Recognize Corporate Cultures at Outsourcing Facilities

Offshoring’s toughest moments are often encountered while attempting to manage an IT outsourcing program at a facility that is unprepared for that particular type of work. As described below, chances of offshoring success are improved by matching the type of program with the lifecycle of the offshore IT facility.

So much hype surrounds offshore outsourcing that it is easy to believe that a merchant call center is prepared to implement almost any type of outsourcing program given to it.

Offshore outsourcing failures are most likely to be experienced by U.S. companies with few similar successful independent offshore outsourcing efforts to their credit and with no previous track record with the facilities where they are attempting to place work.

Highly risk-adverse U.S. firms often find that they have no offshore alternative but to move work to large multifacility chains, where prices are often 50 percent higher and service levels lower than at competing outfits. This option might be feasible for firms that are not highly focused on cost control. However, it might not be appropriate for midsized companies that are attempting to control costs while not sacrificing service levels or customer satisfaction.

In the last two years, several high-profile call center chains with operations in India have experienced major program failures. Both U.S. owned and offshore-based call center firms have gone through launch failures that resulted in dislocations for their clients, who had to quickly make alternate arrangements.

Management Issues

The single biggest reason for the failures that InternationalStaff.net has experienced at offshore merchant facilities running our small and midsized programs is because of management issues at those facilities. We have put up with brief technical problems without a voice program totally failing. These technical problems have included line outages, switching issues, technology-scaling problems, e-mail and fax system failures, and poor line quality. Management problems, in contrast, are often harder to correct and can quickly spell total disaster.

It is standard practice to screen for both technical and managerial capabilities at the call centers that approach U.S. firms for business.

Facilities with technical issues are surprisingly easy to screen out with a form called the Table of Organization and Equipment (TOE) borrowed from the U.S. military. For example, if a facility does not have International Private Leased Connections (IPLCs) to the U.S. and will be attempting to utilize a U.K. hub for calling into the U.S., then that will show up in their TOE. Management issues are harder to uncover.

The two most important management factors determining the performance of offshore call centers are:

1. Corporate background and management background in the IT industry; and

2. The lifecycle of the facility.

Background factors will be covered in a future column. Here the focus is on facility lifecycles.

Need To Recognize Lifecycles

South Asian call centers generally follow the same lifecycle, although most market entrants never progress beyond the first stage:

1. Business-to-consumer (B2C) outbound telemarketing programs, which are usually paid on a pure pay-for-performance basis.

2. Business-to-business (B2B) outbound telemarketing programs, which are usually paid on a pure pay-for-performance basis.

3. Simple hourly-rate work such as outbound marketing surveys, soft collections or inbound directory support. This runs for about US$15-$18 per production hour from a good facility in India or the Persian Gulf and at least $2 an hour less in Pakistan and Sri Lanka.

4. Complex inbound work that is often billed on a per-minute basis, and for which U.S. centers would charge the equivalent of $75 per hour or more.

The most critical time in an IT facility’s lifecycle is at the beginning, when its corporate culture is first being defined. The best time to establish a good corporate culture is at the beginning of a facility’s lifecycle, rather than wait and attempt to repair a damaged culture later on.

Understanding the Lifecycle

Several midsized call centers in India and one in the Persian Gulf have skipped the first two stages in the usual call center lifecycle. They have done this by recruiting experienced managers who quickly pull together teams on the basis of merit and who can immediately begin performing complex inbound work. Examples include the facilities that have been set up or run by B.R. Chandra Shekar.

Potential clients need to understand where an IT facility stands in its lifecycle so that service needs will match up with what a facility is capable of providing at that time, and vice versa.

For example, if you put a detail-oriented inbound program into a center that is still at the beginning of its lifecycle, then results will rarely meet expectations, and service gaps could result. Since B2C work usually marks the beginning of most offshore facilities’ lifecycles, it will be examined here first.

It is important to recognize early facility lifecycle issues, even if you never intend to run a B2C program. You might be involved as a client or a manager of a later-lifecycle program that starts to display unfavorable characteristics. By correlating those characteristics with early lifecycle facility behavior, you will be in a better position to respond appropriately.

Later-lifecycle facility characteristics will be covered in an upcoming column. The remainder of this column identifies characteristics of business to consumer (B2C) outbound programs. U.S. clients of inbound, later-stage programs running alongside other clients’ B2C programs need to be able to identify and respond to the following B2C program characteristics.

Business-to-Consumer Programs

B2C work is unique for several reasons:

1. Uneven performance between agents is often tolerated since there are seldom any negative consequences for failed calls. This correlates with performance patterns at software development centers both onshore and offshore, where 20% of the employees often do 80 percent of the work.

2. B2C programs are tolerant of poor management expertise and high staff turnover at all levels. Internal turnover can be more problematic than losses to the outside. To cope with internal turnover, try to lock in the supervisors in your programs, to prevent internal turnover and the loss of the training that a client has put into them. If a supervisor leaves, require that their replacement come from within the team that was running your program. My colleagues Ajit Harris and Julian Deepak in Chennai India report that the manager of a B2C center they work with tries to never give agents a day off, out of fear that agents will use that day to apply for work at another call center.

3. Poor equipment, lousy line quality, and lack of service reliability are not bars to running B2C programs.

4. B2C programs’ weekly billing cycles with only a one-week payment lag are perfect for call centers whose owners don’t invest further in their facilities. These centers are also seldom prepared to pay for consultants to help them improve their operations or management. This keeps these types of centers in a “B2C pit” that can be difficult to escape.

5. South Asian brokers are most commonly involved in B2C work. Many brokers contribute positively to successful program outcomes. InternationalStaff.net relies on them for helping us to place some mezzanine B2B work and for providing quality assurance on inbound programs. However, disreputable brokers have been known to cheat call centers out of revenue, thereby contributing to excessive program churning and call centers that seek to minimize risk by only working under weekly payment cycles.

6. Differences between the economies of North America and developing countries encourage fraud in early lifecycle IT firms. My company was recently cheated out of $16,600 by a broker/consultant from Bangalore representing a new call center in the Indian state of Gujarat. In an American business context, this is not a lot of money, but for an Indian broker, it is enough to provide a family with a comfortable lifestyle for at least three years. What is seen as a small, short-term gain in North America can easily constitute a long-term financial windfall in South Asian economies. This drives disreputable offshore brokers and consultants to ignore potential financial benefits from stable, long-term business relationships and to attempt to walk away with revenues from only a few weeks’ operations.

7. The primary metric that B2C-focused centers are oriented towards is the sales per hour (SPH) rate, since this determines revenues in pure pay-for-performance programs. This metric is a brutal master, one from which experienced and successful facilities are usually quick to distance themselves, leaving the newer or less proficient ones as the only centers that will run outbound pure pay-for-performance B2C programs. Since 2003, in response to this trend, several large U.S. clients have switched to pay a flat hourly rate with bonuses for each sale. They are doing this to be able to attract capacity at experienced, higher quality facilities that decline to work on a pure pay-for-performance basis.

8. The secondary B2C metric that offshore centers focus on is the price of their sales leads, such as telephone numbers and contact names. Leads are also referred to as lists. List prices vary from two cents per name for white page listings, up to 25 to 28 cents for highly targeted leads of consumers who have derogatory credit or who own their own home but who might be convinced to refinance it. These list prices might appear high until you consider how much money can be generated from a good list. An account manager for a new Gurgaon call center said in a conversation on September 3 that they are selling a MasterCard for $299 to U.S. consumers with derogatory credit ratings. Even if a B2C center burns through 35 to 50 leads per agent per production hour, one “derog” card sale every two hours will still produce handsome profits. Homework assignment: think about what kind of operation could burn through 50 good leads per agent per production hour.

9. The key to selling derog cards and other highly profitable financial products is to acquire good lists. The fresher and more precisely targeted a list is, the more money that can be made with it. All the best U.S. lead vendors are located onshore. In the case of this Gurgaon center’s derog credit card sales, they are going after lists of U.S. consumers with low credit ratings but with enough money in the bank to enable the call center agent to arrange for a bank account deduction over the telephone. Fresh lists are essential for selling time-sensitive products such as residential burglar alarms, where call centers target consumers who have just purchased a new home. Any list older than six months or that includes rental units is worthless for those types of programs.

10. Onshore and near-shore centers usually have enough confidence in their own operations to buy their own leads, whereas offshore centers eschew lead purchases at all costs, even if this means using bad leads or ordering good lists that they never pay for. Bad lists are more likely to violate state and federal do-not-call (DNC) list rules. To scrub a list for DNC names costs a penny a name, which is more than many South Asian call centers are paying their agents on an equivalent hourly basis.

11. List theft is common in both B2C and B2B work, where a center will use a list provided by one client and surreptitiously run it for other clients’ programs — regardless of whether the leads are suitable. InternationalStaff.net monitors for this in our B2B programs, but it can be hard to detect and impossible to address when discovered except by denying a call center access to further contract opportunities. Call centers can obtain free unscrubbed lists through white pages made available online.

12. Call center security breaches are most common at B2C facilities. These facilities are also likely to possess sensitive consumer bank account information on their computers, as in the case of the Gurgaon facility cited above whose chief financial officer at their sister facility reported to us on June 15 that he believed that they had been successfully hacked.

13. South Asian centers have performance rates that are commonly one-third to one-half the SPH rates of North American centers running the same B2C programs.

14. The skill sets and corporate cultures at B2C facilities do not transition well to running any other types of programs.

15. Facilities that primarily run B2C programs are not likely to be profitable, unless they are running shady programs or their clients are paying flat hourly rates plus performance bonuses.

16. Facilities in the early stage of their lifecycle are least likely to register with the 24 U.S. states with registration requirements, and are least likely to comply with state bonding requirements and other U.S. B2C compliance rules. It is in the early lifecycle corporate culture of B2C work where compliance with U.S. laws is most freely disregarded, and for good reason, since noncompliance has not been found to result in any legal penalties. For example, no South Asian call center has been charged by the U.S. Federal Trade Commission for violating DNC rules in effect since October 2003.

Recognizing Corporate Cultures

B2C programs can be good for centers that are just starting up and need something to fill their seats during their shakedown phase. Pure pay-for-performance programs can also provide a call center with flexibility to meet the fluctuating volume requirements of their inbound clients.

However, many facilities get locked into running B2C outbound programs forever and cannot or will not run anything else. This is particularly true for poorly capitalized facilities that cannot survive on more than a weekly payment cycle.

In subsequent columns here, I’ll review the remaining facility lifecycle stages. Offshore facilities become much easier to work with and significantly more effective once they have made the transition out of a reliance on B2C work.

The downsides of early lifecycle call center environments are not a reason to avoid outsourcing offshore, only to recognize the circumstances and corporate cultures of facilities on which the success of your own business operations might depend.