[Deciding to outsource] creates a tsunami that runs through a company, says John Sarich, insurance industry manager in the consulting practice at FileNet. But how big that tsunami is and whether or not it wreaks havoc are, in large part, within your control. Avoiding problems begins with communicating objectives to your staff.

When we began [outsourcing] there was some pushback, notes Ralph Carlile, vice president and CIO of Grange Insurance Group. Three years ago, Grange began using Tata Consultancy Services (TCS) to deliver niche talent on key strategic initiatives, such as a data warehouse project and a speech recognition system for the companys call center.
At that time [we began outsourcing], a number of people, particularly developers, were threatened, Carlile explains, adding they believed the move was a precursor to shifting new development to outsourcing firms. This perception was exacerbated by the fact that, even though Grange was not sending work offshore for those projects, TCS itself is an India-based consultancy and most of the individuals TCS sent to Granges site were Indian citizens.

The media was propagating all these outsourcing issues related to millions of jobs going away, Carlile says. Had we brought in a group of consultants who were not from a company in India, I dont believe it would have been as difficult.

Carlile stressed to his staff TCS was providing only temporary staff augmentation and then backed up those assurances. Over time, Granges IT staff has seen that TCS developers have not become a permanent part of the landscape, and with the targeted projects completed, Grange is reducing its outsourcing activities in 2005.

Accentuate the Positive

Ideally, if insurers communicate well with staff and follow through on promises they make, employees can get past their initial misgivings about outsourcing and come to view the arrangement as a net benefit. For instance, when insurers outsource maintenance of legacy systems, internal staff can be free to focus on more challenging and enjoyable work. And for insurers, outsourcing staffparticularly when located on sitecan be a source of both knowledge transfer and motivation.

When the bar is raised, individuals often step up to that challenge. Even if you use outsourcing on an interim basis, you can use it to improve your operation overall. You may learn some best practices and some new techniques and see people perform at a higher level, says John Albanese, a vice president in the global business process outsourcing operation at CSC.
Carlile definitely has seen his people respond positively to the presence of TCS staff despite their initial misgivings. A lot of people were impressed with the skill level of the staff that was brought on, which encouraged them to increase both their skill and productivity, he says.

Craig Weber, senior analyst in Celents insurance practice, takes that argument even further, contending a little culture shock actually can be a good thing for a staid IT organization. IT organizations at insurers traditionally have been paternalistic toward their employees, putting them on a career path and providing them opportunities within the organization, he says.
The long-term problem of that approach is a staff has little motivation to update its skills or even keep up-to-date with new technology. Employees need to understand what skills they have and what they need to have to meet the future needs of the company, Weber asserts.

In addition to knowledge transfer, there can be cultural transfer, as well. Particularly for companies that arent global, once a staff gets to know its [foreign] counterparts, theres a great new awareness of the fact there are cultures other than ours that do things differently, Moore points out. It makes the business and outlook much more global.

Still a Four-Letter Word?

Part of the reason outsourcing creates an internal culture shock is the hyperbole of last years presidential election, where the oft-repeated theme was outsourcing by Benedict Arnold companies was costing Americans jobs. Yet insurers never stopped looking objectively at the possible benefits of outsourcing despite the bad reputation the term achieved, and sentiments have begun to change since the election.
A lot of the debate has gone away today, and a lot of the backlash actually was great PR for the outsourcing industry, Moore claims.

Datamonitor, in fact, recently published a report showing offshore outsourcing of financial services functions is on the rise. Among the 400 financial services firms, including insurers, Data-monitor polled in the report, the majority of those already engaged in offshore outsourcing expect to expand their offshore activity in 2005.

Even so, many carriers still are keeping a low profile about their outsourcing activities, just to be on the safe side. Finding carriers that outsource is not a problem. Finding ones to talk about it publicly is, says Weber. Despite some broad acceptance of the usefulness of outsourcing, its a public relations hot potato.

Thats the sentiment of a large insurance company that would comment on its outsourcing activities with services provider Mastekbut not for attribution. There simply is a lot of sensitivity about the outsourcing issue, both with our internal staff and the general public, the insurers vice president of technology explains. Were not trying to hide the fact we outsource, were just not looking to publicize it.

BPO vs. ITO

Although corporate cultural issues are important, global cultural differenceslanguage, customs, beliefsare more visible. Insurers need to assess how important those differences are likely to be to the success of the outsourcing partnership, and their assessment usually is shaped by whether theyre looking to a provider for business process outsourcing (BPO) or information technology outsourcing (ITO).

In ITO, insurers tend to evaluate cultural differences more on how they impact day-to-day working arrangements and less on the effect those differences have on the system being outsourced. However, cultural differences can affect a projects product in many visible ways, such as the designs or colors selected for user or customer interfaces, the wording of on-screen messages, or even the clarity of system documentation.
In BPO, the impact of cultural differences depends in large part on the process being outsourced. The biggest concern I see with BPO is where theres direct customer contact, says Weber. Companies are concerned outside providers wont interact as effectively with customers as they do, so most insurers prefer to hold on to the direct customer-contact process, except for very simple transactions.

If an insurer is willing to put a customer-facing process in the hands of an outsourcer, it wants a customers experience to be transparent, which more readily is done with a domestic arrangement than with offshore. Although as part of their training programs major offshore outsourcers work with staff on accent normalization (targeting what we perceive as the accent-neutral dialect of national U.S. newscasts), this training goes only so far. If you want to outsource your call center to Bangalore and expect them to speak with an American accent, its not going to happen, says Ashok Kalle, president of NetPulse Services, which provides outsourcing services out of both Canada and India.

There are other important issues with call center outsourcing beyond accent. The way agents answer the phone, how well they can assess whether a customer from a different culture is happy or angry, and how they relate on a personal level to customers are all affected by the agents own backgrounds.
For instance, the aforementioned large insurer has had a successful ITO relationship with Mastek that spans several years. However, the carrier found cultural issues caused insurmountable problems when looking to a different offshore vendor to outsource its call center.

According to the carrier, the pro-spective vendor did have an extensive cultural training program, but the program had been created by Indian staff, making it only moderately effective. Additionally, the vendors culturally based emphasis on following written problem-solving documentation made customers feel call center staff lacked empathy. As a result, the insurer abandoned the call center outsourcing proj-ect in mid-deployment.

Failure to Communicate

In either BPO or ITO, avoiding culture shock and achieving success in your outsourcing venture is all about communication. No outsourcing firm can have the same level of knowledge about your projects or your company as your internal staff does. Furthermore, the informal dialogues we all routinely use with co-workers, where nuances and idioms are well understood, may be completely inadequate when dealing with outside staff.
Communication is the lynchpin, particularly with remote outsourcing, Moore says. Even if you are working with a U.S. company only a few hours away, you have [communication] issues, because companies arent used to formalizing their processes. They need to express things in a much more formal manner, says Moore.

Putting communications in writing can avoid problems of idioms and nuance, because people generally write more formally than they speak. By its nature, documentation also provides everyone a single point of reference with some permanence, in contrast to a conversation thats lost in the ether. The rule of thumb is literal interpretation of all communication should be assumed, and that no explanation of expectations is too detailed.
In offshore outsourcing, you always get what you ask for, but you rarely get what you want, Moore contends.

Its also important the documentation you provide is correct. While this should be obvious, Cal Braunstein, chairman, CEO, and executive director of research of the Robert Frances Group, says he continually sees companies provide out-of-date documentation to outsourcing firms and then attempt to supplement and correct that documentation through verbal means. Offshore firms in particular will believe the documentation over what you tell them, he maintains.
Communication difficulties compound in an offshore environment, where language barriers and lack of knowledge about an insurers particular operation are only part of the problem. Depending on the country and location, time differences can make it difficult to hold meetings and resolve cultural misunderstandings. And transglobal communication technology has its limitations.

Even with videoconferencing, the fact you have a slight delay in transmission is very disconcerting. It makes a one-hour meeting last two hours, Weber says. The technology is not quite there.
To head off communication difficulties, insurers often locate outsourcing staff on site. Its easier to make the connection with staff that sits next to you, says Moore. However, having staff on site also can increase the cost of outsourcing dramatically. In addition, it can amplify cultural differences because interaction with staff is both personal and more frequent, which is why Grange goes through an interview process with each proposed outsourcing staff member.

Similar to an interview with a prospective employee, Grange makes sure candidates have not only the promised skill sets but personal qualities that make them a match for Granges corporate culture. Its important they fit in with the technical group, Carlile comments. Weve turned down people because the language barrier was too high.

Regardless of how an insurer addresses the logistical problems of communication, in dealing with non-U.S. outsourcing staff, cultural differences ultimately will affect communications. For instance, the first and most significant difference companies find when dealing with Indian firms is a tendency for Indians to say yes to confirm they understand whats being said, whereas Americans expect yes means the listener is in agreement with the statement being made. Awareness of cultural and behavioral differences is important for effective communication (see sidebar).

Domestic, Nearshore, or Offshore?

In an effort to insulate themselves from cultural issues, some insurers look to domestic or nearshore (Mexico and Canada) outsourcing firms. A lot of companies find it quite reassuring their relationship is local, states Anders Maehre, technology analyst with Datamonitor. And it means the ultimate transition to offshore may be smoother.

Moore, however, cautions domestic outsourcers that source work globally still can present cultural problems and communication challenges for an insurer, particularly if the outsourcing firms are relatively new to the global market. If offshore was never their core capability, they havent had to focus on effective [offshore services] delivery. Indian vendors, in contrast, realize getting the cultural component right is the difference between their success and failure. So [insurers] may be trying to insulate themselves [with a domestic firm] but end up complicating things, she says.

Offshore vendors have done much in recent years to improve cultural relationships with clients as part of their core capabilities. Indian vendors, in particular, have become very adept at working [culturally] with American companies, says FileNets Sarich. Top vendors conduct staff training covering everything from how to hold a glass of wine to how Americans perceive the strength of a handshake. Many outsourcing vendors also offer cross-cultural education to insurers, as well.
If you [as an outsourcer] dont have those programs going today, you will not survive in the booming Indian outsourcing marketplace, says Kalle. Insurers should not only question potential vendors on their cultural programs, he adds, but also ask them for information on average staff tenure and turnover as well as salary comparisons.

Investigating a potential outsourcers program might require a trip to the firms headquarters before making a decision, an activity that should be done on a regular basis afterward, too. For companies completely new to the offshore market, retaining an outsourcing consultant might be in order. Each of those activities, of course, brings additional costs to the overall project.
You need to do a lot of due diligence, which is not inexpensive if you do it right, Braunstein says.

Yet despite the awareness of the potential impact of cultural differences, its still most common for carriersparticularly those new to the outsourcing marketto expect the vendor to bear the entire load when it comes to cultural understanding and accommodation. That is exactly their attitude, and I dont blame them, Kalle says. Its a free-for-all out there, and if one [vendor] doesnt do it, another will.

Ultimately, however, as in any partnership, expecting one partner to do all the accommodation is not the recipe for long-term success. You have to train your internal staff; otherwise, you have just one side trying to bridge the gap, Moore says. Smart companies realize that they need to do their homework to get the most value [from the outsourcing arrangement]. If theyre not willing to do that, they shouldnt be outsourcing at all.

Cultural Differences, Different Behaviors

Although many countries have gotten into the outsourcing market, Indian companies are the main offshore market for U.S. insurers. In a Quick Take Report by Forrester Research titled Cultural Challenges in Offshore Outsourcing, Stephanie Moore identifies nine behaviors that illustrate Indian cultural norms that can pose understanding problems when dealing with U.S. insurers, including:

Avoiding saying no. Maybe, I think so, Probably, and Ill do my best, often actually mean no in India.

Saying yes but not always meaning yes. In fact, yes rarely means yes. Yes means, I understand what you are saying, or even less, I can hear you talking.

Moving the head from side to side does not mean no. It means, I am following what you are saying, and I am about to respond to you.

Shaking hands weakly means the handshaker respects the handshakee. He or she does not want to bruise your hand.

Avoiding confrontation and conflict. Thus, they frequently are unwilling to deliver bad news.

Avoiding asking questions, as this
is considered rude in India. This makes
it difficult to have a dialogue or work
collaboratively.

Being uncomfortable pushing back on the client. They also are uneasy about making suggestions for improvement. Again, this behavior rules out a dialogue or
collaboration.

Doing as told. They will follow orders even if what they are told is wrong and they know it. In other words, it is more comfortable for an Indian developer to code to a bad specification than it is for the developer to tell the client the specification is wrong.

Being unfamiliar with American processes or activities. Thus, clients need to specify everythingeven if they think what they need is intuitive. It may be intuitive for a local developer, but it will not be intuitive for an Indian developer.

Source: Forrester Research