American firms are starting to bring call centers back to the U.S. – NPR August 25, 2010

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Part of what makes business so interesting and humbling is how often yesterday’s breakthrough is today’s breakdown. The story of success always has a next chapter where the players, the strategy and the execution have to address changing markets, competitors, technology and the like to compete and succeed. One of the driving forces for business over the past decade was cost reduction and efficiency. Businesses across the spectrum re-engineered, reduced staff, outsourced work, merged and acquired and consolidated operations to wring out every penny of cost possible. Sure enough costs went down, efficiency ratios improved and in the war to lower costs there were a number of winners.

That was then and this is now. We now see evidence of a new game. Cost still matters greatly as it always does but it seems the new game is not “reduce costs in every way possible” but rather “rebuild relationships and revenue as efficiently as possible.” Recent changes in call center strategies signal the larger trend. A number of companies who found great cost-saving promise in moving customer service functions offshore are now migrating them back to the U.S. The math of lower labor costs was easy to calculate – work cost less over there. However, efficiency is the cost relative to the revenue and ultimately revenue comes from customers and that is where the plot thickened.

Over time three challenges surfaced.

First, it turns out that some of the lower costs intended from outsourcing customer service functions offshore had the practical effect of outsourcing those costs and efforts to customers. According to CFI’s Customer Satisfaction Index, customer calls perceived handled outside the U.S. had an 11 percent higher incidence of requiring multiple representatives. In other words, the number of times a customer called in and had to engage a second representative in order to successfully move forward increased significantly. Obviously starting over with a second representative meant having to go through the process of waiting to get connected to the second representative and then repeat it a second time.

Likewise for calls handled outside the U.S. there was a 17 percent higher incidence of multiple calls which means the customer had to call back because the problem was not resolved. The overall inquiry-resolution success rate dropped 9 percent. Customers complained about struggling to understand accents and to be understood by agents when they used colloquialisms. Multiple representatives, multiple calls and unresolved inquiries added to the customer time and effort of transacting.

Second, lower hourly labor cost was offset by additional hours to resolve customer issues. Not only did the customer invest more effort than they bargained for but so did the company. It is almost always the case that customer problems translate into higher costs for the companies that serve them. Labor costs went down initially but the amount of labor required went up.

In addition, as labor demand grew in countries like India the labor rates rose. India’s annual wage increases have hit double digits in some sectors thus pushing their costs up at a time U.S. wages are flat or even declining. As the gap closes some companies now report that fully loaded foreign costs are comparable to U.S. sources.

Third, not surprisingly, customer satisfaction for calls perceived handled outside the U.S. was 20 percent lower than those inside the U.S. according to CFI. In fact, there is a growing segment of customers who refuse to be served by foreign agents for reason of language, domestic job loss, and issues of security. All of these concerns impair customer relationships, repel customers and undermine the brand. In other words, these customers necessitate more company efforts and cost while becoming less satisfied, loyal and less viable source of future revenue.

In this age of social networking, the surging power of personal relationships likely means that the cost of these impaired customer relationships is growing. It is this trend that is giving Google heartburn, per the recent cover story in Fortune magazine, as people are increasingly surveying their friends on Facebook or via texting rather than using search engines to decide where to shop and what products to buy. The advance of word-of-mouth and viral messaging has profound implications for efficiently building relationships and revenue.

This new chapter might be entitled “Advancing from Operational Efficiency to Relational Efficiency.” It will require us to apply everything we have learned about how to take costs out and every new insight we can garner about how to efficiently build in revenue-producing relationships. While this is easy to describe, execution is challenging.

Step one is organization clarity that efficiency and cost reduction in today’s marketplace are the combined result of taking cost outand rebuilding customer relationship and revenue. Most organizations today have an established capability for evaluating cost reduction but relationship and revenue growth competence is less advanced, less linear and requires looking across both customer-facing and non-customer-facing functions. Too often cost reduction versus relationship and revenue enhancement are spoken by two separate tribes in different languages. Every cost change must be tested against varied customer segments for the relationship impact that might damage revenue or add unintended customer behavior that adds to the cost. And, every revenue change must be fully vetted for its cost implications. Smaller organizations do this more naturally and larger organizations require more structure such as cross-functional teams to pull this off.

As reflected in the call center trends, many organizations have been focused on this new chapter for a while. Yet the fear and frailty of the current economy can easily cause us to default back into a one-dimensional cost cutting mode. It is times like these when the competition is riveted on costs that provide some of the best openings to efficiently re-build relationships and revenue.

(Column appeared originally in ABA Bank Marketing magazine – October 2010)

By ROBERT E. HALL

Not to be reproduced without written permission. All rights reserved. © Copyright Robert E. Hall 2010