The worst idea in the history of business
So I’m off to Joel Spolsky’s Business Of Software conference in Boston the first week of September, and I’m attending a table session on “Should you outsource customer care?”
What sort of person is going to say “Yes,” to that question?
The very idea that getting other people to look after your customer is so alien to me I just hardly know what to think of it. Your relationship with your customers is just so fundamental to your business that getting someone else to handle is like crazy to me. As if you could possibly pay someone enough to care more about your customers than you do.
But when times get tough, Support’s an easy target. It’s so tempting to look over at those Support team salaries, and pretend they don’t relate to revenue.
Ignoring higher-order relationships is disastrous though. How many environmental catastrophes were caused because people couldn’t see past first-order implications? Likewise, the inability to see the second- and third-order implications of cutting down on personalized care leads to the idea of outsourcing your customer care.
This is why I nominate outsourcing customer care as the worst idea in the history of business. It represents the whole idea that you can treat your customers as components, rather than as individuals. It’s seductive, because that many individuals can be scary to deal with. But maybe a little courage isn’t such a bad thing.
I have a feeling I won’t be alone in this opinion at the conference, but I think it’ll be an interesting discussion nonetheless.
Copyright © 2000-2009
12:00 pm
I would like to reply, but I have hired an Indian service to maintain all my blog responses.
Expect something soon! I hope!
12:51 pm
Outsourcing is bad for Canada (or any other country). it increases unemployment and we all know that unemployment creates a plethora of problems. However, since when do corporations care about anything but their profits?
Outsourcing is primarily done by large corporations and it makes dollars and sense to pay someone in India $3-$5/hour rather than pay someone in Canada $15-$25/hour to do the same job. This is especially true when you have thousands of customer support/service employees.
Think about it; what kind of support do you get when you call Rogers, Bell, Royal Bank or any other large corporation? Is it really quality service? The answer is no.
What you get is scripted, insincere responses. Once in a while you will get the support you need, but more often than not, you will get the runaround. So why not outsource and provide the same level of support at a much lower cost?
Your problem is that you’re looking at this from a small business perspective. If small businesses do not provide good support, they will probably not be in business for very long. Large corporations rely on marketing and brand recognition, not support and quite frankly, not research and development.
If you were to share your ideas in a corporate environment you would be laughed at. I’m not necessarily disagreeing with you, I’m against outsourcing as well but you need to understand the way of the world.
2:17 pm
Since I am *in* a small business, and serving small businesses, it doesn’t actually strike me as a problem that I am looking at this from a small business perspective. I do in fact understand the way of world, and the way of the world is that small companies are more fun.
And I will challenge the idea that big companies are actually doing themselves long-term favours by slashing their support budgets. The airline industry offers an instructive example in this regard.
4:07 pm
You should have specified the parameters of your argument. When you write something such as, “Your relationship with your customers is just so fundamental to your business that getting someone else to handle is like crazy to me.” it’s not clear that you’re specifically referring to small businesses.
It’s hard to argue that large companies will benefit from outsourcing in the long-run ONLY if the quality of their support decreases.
Here’s an example of money saved due to outsourcing:
Company ABC (Canadian Company) employs 1000 customer service/support representatives
On average, these employees are paid $18/hr and work 37.5 hrs/week (1950 hrs/year)
Average yearly salary for 1 Canadian employee is $35,100.
1000 employees X $35,100 = $35,100,000
This does not include benefits or possible bonuses.
——————————————————-
Company ABC decides to outsource all 1000 positions to India.
On average, outsourced employees are paid $5/hr and work 37.5 hrs/week (1950 hrs/year)
Average yearly salary for 1 outsourced employee is $9,750.
1000 employees X 9,750 = $9,750,000
Outsourced employees are usually not entitled to benefits or bonuses and if they are, they are not nearly as good as the ones Canadian employees get.
Yearly savings to Company ABC
$35,100,000 – $9,750,000 = $23,350,000
Obviously, these are not accurate figures but they’re not far off. Company ABC will need to spend a few million setting up call centers and links to their primary locations. However, these costs are not significant.
Factor in the amount of money Company ABC will save on benefits such as short and long term disability and the savings add up.
“I do in fact understand the way of world, and the way of the world is that small companies are more fun.”
I agree. But this has very little to do with your original argument. In my view, the mentality of large corporations is extremely flawed. I agree with your position much more than theirs, but very few large corporations take your approach seriously.
4:35 pm
Oh, I agree that if you assess the first-order implications (the short-term costs and benefits), and ignore the higher-order ones, the decision is understandable.
What baffles me is that people ignore the higher-order implications. I mean, seriously, “The Fifth Discipline” was published nearly twenty years ago! And it was a big best-seller-type of book! These aren’t obscure ideas.
And just to be clear, I’m not talking about offshoring. If I’m a ginormous multi-national corporation (which, just to be clear, I am not), I’m going to build my offices and situate my functions wherever I get the best value. It’s OUTSOURCING I’m baffled by, not offshoring. I can understand looking for ways to cut costs. But to hand over what to me is clearly the foundation of any business to total strangers seems like the crazy to me.
10:11 pm
You folks are overlooking the ultimate result: outsourced customer just gets fed up and upset and says, “I’m fed up and taking my business elsewhere.” One way tp avoid bad customer support is to ensure a customer survey after CSR, and incentivize your staff so that they will actually be rewarded based on customer ratings. Another: Eliminate arbitrary, time-based parameters for support…as rushed support is almost always bad support. Lastly, get rid of those awful VOIP telephone connections.
2:39 am
You certainly won’t be alone Corey. I’m also heading to Joe’s conference and 100% agree with your position, especially in relation to a software company (of any size).
Looking forward to catching up over there.
8:29 am
@Mary: Exactly! Those are the sorts of “higher-order” implications I’m talking about. If you only look at the first-order stuff (salaries paid vs revenues generated), outsourcing customer care looks like an easy win.
But when you include those other elements, that aren’t as obvious (or as easy to measure), it becomes a much more difficult argument to make.
1:47 pm
Corey,
I agree with you in principle, but you might help your case by presenting an analogous plan for big business. How can they improve their customer service in a way that is financially viable? Rather than downplay the significance of their budget by calling it “short-order,” how about a creative alternative that respects real world financial constraints? Then you will REALLY have their attention.
2:25 pm
Hey Chris
I strongly recommend “Profit For Life” by Joseph Bragdon. Mr. Bragdon is much better-equipped than I to provide big companies with plans.
I don’t actually WANT their attention, so I’m not very motivated to do it anyway. But plenty of large companies have maintained high levels of customer care and been very successful thereby.
I’m not arguing that big businesses don’t know what to do. There’s plenty of smart people all over the place, doing smart things, and they don’t need me telling them what to do.
7:01 am
We had a HP PC, which quit working while still brand new. We called their support but found they could not understand English and were just able to respond with certain canned responses. This was not a good experience for us.
11:37 am
@david and you’re talking about it
Which is think is the point Corey is trying make…good luck showing that on a balance sheet.
4:06 am
I think that it depends on what you are outsourcing, for instants maybe doing outbound sales, inbound sales over the phone some where like the Philippines or India there might be a little bit of an accent but nothing that is not acceptable.
On the other hand I had a client that was looking for chat support but not to take total control of it, he just wanted to offer after hour support for there website builder, so what we did is hire about 5 agents to cover a 24/7 days a year. It worked great, the people that they where chatting with had no idea that they where talking to some one in another country and by hiring these people they where able to support there customers around the clock. Pretty much the price that we offered was 800 dollars an agent a month.
Now I think its another story if you are looking to outsource something like 50 to 100 employees to an offshore company, I it might be better that you come to a place like the Philippines and look at opening your own operation. If you’re the smaller business I think that outsourcing is a great way to save some money.
fresh books, I really love the software its going to help allot.
3:35 pm
Having worked for a company that did outsourced customer care, I can say that I agree with you 100%. Offshoring isn’t the issue here. The issue is that the company taking the outsourced work is always going to have a contractual relationship with the original company that uses metrics that are at odds with the provision of good customer service. It is just necessarily the case. When it comes down to it, a company doing such outsourced work is never going to want to get seriously effective, because they’d be cutting themselves out of a lot of work! And sooooo much useful information about the way the customers think about and interact with the company is just lost forever – worse, the original company will often pay way over the odds for the conduct of statistically insignificant surveys from some marketing company they’ve hired.
If large companies actually cared about customer service, they would do everything in-house (*even* if that meant offshoring), they would only want to use well-designed user-centred automated telephone systems (which are still amazingly rare), they would collect information back all the time from the people who speak to their customers all day every day. Most large companies actually act like their customers are an inconvenience.
3:43 pm
And I’d also counter Mary’s point by saying that individual people who work in these companies are often trying really hard but are only given poor, often out-of-date information to work with. Large companies with outsourced customer services: you know that big launch you’ve been talking about internally for months? Your customer services are probably only going to know about it when your customers start phoning in to complain when things aren’t working right.
3:46 pm
Ladies and gentlemen, we have a winner. Thank you, Douglas, for so aptly summing up my point. Exactly.
4:34 pm
people who speak to their customers all day every day. Most large companies actually act like their customers are an inconvenience diffrent