

Convergys• Founded 1998• HQ in Cincinnati• Acquired by buw 2016

Full-service BPO provider with comprehensive services offered for all industries

Investing in innovative, verticalspecific service offerings to expand customer base and revenue

2. Big but not profitable

Arvato • Founded 1992• HQ in Gütersloh

Market leader, offers a wide range of core and new business services

Diversification of the sector mix, in particular through the expansion of the high-tech and internet sector; successive investments in CRM 2.0 services

Capita• Founded 1984• HQ in London• Acquisition of avocis 2015

Full-service and BPO provider with strong focus on telecommunication and full BPO services

Restructuring to increase profitability in the German market, strengthening of BPO competences and corresponding market shares

Teleperfor mance• Founded 1978• HQ in Paris

Full-service and BPO provider with business shares in all major industries and strong language skills

Investment in new business services and innovations to expand customer base and revenue

Exception

Bosch

• Founded 1985 as part of Robert Bosch GmbH as full service provider for all industries with HQ in Frankfurt

Successful international supplier of (BPO) solutions focused on complex, technology-driven services

Investment in new business services and innovations to expand customer base and revenue

3. Small and profitable

KiKxxl• Founded 1999 with

HQ in Osnabrück• Private BPO-Provider

Local provider of CRM 1.0 services with a focus on telecommunications, specialist in telesales and outbound

Expansion to nearby locations to increase profitability, strengthening service offerings for CRM 2.0

regiocom• Founded 1996 with

HQ in Magdeburg• Acquired snt in 2017

Full-range BPO and CRM service provider specialising in telecommunications and energy

Expansion of the offered service portfolio, in particular CRM 2.0, in order to increase sales and expand vertical alignment

4. Small but not profitable

D+S• Founded 1984• HQ in Hamburg

Local provider of CRM 1.0 services with a focus on telecommunications, energy and financial services

Extend service offerings to CRM 2.0 services to increase revenue and vertical alignment

snt• Founded 1999 with

HQ in Frankfurt• Acquired by regiocom 2017

Local provider of CRM 1.0 services with a focus on telecommunications and energy

In accordance with regiocom’s strategy (after the 2017 acquisition)

Sykes• Founded 1977 with

HQ in Tampa• Private BPO provider

Full-service and BPO provider with strong business share in the tech industry

Investing in new services, especially social media, to enhance digital solutions skills

Webhelp

• French BPO provider, founded in 2000 with HQ in Paris

• Financial partner of KKR since 2015

Full service and BPO provider with comprehensive service offered in various industries

Increasing M&A activities to strengthen BPO skills; extended CRM 2.0 offerings to increase sales and profitability


We believe that the market is likely to consolidate further, either as a result of the expansion of a full BPO service provider or the entry of a vertically integrated and internationally oriented full-service consulting firm.

Along with the strategic orientation, the competitive environment can also be differentiated according to the maturity level of the individual market participants.


Fig. 23 Comparison of innovative power

Ex-post until 2018Ex-ante perspective on

market participants

CompanyMarket share

Innovative power

Delivery skills

Market chances

Financial view

Arvato 14%

Bosch 8%

Capita 9%

CCC 3%

Convergys 6%

D+S 3%

KiKxxl 2%

regiocom 5%

snt 3%

Sykes 3%

Tele perfor-mance

5%

Webhelp 2%

Not applicable Low Moderate High Very high


2 Maturity model provides orientation for performance improvement measures

For the maturity analysis of the CRM service providers, we have developed a model with seven categories and 28 levers, ie, subcategories, which we have explicitly tailored to the special requirements of outsourcing service providers for CRM contact centre services.

Based on this model, we evaluated the maturity level of the top ten contact and CRM service providers in Germany. It is composed of individual category values, average values per category and a maturity score as the sum of the individual category values. Beyond that, we have identified a “virtual star”, which is a virtual market participant characterised by the best values, to give the valued companies additional guidance on individual performance and maturity-enhancement measures.


Fig. 24 PwC maturity model

Qua

lity

and

6

7

1

2

3

45

Leadership and

Organisation

Proc

ess

exce

llenc

eHuman capita

lIT and technology

Com

mer

cial

exc

ellence

perf

orm

ance

and

inno

vatio

n

Operatio

nal m

odel

Bus

ines

s model

CCMI

strategy


Almost all companies rated reach a maturity level of just over 60%, with positive and negative outliers in individual categories. Overall, most market participants have significant potential for optimisation, although many of the levers are disseminators of professional outsourcing.

Company-specific differences tend to arise in the categories that relate to the operating model (organisation, process excellence, employees, IT and technology). Large and medium-sized competitors are doing worse here than smaller market participants. In most cases, this is due to their complex organisational structure that has too much guidance and overhead. The ratio between overhead and production is 25% for some market participants – well above the record of around 8%.

Throughout the course of our investigation, the virtual star we determined reached 80% at its highest attainable maturity level, which is in reach for optimisation.


Fig. 25 Maturity by function

Average

Virtual star



0% 20% 40% 60% 80% 100%

Weighting

Leadership and strategy

Process excellence

Quality and performance

Organisation

Human capital

IT and technology

Commercial excellence and innovation

General maturity/ rating range

10%

10%

20%

15%

15%

15%

15%


3 Maturity levels in leadership and organisation are much worse than in IT/technology

Our differentiated analysis of the individual categories led to the following findings:

1. Leadership und Marktstrategie:Most companies were convincing in this category, with an average value of 54%. One of the industry’s characteristics is that many BPO providers have to date invested little know-how and skills in supporting account and market development with appropriate sales and marketing functions (ie, professional buying centre analyses of their existing B2B accounts). Market development often takes place after ad-hoc requests and by maintaining existing contacts and accounts. Only one company scored high for its skills that enable systematic and data-based processing of the current and potential market (best value of 74%). A record could be kept, for example, of profit-oriented analyses of existing accounts and the comparison with future potentials arising from new services or accounts.

2. Organisation: Although maintaining an efficient and effective organisation is one of the core tasks of a professional BPO operation, the companies analysed were surprisingly unconvincing in this category. As in category 1, the value here was only 54% of a possible 100%. One positive exception was a smaller company that had the best score of 77%. This shows that it is possible to have very lean structures and efficient processes are possible (eg, when team leaders also take on HR and recruiting tasks and thus reduce the need for complex HR departments), but not yet part of the industry standard. We also noticed that the companies analysed rarely exploited cross-location synergy potentials. In addition, service providers are still very much influenced by local customer requirements and the stockholding of exclusive resources at one location or for special customer projects. Despite the high cost pressure and poor availability of agents in Germany, some of the companies examined did not have a solid nearshore/offshore strategy. The impression in the industry is solidifying that the nearshore locations in Romania, Bulgaria and Slovenia are almost “grazed” and that the few blank spots such as Kosovo or Georgia are not consistently taken into consideration due to unclear costs or uncertain security conditions and data protection requirements.




Fig. 26 Leadership and strategy

Average

Virtual star



WeightingØ

Aligned market growth strategy

Known value proposition per segment

Aligned production strategy

Strategic market intelligence

Leadership and strategy

0% 100%

25%

10%

55%

54%

25%62%

20%56%

30%43%

80% 90%60% 70%40% 50%20% 30%10%

Fig. 27 Organisation

Average

Virtual star



WeightingØ

Lean enterprise and site structure

Leveraged network and pooling

Adaptive, adoptive, flexible organisational structure

Nearshore/offshore/onshore procurement and execution

Organisation

0% 100%

30%

15%

70%

54%

25%42%

25%61%

20%38%

80% 90%60% 70%40% 50%20% 30%10%

2


3. Process Excellence:The results also differ widely in terms of process efficiency. While only locally and regionally active competitors achieve very good values (80% of the maximum value achievable), the value of the leading international service providers is between 40% and 65%. This also applies to the Information Management subcategory, where the values are by far the worst. The average value of all the service providers that were evaluated is only 58%. It is worth noting that the reporting processes are not fully integrated yet and that information is still not collected automatically (digitally). In particular, no market and trend information is prepared for specific accounts or customers and used for customer management. Many companies lack a process management system that systematically and continuously improves internal and customer-related processes, which can in turn sustainably optimise the overall organisation (ie, be flanked by continuous improvement processes or a company suggestion system with appropriate incentives).

4. Human Capital:Here, too, our analysis revealed significant differences. While employee support, wage and salary management, and recruiting are carried out in their own departments in the top five providers on the German market, regional and local competitors try to do this across the board. In other words, site managers are partly responsible for employee management locally. The hierarchy levels are very flat and efficient; there are often few or no team leaders. Compared to the values in the previous categories, the analysed companies achieved a higher average value of 65%. This reflects the great importance of personnel management, qualification and recruiting.




Fig. 28 Process excellence

WeightingØ

Effective process management

Balanced support and production processes (ratio)

Effective information management

Standardisation, harmonisation and automation

Process excellence

0%

30%

10%

71%

67%

20%69%

30%58%

20%

100%

72%

3

80% 90%60% 70%40% 50%20% 30%10%

Average

Virtual star



Fig. 29 Human Capital

WeightingØ

Effective planning and forecasting

Effective recruitment management

Value-based compensation models

Effective qualification, skills andknowledge management

Human capital

0% 100%

20%

15%

64%

65%

30%57%

20%67%

30%72%

80% 90%60% 70%40% 50%20% 30%10%

4

Average

Virtual star




5. IT and Technology:In this category, the companies in our analysis achieved the highest value with an average maturity level of 70%. One of the leading German BPO providers was by far the most convincing with 89% and top ratings in three categories. In particular, companies that are still heavily active in the traditional 1.0 business did not reach values above 60%. But investing in future-oriented technologies is a decisive success factor for achieving profitable services and customer relationships. Because only state-of-the-art technologies enable BPO service providers to leverage profitable synergy potential, offer attractive self-services for (partial) automation of existing services and exploit new opportunities in customer experience management.

6. Qualität und Performance: In terms of quality and performance management, the competitors surveyed have reached a maturity level of only 59%, putting this category in fifth place of seven. This suggests that not enough companies derive their measures for optimising service quality from sound methods, eg, by systematic analysis of the reasons for their contact and the causes (root cause analysis). The top company in this category, a medium-sized competitor, scored 71%. The company in second place was well behind at 63%. The top company had by far the greatest consistency in the four individual categories analysed. The individual category with the highest average value was Efficiency and Performance Management (69%). Here, the top three companies – again all medium-sized providers – were at 73%, 79% and 82%. The segment with the lowest average level of maturity was Customer Retention and Service Strategy with 51% out of 100%. A large German contact centre operator was well below the average in the penultimate place.




Fig. 30 IT and technology

WeightingØ

Technology-agnostic set-up

Effective and efficient IT sourcing

Adequate use of enabling technologies

IT and technology

0% 100%

25%

15%

71%

72%

20%75%

30%75%

25%68%

80% 90%60% 70%40% 50%20% 30%10%

5Scalable service and taskoriented architecture

Average

Virtual star



Fig. 31 Quality and performance

WeightingØ

Efficient quality and performance management

Effective CX management and production

Effektive Business Intelligence

Quality and performance

0% 100%

30%

20%

69%

59%

20%52%

30%51%

20%63%

80% 90%60% 70%40% 50%20% 30%10%

6

Aligned customer retention and service strategy

Average

Virtual star




7. Commercial Excellence und Innovation:Here the examined companies reached an average maturity level of 66%, making this the third best of the seven maturity categories analysed. This time, the big players were ahead, mainly because of their extensive market experience and relative financial strength, which allow them to invest more in process excellence, innovative billing models and new technologies than smaller competitors. The individual category Result-Oriented Innovation Process yielded the highest maturity level of all 28 individual categories examined: 80%. The lowest maturity level of all individual categories was found in the category Data-Based Market Segmentation; here the companies analysed reached only 30% on average. This reflects the strong focus on a contact-oriented market development.


Fig. 32 Commercial excellence and innovation

WeightingØ

Flexible price models

Outcome-oriented innovation process

Collaborative compensation systems

Data-driven market segmentation

100%

25%

15%

72%

66%

30%80%

25%75%

20%30%

80% 90%60% 70%40% 50%20% 30%10%0%

7 Commercial excellence and innovation

Average

Virtual star




E Summary of the results on market and competition

Summary of the results on market and competition


Summary of the results on market and competition

The CRM service market is growingThe CRM service market will grow from around €9 billion in sales volume in 2015 to around €12 billion by 2023. The outsourcing area, ie, the CRM service provider market, will benefit in particular with a projected average annual growth rate of 8.5% or from a total of €1 billion to over €4 billion.

The main growth drivers are service-centric business models such as e-commerce, cross-border mail order, e-mobility, mobility services, identity services, digital financial services, smart home services, digital, public administration, and care services driven by demographic change. In addition, there are more and more products with integrated services on offer. Another growth factor is the pressure on margins (EBIT) in service industries such as telecommunications, the energy sector, tourism, car rental providers, etc., which are increasingly leveraging outsourcing potential as part of margin-increasing reorganisation projects.

The CRM service providers are getting smarterThe expected growth potential for digital CRM services (2.0 services) is three times higher than that of traditional call centre services (1.0 services). For example, 2.0 services include configurator management as part of e-commerce strategies, chatbot management, automated content creation and moderation, and segment-, product- or service-specific data analyses that can be used to support client services such as telemedicine and digital sales. Demand for consulting-as-a-service services, operated by specialised BPO/CRM service providers, is also increasing. To meet the demand for digital CRM services, service providers must standardise their structures and processes to the greatest extent possible and invest in new digital technologies such as robotics and AI.

The CRM service market is consolidatingThe growth in CRM services is attracting the interest of new, usually large, global technology and consulting companies. The market is also becoming appealing for institutional financial investors – and especially for PE companies. Moreover, Chinese investors or originators (eg, Alibaba, Tencent, Huawei, DJI) will also make acquisitions in order to provide the best possible service to their German and other European customers. Service providers that are already established in Germany are merging or taking over other established providers. The trend is towards larger, more flexible and more independent BPO providers. The main acquisition drivers are low interest rates, liquidity surpluses, expected margin increases and business model additions. Since 2013, there have already been over 20 transactions and mergers, some of which were large.

The buying power of 2.0 service providers is improvingThe trend towards larger, more flexible and more independent BPO providers, the new innovative power of 2.0 service providers and the market growth for smart digital services strengthen the industry’s negotiating position. The currently overwhelming dominance of clients will weaken significantly by 2020 and beyond, which leads to a positive development of margins for modern CRM service providers.

The maturity levels of the business models are far from satisfactoryA positive margin development presupposes that the business models and the organisation have a high degree of maturity. Our maturity level analysis yields an average value of just over 60%, with positive and negative outliers in some of the seven operating model categories and the 28 subcategories therein. Overall, it can be noted that almost all market participants have significant optimisation potential, even though many of the levers are part of the basics of professional outsourcing. This applies in particular to the Leadership and Market Strategy, Organisation and Process Excellence categories.


Profitability and viability

F Profitability and viability



1 Large differences in revenue among CRM providers in Germany

The profitability of CRM services heavily depends on the operating model. Our profitability analysis shows a very mixed picture in this regard. • The profitable CRM-service companies in Germany achieved an average EBIT of

6.5% in 2016 (average from 2014 to 2016: 4.5%).• Providers operating close to the break-even point averaged –0.7% (average from

2014 to 2016: 0%)• For the companies with significant deficits, the bottom line in 2016 was an

average EBIT loss of –5.6% (average from 2014 to 2016: –6.1%).

Overall, the industry benchmark is 5.1%, but the average profitability of all companies surveyed was 0.1% in 2016 (average from 2014 to 2016: –0.9%).

Fig. 33 Profitability cluster

Individual benchmarks 2016, EBIT margin in %

Individual benchmarks 2014–2016 (average), EBIT margin in %

1 Profitability is influenced by EBIT effects (restructuring measures and acquisition efforts).

Average1

Profitable service provider

Service provider with low breakeven

Unprofitable service providers

4.5

0

–0.9

–6.1

5.1% benchmark

Average1

Profitable service provider

Service provider with low breakeven

Unprofitable service providers

0.1

6.5

–0.7

–5.6

5.1% benchmark



The operating model-specific differences between relatively high profitability and high loss margins among the most important competitors in the German contact centre market are mainly due to the maturity levels described above. The higher the maturity level of a CRM service provider in the seven categories we analysed, the better its chances of achieving positive margins. In the case of loss-making companies, it is worth nothing that they are currently being restructured and/or still have to financially process takeovers in recent years. Acquisitions cost a lot of money and cause depreciations. Both have a negative impact on the balance sheet profit. The integration of an acquired, large-scale CRM-business usually takes three years. But even restructuring without prior M&A activities costs a lot of money before companies benefit from lower costs and better operating models.

Anglo-Saxon CRM service providers in Germany have to master a special challenge: business models that have proven themselves in their home markets sometimes work poorly in this country. Major reasons for this are the different minimum wage and working time regulations and employee co-determination rights that apply in Germany. There are still no blueprints for successfully integrating acquired German CRM providers into the processes, structures and culture of Anglo-Saxon companies.

The cost-driving difficulties in the economic integration of acquired companies or business areas are mainly due to the uncontrolled growth of structures and processes and the strong customer orientation. Buyers are often unaware of these organisational or system-related weaknesses at the time of acquisition. This is usually because the target company does not have transparent operational processes and does not perform reliable operational due diligence. When investors acquire a CRM-service company and take over structures and processes focused on the main clients and then possibly change a main client, the already high adjustment and standardisation costs increase again – and sometimes these drive the company into the red.

2 Ways to higher profitability

In order to reach the profitability benchmark (5.1% in 2016), there are promising opportunities, especially for loss-making companies:

• Short-term success is possible if the operating model is streamlined. One way of doing this is to reduce hierarchy levels and in the process distributing administration, support and qualification activities to existing operational resources (eg, team leaders). Best practices already exist; customer structure analyses are recommended. This begs the question as to whether it is worthwhile for a CRM provider to retain customers with a low profit margin or to give up such customers. The provider could then use its newly available capacities to provide new services to more profitable customers. Furthermore, scalable services and additional consulting as well as the renegotiation of loss-making contracts can improve EBIT in the short term. In Germany, the increase in traditional inbound contact centre services has had a particularly positive effect on prices for service providers. The current average price increase for classic 1.0 services is €0.22/ minute or 30%, which is mainly achieved by passing on rising personnel and investment costs to customers. Price-sensitive sectors such as telecommunications are driving this development. The volume-based discount prices previously generated via auctions (eg, €0.27 to €0.34/min.) are now a thing of the past.



• Medium-term tasks include, eg, location and risk analyses. If a CRM service provider determines after the customer structure analysis that it should part with unprofitable customers, it will often consider changing the service location. That’s because many locations of CRM service providers are linked to the locations of important customers.

As an alternative to parting with customers and the potential closure or relocation that may accompany this, CRM providers can seek new contract and pricing models with customers. The main concern here is that clients also assume risks that previously had to be borne solely by the CRM service provider. For this, however, the provider needs sufficient buying power (p. 26–27). In this case, clients could take over salary components from contact centre agents and pay them a higher salary. This would strengthen employee retention and reduce the very high agent turnover in call and contact centres, which could save recruiting and qualification costs, for example.

Profitability can also be increased with new service 2.0 solutions that use technology more (see p. 40). This enables CRM service companies to offer services with significantly higher margins than traditional call centre services. It is important to place focus on setting up service platforms and making them available to different clients in order to scale them accordingly. A key success factor here is the maximum standardisation of work processes for optimising human-machine interfaces. Another success factor is modern big data management. The innovative ability gained through this makes existing service 1.0 providers integral solutions 2.0 providers.

In order to establish the new dynamics equally at all locations, providers must introduce uniform process and structural standards everywhere and digitally connect their organisations. If they work across borders they must also do this internationally. In addition to the possibilities outlined above, we see other strategic aspects, such as the development of intelligent sales models, the integration of organisational units and the strengthening of the service providers’ marketing function. To complement, CRM service providers should enter into strategic partnerships with the GAFA groups or with system and software manufacturers. Open-source technologies could be increasingly used and free developer communities could be included in the development of cross-business model technology platforms.



Human success factor in the contact centre environment

G Human success factor in the contact centre environment



The success of a contact centre depends very much on the people working there because CRM and CXM services – and especially the classic 1.0 services – do not yet work without people (ie, agents). However, the requirements for service agents have changed and increased considerably in recent years. Employee recruitment is one of the most important challenges for service centre operators in the current market environment in Germany. This is made more difficult by the following trends in particular:• increasing qualification requirements on behalf of the client• lower availability of service centre agents on the market• rising wage levels in Germany• above-average fluctuation and sick leave

1 Increasing qualification requirements for service centre agents

In the best case, agents are only used where human-to-human interaction is necessary: in other words, in interaction cases are too complex to be automated and standardised. Only a few years ago, the most important prerequisites for a good agent were a basic education, affinity for computers, flexibility and customer communication skills. But today these characteristics are among the minimum requirements for this profession.

The transformation from CRM to omnichannel-based CXM service centres requires appropriate omnichannel capabilities and strong IT affinities on behalf of the agents. Today’s agents must be able to actively manage knowledge and data, reliably operate the necessary tools and preferably be able to communicate in several languages.

However, CXM centres also offer services that cannot be handled by agents alone. The increasing complexity of service cases and the trend towards CRM 2.0 services is forcing service centres to recruit IT specialists and topic experts. They significantly increase service quality thanks to their expertise and are in a position to provide so-called high-value services. According to our analysis, the proportion of service agents will fall from over 70% to below 50% by 2020. On the other hand, the share of IT experts among service employees will double from 20% to 40%. As a result, service providers will in future be employing more and more people with professional training or a university degree instead of school drop-outs.

Sources: CVV; TGMC; PwC evaluation.

Traditional agents IT support Other experts, eg, consultants, coaches

Fig. 34 Availability of agents

Share of skilled workers in the workforce in %

Forecast

2016

66

22

12

61

26

13

56

29

15

52

30

18

49

32

19

2017 2018 2019 2020



Fig. 35 Availability of agents based on educational level and life cycle

Proportion of agents by educational level and life cycle compared from 2016 to 2019

Sources: CVV; TGMC; PwC evaluation.

Commercial training48%

Educational level

University degree11%

No education10%

2016

Other12% Technical

training19%

Life cycle

Commercial training49%

Other14%

No education7%

University degree13%

Technicaltraining

17%

2019

Career change39%

Retired1%

University10%

Job entry level19%

Job returning18%

Unknown8%

Schooling5%

2019

Career change42%

Retired1%

Unknown5%

University8%

Job entry level17%

Job returning21%

Schooling6%

2016

2 Declining availability of service centre agents and other skilled workers

If new service employees are needed, the requirements for them should be clearly defined and the recruitment process implemented as quickly as possible. The availability of qualified employees will decrease noticeably and the competition for these talents will increase immensely. Our analysis has shown that in 2016, an average of 19.8% of the advertised agent positions remained vacant.

The availability of IT experts is even more problematic. In 2016, 23,000 IT positions on the German market went unfilled due to a lack of skilled personnel – and the trend is rising. For this reason, more and more people with different educational or professional backgrounds are being hired. They are expected to account for 40% of all service personnel in 2019. Service centre operators are therefore forced to become significantly more attractive as employers in order to remain competitive. More recruiting power could bring them new recruiting channels. While until recently, job offers were mainly published on the company’s own website and in classic (regional) media, online job markets and social media channels are becoming extremely important because they offer much more speed and reach.



3 Rising wage levels due to minimum wage and shortage of skilled workers

A second way to increase the appeal of employers in the contact centre environment is to offer higher salaries. But since the introduction of the minimum wage, the salary level of many CRM service providers has already risen sharply. On top of this, higher employee qualifications and increased competition for skilled workers are leading to an additional increase in average salaries in contact centres. Our salary analyses showed that contact centre agents and IT experts in Bavaria, Baden-Württemberg and Hessen are paid the highest salaries. The maximum agent salary we have documented is around €2,100 gross per month and is paid in Hessen.

The increase in salaries is a huge burden on all BPO providers and threatens the profitability of many companies. In order to remain competitive and attractive for applicants, flexible wages are established. An analysis of recruiting activities in the top 10 companies of contact centre operators in Germany shows that monthly bonuses of €200 to €700 are paid based on an agent’s performance, which is determined by looking at key performance indicators. Some companies even pay sign-on bonuses for agents who have been headhunted from a competitor.

4 Above-average fluctuation and sickness rates

The fact that greater attractiveness as an employer is of utmost importance for service centre operators is reflected in the above-average fluctuation and sickness rates. The fluctuation rates of between 20% and 40% per year, which are customary within the industry, have a negative impact on the efficiency, quality and profitability of BPO providers. Our analyses show that more than 30% of all contact centres nationwide suffer from fluctuation rates of up to 30% within the first three months of employment; 6% of all operators struggle with fluctuation rates of more than 50% and, in extreme cases, even up to 80% (eg, for outbound or telesales services). Sickness rates in contact centres are between 8% and 12% and thus cause considerable costs. Similar figures can be observed in the parcel service, gastronomy and logistics sectors.

The sickness rates, which are far above average, and high fluctuation not only have devastating consequences for the operating business of service centre operators, but are also reflected in high expenses for the near-continuous recruitment and qualification measures. According to our analysis, contact centre operators spend an average of €5,000 on training and qualification measures per agent – and this figure is rising. As the German job market is almost approaching full employment, CRM service providers must focus on increasing the attractiveness of the job and the working conditions. Those who succeed in retaining and training their employees will achieve a significant competitive advantage thanks to the personnel success factor.


H Summary and recommendations for action

Summary and recommendations for action



The changes in the German contact centre and CRM market outlined here provide a very interesting picture for service providers and clients, but also for investors: if opportunities and risks can be balanced, if resources can be connected efficiently and good technological competence be built up in the short term, then investments in contact centre solutions and providers will prove to be future-proof. In addition, if contact centre services are highly scalable, above-average returns can result in a strong growth market.

This applies in particular to new business and service models that have already been designed as scale models. These include e-commerce and cross-border mail order services, mobility services, identity services, automated financial services, smart home services, care and ambient assisted living solutions and e-government services.

CRM and BPO service providers are once again gaining appeal for investors due to the potentially high income opportunities while simultaneously taking over important customer interfaces. The German market is not only interesting for global technology and consulting companies, but also for institutional financial investors and private equity.

The expected growth potential of digital CRM services (2.0 services) is three times higher than the expected growth potential of traditional call centre services (1.0 services). Examples include configurator management, chatbot services, automated content creation and moderation as well as segment-, product- or service-specific data analyses.

Investors who enter at the right time can be among the winners thanks to foreseeable good margins. However, a positive development of margins presupposes that the business model and the organisation in which investments are made have a high degree of maturity.

Nevertheless, our analyses have shown that the success of a contact centre provider depends not only on technological solutions and competence, but – more than ever – on well-trained staff who also have the ability to empathise. The requirements for service agents and the qualifications of agents have changed considerably in recent years. If the majority of simple requests such as damage reports, information requests, warranty questions or changes of address will be automated in the future, then only the “serious” cases will be handled by agents. That’s why complete customer satisfaction will not be possible without appropriate training and qualification. Empathy and emotionality are required here. This is also reflected in the requests from customers to CRM service providers. But it is becoming increasingly difficult to find suitable agents and managers. CRM providers are currently facing many challenges in recruiting: a lack of basic qualifications delays the employee’s deployment and increases costs. Steadily rising local wage levels above the minimum wage are putting pressure on profitability. This also applies to above-average fluctuation and sickness rates.



In order for contact centre and CRM service providers to be able to meet the changing requirements and operate successfully on the German market in the future, they should quickly• streamline the operating model in the best way possible and periodically examine

it for further inefficiencies in order to achieve at least benchmark profitability;• become or remain attractive for employees – especially service agents – in order to

keep them for the long term in a highly volatile and regulated labour market;• achieve growth in the traditional, agent-intensive and high-volume but price-

sensitive CRM 1.0 business in order to finance investments and growth in the strongly branded, highly automated and scalable CRM 2.0 business;

• acquire as many international clients with growth potential as possible and dynamically manage them using a portfolio approach;

• dynamically adapt the service portfolio to market and customer demand; • master the digital transformation and test new technologies that are necessary to

efficiently meet new service demands, and • establish an interactive data infrastructure with efficient, intelligent data

management in order to recognise and realise growth opportunities and profitability levers at an early stage.


Contacts

About usOur clients face diverse challenges, strive to put new ideas into practice and seek expert advice. They turn to us for comprehensive support and practical solutions that deliver maximum value. Whether for a global player, a family business or a public institution, we leverage all of our assets: experience, industry knowledge, high standards of quality, commitment to innovation and the resources of our expert network in 158 countries. Building a trusting and cooperative relationship with our clients is particularly important to us – the better we know and understand our clients’ needs, the more effectively we can support them.

PwC. More than 10,600 dedicated people at 21 locations. €2.09 billion in turnover. The leading auditing and consulting firm in Germany.

Contacts

Prof. Dr. Nikolas BeutinPartner PwC Management Consulting,Head of Customer Practice, EuropeTel: +49 89 [email protected]

Matthias RiveiroPartner PwC Management Consulting, Customer PracticeTel: +49 69 [email protected]

Raphael HeinerSenior Manager PwC Management Consulting, Customer PracticeTel: +49 211 [email protected]

mailto:[email protected]



www.pwc.de

www.pwc.de

Documents

The German Contact Centre and CRM Service Market An ... · internet-enabled TVs, scales, alarm clocks, washing machines, refrigerators, thermostats and wearables, such as portable