More Slums Than Millionaires — India, Recession and Supplier Performance Management Converge

I'm a big fan of the India, Inc. growth miracle. Unlike China, whose growth was founded largely on government policy that devalued the currency to such a degree as to make Chinese goods just about as inexpensive as those from any country on the market, India's boom has been the result of significantly more than just currency manipulation and the general developing market economic super cycle. In fact, India's services boom of the past decade has helped set a new standard in services delivery -- not just low pricing -- for outsourcing and BPO deals, at least in some cases. Sure, a few of us have gotten burned along the way, especially around low cost software development (I count myself as one of the victims). But in general, the India services miracle has benefited all parties involved many times over and has set an example around changing the services delivery paradigm for many white-collar jobs. Indeed, India has been home to far more than just low services prices -- they've been the country that has largely fostered growth and innovation in the services marketplace in recent years.

But might India's future include more slums than millionaires? And might the coming backlash that we're beginning to see out of Washington and the EU these days put an abrupt halt to the India services miracle?

When I read stories like this about how Delta Airlines is pulling back call center outsourcing efforts because of what they claim to be quality issues, I personally think that if they really cared about customer service they would first recall the fifty-something washed-out flight attendants who give new meaning to service with a snarl -- I can't help but wonder if this is a harbinger of things to come. Perception matters, especially given the concentration of US outsourcing deals in India. As the above-linked article notes, "the Indian outsourcing industry is now facing the backlash from rising protectionism that the US has been adopting. Since the US accounts for over 60 per cent of Indian outsourcing revenue, the industry's growth has been stagnating since the recession began to take its toll in most countries."

Delta is easing off the India, Inc. throttle in a serious way, "pulling back 2,000 jobs from its India-based call centers that handle sales and reservations, claiming customer dissatisfaction, after six years of having outsourced the call services." The original deal that Delta struck with Wipro in 2002 was supposed to save the airline around $25 million per year. But like all savings estimates, it's important to track both the true cost and revenue impacts of these sorts of decisions. Approximately six years into the deal, Delta "stopped routing calls to the Wipro call centre" because of what they claim to be mounting customer service complaints about language barriers and communication problems. While it would be easy to dismiss this move as one focused simply on reducing expenditures as overall call volume has dropped, Delta has noted that it plans to keep call centers in "Jamaica and South Africa operational since there were not many complaints against them," albeit at reduced staffing levels to correspond to lower call volumes.

I believe that the situation in India at the moment is rather complex. In analyzing what happened regarding Delta, we'd be remiss in our analysis if we simply read what their complaint states at face value. Seriously, let's face it -- airline capacity and call volume have dropped off a cliff in recent quarters. That's got to have something to do with this decision -- rather than simply blaming Indian call center quality. But in addition, the success of other call centers should also be a wakeup call to Indian providers that they, too, are competing in a global market -- with new entrants who can compete on price, quality and general service levels. It also proves to me yet a third point that many others might ignore -- if Delta had invested in tools to manage their services providers from a performance and quality standpoint, they would have known very early in the relationship that something was not right, and taken action to remedy the situation.

Ironically, Delta was one of the airlines that was quite forward thinking when it came to the use of strategic sourcing and reverse auctions (Aaron Dent led the effort). But Delta was clearly stuck on the runway when it came to supplier performance management and managing outsourcing partners like Wipro, an area that is the responsibility of both parties -- not just the supplying organization. I'm sure that if Delta had invested just 1% or less of the contract value in SPM software (e.g., Emptoris, BravoSolution, Ariba, Hiperos, Aravo, CVM Solutions, etc.), team members to run the program and expertise to set it up, they could have avoided any negative impact on customer service. Instead, they decided to play the blame game -- six years after the fact. I suppose in an industry that has fleets which date back twenty years or more, this might feel like acceptable behavior. But when it comes to managing suppliers, six years without a concerted performance management effort is a lifetime. Point being: they might love to fly. But it doesn't always show (especially in the back-office).

Jason Busch

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