The *Real* Cost of Offshore Outsourcing

[OhioChick]

April 28, 2009 (CIO) One would think cash-strapped companies would find a heavenly match on foreign soils with plentiful, cheap labor. But that would be the romantic notion and not necessarily the reality. "Companies often 'plan for the wedding, but not for the marriage,''' says Dalip Raheja, chief executive officer and president of the Mpower Group. Now that offshore outsourcing is roughly a decade old, it's time to evaluate lessons learned and tally the real costs before renewing any vows.

The Honeymoon Is Over

"After a period of explosive growth in offshore outsourcing many companies are moving past the learning curve when it comes to the tangible costs of moving services and production offshore," explains Raheja. "Experience has built more certainty around what was once considered previously 'hidden costs,' or costs related to transition, development, selection, etc., which could easily cancel out any financial benefit of doing business offshore."

Now that time has told its tale, flaws are revealed and divorce becomes an option. One example, Delta's CEO, Richard Anderson, announced this month that the airline canceled its outsourcing to India because its customers were very vocal against foreign customer service agents. The struggling airline desperately needs happy customers so it responded to the complaints.

Often it is not simply the loss of disgruntled customers, a loss bad enough in a down economy, but loss in efficiencies and productivity as well that leads to the severing of offshore outsourcing relationships.

"We often find that outsourced agents are not trained as deeply as agents who work internally for an organization, and often lack the tools to do a thorough job for customers," says Dr. Miriam Nelson, senior vice president of Aon Consulting, a global HR/human capital firm. "We hear them rushing through calls, merely repeating the same troubleshooting steps, since they do not have that deeper understanding necessary to explain issues in a different way for the customer."

When call center work is outsourced to an offshore firm, service drops even further according to Nelson. "Offshore call centers are not only challenged by being in an outsourced position, but they also have to overcome language barriers and cultural disconnects," she explains. "When we benchmark offshore service against onshore service, offshore scores much lower."

The cost of poor service translates to hard currency losses for any corporation. One example: Aon recently observed an outsourcer in the Philippines and found the following, according to Nelson:

1. 41 percent of all calls are placed on hold. The average total hold time is 331 seconds. Agents are typically looking up information or speaking with other departments during these holds. Reducing the average hold time by 30 percent alone would result in an estimated annual savings of $384,000.

More: http://www.computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName=&articleId=9132255&taxonomyId=&intsrc=kc_feat

[ihavenobias]

1. K & R. n/t

[corpseratemedia]

2. when a lady from TW 411 screamed and hung up on me because I asked for

the number of a medical group on a different street (I wasnt rude either) , I realized I needed to find out what was going on.

It took me 20 minutes to speak to a manager who eventually admitted that the TW411 service for our city was outsourced to the Philippines.


They're halfway around the world, they get paid nothing, there aren't shared cultural norms, so why care, you can scream for no reason and hang up all you like.

[ccinamon]

3. This is sad....I figured this out back in the late 90's - and

I wasn't even in an upper management position, I was a programmer and used just plain old common sense.

I swear, business graduates should not be hired in any kind of money position until they've had at least 10 years working as a lowly peon and seeing the REAL world...not the world of books and teachers and untried ideas.

[nichomachus]

4. I could have told them this years ago

but did they ask? Nooooo.

Foreign call center workers are very good at reading from their script. If your problem isn't on their script, you're screwed.

And, they can't make decisions. They can only read from the book. In other words, they can't solve your problem. They don't have that authority.

I was once being charged for calls made from a phone in MA, while living in CA. The outsourced customer service rep for ATT kept asking if there was a chance I was using the phone in question without realizing it. She couldn't understand that I would probably realize it if I had flown 2,500 miles just to make a phone call.

[pleah]

5. K&R

[Moral Compass]

6. The Real Cost of Off shoring

No one seems to have posted the lesson Michael Dell learned from off shoring. In the early 2000s Dell had won the top spot in the PC wars. Their growth was staggering, their product reputation unassailable, and their support legendary.

Dell was winning one large corporate account after another and they were making serious inroads into state, local, and federal government. IBM ended up selling their PC business in the face of this onslaught of quality.

It was a great marketing mix: great product, great support, great pricing... What could go wrong?

Well, the CEO of Dell at the time could decide to outsource support for all but the largest corporate and government clients--that's what could go wrong.

Very quickly Dell's market image went to hell. Why? Well, suddenly if you were with a medium sized corporation or worse with a small company your 1st experience went from fabulous to completely horrible.

I experienced Dell support on both sides of this brilliant decision. Due to one forced change of employer after another I got to have a new Dell with two different corporations within a span of a year.

The first time I got a Dell I had a configuration problem with the touch pad. As I typed, my cursor was flying all over the screen and I often had to enter emails with two fingers. This was time consuming and very annoying. So, I called Dell.

I hit 1st level support and was immediately passed on to 3rd level support and found myself talking to someone that truly understood his product. Since this was before the time of software takeover of PC's remotely he emailed me a patch that gave me a touch pad configuration option that didn't come as standard product. He stayed on the phone with me while I installed and tested it. It worked. I thanked him and hung up. He probably got laid off later due to Dell's management deciding to outsource support to India. I've always hoped not. Having worked in the tech industry for many years I know good support from bad. That was really, really good support. Even excellent.

All of that doesn't sound all that complicated, but without his accumulated knowledge of the product and how it was manufactured and configured for the company I was working for, that could have been something that took days and would have left me frustrated and angry even after a solution had been found.

So, then I got laid off in January of 2003. Four months later I had landed another high end sales job with another telecommunications company. I got another brand new Dell laptop. And I started experiencing the exact same problem. As I typed, because my thumbs have a tendency to brush the touch pad the cursor was changing positions on the screen. Sending a simple email reply could take many minutes due to my having to correct things including email addresses.

So, I called Dell. I knew they had a patch that would allow me to dial down the sensitivity of the touch pad (this is standard on everybody's laptops today--a patch isn't necessary).

My call was routed to India. I was talking to someone that didn't have any background with PC's and didn't have even my expert user level of knowledge. This wasn't necessarily an English problem although the accent was thick. It was both a knowledge and cultural problem.

This guy just wanted me off the phone and didn't really understand what I was complaining about. Even when I told him that patches were available for this specific problem he proceeded to tell me that I needed to reload the operating system and all of the applications. That somehow would magically fix it.

I lost my patience and asked for a supervisor. The supervisor was even less knowledgeable. I became furious and demanded that my call be routed to Austin support. The supervisor told me that my support plan didn't have that option and that I'd have to get a P.O. from my company for the extra support. I told him I'd give him a personal credit card. I was finally routed to Austin.

Once I got there, the support experience was the same as my first experience. Very quickly, the 3rd level support manager (after completely agreeing with me about the total stupidity of having moved support to India and noting that many of his co-workers had lost their jobs due to this...) looked up my specific configuration, found the patch, had me go to a link on their website (which was password protected and not findable without help), helped me download and install the patch, and really, really apologized for my bad experience etc. Oh, and he didn't take my credit card number.

This took three hours. I was about to stroke out virtually the whole time--until I got to Austin.

So, Dell lost their #1 marketplace position. Dell's customer satisfaction ratings went into the toilet and HP surged ahead and is still ahead as far as I know.

Then two years ago, Michael Dell came back and fired the entire management team. One of the first things he did was bring back customer support to Austin. Turns out that you can't replicate the knowledge base your employees have accumulated over years by doing some cursory training for base level Call Center agents.

Dell is doing much better now, but Michael Dell is still clearing the wreckage of that short sighted, cost based decision.

It doesn't surprise me that the large companies that outsourced their customer support are having to bring it back home. There will be many more. I see it in my current business. When a call gets routed to India or wherever--the customer experience degrades. It isn't just the language issue, but the ability of the person on the other end of the phone to relate to the customer they're talking to. It is the huge amount of non-transferable knowledge that gets lost. It is the fact that the customer is dealing with someone working off a rigid script. They can't stray from that because they've been told not to and they don't have the understanding that would allow them to.

Customer support is a delicate art. Companies that don't understand that are telling their customers that they don't care. Very quickly the customers vote with their feet. The market it working in this instance--it's just damn slow.

[Qutzupalotl]

7. Welcome to DU!

Great first post!

[NJCher]

9. what an informative, interesting post

Thanks for your input, MoralCompass. I didn't know about the background on Dell's loss of the lead in the computer market.


Cher

[CrispyQ]

8. I worked for a company that decided to move it's manufacturing to Mexico.

I was there for three years & they never made up for the losses they incurred from that move. The contract stipulated that the workers were guaranteed X number of hours. When product from China didn't arrive on time, workers were paid to clean & paint the facility. This was a common occurrence. The CFO stated that we had the cleanest, freshest facility in all of North America.

The real clincher was when a truck load of product was hijacked three weeks before close of 4th quarter. Sure they had insurance to cover it, but they did not make their sales figures because there was no product. Stock went down, bonuses were not paid. I thought the VP of Sales was going to have a coronary.