The Death of Outsourcing, The Rising Rupee and Michael Porter

In an online debate featured in Business Week, Sabrina Siddiqui argues that Indian outsourcing has peaked (article brought to my attention via The Outsourcing Blog). Her three main arguments are:

• The rising value of the Rupee, up some 8.4% at one point this year
• Indian wage inflation running as much as 15%-25%
• Poor infrastructure unable to sustain growth

Well, there is no arguing the facts here, the first two are well known and I can attest that here in Gurgaon we are often running on back-up generators for nearly half the day while the power grid sparks and flames-out somewhere, often spectacularly (I once watched a street-side transformer burst into flames and sparks like a roman candle around the corner from my office while 6 locals worked to change the tire on my car and 20 others stood nearly underneath the thing obliviously).

Now if you are in the Indian Ministry of Finance then you should probably be worried about these things but if you are running an Indian outsourcing company and you’ve been paying any attention to business thought over the last 30 years, you’re not too bothered. Why? Because if you have, you would have known long ago that the game of wage-arbitrage was risky and unsustainable and you would have established a position for your organsation that was insulated from currency fluctuations.

Enter Michael Porter
Michael Porter is one of the preeminent business thinkers and strategy gurus of the late 20th and now early 21st centuries. He has written a number of business books that are at the core of competitive thought for the last 30 years. He would, and I’m sure has, had a lot to say about the competitiveness of Indian business. I will wildly summarise what I think is applicable to Indian outsourcing.

Porter says that there are but 3 strategies to being competitive in your industry, they are:

1. Be the lowest cost producer in your market (cost, not price – there’s a difference)
2. Develop a special capability or unique Intellectual Property that allows you to command premium prices and is difficult for others to copy
3. Find a niche market and dominate it creating a barrier to entry for competition

Product Differentiation Reprise
For a long time in this blog I have argued that we must focus on quality, quality people, quality training, quality methods and quality delivery and that price doesn’t matter. The reasons and rewards for doing this are manifold and I have and will cover them elsewhere, but following the quality trail would firmly place a company in competitive Strategy 2 – as opposed to where many of us are, trying to be in Strategy 1. But Strategy 1 is futile. Why? Because international currency fluctuations are utterly outside your control and by betting on Strategy 1 you are placing the success of your business on luck and on the Central Banks of India and the United States, it’s a sucker’s bet. Moreover, to succeed at Strategy 1 in outsourcing would require a company to have the lowest labour cost, in other words, to pay the lowest wages in the industry. I think the best phrase to describe that tactic is an old one I learned while growing up in Kentucky, that dog don’t hunt.

So, Indian Outsourcing Company, if you have invested in IP, been creative in the development of your products, been innovative in introducing quality and delivery schemes and generally developed your reputation for delivering outstanding products and services, you’re not too worried about all this currency and wage turmoil. OK, your diesel fuel bills are ridiculously high, but your customers will accept some additional costs because they are addicted to your product.

Call Centre Hell

You know I would really prefer to talk about great moments in customer service here rather than dwell on the negatives. But this blog entry from Rajan Sodhi in the BIG Marketing for Small Business blog is eye popping. In it, he describes how he had to wait in a call queue for well over an hour on three successive occasions to change a ticket on Expedia Canada. Is this the level to which customer service has sunk in North America? I remember many years ago when I moved to Sweden how we used to talk about the amazing level of customer service that we got in America and compare it to the relatively poor levels around Europe. But you know, even my bank back in the UK answers my call within a few rings.

I also note, as if to add insult to injury, Expedia blame the delay on “high security standards”. Huh? What are they talking about? Hang on, let me get my Erlang tables out of the drawer here and see where to account for “high security”. This seems like the double-whammy to me, treat your customer poorly then lie to him about the reasons. Shame.

Is Outsourcing Ethical?

As I’ve stated previously, I get quite a few visitors who are searching for information on call centre and outsourcing ethics. I normally interpret this to mean that they want to run an ethical call centre but clearly many (if not most) really are thinking about whether it is ethical to outsource at all. You really can’t know about who is visiting or why, unless someone leaves a comment, but I imagine the people looking at this issue may be managers who are thinking of outsourcing and wondering if it is the “right thing to do” or maybe students assigned to write a term paper or participate in a debate. Who knows. But as a Westerner sitting in India and working at an outsourcing firm, well, I should probably say a thing or two about this, and I’ll try to keep it as personal as possible.

Free Markets & Competition
I haven’t always been a marketer, at university I studied economics and got my undergraduate and graduate degrees in that discipline. When I was studying economics, Milton Friedman had just won the Nobel Prize and was emerging as a force on the national stage, most of my professors venerated him as did I. This made me a bit of a free-market guy then. Now in my later years I have certain reservations about free-markets as well as capitalism in general but I do accept that we live in a society that generally favours both. I submit this as background for my belief that outsourcing really isn’t anything special, it is the free market at work.

For pretty much my whole career I have been in Sales or Marketing. In each of my positions my job has been to increase the revenues of the company that I worked for and I can’t think of a single time, even with Illinois Bell and with AT&T, where I didn’t have competition. The nature of competition is to beat the other guys. Say what you will about a pie that’s big enough for everybody, but that’s not what’s happening on the ground. Out in the trenches we are fighting for each project, to win each RFP and to succeed while others fail. When the other guys failed, I assume people lost their jobs. I know that’s what happened in my company in Sweden. Our sales guys failed to get new work because some other companies were offering to do the jobs better, faster and/or cheaper and a few hundred people who used to be working on billing projects were gone.

Winners & Losers
Now I’m with a company whose business is outsourcing. My main goal is to take all of Wipro and Convergys and Genpact’s business. If I am successful it means I will hire lots of new staff and they won’t. The losers in that game though really are the insourced staff who will lose their jobs because my company can do the work better, faster and/or cheaper. That sucks, it really does, I’ve been laid off before and it’s not nice. But it’s not a matter of ethics, it has to do with this system that we are part of called capitalism and the reasons aren’t personal they are economic. One of the sharpest people I’ve ever worked for or known is a guy named Mike Durance who is the CEO of a Canadian new media company. One time when I was working for him, I was probably complaining about having to fly coach class on an international flight at the time, he said, “the nature of business is to continually cut back and reduce costs”. Some people call this a race to the bottom, I don’t know.

Of course there are winners in all this. CEOs (like Mike) will increase their bonuses for reducing costs and that should benefit shareholders as well. As I understand the politics of America for the last 6 years or so the prevailing belief is that if wealthy people are made even wealthier, that’s good for everyone (reminding me that David Stockman who introduced us to this “trickle down” theory during the Regan administration is now under indictment and facing 30 years in prison. I wonder if that’s enough).

For the people who lose their jobs to outsourcing, it doesn’t matter whether their jobs went to India or Indiana, the impact is exactly the same. The remedy is exactly the same too. Americans are lucky enough to have this incredible economy and incredible creativity and amazing flexibility that, on aggregate, keeps creating new jobs in new industries for new people to flow into. You could try to block this whole cycle with some kind of legislation, but then you would get France and god forbid, no one wants that.

Ethics and Outsourcing
For me personally, I have to face the fact that I am a part of a capitalist economic system. This is not altogether bad, it’s the only system I’ve ever known and it seems to have generally been quite successful. Capitalism has done some wonderful things for a lot of people, just ask Bill Gates or Richard Branson or Roman Abramovich or my dad. My father’s father scratched and clawed his way through a tough life but his eldest son became a respected and successful professor of Chemical Engineering in large part because of a system that rewards hard work, ambition, creativity and flexibility and is relatively blind to social class. As part of that capitalist system my job is to make more money and jobs for the team that I’m on at the time. Right now that team is in India and if anyone thinks it is unethical bringing greater wealth to this country that by some accounts has 836 million people living on less that 50 cents a day then I’ll plead guilty to that.

To me, of greater ethical importance is how my company treats its employees and how the country I am in deals out social justice. Frankly, I am less comfortable on these issues than I would like to be. I came here to learn and one thing I have learned is that we in the West have a respect for the intrinsic value of human beings that is not universally shared. I have seen this on the streets of Delhi and in the news and I’ve also seen how it permeates the workplace I am in as well. I am left with the feeling that if we in the West export some of our values about respect for the individual along with a few jobs we will have made the world a better and more ethical place.

Short-Timer’s Syndrome

Well, If you’ve been following along here you know we signed up for a year’s stint here in Incredible India and the end of that time is approaching fast. When I was at AT&T many years ago we had a name for that thing that happens when a person has taken another job and is in the final days or weeks of the old one – “Short-timers Syndrome”. Anyone who has ever changed jobs knows what I’m talking about. The symptoms are a desire to take long lunches, have casual friendly conversations with your colleagues, call friends on the phone and generally go about your workday in a relaxed sort of way. It’s like a big long exhale. Alas, like a drunk on a runaway roller-coaster I am not destined to cruise gently into this goodnight.

The Website
For one thing, the website I’ve been working on, which is officially about a week behind schedule, is probably more like 3-4 weeks late (please don’t mention this to by boss). Since my project manager for it has vanished I’ll need to really bear down on this task if it’s going to get finished, and I haven’t even had a single comment from my management on the content so getting approvals on my radically new marketing approach should be an absolute joy (not).

Cold-Calling
I’m not sure if I’ve mentioned it here but I’ve been managing an expansion of our call centre’s footprint into the UK market. Suddenly last week that turned from a management and oversight task to a hands-on do-it-yourself cold-calling task (for reasons hinted at in my last entry). Now, the last time I did cold-calling was during the Carter administration, an era during which dinosaurs roamed the earth and we carried something called a “Bell Boy” pager because mobile phones had not been invented. Fortunately I’ve got a smart, energetic young protégé working for me to whom I am laying-off most of the heavy-lifting on this task. But still, between the 3 of us in Marketing (now Marketing & Sales) we’re committed to come up with a slew of qualified leads and conversions in the next eight weeks. If you smell something burning it’s probably the phone lines between India and London.

OK, well I don’t usually write about such personal things here in my business blog but I realised this morning that there were no real rules here so I could do as I wished. If you are a regular reader here, please stay tuned. I’ll continue to write about BPO and Call Centre issues for at least the rest of the year or so and it could actually get pretty exciting around here.

The Truth Shall Set You Free

There were a couple of things going on here in the last week that led me to an entry about telling the truth. The first event is that we spent the weekend in Dharamsala, the home-in-exile of the Dalai Lama, political and spiritual leader of Tibet. The second event is that some people on my staff broke my trust and that of my organisation in such a brazen and bold way, that I’m still trying to come to grips with it. Now, it’s hard to explain how these two things came together, so hard in fact that I’ve had to scrap two attempts to do it. Yet I still am compelled to record something on this topic.

I have mentioned here before the reverence I have for the late M. Scott Peck and his series of books that starts with The Road Less Travelled. Peck has insights into how we really are that consistently leave me amazed and that never fail to instruct. In a section of The Road Less Travelled called “Withholding the Truth” he has some insights into truth-telling that I will quote here as they say more than I can on this topic.

Yet the rewards of the difficult life of honesty and dedication to the truth are more than commensurate with the demands. By virtue of the fact that their maps are continually being challenged, open people are continually growing people. Through their openness they can establish and maintain intimate relationships far more effectively than more closed people. Because they never speak falsely thay can be secure and proud in the knowledge that they have done nothing to contribute to the confusion of the world, but have served as sources of illumination and clarification. Finally, they are totally free to be. They are not burdened by any need to hide. they do not have to slink around in the shadows. They do not have to construct new lies to hide old ones. they need waste no effort covering tracks or maintaining disguises. And ultimately they find that the energy required for the self-discipline of honesty is far less than the energy required for secretiveness. The more honest one is, the easier it is to continue being honest, just as the more lies one has told, the more necessary it is to lie again. By their openness, people dedicated to the truth live in the open and through the exercise of their courage to live in the open, they become free from fear.

- M. Scott Peck

It’s funny how often I see in the statistics on this blog that people have searched for something like “call center ethics” or “ethics of running a BPO”. It’s encouraging to me that people are concerned about such topics and I hope that this blog in some way contributes positively in this area. So, if you’ve found this entry with that particular search, here is your pay-off; Tell the truth, it makes life better.