The *Real* Cost of Offshore Outsourcing
Quantifying the actual cost of bad customer service, loss of intellectual property (IP), loss of intellectual capital (IC) and more can reveal whether outsourcing really is a viable option for your company.
Tue, 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:
- 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.
- Agents are not speaking clearly on 56 percent of calls. The average talk time on these calls is 232 seconds longer than necessarily. This represents an estimated annual cost of $1,219,594 to the organization.
