Tuesday, February 28, 2012

To Outsource or Not?

While reading the article about Zappos, I noticed that they decided not to outsource their call center workforce. One of the reasons is to maintain the quality level of their customer services.

From watching the video profile of Zappos on ABC’s nightline, it was quite evident that their call center is one of the focal points of their business. Their call centers are the main link between company and customer. And at Zappos, they are not just doing standard call center protocol, which are usually straightforward, answering customer queries. Instead, call center personnel at Zappos are giving that extra personal touch to their protocol. They are more engaged in conversations, they are giving more attention to details.

One obvious example is when one of their customers had to return a product because the customer’s mother, who was going to use the product, had just passed away due to illness by the time the product arrived. Instead of just giving a refund, Zappos also sent flowers and a card to show their sympathy for that customer.

Zappos seems to be aware that maintaining customer satisfaction is one of the keys to their success. And I think that is why they don’t think that outsourcing their call centers would be a good idea. They could have opted for outsourcing and reduce costs in wages and benefits for call center employees, but they chose not to. I think that one of the reasons is because Zappos employees can live up to the corporate values more strongly than personnel that are from outside of the company.

However, Zappos’ strategy somehow contradicts with what most large companies are doing. A lot of companies nowadays consider implementing outsourcing in some parts of their business processes.

According to Capgemini, a one of the world’s largest consulting companies from France, these are the top 10 reasons companies should go for outsourcing in 2012:
- Global Reach
- Operating Expenditure Rules
- Innovation and Interoperability
- Service Transparency
- Savings in Labor Cost
- Centralized Management of Resources and Functions
- Improving Regulatory Controls
- Accelerating Process Maturity
- Increased Resources
- Improving Company Strategic Focus
A breakdown of these reasons are explained in more detail in this article:

In my opinion, the main driver to go for outsourcing will always be about cost savings. In support of my claim, here are some recent news headlines in regards to outsourcing:

Apple to quadruple investment in India with new software outsourcing contracts
TheNextWeb.com/Apple – 13th February 2012 by Matt Brian
"At the end of January, Apple’s chief information officer (CIO) Niall O’Connor visited India, meeting with two of the country’s biggest consultancy firms – Infosys and Wipro. Apple already contributes millions of dollars to both companies, but is reportedly ready to quadruple its investment in India thanks to its industrious workforces and lower outsourcing cost." 
(via http://thenextweb.com/apple/2012/02/13/apple-to-quadruple-investment-in-india-with-new-software-outsourcing-contracts/)

American Airlines Plans To Outsource Some Jobs
CBS Dallas / Fort Worth – February 3, 2012
"The airline said Wednesday (February, 1) that it needs to cut 13,000 positions in order to survive, and the plan includes outsourcing some maintenance work." 
(via http://dfw.cbslocal.com/2012/02/03/american-airlines-plans-to-outsource-some-jobs/)

Sharp wants to outsource A&M jobs
TheEagle.com – February 24, 2012
"A&M System Chancellor John Sharp wants to outsource Texas A&M University's facilities services" 
"In an interview late Thursday, Sharp said that he's also looking to outsource the university's dining services, which has around 200 employees, in order to generate more revenue. He noted that it's been losing $1 million a year, and changes in dining services have been studied for more than a decade." 
(via http://www.theeagle.com/local/Outsourcing-Aggieland---6991309)

Caterpillar Considers Outsourcing Jobs at Mossville Plant
Centralillinoisproud.com – February 7, 2012
"The company has decided to relocate its engine liner production to its Mapleton plant.There's no timeline on when the transition will happen, but Cat says the move will make liner production more efficient." 
(via http://centralillinoisproud.com/fulltext?nxd_id=227042)

Notice that I’ve highlighted some of the key words in each article. Every one of them is either associated with cost reduction or improving production.

Although Zappos decided not to outsource their call centers, they still did some outsourcing for their logistics. They used UPS services to deliver their goods to customers.

That being said, the option to outsource, or not, really depends on what the business is focusing on. Apparently for Zappos, their core business relied on the high level of customer satisfaction. They managed to achieve that by developing call center personnel from within the company who can reflect the corporate culture.

As for their logistics, I think that the decision to outsource it to UPS comes down to business process efficiency. UPS has the expertise in delivery processes. By letting UPS do their logistics, Zappos won’t have to worry about their delivery processes and focus more on their core business.

  1. HBR Case Study: Zappos.com: Developing a Supply Chain to Deliver WOW! by Michael Marks, Hau Lee, David W. Hoyt. 
Source: Stanford Graduate School of Business 
28 pages.  Publication date: Feb 13, 2009. Prod. #: GS65-PDF-ENG
  2. Zappos on ABC News Nightline, August 2008 (via http://www.youtube.com/watch?v=tFyW5s_7ZWc)
  3. Capgemini's Top 10 Reasons to Outsource in 2012 – February 15, 2012 by A. Selway Ryan (via http://www.supplychaindigital.com/outsourcing/capgeminis-top-10-reasons-to-outsource-in-2012)
  4. Apple to quadruple investment in India with new software outsourcing contracts. TheNextWeb.com/Apple – February 13, 2012 by Matt Brian (via http://thenextweb.com/apple/2012/02/13/apple-to-quadruple-investment-in-india-with-new-software-outsourcing-contracts/)
  5. American Airlines Plans To Outsource Some Jobs. CBS Dallas / Fort Worth – February 3, 2012 (via http://dfw.cbslocal.com/2012/02/03/american-airlines-plans-to-outsource-some-jobs/)
  6. Sharp wants to outsource A&M jobs. TheEagle.com – February 24, 2012 (via http://www.theeagle.com/local/Outsourcing-Aggieland---6991309)
  7. Caterpillar Considers Outsourcing Jobs at Mossville Plant. Centralillinoisproud.com – February 7, 2012 (via http://centralillinoisproud.com/fulltext?nxd_id=227042)


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