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Outsourcing: What even your best friend won't tell you

Part Three
Wed Apr 14 2004, 11:19
Outsourcing: Customer relations is the killer
IT firms that outsource kick footballs into own goals

WHEN A MACHINE is fixed properly, the customer is overjoyed, and tells his friends about the wonderful service he got from your company. They are likely to buy again. If it took an hour instead of five minutes, at $15 an hour, it cost you $13.75 more to fix things the right way, and you will make that up when the customer buys their next computer in a few years.

The people who were told to put in the restore disks and follow the prompts end up with a "like new" computer, with new defined as none of the family pictures or half completed PhD theses on them that were there before. If you don't count the follow up calls that first plead with you to find the lost files, then demand to talk to a manager while threatening lawsuits, you saved $13.75! The follow-ups will cost more, but you will still be less than the $15 it would have cost to fix things in the first place. The next time they purchase a new computer, that $13.75 will go to your competition. I guarantee that, my money did.

The problem is that when you outsource like this it completely removes the incentive to fix problems. It turns a process that is about support and fixing things to a numerical assembly line. Worse yet, the people who are in touch with your customer have absolutely no incentive to fix things. Their goals are not your goals, and that is deadly.

Worse yet, if the outsourcing company has met their numeric goals, they get paid. Customer satisfaction? What's that? We hit the numbers. If a customer is pissed off, they don't steer their dollars away from the support company next time, 99 out of 100 of them couldn't tell you the name of the outsourcer anyway. They will steer their purchase away from the parent company, as well as directing their wrath at it, all they have to do is look at the computer on their desk to know who to hate.

The outsourcer laughs all the way to the bank, the employees go home dejected and poor, and the only ones who win are the corporate bigwigs who increase their margins a little. This quarter, next quarter too, but the next purchasing cycle is a different story. By then, the current management is on that little sunny island being served drinks with little umbrellas in them.

This disconnect is deadly, and no one seems to care. Corporations are blinded by the short term, and when they have dollar bills waved in front of them, they jump. Pavlov would be really impressed, and the current lack of vision in the Fortune 500 CxO hierarchy will make a fascinating case study some day. Sadly, it will not be about success.

The lesson here is that if you are going to offer support, you damn well better mean it. You don't do that by fielding a veritable army of people who at best don't care. The goals of an outsourced workforce are never the same as yours. They simply do not care if you do well, they care that they do well, not you. If you write a contract that aligns these goals, you can at best meet in the middle.

You can drive prices down any way you can, usually by cutting corners. The outsourcer will always cut corners so they can bid lower, and possibly increase profit margins. This is the same thing that you are trying to do when you outsource.

Because all the repercussions for failure lie on the outsourcee, not the outsourcer, it is almost a certainty that the company who thought up this brilliant scheme will lose out. Having staff that care, and goals aligned with yours is the only way to be successful. You can't do this with an outsourced staff. If you are making screws, OK, you can test them and see that they meet numeric targets, and will hold the plane wing on securely. Tech support is much more nebulous.

Overall, both general problems with outsourcing stem from a singular lack of corporate vision. Modern large corporations are not only geared to pleasing sheep with a short term outlook, but they also punish those with a grander vision. Companies jumping on the outsourcing bandwagon will wither and die in the long term, and the people who should pay the price never will. The system is set up to reward them.

Stockholders and employees, the people who do end up suffering, don't have a say. Worse yet, they will not stand up and question long term harm because if they do, they get shouted down by people blinded by short term profits. It is the responsibility of a CEO and a company's board to avoid these pitfalls, but almost none do.

To do things right, a company should avoid outsourcing to save a few dollars here and there. Think long term, spend on R&D, keep customers happy, and do the right thing for the right reasons, not for cost, and it will come back to you. The example I was going to use in this column was Sun, but I think it proved me wrong by falling from the clear win category.

In the middle is a company like Dell, a ruthless cost cutter if there ever was one. It was one of the first outsourcers of support. It didn't work out all that well. It realised it wasn't working out as well as it should have, and it was getting complaints. Dell did the right thing, and admitted it screwed up, publicly, and took things back from the outsourcers. It is far too early to tell what the result is, but I think customers will be happier in few months. If things continue like they are, Dell will most likely be the "good" case study next time.

And so to HP. While it won't officially give out the numbers, those that are available show that hold times are way up, customer satisfaction is way down, and the outsourcing is not saving anywhere near what it should. Customers are running to the hills, I know, I see them poking their heads into my big blue cave. The R&D cuts I hear about won't help things a few quarters down the road either. In a few years, this will be the case study on how not to do things.

Those companies that want to be around for the long term will at best judiciously use outsourcing because it has its purpose and its place. Short-term jobs, things that are truly tangential to your business, and thing that customers don't directly see. If you can guarantee that the outsourcer wants the same thing that you do, by all means, do it. If they don't, you are at best looking at a short-term gain with a painful long-term loss.

Outsourcing is not a panacea, or even a sane tool to use for most situations. There is almost always a good reason why processes developed in house, and kicking them to the proverbial curb is not a good idea. If done improperly, you end up with a dejected work force, a hollow company, and a highly mortgaged future. Is there an upside after the next 180 days? µ


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