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.

By Rosanne D’Ausilio PhD

There is what we call a moment of truth when a customer makes a decision about you, your company, maybe even all companies in your industry, based on their interaction with anyone from the front lines up to and including your CEO. In those first three sentences, a customer determines whether their interaction will be a good experience, a bad experience, or a waste of their time.

When talking about customer service, customer satisfaction, and customer retention, you often hear that the best way to determine how you’re doing is to ask your customer. And that’s absolutely true. However, if you really want to know how your company is doing, ask your internal customer.

Not many companies do this. Their focus seems to be on the external customer only. But knowing what’s going on with internal customers is key to improving the satisfaction of external ones.

Who is your internal customer? Your employees, your peers, your direct reports, any and every one who has an impact on the customer experience. And how do you assess them? What do we look for when we take the pulse of a company?

• What are the strengths of your people?

• What are their weaknesses?

• What are the commonalities among applications?

• What are the changes currently going on in your organization?

• Hardware
• Software
• Teams
• Rules/Regulations

• What is today’s stress level?

• What doesn’t get communicated powerfully?

• What feels like you’re working with one hand tied behind your back?

• What are the mixed messages that may be rampant at your company?

• Why are your customers calling – do they have a question, a request, a complaint or a problem?

• What is a Typical Call?

• What is a Call from Hell?

• What’s the biggest gripe on the side of the customer?

• What’s the biggest gripe on the side of the employee?

• What gets accelerated and why?

• What empowerment exists, if any?

• What works really well?

• In a perfect world what would you do differently?

When you can answer these questions, you’re really getting to know your company and its people.

How do you accomplish this? We do it by:

1) Interviewing people

2) Monitoring calls

3) Studying the flow

4) Navigation of screens

5) After-call process

However, we don’t want to talk only to the best people or the highest level, but to all of them, whenever possible, and at all productivity levels.

Armed with this information, you can then identify the gaps and with that knowledge in hand, you are best able to present options. These options can fall into one of three categories:

(1) People

(2) Process

(3) Technology

If it is determined that it’s a people issue (which often it is), design customized training sessions to address the gaps and kick it up a notch in the area of customer service. We suggest these classes be delivered over time so that retention is improved and delivery is in real time addressing whatever current challenges exist.

If it is a technology issue, usually it’s caused by silos, the left hand not knowing what the right hand is doing. Many companies because of heavy investment in technology keep trying to make it work. Reminds me of the definition of insanity: Doing the same thing over and over again expecting different results.

If the results show a process issue, ‘be a customer’ and go through the process to see where the gaps are. Stand at the end, what is the result you want and how did you get there? What got in the way? What would make it smoother? Again, what are the gaps and how do you either eliminate them, fill them, or replace what isn’t working?

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. She also writes the complimentary tips newsletter How To Kick Your Customer Service Up A Notch!

By William Gourg 

The Greeks, 2,500 years ago, were onto something. Creating a concept such as synergy might have been one of their greatest inventions. Although the word has sometimes been overused and abused, synergy surrounds us nowadays. Synergies underlie mergers and takeovers, coalition governments, and civil society movements. More and more often we are starting to see public-private partnerships that promise the benefits of mutual cooperation.

Which is why I was was not surprised but was encouraged when I read about the Global Public Policy Summit (GPPS) organized by the World Information Technology and Services Alliance (WITSA) that took place in Guadalajara, Mexico, late last year. The event was focused on the necessary actions that have to start taking place all over emerging economies in order to create an inclusive society. WITSA recognizes that competitive IT businesses cannot thrive in societies that are uneducated or uninterested in technology issues and trends. Therefore, the summit called for government officials and agencies, as well as IT businesses and civil organizations, to recognize the necessity for synergy.

Government Must Commit

Amongst the presentations of world-class speakers with ample experience in the IT field, Mexico’s Under Minister of Communications, Hector Olavarria, talked about the challenges the country has found in its way to reaping the benefits of ICT investment. Olavarria expanded on the ICT challenges the country constantly encounters and the policies it promotes to balance them out. Within the policy actions that must be highlighted are the continued government commitment to stimulate investment (in the form of tax incentives, industrial facilities, etc) in IT areas; improve and increase infrastructure; and endorse pro-competitive regulations.

The latter is particularly interesting as it reflects the efforts of much needed synergy. The past year, the CANIETI (National Chamber for Electronic and Technology Industries), Mexico’s largest IT cluster (that represents over 1,200 members including Acer, Canon Mexico, Nextel, and Panasonic), made huge progress in the public policy front as it presented the Digital National Agenda (ADN) before the legislative chambers and the executive power.

A country’s domestic agenda shows a lot more than a country’s priorities, it shows their willingness to work and promote certain areas over others. That is why it was such great news to see the government and private sector working this past year in promoting the newly adopted ADN.

Why did the cluster see the need for a digital agenda? ICT businesses were alarmed by the breach that Mexico showed in international competitive indexes when compared to other emerging economies. A correlation popped: the better competitiveness a country shows, the better ICT capacity, and vice versa.

It was clear that the members of the cluster had to work alongside the government to mediate policy in a way that businesses would be attracted to continue investment in the country. Negotiations started with the presentation of the ADN in April, and continued throughout the year. Political will is required to strengthen the ICT capacity of individuals, companies, and governments, including health, education, and security organizations.

Combined Factors

Between 2005 and 2010 the Mexican federal government has had several ICT initiatives. The Ministry of Economy has PROSOFT; e-Mexico is the Ministry of Communications and Transportation’s bet; clinical histories have been digitized and a new project of “digital government” has been launched – but these projects have never been integrated or shared results.

This past year, Mexico started working to reduce the IT breach and enhance its comparative advantages. Mexico recognizes that now more than ever, IT coverage, services, and investment come hand in hand.

The combination of two or more things that creates an effect that is greater than the sum of both separately, that is synergy. A country that acknowledges that a consensus must be reached to homogenize policies and objectives of all actors of society is a country that is working toward a better competitive position and sustainable growth.

William Gourg is the Business Development Manager at InfoTrade Mexico Services, a group of export and foreign investment specialists assisting companies, economic development organizations and universities to increase their global sales & expansions. 

By Reshaad Durgahee

Lima, Peru: Surprisingly emerging.

In the period 2003 through 2010, Europe and Asia were the largest recipient regions of foreign investment projects in shared services and BPO activities, accounting for 46% and 29% respectively. Meanwhile, interest in Latin America has clearly been growing. The number of shared services and BPO foreign investment projects in Latin America rose year on year until 2010, when the total number of projects entering the region decreased by 15%.

However, in terms of jobs created by these investment projects in shared services and BPO, 2010 saw the highest number in the Nearshore region since 2006, increasing by almost 10% over 2009.

After the Asia-Pacific region, Latin America is now seeing the largest-size centers being set up, and indeed, the region continues to be characterized by a number of labor-intensive shared-services projects, with on average 350 announced jobs per center in 2010.

General trends in announced shared services jobs by world region, 2003-2010

Typical destinations for shared-services establishments in Latin America, such as Colombia and Costa Rica, continued to lead the rankings in 2010, representing 22% and 14% of regional shared-services job announcements. Brazil and Argentina – as dominant markets in the region – also continue to attract their share of investments.

Top ranking SSC/BPO destinations in Latin America & the Caribbean by estimated jobs, 2003-2010

However, it is the emergence of newcomers in the rankings, such as Nicaragua and Peru, that piques the interest of the observer of the outsourcing industry. These two countries attracted large-scale investments in shared services, demonstrating the widening of investor confidence across the region. Companies are now seeing the potential of previously untapped labor markets. Countries such as Nicaragua and Peru offer companies that are willing to take risks a first-mover advantage in terms of potentially lower labor costs, lower levels of competition from similar operations, and the opportunity to become the major player in a new market.

This would be in contrast to already well established shared-services locations in the region, which offer a more experienced labor pool and potentially higher-quality level of infrastructure, but are also starting to experience side effects such as increased levels of competition and elevated attrition rates.

The Rise of the Second Tier

In 2010, leading agglomerations in Latin America in terms of job creation through foreign investment in shared services and BPO included Bogota, Lima, San José, Guadalajara, Managua, and Medellin, the first four of which make the Global Top 20 ranking. Examples of new investments include Sitel, which announced 450 jobs at its new contact center in Managua; National Instruments, which has announced the establishment of a shared service center in San José creating 200 jobs in CRM, finance, IT, and sales; and Convergys, which has established a bilingual contact center and back-office support site in Bogota, creating up to 1,000 jobs.

The appearance of Bogota and San José, as now-seasoned shared services destinations comes perhaps as no surprise. The Mexican city of Guadalajara and Colombia’s second city Medellin highlight the potential of such second-tier cities in the region to operate shared services at lower cost than their capital cities, whilst still maintaining suitable operating environments desired by investing companies. Recent investments include West Customer Management’s bilingual contact center in Guadalajara and HP in Medellin.

Function-wise, investment in this sector into Latin America has been focused on contact centers (primarily to serve the local market and Spain, but also increasingly bilingual centers to serve the United States). In addition, in recent years, more and more companies have seen the potential for more value-added shared services operations in the region’s more mature locations, where there are now multiple finance and IT shared services, for example.

Sources of Investment

By far and away the largest source country of foreign investment in shared services operations in Latin America is the United States, which between 2003 and 2010 accounted for more than half of the jobs created in the region in this activity, generating almost 70,000 positions. Although Europe and Asia remain the most popular regions for US companies setting up shared services and BPO operations, Latin America remains a key market, in particular for nearshoring activities due to factors including timezone advantages and natural availability of Spanish language skills.

Between 2003 and 2009 Spanish companies (such as Telefonica and Banco Santander) accounted for about 20% of jobs created in shared services and BPO in the region, solidifying Spain’s position as the second largest investing country in this sector in Latin America.

Top source countries for SSC/BPO foreign investment into Latin America & the Caribbean, 2003-2010

Much has been written on the rise and dominance of India as a destination for shared services and BPO, but it is also interesting to note the rise of India as a source of such activities. Globally, Indian companies created over 15,000 jobs in this sector in 2010, continuing the year-on-year growth witnessed since 2005, accounting for 12% of all jobs created worldwide by foreign investors in this sector. From a Latin American perspective, in 2010, Indian companies such as Wipro, Genpact, and 24/7 Customer created just over 10% of shared services and BPO-related jobs announced by foreign investors in the region – a 60% increase from the previous year. It all represents a move to get closer to customers in a new market, highlighting the rise of India as an outward investor in shared services and BPO activities.

Profusion of Possibilities

Latin America continues to succeed at offering attractive options for companies wishing to establish shared services and BPO activities, as demonstrated by the increasing number of jobs created in the sector from foreign companies in recent years. These options come not only in the form of mature, well-established destinations, but also up-and-coming locations that companies are now finding worth investigating for outsourcing activities.

That is not to say that the mature shared services locations of the region are in decline. On the contrary, mature locations such as Costa Rica, Colombia, Argentina, and Brazil continue to attract their fair share of investment. In today’s economic climate, many companies have become increasingly risk-averse, and are content with opting for tried-and-tested options in the region, where costs may be slightly higher but where there is an availability of highly experienced shared-services profiles to recruit from. On the other hand, emerging Nearshore destinations offer those companies willing to be pioneers the opportunity to tap into new sources of talent and at a lower cost base, resulting in these locations now appearing next to traditional shared services locations in our global rankings.

Latin America’s profusion of location possibilities – both mature and emerging – means that it continues to develop as a strategic region that companies are considering for their shared services and BPO operations. Be it North American firms using the region as a nearshoring solution, Spanish companies cementing their presence in countries with similar linguistic and cultural affinities, or companies from emerging countries such as India wishing to extend their global footprint and gain a foothold in a new market, Latin America is sure to remain “on radar” for companies for the foreseeable future.

Reshaad Durgahee is a Senior Consultant at IBM Global Business Services’ Plant Location International (PLI) division. More analysis of location trends is available by download here.

By Stephanie Moore

When Forrester published its first Indian vendor consulting Wave in 2005, Indian vendors were just starting their journey into management consulting. At the time, none of these vendors could compete with traditional management consultants – such as Accenture and Deloitte – from a scale, brand, or experience perspective. Given the rapid growth that these vendors achieved in the pure IT services space, however, it seemed only a matter of time before they would challenge vendors such as Accenture in the IT management consulting arena. Six years have gone by and these ambitious Indian IT service providers are still trailing the traditional management consultants.

Much like 2005, Indian vendors are still trying to move up the value chain into management or business process consulting in order to stave off commoditization, secure executive-level relationships and endorsements, and increase deal value and margin through preliminary strategy consulting.

Meteoric Rise

Is this lackluster growth fueled by a lack of desire? Although several of the vendors profiled in 2005 know where they’d like their consulting organizations to go, none has achieved its desired end state yet. The top-tier Indian vendors were relatively small and unknown at the beginning of the century, but today they are multibillion dollar IT and business process outsourcing (BPO) powerhouses that dictate the way in which all vendors — including the likes of Accenture, Computer Sciences Corporation (CSC), and IBM — deliver IT services.

Given their meteoric rise to power in the areas of IT and business process services, it seems strange — at least at first glance — that they have not been able to make similar inroads into management consulting. Certainly, Cognizant, Infosys, and Wipro have all grown their consulting groups; however, pure management-consulting-partner–caliber staff still number in the hundreds as opposed to the thousands. When you consider the fact that these vendors employ 118,000, 133,000 and 120,000 people respectively, it’s easy to see the disconnect between what a vendor says about its consulting capabilities and the actual commitment to the model.

True Value

Management consulting and technology service delivery require very different business models. The Indian offshore outsourcing model has been predicated on an extremely high margin available to the vendor through labor arbitrage and industrialized delivery. Although in the early days executives thought that the value of Indian vendors performing management consulting was in saving money, it quickly became clear that management consulting had to be done by local consultants, largely on-site.

For sure, tasks such as research and prep work can be performed in lower-cost locations, but that project team distribution looks quite different from an applications maintenance project team distribution. Factors that discourage vendors from investing in management consulting include high startup costs, low margins and volumes, and lack of urgency: Indian vendor growth rates continue to outpace the rest of the IT industry, even during recent economic recessions, so the idea that management consulting is required to feed the huge implementation engines back in India is not yet an immediate concern.

Ultimately, to compete with global multinational corporations (MNCs) such as Accenture, Deloitte, and IBM, the India-centric vendors must have full-fledged management consulting capability in all the verticals they serve. Absent that, they will end up playing the role of technology subcontractors to the management consultants or to internal vendor/demand management organizations — in an increasingly commoditized world. Some vendors, such as Cognizant, Infosys, and Wipro, are well on their way to achieving their vision. Still, given the investments and time required to build up the capability, there is the risk that these publicly traded companies will lose their conviction and go for the short-term gains as opposed to preparing for the future.

Build On What They Have

If the India-centric providers can build up their vertical business consulting capability, they will be very strong candidates for business transformation consulting work. Their deep technology roots, combined with savvy industry and business process expertise, will undoubtedly help companies through innovation, transformation, and optimization cycles as well or better than the traditional management consultants. Using one vendor to develop and implement a business transformation strategy could drastically reduce the value leakage that occurs when a pure technology vendor is engaged to implement a strategy or solution developed by a pure business consulting vendor.

For now, however, evaluate the management consulting capabilities of their providers on a case-by-case basis. Some of the management consulting capabilities we predicted in 2005 have not come to fruition, but the Indian players are making strong progress, enough to merit consideration by clients seeking to integrate IT strategy with IT implementation.

For compliance and regulatory and tax-related activities, which may be only peripherally connected to technology solutions or only technology-enabled, companies are likely still better off working with their traditional business-focused management consultants and then perhaps implementing solutions recommended using the more technology-focused India-centric providers where required. Vendors such as Wipro are aware of the opportunities in this area and are also building up the capability to qualify for this type of work. In the short term, however — and especially in heavily regulated industries — it may be less risky to use a vendor with a history of performance here.

Stephanie Moore is a vice president and principal analyst at Forrester Research, where she serves Sourcing & Vendor Management Professionals.

By Peter Ryan

The US Congressional initiative House Resolution 3596 (HR 3596) is the most recent effort on the part of certain US legislators to inhibit the offshore outsourcing of contact center services. However, no matter how sincere the spirit of this and other previously proposed and similarly worded resolutions, Ovum believes such a law would badly hurt outsourcers and ultimately impact the US consumer negatively. Therefore, vendors need to come out swinging against such initiatives.

If enacted, HR 3596 would stop CRM outsourcers from delivering services offshore into the US. Among the more draconian provisions is the cataloging of all firms that are moving agent positions overseas in order to disqualify them from federal loans and loan guarantees for five years. This is in addition to requiring any firm that plans to move contact center operations overseas to give 120 days’ notice to the US Labor Secretary (with failure to do so meaning a penalty of $10,000 per day for late notification). In addition, agents overseas would be forced to inform callers of their location and offer the option of a US-based agent.

Although bill sponsor Tim Bishop states that he sees these moves as common sense to secure jobs in the US, Ovum believes that if this bill were to become law, the political motivations of wishing to appear patriotic in an election year would have negative impact on CRM outsourcers. With US unemployment rates moving south (albeit slowly, falling from 10% in October 2009 to 8.5% in December 2011), outsourcers are already beginning to consider the possibility of attrition rates increasing in domestic facilities as competition for talented labor within the contact center space (and from other verticals) ratchets up through the recovery.

In addition, the cost factor of this bill would be compounded when servicing the burgeoning US Hispanic market, considering the labor cost of domestic Spanish/English bilingual agents (which is known to be higher than US-based, English-only talent) relative to the more affordable nearshore. Outsourcers’ only alternative to taking on more domestic agents would be to leave callers on hold for excessive amounts of time – which would undermine service-level agreements with clients.

Consumers Ultimately Affected

In addition to the negative effect that HR 3596 would have on the CRM outsourcing community, Ovum believes it is important to recognize the extent to which it would also hurt consumers and clients of third-party services. From the perspective of the latter, there is no question that the price per hour that enterprises would pay their outsourcing partners would increase with the growth of agents based in the US; this would invariably be passed on to the end user, negatively affecting inflation, quality of service, and overall cost. In addition, should clients decide not to increase the size of their domestic capacity, US consumers would feel the pinch from the standpoint of considerable wait times for overloaded US agents should they choose not to be served by an overseas contact center.

Outsourcers Need to Aggressively Counter

Ovum does not believe that HR 3596 will pass a vote in the House of Representatives or the US Senate, which is good news for the outsourcing community. Far too often, such pieces of legislation are presented in election years in order to endear politicians to specific segments of the electorate or politically influential pressure groups (in this case, a number of US unions that have endorsed HR 3596). However, Ovum believes that no matter how unrealistic such pieces of legislation may be, the outsourcing community needs to be vigilant in their response to the growth of protectionism. Despite the drop in US unemployment levels, confidence in the economy remains fragile and the growth of protectionism in the 2012 election cycle is worrying. CRM outsourcers must forcefully counter these types of initiatives by outlining the potential impact they would have if they were to become law. Failure to do so would cede years of offshore market development and badly impact the bottom lines of outsourcers that have adopted this business model.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.

"Insourcing is a smart strategy right now..."

By Clayton Browne

President Obama hosted a White House forum today entitled “Insourcing American Jobs.” Executives from several companies spoke at the event, all representatives of businesses that have recently made major investments in the U.S. resulting in thousands of new jobs – many of them IT jobs.

Several business and academic experts at today’s conference emphasized that productivity gains in many industries are improving America’s competitiveness at a time when companies are looking at where to build manufacturing facilities to produce more skill‐ and capital‐intensive products.

President Obama mentioned that he is crafting tax incentives for businesses that bring jobs home and removing current tax breaks for companies that outsource. “Insourcing jobs is a smart strategy now…because the economic case for bringing jobs back home is strong and getting stronger,” he said.

The term insourcing has come into vogue the last few years, and is generally defined as the practice of both foreign and domestic companies opening up development/delivery centers or manufacturing plants and other businesses in the U.S. The jobs for American workers created by these businesses are “insourcing jobs” and represent the other side of globalization and the decades-long and well-publicized outsourcing of U.S. jobs trend.

Obama and his team have chosen to adopt the term insourcing for its antonymic relationship with outsourcing and give it a domestic spin to convey their populist message of bringing jobs home to America. And given how well this theme resonates with working-class values and concerns right now, it is likely to be a highly effective political strategy for the Democrats.

Unfortunately, the question of whether insourcing American jobs can really work on a large scale in today’s global world was not really addressed during this White House forum. While the CEOs who told their insourcing America success stories were sincere and the jobs they created real, the special circumstances that surround most of these companies and insulate them from the realities of global competition were not mentioned, which made the event more about political theater than economic substance.

Globalization and Outsourcing vs. Insourcing

Globalization is a cultural, political, and economic process. It happens as groups of nations sign trade agreements and as one country at a time transitions towards free trade or opens up its economic policy. Globalization also happens every day as companies decide to undertake business in another country. In every case, the process involves offering something of value to trading partners in return for needed materials or goods. And in many cases, this something of value is an inexpensive place to do business.

Globalization and the attendant decades-long trend toward outsourcing has affected almost every U.S. industry, but the manufacturing industry has been especially hard hit. It is difficult to provide accurate statistics on outsourcing, as companies are not required to report most information, but some statistics can offer a sense of scale.

Consulting firm High Road Strategies used Bureau of Labor Statistics data to determine that at least eight million manufacturing jobs were lost in the U.S. from 1979 to 2009. To be fair, it should be noted that many of these manufacturing jobs were lost due to technological innovations and automation during these three decades, not outsourcing.

Beginning in the 1990s businesses began to also outsource service and information technology jobs to places like India and Mexico, and this trend continues to grow in the 21st century. According to 2011 U.S. Commerce Department data, U.S. multinationals (which represent one-fifth of the U.S. workforce) cut their total number of U.S. employees by 2.9 million in the 2000s, while adding 2.4 million jobs overseas. Other researchers also argue that U.S. Commerce Department and Labor Department statistics significantly underestimate the number of outsourced jobs (and overestimate the related productivity improvements), and point out that outsourcing continues to expand rapidly in fields such as IT and HR.

The other side of the globalization coin is insourcing. According to “Insourcing Jobs: Making the Global Economy Work for America,” a report authored by Matthew Slaughter of the Tuck School of Business at Dartmouth, insourcing has led to 2.7 million jobs for American workers since 1987, with the total number of American workers hired by foreign companies standing at 5.4 million as of the end of 2002. However, a 2004 WSJ article reviewing Slaughter’s report pointed out that the trend toward foreign investment in the U.S. has been decreasing since 2000, and that this was not likely to change given the attractiveness of investment opportunities in other countries.

U.S. workers have become more productive in the last few years, and as today’s forum emphasized, America remains an attractive place to invest in for a number of industries in the 21st century. However, the roster of industries where this makes economic sense is shrinking, not growing, and even significant productivity gains will only slow the trend.

It would be great if businesses would build their new factories and design centers in the U.S. simply because Americans need jobs, but it’s not that easy. Businesses will invest and create jobs where it makes the most economic sense for them, and despite the productivity improvements in many industries discussed at today’s White House forum, it is unlikely to be the U.S. unless we start to produce more of the kind of workers that 21st century businesses need.

Outsourcing Is Often Win-Win

For the country hosting the outsourcing there are the obvious benefits of gainful employment, and in most cases there are also infrastructural improvements in the area of the facility. In many cases, as with Intel’s design center in Guadalajara, the companies doing the outsourcing also make significant contributions to improving the educational systems and often partner with local governments or businesses in other social projects. And, of course, the business doing the outsourcing is producing a product or service at a lower cost, enabling them to make more profits (and therefore have more money to spend/do good with back home).

Many economists such as Jadish N. Bhagwati argue that the medium- and long-term benefits to the U.S. economy from globalization more than make up for the loss of jobs that were doomed to disappear anyway. That is, of course, little comfort to the tens of thousands of individuals and families affected by unemployment, but the economic reality is that companies in many industries must outsource to stay competitive or go bankrupt. One other incidental benefit of outsourcing is that it encourages improvements in technology and in infrastructure as companies search for ways to increase efficiency without having to outsource.

 Considering the Regulatory Burden

Developed countries are always going to have a higher regulatory burden for businesses than less developed countries. And that is the way things should be, as more developed nations have the resources (and responsibility) to insist that businesses protect their workers, the environment, and the general public in the course of doing business.

That said, governments do tend to over-regulate some industries over time as laws are often passed in knee-jerk reaction to specific events, rather than as considered policy. One answer to this problem would be planned review of regulatory policy on an industry-by-industry basis every five or ten years, giving industry leaders input into the process.

Almost everyone agrees the U.S. tax system is overly complex and that compliance can be a real problem for both individuals and businesses. A reform and simplification of the tax code would be a significant first step in lowering the regulatory burden and making the U.S. a more attractive place to do business.

Creating a Competitive U.S. Educational System

The U.S. educational system must be reformed to reflect the realities of a global economy. This will require both institutional and curriculum-based reform of education. Our current private-public hybrid education system is a many-headed hydra that is inherently inefficient, and worse is becoming more and more “commodified” and its agenda driven by market (rather than political) forces.

The longstanding social model of a working class that just needs a secondary education to get a decent job working in a factory or as a mechanic or plumber, and an educated class that is virtually guaranteed a good job if they just “get a college education” is being gutted by economic realities of globalization. We as a nation must respond to structural changes in the demands of the labor market.

We can no longer afford to let a significant percentage of our children not get the education they need to find a good job, and by the same token we need rapid career retraining programs for the millions of workers unemployed by outsourcing. A 1999 Bureau of Labor Statistics study determined that only 36% of workers displaced by outsourcing found jobs at the same or a higher pay rate.

In order to create an educational system that will allow American workers to compete in the 21st century, we must not let our priorities be driven by short-term profit motivations. We need to accept that globalization has completely changed the playing field and thoughtfully consider what it will take to produce the software engineers, civil engineers, graphic designers, network admins, and so forth required to meet future skill-intensive demands of global businesses.

We need both public and private efforts – like those of New Jersey-based GalaxE Solutions in partnering with Detroit universities and community colleges, mentioned at today’s White House forum – to emphasize technical education at the primary and secondary level. We need to make kids who don’t realize it understand that software is just as glamorous as marketing or finance or fashion design, and that is where the jobs of the future will be.

Clayton Browne has a BA and an MS in Anthropology and has worked in both the educational publishing and the translation industry. He writes about Latin America, languages and linguistics, politics, business, technology, travel, and sports.

By Juan Carlos Rodriguez

After being out of Mexico for almost eight years, I returned to my native Guadalajara in November 2010, driven by the desire for closer ties between my daughter and her cousins, grandparents, uncles, and aunts.

My friends in San Diego asked over and over why I was leaving San Diego for Mexico. “It is dangerous,” they said.

Such questions resonated in my head, particularly during my drive throughout the more than 1,000 miles that separate San Diego from Los Cabos at the tip of the Baja Peninsula. But calmness came to my family after we took a ferry across the Sea of Cortes to Mazatlan, and drove on to Guadalajara.

Upon my return, my partner and I established the headquarters of GTC Consulting in Guadalajara to serve our management consulting clients in Mexico and Latin America. Since the first day I have met people capable of competing with the best of the world whether in the technology or in the business arenas.

These “Model Mexicans” are typically young entrepreneurs, engineers, scientists and business men and women who are taking a step forward by driving a social change that I am sure will make Mexico a more organized, competitive and richer country. They are planting the seeds of a culture of high-performance and social and environmental responsibility in areas such as IT outsourcing, BPO  and software development that is beginning to take root and, from my perspective, become permanent.

I have to be honest. We have also met the “old school” Mexicans, who I like to call “self-restricted Mexicans” whose mindset remains from the day when Mexico was a Spanish colony. The definition that Fernando Benitez gave in his book The First Mexicans: The Creole Life in the 16th Century still applies, I believe, to these “self-restricted Mexicans.” It includes, he said, “…an evident lack of ability to any kind of transcendental action. Thus, resulting in constant failure whether they started a poem, a novel, or organizing a rebellion to defend their wealth from the Spanish.”

Colonial Mexico did not belong to the Creoles, even if they were descendents of the Conquistadores who conquered the land for the Spanish crown. Nor did it belong to the Indians or the Mestizos. The Mexican of the Spanish colony was a Mexican without Mexico, whose lives were dependent on of the Spanish born in Spain. No Mexican was allowed any political, clerical, commercial, or business power.

That attitude is still alive in many Mexicans today, in the way they see and understand life, their lack of empowerment and their feeling of being worth less than others (especially foreigners). The day Mexico becomes a real mother to the Mexicans instead of a stepmother is when we will see real progress in creating more satisfied lives for our countrymen. That is the day I am beginning to see dawn in the young Mexican entrepreneurial class I work with ever day.

Mexico needs more of its people to leave the ancient attitudes of slavery to become owners of their life, their goods, and their destiny. Mexico is desperately asking for average Mexicans to be owners of the flower, the land, the liberty, the knowledge, the government, the joy of life.

There is one more step my fellow citizens need to take, and that is to set common goals for their society and work towards them through civic organizations. Consider management guru Peter Drucker, who according to one scholar “championed a robust civil society of voluntary nonprofit organizations as an essential foundation on which business could thrive and people could prosper, because this sector plays a vital role in promoting health, education, and well-being.”

Drucker mistrusted central power and felt bureaucracies imposed rigidity and stifled innovation. He placed more faith in voluntary action by employees and concerned citizens working together in non-profit organizations to achieve social good.

Yes, there still work ahead, but there is no doubt in my mind that “Model Mexicans” are leading Guadalajara, and Mexico on the right direction, creating a force that will drive permanent and positive change. A good example of these changes is SUMA.te, a civic organization that works to make the Guadalajara region more attractive to investors and to encourage the development of breakthrough software. Mexico is transforming itself, primarily through globalization and its young people. These “Model Mexicans” aim high, they know they are capable, and more importantly they know that by working for a common good, they will find a sustainable way for their good and wealth.

The recent civil movements in Middle East and North Africa have brought down dictators and their regimes; Mexico through an active participation of key civilians can definitely increase security, develop new technology, and bring prosperity. Ultimately, we are Mexicans.

Juan Carlos Rodriguez is co-founder of GT Consulting, a management consulting firm specializing in process and project management, strategic planning, continuous operations improvement and organizational and financial development.

 This commentary appeared originally at Global Delivery Report.