Technology

Outsourcing: the blended approach

March 2007

[PHOTO AUTHOR LAURENCE JONES]

[MAIN PHOTO - PEOPLE WORKING IN AN INDIAN CALL CENTRE/SAT IN FRONT OF COMPUTERS]

[BOX]

Executive summary

o People don't want to talk to offshore call centres so organisations are increasingly bringing their offshore operations back to the UK.

o The blended approach is where specialisation is based or developed in the UK, with the manual processing taking place offshore.

o Staff training of overseas employees should take place in the UK so they can absorb the organisation's culture and way of doing things.

o Outsourcing in the UK is easier for customer contact as well as business processes.

o The rightshoring feature on page oo looks at a blended BPO model that 'cuts across geographies' to access the right service, in the right place, at the right price. Some firms 'follow the sun' and have round-the-clock customer service operations. Indian companies have a 46 per cent share of the global BPO industry and are setting up new delivery operations around the world.

Overseas outsourcing, once seen as financial services' best route to cost saving and increasing efficiency, is fast losing favour and has been pilloried all round. Unhappy customers, poor service levels and overuse of integrated voice response (IVR) all add up to a model which is forcing operations to move back to the UK.

Increasingly financial service organisations are repatriating their offshored centres to the UK, normally due to poor customer perception and consequent attrition: some of the latest are Norwich Union, which announced the return to the UK of some overseas-based operations in late January, and Newcastle Building Society, which announced its decision in February after it found its Mumbai-based operation was less efficient and accurate than staff in Tyneside. People simply don't want to talk to offshore call centres.

However, it needn't be as cut and dried as UK v offshore: some of the best models for outsourced operations are taking advantage of the best that offshore centres can offer while maintaining UK-based specialist operations. Could this be the best-practice model for outsourcing?

It's all too easy when faced with higher targets and smaller budgets to look for the most cost-effective option for business processing and call handling. This operational view needs to be balanced with the levels of expertise and customer service required, which may need a higher spend.

While there are a number of obvious advantages to offshoring, most of which have been hammered home during the growth of overseas call centres in the late 1990s and early 2000s, the significant cost saving is the main pull, with wages averaging 80 per cent less than in the UK. Add to this the longer hours of the overseas work ethic and the eagerness of highly educated individuals to work for outsourcing arms of big corporations, and the concept almost seems like a no-brainer.

[SUBHEAD]

Service levels

However, a major flaw in the offshore model, and the main reason why so many operation centres have failed, is that service levels are suffering as a result. The universally acknowledged fact that an unhappy customer tells 10 people of their experience, while a happy customer tells just two, underlines how poor service can have a tangible effect. Valuable brand equity, built through years of careful marketing and detailed mission statements, can be destroyed by bad customer experience. In the competitive world of financial services, swapping an account, mortgage or loan is easier than ever and customers are no longer afraid to show their frustration with their feet.

It's not just the customer who can experience a negative effect from an offshore operation: UK-based management also has challenges to face. One is managing quality control: there are serious practical issues to face by being remote from head office, and the further offshore you go, the more the loss of control and the more the increase of risk. Add to this the pressures imposed by Sarbanes Oxley and Basel II risk assessments, and the challenges become even greater.

With all these questions hanging over the role of offshore outsourcing, there may still be ways in which you can benefit from the advantages of operational efficiencies and not damage the brand and service levels. One of these is to take the blended approach. Many successful offshore operations have a common thread of ensuring specialisation is based or developed in the UK, with the manual processing taking place offshore.

[SUBHEAD]

Kent Reliance

This is indeed the case with Kent Reliance Building Society (KRBS). Mike Lazenby, chief executive, has established subsidiary company Easiprocess, based in India, as an offshore operations centre which performs most of the back-office functions to support the building society's front-line UK-based activities.

One of the key reasons Lazenby feels the operations centre has been successful is that specialist personnel were trained in the UK, on UK systems, and made to feel very much part of the KRBS family. Lazenby comments: “After a couple of months of work experience and training in the UK, the new entrants have a clear understanding of what is required of them and have a good knowledge of how we do business here in the UK.”

However, KRBS has never offshored operations to support any customer-facing activity. Mike feels that these should remain at home, underpinned by the appropriate UK-developed technology: this is the only way to build relationships and provide the very best customer service.

[SUBHEAD]

Blended model

Therefore the KRBS model combines the processing efficiencies and back-office capabilities of offshoring with a UK-based customer-facing operation. This ensures that the real benefits of offshoring are exploited without risking any reduction in brand value and falling foul of the overseas call centre 'tag'. The building society has seen growth of 300 per cent in the last five years, with last year seeing an additional 25 per cent growth in business with no increase in associated costs.

The KRBS example can be seen as a framework for a best-practice outsourcing model. Firstly, it recognises that UK system providers are best placed to offer specialised and fully compliant software to facilitate applications, validation, packaging and processing. By supporting the processes with a proven and robust software system developed specifically for the purpose, there is no compromise on effectiveness and compliance if the back-office operations are then taken offshore.

Secondly, consultancy should take place in the UK. This allows, for example, all areas of compliance and processing to be covered by experts before handing over to any offshore management team.

Thirdly, staff training should take place in the UK: by immersing overseas employees in the home-based operation, they can absorb the organisation's culture and way of doing things. In short, they should become a true overseas extension of your brand.

The next step is to take advantage of offshoring's greatest advantage. Back-office manual work can be carried out quickly and effectively by trained workers anywhere in the world. Customers are not aware of who processes an application or validates their address details, so it does not compromise the brand equity, yet still provides significant cost reductions.

The final step is to retain customer-facing operations in the UK. This is the area where there has been most adverse customer reaction and loss of brand equity.

[SUBHEAD]

UK-based outsourcing

In the UK, outsourcing of either customer contact or business processes supporting all interface with customers offers advantages through a mix of skills, knowledge and experience which cannot be matched by an offshore operator - and this can be exploited much earlier than the go-live date. It offers opportunities right from the initial concept stage, including helping entry into new markets and accelerating speed to market. This can be achieved by capitalising on the provider's previous experience in the domestic market, its knowledge of the competitors within it, and its understanding of the complexities of the processes needed to underpin a market-leading operation.

An example of how this has worked well is Picture Financial, which entered the secured loan market in 2004. The outsourcing of some of its processes and IT systems allowed it to develop a different way of working, with fantastic customer service its key differentiator. By following the UK outsourcing route, it stole a march on other players through its speed to market, and gained considerable competitive edge through its use of the very latest automation, such as automated valuations, quick applications and electronic document management.

As a result of this partnership approach, Picture has established itself as a major second-charge player. Jeremy Potter, IT director of Picture Financial Group, comments: “We were looking for a third-party provider with niche expertise in this sector - not just a one-size-fits-all approach. We had a major advantage by not having to amend our business processes to match the capabilities of a legacy system, but this made it even more important that we got the infrastructure right from the beginning, and that it would be future-proof.” Because the processes were painstakingly built with relevant financial experience and high levels of compliance, Picture's service levels from an outsourced UK operational centre became some of the best in the sector.

There will always be an argument for setting up operations offshore, and these will continue while emerging economies offer cheaper options. But at the core of any financial service operation is recognising the value of customers, and this can be addressed more effectively and with lower risk by using UK expertise and keeping customer-facing operations in the UK. Making use of overseas skills and economic advantages must be balanced with a realistic view of what can be achieved.

The blended approach, exploiting the benefits that offshoring can undoubtedly offer in some areas but still retaining the specialist knowledge of UK-built platforms and UK outsourcing operations, offers a prosperous

future for all parties involved.

MFG

Laurence Jones is senior business consultant at Target Group www.targetgroup.net