Outsourcing and Call Center Blog

21 October, 2007

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.

20 July, 2007

Yikes! Customers don’t care about price or features

I ran across a couple of notes today on how people make purchasing decisions, both suggesting that we are pretty irrational – which could be a blessing or a curse for us marketers depending on how you look at it. Joe Cooper writes about how people decide on emotion and justify with logic in their buying process. In other words, the quantifiable features of a product or service don’t count as much as the feeling we have about purchase we are making (you didn’t really think that Nike shoes were somehow better than the store-brands did you?). The implications of this are pretty profound, for example it means the features and benefits statements that fill our endless supply of incredibly boring PowerPoint presentations contribute only in a backhanded way to selling our product (Hooray, can we outlaw PowerPoint now?).

The second item was in Seth Godin’s blog and quoted this amazing fact from an article on eBay buying patterns:

In some categories, more than 40% of the auctions went for more than the Buy it Now price.

This says a lot about the psychology of auctions I suppose (Mark Tillison writes a succinct analysis of this phenomenon in his blog).

If I put these two items together, is says that buyers don’t tend to care (at least as much as we think) about either price or features. Wow.

This opens one to a fascinating area of thought regarding what purchasers do care about. I won’t fully explore here other than to posit what this means to outsourced call centres. What I see in our industry is a lot of us trying to sell our product based on one thing, price. This I contend is a dead end street for any call centre business that has genuine aspirations to become the next Wipro or Infosys. Why? First, because I think the era of cost arbitrage is ending, the world is just as flat for us here in India as it is in the West. And second, because a price-dominated strategy will consistently attract customers who focus solely on price to the exclusion of customer experience and business process. You can afford to have some customers who don’t care about their customers and who are loyal to you only as long as you are the cheapest provider they can find, but if that is your niche, you’re going to have a hell of a time maintaining your base.

So if we don’t sell on price and features, what do we sell on? I think to find the answer to this, one must put himself in the shoes of his customers. If you were going to trust your sales, your customer service, your future revenue stream and/or your current revenue stream to an outside organisation, what would you be looking for? What springs to my mind are things like trust, confidence, consistency, fit, culture, synergy, harmony, all very squishy, intangible right-brained criteria. I believe that if both we and our customers are looking for these things in our business relationships, we’ll have many more successful, more profitable programs.

24 June, 2007

You can’t save your way to success

Filed under: BPO,Call Center,Marketing,Outsourcing,Revenue,Value — shamrin @ 13:37

There is sure nothing wrong with being frugal or economic. One has to draw the line somewhere though and I’ve had many a discussion with my wife about the difference between frugal and cheap, for example she thinks reusing paper napkins or glueing the heels back onto an old pair of shoes is frugal – I don’t complain. Even being cheap is no sin in business, the problem is you can’t build a company on it. No matter how much waste or leakage you cut out, no matter whether you ration printer paper or pencils or long-distance phone calls, your business only grows if you increase your revenues. And importantly, growth is how our customers (and their shareholders) measure the success of their businesses.

So what does this mean for how we should go about delighting our customers, how can we help them attain their heart’s desire?

If we assume that our customers are rational or even close to it, then they probably want to increase revenues and profits – let’s help them. It doesn’t sound like that radical an approach really but you would think it was by the way some Call Centres and BPOs sell and market their services. The message seems to be, “buy our service because it’s cheaper than X” (where X is the internal way of working or perhaps their prospect’s current outsourced arrangement). Is saving a few dollars in his call centre what gets the CEO of your biggest customer or prospect out of bed in the morning? I doubt it.

An article on the Pragmatic Marketing website has a reference to a very good, probably apocryphal, quote attributed to someone from the US tool manufacturer Black & Decker,

“Remember no one wants a drill bit; they want a hole in the wall.”

CEOs, and business managers don’t want cheap call centres, they don’t even necessarily want call centres, what they want is to increase shareholder value. Now if the only thing we have to offer them is to shave a bit off the expense line of their income statement, fair enough let’s knock ourselves out trying. But if we really want to grab their attention, to make them an offer they can’t refuse, then we need to be offering them more creative ways to build their bottom line by improving the way they do business, by helping them get new business and by facilitating new capabilities that they can’t get any other way.

Does this mean we have to change the way we think? Yes, probably. Will this challenge our creativity? You bet. Will this make more money for us and our customers? I think so. Will it be a lot more fun. Absolutely. Then I can’t think of any reason not to do it.

13 June, 2007

What if your product sucks?

Filed under: BPO,Call Center,Marketing,Outsourcing,Value — shamrin @ 17:05

A colleague of mine and I met for “high tea” at The Imperial hotel here in New Delhi last weekend. The Imperial is way too rich for my blood (I bought some logo-engraved golf balls in the gift shop as a Christmas present for $20) but the tea was very enjoyable and the scones, clotted cream and jam were worth the price of the event – recommended if you come to Delhi. My colleague also works in marketing for  a  large call centre that is based here in northern India, and during our conversation she  complained about the state of the “products” her company offers. She was concerned about commitment to quality and detail and about whether her organisation fully understood and was dedicated to providing value to their customers. (more…)

31 May, 2007

Price doesn’t matter

Filed under: BPO,Call Center,Marketing,Outsourcing,Value — shamrin @ 12:11

OK, I’m getting more radical about this by the day I know, perhaps I’ll calm down about it soon. Until then, I think I’ll blame it on the heat. It’s been 40 degrees Celsius here pretty much round-the-clock for as long as I can remember now. Last night my wife woke me up because of the burning electrical smell filling the bedroom which I eventually traced to a failing plug on the air conditioner. In any event, we had to go the night without the A/C here and this morning I am 5 kilos lighter and loaded for bear.

Li Iwan’s entry called Give This Away where he quotes from Seth Godin’s blog caught my eye this morning. The original quote from Seth is:

“Maybe the reason it seems that price is all your customers care about is…… that you haven’t given them anything else to care about.” Seth Godin

Li adds that this quote should be sent to everyone in the company, and pinned-up in every break room.

This takes me back to my sales training when I first started as an Account Executive at Illinois Bell (ca. 1979). We were a virtual monopoly selling phone service, what could be less interesting. But the thrust of all our sales effort was on developing proposals that spoke to business benefit. Study the customer’s business, discover his business problems, his pain-points and find ways to solve them (through communications of course). OK, there was also the “Sell the Chump the Lump” approach but hey, we were on commission and you’ve got to feed the family. The point to me, of the above is simply if you go in talking price, you’re going to miss a lot of opportunities and, you’re going to end up just talking price.

30 May, 2007

Price vs. Value

Filed under: BPO,Call Center,Outsourcing,Value — shamrin @ 15:36

We’re having an ongoing discussion here in the office that I would characterise as a Price versus Value argument. The question comes down to, in the real world when customers pick an outsourcing partner, what is more important Price or Value? The price camp guys, who have a lot of experience in this business, argue that through hundreds of RFPs and thousands of discussions with prospects and customers, this business all boils down to price. Businesses want to save money, so they outsource and there isn’t significant functional differentiation between outsourcing partners to provide for some other deciding criteria.  On the other side is the value camp. We argue that customers are putting their business and careers in our hands; we are, in many cases, the only representatives that their customers will ever talk to. If this is true, making a decision based only or mainly on price is like trying to find a cheap brain surgeon, surely prospects want as good or better service than they can provide themselves at a reasonable price, not a cheap one.

I don’t know who’ll win the day on this discussion. Perhaps we’ll just have to let the market decide.

28 May, 2007

Value Creation

Filed under: BPO,Call Center,Marketing,Revenue,Strategy,Value — shamrin @ 16:12

Raimo van der Klein founder of Marikaya, a marketing and idea factory (my words) has some thoughts on value creation that really resonate with me. There were a couple of things in this entry in his blog that I thought were particularly apropos for Indian BPOs and coincide with a number of the things I’ve been talking about here.

If you look at the slideshow that goes with his blog entry, there is a slide titled “Adding Value Creates Margin“. This idea should be sloganised and put above every door in your building, pinned to every cubicle wall, emblazoned on every piece of stationary and perhaps tattooed on the back of the hand of every executive (and staff) in your organisation. We should, no we must be in a continuous struggle to find, create and invent value for our customers. I find that I can’t emphasise this enough because we, here in India, concentrate way too much on price which is merely the denominator in the value equation and is a very poor vehicle with which to manipulate value.

I want to keep this a short entry so let me just make a few unsupported bulletted claims:

  • Customers buy from you and stay with you based on (perceived) value
  • Value = Benefit / Price
  • There is some lower limit on Price, i.e., pricing below cost is an unsustainable business model for most of us
  • There is no such limit on the upside of Benefit
  • Increasing Value by increasing Benefit is a lot easier and more profitable that doing so by lowering price

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