Outsourcing Case Study Failure

1. Introduction

IT Outsourcing has become a hot topic since the 1990s. It has been almost waving all the big companies over the industry as it brings a lot of benefits (check out the list of benefits in appendix?) such as cost savings, embracing new innovations, as well as making companies being able to focus on their core-businesses etc:-

è Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring by accessing to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.

è Embracing new innovations. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.

è Focus on Core Business. Resources are focused on developing the core business. For example often organizations outsource their IT support to specialized IT services companies.

As a computer giant, Dell has also given some tries to ride on this opportunity by outscoring its some non-core businesses, for instance, call center, offshoring to sharpen its core-business[1] to be more competitive in the market compete and hence to further maximize its return on investments (ROI).

In the past decades, dell has made a lot of successful stories, but in this report we shall use the Dell’s failure outsourcing case – outsourcing call center to India[2] – to 1) analyze the case to find out what reasons during the planning and execution might have contributed to the failure, 2) through this case study to draw up some conclusions and 3) further discuss what good lessons we could learn from and may apply for the future outsourcing success.

The structure of this report we organized is to firstly give an overview of Dell Company and discuss some findings about its history of outsourcing call center to India. Secondly, we present an in-deep analysis of the case to reason why it failed. Finally, we give the conclusion and some proposals for the future outsourcing.

2. History of Dell's outsourcing call center to India

Dell is a well-known brand of personal computers which are sold directly to end-users. With the direct sales model, Dell could save costs and became the cost leader in PC industry. Its revenue increased from 6.2 millions USD in 1985 to 62 millions USD in 2009. Dell was the number one market share in USA and globally for a long time. In order to serve a large number of customers better and cut down costs, Dell decided to outsource call centers in India. Dell opened its first call center in Bangalore, India in 2001 to provide technical support for customers in U.S. After that, it set up the second customer contact center in Hyderabad in 2003 to deal with the increase in customer base. Eventually, the third call center of Dell was opened in Chandigarh metro area in the north of India.

In recent years, call centers are one of the most popular businesses that are outsourced. Not only Dell but also many global and famous companies such as AOL, American Express, and General Electric have outsourced their call centers to improve their cost efficiency. Among many countries, China and India are ideal choices for outsourcing due to the cheap and skilled labor in these countries.

2.1 Reasons and benefits to choose India

An interview with Romi Malhotra [1], the director of Dell’s Indian operations, has revealed the benefits in offshoring its customer services, and also disclosed reasons why Dell outsourced call centers to India.

  • The largest driver is talent. Dell found that labor in India is not only cheap but also skilled. In the interview, Romi Malhotra shared “The people we hired in India are often overqualified for the job”.
  • Since Dell has seasonality in the business, outsourcing business to India allowed Dell to ramp up and down without changing employee count.
  • Outsourcing helps Dell benchmark its quality and cost.
  • Dell can gain more working experience by working with third-party vendors.
  • Outsourcing to India allowed Dell to spread its call centers geographically, and then, may mitigate something such as natural disasters.
  • Risk mitigation is another reason for Dell to outsource its business function.

2.2 Challenges

In the interview, besides benefits, Romi Malhotra also discussed some challenges that Dell has encountered

  • Dell has encountered the problem talent constraint. Dell has spent a long time to find right people in India and teach them about Dell’s culture.
  • Language, cultural dimensions are also challenges. In fatc, it’s not easy to getting an agent to understand the culture in a country that is halfway across the globe.
  • Technology is also a big challenge. When Dell set up its first call center, it took about seven months for Dell’s officers to decide what kind of routers and switches to use.
  • Retention is another difficulty. In parallel with recruiting new talent, Dell had to come up solutions to keep skilled labor to work for the company.

2.3 Downfall

Although Dell has set up many call centers in India and the market share of Dell has continued to grow, customer satisfaction had dropped. In 2003, Dell stopped using a technical support center in Bangalore, Inida to handle calls from U.S. customers due to many complaints, mainly is poor quality of service, from customers. Some U.S. customers complained that it was difficult to communicate with Indian technical support representatives because of thick accents and scripted responese. There are other complaints such as delays in reaching senior technicians when speaking technical support employees in India.

3. Case analysis

There are some reasons why Dell had failed the outsourcing call center in Bangalore in India. In fact, many business white papers outsourcing IT have clearly stated that outsourcing can only be beneficial to those who do so analyzing the short as well as long term goals of an organization. Therefore first and foremost organizations should research outsourcing what is it and in which way will it be beneficial to them. IT outsourcing advantages are many, but same is the case with operations failing and organizations backing up. [1] Here are the reasons:

3.1 Planning and Managing

The most difficult part in outsourcing is planning. For a big outsourcing project like the call center in India, proper planning is very important. Dell had failed to plan and predict for their growth. That is why the call center worked in the way that did not have any clear processes or well-structured plan to serve for the big growth. In the end this become more complexity and unmanageable. In the Dell case, the poor management comes from the fact that they did not plan enough for the call center in long term. Dell had been growing a lot in their sales and the call center did not have enough resources in handling a large volume of call from the customers. Everything is not structured in processes and requires more time to support. Therefore, the quality of the answer from the service went down and did not meet customer satisfactions. Customers had complaint a lot due to the poor answer and long waiting time. In fact, it is indirectly affecting their sale revenue since out of 10 calls from the customers; there is likelihood that 8 customers will buy the product from Dell. As a result, the call center in India had failed to meet the expectation. Managing processing in outsourcing is a challenge.

3.2 Technical skills

The technology keeps changing; Dell’s products are more complicated. Moreover, Dell has been growing a lot and the number of product lines also increase. Therefore, the skills of the staffs need to be improved so that they will have more domain knowledge as well as technical skill to answer all the complicated questions from the customers. However, Dell had not planned enough to catch up and train the staffs with the new technology. In fact, a lot of phone calls were being transferred to different technicians and in the end the customers were frustrated and not happy about the service. As reference [4], we can see that how important of agent with good skill, they can convert one call to become one sale if the answer is qualified. The call center in India did not have enough domain knowledge to deal with a lot of difficult questions. That is why it led to a lot of complaints.

Surveys released in February showed that, while Dell's market share has continued to grow, customer satisfaction has declined. The company has acknowledged the problem and said steps are being taken to improve tech support and other customer services. [3]

Brooks Gray, analyst with research firm said Dell customers complained of language difficulties and delays in reaching senior technicians when speaking to tech support personnel in India. [5]

3.3 People

The call center in India needed a large volume of employees since it needed to handle a lot of calls. Although, India is a big country and the number of talented people is large, but Dell still had problem to find enough quality employees. India is famous as an outsourcing country, and the needs in finding talented people are high. Dell had also faced some difficulties in finding quality people, keeping them so that the turnover is not high is always a challenge. In fact, there are possibilities for the local workers to change to another job because the market and the high demand are very hot that they do not need to stay at Dell. Dell had lost 30 percent of manager because other companies are willing to pay more than Dell. With the current rapid growth of Dell, the call center was not able to find enough people to deal with a lot of phone calls.

3.4 Culture issues

Culture is always a big issue in outsourcing, especially the call center is the one that dealing with most customers in other countries. Call center seem to be easy if you serve the people that you understand well, but different cultures may lead to misunderstanding or miscommunication and the result is the customers are not satisfy about the service. For instance, what does a customer mean when they say “this”? Agents have probably never been in the customer’s shoes, how do they learn what the customer means? [6] For the Dell case, most of the customers that the call center in India serve are American, they expect a clear and straight forward answer (that is the culture of American), however, Indian tend to answer in a lengthen way and usually forward the phone to other people that take a long time for waiting. Although most Indian speaks English, but most of the complaints are about the thick accent and difficult to communicate with them is also a problem. So the lesson learn from this is, Dell need to train the people in call center not only their culture in Dell but also the culture of the customers that they serve.

In conclusion, there is a lesson from this case study is that outsourcing is not easy, you need to have a proper planning for your short term and long term plan.

3.5 Recommendations

3.5.1 Planning

Planning is the biggest problem in Dell’s case. First of all, to outsource, especially do an offshore outsourcing, the degree of outsourcing shall be well tuned. A progressive model is highly recommended due to the uncertainty, especially the call center services directly affects the main business process. Dell shall use one of its regional markets as the test bed to try out the result before they fully outsource the whole call center services to India.

Besides that, a careful execution planning shall be made before the actual action was taken into place. The planning will cover the schedule, cost involved and the milestones, which gives the clear picture.

Moreover, based on the investigation result, the whole process shall be evaluated again and the major problems found shall be addressed and possible solutions shall be proposed before the whole plan was actually executed. Dell found the staff retention problem in the investigation process but they had never come out solutions to solve the issues.

3.5.2 Investigation and Pre-outsourcing Analysis

The investigation and analysis shall be done in a more systematic way. The pre-outsourcing analysis in Dell’s case missed out the important details, e.g. heavy accent. And all these led to a serious consequence and directly affect the whole operation. Dell shall be doing this investigation as detail as possible, which will give the management accurate information. If Dell does not have enough power to do that, a third party consultancy shall be engaged to guarantee the investigation and analysis result.

3.5.3 Training

Communication and skill set needed by the call center service shall be proper defined and the corresponding training plan shall be made and executed upon the outsourcing starts. Although this introduced additional cost but it is compulsory to guarantee the quality of the service.

American Express sets the good example in providing the English language training for its outsourcing center in India. This will reduce the communication problems which were created by the Indian operators’ heavy accent.

Moreover, Dell’s call center is also in the role of converting the calls into orders, which is also an important marketing method in the direct sales model. By providing the training, Dell will have more skillful operators for the call center and eventually the sales will be increased as well.

3.5.4 Monitoring

Proper timelines shall be set and the management shall keep track of the progress and take necessary action to make sure the timelines are strictly followed. By all means, the router and switch shall never block the whole process by 9 months. The lack of monitoring caused the schedule slippery and it also reflected the low execution power. For outsourcing project, especially the offshore outsourcing project, the monitor process must be introduced and there ought to be some outsource manager to keep an eye on the whole process throughout the whole development and operation period.

4. Conclusion

IT Outsourcing still has its strong position and momentum to bring values across the different industry. But these values achievability should not be arbitrary, as this Dell’s call center outsourcing case study revealed, but subject to the below dedicated contexts:

The first and foremost is to work out a better long term plan, which should together with proper processes and well-structuring defined. It will help improve the management efficiency and relieve the management chaos as the expanding sales volume in the future. Moreover, with a good plan in hand plus a good execution, it will help increase the sale revenue indirectly but significantly as the user satisfaction improved.

Secondly, as an outsourced company, Dell in this case for example, in order to provide consistent and better services to the customer, who cannot overlook the importance of developing a technologies competence team but just focusing on the market exploiting, otherwise the adversary of the customer relationship, say retaining existing customers and develop new customers, will be hurt.

Thirdly, enhance the people management’s ability to remain talents. Talent recruiting competition is quite intensive in the outsourced country and when turnover rate reaches a certain degree, it could be very disruptive to an outsourcing company. E.g., In India the turnover rate will go up if the people management does not do well as other outsourcing companies can tempt the staff by offering better package. This, without as stable team, will directly affect the service quality also.

What is more? The culture for outsourcing is also posting its importance. Language influences and communication ways should be diversified based on the service destination preferences, such as American prefers direct conversation with local accent but not a lengthy one.

[1] Why does Dell have such a strong position in the personal computer market? http://tutor2u.net/business/strategy/core_competencies.htm

[2] Dell’s call center outsourcing started in 2001 and due to insufficient planning and huge complaints aroused, it was forced to drop in the late 2003.

Large manufacturers with assembly-line production technology are currently going through an extensive change process. One important strategic change is the increased degree of purchasing and outsourcing, following from strategic make or buy decisions. In this article we focus on the outsourcing decision, the outsourcing process, the outsourced unit and the results in terms of factors characterizing successful and unsuccessful outsourcing cases (i.e. success and failure for the outsourced units, not necessarily for the outsourcing companies). Our empirical data comprise five in-depth case studies focusing upon buyer and supplier dyads. The results indicate that:


• the driving forces behind outsourcing can be a combination of financial problems, a need for clear focus on core competence, and cost efficiency considerations;


• the outcome of outsourcing is more successful if the outsourcing is based on strategic decisions including core competence and cost efficiency considerations rather than being emergency action prompted by financial problems;


• the outcome of outsourcing has the greatest potential for success if the outsourcing process is abrupt and gradual at the same time, characterized by high pace in terms of ownership change and high commitment both in the process and after;


• the outcome of outsourcing has the greatest potential for success if the outsourced unit is able to develop a strong resource base and a balanced customer base (built up from a platform of a close and long-term relationship with the ‘parent’).

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