Pete at night, Pradeep by day': The offshore contact center ...


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Pete at night, Pradeep by day': The offshore contact center ...

  1. 1. Justification ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon Suresh Gupta Partner, Capco Vishnu Nidhin Financial Services Practice, Hewlett-Packard Abstract The number of financial services firms that are using contact center offshoring has been on the increase in recent years. While this is a welcome trend, there are a number of pitfalls that they face. This paper will address the risks, rewards, and best practices in offshore contact center sourcing, using les- sons from both the offshoring pioneers and from the U.S. call center industry. 43
  2. 2. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon ‘At 10 p.m., as most Indians end dinner and prepare for bed, a U.S.) The offshore contact centers, particularly in India and the grand four-story building in a dusty industrial park comes alive Philippines, are enjoying heady growth rates of up to 60%5. with chatter about the weather, the Yankees, and Hollywood’s latest. Twentysomethings …log onto work stations and throw IDC estimates that offshore contact centers will approach over on headsets. Against the hum of air-conditioners fighting the U.S.$5 billion in revenue by 2005.6 In an IDC survey conducted heat, they check the weather report for temperatures so low in February 2003, India was expected to corner 70% of the 1 they haven’t felt them in months.’ And Pradeep becomes Pete, contact center services market in the region by the end of the ready to receive calls from Americans... year, rising to 73% by 2006. The Philippines, with its long association with the United States, wide use of English, and This scenario is being repeated in over 1200 offshore contact good telecommunications infrastructure, comes second, with 2 centers in India, and with some variations in the numerous 15% of market share in 2003, although this is expected to contact centers in the Philippines, South Africa, and elsewhere. decrease to 13% in 2006 (Table 1).7 Some of the largest multinational companies utilize offshore contact centers, including GE, American Express, Citigroup, Table 1: Contact Center Services Market Share Prudential, J.P. Morgan Chase, Aviva, Axa, Eastman Kodak, Intel, 2003 2006 Microsoft, Dell Computers, Chevron Texaco, Delta Airlines, British Telecom, and British Airways3. India 70% 73% Philippines 15% 13% Contact center offshoring to low-cost locations began as a way Singapore 7% 7% to save money, but has taken off because of many other fac- China 3% 4% tors. These include lower turnover, higher quality, and ready Malaysia 1% 1% availability of well-educated young women and men who are New Zealand 1% 1% seeking careers as customer service representatives (CSRs). Source: IDC Financial services firms cannot afford to sacrifice quality and customer satisfaction just to save money. So it is heartening to Although data is not yet available, anecdotal evidence indi- learn of multinationals which have found that with the correct cates that some offshore locations have greater success with approach, offshore contact centers can provide improved pro- certain types of contact center work, perhaps for cultural rea- ductivity and quality, and on a lower budget. However, the path sons. For example, the Filipino culture seems to be better at to this ideal is replete with pitfalls. This paper addresses the telemarketing (outbound contact center work), while Indians risks, rewards, and best practices in offshore contact center do well with customer service (inbound contact center work.) sourcing, using lessons from both the offshoring pioneers and from the U.S. call center industry. Other offshore areas with significant numbers of contact centers include Ireland, South Africa, and Eastern European Market dynamics countries (especially where contact is by internet rather than The dominant location for offshore contact centers is India, telephone). South Africa enjoys a favorable time zone, particu- where 154,000 people are employed, followed by the larly for callers from Europe. Moreover, it has many domestic Philippines with 10,000 people4. (While significant, this con- call centers that could be tapped for experienced hires in trasts with 3 million customer service representatives in the establishing offshore contact centers. However, South African 1 Kalita, S. M., 2001, ‘India Calling’, Newsday July 15. 4 2003 Asian Call Centre Industry Benchmark Study,, Sydney, Australia 2 We use the term ‘contact center’ instead of the more popular term ‘call center’ to 5 Merchant, K., 2003,’India’s call-centre sector expanded by 59% in the year to include centers that not only handle in-bound and out-bound calls but also respond March 2003 over the previous 12-month period,’ Financial Times, June 4, to e-mails or assist customers by engaging them in ‘on-line’ chat sessions, etc. 6 IDC Asia/Pacific Press Releases, Offshore Services Will Rise to 37% of the 3 October 2002, ‘Call-Center Workers Straddle Two Continents and Cultures,’ Asia/Pacific Call Center Marketplace by 2006’, September 2002. 44 Knowledge@Wharton; Engardio, P. et al., 2003, 7 IDC data as reported by Feb. 28, 2003 ‘The New Global Job Shift,’ Business Week, February 3.
  3. 3. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon wages are higher than the wages in India or the Philippines. Recently a number of contact centers have also been established At a major credit card call center in Bangalore, India, the in Latin America, e.g., in Costa Rica, Panama, and Argentina. author witnessed the following incident: Many American contact center vendors have also call center It was post 9/11. The CEO of a North American credit card firm facilities in Mexico. Initially most of these centers were estab- took the unusual step of coming on-line for a few seconds lished to service Hispanic customers but they now also provide during each in-bound call to apologize for any inconvenience English-speaking CSRs and are being promoted as ‘near- caused by 9/11 aftermath. In one case this nearly backfired shore’ alternatives to offshore centers in India and the when the caller at the other end was an irate senior citizen Philippines, etc. While these centers do not offer the impres- who announced that the CEO was a hypocrite - if he really had sive savings of 40-50% being delivered by Far East contact any empathy towards his customers, he would not let his firm centers, they are still significantly cheaper than U.S.-based send six dunning notices to this customer for a ‘piddly’ U.S. $60 centers. Moreover, because of their proximity to the U.S., they balance! The situation was rescued by the able Bangalore- have easier access to American firms and are perceived to be based CSR who handled this call with unusual finesse and ‘less risky’ by some. Many firms are willing to trade some of empathy, and won the customer over by the end of the call. the potential savings to enjoy these advantages. Could an average CSR in a U.S. call center have matched this performance? Given the unusually high turn-over rates expe- In some ways India is repeating the experience of the U.S. call rienced by the U.S. call centers, the answer is probably not! center industry of the 1990s, but this time we can apply the The impressive quality levels achieved by some of the Indian benefit of hindsight. The Indian market is extremely fragmented, contact centers could also be because Indian CSRs, on aver- with many operators out to make a fast buck; after all, how dif- age, are better educated (a large proportion are college grad- ficult is it to answer a telephone? In the U.S., after an initial ex- uates) and they view their job as a ‘profession’ and a ‘career.’ plosion fueled by telephone company deregulation, there was considerable consolidation. Of the dozen or so publicly-listed contact center companies in the U.S., few have found the last The initial pressure for investigating contact center offshoring seven years a very profitable time. Even as we are discussing was driven by both potential savings and concern about scarce explosive growth rates for India and elsewhere, companies resources. An ability to ‘follow the sun’ to provide customer evaluating long-term relationships with offshore vendors service 24 hours a day was also attractive. The demand for should be prepared to deal with the impact of likely consolida- customer services representatives (CSRs) seemed inexorable, tion and change. with rapidly rising wage rates. However, as the economy has turned and cost pressures on companies mount, supply of The drivers potential onshore CSRs is no longer an issue in managing con- The value proposition of offshore contact centers is simple yet tact centers; indeed, fear of a possible backlash over ‘losing compelling.8 Not only does it deliver dramatic cost savings but jobs to overseas’ is a variable that needs to be actively man- also, more often than not, it delivers those savings with signif- aged. Now the concern is truly one of ‘value-for-money.’ Of icantly higher quality and access to large and highly talented course, at the same time it is critical for financial services labor pools. (See the side bar.) Increasingly important, offshore firms under pressure to ensure the highest level of quality in contact centers can also enhance risk management and fulfill customer handling, thereby building customer loyalty. business continuity planning needs of diversified resources and facilities. When we refer to CSR quality, we are considering both the cal- iber of employee and the training they receive. In many off- shore contact center, e.g., in India, the CSRs typically undergo 8 According to an estimate by Mercer Oliver Wyman, offshoring call centers and other back office activities could provide 10-12% increase in market price and 45 share value of an average bank.
  4. 4. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon intensive English training sessions (including for British versus may impact the vendor in the future. American English). When properly executed, it is difficult to distinguish the offshore CSRs graduating from these training At present, the vast majority of offshore firms lack world class courses from their onshore counterparts in their usage of contact center management processes and technologies. In everyday spoken English. Last year, in interviewing a dozen some countries, including India, one cannot be sure of uninter- CSRs in Bangalore, India, who were handling inbound and out- rupted power supply or a flawless public communications net- bound calls for several American financial services firms, we work. Therefore without fully redundant infrastructure, ‘high found every one had at least a college degree, three had masters availability’ (uninterrupted calls) could be an elusive goal. degrees, including one MBA - and these CSRs were in it for the Firms looking to offshore contact centers by outsourcing to long haul! Also, many readers may recall how last year the third party vendors must ensure that the vendor would pro- chief executive of a global bank with a large British presence, vide sufficient, dedicated high-bandwidth, leased line access caused a storm by saying that not only were the bank’s Indian between their communications network and offshore facilities. call-centre workers much cheaper than those in Britain but This is important for providing adequate capacity to handle they were often much better. ‘They are quicker at answering voice traffic and allow ‘1-800’ calls to be routed overseas. the phone, highly numerate and keen to come to work every day,’ he said. ‘Staff are hugely enthusiastic about their jobs. In addition to scrutiny of infrastructure, recruiting and training They dress well. A lot have degrees.’ Indian workers, he said, need to be very carefully assessed. One American communi- were ‘exceptional.’9 cations firm learned this lesson the hard way. In an offshored ‘outbound’ telemarketing program, they experienced only one Consider also the impact a wider qualified human resources ‘conversion’ per CSR per day in the offshore facility compared pool offshore can have on process management (and discipline). to over five conversions per CSR per day in the onshore centers. An insurance firm experienced tremendous improvement in They had failed to ensure that the vendor provided sufficient the quality of health claims processing, as in India they could ‘sales’ training to the CSRs nor did they monitor vendor’s hire physicians to oversee claims processing; something that’s recruiting processes. hard to imagine in any Western country. As a result, they decided to double their offshore staff of 800. Cultural differences can also contribute to the need for spe- cialized training. For example, in some Asian cultures, ‘aggres- Results from the 2003 TPG/Baruch ‘Best Practices Survey on siveness’ or ‘self-initiative’ are not always considered desirable Offshoring’ support the notion that offshore contact centers traits in youngsters. Therefore, CSRs from these cultures may can provide higher quality at lower costs. The respondents be excellent with scripts but need to be trained and rewarded reported satisfaction levels of 89% with their offshoring activ- to be proactive with customers.10 What is needed is not just ities while achieving cost savings of 40-50%. Furthermore, training in specific job content, but providing a cultural dimen- 61% of participants experienced quality improvements, with sion to enable the CSR to be effective in a conversation where 39% finding quality the same. idiom, nuance, context, and emotions must be quickly under- stood and responded to. Avoiding the pitfalls To escape the pitfalls when evaluating capabilities, the constant We have already mentioned training to neutralize accents, but refrain must be ‘Take nothing for granted.’ an interesting question arises as to how far ‘Westernization’ should go. First accents are changed, then a Western name is We have already alluded to the wide disparity in vendors, used to be more memorable, then a fictitious U.S. or U.K. loca- which leads to concerns about whether the vendor is investing tion may be given in an effort to increase customer comfort. in the necessary infrastructure and how industry consolidation At what point do these white lies break the bond of trust with 9 O’Connell, D. and L. Armitstead, 2003, ‘The great Indian takeaway’, 10 In a newspaper column titled ‘On the line to Dell hell,’ (The Guardian, May 17, 2003) 46 Sunday Times, June 8 Phillip Inman describes his frustrating experience in dealing with an India-based contact center. It took him six weeks of waiting and over 25 calls to the center to receive a satisfactory resolution to his problem. Every time he called, the customer service agents stayed close to the ‘script’ without understanding the true nature of his problem.
  5. 5. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon the customer? Perhaps, it is a reflection of the immaturity of per call’ buildup based on in-house experience; this facilitates the offshore contact center industry that the vendors train ‘unbundling’ the rate card to make comparisons with a typical their employees to indulge in this duplicitous behavior (‘I am vendor in an offshore location. Personnel turnover rates also based in Omaha, Nebraska, not in New Delhi, India…’) but we need to be considered: contrast 24% in India11 with the U.S. wonder how many American and European firms realize that where turnover of up to 50% for inbound call centers and up in condoning this behavior from their vendors they may be to 300% for outbound call centers are not unusual. riding a very slippery slope of dubious ethics! There are particular challenges for financial services firms in Another major area to be tackled is the service delivery deciding which activities could be done offshore; certainly process and the associated performance metrics. A company early consideration needs to be given to data privacy and which already has onshore contact centers should have consi- regulatory restrictions which may determine where activities derable experience in ensuring that the correct metrics, e.g., must be conducted. However, many firms wrongly perceive ‘first call to resolution,’ ‘customer satisfaction,’ etc., are dep- that data security dictates keeping information in-house; when loyed. In a cross-cultural situation, with perhaps less sophisti- what is needed (indeed, whenever engaging third parties) is cated measurement abilities, a contact center may need guidance control over how the data-base is used to ensure it is handled to deliver the required focus. Beware the easiest measure, appropriately and cannot subsequently be used to competitive ‘talk time’, which in encouraging more calls per hour may actu- disadvantage. In fact, many offshore contact centers access ally be harming customer satisfaction and brand perception. data from the client’s CRM systems remotely by using common ‘screen scraping’ technologies, (e.g., Timbuktu). In this way, no Other due diligence areas, usually conducted on-site, included real data is transferred to the offshore locations and the assessing the management team, financial strength, infra- remote access is limited to only the essential data elements structure, business maturity, and business processes, includ- needed to handle customer calls. ing continuity planning and security. Financial services firms will be acutely aware of reputational risk should customer data Thorough consideration needs to be given to how the offshore be mishandled. contact center would integrate into the CRM processes of the firm (initially and on an ongoing basis). Will there be near-real- How to begin in contact center offshoring time transfer of customer related information? Not many off- Offshoring is a strategic initiative; commitment needs to be shore vendors have made the necessary investment in CRM secured at the outset from senior management and the ‘C’ process expertise or have the requisite IT service capabilities. level (CEO, CFO, etc). Public and community relations need to This may influence the business model chosen, particularly be considered from the beginning. A project management office given the fragmented industry, shortage of process and man- (PMO) should be established for managing offshore initiatives. agement expertise, and development and integration of IT sys- Also needed is a clear and realistic understanding of the busi- tems. A wholly-owned subsidiary may be preferred, or a joint ness case for offshoring – current costs and opportunities for venture either between the financial services firm and a vendor, improvement, and expected benefits (cost, quality, and service). or perhaps an alliance between an Indian firm and U.S./U.K. However, this is more complicated than just comparing CSR contact center or CRM service provider. If going with a pure off- wage rates. If we take the case of India (with the largest num- shore vendor, a long-term contract (e.g. for five years, rather ber of call centers and therefore the most data available) and than annually) may encourage the necessary investment. the U.S., India may be a fraction of the cost, but one needs to also add in the cost of cultural training that will be necessary When outsourcing the contact centers to a third party off- for the Indian CSR to be productive. Ideally the firm would shore firm, it may be preferable to seek an offshore firm with already have a clear idea of the individual elements of a ‘cost capabilities not only in the contact centers but also offshore 11 2003 Asian Call Centre Industry Benchmark Study,, Sydney, Australia. The study also found that with much of the work being done at night to 47 accommodate western time zones, India had the highest attrition rate in Asia-Pacific, and that more than 50% of agents who quit, leave the industry completely.
  6. 6. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon business processing. One such instance where this would be Generally companies refrain from outsourcing work they con- desirable is when the contact center activities are closely sider ‘strategic.’ Although there would be cost savings if intertwined with back-office operations. Should the vendor be Platinum Customer Service were moved offshore, the impor- capable of providing both types of services, it would allow the tance of keeping key customers happy and the opportunity to client firm to ‘re-engineer’ the workflow between the back ‘upsell,’ means this will be done only when the firm feels con- office and the contact center by offshoring both to the same fident of achieving superb handling of service requests by the vendor. Moreover, it would also facilitate improved retention of high-value segment. Normally this would require a CSR inti- offshore contact center employees knowledgeable of firm’s mately familiar with the account. Moreover, dealings with high business – should they feel ‘burnt out’ after long stretches of priority strategic customers require close day-to-day coordi- night-shift work, they could be given the opportunity to move nation with sales and account management staff. The agents to firm’s back office activities performed during the day. at the contact centers servicing these accounts are highly skilled customer relationship people and prime candidates to The starting point for any offshore venture should be a pilot assume account management responsibilities. Thus, this cate- project, which has been chosen from a low-risk category, for gory of contact center work is best suited to an onshore facil- example, ‘pay-by-phone’ for a credit card company. This pilot ity. However, with collections (chasing bad debts), while there should have clear expectations and deliverables, with well- is some financial risk, the rewards to the firm may be sufficient documented requirements, and the benefits should be tracked to make this a suitable candidate for offshoring. Additionally, and communicated. At the same time, there should be a high the threshold of which debts are worth chasing is lowered by level vision of the potential growth of offshore beyond the the economics of the lower cost structure offshore, so that pilot, so as benefits are realized, the firm can begin scaling up. more debts are chased. LOW There needs to be clear definition, both in the pilot and in all E-mail/chat subsequent dealings regarding pricing, services, and service Scripted Promotions level agreements (SLAs). The SLAs need to be accompanied Tier 1 (Simple) by a robust monitoring process for measuring results, and inbound fine-tuned appropriately based on actual results. A gover- nance process must be established and adhered to through Risk the life of the contract. ‘Up-sell’ Platinum customer Collections Also needing to be addressed explicitly are the ‘turn over’ service processes. One example where this becomes critical is when offshore contact centers handle the initial customer call, but turn over the fulfillment process to onshore staff. Such ‘turn HIGH overs’ must be supported by strong contact center processes, LOW Rewards HIGH workflow, and discipline to ensure seamless customer service. Figure 1: Offshore pilot selection matrix Transition management There is no doubt that getting an offshoring initiative right will There are a wide variety of contact center activities/functions require incremental management attention. Companies need which could be done offshore; the evaluation matrix in Figure 1 to manage change, including proactively managing any staff attempts to make explicit the risk/rewards of doing so. displacement issues. Training is the key, both for career devel- 48 - The Journal of financial transformation
  7. 7. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon opment of the re-deployed onshore employees as well as for doing to help communities in the host countries as in its sup- cultural assimilation of those working with the offshore port of a local community in the U.S. or U.K. Customers are employees (to prevent misunderstandings). Also, the offshore often more concerned about the service they are getting, e.g. employees need training designed for them to understand how quickly their calls get answered and problems resolved, their job, the national culture, and the specific corporate culture. than from where the service is provided. Keeping customer satisfaction metrics, as well as data on improved profitability, Also, when engaging a third party vendor, it may be desirable provides the company with ammunition in the face of press to allow for potential ‘on-site’ partnership with the selected negativity about job losses. Financial services is a dynamic vendor for a while until the vendor performance matches or industry, so preserving the status quo, particularly in this eco- exceeds U.S./U.K. contact center performance. However, this nomic climate, can be viewed as sentimental and expensive. In must be carefully handled to avoid low morale among onshore the words of the chairman of a large British bank, ‘We have to employees who feel they are being asked to train their relocate these functions to India. Not only are the running replacements. costs a fraction of what they would be here, but the quality of the workforce is significantly better. Taking advantage of that One phenomenon that has become pronounced in the difficult is a no-brainer.’13 economy of 2003 has been external intrusions in corporate affairs, particularly political and union targeting of any Conclusion attempt to move jobs overseas. Many contact center locations Where is it going to end? Are onshore contact centers destined in the U.S. and U.K. were attracted to areas of high unemploy- to be replaced by offshore centers? The answer, in my view, is ment (often by government incentives), when manufacturing an emphatic ‘no!’ industries moved jobs overseas. So this is the second wave of offshoring affecting these communities, in specific locations Global businesses will continue to need a mix of onshore and with a political voice, and unions dedicated to preserving the offshore contact centers. Dealings with priority clients that jobs of their members. A specialist consultancy, Mitial Research, require intimate knowledge of the customer and close interac- notes that the U.K. (with the most contact centers in Europe), tion with numerous departments are best handled by well employs about 500,000 people across 6,000 sites. They esti- trained onshore employees. Certain recent regulations regard- mate that one-third of Britain’s larger contact centers would ing privacy and data security also make it difficult to share shut down by 2005, with the loss of 90,000 jobs.12 Unions have highly sensitive customer information with offshore centers. been vocal in the press and hinting at strike action to protect members’ jobs. In the U.S., New Jersey, Maryland, Connecticut, Reasons of business continuity and risk management will Missouri, and Wisconsin are all considering legislation to pre- almost always dictate that a pure ‘offshore’ model would not vent public sector work from being conducted offshore, be prudent. Realistically, the sheer number of people despite earlier (unrelated) court rulings that states cannot employed in the onshore contact centers would preclude a conduct their own foreign policy. Domestic politicians may potential scenario whereby all these jobs would move off- seek to defy international economics to please voters, but the shore. So despite scare-mongering hyperbole, while some jobs financial services firm must consider economic necessity and will go overseas, those left onshore will often be more inter- its corporate governance responsibilities. esting and managerial. Any publicly-held company has a variety of stakeholders, We believe the debate onshore versus offshore centers is mis- including shareholders as well as employees. Their client base guided. The best model for a global firm is a ‘multilocation- may be worldwide, and as interested in what the company is networked-centers’14 solution incorporating multiple countries 12 Ringshaw, G., 2003, ‘Call Centers Take Passage to India’, 13 Ringshaw, G., 2003, ‘Call Centers Take Passage to India’, Sunday Telegraph, May 25,. Sunday Telegraph, May 25. 49 14 Sinha, D., 2002, ‘Offshore Contact Centers: Still a Long Road Ahead,’ Gartner, Inc., July 18.
  8. 8. ‘Pete at night, Pradeep by day’: The offshore contact center phenomenon and vendors, and a blend of insourced and outsourced centers. well as cost savings. But the bandwagon created by the suc- American Express is a good example of such a model. It has cess of offshore contact centers has sown seeds of potential contact centers in North America, Europe, India, and the disaster. Jealousy at home, fanned by politicians and unions, Philippines. And in most locations, the company uses a mix of means that transition management and community relations both ‘in-house’ and outsourced contact centers. In this way, must be effectively handled. The euphoria has also attracted American Express is able to ensure high levels of business offshore contact center vendors who will have difficulty delive- continuity and risk management. Were there a disaster in one ring, and could create disillusionment. Other vendors (respon- location or should a vendor go out of business, American ding to tough negotiation by buyers) are accepting uneconomic Express has sufficient alternatives sources of supply to contracts in their bid to build critical mass, which may force assume the extra volume of contacts that were handled by the them to cut corners and not allow them to invest in infra- affected centers. Of course, many firms do not have the scale structure. This is not to deny that some offshore contact to deploy multi-location contact centers. For such firms, a glo- centers in India and elsewhere are making real progress in bal contact center vendor might present a suitable alternative. striving towards world-class contact center processes and technology. But for a happy ending (and a smooth ride), its Offshoring has proved a crucial strategy for a host of financial ‘Caveat Emptor’ not just in choosing an offshore vendor but in services firms, in both boom and lean times, because it pro- ensuring, through monitoring and metrics, that management, vides improved quality, productivity, and business flexibility, as training, and performance are all delivered. 50 - The Journal of financial transformation