Outsourcing didn't pay off for Conseco!

Outsourcing didn't pay off for Conseco. Insurance firm may be at forefront of trend by bringing jobs moved to India back to U.S. By Bill W. Hornaday bill.hornaday@indystar.com April 22, 2004

CARMEL, Ind. -- Three years ago, when Conseco moved 800 jobs to India, its chief executive was clear that his pioneering outsourcing move was more than just cost-cutting.

"I'm convinced there's better customer service in India. It's no good here," then-CEO Gary Wendt told The Indianapolis Star.

These days, the insurer also may be a pioneer because it brought most of those jobs back to Indiana.

More than 150 workers at its Carmel headquarters -- along with 100 workers at a Chicago-based subsidiary -- field calls from independent agents and Conseco customers that a year ago were handled from a city near New Delhi.

Conseco, which sells life, health and annuity policies to middle-income clients, expected to save millions by moving the work to the world's second-most-populous nation. Instead, the switch was hurt by 9/11, cultural differences and intense pressure to quickly cut costs.

As other major companies continue to outsource jobs, Conseco credits the return of its customer service operations to the Midwest as a key reason it survived the third-largest bankruptcy filing in U.S. history.

At a time when many Americans worry about losing their jobs to outsourcing, hundreds of Indiana and Illinois residents have work because that trend failed to live up to expectations.

"We gave it a shot, and it didn't work," said Dave White, Conseco's senior vice president of policy services.

In recent weeks, such names as Capital One, Dell, Lehman Brothers and British-based insurer AXA have "repatriated" similar work, said David L. Butler, an assistant professor at the University of Southern Mississippi's College of Business and Economic Development, who has studied call centers for more than a decade.

Others are quietly following this path, Butler said, because they share Conseco's fear that the short-term pursuit of low labor costs could bring long-term customer loss.

"Call centers may not generate money directly. But they add revenue in that most customers' only direct interaction with the company is through their employees, who effectively become the face of the company," said Butler, who wrote a book on call-center management published earlier this month. "When customers call an American company, but the voice on the other end of the phone clearly is not, the customer wonders why those jobs are overseas. If the service level turns out to be dissatisfactory as well, that may not be the best message to send."

When Conseco partnered with and later bought India-based ExlServices for $52.6 million in stock in 2001, Wendt touted savings of up to $60 million a year. Customer service costs would be cut in half, he said, and employee turnover of about 30 percent a year in Indiana would drop to less than 10 percent in India.

Those numbers proved overly optimistic. Employee turnover in India was 200 percent, and by late 2002, when William J. Shea replaced Wendt as CEO and sold ExlServices at a $20 million loss, customer service costs had fallen by just 20 percent, White said.

Just three months after Wendt's June 2000 hiring, Conseco executives flew to New Delhi to examine General Electric's outsourcing program and visited with ExlServices officials in the nearby city of Noida. ExlServices was co-founded by Wendt, and his family owned a 20 percent stake in it until Conseco bought it.

"We sat in and listened to Indian workers who turned (complicated) calls in less than 10 minutes," White recalled.

Yet they had to establish reliable communications and hire hundreds of call-center workers -- and train them on several systems to administer insurance policies.

The call center went live on Sept. 10, 2001, and performed fairly well, White said.

The next day, terrorists with hijacked airliners destroyed the World Trade Center and damaged the Pentagon. "Suddenly, nobody wanted to talk with someone with an accent from that part of the world," White said.

Further complications came from cultural differences between Conseco's customers and a society where checkbooks and insurance still are new concepts.

Indian workers were "very adept" at processing claims, premiums and information on life, health and annuity policies -- at one point achieving a 98 percent rating, compared with 70 percent by Carmel workers, White said. Yet Conseco still required 40 "control and oversight" staffers in Carmel to deal with complicated issues, angry customers or clients who said they could not understand the workers in India.

"Clearly there was a language barrier. The accent was a problem for customers, and U.S. English was a challenge for many call-takers," said Don Papp, Conseco's vice president of customer service. Some Indian workers, while polite, also did not seem to show much empathy toward customers' problems because "they tend to see things in black and white."

They also saw a chance to make more money by switching to other call centers, officials said. Workers in India earned roughly half of the $30,000 a year that their counterparts in Carmel now are paid.

"For Indians, call centers are places for upward mobility," Butler said. "Some do it to learn English or improve it. Others see it as a steppingstone for working in the U.S. Many of them are in their early 20s and are not unlike many Americans the same age."

Shortly after Conseco announced the radical restructuring of its debt in August 2002, the company gradually began shifting work back to the States -- beginning with agent calls, Papp said.

With a bankruptcy filing inevitable, Conseco had to move fast to avoid further uncertainties in customers' minds. Consumer calls began returning to Carmel in January 2003, he said. The company also returned other operations jobs to its headquarters.

"We put new staff on the floor, established a new learning curve and added new procedures," he said. "We saw it as the beginning steps of starting over."

The buzz of activity at Building G on the Carmel campus contrasts with what visitors would have seen a year ago.

Once a cavernous maze of empty cubicles except for a few dozen troubleshooters or Spanish-speaking specialists, the aisles now spill over with trainees who watch call takers field questions about claims, premiums and other insurance matters.

Nearly all are new hires. When Conseco relaunched its customer service unit, it focused on recent college graduates and made phone work a steppingstone to careers in marketing, finance, accounting or human resources, Papp said.

Andrea Lewis is one such recruit. The health administration major at Indiana University-Purdue University Indianapolis graduated in December and joined Conseco two months later.

"The training was really complex. Much of it was how to use different systems to find information. And we learn how to effectively talk people through problems," said Lewis, 22, Indianapolis. "I definitely want to move up any way I can."

Workers don't talk much about outsourcing, partly because many were in college when the jobs they now do were moved to India, Lewis said.

Still, not all of Conseco's operations have returned. The company still uses ExlServices for 53 insurance operations jobs that don't involve public interaction.

Because of the 101/2-hour time difference, lengthy reports and other processing can be run in India while few people in Carmel are on the computers.

"Should they prove dissatisfactory for one reason or another, there's no reason we can't bring those jobs back as well," White said.

On the other hand, a study led by the economic research firm Global Insight for the Information Technology Association of America (published 3/31/04) found that outsourcing high tech jobs to countries that provide cheaper labor has actually created a net gain of 90,000 jobs for the US economy. Though 104,000 high tech jobs were lost in the US last year, the economic activity caused by the off-shoring created the aforementioned job growth. Spending on foreign computer software and services is projected to grow more than 25 percent, jumping from $10 billion in 2003 to $31 billion in 2008. However, during that time, savings from outsourcing is expected to eclipse $20 billion. Also, contrary to what many critics claim, the study found that use of offshore resources has increased the real wage of US workers. Due to lower inflation and higher productivity, wages were up .13 percent in 2003 and are projected to grow at .44 percent in 2004.

Just another scumbag lining his pockets.

"Clearly there was a language barrier. The accent was a problem for customers, and U.S. English was a challenge for many call-takers,"

This is so true.. it's "berry-berry" hard to understand them, when trying to communicate why you are contacting the call center for assistance.

I was dealing with an Indian agent the other day over a loan. They were distinctly unhelpful. Part of it, I am sure, is the language barrier, but part of it is also simply cultural differences.

Usually when I deal with an American, on the phone, many times they are pleasant women - you can "pick their brains" - they often give ideas and can be quite helpful. I have never had this experience with an outsourced call center. They "stick to the script", are very hard to understand, and just don't seem to understand American friendliness and helpfulness.

I'm through buying from Dell until they move their customer support back to the US. I've grown tired trying to deal with heavy Irish and Indian accents.

I'll buy my next computer(s) from local businesses that build to suit.

Perhaps "American" companies could purchase legislation to make it a hate crime to complain about service provided from offshore? I noticed that company managers blamed Americans' backlash for the problem. Maybe require American children to learn all the world's third-world languages?

Meanwhile that ITAA Global Insight "myriad benefits" of offshoring study mentioned above -- I've noticed that on a personal level since offshoring began in earnest my hair has started to grow back, I feel like twenty-five again, my arthritis pain is gone . . .

"Offshoring. The #1 choice of lazy managers."

RE: "Offshoring. The #1 choice of lazy managers."

Unfa-a-a-a-air? Look at how real managers addressed the problem. They made the call center a stepping stone to higher paying jobs. A kind of "four-year college" in the company's products, services, and operations. No, it won't work everywhere but innovation and solutions work everywhere. That's what management in America used to be.

Offshore the Homer-Simpson managers to Timbuktu. Uhmmm. (drool) Cheap labor.

Oh, yeah. It's always the unions' fault. Right, Homer.

Due to lower inflation and higher productivity, wages were up .13 percent in 2003 and are projected to grow at .44 percent in 2004.

That's just so bogus.

Oh so no one actually got a raise in pay but by juggling some phony numbers the wages of fewer people performing more tasks bought more crap on a predetermined ever changing big government list of "necessities".

Inflation is NOT lower, have you bought any kind of fuel/energy lately?. ..How about anything made of metal?...How about building materials?...Meat?...A house?...Rent?

Airlines as I'm sure trucking companies are, are adding fuel surcharges to their prices, you know trucking companies those folks who deliver virtually everything consumed in this country.

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