Outsourcing Works -- Except When it Doesn't...

Here's a thing:

Information Week reported last week that AT&T is replacing its India-based providers of support for its consumer DSL services with 2,000 unionized, U.S.-based workers. Tier One support providers will earn $30,000 per year, plus about another $10,000 annually in benefits, which AT&T says are "competitive" rates. (Information Week says these rates are actually some four times what workers in India typically earn, but never mind...)

In 2003, Dell Inc. announced that it had stopped using support providers based in India for corporate users of select Dell models, although the company said at the time that it planned to continue supporting consumers from India. (Interesting trade-off, since consumers seem likely to have less complex problems, but also likely to need more custom-tailored hand-holding, but never mind...)

Other U.S. companies appear to be moving support back to the States from India as well, although few are talking about it openly -- yet.

Meanwhile, increasing numbers of U.S. workers seem to feel their work histories are incomplete without a stint in India, at least according to some media reports from outlets in and near Silicon Valley.

What's going on here?

Well, exactly what everyone paying attention should have expected, although only some predicted publicly. Expectations, living standards, and wages are going up in India, which makes Indian workers more expensive than they used to be. Meanwhile, technologies and labor relations are evolving in ways that make domestic support providers less costly and more attractive to U.S. companies.

Throw in the near-constant barrage of complaints about India-based support providers unable to say anything meaningful other than what's on the scripts they're given -- and complaints about difficult-to-understand accents -- and this turn of the outsourcing tide was almost a given. (Some of the ways some Americans have reportedly berated India-based support providers for their "theft" of "'Murican" jobs, seem culturally insensitive at best, and racist and xenophobic at worst, but never mind...)

The thing is, this isn't about India, or outsourcing, or cost reduction. It's about U.S. companies seeking the best ways to provide adequate support at reasonable, supportable costs -- while minimizing their political and reputational risk. If users perceive support as inadequate, it's inadequate, wherever the support providers are based (and whatever their nationalities). So those people responsible for making decisions about where and how to deploy support providers should focus less on geography, and more on user experience. In other words, they should occasionally play frustrated user, and periodically call and interact with the support providers they're paying for -- or have their parents do so. To badly paraphrase the late Johnnie Cochrane, "if the experience isn't great, support must relocate." Not to a different geography, necessarily, but definitely to a higher level of performance.

Comments

[Dr. Ness]

Michael,

You've touched on something that is not only a key trend, but also a growing concern for many businesses. It seems that in the rush for cost savings and flexibility (efficiency and effectiveness), firms have somewhat become very short-sighted in deference to the long-term vision and strategy towards sustained competitive advantage.

Outsourcing and offshore outsourcing ("offshoring"), in particular, have become quite a trend - and in many ways has merit. However, what has concerned me from the start has been the relinquishment of knowledge, process, and critical services to others. Giving up control of these critical components of the business increases the level of risk incurred.

From an IT standpoint, how much risk are you willing to take on behalf of your business? IT cost is one thing, but if key processes are at risk, then doesn't that fundamentally shift the focus of IT to more of a risk manager and outsourcing agent? Who's providing the strategic tools and talent necessary to run the business? If necessary, what would it take to re-insource, as in the examples provided?

As the cost of offshoring continues to increase, the value proposition associated with risk assumption are beginning to diminish and either new and cheaper labor must be found, or local firms will need to find better ways to manage IT internally. CIO's and IT leaders have quite a challenge in this regard, but I'd like to see CIO's take on more of a leadership position with their CEO's regarding the strategic risks involved with offshoring and to look beyond the short-term cost metrics for IT that tend to drive these decisions.

However, to make this viable, IT must learn to manage better and with improved flexibility (including outsourcing, where it makes sense), or the insourcing argument won't hold much water. If IT can't demonstrate the ability to add value and to close the business-IT equilibrium gap, then business leaders will continue to look elsewhere. In this way, IT needs to improve their own management capabilities and to become a value-added partner rather than a roadblock to progress and growth for the business. My opinion is that in the cases cited, management got this message.

Best Regards,