An Overview of Challenges: Technical Support Outsourcing

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1 A R T I C L E An Article by Zinnov. info@zinnov.com Fax Phone (US) , (INDIA)

2 1.0 OverviewHHHH 2 Table of Contents Overview Cost challenges Resource cost escalation Real estate cost escalation Sales cost escalation People Challenges Recruitment of talented resources Attrition Training External perception Infrastructure challenges Transportation Telecommunication Vendor IT infrastructure Onsite challenges Customer backlash Conclusion... 6

3 1.0 OverviewHHHH Overview 3 The real and perceived cost savings from outsourcing IT development and product development to low cost center in India have prompted organizations to try and outsource various core and non-core activities that can provide short term cost saving benefits. One of the recent outsourcing initiative is been the outsourcing of technical support services. There is great level of optimism about the growth of this industry. In the last two years, one Chennai based Technical support startup and two Bangalore based Technical support startups have managed to get Venture funding to rapidly expand their technical support services. Large IT outsourcing companies such as Accenture, Wipro, IBM are also providing Technical support outsourcing services to their customers. Large organizations such as Microsoft, Dell have started their own captive centers to provide technical support to their customers all over the world. The trend clearly shows the value proposition for Technical support outsourcing services. However, companies are starting to realize the challenges that result in hidden costs and overheads. These challenges when not planned for can reduce the cost savings drastically. In this paper, we have discussed some of the challenges discovered during our interviews and discussions with Technical support vendors and captive centers. 2.0 Cost challenges The direct cost involved in technical support services is projected to increase at a rate of 15 to 20% a year. The major factors that would increase the cost of services would be the raising resource and real estate cost. Vendors will also see an increase in the sales cost which they would pass it on to the customers. 2.1 Resource cost escalation The technical support resources need high level of technical aptitude compared to resources at BPO and customer support services. So the technical support services and IT Services vendors compete for the same talent pool. The size of this talent pool is only 10% the size of BPO/customer support services talent pool. The size of the talent pool is further reduced as the resources require the ability to clearly communicate to the

4 3.0 People Challenges 4 customers and have an attitude/mindset to want to solve customer problems. These factors result in higher resource cost escalation compared to other outsourcing services. 2.2 Real estate cost escalation 4 The real estate prices in various parts of India have been increasing in the last few years due to the IT boom. In year 2005, more than 6 million square feet of office space is going to be ready for occupation in different parts of India. The industry prediction is that even the 6 million square feet is not going to meet the demand in the market. The real estate is seeing an escalation of 10% a year in rental. 2.3 Sales cost escalation The Indian outsourcing vendors primarily sold their services with cost savings as the unique selling point. They hired junior sales force in US and augmented the team with strong pre-sales teams in India. However, with the entry of companies such as Accenture into the offshoring arena, Indian vendors are forced to invest in experienced sales force in US thereby increasing the overall cost. The companies are starting to pass on this cost to the customers. 3.0 People Challenges 3.1 Recruitment of talented resources It is extremely difficult to attract talented resources for the Technical support industry. As mentioned in the previous section, the companies hiring technical support resources compete with the IT services vendors. In addition, technical support requires the engineers to work night shifts which are not usually preferred by experienced engineers. 3.2 Attrition The job pressure faced by the technical support resources is high compared to IT services. The resources are constantly under pressure to solve customer problems in predetermined time frames. Any reduction in customer satisfaction can be easily tracked down to the resources. Combination of job pressure and high demand in the market for technical support resources has taken the annualized rate past the 20% mark. 3.3 Training The training needs for the technical support resources are distinctly different from that of IT services and BPO companies. They require similar a training program that combines technical training, spoken/written language training and cultural sensitization training. The vendor organizations are just figuring out the right training programs for their technical support staff.

5 4.0 Infrastructure challenges External perception 5 The technical support services are often compared to BPO and customer support services which are considered lower value services due to the requirements for night shift and phone/ interactions with the customers. This market perception results in undue pressure on the resources to prove to their family and friends that they provide higher value and solve complex problems of their customers compared to call centers. 4.0 Infrastructure challenges 4.1 Transportation The public transportation system in most of the Indian cities is non-existent. The government has passed on the onus of providing safe night time transportation to the employers. Technical support centers are required to provide pick up and drop to each employee s door steps in the night. 4.2 Telecommunication The telecommunication infrastructure in India has improved consistently in the last few years. However, network latency and service breakdowns are continuing to haunt the technical support industry. 4.3 Vendor IT infrastructure Some of the Technical support vendors have compromised the IT infrastructure to save on costs. The cost savings in terms of reduction in help desk staff and security features in the IT systems sometimes have compromised their ability to serve the customers. 5.0 Onsite challenges 5.1 Customer backlash Outsourcing backlash due to the perception that the jobs from countries such as US and UK are rapidly moved to low cost centers sometimes causes challenges to offshore technical support. The end users and onsite technical support staff tend to magnify the issues/mistakes committed by the offshore resources. This also adds to the job pressure of the offshore resources. 5.2 Data protection In the past few years, few incidents of data theft in offshoring countries have prompted the governments of EU, US, Canada etc. to legislate a stricter data protection laws. Some laws require companies to offshore only to select few offshoring countries which have stricter data protection laws.

6 6.0 Conclusion Global management As more and more teams are spread in multiple geographic regions, companies are facing with a complex task of managing the diversified global workforce. Due to time zone challenges and immaturity of the global support industry, very few managers are trained or have the capabilities to manage the resources Lack of planning Many companies are jumping into the offshoring bandwagon at a blistering pace without understanding the challenges associated with offshoring their technical support services. Most companies have unrealistic expectations on cost savings and about how quickly they are going transition. Some companies fearful of being left behind have also started their offshore operations though they have no global sourcing needs. 6.0 Conclusion Global sourcing is proving to be an irreversible trend. In future, more and more companies will leverage offshoring inspite of the unique challenges associated with providing technical support services from remote locations. This article is part of our effort to provide the high level information to help companies to understand, appreciate and mitigate the offshoring challenges. In the past two years, Zinnov has extensively studied the trends, risks and best practices associated with offshoring technical support services. For additional information or to schedule a complimentary presentation on technical support challenges, please contact info@zinnov.com.

7 6.0 Conclusion 7 7 Zinnov is a leading offshore research and consulting firm assisting companies in their offshoring strategy, setup and operations compliance. Zinnov s end-to-end solutions, best practices and methodologies have provided immense benefits to the clients sourcing needs. With a solid offshore and onsite presence, Zinnov is able to conduct systematic and objective research on sourcing topics concerning the industry. Zinnov clients include Fortune 1000 companies across business domains. For additional information, visit Zinnov Locations T2, A/B CasaCapital 17 Wood Street Bangalore India Phone: / Russel Ave Santa Clara CA Phone: , South Queenscliff Cir The Woodlands TX Phone: Disclaimer: The information contained in this paper including, without limitation, text, graphics and links, are provided on an as-is basis with no warranty. The information contained here has been obtained from sources believed to be reliable and responsible. To the maximum extent permitted by law, Zinnov disclaims all representations and warranties, express or implied, with respect to such information including but not limited to warranties of merchantability, fitness for a particular purpose, title, non-infringement and implied warranties arising from course of dealing or course of performance. Zinnov will not be liable for any damages of any kind arising from the use of this information including but not limited to direct, indirect, incidental punitive and consequential damages. In addition, Zinnov does not represent or warrant that the information provided is accurate, complete or current.