Improving Customer Service Became the Key to Competitiveness | Article

Outsourcing Excellence Award – Most Flexible – Lloyd’s and First Source

In the last four years, the worldwide mortgage markets have seen significant change. Cheltenham & Gloucester (C&G), the mortgage arm of the Lloyds TSB Group, has experienced some of these changes.

In addition, the Internet created another channel for potential borrowers that traditional mortgage companies had to deal with.

Then the mortgage industry felt the aftershocks of the mortgage problems in the United States, which has led to a worldwide credit crunch.

“We don’t compete on price. We compete on service,” explains Jessie Moorhouse, C&G’s offshore relationship manager. But C&G was constrained, due to its standard operating hours of nine to five. It had to operate within normal business hours because it couldn’t recruit and retain people to work non-standard office hours. Yet its competitors could take applications over the phone from eight to eight.

C&G also faced the challenge of retaining administrative staff because there was full employment in an area where it operated large offices.

Another consideration: cost. Home buyers have become savvier and demand the best price. And with comparison Web sites available at a mouse click, it is easier than ever before to compare and assess mortgage providers. As a consequence, more and more borrowers are frequently changing lenders.

“We realized we had to make a fundamental change to compete with the new players. Our potential customers are savvy and wanted slicker processes. We had to do something!” says Moorhouse.

Outsourcing and offshoring gave the mortgage operation the remodel it needed.

Supplier selection

Lloyds supplier management procurement department came up with an original list of 300 potential service providers. The two groups narrowed the list to 30, then three.

They selected India after studying the country’s risk and stability profile. And they only talked to service providers with “a huge amount” of experience in the financial services sector.

The bank’s directors flew to India to meet with the three finalists, observing their operations and meeting key people. “We analyzed their financial stability to ensure they could meet the financial needs of an organization our size,” recalls Moorhouse.

Finally, C&G studied the cultural fit. “We’re very much an employee-centric organization with a definite code of ethics. It was crucial that our outsourcing partner treat its employees fairly. They had to treat them the way we treat our own,” she says.

C&G chose Firstsource for many reasons. One was its financial services expertise and the backing of ICICI Bank as principal shareholder. “We liked their training processes and how they treated their people,” says Moorhouse. The team was impressed that Firstsource provided meals if its employees had to work late. The service provider also provided transport to and from the office. “Those things made them stand out over the competition,” she explains.

Firstsource and C&G started working together on the initial pilot in 2005.


Moorhouse says the initial pilot “helped us put our toes in the water.” C&G started with just 50 seats in Mumbai because “we were cautious,” says Moorhouse. It selected processes it could easily repatriate if things didn’t work out. “They had little impact on our core business,” she reports.

Firstsource divided its employees into three teams. The team leaders and the operations manager travelled to the UK and stayed for three months to learn C&G’s processes. Then C&G sent some of its UK employees to India to support the teams for a three-month period. “We both invested time, people, and money in a good knowledge transfer,” says Jeremy Edwards, client director for Firstsource.

C&G held daily meetings with the project team to make sure the transition was on target. “They asked a lot of questions to understand our business requirements,” says Moorhouse, who spent two years managing the transition.

She worked on a project plan to roll out a comprehensive program if Firstsource met certain criteria. Halfway through the pilot, C&G executives realized that the project was making a very smooth transition. “Their success gave us comfort that we could actually put higher-skilled roles in India,” Moorhouse says.

The plan changed “to an aggressive ramp-up;” C&G decided to put 300 roles in India within 12 months. It added 50 roles a month. “This addition also added more complex processes,” reports Siddharth Parashar, client services manager for Lloyds FSC at Firstsource. New roles included origination and new business.

C&G discovered the Firstsource teams “met every success factor we set. This gave us confidence to add another 200 roles in the second 12 months,” continues Moorhouse.

Employee resistance

Firstsource’s success led C&G to close one office; 300 people lost their jobs.

The staff association took a proactive approach and engaged strongly in the project,” according to Moorhouse. C&G invited four union leaders to join its executives on a tour of the Indian facility and see how the supplier actually treated its employees. “We wanted them to talk to Firstsource employees to obtain a first-hand understanding of what offshoring was all about,” says Moorhouse.

A little face time was all they needed. The union leaders were able to talk to Firstsource employees without either of the management teams present. “They were very impressed,” Moorhouse reports. “They left India with the confidence we were doing things right. They were convinced this offshoring relationship was consistent with our ethics.”


Moorhouse says there were some initial teething problems with the IT systems: “The offshore system was very slow compared to our onshore performance.”

So the partners first fixed the IT. “The onshore and offshore IT departments worked closely and resolved the problem together. They worked 24/7. Someone was always on call,” says Moorhouse. The problem: certain servers in the UK weren’t performing. Today she reports C&G has “the same performance standards onshore and offshore.”

Currently, the UK office scans the work, which goes into a virtual queue. Any team member in the UK or India can work on the file.

Offshoring has created a beneficial cross-pollination. “Offshoring has given our staff the opportunity to work in India and experience something different. Everyone has had the chance to grow and develop by working with people from another culture,” Moorhouse reports. She adds, “Offshoring has made a difference to people’s lives both on and offshore.”

Moorhouse says the relationship’s biggest surprise is that “offshoring works so well!” Today the processes are so seamless “you don’t know where the work is done.” Firstsource’s 50 people have grown to 550 working on the C&G process.

Working through business challenges

It took 90 days for the two partners to work through the initial workflow challenges. Firstsource employees worked every Saturday for 60 days. “We knew there was a problem because they were always working overtime,” says Moorhouse. She was impressed that Firstsource “never showed any frustration that the initial workflow projections had proved to be too optimistic.”

Another challenge was opening the second location. Originally C&G sent its work to Firstsource’s Mumbai office. After a monsoon, 85 people stayed in the office because of the severe flooding. C&G felt it needed another location and selected Kolkata. “We felt we needed a more effective business continuity plan. We didn’t want 85 percent of their back office in one place,” adds Edwards.

Firstsource didn’t have space in its other centers across India. So it established a new facility in Kolkata for the mortgage operation. “We said, ?Let’s do this together. You promise us the business, and we will build a center for you,'” recalls Edwards. He says Firstsource invested “a significant amount of money” in the second site.

While the Kolkata office building was under construction, Firstsource sent 300 new Kolkata workers to Mumbai for six weeks of training. “It was a massive logistical thing,” says Moorhouse.

“We worried about the attrition because Kolkata, which is 1,500 miles away, is 2.5 hours away by plane and two days by rail,” says Moorhouse. After a month, the partners paid for a week trip home. “We were concerned that people won’t come back. Out of the 450 people who went home to Kolkata, 449 came back,” reports Parashar.

Even more worrisome, the food is very different in those two regions. Firstsource hired chefs and brought in special spices so its Kolkata employees could sup on the food they were used to. Its staff also entertained their counterparts on week-ends.

Today Firstsource splits its 80 skill sets equally between both offices. “If there’s a calamity in one city, we can move to the other,” says Parashar. “It’s been a win-win for both parties.”

Why this relationship works

“From day one, it’s been an honest and open relationship,” says Moorhouse. She also cherishes its flexibility. “We have a contract. But we can go beyond it.”

Edwards says C&G “had a clear view of how it wanted things done.” Firstsource has its own methods. “So we worked together to customize our approach. We didn’t come in and say, ?This is how we are going to do this.’ This action generated our partnership approach. It led to bigger things later,” he explains.

Moorhouse reports Firstsource adopted a partnership approach “from the beginning. We could feel they wanted to work with us.” She says both teams “discuss any issues sensibly and professionally. We take a common-sense approach.” They define a problem together and then determine the way forward. Moorhouse says there is always “a mutual resolution.”

Adds Edwards: “We sit on the same side of the fence and look at the problem. We look for a third way. We don’t want them to lose. We don’t want to set up this relationship to fail.” Moorhouse trusts their decisions because “they are 100 percent committed to our success.”

A relationship success secret is that they “deal with challenges before they become challenges,” says Edwards. He says the discussion starts when one says to the other, “We might have an issue.”

C&G knows Firstsource will go the extra mile if necessary. Last year there was a political strike in Kolkata; the authorities instituted a curfew. Firstsource learned about the curfew on a Sunday night. It picked up its staff and got them into the office so they were available to work in case they couldn’t leave their homes on Monday. Then the situation deteriorated. Firstsource was worried the staff would be there for 48 hours. It got bedding and food for workers who couldn’t get home safely.

The two partners have a gain-share arrangement. If Firstsource makes an improvement that saves money, the two split the savings for the first year. “This is an incentive for them to increase their profitability,” says Moorhouse.

Edwards says he feels comfortable with asking C&G to expand the relationship. For example, today Firstsource now handles mortgages from all C&G’s sales channels.


Offshoring has allowed C&G to increase its operating window to 16 hours. “We’re looking to increase that even more,” Moorhouse adds.

Backlogs are gone. Before C&G outsourced, it had 10 days of mortgage backlogs. Now the routine wait is 48 hours except for the rare peak. “We are 33 percent more efficient than we were,” says Moorhouse.

Staff augmentation is no longer a worry. Recently C&G needed 25 people “instantly; we took in some work from the branches and miscalculated how many people we needed to actually do the work. We reached out to Firstsource for help,” Moorhouse recalls.

Another time, the UK had severe floods; workers in the head office didn’t come to work because their homes were under water. “We instantly sent their work to India. Firstsource gladly helped us during a period of crisis,” says Moorhouse. Firstsource found the extra people and trained them.

Offshoring has also slashed training time, Moorhouse reports. The partners are working together to “cross-skill” people so more people are available during peak demand periods.

Parashar points out there are times when C&G will experience a 140 percent increase in mortgage volume; it could go the other way and fall by 50 percent. “We have been able to deliver whatever happens to volumes,” he says. Firstsource can make the peaks without having to add personnel “because we have the capacity in our operation.” This is where the significant savings come from.

C&G now enjoys “hundreds of process improvements.” Before offshoring, the mortgagee had a siloed approach with different departments owning a piece of each process. “Firstsource is allowing us to be more innovative in looking at the end-to-end processes. They are helping us improve our operating model,” says Moorhouse.

Parashar points out that now C&G’s UK personnel have adopted the Firstsource processes because of their efficiency. “Operational performance is our major contribution,” he says. Currently Firstsource handles 80 different processes for C&G; 25 of those are complex processes.

Summing up, Moorhouse says this “highly principled” outsourcing relationship “has been a huge success.” And it’s improved C&G’s customer service — the key to its competitiveness.

Lessons from the Outsourcing Journal:

  • When companies are struggling to compete with new players in the marketplace, outsourcing is a proven model for quickly adapting and gaining the necessary resources for meeting customer expectations. Using an offshore model provides the resources more cost-effectively.
  • Outsourcing suppliers have the resources to handle their clients’ peaks and valleys without adding staff in house. This generates savings.
  • Outsourcing can enable companies to easily centralize a process and also have end-to-end visibility.
  • A successful way of resolving disputes in an outsourcing relationship is to be sure the two partners sit on the same side of the fence and then find a third way to solve the problem.
  • A best practice in outsourcing relationships is making sure both parties deal with challenges before they become bigger challenges.
  • Analytics can help a buyer realize when and where there is a problem that the two need to work together to fix.

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