What Works, What Doesn’t: Lessons from Two Companies that Outsource Back-Office Tasks

Well-educated Indian call-center workers may be sound at solving customer problems, but they can falter when it comes to sniffing out fraudulent customer claims. So says Kadab Mukesh, a manager for a U.S.-based broadcasting corporation that has sent some of its customer-service call center work to India. Mukesh, who asked that his company not be identified, said Indians are used to a lower level of conflict than Americans, which makes Indian call center workers more likely to give credits to customers.

 

During a customer service pilot project of about seven months this year in India, Mukesh believes Indian call-center workers performed fine in helping customers resolve problems such as product-upgrade and service-activation questions. But in other areas, U.S. workers would have out-done the Indians, he says. Indians” ability to handle disputes is probably lower.” 

 

The uneven results Mukesh found among Indian customer service workers is one of many potential pitfalls involved in moving business tasks from higher wage countries to India and other lower-wage countries. But corporations also see great promise in shifting work such as call-center operations, data entry and accounting duties overseas. Lower costs, operations redundancy and better service in many cases are among the reasons so-called business process outsourcing (BPO) is starting to take off – especially in India.

 

India’s National Association of Software & Services Companies (Nasscom) says the country’s call center and BPO industry – what it calls IT-enabled services – grew by 70% during the 2001-2002 period to a total of $1.46 billion in revenues. Indian revenues in IT-enabled services should jump to $16.94 billion by 2008, capturing more than 10% of the global market, Nasscom predicts. Indian employment in the field, Nasscom says, could rise from roughly 100,000 to 1.1 million people. Analysts in the U.S. believe that this employment growth parallels a loss of service jobs in the U.S. A report published by Forrester Research this month predicts that over the next 15 years, 3.3 million U.S. services industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China, and the Philippines. 

 

To continue examining the nuts and bolts and pros and cons of business process outsourcing, Knowledge@Wharton recently interviewed Mukesh and Girish Mehra, financial controller for the Latin America and Caribbean operations of financial services giant American Express – which handles many of its back-office business tasks in India. The key lesson from both Mukesh’s broadcasting company and American Express may be that one size does not fit all in BPO. Moving business functions offshore seems best done after a careful assessment of the possible arrangements, and the ways BPO can backfire.

 

American Express

Strictly speaking, Mehra isn’t engaged in business process outsourcing. Rather, his division sends accounting tasks to an American Express-owned and operated transaction processing center in India. American Express is among the pioneers when it comes to establishing a back-office operations facility overseas. The company opened its Financial Center East in New Delhi in 1994. FCE, as the facility is known, is now one of three major transaction processing centers for the company worldwide, with the others located in Phoenix, Ariz. and the United Kingdom. FCE’s workforce has reached about 900 workers in three shifts, and the facility handles functions including accounts payables, incoming payments, general accounting and financial forecasting.

 

Some 58% of work done at FCE is for American Express’ Asia-Pacific operations, 20% is for European operations, 24% is for U.S. and Canadian operations and 8% is for Latin American operations.

 

American Express does practice offshore business process outsourcing when it comes to customer-service duties. It has hired outsourcers to take care of customer service from both the Philippines and India. Among the outsourcing outfits working out of India is Spectramind, which is mostly owned by Indian IT services firm Wipro.

 

Although Mehra’s financial controllership group relies on in-house operations, it is part of the broader trend of sending more work to India. FCE now handles about 50% of the Latin American unit’s financial tasks, with about 130 Indian employees working on Mehra’s accounts. That’s up from about 60 Indian employees handling Latin American duties three years ago. In 2001, 35 jobs focused on Latin American operations moved from the Phoenix center to India. Now just 30 employees out of Phoenix work for Mehra’s unit.

 

Among the reasons to push financial functions to India are cost and quality, Mehra says. Processing transactions out of India costs about a quarter of what it does in the United States or the United Kingdom, he points out. That’s true partly because of the way technology and telecommunications have improved in recent years. The cost of high-bandwidth telecom links to India have fallen while imaging software has improved – making it easy for Mehra’s unit to scan invoices and zap them electronically to Delhi.

 

Labor costs also make India very attractive. Chartered accountants – India’s version of certified public accountants – make about $7,000 a year, while CPAs in the U.S. might require a salary of $40,000, Mehra says. A similar ratio holds in the call center industry. While call center workers in the U.S. can make in the high $30,000 range or more a year, their Indian counterparts might earn $4,000, or up to $7,000 for a management-level post.

 

Critics charge that back-office operations overseas can amount to “data sweatshops” that exploit workers. But American Express says FCE boasts employee satisfaction ratings of about 90%, and that the facility was ranked as one of India’s top 10 best employers by the Indian publication Business Today.

 

Even with drastic labor savings, American Express’ work quality doesn’t suffer in India, Mehra says. Only 1% of FCE’s workers lack a college degree. “Getting skilled people is not an issue at all,” he says. While back-office clerical tasks can be seen as a dead-end in the United States, BPO operations in India often offer relatively high-paying, coveted jobs. Even Nasscom’s definition of the industry, IT-enabled services, connotes an exciting, cutting-edge field.

 

Mehra, an Indian native who now works out of a Miami Lakes, Fla. office, spent two years at FCE. He says the employees there are quite capable of high-end work such as financial analysis and forecasting. Even so, FCE isn’t a perfect solution for all of Mehra’s needs. For one thing, Indians with Spanish or Portuguese language skills tend not to be number-crunchers. “They’re liberal arts graduates,” Mehra says. “They’re not accountants.”

 

So American Express teaches language classes at the FCE. And a language specialist is assigned to work with teams focused on the Latin American accounts.

 

There also are occasions when it makes sense to complete financial tasks out of Latin American offices, Mehra says. Sometimes reports in response to complex local laws must be filed with local governments, and certain records such as tax payments must be maintained in the local country.

 

Wages also can make a difference. For example, Argentina’s financial crisis, and the massive devaluation of the country’s currency, have made local employees very attractive. “Argentina for me is cheaper than India,” Mehra says. However, Mehra says he must weigh the lower Argentine wages against the benefits of improved quality and process standardization at the Indian financial center.

 

Being flexible enough to switch back and forth between overseas facilities and local operations may be a hallmark of an effective offshore back office strategy. Such rapid-fire adjustments of workers, though, can raise the hackles of labor critics, who worry globalization can lead to a “race to the bottom” when it comes to wages. BPO advocates respond that back-office work is helping citizens of poorer nations while pushing workers in developed countries to improve their skills.

 

In any event, Mehra foresees more work heading toward India. “Almost every

company is looking at outsourcing,” he says. “It’s just a question of people

not being familiar with India.”

 

The shift will accelerate, he says, if and when better methods emerge for measuring BPO’s performance. He imagines a daily report showing a corporate manager using such metrics as processing speed, error rate and cost per transaction. “It’ll increase the comfort level for people to manage the work,” he says.

 

Broadcasting Company

Mukesh, also born in India, now works in the product development unit of his firm. But he used to manage customer service operations for its Japan division. Mukesh first proposed establishing an offshore call center for his broadcast company in 1997. But back then, the call centers would likely have relied on satellite phone connections rather than undersea fiber-optic cables – and satellite connections between the U.S. and India suffer from a three to four second delay.

 

By 2001, however, new undersea cables had been laid allowing near-instant voice communications between the two nations. Mukesh again proposed moving some call-center operations offshore, and his company began studying the matter. A team of six company officials traveled to India and the Philippines in January 2002, visiting about 10 different call center operations. The verdict was split. Three wanted to go forward and three said “no way in hell,” Mukesh recalls. Compromising, the company decided to launch a prototype with 200 customer service representatives in India.

 

That meant Mukesh and his colleagues had to choose whether to go with a U.S.-based outsourcer offering Indian operations or an Indian-based firm. Each type has its strengths and weaknesses, as Mukesh sees it. Many of the BPO firms springing up in India are unknown quantities that could execute poorly. On the other hand, nascent Indian companies can prove to be responsive partners, he says: “If they don’t have a track record, guess what? You can mold them.”

 

U.S. outsourcing firms, especially an existing partner, may have a better understanding of a company’s operations. But U.S. operators may not be well suited to the BPO climate in India, Mukesh warns. For one thing, he says, 65% to 70% of call center costs in the U.S. stem from labor expenses. That makes U.S. call center outsourcers focused on trimming labor costs, which includes seeking to limit the time workers spend with each caller. In India, though, labor makes up just 35% of total costs while infrastructure and overhead costs are more substantial, Mukesh says.

 

U.S.-based outsourcers in India, as a result, may not focus enough on facilities management and may miss opportunities to provide better customer service on each call. “You can afford to spend a bit more on labor,” he says. “You can spend more time on each customer.”

 

Another potential problem is trying to train and manage Indian workers in the same way that U.S. workers are managed. Mukesh’s company ended up selecting a U.S.-based outsourcer, which found that Indian workers needed much more coaching and hand-holding as they moved from training programs to performing actual customer service. Indian employees needed about 40% more training than their U.S. counterparts, Mukesh says, with the Indian training lasting up to four weeks.

 

Preparing the Indian agents starts with “neutralizing” their accents. Mukesh says the idea is to help Indians communicate more clearly to Americans, not learn a whole new way of talking. “You’re bound to fail if you try to get an Indian to speak like an American,” he says.

 

Indians also must learn culture-specific behaviors common to Americans. For example, Mukesh says, Indians don’t talk about the weather like Americans do. Nor do they end conversations by saying, “Have a nice day.” “Back in India, it’s understood that you will try to have a nice day,” Mukesh says.

 

Then there is training focused on the actual transaction or product in question. Indians, for example, aren’t familiar with the concept of paying by check over the phone. And although guidelines are provided for handling a variety of calls, additional discussion with Indian customer service representatives is needed. “You really cannot script every situation,” Mukesh says.

 

Even with extra training, he notes, it generally takes an Indian customer service agent an additional one and a half to two months to catch up to their American counterpart in service quality.

 

Besides performing worse than American agents when it came to billing disputes, sales calls also were a challenge for the Indian workers in the pilot program, Mukesh says. He believes that could be a function of poor scripting for agents, as well as the fact that the Indians never got to see the programming of the service they were trying to sell.

 

Based on his experience with the pilot program and his sense that Indians are less familiar with day-to-day conflict than Americans, Mukesh suggests that overdue accounts collections work also would be difficult for Indian workers. But he also said that perhaps a better hiring system could find those Indians best suited for handling tasks involving disputes or conflict. That idea seems plausible, given that more than a billion people live in India.

 

Mukesh’s broadcast company hasn’t finished its evaluation of the pilot customer service outsourcing program in India. Ultimately, the pilot seemed to reach acceptable levels of performance and quality, he believes. But one issue that remains is the possibility of political instability disrupting operations. Indian politics have been tumultuous at times, and tensions continue with neighboring Pakistan. Mukesh suggests that if the company does continue with an Indian presence, it would be wise to hedge its bet either through operations in more than one part of the country or by establishing offshore customer service operations in another nation.

 

With regards to quality problems in India, Mukesh can see the BPO field following the same path that IT services did in India beginning in the late 1980s. Given inconsistent service levels, he says, third-party training institutions sprang up to prepare Indian IT workers, and industry players sought and received the approval of standards organizations.

 

Mukesh is bullish on BPOs and call centers in India, but he sees work to be done. “It’s still a growing industry,” he says, “and there’s room for improvement.”

 

 

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