John Linton
Exetel has spent the past 12 months building up a 'back office' processing operation in Sri Lanka having started that process some 18 months before that in February/March 2006. We currently have some 25 employees in our Colombo office who handle all residential provisioning, sales and support and some programming. All going to plan we will transfer all residential accounts query handling and resolution and some network monitoring and we will continue to add programming personnel. We are very happy with what has been achieved to date and while we understand it is 'very early days' and that there is a very long way to go we see no problems with the plans we put in place some three years ago working out pretty much the way we had hoped in the immediate future just as they have done to date.
I was therefore interested to read this article from the WSJ:
http://online.wsj.com/article/SB124441864336692573.html
and particularly these three statements:
"In October, Citigroup sold its Indian information-technology operations to outsourcing firm Tata Consultancy Services Ltd. for $505 million, and awarded TCS a nine-year, $2.5 billion deal to provide the services back to it."
An interesting reversal of position but maybe it makes sense financially to get an up front payment against an increased future cost.
"Two months later, Citigroup also sold its business-process outsourcing operations to outsourcer Wipro Ltd. for $127 million, giving Wipro a six-year deal worth at least $500 million in exchange."
Same scenario and presumably the same logic; but the following rationale seems a bit odd:
"A Citigroup spokesman says the deals cut costs and allowed it to focus on its core business."
It seems difficult to understand how the costs are cut unless Citigroup is saying they had to use so many of its US personnel on their US salaries that removing them and replacing their costs with a 15/20% 'mark up' for local management to run the operation was a net gain. But I found the second part of the comment even stranger in that I don't understand how "back office operations" can ever not be "core business" nor how they go from non-core to core and then back to non-core again over a short space of time? Perhaps the article has been too severely edited for it to make sense to my tired brain - or maybe I'm not clever enough to understand what is being said.
When Exetel looked at "out sourcing" it didn't take very long to reach Citigroup's first conclusion that the costs of having another company run your back office processes was barely less than the costs you could do that for yourself. On top of that you had lost all control of what would actually happen in the future in terms of operative training and supervision and, just as importantly, cost control. We received three indicative quotes from Indian call centres and each one of them was line ball with our then costs in Australia per person when the management and training fees were included and before the 'other costs' which were never made clear in terms of how they would be calculated or applied. We found the same problem with two Philippine call centre quotes and the quote from a Malaysian call centre turned out to be almost 25% more than we were then paying.
When we decided that 'out sourcing' was a non-starter we looked at starting up our own operation in the Philippines, Singapore, Malaysia, India, Bulgaria and Sri Lanka and, for reasons previously given in an earlier musing quickly decided on Sri Lanka (despite the warnings of our own Trade Commission and other well meaning people about "the civil war", personnel safety and other negative issues). Like Citigroup and those other US companies in the article, we quickly determined that running your own 'back office' was considerably lower cost than buying an 'out sourced' service - not the 15/20% cited in the article but more like 40/50% if our then arithmetic was correct. So we went ahead and while it took longer than we first thought we have transferred several of our operations very successfully and we have certainly saved money and been able to deliver a much better service (in terms of hours and days available) than we could possibly have done in Australia.
So, the article jolted me a little as I can't see what would change in the medium term future that would transform some indelibly obvious financial benefits into a negative (I certainly can't see how back office functions could ever become "non-core activities"). I have seen, and can see in the future, that transferring knowledge and then keeping it up to date with the many changes that occur in our businesses is a major problem that will never cease to be an issue. However that would be the case irrespective where the personnel were located. I can see that having personnel under the control of and therefore accommodating the ethos of, another company would be a major problem (ignoring the greater cost factors) and that makes me wonder what happened to make those US companies change their minds on the benefit of employing their own back office personnel.
Maybe I'm just too inexperienced and too naive and I'm still in the "oohing and the ahhing" phase and still am unaware of the "running and screaming" phase that quickly follows let alone the "bleeding and the dying" finale (apologies to Michael Crichton). I am fully aware that 'managing' an operation in another country has many difficulties and many 'hidden' costs but the financial benefits are, as far as I have seen so far and can see over the coming twelve months, are so overwhelming that it isn't possible for me to see a putative "running and the screaming" scenario - and I genuinely don't believe
that's because I am using rose coloured glasses. I think, just as with the Australian company, we have already had our share of shocks and set backs and enough 'cultural' and other issues so far for us to believe
everything will run without problems.....but that's the given with starting up small businesses.....and now we have two to deal with!
Though, perhaps having passed the '5 year mark' the Australian company is no longer a start up?