By Michael Blankman

Decisions to outsource critical functions are never easy and there is a lot of internal inertia to overcome, but it is often hard to ignore the numbers. Outsourced relationships will always require a substantial remote management component. Successful remote management is not possible if the relationship isn’t sound. It is the difference between a glossy presentation and the real world.

As difficult as it is to decide on an outsourcing partner, understanding how the relationship works needs to be an integral part of the process. A process that began with identifying potential partners, issuing an RFI, conducting site visits, choosing a partner and finally signing a contract ends with making the relationship work. Not to minimize the efforts that led you to this point but if you haven’t chosen a company that you want to have a true relationship with, the business is doomed. Even if the numbers work, the potential reputational, regulatory and customer fallout will have significant downside. Fixing a flawed relationship after the fact is not an acceptable option.

At its highest level the relationship will be monitored by the contract through an explicit set of understandings, requirements, and performance criteria/key indicators. But the moment you are tempted to use the contract to resolve a dispute with your supplier, the battle may have been won, but you have definitely lost the war.

Successful relationships are driven by trust and mutual respect, not by wielding the contract like a club. The contract is not a cure-all it is just a means of forcing resolution. Often relationships get off to strong starts but are diminished by missed opportunities, inflexibility and a failed management process.

The golden rule of remote management is that once you have a process in place it needs to be driven by consistency and mutual understanding.

1) Day to Day Management: There should be a dedicated team charged with vendor management on a daily basis. This team needs to understand that whatever their responsibilities were before outsourcing, they will now need to wear two hats and focus on the development of the relationship. The team should be comprised of subject matter experts from a variety of disciplines. They will own the key indicators, curriculum management and development, train the trainers and identify risk and customer issues. The team is the nerve center of the relationship.

Too often vendors and their employees are on the outside looking in as it relates to understanding the businesses they support.

Vendors should also provide dedicated day-to-day contacts. Any sizeable application warrants the attention. Dedicated support is not negotiable.

2) Valuing Expertise: Although outsourcing is driven primarily by cost, quality and service may have already been compromised by decisions made internally to improve margins. There is little room post-conversion for a learning curve.

Each side brings their expertise to the project. Assuming the right vendor has been chosen, it is critical they are staying current and committed to leading edge technology with cost and service remaining as close to their business model as possible. From a contact center perspective this will often crop up in issues surrounding the length of new agent training or number of calls monitored (one is too few and a thousand is not enough). There is a natural desire for the business being outsourced to want to keep control even as the operational components transition to the vendor. Forcing this can lead to ongoing tensions, impact the financial model and may eventually lead to calls for renegotiation or termination of the contract.

Trusting a vendor’s model and letting go is all about understanding what you can, or more importantly, should, dictate. It is critical that the dedicated team be able to translate those issues.

3) Multiple Vendors: In a contact center environment (usually driven by the size of the application) it helps to have multiple vendors. This is not done to manage operational risk or to create adversarial relationships but to improve service and quality through competitive benchmarking

Although there are benefits to site dedication especially when dealing with high touch/high value calls, all calls should be able to be handled regardless of location. The outsourcer drives consistency through a tight vendor management program. Each site had the same curriculum, training and key indictors. The process should also be portable.

A schedule of quarterly meetings with all vendors represented should be formalized. These meetings not only provide a great opportunity to review high level performance trends but also open the door for a review of best practices. As long as there aren’t any proprietary or intellectual property issues, ideas need to be shared across all vendors. Ultimately this process will reward those partners with the best performance.

4) Vendor Engagement: Too often vendors and their employees are on the outside looking in as it relates to understanding the businesses they support. In general, vendor engagement falls under the topic of brand management. Brand management in its self is a much larger and important topic. At the very least, business goals, strategies, results, and milestones should be shared broadly. The more people feel part of and understand the role they play, their commitment to quality and service will be stronger.

Engagement includes a strong presence at the remote site, incentive programs (besides those sponsored locally) and some straight talk as issues arise. The vendor is an integral extension of the business and the relationship has to be cultivated.

5) Transparency: Outsourcing is often accompanied by a wall of silence in which the outsourcer hopes nothing will happen that will cause the business to have to acknowledge their strategy. However, if the support team is in place and the model is working, the relationship should be highlighted. Clients should know that it is a strategy not based solely on expense and headcount reductions, but includes an ongoing commitment to outstanding service and quality.

By Robert L. Scheier

The more than 700 attendees at the MIT Latin America conference March 10th in Cambridge heard a lot of upbeat talk about economic prospects for Latin America in general, and emerging markets throughout the southern hemisphere.

But they also heard warnings that Latin America is not doing enough to educate its people, reduce the power held by established elites, and improve labor productivity in the event that commodity prices (whose rise has helped fuel much of the Latin American growth) begin to sag.

Several former government finance chiefs painted a rosy picture of strong Latin American economies trading among and investing in each other, rather than relying on North American or European capital. Pedro Aspe, co-chairman of Evercore Partners and former treasury secretary of Brazil, said that the bulk of trade and investment will be among southern hemisphere countries, with the largest share of outside investments in Mexico already coming from Brazil, Colombia and Chile.

Says one observer: “The conditions for long-term growth in Latin America have not really improved”

However, New York University Professor Ann Lee, author of What the U.S. Can Learn From China said that China’s government understands that in order to continue its growth it “must get away from relying on cheap labor” and start innovating the way countries such as Germany, the U.S. and Japan do. That means investing in education, raising the social stature of teachers, and making it possible for students to graduate college without massive student loan debt.

As China moves away from manufacturing into more knowledge-based services, this will reduce its need for natural resources. And this, says Lee, is where Latin America could suffer. “Latin America has had tremendous growth, but 90 percent of its exports are in resources,” she says, which is why it’s time “for Latin America to join China in investing in education…creating a culture that values innovation.” However, that will be a challenge for many Latin American countries, she said, where elites who are “threatened by competition” will resist such spending.

Christian Deseglise, managing director of global asset management at HSBC, agreed with this pessimistic outlook, saying exports of natural resources such as oil and food have given Latin America “the best five, six seven years of the last 40 years,” but that the productivity of Latin America has not increased and is falling behind that of other regions such as Asia. For that reason, he said, “the conditions for long-term growth in Latin America have not really improved.”

One informed player in the natural resources world – Roger Agnelli, former CEO of mining, steelmaking and energy giant Vale – dismissed fears of a boom or bubble in commodity prices. He told the conference that ongoing urbanization, as well as the development of much-needed infrastructure in countries such as China and India, will continue to drive demand for (and robust prices for) natural resources. His concern, instead, is that “commodity producers are not investing enough to meet future demand.”

Yet another shot across the bow of Latin American competitiveness came from serial entrepreneur Andres Barreto, the co-founder of tablet publishing platform Onswipe and music streaming side Grooveshark, in a panel on Latin American entrepreneurship. Rather than dealing with the paperwork and delays of incorporating in their native countries, he recommends Latin American startups to incorporate in the business-friendly state of Delaware, get an American lawyer to handle the paperwork and get an American bank account so they can quickly accept payments on-line and start making money.

This article originally appeared on our sister site Global Delivery Report

By Rosanne D’Ausilio

Last year CBS Sunday Morning had a segment on customer service. Presented was a typical actual scenario where an older woman went to the office of the company that had screwed up her phone service. She asked for a manager or supervisor, was told to sit down, and then two hours later was told that that person had left the office.

Does that sound familiar?

If I asked you to raise your hand if you have never had a bad customer service experience, would you have your hand up? I doubt it. I’d even bet money on it.

All of us have had an incident where we either were enraged, frustrated, incredulous, or downright amazed at the inefficiency, inadequacy, and ineptness of whomever we were interacting with.

Truth be told, customer service is not good regardless of the channel, and services tops the list in terms of customer dissatisfaction. In today’s world, your competition is merely a click away and customers are more fickle than ever before.

It’s reported that it takes 12 positive customer service experiences to make up for one negative experience (“Understanding Customers” by Ruby Newell-Legner). Yet 91% of unhappy customers will not willingly do business with your organization again.

When I was in school (I’m probably giving my age away here), we were taught the three Rs: Reading, Writing, and ‘Rithmatic, and were also told that was all we needed to survive in the world.

That’s no longer true or appropriate. Today’s world needs more C.A.R.E.

What Is C.A.R.E.?

C stands for Communication. According to the American Management Association’s Critical Skills Survey over 2000 managers responded that more than half (51.4%) of their employees were only average in effective communications skills.

What is communication? Communication means that a message was sent, it was received, and it was understood. Words, after all, are only 7% of communication, tone of voice is 38%, and physiology is 55%. In other words, how we say what we say is significantly more important than what we say.

A stands for Acknowledgment. All we want is to be heard, and to be treated with dignity and respect. So before you can help me, I need to know that you heard what I said. This could be a simple, “If I understand what you are asking, you want…” or “Wow, you’re really upset. Thanks so much for calling. I’m going to do my best to assist you.” Or simply paraphrase what you heard.

You can either acknowledge the feelings behind what is being presented or the issue itself for a customer to feel heard.

R stands for Responsiveness. This simply means to focus on and address the issue presented, not to bring in any ancillary matters. A synonym for Responsiveness is Sensitivity — be sensitive to what is being said and how it is being presented.

E stands for Empathize. I must admit this is my favorite, and is what separates us humans from other species. To empathize is to put yourself in another person’s shoes, not wear the shoes, not make the other person right and you or your company wrong, but to see it from the customer’s point of view. They may even be wrong, but it’s their perception that needs to be honored.

Bottom line: Take C.A.R.E. of your customers — whether internal or external, current or potential, face to face or on the phone or in chat, wherever.

Why? Because people don’t care what you know – until they know you care.

Rosanne D’Auslio, Ph.D., President of Human Technologies Global, Inc., and known as “the practical champion of the human,” is an industrial psychologist, consultant, master trainer, bestselling author, executive coach, and customer service expert.

By Uyadan Banerjee

1. Why do you want to do the software project in Agile mode?

Potential reasons include:

(A) You are already engaged in IT outsourcing and have a good working relationship with the outsourced vendor. You have successfully used Agile internally and want to extend it to outsourced projects.

(B) You want to outsource a new project because you do not have internal bandwidth to work on the requirements for it or the actual development. You expect that outsourcing will help you overcome the bandwidth limitation and Agile will help you to evolve the requirements through multiple iterations.

(C) You do all your projects using Agile and plan to outsource to achieve immediate cost savings.

If you have chosen (A) you then have a good chance of success, since you have the trust and good communication that are critical to Agile. If you chose (C) you may pull it off but may need to reduce your expectations of cost savings, factoring in the time, effort and energy required to build a relationship with an outsourcer.

But if you have chosen (B) your project will be doomed. Agile is communications-intensive even when done internally, and bringing in outsiders just increases the effort. If you can’t devote time to understand your requirements and create the stories (required functions), answer questions. and meticulously review deliverables your project will be doomed.

2. Do you want to outsource just this project or are you looking for an ongoing partner?

This question is relevant only if you do not already have an outsourcing partner, but is important because Agile without trust does not work.

Trust is established between individuals, not organizations, and there is no substitute for key people from both the customer and outsourcer working together at the start of the project. One month would be ideal, but even if you need to cut costs you should still plan on at least one week.

In addition, Agile requires investments in smooth and effective communication, whether that is a dedicated communication link, video conferencing facility, or joint development tools. Doing it for just one project may not give you sufficient return on the investment.

3. What type of contract model should you look at?

There are three alternatives – either one or a combination can work for you.

(A) In a Time & Material (T&M) contract you agree on the rate for different people will different levels of experience and expertise and pay the vendor based on how much time they spend on your project. Though this is the simplest mechanism all the risks are with you and the vendor has no incentive to work more efficiently.

(B) In a Fixed Price contract you define the scope of the project in sufficient detail and agree to pay a fixed price. This runs counter to the basic philosophy of agile where you actively encourage requirements to evolve and change. Therefore, this requires a mechanism to compensate the vendor for changed requirements and rework, which you may do in a T&M basis. However, you need to keep in mind that what is a change and what is within scope can become very controversial.

(C) The third model can be based on some objective measure of the amount of work done, such as Story Point or Function Point. Each has its own advantages and disadvantages. I prefer MK-II Function Point which provides a good basis for calculating incremental effort. However, it does not cover effort required for rework, refactoring and the impact of technological change.

While there is no one best model, a good approach is to sign a Master Services Agreement (MSA) which specifies the overall terms and conditions including rates, but does not get into the specifics of a project. The scope of work can be outlined through a Statement of Work (SOW) that can include high-level product backlog.

4. What are the payment terms?

Since Agile is iterative with the continuous delivery of “potentially shippable products,” you need to pay either at the end of each iteration or at pre-agreed intervals. If you pay at the end of each iteration you must have a process for handling bugs or other defects. You can:

(A) Accept that some defects are inevitable and will be fixed in the next iteration and make the payment. This is not a good idea.

(B) Set a threshold of acceptable defects and create a separate sprint to correct them, accepting the iteration only after all the defects are closed. This may upset your sprint planning.

(C) Require the vendor to correct the defects in addition to the work required in the sprint, releasing payment only after all the defects are closed. This puts additional load on the team but forces them to deliver a better product.

Remember also the Agile philosophy to fail early rather than fail late. Consider a contract clause allowing you to terminate the project midway if you realize you are not going to get the business benefit envisaged.

5. Does the vendor understand your definition of “done”?

Another Agile principle is that “Working software is the primary measure of progress.” But an enterprise has wider needs, so when defining “done” also consider:

• How you are going to test the delivery?

• How much documentation is required?

• Is there any architectural or design standard that need to be followed?

• Do you have a coding standard and code review guideline?

• Do you need to have usability testing done?

• What are the integration needs and how will you test it?

• How are you going to measure performance under load?

• Who is responsible for fixing issues while deploying in preproduction and production?

Udayan Banerjee is an IT industry veteran with more than 30 years experience and interests in cloud computing, SOA, Web2.0, RIA, knowledge management, code comprehension & transformation, Agile methodologies, mobile computing and model-driven software engineering.

By Linda Tuck Chapman

Outsourcing is serious business and will have a long-term impact on your company’s future. Let’s improve the odds that it’s a positive one! Your customers and shareholders shouldn’t and won’t differentiate who delivers their services – your company or a third party. So the time you invest in planning your outsourcing program and sourcing the right service providers is time well spent.

Before you set your sights on a service provider or a destination, spend time setting strategy and planning. During an initial discussion with a client about expanding their small offshore program, they quickly realized that there was no consensus across the senior leadership team about their long term outsourcing strategy or the appetite for more offshoring in the current political climate.

Questions Precede Success

The questions you must answer are numerous and wide ranging: What value are you hoping to capture? What needs to happen to increase the probability of success? Every company that makes the decision to outsource wants to save money or avoid capital investment, so what else do you want to get out of the relationship? Is there visible executive support and who are the internal champions? Which countries and companies should you be looking at? What are the key constraints? How can you make the engagement process easy and predictable? What are the obvious mistakes that other companies have made and how can you avoid them?

The good news is that while there are lots of questions there are many, many successful offshore programs. And you don’t have to reinvent the wheel.

Determining what is most important to internal stakeholders is important but it doesn’t have to get complicated. Typical goals that are readily satisfied by outsourcing include: 1) Cost savings or cost avoidance 2) Access to a large, high quality and skilled labor pool 3) Capacity that flexes with your demand 4) Exposure to sophisticated processes and knowledge transfer 5) Access to superior technology, processes or a platform.

Keep on Track

Once there is consensus on goals and objectives write it down, validate that you got it right, then re-state the goals and objectives at each phase. It is amazing how much drift can occur if you ignore this tactic. Re-validating goals and frequent stakeholder communication are fundamental to managing expectations and driving wildly successful programs.

The next consideration is potential service providers and locations. Although India and China are leaders, Nearshore service providers are quickly climbing the value chain with competitive talent pools, robust technology and viable solutions. And they offer something that India and Asia can’t…. same-time work hours. The value of which should not to be under-estimated.

Sourcing a Nearshore service provider means also means that cultural differences are not as extreme, geo-political risks are better understood, travel for site visits and operational management is far less onerous and costly, and the opportunities for collaboration should be more likely and frequent. And cost savings are comparable.

Do the Right Work Up Front

You need to be thorough during sourcing and contracting. This means investing enough time to think through and finalize everything possible during the sourcing contracting phases. Make sure you do your research, benchmark pricing by role and location, and adopt published best practices. Set up a simple pricing model, anticipate current, near-term, and future needs including specialized skills. Design a competitive but manageable number of performance metrics and minimum service levels, and define respective roles and responsibilities. Establish time-specific targets to increase the ratio of offsite/onsite resources, and strategies to minimize turnover of resources assigned to your account.

Once you have a strong foundation, a user-friendly engagement process will become the key to a successful program. If your program is for IT application development, maintenance and/or testing, developing a good set of requirements is far more important than ever before. If you have a PMO, good news. If not, source or quickly develop training or leverage your outsourcer to help develop this key skill within your team. Your project teams need to write solid Statements of Work and be able to size the work effort. You can publish examples on your intranet, deploy proactive support and mentoring, and establish internal user groups.

As for project pricing, it is okay to start out with time and materials pricing using negotiated rates. Within six months you should have enough experience and expertise to move to fixed pricing. And over time, if you commit a minimum number of resources or spend, you can evolve to “development centers,” dedicated teams who identify with your company and are exclusively assigned to your projects. This will help you to control costs, improve quality and increase your offsite/onsite resource ratios. Your informal leaders will emerge, so identify these internal champions early and noisily celebrate their successes.

If you want your outsourcing program to be wildly successful, here are three key tips to take away:

• invest time to develop an enduring strategy and take time to plan
• finalize every detail possible during the contracting phase
• make it easy for users to engage

Linda Tuck Chapman, ONTALA Performance Solutions, is a former Chief Sourcing Officer and is now an expert advisor in Outsourcing, Strategic Cost Management, and Vendor Governance.

By Brad DeMent

Shared services operations (SSOs) have transitioned from a simple means to gain quick cost savings to a critical component of corporate strategy. Historically, transactional services offered such as accounts payable processing, payroll, and IT help desks have been no-brainers for domestic SSO inclusion. The new norm for SSO has expanded to smaller, higher-value services such as accounting, budgeting, financial reporting, HR recruiting, and application development. This expansion has companies asking, “Why service only one country with SSO? What can be leveraged to service a region, or even all global locations?”

Services are often thought of in tiers or layers that have different volumes and require different skill sets to deliver. There are many variations of these models and each must be customized to your company. An example is shown below.

Figure 1. Regional Super Centers

Lower-tier services are typically focused on the more transactional components of a shared services center. These services often involve entering transactions into a system or extracting data from systems based on standard company requirements or simple department requests. Companies are leveraging systems and low-cost global locations to process these transactions from one place for all internal business units in a region, or even the entire globe. Low-cost locations make good sense for these services, as there is very little communication required with the business units, therefore language is not a barrier. For this reason, these are also candidates for outsourcing decisions.

As companies consider mid-tier services, constraints such as country-specific laws, region-specific culture, and language barriers often enter the equation. These types of services lend themselves to regional customer-facing hubs, and include services such as accounts payable dispute resolution, accounting, management reporting, HR recruiting, and IT application development. These services can be offered centrally to entire regions such as the Americas, Europe, Asia, and Africa.

Top-tier services such as the provision of legal services, tax strategy, benefits administration, and workforce development often require more local knowledge and understanding of country-specific laws and regulations. These services become more challenging for regional or global provision, though several companies have been successful here too.

Planning the best global delivery model requires an in-depth understanding of your company’s systems, geographies, customers, and most of all, the willingness to change. Furthermore, a deep understanding of country- or region-specific laws, cultures, and languages is necessary. Once this understanding is clear, companies can approach the global design by allocating services to tiers of work. The options will begin to unfold when these tiers with attached services are treated like building blocks, placing lower tiers in fewer global locations and higher tiers in more global locations. Some services can be disconnected from their tiers, depending on the company, and regions they operate in. Examples of two global approaches are depicted below.

Figure 2. Global Transaction Center with Regional Customer Hubs

Figure 3. Regional Super Centers

Brad DeMent is a Partner at management consulting firm ScottMadden.

Develop a strong risk management process and you won’t have to worry much

By Jagdish Dalal

I am always amused when business development people or IT outsourcing providers ask their prospects, “What keeps you up at night?” Then, they take that input and promptly develop a “value proposition” that is supposed to make the client sleep soundly! Soon the conversation goes to what value proposition they can offer to the prospect – and every attempt is made to avoid any conversation about risks associated with the solution or about risk mitigation options.

A key success in managing risk is to view it as a “process” rather than a program. The word “program” implies a finite completion. Managing risk is like managing quality. There is no end. Process implies three things:

1. definition and development of the process

2. ongoing management and maintenance

3. constant vigilance and discipline in following the process

My experience and studies have shown that all buying decisions are based as much on managing risk as they are on getting value. We buy cars that offer greater safety. We contract services with companies that are well established, experienced, and stable so as to not be exposed to a future problem. Outsourcing service acquisition is not any different than any other buying decision.

A typical outsourcing decision is based on a continuum. Risk must be balanced against the perceived value of outsourcing and only when the risks have been clearly identified and weighed against the value, should outsourcing be considered. Companies are often reluctant to tackle risks head-on in any conversation, but inadequate identification and management of risks is one of the biggest reasons for the failure of outsourcing agreements.

Identifying Risks and Appetite

Before a strong risk management process can be developed and implemented, a comprehensive list of risks must be identified and their impact on business assessed. In a strong risk management process, there are two types of risks identified: corporate level risks that affect all transactions and a transaction based set of risks that vary depending on what is being outsourced and how it is to be managed. Identification of risks will help develop a management process framework around each of these risks.

It is also important to define risk management appetite. Not all businesses have the same appetite for risk. A risk appetite profile for the business depends on the type of business, the strength of management in managing risks and the potential negative exposure if risks are exposed. A financial services institution may have a different risk exposure appetite (generally lower due to laws and financial impact) than a retail business.

Generally, risks are categorized in one of the following broad categories (although all of them can be identified as “financial risks” since the impact will result in not achieving financial objectives – reduced profit, lower credit rating and loss of revenue).

1. Strategic risks – risks that may adversely impact business / product strategy such as late product introduction, adverse customer reaction

2. Operational risks – risks that may jeopardize operational aspects of business such as disruption of supply chain or product/service unavailability

3. Transactional risks – risks that make outsourcing transaction difficult to manage and end up impacting one of the other risks

When considering any offshoring (outsourced or captive), there are other risks that need to be identified and categorized under one or more of the above broad categories. For example, instability of the offshore country government may result in strategic as well as operational risks.

Risk Management Process

The risk management process is a “closed loop” process, just as any “learning” process has to be in order to improve the process results. The process begins with creation of risk management policy (often approved through senior management and even board of directors). Then, risks are identified and categorized. Various methods have been used successfully to identify the risks, including conducting a brainstorming session or engaging subject matter and/or risk management experts.

Once the risks are identified, the risk management plan is developed and included in the risk management plan would be risk avoidance and mitigation action desired. These risk avoidance and mitigation actions end up as outsourcing contract requirements. For example, all outsourcing contracts generally have “disaster recovery or business continuity” actions. These are both built on risk avoidance and mitigation once the risk becomes real.

The risk management plan also becomes a foundation for the ongoing governance of outsourcing. This is akin to the inspection in a quality process. It assures ongoing compliance with the identified risks and implementation of risk avoidance/mitigation plans. Based on the governance and audit, risk profiles are updated and the risk management plan revised; closing the loop. This is why I refer to risk management as a process rather than a program.

Risk Management Vigilance

Successful risk management requires a strong commitment and vigilance towards the process. I often refer to this as “relentless discipline,” and it is one of the cornerstones in my framework for governance. Managing risks cannot be an “after the fact” action but must be anticipated and mitigated. Not following it will be like closing the barn door after the horses have fled.

In my experience, I have come across many of these pitfalls in risk management and in almost all cases, they resulted in a negative experience for both the customer and the provider:

1. Not viewing risk management as a process but as a “one time” program

2. Not assigning importance to it even before engaging in an outsourcing transaction

3. Not enough senior management exposure to the risk management process (not just to get their support but to obtain their perspective on risks profiles)

4. Not having someone accountable and responsible for managing the process

5. Not providing enough time and budget for the risk management process

6. Not fully engaging customers and providers in developing, implementing and managing the process

I assure you that if there is a strong risk management process, as outlined here, there will be fewer sleepless nights.

Jagdish Dalal is Founder and President of JDalal Associates LLC (JDA) and Managing Director, Thought Leadership for IAOP and a world-renowned consultant in the field of outsourcing. He is also a Certified Outsourcing Professional.

By Dan Berthiaume

Everyone seems to have at least one story about a nightmare experience dealing with telephone customer service. The fact that many call center providers are located in countries where language and customs are significantly different from US norms only exacerbates the problem. Some experts recommend that companies outsourcing call center functions attack the problem of poor customer service by focusing more attention on serving the needs of customers. But is that always the best strategy?

Michael D. Brown, a corporate consultant and trainer who specializes in developing professional brands, has a slightly different recommendation. “Step back and take care of the employee first,” Brown says. “They will then take care of the customer. Make the employee number one and the customer number two.”

Brown realizes that his advice to place the frontline employee before the customer amounts to heresy in the eyes of many customer service gurus, but he hastens to explain that this is actually the best way to ensure a top-quality customer experience. “When you look at unfavorable dealings with the end user, there is a rush to judgment to put a band-aid on the situation,” says Brown.

Instead of approaching each individual customer complaint as a separate issue necessitating an on-the-spot fix, Brown says companies should make more effort to understand how the frontline call center employees actually spend their day. “Take a side-by-side walk with your frontline employees,” says Brown. “See what a typical day is like; see what types of calls they’re getting and where the roadblocks are. Then ask, ‘Do I have the right processes in place?’”

Brown says real-time communication technologies such as Skype and FaceTime allow US companies to virtually perform side-by-side walking with call center employees who may be working from distant offshore locations.

After performing side-by-side walking (either in-person or virtual), Brown says companies should then go about “smart tasking” outsourced call center employees. “What do the employees do besides just answering calls?” asks Brown. “To deliver a world-class call center customer experience, look at the sequence of tasks employees perform and see if you can make any changes to enable them to deliver a better customer experience.”

Let Frontline Employees Make it Right

Following smart tasking, Brown says companies should provide outsourced call center employees with what he calls “Make it Right” power, or the ability to solve certain problems on their own. “Often the person answering the call can do nothing other than pass on the call to someone else when there is a problem,” says Brown. The customer becomes even more infuriated when they are passed to person after person.”

Instead, Brown says the employee manual should provide frontline employees specific instructions on how to resolve common issues and that the second person they speak to should have the authority to handle all problems.

“Most customer problems are not rocket science,” comments Brown. “The frontline employees hear the same issues day in, day out. Ask them what they are doing day to day and look for organically developed solutions.” Brown says companies should then compile these solutions into a continually growing “What-If Arsenal” of resolutions to common problems that is built from the bottom-up, guaranteeing employee buy-in.

Brown says is it also important for companies engaged in call center BPO to encourage “bubble up innovation,” or innovative ideas that come from frontline employee brainstorming sessions. “Often we don’t have the answers, but need innovation bubbling up from the bottom,” Brown says. “It gives the frontline employees ownership in the workplace.”

Clued In

Brown says all the steps he recommends to achieve world-class customer service in an outsourced call center will not succeed if everyone involved is not relentlessly focused on the same goal. “Does everyone understand the vision, or are people in different silos?” he asks.

Of course, companies also need to simply follow through and make world-class customer service happen at their outsourced call centers. This includes remaining open to making changes in response to changing needs of customers. “Keep it fresh,” says Brown. “Things will change. Look at what happened to Borders. To take call center customer service to the next level, you need to say enough call centers are giving the industry a bad name, it’s time for us to rise to the top.”

An essential part of making it happen is ensuring frontline employees fully understand what customers expect from products and services. “Too often the call center employees haven’t a clue,” he states. “They must understand how things are made, not necessarily from a technical standpoint but in terms of the promised experience. Often the call center employees don’t know what has been promised to the customer.”

By Jerry Durant

Everybody wants ROI from their outsourcing projects. Many (on both the buy and the sell side) claim it. But relatively few have the knowledge or background to calculate it correctly. This not only makes it harder to make good decisions, but saps the credibility of whoever is doing the calculations.

Far too many operations and procurement professionals try to calculate ROI without a sufficient understanding of it.

They also try to convert subjective value measures to quantifiable numbers and fail to relate ROI to business objectives that might not relate to money, but to harder-to-measure benefits such as innovation or the delivery of new products and services to customers.

First, one must understand what ROI is not. Consider a typical outsourcing decision, such as whether to outsource your e-mail infrastructure. Just because Option A costs less than Option B, while delivering similar service levels, does not demonstrate ROI. It just means you have lowered the cost of doing business – the cost of operations. You cannot claim ROI because you have not done anything to generate more revenue.

ROI is the result of the Gain from Investment less the Cost of the Investment all divided by the Cost of Investment. You achieve ROI when, and only when, it supports the operation of a profit center, rather than a support center where any savings are likely to be consumed by other areas.

So where do we stand?

1. Distinguish between investment and operating costs. An investment will produce a yield, in the form of an improvement in a profit-making operation, while operating costs allow you to keep the lights on for less than you otherwise would.

2. Know your objective. If it’s labor arbitrage then a simple comparison will reveal the spread between domestic and foreign labor costs.

3. Ensure ‘like’ comparisons. Are the processes you are comparing both fully optimized? All too often, the function you’re considering for outsourcing is not in best operating form. If it’s a simple “lift-and-drop” situation then cost comparisons would be OK, but if the provider is making changes you need to factor that in. So facilitate process improvement/optimization at some point in the relationship, whether pre- or post-engagement, measure the results and take them into account

4. Take into account all costs. It’s not simply a matter of contract cost vs. prior in-house costs. Take into account other costs that must be amortized over the duration of the contract, such as to transition the function to the provider. Remember new, in-house costs such as for a project management office (PMO) that oversees the outsourced relationship, as well as the need to monitor the quality of the outsourced work.

5. Make sure that you have systems in place that can track operating costs against the estimates you used to make your decision. In some ways this is a bold step because you may wind up finding flaws in your decision making. Don’t use this as an opportunity to find fault, but to improve your estimation and sourcing management skills.

6. Factor in whether you’re getting everything from your service provider you were getting in-house, such as a commitment to environmental efforts or working conditions. This is another way of saying “compare apples to apples,” but in an area that can cause big public embarrassment if you ignore it.

Bottom line: When calculating ROI keep in mind the difference between reducing operating costs and actually improving in business. And, when you’re comparing costs and benefits, make sure you’re doing a fair comparison that takes into account both everything you’re spending and everything you’re getting (or not getting.) The health of your organization – and of your own credibility – depends on it.

Jerry Durant is founder and chairman emeritus of The International Institute for Outsource Management, a trade organization dedicated to the assessment, development, and guidance of outsource service providers in the ITO, BPO, call center, and KPO domain areas.

By Bill Huber, Partner, ISG, and Kristen Elvinger, Research Associate

Concerns exist over the capacity of Latin American service providers to absorb rapid growth. Several global providers currently have a presence in Latin America, and tax and other trade incentives will help attract more outsourcers to the region. And, many Latin American countries are positioned to further develop emerging areas of specialization. Indeed, lessons learned from India, China, and some Eastern European countries suggest that specialization and quality-focused differentiation will be the keys to success, especially for countries with small populations.

Following is a review of major outsourcing destinations in Latin America, including assessments of strengths and business environments.

Mexico’s Head Start

Mexico benefits from a ten-year or so head start in the outsourcing business (primarily in call centers), proximity to the United States, membership in NAFTA, and a large pool of English speakers. Additional pluses: high-quality telecom infrastructure, good quality road and railway networks, and many airports. Mexico’s growing IT and BPO offerings are expected to increase 10% year-on-year, according to a study by HfS. Several cities offer a variety of trade incentives, including cash grants of up to 50% of total investments, and tax credits up to 30% of R&D expenses. Indeed, competition between states and cities to attract clients is helping to drive Mexico’s outsourcing maturity. While some have expressed concern about Mexico’s ability to develop higher value offerings, a number of initiatives – such as the Programa para el Desarrollo de la Industria del Software (PROSOFT) – are in place to develop skills for the workplace. On the downside, myriad security risks, both real and perceived, have hurt Mexico’s reputation.

Brazil Is Bigger

With the largest IT market in Latin America and the world’s second largest pool of COBOL programmers, Brazil boasts formidable outsourcing resources, characterized by a the presence of several global providers, well-established call center business, many R&D development centers, and a strong global services industry. While English fluency rates are low at 5%, that figure still represents approximately 10 million people, meaning Brazil has the ability to scale. Brazil also has very good telecommunications infrastructure, wide use of broadband, and the second highest number of airports in the world.

With a history as a quick adopter of new technology and methods, Brazil anticipates significant growth in high-value BPO and ITO in the next two years. Labor and export regulations, however, are a negative. And while incentives such as reduction in social security contributions and tax deductions for technology transfers are attractive to IT companies, exports of services are taxed heavily. Moreover, unfavorable labor laws and associated employment costs can be a concern. This paired with their large potential talent base gives them the opportunity to become a large nearshore destination if the government can create better trade incentives and bureaucracy.

Argentina’s Infrastructure and Bilingualism

Argentina boasts the best telecommunications infrastructure, the second-largest IT market, and the largest pool of bilingual employees in Latin America. Following the devaluation of the peso in 2001, Argentina took an economic hit that drove down wages and office real estate, which in turn attracted outsourcers. Responding to the opportunity, the government implemented a plan to develop the IT industry, focusing on software development and technical call centers. The initiative was characterized by a range of incentives for IT companies, including a 60% income tax exemption for software companies, 70% reduction on social contributions, and no restrictions on wiring foreign currencies for imports.

Argentina’s more progressive standards and data protection laws, moreover, are attractive. While Argentina is well-positioned to attract further outsourcing activity, bureaucratic hurdles are an obstacle, as with many other Latin American countries. Also, Argentina is implementing new trade restrictions . To address the challenges, many foreign companies are initially partnering with local providers when entering Argentina’s market.

Chile Seeks Higher Value

Chile’s stable government and currency, well-developed telecommunications infrastructure, and easy immigration policies make for an attractive destination for outsourcers. Recognizing that its small size requires a quality-rather-than-quantity-focused approach, Chile has created longer, more extensive IT education programs geared to high-value KPO, ITO, and shared services. The Chilean Economic Development Agency (CORFO) created InvestChile to provide investment incentives in more high-tech fields. Free trade agreements with the US, Canada, Australia, and China, as well as agreements to avoid double taxation on exports, are also attractive. Although approximately a ten-hour flight from the US, Chile shares time zones with the US. ChileiT is also actively working to promote its members to the international market.

Other Nations on the Rise

Other Latin American countries growing their outsourcing offerings include Costa Rica, Panama, Uruguay, El Salvador, Colombia, and Nicaragua. Most offer a few tax incentives and relatively good language skills. Key requirements will be to improve telecommunications infrastructure, grow English speaking populations, and develop IT skills. At present, most activity is in call centers, with a focus on specialization as a differentiating factor. Costa Rica, for example, touts its expertise in financial services.

Latin American countries are working hard to gain market share and raise their profiles as outsourcing destinations. Years of developing workforces, improving trade incentives, and building political stability are paying off. Concerns over scale are being addressed through pooling across multiple locations. Providers who are pursuing this strategy include Accenture, Capgemini, IBM, TCS, HCL, Cognizant, and Wipro.

Specialization can help Latin countries gain further advantage aside from being a nearshore destination. Although this strategy includes some risk, as outsourcing trends can change, many large destinations got their start using this approach. So far, Latin America has taken great steps in developing better skilled workforces and better business environments to support their Nearshore advantages of shared time zones, cultural affinity with the US, and more accent-neutral English skills. With proper identification of processes to outsource and the appropriate matchup of location and company, US companies can benefit greatly from Nearshoring to Latin America.

Bill Huber is Partner with ISG, a leading technology insights, market intelligence, and advisory services company. Kristen Elvinger is a research associate.