Offshore Outsourcing Failure Case Studies
While offshore outsourcing is a powerful tool to cut costs, improve performance, and refocus on core business, offshore outsourcing initiatives often fall short of management's expectations.
Indeed, offshoring isn't always all it's made out to be. Offshore outsourcing failures are rarely reported because firms are reluctant to publicize them. Here we describe the experiences of several firms - Conseco, Healtheon, Life Time Fitness, Dell, Lehman Brothers, and Cogent Road.
Conseco - Call Center Outsourcing
Indianapolis-based Conseco is a holding company for two operating businesses: insurance and finance. In April 2002, Conseco acquired a firm specializing in customer service and back-office outsourcing to India and planned to move 14% of its U.S. jobs to India over the next two years. However, later in 2002, Conseco backed away from its plan and announced that it sold its interest in the outsourcing firm to EXLService as part of its efforts to allow it to refocus its resources and management time on core businesses.
Interestingly, Conseco also decided to return more of the outsourced jobs to its U.S. facilities. The decision was based on two factors: 1) reduced volume of business and 2) the need to exercise close control over the processes that most directly affect its relationships with current customers and distribution partners. The company admitted that it found that some of these processes difficult to manage successfully from a distance.
Healtheon - Offshore Software Development
In 1999, Healtheon opened a software development facility in Hyderabad, India. It had almost 50 employees by the end of the first year and moved into a new 15,000-square-foot building. The initial list of projects that follows centered on quality assurance:
- ProviderWorks (development and quality assurance) - TIST
- Ben Central (quality assurance) - Employer services
- Web
- RACER (development and quality assurance) - Administrative services
- DEX (development and quality assurance) - Administrative services and common libraries used across the company
- Consumer Portal (quality assurance) - Consumer division
- Practice (quality assurance) - Provider services
- Rx (quality assurance) - Administrative services
This India service operation closed several years later when the managing director of the facility left. U.S. management decided that it was better off refocusing on the nearshore operations to prevent a dilution of focus.
Life Time Fitness
Wesley Bertch, director of software systems at Life Time Fitness, wrote a balanced article on his company's experiences with an offshore vendor. For the full text of this article visit this Link.
According to him, the root causes behind the failure were threefold:
- Root Cause #1: inexperienced labor,
- Root Cause #2: overemphasis on process, and
- Root Cause #3: project performance metrics masking problems.
Dell - Corporate Support Call Centers
After an onslaught of complaints, computer maker Dell stopped using a technical support center in India to handle calls from its corporate customers. Some U.S. customers complained that the Indian technical-support representatives were difficult to communicate with because of thick accents and scripted responses. Corporate customers account for about 85% of Dell's business, with only 15% coming from the consumer market.
Calls from some home PC owners will continue to be handled by the technical support center in Bangalore, India, Dell has no plans to scale back the operation there. Worldwide, Dell employs about 44,300 people. About 54% are abroad.
Lehman - Internal Help Desk Support
In December 2003, it was reported that Lehman Brothers had stopped using Wipro Spectramind, for its internal IT help desk. According to a Lehman analyst, the Indian firm could not provide the level of quality and service Lehman sought for help desk support.
Lehman is still using two Indian firms - Tata Consultancy Services and Wipro - to manage some of its IT infrastructure support, software application development, and applications support. Lehman uses about 450 workers at Tata and Wipro and has generated savings of about 40%-50%.
Cogent Road - Mortgage Banking
Cogent Road offers e-business solutions for the mortgage banking industry that protect banks from loss by identifying potential errors in collateral valuation and loan regulation compliance.
When Cogent Road outsourced a project to Calcutta, India, the company was surprised to find that it took twice as long as estimated, due to the language barrier and 12-hour time difference between India and its San Diego headquarters. Cogent's conclusion: don't outsource mission-critical projects overseas.
Shop Direct - Call Center
Shop Direct, which employs 1,200 people in the United Kingdom, opened a call center in Bangalore in March 2002 and transferred 250 jobs from Britain. Service from the new location has been called poor, and the experiment will end when the office is closed next month. Jobs will be moved back to six call centers in the United Kingdom.
A spokesman said the Indian center dealt with orders and customer inquiries, but the level of service was not up to the required standard. He noted consumers felt the Indian staff had poorer skills than their British counterparts and were ill equipped to deal with inquiries. "They may be cheaper but I can certainly tell the difference when I am being served by someone overseas. Success is much more important than having someone who costs half the price," he said.
Indian Call Centers
'Do-Not-Call' lists that gather the names of Americans who don't want to receive telemarketing calls have put many Indian call centers in a jam, even forcing some to shut down. At least five call centers in southern India that do telemarketing for U.S firms have closed shop and many others may follow suit.
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