Once a business decision based solely on the simple issue of cost, the location of outsourced services today is the object of an increasingly refined set of business intelligence metrics that buyers must weigh carefully. In today’s competitive business climate, more issues affect share price than just the bottom line in a portfolio or the net worth of a potential acquisition.
Today another metric is emerging: countries that can do business with American customers. It’s the topic that everyone still wants to ignore, publicly at least. But it’s getting harder.
The more customer-centric the outsourced business service, the greater sensitivity buyers have to where the service is located. They understand that the ability to retain customers makes this the prominent factor to consider when deciding where to outsource those services.
“But it’s also scaled on the amount of intuitiveness and creativity necessary on the part of the outsourcing provider’s employee,” says Larry Keating, CEO of Toronto-based Keating Technologies, a tech-based CRM supplier. Keating says low creativity tasks are better farshore candidates. But he believes “the more refined processes, or those that require sophisticated communication between customer and supplier to solve the problem, typically work better if kept in North America.” In his experience cultural similarities between the outsourcing provider and the firm that retains it also “go a long way in measuring success.”
For example, last spring Delta Airlines surveyed its customers on the acceptability of offshore agents. Nearly 80 percent expressed a hesitancy to deal with an offshore agent and virtually half of them said they would be willing to pay a small fee (up to one dollar) to speak with an American agent.
It’s about the Customer…Again
Walker Information recently released a market loyalty study on information technology purchases. It discovered less than half of the 2,200 surveyed buyers were predisposed to buy again from the same vendor, even though 80 percent were satisfied with the product they purchased.
According to Walker, loyalty cultivated after the sale has a profound impact on several key financial measures, including growth in revenue and operating income. “This shows what retention means to revenues and margins,” says Denis Pombriant, managing principal of Beagle Research Group. “The voice of the customer is getting louder and customer loyalty/retention is becoming a primary driver.”
Pombriant suggests these conclusions portend a change in business intelligence that puts more emphasis on customer preferences and satisfaction (which lead to greater loyalty and retention) is beginning to significantly influence business organizations when considering location of their outsourced services.
“What’s old is new again,” suggests Keating. He says when he first got in the CRM business years ago, it was about listening to customers and making it easier for them to get the help they needed.
“But after a time,” he continues, “the ‘service’ aspects of customer service began to be eclipsed as companies went for ‘cheapest is best’. And despite many claims to the contrary, the voice of the customer had less influence in corporate boardrooms for a time. But now that firms know the very high replacement value of a lost customer, those voices are being heard again.”
More Eyes on Canadian and Other North American Providers
This suggests that nearshore outsourcing providers–Canada and to a lesser extent all NAFTA countries–are still attractive options and in a strong position to continue capturing a significant piece of market share. Canadian firms attract sophisticated projects closely tied to American culture and the English language. That Canada is seen by many as the “51st state” underscores why, despite the competition from cheaper offshore providers in India and the Far East, Canada is holding its own against farshore competitors.
Examples include software development related to business intelligence, industry-specific applications, business process outsourcing, and customer service-oriented call centers.
Outsourcing to Canada is less of a sensitive topic among American firms and customers and has attracted less political and media attention in the US than the outsourcing of US-based work to facilities overseas.
“Canada has essentially the same culture,” says Peter McAdam, President and CEO of Everest Group Canada, “and many of the same companies have locations on both sides of the border. Education is similar and so is the concern for privacy and individual rights. You get all this plus polite, friendly, and helpful people at less cost. Companies are comfortable outsourcing to Canada and callers/users are comfortable calling there. They find little difference between Canadians and American counterparts.”
Datamonitor reports Canada’s labor wages are up to 30 percent cheaper than the US, although the combination of a stronger Canadian dollar and recent US inflation is beginning to slightly close that gap. Mexico’s labor savings can be as much as half of US wages. An additional advantage of outsourcing to US border nations is that telecom costs are roughly equal to those in the US.
India’s call center wages tend to run from 20-30 percent of those in the US according to Datamonitor. But like Canada, India’s labor costs are rising, albeit a bit more sharply. Overall, Indian managers are making roughly one-third of their American counterparts; these salaries are moderately increasing, but not significantly according to a September 2004 study by Mercer Human Resource Consulting.
Another part of the explanation behind Canadian outsourcing growth may be relative job volume. With about 150,000 workers devoted to outsourcing projects originating in the US and half of those in the call center industry, Canada seems to pose little threat to the 2.5 million US jobs that could be outsourced, according to Jacob Jegher, an analyst with Celent Communications. An October, 2004 Datamonitor report, The Vertical Guide to Contact Centers in North America to 2008, says the Canadian call center market will continue to grow and be a major benefactor of America’s loss. As firms outsource more customer service operations, Datamonitor expects Canada to establish 800 new call centers and 93,000 agent positions between now and 2008.
“Canada’s volume of outsourcing employees is well below India’s or other Far Eastern countries” he says. US companies relying on others to run their business intelligence analytics, corporate reporting, and data warehousing operations want those functions geographically closer due to heavy involvement by the US-based project manager. “Canada is closer for companies that need to visit the site with any regularity,” says McAdam.
Retaining Ownership and Control
Another heretofore unappreciated peril of offshoring is now a greater consideration, especially in IT and software development: who owns it when it goes out of the country.
In the fall of 2004, Datamonitor asked respondents to prioritize the elements behind their deliberations. Loss of control and the inability to closely monitor their offshore provider were the greatest objections to offshoring, and all but one of the nine categories below had a greater than 50 percent objection rating.
“This suggests that the savings from offshoring don’t come without some risk. There can be a downside,” says McAdam. Keating wonders if this realization is the beginning of a shift in the winds of corporate thought. “North America’s continued hyper-focus on the bottom line in this key customer-facing process, without due consideration to its context and impact, will inevitably lead to major losses on the top line. Maybe they’re waking up to that.”
As more companies send jobs to foreign shores, they also send critical knowledge about processes, procedures, and development. When business conditions change, a company can’t just go to the other side of the world and reclaim them. The new owners aren’t likely to give them up without a fight. The similarity of the Canadian regulatory environment as well as other NAFTA signature nations may also drive more work to nearshore providers instead of lower-cost and more risky far-shore locations.
“Companies retain greater control of intellectual property if they outsource those processes nearshore because of similarities in our laws surrounding ownership. Firms that outsource want that control over what they develop and share with others and see nearshoring as a tangible benefit offered by providers within the American continents,” says Pombriant.
“However,” says Gary Griffiths, CEO of Everdream, an aftermarket IT and OS service company, “our outsourcing effort to Costa Rica didn’t work all that well either and re repatriated that after a time due primarily to the dissimilarities between our culture and that of our Central American provider.” Griffiths explains he has tried to fit outsourcing into his company’s CRM model but to date has found little success. He confesses he’s become less comfortable with outsourcing to anyone other than an American provider because of the recent negative company cultural experience.
Cultural Issues and Why They Matter to Customers
The well-publicized revolt against farshoring by some sectors of American society is a factor in the emerging business metrics that are part of many firms’ outsourcing formulae.
Not long after Delta’s “offshore agent backlash” lesson, Convergys’ Knowledge Center released the results of a study further underscoring customer preferences. When offered four alternatives if a US agent was unavailable (Email, interactive voice response, searching the company’s Web site for a solution or speaking with an offshore agent), the offshore agent came up last.
“This certainly suggests why offshore providers are doing all they can to make their agents appear to the caller like an onshore agent,” says Everest’s McAdam. “Some businesses see themselves as more affected by adverse public opinion, which explains some business’ hesitancy to go farshore,” he adds. “Others are restricted due to source of funding, e.g., taxpayers to government bureaus and crown-owned corporations.
“But cultural similarities are a factor when dealing with customers who may be turned off by a foreign accent or by someone who doesn’t understand language nuances,” he suggests.
McAdam notes the type of outsourced task is also a factor. “Banks would never send call center work offshore for their high net-worth clients. But they would be more apt to send internal IT helpdesk call center work offshore– things that require less human interaction,” he says.
Keating emphatically agrees with the Convergys study. “Without a doubt the customer has spoken clearly and decisively, both anecdotally and statistically, about offshore customer care.”
Griffiths explains he has tried to fit outsourcing into his company’s CRM model, but to date has found little success due to cultural mismatches between Everdream and its outsourcing provider in Costa Rica. He confesses he’s become less comfortable with outsourcing to anyone other than an American provider because of his recent negative experience.
“It’s all about compatibility between the customer and the help-agent and between the company buyer and the supplying firm. And the most important person–the end-using customer–is again taking his rightful place atop that pyramid,” says Keating.