Offshore outsourcing (news - alert) is definitely a hot topic.  Pick up any major newspaper’s business section or tune into to any news network and you’re likely to see another announcement of US jobs being replaced by cheaper foreign labor.  Of course, US manufacturing jobs have been migrating to lower-cost labor markets for decades.  But taking a closer look, many of these headlines reflect what is reported to be a relatively new phenomenon: the outsourcing of technology jobs. 

Our company, Everdream (news - alert) (a provider of hosted software applications for medium-to-large enterprises), decided in early 2003 to move half of our customer support operations offshore -- about 40 jobs, from California and North Carolina.  In early 2004 we had only a year’s experience under our belt and decided to move these jobs back to the US.

While cost competitiveness is important, management would be wise to consider the true costs and business impacts before succumbing to the seductive allure of cheap labor outside the US. There are many other factors to consider:

Costs

Certainly, lower wages overseas are alluring for companies seeking to improve bottom line results.  However, "offshoring" incurs significant one-time and recurring indirect expenses.  Depending on the size and complexity of the operation being transferred, these less obvious costs can easily negate savings from lower salaries.  In Everdream’s case, we chose to work with a partner already established in this geography, as the scale of our operation was far too small to consider the massive infrastructure expenses associated with creating a subsidiary in the foreign country.  If using a partner or consultant, expect to pay a one-time upfront set-up fee that, based on our experience, can range from two-four months of operations expenses.

Training of the new employees is a major cost.  The duration and location of the training, as well as the complexity of the product or service being delivered, can impact the magnitude of these expenses.  In our case, the training period lasted roughly four months, including classroom time and on-the-job instruction.  The initial training was conducted in Everdream’s facility, incurring salary, travel and lodging costs for the contracted employees.  Related to training, a thorough assessment of the available labor pool – by required skills – should be an essential part of the determination. 

Infrastructure costs can be material.  These expenses include one-time capital expense as well as recurring costs to build and/or integrate phone and data lines between onshore and offshore operations.  Infrastructure planning must include security considerations each company, and also should anticipate any security concerns or exposures from the end-user customer.  The infrastructure planning must also address the expected reliability of the offshore operation.  For Everdream, historical data indicated the host-country’s power and communications grids were far more susceptible to failure than the US.  We needed additional internal system redundancy and fail-over protection in anticipation of these outages.

When the offshore facility is up and running, expect costs associated with additional in-house staff to manage, measure, and evaluate progress of the offshore operation, while increasing budgets for travel and on-going training.

Productivity

The massive wage gap differential between Silicon Valley and the emerging technology hotbeds around the world is real.  But before reacting to simply this difference in wages, it is critical to estimate the productivity expected offshore.

In Everdream’s case, we found that our US employees were on average handling nearly twice as many calls-per-day compared to their offshore peers.  This essentially nullified the expected cost reduction we’d expected. Infosys Technologies, a software firm that has outsourced jobs to India, reports that the Indian worker produces $59,100 revenue per employee compared to $137,400 for the American worker.  

Differences In Culture

There are certainly cultural differences between nations, but there are also cultural differences between companies.  In considering an offshore operation, both must be considered.

Everdream’s company culture for example, promotes a great deal of autonomy and responsibility across all levels of the company.  Our customers are conditioned to expect real-time decisions from our customer service agents, bypassing the time-consuming approvals associated with a hierarchical management structure.  Also, our employees are expected to take an analytical approach to a problem – to “think” about the customer’s specific situation and not simply follow a script.  Everdream’s service is designed to be proactive – to anticipate problems rather than waiting and reacting to customer issues.

These principles are fundamental to Everdream’s business model but, as we discovered, were contrary to the standard practices of the typical call center, which are more driven by the metrics of time-per-call and absolute standardization of service across all calls.  This is in no means a reflection on the intelligence or attitude of the offshore worker, but rather a difference in the culture and management styles of different business models.

In our case, we understand that an analytical approach costs more and entails more risk (a system that practices delegation of responsibility must also be tolerant of the occasional errors in judgment).  But we believe that in the long run these additional costs are returned many-fold in the repeat business associated with highly satisfied customers.

Everdream consistently achieves customer satisfaction ratings ranging from 95% to 98%. When we transferred operations offshore, we were alarmed to find our ratings dropped to 88%. Although we quickly took action and restored customer service levels, it was a sobering experience.

Impact to the Customer

Outsourcing a customer-facing operation offshore may have an unexpected and profound impact on customer relations.  Language is the most obvious potential hurdle to overcome, as those speaking English as a second language may struggle with the idioms and subtleties of English while heavily accented English may make communications more difficult.

Also, recalling the productivity concerns previously mentioned, it is the end-user customer who suffers the impact of the productivity shortcomings. Problems take more time to resolve, and difficulty in communications raises levels of tension and frustration.

Less obvious are more emotional issues associated with outsourcing American jobs.  While moving appropriate jobs to lower cost markets has been an inevitable, natural and healthy reality of the US economy for many years, that does not preclude a public reaction of fear.  Especially in the supercharged hype and hubris of this presidential election year, carefully orchestrated political strategies have portrayed the use of offshore labor as unpatriotic, placing our nation at the brink of economic Armageddon.  Irrational as these views may be, any company viewed as a contributor to these “crimes” may risk vilification and possible backlash from their customers. 

In consideration of all of these factors, Everdream decided to terminate the offshore operation moving all customer support jobs back to the United States.  Beyond the financial ramifications and cultural incongruities, this experience revealed a more troubling aspect in the attitudes regarding customer service that are accepted by most high tech companies today.

Consider the hundreds-of-millions of dollars that have been spent developing new technology to reduce the cost of customer service.  These would include complex automated call routing systems (“If you are calling about a problem with your billing, press ‘1’”…), automated email systems, voice-activated automated help, self-help, on-line help, and other “enhancements” developed in the interest of saving time, therefore saving cost.

But exactly whose time is really the focus of this innovation?  Not the customer who, simply wanting an answer to a basic question about a product they’ve purchased, is subjected to a five-minute automated software phone answering tree.  Not the customer who is directed to resolve the problem using “on-line help”, though their specific problem is preventing them from connecting in the first place, or who finds that the self-help menu assumes a knowledge of the product and problem far exceeding his/her capabilities.  Not the customer who, in response to a thoughtful and descriptive email request for help, is the recipient of an obviously machine-generated response that not evenly remotely understands nor addresses the issue at hand.  And certainly not the customer who, calling for help, is confronted by an agent who is difficult to understand, not knowledgeable, or clearly more interested in keeping the call short than actually helping a customer.

In fact, the intended beneficiary of these new technologies and processes is not the customer.   These innovations are designed to save time and money for the technology company while in blatant disregard to the customer’s time, more and more of the support burden is passed to the user. 

Customers place high value on a simple premise: they would rather deal with another human than with a machine.  US companies certainly place a high value on the time of their employees, so they should certainly see the merit in placing similar value on the time of their customer’s employees.

Before Everdream decided to offshore some elements of customer service, we’d taken for granted the subtleties involved in our customer’s expectations with regards to this basic principle.  This exercise in “off shoring” demonstrated exactly how high a premium our customers placed on a high-touch, high-quality service experience.

In summary, before deciding to follow the herd, a thorough assessment of all associated costs is of course critical.  Beyond cost, however, one may consider that all values aren’t measured in dollars.  It would be wise to make sure that the places held in the company value chain for customer satisfaction and loyalty are well understood.

Gary Griffiths has been Everdream's chairman, president, and CEO since June 1999. Griffiths has over 30 years of management experience, spanning a career in the US Navy, IBM, and SegaSoft Networks. Everdream offers a comprehensive and integrated suite of hosted desktop services that protect, manage, and support the enterprise IT infrastructure, allowing for the first time the option of purchasing desktop support software as a service.Everdream was founded in 1998 and is growing rapidly, with hundreds of companies and tens-of–thousands of seats on six continents under its care. Customers include Fortune 500 members FedEx, ADP, Sonic Automotive and others.  Everdream also distributes its technology and services through a number of distribution partners, including ADP Dealer Services and DataShare in the US, DeskForce and ICOM Solutions is Europe, and HyCare Systems, Inc., in Asia

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