Back to the Drawing Board

Some European companies are bringing their offshore call centres back home, but that shouldn't make CFOs nervous about offshoring their finance fun...
Eila RanaSeptember 1, 2007

Recent headlines may suggest that European companies are retreating from their offshoring strategies. But the facts are more complicated.

The trouble seems to be mostly with the public-facing end of businesses. For example, Lloyds TSB, the UK’s fifth-largest bank with a revenue of £10.7 billion (€15.9 billion), closed its Mumbai call centre last spring, saying that a new automated telephone banking service made it redundant. However, the bank’s labour union claimed that a petition signed by 400,000 customers dissatisfied with the Mumbai centre played its part.

Powergen — the UK subsidiary of €67.8 billion German energy giant E.ON — experienced similar customer-relations woes before pulling 450 call centre jobs out of India last year. Powergen’s CFO Brian Tear says, “This decision has not been taken lightly…We are simply not prepared to achieve savings at the risk or expense of customer satisfaction.” The move has contributed to a 78% reduction in complaints about Powergen to Energywatch, a consumer watchdog.

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It’s not all one-way traffic, however. Lloyds TSB, for example, said it would move several hundred IT jobs to India. Although there has been some backlash, the cost savings remain compelling.

But are some offshoring u-turns making CFOs more cautious about their own F&A outsourcing/offshoring projects? Mark Schrutt, a research manager with IDC Canada, says the decisions to retreat often involve extraneous considerations. In a study of why companies terminate their IT outsourcing contracts early, Schrutt found that in most instances a strategic change at the company — such as downsizing — meant current outsourcing arrangements no longer made sense. Without flexibility to adjust their contracts, termination has often been the only viable option. “It’s really about the business strategy that the company has,” says Schrutt. “If outsourcing is not working because of the relationship or people involved or whatever it may be, termination should be part of the options that a company considers.”

But despite perceived failures, companies are undeterred. Schrutt says that, as with Lloyds TSB, companies no longer consider the failure of one of its outsourcing/offshoring contracts as a stigma, but are taking a more sophisticated “portfolio” approach to offshoring.