Los Angeles, California
Folks -
I have transitioned most of my writing related to outsourcing to the Outsourcing Weblog as it reaches a wider audience. I will post here less regularly, as I am now posting there on a regular basis.
The Outsourcing Weblog can be found at:
A few months ago, I wrote a post asking whether customers voicing displeasure with offshore customer service would pay higher prices to support onshore customers service. Apparently, we’ll get to find out.
In a recent announcement, Dell Computer announced that it would be offering premium customer service, called “Your Tech Team” to customers for $12.95/month. For that money, Dell is guaranteeing a customer service agent located in “North America.”
The success of this initiative may provide some good empirical data either supporting or refuting the claim that people would pay extra for better customer service. Personally, I doubt that they will. But I also wonder what signals this approach is sending to the Dell customer community about their existing service offerings.
In any case, this may be a signal of growing frustration with outsourced call centers – particularly in this anti-outsourcing environment.
In this election, outsourcing is getting a lot of heat from the left as a force destructive to our economy. The right, on the other hand, seems to believe that outsourcing is generally good for the economy. The Indian press seems scared. Which is it?
In late October, the IQPC Legal Process Outsourcing conference is happening in Chicago. It’s a great conference for those interested in LPO matters.
The link can be found here.
One of the major sticking points in most outsourcing and services deals is risk allocation. If the supplier is presenting the paper, risk will generally allocated entirely to the customer. If the customer is presenting the paper, risk will be allocated entirely to the supplier. Then, after the business terms are agreed upon, long, drawn-out discussions surrounding warranties, indemnities and limitations of liability ensue. This occurs in nearly every deal – and those of us in the practice have our “canned” reasons why our position is proper and important.
Today, I was once again reminded of the fact that in-house managers rarely learn enough about the legal aspects of the deals that they manage. A well-negotiated, well-lawyered deal often contains significant cost or margin protection, as well as obligations to perform duties that may be “out of the ordinary.”
Topping my list of favorite companies are Apple, Southwest and Toyota. Why? Because they unerringly meet my expectations. That is what I expect out of a company, whether they insource everything or outsource everything.
What makes these companies great? Top quality products, for sure, but there is something else beyond the quality of their products that comes into play. It’s a sense of fit-and-finish to their products, I think, that takes them to the next level.
This year’s TiECon East conference focused on the continued likely growth in outsourcing to India – seeking to dispel rumors of a bubble in the outsourcing market. While this is not surprising – TiECon is the conference of the Trans Indus Entrepreneur organization – and may, in fact, prove true – that assertion was not the news in this article.
In recent years, it seems as if corporate decision making has become increasingly risk driven. Compliance requirements are seen as a key driver – because of some of the corporate excesses of the recent past, complex regulations like Sarbannes-Oxley have unquestionably increased the difficulty of addressing compliance issues.
In a recent article published on Law.com, W. Carter Santos makes an argument against using Letters of Intent (LOI’s) to move projects forward when the negotiations of an outsourcing deal become protracted. His primary argument is that the customer looses substantial leverage by letting the vendor begin work prior to the signing of the deal.
Just moments after I wrote this morning’s post, my computer, a six-month old MacBook, froze. After several attempts at restarting and some web research, I called AppleCare. The agent, clearly domestic and probably an Apple employee, walked me through several, ultimately futile steps. He then suggested that I take it to my local Apple Store and made an appointment for me for 2 hours later. Read the rest of this entry »
In an article in today’s India Daily, (link) Hrithik Ratnagar suggests trouble for the Indian IT outsourcing segment. According to Mr. Ratnagar, this trouble is caused by the slowdown in the US economy, the weakness of the dollar and the strength of the rupee, the US political climate, and internal factors within the Indian IT outsourcing community.
No doubt, these are all significant factors in the market. However, I think that the Indian IT market may be selling a product that it’s US consumers are beginning look away from. Why? Several reasons.
First, even two years ago, when the market was chugging along just fine, companies were beginning to be concerned about the value proposition promised by outsourcing. Actual costs ran above budgets, management expenses were higher than expected and, worse yet, internal customer satisfaction plummeted. Aside from those simply focused on “this year’s budget,” outsourcing, even two years ago, was becoming a less attractive proposition.
Second, the deals represented a snapshot-in-time approach to the outsourcing – the infrastructure was, for all intents and purposes, frozen at the time of the deal. Changes, which in prior years would be done internally and “for free,” were now subject to a change request and discreet cost. Now, no one really believes that internal changes were “free,” but the costs were, in fact, buried in and under layers of bureaucracy. No one really saw them. Now, every change is accompanied by a cost, a budget change and requires financial review.
I am going to boldly suggest that this approach did little but empower the accounting and finance department in many corporations, not just permitting them, but almost requiring them, to micro-manage every little aspect of IT infrastructure. IT management (and IT workers) generally dislike being managed by either finance or legal departments. Instead, I believe that they long for the day that they simply had a budget to manage and annually had to go and ask forgiveness when it was exceeded.
Finally, IT outsourcers made the mistake of underpricing during bids, expecting to make their margin through the change process. No doubt, it was viewed as necessary to earn the business in a price-sensitive segment. This approach, however, also created a very unpleasant business dynamic which I call “change order hell.” In change order hell, every picayune change requires a form, several layers of approval and a payment. They failed to recognize that American managers, particularly in IT, tend not to want to get nickeled and dimed to death – and would much prefer a simple price for services.
So, what is the answer?
First, IT outsourcers must begin to view their services as “products,” creating an identity for them that distinguishes them from their competitors and offers something extra to their consumers. Right now, nothing distinguishes one IT outsourcer from another, not even price or reputation.
Second, they must focus on being easy-to-manage. What does that mean? Getting one step ahead of your customer – by anticipating their needs. Being proactive about problem solving. Not pointing fingers. Not charging for every little thing. In short, making the outsourcing process easier and better than insourcing.
Third, like their American customers, they will have to tighten their belts a bit – maybe loose a little money. But they can, perhaps, do it a bit better than we do by not squandering their talent through massive, knee-jerk layoffs. Instead, they should take the time to invest in their talent – so that when the market turns, they will be better off than we are.
Finally, stop looking at the election as causing a sea change. It is unlikely that any of the candidates will do much about the offshoring issue in the main. Instead, it is far more likely – and historically supported – that a change that bolsters the American economy will come from a large infrastructure investment – the kind of investment that creates jobs in the local, not the global, economy.
No doubt, this is a difficult time for both American companies and their service providers. It is a time that will, however, end. Examining the faults in this market, however, is not all that helpful – they are pretty obvious. Examining the mistakes that were made when business was good, however, can really shed some light on how to improve.
Yesterday, Ephriam Schwartz published an interesting article in InfoWorld (http://weblog.infoworld.com/realitycheck/archives/2008/05/outsourcing_bre.html). The article talks about the challenges faced when breaking up a large deal into component pieces.
Ultimately, the problem is one of management – the same affliction faced by many outsourcing deals. Whether it is “one throat to choke” or many “moles to whack,” the bane of most outsourcing deals – and the reason for their relative failure – is inconsistent and often poor management by the customer combined with opportunistic behavior on the part of the vendor. In my opinion, however, large “aircraft carrier” deals do not solve the management problem – high-quality management does. Read the rest of this entry »
The Institute for Global Challenges and the Law at Boalt Hall in Berkeley is sponsoring a conference called:
THE INTERNATIONAL OUTSOURCING OF THE LEGAL PROFESSION
On Friday, April 25, 2008, in Berkeley, California
Registration can be found here
Much of the monitoring of an outsourcing deal is based on specific metrics. There are good reasons for this approach, after all, metrics are “hard numbers” and are relatively easy to measure. No doubt, meeting metrics is also a very important part of any quality outsourcing deal. But are metrics everything? I don’t believe so, nor do I believe that a single-minded focus on metrics is the best way to manage an outsourcing deal. Read the rest of this entry »
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