Author: Matthew Heller

The telemarketing project for an American credit-card company was just coming to an end in January when an internal audit at the Wipro Spectramind call center in Navi Mumbai, India, discovered something very alarming: an organized ring of about 60 call-center agents had been systematically scamming U.S. consumers for two months. Supervisors had told the agents to spice up their sales pitch for the client, Capital One Financial Services, by making false claims about free gifts and membership fees, according to Indian press reports. The scam even bypassed Wipro’s sophisticated call-monitoring system.

    After conducting its own audit, Capital One, located in McLean, Virginia, rescinded the contract with Wipro in March. But its misadventure–and other recent departures from India by U.S. clients–has confirmed many doubts and concerns about the booming business of outsourcing call centers, and also is serving as a catalyst for human resources to develop more effective approaches to managing offshore workers. Experts and consultants believe that companies can meet the challenges and save millions of dollars by improving training and implementing tighter oversight of offshore call agents. Some U.S. companies have even installed their own teams at offshore call centers.

    “Capital One represents some of the challenges of outsourcing,” says David Butler, a professor at the University of Southern Mississippi and author of a book about call centers.

    A recent report by NASSCOM (National Association of Software and Service Companies) and Evalueserve shows that management costs for an offshore project average 18 percent more than for onshore. But experts say that offshore call centers, which save 20 percent to 50 percent on operating costs, can still be worth the hassles. “It’s no different being in India than being in Phoenix,” says Michael Janssen of Everest Group, a Dallas outsourcing firm. “You have to make sure you have people doing what you want them to do.”

    The recent exodus from offshore call centers has included such companies as Conseco Inc., an Indiana insurer that bought India-based ExlServices for $52.6 million in 2001, anticipating savings of up to $60 million a year in call-center costs. But customers complained that they could not understand the heavily accented call agents, and with service costs having fallen far less than expected, Conseco sold ExlServices at a $20 million loss in late 2002.

    Customer complaints about unsympathetic or unintelligible agents were also a problem for Dell Computer, which decided last fall to pull two business computer product lines out of a center in Bangalore, India. “They’re extremely polite, but I call it sponge listening. They just soak it in and say, ‘I can understand why you’re angry,’ but nothing happens,” one disgruntled Dell customer told Fox News.

    What happened to Capital One, however, appears to be unprecedented, the first disclosed instance of a company ripping up a contract because of an organized scam by call-center workers. “It was wholesale fraud,” says Terry Healy, vice president of sales and marketing at CCC Interactive, a Houston outsourcing company.

    Wipro made its name writing high-quality software for such clients as Compaq, Home Depot and Nokia. In July 2002, it diversified its business by acquiring Spectramind, India’s leading call center, which handles everything from computer help-desk support to airline reservations. After Bill Gates visited Wipro’s Bangalore office in November 2002, the company landed Microsoft as a call-center client. Other major business for Wipro Spectramind, which has about 10,000 employees, came from Delta Air Lines and Lehman Brothers.

    The contract with Capital One, one of Wipro Spectramind’s top-10 clients, involved up to 600 agents making “outbound” calls to generate credit-card business. Under Wipro’s call-monitoring system, quality-controllers listen in on 10 percent of every 50,000 calls to make sure they do not cross legal and ethical boundaries. But the Indian media reported that the quality team stopped listening in for two weeks every month while the scam was in progress. Once Wipro discovered it, 65 agents lost their jobs.

    Capital One has not disclosed the value of the contract, and a company spokesperson did not respond to written questions about the Wipro episode. But outside observers suggest that it may have been the result of pressure on the agents to make sales combined with insufficient training about acceptable ways of doing business. The agents’ compensation was based in part on performance. “Did the agents even know it was fraud?” Healy asks. “Did management think they were doing something that was acceptable?” Another consultant calls it a “classic case of aggressive sales-incentive programs, starving [agents] on the base [salary], keeping ethical codes vague and not monitoring behavior.”

    Experts stress that problems such as overaggressive sales pitches are not unique to offshore call centers. “In any call-center environment, there’s always the chance for people to go beyond what the rules specify,” notes Butler, author of Bottom-Line Call Center Management. He and others say that offshore centers do present a unique managerial challenge, however, because of the geographic distance from headquarters and, to some extent, cultural differences. “It’s an issue of control,” Healy says. Some 250,000 call-center jobs have been outsourced to India and the Philippines since 2001 by companies trying to take advantage of lower labor costs.

    In one approach to ensuring control, IBM in April acquired Daksh, India’s third-largest customer support services firm. Industry sources value the deal at between $150 million and $200 million. “[IBM is] always dealing with a high volume of technical support, and almost always works within its own walls,” says analyst Brooks Gray of Technology Business Research.

    Locating nearer to home, or near shore, is another option. National Asset Recovery Services, a collections agency in Chesterfield, Missouri, decided to open a 26,000-square-foot call center in Montego Bay, Jamaica, going for proximity even at the expense of forgoing the lower labor costs offered in India. “If I needed to be there tomorrow, I could leave in the morning and be there by lunch,” says senior vice president Greg Cappa, who visits the center twice a month. “That’s a big deal for us.” A flight from the United States to India, by contrast, takes a very long day, and visitors have to cope with jet lag.

    Buying out Indian operations is not financially feasible for most U.S. companies. And while near-shore areas such as the Caribbean are attractive to some companies, experts see continued growth in offshore call centers. The fastest-growing sector of India’s IT-services industry, call centers are expected to expand by about 60 percent this year, for the third year running. “Offshore is economic reality,” Janssen says. “It’s not going away.”

    So how can companies maintain control and avoid Capital One-type headaches? For Geri Gantman, senior partner at the R.H. Oetting consulting firm in River Edge, New Jersey, the answer is, “You’ve got to have the right quality-assurance processes in place.” Quality assurance, Gantman advises her clients, means working closely with the offshore partner on call-monitoring and establishing a system that covers as broad a sample of calls as possible. The monitoring software should be able to record calls as audio computer files, providing faster and easier access than audiocassettes. Gantman also recommends “calibration” sessions between client and provider to ensure that “everybody who’s listening [to calls] is listening to the same things.”

Other expert recommendations for U.S. companies with offshore call-center partners include:

● Training and retraining of call agents so they stay on the right side of what Gantman calls the “electronic fence” of acceptable techniques. “You have to say, ‘These are my processes. Here’s the methodology,’ ” Healy says. “It’s the ‘Ugly American syndrome’ in a lot of ways.”

According to Gray, Dell Computer, which still uses offshore centers for consumer products, identifies agents who need retraining by evaluating customer-survey responses. “Dell is looking closely at this so they can pinpoint problem areas,” he says. At NARS, Cappa says that employees are trained to be aggressive. “But we don’t let them cross the line. We want it to be just like any other office we have.”

● Discouraging overselling by setting reasonable sales goals and linking compensation levels to customer satisfaction, rather than to sales alone.

● Installing a corporate management team in the offshore center. “A lot of India-based operations are being managed by U.S. executives,” Gray says. “It’s very important to have your top executives on-site in a lot of situations.”

    If companies have to pay for advanced call-monitoring, extensive training programs and expatriate managers, the question is what the cost benefit will be. This is where the experts differ. Butler, for one, believes that “if you have to turn the standard Indian call-center representative into the equivalent of an American call-center representative, it’s going to be quite cost-prohibitive. It’s going to cost you to do it effectively overseas,” he adds. “It will cost you in time, and in money.”

    Gantman, on the other hand, argues that quality assurance and savings are compatible. “If it’s properly done, you don’t have to sacrifice quality for cost,” she says. “You can get both.” Increased costs may reduce the savings to as little as 20 percent. “It’s chasing savings of 60 percent that leaves the door open to all kinds of problems.”

    In Navi Mumbai, meanwhile, Wipro Spectramind also recently lost the IT help desk for Lehman Brothers. The Wall Street investment banking firm, citing poor quality of service, has brought the help desk back in-house. The relationship with Microsoft, including a $10 million call-center contract, has been rumored to be in trouble. But Microsoft is standing by Wipro, saying that the two partners “continue to have a strong relationship and identify new opportunities.”

Workforce Management, June 2004, p. 95-97 — Subscribe Now!

John Guz appeared to have a lot going for him. He’d started out as anadministrative assistant at Bechtel Corp., earning $750 a month, and had risenby age 49 to financial reports supervisor. His salary had increased to $5,940 amonth, and his employer, a San Francisco-based defense contractor, had given himgenerally favorable performance reviews.

    But in December 1992, Guz’s immediate superior dropped the bombshell. Hisunit was being disbanded, the manager said, and he was being laid off. Aconfirmation letter from Bechtel referred to “the downturn in ourworkload.”

    Guz did not go quietly. He sued Bechtel, alleging wrongful termination andhoping to take advantage of California law that protects at-will employees.According to the landmark 1988 ruling in Foley vs. Interactive Data Corp.,employees who meet certain criteria-including longevity, promotions, raises, andfavorable reviews-can show an “implied-in-fact” contract, to bedismissed only for good cause.

    The case of Guz vs. Bechtel National, Inc., went all the way to theCalifornia Supreme Court. The court’s unanimous ruling, issued in October,turned out to be another bombshell.

    The so-called Foley criteria established 12 years earlier do not, in and ofthemselves, “constitute a contractual guarantee of future employmentsecurity,” the justices said. Since Bechtel’s own written personneldocuments “imposed no restrictions upon the company’s prerogatives toeliminate jobs or work units, for any or no reason,” Guz had noimplied-contract case to take to a jury.

    Plaintiffs’ attorneys were shocked. “The implied contract that [anemployee] had an option of proving based on the Foley decision is now almostimpossible to prove,” laments David H. Fielding, a partner with the firm ofBushnell, Caplan & Fielding in San Francisco.

    While the Guz case applies only to California, its impact may be more widelyfelt. As labor law experts note, the state has led the country in moving awayfrom reliance on at-will language in employee manuals to more nuanced theoriesof implied contract. At least 20 states from Maine to Hawaii limit discharges inparticular circumstances. “Some have been moving [toward implied contracts]a piece at a time, others more rapidly,” says Peter Eide, director of laborlaw policy at the U.S. Chamber of Commerce.

    Montana in 1987 enacted a comprehensive statute making termination withoutgood cause unlawful. But the act also severely limited the amount ofcompensation that employees could receive for a wrongful discharge.

    In California, the presumption of at-will employment goes back to the 19thcentury. Section 2922 of the Labor Code states: “An employment, having nospecified term, may be terminated at the will of either party on notice to theother.” However, starting in the politically more liberal 1970s, courtsbegan applying the doctrine of implied contracts to the employment relationship.

    In 1973, Wayne Pugh was fired by See’s Candies after 32 years with the candymaker. When he asked for a reason, See’s president told him only to “lookdeep within [him]self.” Eight years later, a state court of appeals handedPugh a landmark victory in his wrongful-termination case. Reversing a trialjudge, the court said there was evidence that See’s had breached an impliedpromise not to discharge without good cause.

    With the Foley case, employers attacked the Pugh precedent. Complaining thatit “destroys the centuries-old solid and settled principle” of at-willemployment, they urged the state supreme court to accept only express contractprovisions as evidence that an employee required good cause for termination. Butthe court held fast, concluding that the Pugh decision “correctly appliedbasic contract principles in the employment context.” The Foley case, whichinvolved a plaintiff who had worked his way up the corporate ladder fromdishwasher to vice president, also endorsed Pugh’s criteria for proving animplied contract. “Plaintiff here alleged repeated oral assurances of jobsecurity and consistent promotions, salary increases, and bonuses during theterm of his employment, contributing to his reasonable expectation that he wouldnot be discharged except for good cause,” the court said.

    HR departments took notice. They made it their standard practice to avoidliability by stressing at-will provisions in their employee materials and bydocumenting good cause. “There can be … close to no doubt that there areactual grounds for termination,” says Marty Palecki, HR director for RanchoSanta Fe Technology in San Diego. Adds Fielding: “Every HR department isalways very concerned about having justified their actions” in terminatingan employee. And California cemented its reputation as one of the morepro-employee states.

    But states such as New Mexico, Nevada, and Idaho have remained resolutelypro-business. Longevity and a policy of warning before discharging an employeeare not sufficient to infer an implied contract, an Idaho appeals court ruled in1996. And now California, with the Guz decision, appears to have turned back theclock.

    In his lawsuit, Guz claimed that he and Bechtel had an agreement that hewould be employed as long as he was performing satisfactorily and would bedischarged only for good cause. While there was no express understanding, hesaid it could be inferred from several of the Foley criteria. Bechtel, on theother hand, insisted that Guz’s at-will status was “conclusivelyreinforced” by its own personnel policy, which specified that employees”have no…agreements guaranteeing continuous service and may be terminatedat [Bechtel’s] option.”

    The Supreme Court conceded that “disclaimer language in an employeehandbook or policy manual does not necessarily mean an employee is employed atwill.” But after declaring that Guz’s longevity was not enough for him torequire good cause, it then described Bechtel’s written personnel documents as”the sole source of any contractual limits on Bechtel’s rights to terminateGuz.” And those documents, in turn, “imposed no restrictions upon thecompany’s prerogatives to eliminate jobs or work units, for any or no reason,even if this would lead to the release of existing employees such as Guz.”

    The court’s ruling left Guz with virtually no case to take to a jury. It leftplaintiffs’ attorneys dismayed. “The court was out of sync withreality,” says Fielding, noting the way HR departments have adapted toFoley’s restrictions. “They placed undue reliance on the at-will languagein the Bechtel employee manual.” But those who represent employers believethat the justices returned to fundamental legal principles. “This is a signthat California is going to honor what the [Labor Code] statute says –employmentcan be made at will,” says Wendy M. Lazerson, an employment attorney atHolland & Knight in San Francisco. “Maybe the courts are realizing thatif you’re going to have a healthy economy, you can’t make it so difficult to dobusiness.”

    Lazerson does not see the ruling as anti-employee. “It’s just a balanceddecision. [After Foley], things were so skewed to employees, there were reallyno rules that employers could follow.” At the California Chamber ofCommerce, general counsel Fred Main calls the implied contract “close to afiction,” for plaintiffs to use in order to avoid at-will provisions.Employees can still claim wrongful termination on the basis of a violation ofpublic policy, such as discrimination, he says. But “run-of-the-millclaims…are going to have a very difficult, if not impossible, hurdle toovercome.”

    Main does warn, however, that the labor lobby may turn to the Californialegislature. “I would be very surprised if there’s not some bill [thisyear] that either completely overturns Guz by eliminating at-will doctrine orsubstantially limits it,” he says. One limit could establish length ofservice as evidence of an implied contract.

    “The ability to limit in some way at-will employment has been an issuefor 20 years,” Main adds. “I think it would be another toughfight.”

Workforce, May 2001, pp.42-46 — Subscribe Now!

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