I know there are a lot of flag-waving US citizens angry over the outsourcing of US jobs that goes beyond Hilton.  The corporate mantra of achieving business cost reductions has been the subject of many of my offerings including the Quality Digest article Paring Down to Spend More.  As US jobs are lost overseas in a time of financial difficulty the ire of many is sure to make these companies pay, but these decisions to outsource contact centers are financial . . . as in dollars and sense.

Hilton allegedly has told employees not to talk to the media or risk losing their severance.  The embarrassment of sending workers to a foreign land calls for such measures.  Especially when they have to travel overseas to train their replacements.  Could it get any uglier?

Hilton is not the only company that outsources and offshores, let’s be real.  The auto industry has done the same and even the technology industry has done similar moves to reduce costs.  People are mad in a country with now high unemployment, but the case of patriotism should not be where arguments begin.

There is a better argument than patriotism and short-sighted, dividend producing service companies need to get in touch with the fact they may be increasing costs.  You see they are managing transaction costs when they outsource.  To cost accountants it is a simple math problem – we pay US agents $9 – 15/hour and we pay overseas agents $2/hour.  We save on human resource costs.

Except the problem they are working from is based in economies of scale thinking.  But true financial economies are in the flow of the work or economies of flow.  The failure of service organizations to understand true costs and their causes. 

Customer demand is a leverage point for reducing costs.  Because contact centers deal with customers this represents an opportunity to reduce costs.  However, economy of scale thinking gets in the way and executives ask the wrong questions, like:

  • How many calls do we get?
  • How long does it take to handle these calls?
  • How much does it cost?

These are traditional questions for an economy of scale thinker.  But they fail to recognize the nature of demand.  Many contact centers have demands that are unwanted like call backs, unresolved problems,etc. these were coined failure demand by John Seddon and it is defined as a failure to do something or do something right for a customer.  When customers are upset, you get lots of failure demand . . . it is something service organizations don’t want.

Failure demand represents about 25 – 75% of all calls in most contact centers.  Instead of eliminating this waste service organizations outsource to lower its costs.  But it doesn’t end there, the flow of the work is ineffective and the people you need to improve flow are the workers that are being outsourced (and yes, this true whether outsourcing is domestic or off-shored). 

The workers are more valuable than just paying low wages they can  help make your system improve, so why alienate them.  But in command and control organizations, managers make decisions like these away from the work, so they can’t see, or in most cases, understand the work.  A critical error in reducing total costs.

The backlash of outsourcing/offshoring is getting louder in social media and other circles as the roles of the unemployed continue to rise.  Hilton stands to get a lot of failure demand from upset customers.  But ultimately, it comes down to changing management thinking about the design and management of work for all organizations seeking business improvement.  Our economy and jobs depend on it.

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Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.