Sunday, November 13, 2005

Outsourcing has downsides too

It seems that outsourcing is nothing to do, we regularly hear announcements of companies outsourcing one activity of another. And when I am gathered in professional company the topic of conversation frequently turns to outsourcing. When it does there are two reoccurring theme is, the first being fearful ones own job, and the second being the difficulty of working with outsourcers.

It is worth spending a moment to clarify our terms. Outsourcing is when a company decides that one activity or another is no longer core to their business and then subcontract it to a third-party. So for example, a marketing company might outsource their IT helpdesk.

Then there is offshoring. This occurs when a company decides that one activity or another is better done in a foreign location, perhaps somewhere where the wages are lower. In the few years there has been on lot of attention given to services offshoring, in the press.

We should be clear that offshoring is not outsourcing and outsourcing is not offshoring. True, that two often go hand in hand, but they do not need to.

Sometimes it seems like outsourcing is inevitable, and all companies must do it to the maximum. However, I suspect that many organisations involved with outsourcing have not really contemplated the downside or downsides even.

There was a good example of this a couple of months ago, when British Airways flights were disrupted by a strike at a catering supplier. According to the BBC this has cost British Airways £45 million.

Now, the logic of outsourcing service that British Airways is not a catering company. Therefore it should outsource its catering, this logic seems sound.

Think again, British Airways make most of their profit from business class travel, and one of the reasons they gave for someone travelling business class, as opposed economy, is the superior food. So, if BA food is so good that I should pay more money for it how come it isn't core to BA's activities?

Second, this supplier has now cost BA £45 million. By not having the catering under its own control BA has exposed itself to a risk, one wonders how much money BA has saved by outsourcing the catering.

Finally, there is a damaged BA's reputation and image. The catering dispute disrupted their flight schedules, their reputation for timely flights and their reputation for food on flights. All of this needs to be considered when outsourcing operation.

Now these thoughts about BA have been on my mind, for while, but I had been prompted to write about them, because of a personal experience with outsourcing.

So at this point you might want to stop reading because what follows is largely a personal moan. I’ve not done this kind of public blog complaint before but I think it fits in with my outsourcing theme, and yes, there is a lesson at the end.

Having said that, most of what follows is me getting this matter off my chest!

A few months ago I decided to change my credit card. I have for over 10 years been a customer of First Direct - a division of HSBC. First Direct are a good bank but about six months ago they introduced a new credit card statement format. To put it simply, this format is pig ugly, I have enough ugly things in my life as it is and I don't need this statement format.

So I started looking around the new credit card, and as it happened one of the department stores I like, John Lewis, happen to have a credit card available. This looked like a good deal to me. So I decided to get one to replace my existing First Direct card.

Things started badly, I applied on their website and was told I was rejected, it seemed my credit rating wasn't good enough. This was a big surprise to me and I immediately got in contact with them. It was an even bigger surprise when they told me I had actually been approved the card, and I be receiving it soon.

Web site says one thing, computer system record another. That sounds like a problem to me - it should have been warning enough, but I carried on.

The ironic part is that during the application process, I discovered that John Lewis has outsourced their credit card to HFC, who are a division of HSBC! (Fortunately, they had a different statement format.)

The card arrived, and I had to get registered with their Internet banking service. They took three attempts to send me an Internet ID that worked. Even then their security regime is painful. I know credit cards need security, I don't dispute that, but the inconvenience level is just unrealistic.

Again, I should have given up at this point but I carried on.

Then I started to find the card was refused places. First by Amazon, I called the company, who told me that the Amazon debit had been authorised. Now what am I supposed to do here, and you can't speak to Amazon and Amazon has always worked on my other credit cards. In fact, if Amazon software had a problem of credit cards they would be out of business very quickly.

Still, I carried on using the card, including on some trips overseas and to the USA. But then, on my second trip to the US since receiving the card it started being refused there too. Having a card refused is always embarrassing, and it also very inconvenient. The thing was, it worked sometimes, and got refused some other times.

So on my return I called HSBC/John Lewis, and they told me that before I go aboard I should call them and tell them I'm travelling, this kind of defeats the purpose of having a credit card. The whole point of having a credit card is for convenience - I have been abroad eight times since I got the card and now they tell me I'm supposed to call HSBC bank and spend 10 minutes on hold before I can use it, then it is inconvenient.

Neither does it explain why the card worked on my first US trip, my trip to Germany or Finland. And I don’t care that they are open 24 hours a day to be told, when I do call them nobody is available to take my call.

So, you might guess, the card is going. The point of recounting the story is that it does link up with my earlier discussion of outsourcing. John Lewis department store, have a very good reputation, a very good brand, a brand that is about quality and service however the credit card that bears their name is about anything but quality and service.

Although we say John Lewis has outsourced their credit card operation this is a historical view. The company used to run its own store card operations but decided to convert the store card to a full credit card and pass the management of this to a specialist credit card provider.

In truth John Lewis have nothing to do with this card, it is really a brand stretching exercise for them, their brand on one more product. While for HSBC it is just another “badged” affinity credit card.

My card will be cut up and returned to "John Lewis financial services" most likely with a complaint along lines of what you have just read. An HSBC employee will handle the query and John Lewis will be none the wiser but it is their brand that has been damaged.

The IT systems behind the card clearly have problems:

  • the website tells people they are refused when they are approved,
  • the online banking system issues IDs that don’t work,
  • the system is incompatible with Amazon
  • and it erratically blocks debit requests from overseas (either it should be blocking them all or none.)

Have they actually tested this system?

Again, nobody at John Lewis or HSBC will hear these problems because the card return will be processed as one of many but their quality is falling.

How do you loose a million customers? One at a time. I’m actually a good customer, I’ve told them my problems, I’ve given the opportunity to get things right but they can’t. Most customer will just give up using the card silently.

Yes, John Lewis may make some money out of their branded credit card, but the card is damaging their brand. Next time I shop there will I find kitchenware outsourced? Or deliveries? Stock control?

I hope they have checked their numbers - especially since one disgruntled customer has just told the world in his blog!