Slashdot Mirror
The Hidden Cost of Outsourcing
Alien54 writes to tell us CNNMoney is reporting that outsourcing may not be as big of a bargain as some might think. From the article: "With consumers enjoying more choice than ever before, evidence is growing that great service is essential for long-term customer retention. To cite just one example, a recent survey of pension policyholders in the United Kingdom found that 75 percent would leave their current provider if they experienced bad customer service."
To cite just one example, a recent survey of pension policyholders in the United Kingdom found that 75 percent would leave their current provider if they experienced bad customer service."
If this were true, Dell would not be the number one mfg of computers after losing 75% of their base. How many people here have called tech support and gotten someone with a thick Indian accent named "Steve"?
The problem (if you can call it that) is that Dell offers decent CPU's for cheap. Rather it be for the home or business, people are more willing to take the chance on a computer that's $200 than their competitors.
There is no "I disagree" mod for a reason. Flamebait, Troll, and Overrated are not substitutes.
The article is terse, inapplicable to those many markets which are almost entirely price-sensitive, and ill-supported. Pension policies don't really compete on price; they are about service and ROI.
And people often say that they will take their business elsewhere, but then stick to the cheapest vendor when push comes to shove. Self-report is not the best indicator of actual behaviour, especially for a hypothetical.
What's a pension?
How about intellectual property? Spend millions of dollars in the U.S. on research and development and then outsource the manufacturing to China and then wonder why the Chinese develop a very similar product. Duh!
Outsourcing does not mean, bad service. It's about getting a service from abroad with most probably lower costs. It's evident that same quality of service taken from India, or China is a lot cheaper than the one taken from US or some other European countries. Companies should be more selective on outsourcing, then they won't lose customer due to bad service, but in no way there's a direct connection with outsourcing and bad service.
The author is thirty years behind if this the first time he's run across this idea. There have been shitloads of studies done over and over again that show that most (i.e., >50%) people leave/switch because of shitty service from their existing supplier/provider/brand/etc.
It's a good thing that inhouse customer service can't be terrible!
Seriously, this just means that you have to be careful who it is who provides your outsourced service just like you'd have to be careful who it is who provides your inhouse services. The big difference is that outsourced service contracts are generally easier, quicker and cheaper to terminate and replace if they're don't meet the agreed standard.
"a recent survey of pension policyholders in the United Kingdom found that 75 percent would leave their current provider if they experienced bad customer service."
People say they will take action all the time. How many actually do? Well they do take action. They tell all their friends how shitty "the company" treated them. They go into detail about how "the company" doesn't care. And then next money they send "the company" a check for the bill.
Replace "the company" with practically any business name.
This article is evidence that its best to let free markets decide the value of things such as out sourcing. So long as consumers have choices, they'll be free to make choices based on what they value. In this case, people don't like the out sourced solution and they are moving to the competitors product.
This is all a lot more neat, clean, and effective than a heavy handed reponse from a clumsy government. Consumers always win when they have an array of free and voluntary choices.
"evidence is growing that great service is essential for long-term customer retention."
To me this is a remarkable indicator of the high cluelessness level of a very large number of businesses. This is such a basic truth, it's like "Please open mouth to breathe".
Happy Customers/Happy Employees can make a successful business even if the product is just 'adequate'. People resist change more when they are happy than not. F---ing duh.
-- kortex "Not everything that counts can be counted, and not everything that can be counted counts"
From the article, "you'll soon figure out that competing solely on price is a fool's game"
Quote below taken from DNUK's website
There are other hidden costs to offshoring deriving from cultural differences and communication problems. I was involved with three software development projects that had been outsourced to three different firms in India. In only one case was there a marginal win, despite net billing rates that were perhaps half of what we would have paid for domestic IT talent. Much of the cost overruns arose from miscommunication backed by a desire on their part to not appear incompetent. The engineers would come here for several weeks to gain understanding before returning to India to work on the project. Despite this, I found out there were fundamental knowledge gaps that should have been cleared up in the first day, let alone two weeks after they had returned to India (and billed us for two weeks of apparent head-scratching). In my opinion, the only way to make technical offshoring work is to make it onshoring, by opening a local office in the country where the talent lives. I doubt there is a similar solution for offshoring customer support.
When you call JetBlue airlines and talk to one of their reservations agents, you talking to someone sitting in their home. ALL of their reservations agents are home based. They get away with cheaper labor and a happier workforce.
Not that there's anything wrong with Indian call centers but half the time I can't get past the Indian accent to understand what the hell is being said. There is a limited amount of things they can do as well and to say that Indian call centers provide "customer service" would be an overstatement.
When you call a company for customer service you should be able to get someone able to bend the rules if circumstances warrant. The "paid parrots" of Indian call centers can't do that.
Often this is not the case. As a part-time marketeer, I can tell you that often what I do to lure customers away from my competition is:
1) "educate" my target segment to expect a higher level of service (change their expectations)
2) tell my competitor's customers that my competitor does not offer that higher level of service (given the new expectations, make them feel unhappy with their current provider)
3) make damn sure my own company offers the higher level of service when my competitor's now-unhappy customers go looking
4) don't compete on price; higher service can demand equal or higher price
5) repeat as necessary
Believe me - I'm not the only out there doing this either.
But since this is nothing new and Dell continues to sell it also means that either this does't happen to a lot of people or people just don't learn.
I buy from local shops and NEVER call in with a problem. I put the defective product on the counter on a shopping day (thursday evening or a saturday) and speak loudly about how I want it repaired or replaced. Works wonders. Over a phone they can and will try to tell you that a brand new HD is supposes to show badblocks or that a single wrong pixel in a lcd is acceptable. It is offcourse. If your stupid.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
This is the thing nobody apparently gets.
It is an utter waste of time to study scenarios where customer orders product and pays for it, vendor ships product, customer receives product, end of story.
The _important_ metric is always the worst case scenario where the customer ends up falling in between the cracks in between different departments within a large organisation, nobody the customer contacts has responsobility, nobody has authority, nobody has motivation, nobody has their ass on the line if it escalates.
Anyone can sell acreage on the moon, you judge a company or business by how badly its worst mistakes fuck customers over, and you place the responsobility for that exactly where it belongs, on the directors conference table, and let it run down right through the company.
The reality is the bigger the company the more likely its reaction to a fuck-up being escalated through inaction is to undulge in ever more psychopathic behaviour.
http://slashdot.org/~GuyFawkes/journal
Okay first the disclaimer:
/.ers on this (maybe I should be submitting this to Ask /.) Is the quality of the outsourced job really terrible?
I'm currently working as a Customer Support in a local company in Malaysia where we help our client's client (mostly from the US and UK) troubleshooting their generic computing problems over the telephone.
Anyway, I've been working for a almost a year now and from what I've seen, the company I worked for has been recruting really skillful/talented people (most of them have CS degrees from Australia) to do the support.
However as you may know, most of these people speaks really poor, non-standard English. To make the matter worse, most of them (including me) have problems with our clients' American/English accent. Personally I'm sad that I've had clients that hanged up on me because they couldn't understand me in some occasions.
Okay so now, I would like some opinions from my fellow
In the boston area, software salaries have been effectively capped. In the company where I work currently (which I shall be leaving soon), a raise that accompanies an excellent review is less than 3%. Complaints are met with the following justification: "You are getting paid about 10 times what someone from India gets for doing the same work. We cannot justify higher raises to the board/investors".
I recently found out that the following policy has been instituted. If an employee gets an offer from another company at a much higher salary, make no attempt to match the salary, just let him/her go. Hire someone else, if necessary at the higher salary. But do not give a big raise to any existing employee!
Unfortunately, this situation seems to be more and more prevalent, my friends who work in other companies have reported similar policies being instituted. I don't know where all this is going to end up.
Magnus.
Does that mean that good customer service can only come from the United States? That seems fairly sensationalist and egotistical.
A well-run call-center gives good customer service. No more, no less. Bad call-centers exist all around the world. Yes, including the U.S.
Nobody's gay for Mole-Man.
#2 and #3 are flawed. In practice, #2 is often false or provided by sabotage. As a salesman you really have no control of #3 and may be as duped as your customers.
Cingular's "Raising the bar" is a great example. Instead of building out their network, they are spending money on exclusive phone deals and billboards. The purpose of those billboards is to expect a fictional level of service and simply say, without proof, that theirs is better. Having had Cingular and Sprint, I can say their promise is bogus where I live and I enjoy better service than Verizon and other incumbent subscribing friends do. "Education" has to be built on fact.
Friends don't help friends install M$ junk.
Actually, there really isn't much of a correlation between poor service and outsoourcing... Wordt customer service I have seen in over 5 decades was a local TMobile helpdesk.
There ARE, however, very real hidden costs to outsourcing that make it a difficult prospect at best; poor customer service just isn't one of them.
The worst is managing the relationship of your US staff and the outsourced staff. I have seen numerous examples of subtle or even outright sabotage of the project by the US staff.
One of the most successful outsourcers in the United States has a "core values" program for it's US staff...the ability to maintain political neutrality while acting as a good will ambassador is a key core value.
Western and Hindu culture are very compatible if you take care to manage the intercultural references, whch can cause major difficulties. For example, many Hindus will say "You are correct" to acknowledge they are listening. What they MEAN is "OK" or "Uh huh", but Westerners often take is as arrogance or judgmental.
Worse yet, Westerners take it as meaning that their point is understood, and it's culturally difficult (impolite) to ask for clarification if the other speaker has gone on to a new point. Its is very important to make sure what you think you are saying is actually what they are hearing.
One minor point on an underlying theme of these comments. Believe it or not, institutional economic analysis shows that India isn't a serious problem for US jobs, not like China is, anyhow. The reasons range from cultural differences (India is highly conservative, for the most part) to the fact that the level of convergence is much higher, as well as a much higher integration of Indians into American culture. I suspect the reason India is getting such favorable treatment from Bush is that they are viewed as a "client state" of America, not an independent nation, probably for good reason.
Most outsourcing decisions are made far up the corporate food chain. It's the job of the management staff to handle any difficulties before they are visible to those at the highest levels. As long as the work is passable and any damage canbe contained, no one hears anything and nothing gets fixed.
Also, those complaining about outsourcing are probably wasting their breath. The next round of outsourcing is going to be targeting all the "innovation" jobs in IT like systems architecture and design that we thought were safe. I'm planning to stay in for the long haul and hope that some of this comes back around. However, we need to adjust our expectations to the new reality. If it's cheaper, it will be done. Unless consumer prices and our rampant spending are adjusted, we have no way to compete with people who will do good enough work for 10% of the price.
The real hidden cost of outsourcing is the loss of a talent pool. If and when I have a kid, I'll encourage it to be smart and study, but I think I'll encourage it to be a lawyer or an MBA. They're not replaceable, and the professions (medical, law, etc.) have a very strong organization that keeps the barrier to entry and salaries high. A good example is pharmacy. Pharmacists don't make their own compounds anymore; they pour tablets from the big bottle to little ones, and get paid very high salaries to do it. All they have to be is careful.
A lot of the points the parent makes are not worthy of any response as they seem more rooted in bigotry than reason.
1) After you teach the Indian company how to write good software for your industry, a relative of the owner of the Indian company will go into business in competition with you.
This is true in pretty much any business relationship. Whomever you teach how to do a thing for your profit will try to figure out ways of doing that same thing for their profit.
3) All products require innovation. Indian programmers are not usually innovative; it's not a quality of the Hindu culture.
This is one of those bigotry motivated points.
I know enough Indian people to say this is false. You don't have to believe me though- take a look at the list of Nobel laureates. Just wanted to refute one in case anybody was wondering.
4) No matter what the project plans say, programming requires decision-making that affects the long term health of your product and your company. How often does programming require far-reaching decision-making? Possibly as often as once per hour.
The general point here is completely valid, and people will have to learn how to evaluate companies for their work performance. Switching industries- who would you rather hire to do special effects for your eature film: Zenera (my company) or Industrial Light and Magic ?
Well, ILM has earned their reputation through lots of successful high profile projects. You can look at a ton of their work. You'd be smart to go with ILM unless your project is small and you can afford a risk, then you can risk a small unknown studio like Zenera.
My pricing reflects that- I am much cheaper per man hour than ILM. That's my company giving prospective customers a valid business reason to choose us. It decreases risks in case of failure and costs in case of success.
The same is true in any sort of outsourcing- I talked about reputation, but a management team must examine who they are outsourcing to, and their prior work product, in order for the move to be effective.
5) People in India are amazingly poor for a reason. That reason may (will) affect the work they do for you.
If the parent means to refer to the lack of materialistic motive in their culture, I fail to see the validity of the point.
In general, Indian culture values education. That is valuable- especially in a knowledge industry like programming.
Mostly however I think this "point" is, again, motivated by bigotry.
6) There's a big overhead in crossing cultural boundaries. On the other hand, programmers in the U.S. may spend a lot of time playing video games rather than learning social skills; there is a big barrier between someone with low social skills and the normal world, also.
This sounds like a point, but ends up being a non-issue. Indians, or any other foreign contractors will have to expend their own internal efforts on these issues. Native contractors are likely to use that as leisure time. Both are "wastes" from a productivity standpoint.
(I know there is a point here about leisure time being restorative and allowing people to work more effectively when they are on task- but there are some studies that indicate that what is really needed is time away from the "primary" task, a secondary task is often just as effective as a pure leisure time. Let the shrinks sort it out.)
7) You may not notice the low quality of your product until it is too late. That's why you outsourced, isn't it?: You wanted to avoid giving attention to a critical area.
Anyone who outsources their critical business processes is a fool.
There are valid reasons for outsourcing, most of which boil down to focusing on where your expertise is, and letting other experts do what they are good at for you.
Using Apple as an example, they outsource almost all of their manufacturing and assembly. They focus on design and engineering. (Software and hardware)
Don't post innacurate information
If you do, I swear by my pretty floral bonnet I will end you.
They don't need our or anyone else's stinking IP. You've been reading too much western propaganda.
Mmm... no. Sorry.
There are a lot of bright people in China, but there are also a lot of companies out to swipe IP from other countries. The most recent example I've read about is a whole segment of the auto industry over there devoted to copying the designs of companies like Honda and Mercedes.
One of them even stole their *symbol* from Audi, which they slapped on a copy of another manufacturer's car. I thought that one was particularly funny - it reminded me of the bootleg Versace/Universal Studios "dual logo" t-shirts in Kamikaze Girls.
"...always new atoms but always doing the same dance, remembering what the dance was yesterday." -Richard Feynman
Sorry to reply twice... just thought of a second point.
I used to work for a "Big 6" professional services/accounting firm. I can't even tell you the number of SAP or PeopleSoft implementations this firm bungled with a staff of 100+ on a project all billing at about $200/hr.
Plenty of high priced consultants screw up too.
To make any kind of large scale project succede, you need to 1) look for - and be willing to pay for - good quality talent and 2) watch them like a hawk. Have them deliver early and often, and monitor their deliverables. Yank them out if the project gets into trouble, don't wait until you've sunk two years and $50 million in before you find out they are incompetent.