Are Investors Right to Be Nervous about CXM Providers? Well, It Depends!

Generative AI (gen AI) is transforming the customer experience management (CXM) landscape, challenging traditional contact centers. While concerns about declining revenues and increased costs are valid, many traditional methods, like human interaction, are still needed for complex customer issues. Read on to discover strategies to improve CXM provider success in a technology-driven market. Reach out to discuss this topic in depth.

Over the last 12+ months, we have seen a massive drop in the stock performance of nearly every publicly traded customer experience management (CXM) service provider. This has mainly been driven by nervousness in the market about how generative AI will impact the need for contact centers, especially in the way they are operated today, which is very reliant on vast numbers of people.

In this blog, I will explain why, in answer to the question, “Are investors right to be nervous?” I give the very vague answer of “It depends.”

The possible impact of generative AI on traditional contact centers and CXM providers

Firstly, we need to understand what could be causing some of the angst among investors, and full disclaimer: I am not positioning myself as an expert investor. There may be very technical reasons why investors are right to be nervous, but I am looking at it as someone who has bought contact center services for some of the world’s leading brands and has a good understanding of how this environment works.

Let’s explore the ways gen AI or next-gen technology could impact traditional contact centers and CXM providers:

  • Traditional contact center businesses have been successful in building large workforces and real estate portfolios, and there is an expectation that the use of technology, brought to large-scale attention by the hype around gen AI, will dramatically reduce the need for humans and, in turn, the need for large real estate portfolios. This assumption means that service providers will have dramatically increased exposure to their real estate costs and will see their main source of revenue, i.e., humans, reduced or removed completely
  • Therefore, the revenues of the impacted service providers will decline over the coming years as more customer interactions are handled by technology, making the companies operating in this space less attractive, if judged on revenue performance alone
  • There is constant talk about new entrants to the CXM market and how a pure technology play, for example, Conversational AI, much improved by the use of gen AI, could replace the need for human interaction, therefore giving birth to a whole new set of CXM providers who only bring technology. This, if true, would have a dramatic impact on traditional players

Any sensible person looking at the factors I have outlined above would be right to be nervous about the future of traditional contact center players. However, this would be missing a few key factors often overlooked or at least given less priority than the concerns. Some of these factors include:

  • People still want to talk to people at times of high stress or when they perceive the problem as complex or emotive. Despite the rapid rise of technology aimed to reduce the amount of human interaction in the contact center, such as robotic process automation (RPA) or Conversational AI (CAI), which has been around for many years, over 70% of service provider revenues are still coming from the voice channel. This proves customers still want to talk to people, and even with the inclusion of gen AI, the shift to non-voice channels is not going to happen overnight
  • When having a negative outlook for traditional contact center players, it assumes that they are standing still and doing nothing to embrace the new technologies, which is totally incorrect. Most of the leading CXM service providers we assess as part of our CXM PEAK Matrix © Assessment are investing heavily in a wide range of technologies that will improve the customer experience and reduce the need for human-assisted contacts, but also, and equally as vital, allow support agents to be more effective and efficient, therefore reducing total cost to serve for customers
  • Many providers, mainly since the pandemic, have already been working hard to reduce their real estate exposure driven by the increased use of work-at-home models (which have reduced since the pandemic abated but are still very prevalent in certain markets)
  • Additionally, we know from recent research that enterprises are increasingly looking to service providers to support them in deploying technologies such as gen AI. These providers bring a high degree of domain expertise and understand customer’s problems, and therefore, are best placed to deploy solutions using the latest technologies. This will present additional opportunities for providers who can demonstrate capabilities in this area

So why did I say it depends? I strongly believe that CXM service providers can thrive in this new market but need to embrace a new reality, which includes working hard in a number of areas.

Strategies for enhancing CXM provider success in a technology-driven market

  • Build solutions that address business problems – This entails not just the generic “reduce cost” or “improve CSAT” but real business challenges where CX can drive significant change in the business metrics
  • Demonstrate differentiation – With a large percentage of the market trying to move away from the traditional moniker of a “call center provider” and trying to demonstrate a shift toward digital solutions; it is important that they demonstrate, not just tell, the story of how they are solving real business problems for their customers by bringing together the power of their people with the available technologies to offer the best solution for the customer
  • Build strong technology partner ecosystems – Partnerships allow providers to deliver technology solutions across the customers’ journey – this includes, of course, the use of LLMs and gen AI, but can be as simple as having solutions in place to improve the employee experience or to provide timely insights through analytics. Most buyers want their providers to be able to bring an end-to-end solution and are no longer just looking for a provider that can only provide people. Humans, supported by and, where possible, improved by technology, are the type of solutions customers are demanding. Those that are pivoting in this direction can continue to grow their customer base
  • Develop flexible delivery models – Providers should leverage work at home as well as other sources of talent (GIG and Impact Sourcing, to name just two) to meet the changing demand both in terms of when support is needed and the type of skills that are required
  • Build commercial models that allow both parties to benefit from efficiencies – Commercial models should go beyond the traditional per FTE, per transaction, or per minute models and allow buyers to visualize and, more importantly, realize the value that a more efficient operating model can deliver
  • Use technology to solve operational challenges – This helps operations run smoother and more efficiently. While using all the technology available to resolve a customer’s issue is an obvious application, those providers that will thrive in the future will also be investing in technologies and skills within their organization that address operational challenges most effectively
  • Develop a culture that recognizes that revenue is not the only metric – While important, it is more impactful to focus on the margin of the work because as a business deploys more technology-led solutions, the revenue may decline, but the business that replaces it should be more profitable
    • This will also require a total evaluation of how people are rewarded within the business to recognize the value of deploying solutions that may bring lower revenue but provide a better and longer-lasting business benefit
  • Be forward-looking when it comes to skills that will be required in the future – Build location and talent strategies that will provide the talent required for the future in order to maximize the benefits available from a human and technology model
  • Develop strong account management disciplines – We know from recent studies that when there is limited differentiation in the market, as there is in the CXM space, the one deciding factor that tips a decision in the service provider’s favor is the strength of their account management
  • Use the technology to improve the employee experience (EX) as well as CX – Leverage the available technologies to remove mundane and frustrating tasks from employees, allowing them to focus on value-adding work. We all know that happy agents deliver a better experience

In summary, I am not pessimistic about the future of the CX arena. We know that the markets tend to overreact in the short term to new stimuli, gen AI in this instance, and underreact in the longer term, and this could be the same.

Will every provider in this space today be successful in three years? Probably not, but the size of the CXM environment (we estimate it to be well over US$330 billion, including insourced and outsourced activity) represents an excellent opportunity for those businesses that can evolve and meet the fast-changing needs of customers.

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