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Making it work: how to avoid some common offshoring blunders—and what to do when you can't

CFO: Magazine for Senior Financial Executives, June, 2004 by Roy Harris

Shortly after they get the keys to their new home, customers of IndyMac Bancorp also get a "welcome call." The friendly telephone reminder lets them know when their first mortgage payment is due and where to send it. Those details help harried homeowners avoid sending their first payment late--a common industry problem. But when the welcome calls started two years ago, they didn't come from the home lender's Pasadena, California, headquarters. Instead, they came from an outsourced call center near New Delhi, India.

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However welcome customers found the calls, IndyMac's 4,000 U.S. employees could be excused for having doubts. They knew, after all, that the bank's offshoring relationship could mean job cutbacks. So IndyMac launched "a very active communications strategy," says Ashwin Adarkar, executive vice president for corporate strategy and marketing. As it expanded its outsourcing, the 10-year-old home lender said it planned no domestic layoffs, and set a goal of adding 4,000 jobs by 2008, both off'- and onshore. "Frankly, we've won great support from employees" since then, says Adarkar, despite some early concerned feedback.

Few companies, of course, share IndyMac's ability to defuse opposition to an offshoring initiative by promising job growth at home. But then, winning over worried workers is only one problem facing corporations that move work offshore.

IndyMac is not alone in learning that turning over control to a distant third-party vendor means coping with uncertainties about security and intellectual property, not to mention quality control. San Francisco-based Business Engine Inc. also found that ensuring project quality takes careful supervision. And sometimes, as Fremont, California-based Everdream Corp. discovered, it means moving the operation back home.

WHAT TO OUTSOURCE?

The first questions facing companies, of course, are whether, and what, to outsource. IndyMac's success with its welcome calls, Adarkar says, represented the first step in a long-term strategy of gradual offshoring. A former McKinsey & Co. partner and leader of its business-process outsourcing (BPO) practice, Adarkar has direct experience with what works in India. Not surprisingly, he lists data entry, transaction processing, and simple reconciliations as wide open for relocation. He thinks the prospects for call centers and other voice processes are more mixed. "Calls from customers are the hardest, because you don't know where they are going to head," he says, while "outbound calls to noncustomers are the least delicate and least complex," and thus easiest to move offshore.

Even the simplest processes may have underlying complexity, though. Take reverification calls, which confirm that the information on a potential borrower's loan application is correct. Since the calls don't go to customers, "at first blush you'd say yes, let's definitely do that overseas," says Adarkar. But how would IndyMac know that all the calls had actually been made? Because it would be difficult to detect an operator simply skipping some of the calls, and because the penalty for bad loans is so expensive, reverification turns out to be one of the riskier offshore call-center tasks. "This is like a hot-stove test," says Adarkar. Flunk it, and you're badly burned.

IndyMac managed to ensure the quality of reverification work in India by requiring progress reports and listening in on some calls. Finally, the bank placed a senior vice president on permanent assignment in India to work with its outsourcing vendor, New York-based ExlService Holdings Inc.

"Loss of control is the foremost concern" in most engagements, says offshoring specialist John K. Halvey, an attorney with Milbank, Tweed, Hadley & McCloy in New York. And control issues are growing more acute, says Halvey, "as the functions being outsourced become more sensitive." Indeed, IndyMac is now considering offshoring administrative jobs in human resources, finance, and accounts payable.

THE START-UP CURVE

For anyone contemplating outsourcing work to a location thousands of miles away, the start-up is easily the most frightening step. Like IndyMac, Business Engine found that putting a manager on permanent assignment in the offshore location allowed the company to work through many of the problems that can plague an effort during that phase, and prevent them from recurring.

In early 2000, the business-software firm freed a severe shortage of Web-literate developers near its large facility in the blue-collar Ontario area of Southern California, and turned to Mumbai, India-based vendor Blue Star Infotech Ltd. to help with basic software test and code work.

Soon after, Business Engine got a scare when it detected Indian employees sharing access codes on its virtual private network. In one case, the company found a single access code in use for 18 hours a day, suggesting that two workers were using the same code. Such lax security immediately gave rise to greater fears. "The next step was to make sure they weren't exporting information," says CEO, president, and CFO Doug Dickey. Indeed, loss of intellectual property was a top concern among executives surveyed by CFO, and the number-one worry of those who are currently outsourcing offshore.

Business Services Industry

Making it work: how to avoid some common offshoring blunders—and what to do when you can't

CFO: Magazine for Senior Financial Executives, June, 2004 by Roy Harris

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