Re: Outsourcing Is Climbing Skills Ladder




Offshore outsourcing (i.e. BPO, especially to India) has a high failure rate and is leading to a new pheonmenon: backsourcing/backshoring

FAQ:
QUESTION: How well is offshore outsourcing & BPO (especially to India) really working?

ANSWER: See comments, summaries, and references to sources below. The answer is that the failure rates are very high.

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Backshoring...the new buzzword

Feb 13, 2006 issue of Infoworld, pages 8 (Efraim Schwartz's column) and page 4, (editor's);

Developer poaching and rapidly rising prices are causing US based companies to start pulling jobs back to the USA. Read about it in the periodical.
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Subject: Deloitte Report: outsource failure rates

From June, 2005, CFO magazine, page 19.
(it may be on their website, www.cfo.com/BackIssues)

Deloitte Consulting was said (by the CFO article) to have said "'In the real world, outsourcing frequently fails to deliver its promise.' wrote researchers who surveyed 25 companies with average revenues of $50 billion. The study reveals that 70 percent of its respondents have had significantly negative experiences and are outsourcing business processes and IT with increasing caution."

"...there is growning evidence that large comapnies are rethinking massive outsourcing contracts. Big name defectors that have unwound at least part of their arrangements include Conseco, Dell, Capital One, and Lehman Brothers."

"A sure sign that outsourcing isn't working is the amount of renegotiation surrounding the vendor agreements, sayd Deloitte senior strategy principal Ken Landis. 'There wasn't a single participant in the study wohe contract went to term,' he says. 'All of them had renegotiated prior to the contract expiration date'"

"Companies are souring on outsourcing, the survey asserts, for the same reason it has been criticised for years: failure to live up to cost-reduction promises, risks to intellectual property, and confidentiatlity, and lack of transparency."

The article states that, so far, 25% of the companies have brought services back (now called backsourcing).
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From Information Week, page 8, in the Nov 21, 2005 issue.

Sidebar: "48% of all companies will spend more money on BPO this year than in 2004"

"55% of current BPO service delivery is conductend inside the USA"

"41% of companies are satisfied with their BPO services"

So, that sounds like 100 - 41= 59% are dissatisified with their BPO services. And, there's going to be more BPO?

Says the source is IW, Managing Offshore, and Equa Terra study of 200 BPO customers.
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"Offshoring isn't such a sure thing"
by Lora Kolodny,
Inc. magazine, September, 2005, pages 22-24

Quotes:

"Companies are finding that sending IT work overseas can
be more trouble than it's worth, according to a new survey
from DiamondCluster International, a Chicago-based
management consultancy. The number of executives
surveyed who said they were pleased with their outsourced
IT vendors fell by 17 pecentage points versus the previous
year, marking the first decline since 2002. Moreover, early
termination of relationships between buyers and offshore
service providers spiked to 51%, which is double the rate of
2004."

In other words, half of all relationships are terminated
before their first contract period is up.

In view of this, a spokesman for the consulting firm says
that "...tech buyers will think twice about sending critical
services abroad--at least for now."
--------------------------------------------------
From "CFO" magazine, FALL 2005, special issue, pages
40-44. (may be on www.cfo.com/Backissues)

article: "Customer Disservice: Critics say the promised
savings from offshoring come at too steep a price, while
companies say very little at all"

by Norm Alster

some content and some quotes:

This article starts by saying that on a recent talk show
where people could call in with comments and questions, it
was discovered that virtually everyone in the USA does not
like foreign call center representatives.

"But the practice of outsourcing customer service to
offshore call centers is beginning to look like a classical
idea carried too far. Critics of the pracctice point to a
growing body of evidence that suggests faulty economics
and customer dissatisfaction are forcing a rethink of what
once seemed a no-brainer."

"'The economic benefits of outsourcing customer service
are grossly overstated' according to Niels Kjellerup, a senior
partner with Australian consulting firm Resource
International and editor of a Website devoted to call centers
(www.callcenters.com.au). Customer resistance, along with
data-security concerns and the unexpectedly high costs of
managing offshore call centers, offset and dilute their
promised economic benefits, says Kjellerup."

"There is already evidence that these factors have
combined to slow the offshore migration. Several large
firms, including Dell, credit-card giant Capital One, and
insurer Conseco, have shifted at least some customer-
support operations back to the United States."

Gartner's analyst, Robert Brown, says that the initial large
growth in offshoring is expected to be, in the future, much
much smaller.

"Companies with monopolistic or overwhelmingly dominant
market positions are more apt to risk customer alienation
where near-term savings can be realized."

"Alexa Bona, a Gartner analyst based in London, predicts
that during the next three years, up to 60 percent of
companies outsourcing customer-facing service will
encounter customer defections and hidden costs that will
either cancel or outweigh any perceived savings in such
arrangements."

"He [Chris Selland, at Covington Associates in Boston]says
executives at firms that have employed offshore call centers
keep telling him that 'it's harder, it takes more management
attention, and you have to be meticulous about the way you
structure the agreement.' As a result of all this unexpected
overhead, the projected savings from offshoring can swiftly
evaporate."

The article says there is huge turnover at Indian call
centers; it can be up to 70% per year. And, with the big
expansion, there have been recruiting wars in India and
escalating pay scales.

"Martha Rogers, a consultant and author of several books
on customer relationships, contends that the metrics
generally used to measure call-center performance are
flawed."

"Many companies that outsource customer service, in fact,
don't like talking about it, and more than a dozen turned
down requests for interviews. 'Companies are looking to do
everything they can to hide the fact that they are using off
shore call centers' says Selland. 'From a political standpoint
and a customer-acceptance standpoint, it is something they
are trying to downplay.' At some Asian centers, agents are
actually trained to conceal their real names and adopt
phoney American monikers, a practice that fools few and
can further inflame an already angry caller."

"One in three respondents in a British survey said they
would stop doing business with a bank that relocates its call
centers offshore. Another study, conducted in 2004,
reported that just 5 pecent of the British are satisfied with
offshore call centers. The Irish arm of Sweden's Tele2AG, a
telecommunications firm, recently switched its call center
operation out of India and back to Ireland, citing consumer
preference."


"In an unpublished data-theft case now under investigation,
a large U.S.-based technology multinational contracted with
a call center in India without knowing that that company in
turn subcontracted a portion of the work to firms outside
India, where employees of the subcontractor apparently
managed to penetrate the American company's information
database."

"...growing outsourcing industries in Eastern Europe and
Latin America have been targeted by criminals seeking
access to customer data. "

"'For companies that regard customer service as a key part
of future revenue growth, bringing such operations back to
domestic shores is the way to go,' says Kjellerup."
---------------------------------------------------
From _Information Week_, page 60, Dec 19/26 issue, 2005

A short article by Paul McDougall reporting that: "...companies
operating in India, including local ones such as Infosys
Technologies, Tata Consultancy Services, and Wipro Technologies,
spend a lot of time and energy time stealing each other's employees--and that's quickly driving up salaries" and "'There's a
lot of employee turnover [in India], and we weren't interested in that,' says Martin Mellon, director of development at applications vendor ASG Software Solutions. The company chose Northern Ireland over India
for its offshore development work."
--------------------------------------------------
Subject: "Satisfaction Wanes for Offshoring"

On page 2 of the print issue of Processor.com for June 17, 2005, volume 27, number 24:

"According to consulting firm DiamondCluster International, the number of buyers satisfied with the providers of their offshore outsourcing has fallen from 79% to 62%. The firm's annual survey of IT outsourcing also revealed that 51% of buyers are terminating their outsourcing relationships earlier than scheduled."
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