Running a customer service center in India: An interview with the head of operations for Dell India
Romi Malhotra shares insights on recruitment, retention, and developing talent.
Noshir F. Kaka
Web exclusive, May 2006
Dell's recent announcement that it intends to double its staff in India, to more than 20,000 people by 2009, was widely recognized as a vote of full confidence in the country's development. For Dell, India represents not only a rapidly growing consumer market—its annual demand for five million PCs is expected to double by 2010—but also a huge talent pool for transaction processing, R&D, and IT operations, as well as a potential manufacturing base.
An in-depth look at Dell's successful experience with customer service centers in India over the past five years reveals some of the reasons for the company's enthusiasm. The managing director of Dell's Indian operations, Romi Malhotra, has guided the development of its three customer service centers there, from the early beginnings, when it sought to outsource some of its activities, to the current program, with Indian operations representing its best practice. Malhotra, who came to Dell after helping GE and Standard Chartered Bank set up their Indian back-office operations, has focused on improving the company's recruitment, retention, and employee-development programs in order to turn Dell into an employer of choice in India's highly competitive labor market. He believes that in India, the company can leverage a pool of extremely gifted workers and managers, in numbers far greater than would be possible anywhere else.
In this interview with Noshir Kaka, a partner in McKinsey's IT practice in Mumbai, Malhotra discusses Dell's reasons for coming to India, the challenges the company faced in recruitment and retention, and how it overcame them to develop best-of-breed call centers that are now a model for its facilities elsewhere.
The Quarterly: What was Dell's rationale for offshoring to India?
Romi Malhotra: The company was growing very fast and we needed capacity. It wasn't as if we were doing this in India and nowhere else, because as we were expanding in India we were also expanding in the United States, Canada, Latin America, Europe, and elsewhere in Asia. Some of this growth was through partners, some through our own sites. Even so, the growth in India has been far quicker than in any of these other countries.
The Quarterly: How do you decide whether to open up a new customer service center in India, in Bratislava, or in Canada?
Romi Malhotra: The single largest driver is always talent: can we find enough talented people to set up a center? Our call centers are fairly large—not 100 or 200 but often 1,500 people or more. So that becomes the first filter. Then you get down to other issues, such as incentives, infrastructure, and other cost and quality issues.
The Quarterly: Dell outsources some of its customer service work, but you also have some captive centers—ones that you own and run. Can you tell us why that works for you?
Romi Malhotra: One reason we outsource some work is that we have seasonality in the business, so outsourcing gives us the ability to ramp up or down without having to change our employee count. The second reason is that outsourcing helps us benchmark our service quality and costs. You know exactly how much you are paying a third-party vendor, and that gives you a good standard to compare your own costs against. A third thing is that these vendors work for multiple clients, so working with them gives us an opportunity to learn what could be done better. Perhaps a fourth reason is risk mitigation. By spreading our centers out, we may gain a bit of control over something like a natural disaster that impacts one area. And finally, working with partners lets us tap into new labor markets without setting up our own centers in those locations. Take India, for example: there are at least eight to ten cities where one could set up centers of reasonable size. We can encourage our partners to go and set up centers in some of the less familiar ones to leverage a different talent pool.
The Quarterly: How do you decide what you do and what gets done by partners?
Romi Malhotra: Pretty much everything we do, they do, from technical support to sales, customer care, and financial back-office operations. We have kept software development in house, and we have an internal group that researches new-product design, because we consider those more strategic functions that require greater integration with the rest of the company.
The Quarterly: What were some of the surprising challenges you encountered when you opened your first center in India, in 2001?
Romi Malhotra: We made a few mistakes in the early years. Since everything that we did was working well, more people within the company wanted to leverage India. We had a plan for managed growth, but we put it in the dustbin, saying, "Let's just keep growing." And so we grew without a very well-structured plan, added all kinds of processes, and wound up with more complexity than we could manage. Also, we treated everything the same way, even though some processes we migrated required more training and thus a longer time to ramp up. We didn't plan for that.
The Quarterly: How did you solve these problems?
Romi Malhotra: Well, by hitting the pause button and sorting things out. So we built a robust management team and we made sure that we simplified the sites and processes that we had. Then we returned to building domain knowledge and scale in specific areas.
The Quarterly: Were there new challenges once you expanded beyond Bangalore to other cities in India?
Romi Malhotra: The biggest challenge is the talent supply, particularly middle management. The reason we have three centers in India and not six isn't that we don't have the demand; it's because we are talent constrained. It takes time to get the right people to come in and then teach them the Dell culture to make sure they can succeed in this environment. It's getting easier to find call center agents and other associates, but it's still difficult to find middle managers. Remember, this whole industry didn't exist ten years ago. Five years back it had maybe 50,000 people total, with maybe 100 people in leadership positions. People had to be brought in from other industries, like manufacturing, to train for these leadership positions. So we're starting from a very low base, but in three to five years' time recruitment and training will be much easier.
The Quarterly: Is retention a problem now that the labor market for offshoring is hot?
Romi Malhotra: Actually, I think that's gradually cooling down. A few years ago, the problem was severe. For a while, you had a company opening every week, and they were willing to pay anything for the first 20 guys who knew how to do what they needed—all the way from call center agents to CEOs. But the employee base has grown substantially since then, and there are almost half a million people in India in the talent pool for business process outsourcing. I think people and companies have matured and learned how to manage these large teams and keep people on staff. Also, consolidation within the industry has defined the leaders, while a number of start-ups did not make it.
The Quarterly: Have companies also learned more about recruiting? We often hear that up to 30 percent of all attrition comes in the first 120 days, which suggests poor recruitment.
Romi Malhotra: Our recruiting has improved greatly. One thing we've done is to create profiles of people who have succeeded in our centers in India, to help us assess a candidate's potential for success. And the profile grows over time. So a few years back, we simply interviewed people across the table. Then we learned to consider what they would sound like over the phone. Then we went further as we learned that some people have an aptitude for serving and actually enjoy solving problems, whereas others see customer service work as managing a problem. Today candidates take a series of tests on a computer, and the results give us some idea of whether the person would be good at customer support or sales or something else.
The Quarterly: Then how do you hold onto a person for the first months of these very stressful jobs?
Romi Malhotra: Some of the early attrition just involved wrong hires, because they didn't have the right skills, and we've done a good job fixing that with better screening. But once people come on board, they're often surprised because this environment, which looks like college, turns out to be very hard work—often during night shifts, with a lot of performance metrics and peer pressure.
So we've had to completely revamp what we call the "onboarding" process. We've eased the pressure on new hires significantly, and we've tweaked the training so that it's not just eight weeks of training and then leaving people alone on the phone. Now we intersperse training with work; we've added more knowledge support on the floor in terms of coaches, mentors, and trainers. We have feedback sessions where we talk about how to cope with a lot of this stuff, and we set expectations more realistically. In a sense, we've added cushions around agents so that when they fall, they don't hurt themselves too badly. And we've seen that approach work miracles in terms of both attrition and employee morale and performance.
The Quarterly: Beyond recruitment and retention, what execution challenges have you faced in the offshore call centers?
Romi Malhotra: One is getting the agent to understand the cultural dimensions of a customer who is halfway across the globe. It's not just language or nuances around accent, because I think people are getting used to hearing accents on the phone. It is, for example, what does a customer mean when he says "this"? Agents have probably never been in the customer's shoes, so how do they learn what the customer means?
Another big challenge in the beginning was the technology, especially getting the telecom connectivity right. When we were setting up the first international call center, about ten years back, it took us about seven months to figure out what compression techniques to use, what kinds of switches and routers. That used to be a big challenge, but today it's pretty much standard operations. The cost has also come down, so no one worries about it.A third is striking a balance between consistent and standardized processes and encouraging your agents to innovate. We ask them to stick to the process, but we also want them to tell us what they think we can do differently or better. So that's a bit of a paradox. How do you create the rules to break the rules?
The Quarterly: A lot of companies first decided to offshore for cost but now find that they are staying for the quality of the work they're getting. Is that the case with Dell?
Romi Malhotra: For us, offshoring didn't start out as a cost issue—well, maybe for the first 15 minutes we thought of costs. But it's not really a cost game. Take sales, which is a good example. Our model is that we advertise, people pick up the phone and call an 800 number, and then we have a chance to convert maybe eight out of ten calls into an order. It all depends on the agent's skills whether eight of those calls end with a sale or whether six do. So even if we were getting our labor for free, if the agents close two fewer sales out of ten it defeats the whole purpose, because the amount of money spent to generate those leads has been wasted. And that far outweighs any benefit I can get by saving $5 or $10 per hour. The same thing holds true for anything else we do. In technical support we know that if the customer is satisfied he or she will buy again. So if we cannot resolve the problem for the person, regardless of what it costs us to field the call, that translates into fewer sales, which means lower profits.
And at the end of the day, frankly, it doesn't make a difference what the cost was. We used to say "Come for cost, stay for quality." But now, just as much, it's "Come for quality and stay for innovation."
The Quarterly: What kinds of innovation are you seeing?
Romi Malhotra: Dell used to offer lifetime free warranty support on the phone, and we realized that we wanted to change that model. So we had to design a process where we could explain to customers that something they may have thought didn't cost money—say, support for software that wasn't ours—was no longer free. And that new process, including the training, the pilot program, and the standardization, was designed mostly in India.
Then there is a new analytics team we developed with some of our people who are econometrics graduates, actuaries, or PhDs and who have done a lot of data mining and analytical modeling. And once again, it's not a cost thing, because if you create a model that suddenly increases your revenue by 30 percent, the cost of labor is unimportant. Analytics is something we are beginning to experiment with—it's uncharted territory and it's coming out of India. We would not be able to get that quality and number of PhDs and analytics experts anywhere else. We are also doing leading-edge technology work for enterprise software, and we are now launching an enterprise-hardware-design initiative at our Dell India R&D Center. We filed over 100 patent disclosures last year alone.
To make the most of its lead in business process offshoring, India must improve its educational system and infrastructure. See "Ensuring India's offshoring future."
The Quarterly: What was it about these Indian centers that enabled you to do new things that Dell traditionally did not do in its home base?
Romi Malhotra: The people we hire in India are often overqualified for the job, so we asked ourselves how we could leverage that. And one answer is that we can create deep domain knowledge, which allows for reengineering skills. In addition, just to survive in India, I think we need to innovate every day. It's a way to channel inherent cultural qualities and to keep employees focused and interested. And innovation encourages us to move away from a cost center mentality and toward a revenue mentality.
The Quarterly: Do you have a program for migrating centers from early development to the level where you're seeing this kind of innovation?
Romi Malhotra: This is a four-stage journey that we have defined for ourselves. Stage one was proof of concept: just proving that we could provide the same customer experience—the same close rates and quality—in these centers in India that we provided elsewhere. Can we meet the same metrics, have the same rigor and culture that exists elsewhere? When we discovered we could, we went further.
Stage two was getting credibility by becoming best of breed within Dell. The company has 40 centers doing the same thing, yet what we did out of here was better than all of those elsewhere, based on our hourly metrics. To do that, we had to make sure that employees could understand the process and that they would stay with Dell. We couldn't have a revolving door, with a lot of attrition and people coming and going all the time, so we had to become the employer of choice locally. And then we had to look at productivity and standardization, which would ensure consistency.
The third stage is excellence from reengineering, which only comes with deep domain knowledge, and that happens when you have the best brains working on it. And one way to prove you're doing that is to become a talent exporter. Dell is setting up new centers in Manila and Ottawa and El Salvador, and a lot of the people who set up our centers in India went to help them set up these new ones.
And then the fourth stage is leadership, for lack of a better word, but really it's about creating a completely new "product" that doesn't exist today. You can only create it because you leverage what you've built. An example of a new product is the process I mentioned for explaining how something that was once free no longer is. We designed that product predominantly in India.
The Quarterly: How has new technology changed the role of Dell's Indian operations and their relationship with the center?
Romi Malhotra: I think technology's biggest impact is the way it has changed how our PCs are used. That has made our calls much more complicated. A few years ago, a customer bought a PC, and it was just a PC. Today a new PC is part of a larger system. The camera is linked to it, music is linked to it, entertainment is linked to it. People download music through it. The Internet is playing havoc with it. So the PC has actually become the center of everything around the home in terms of games, music, movies, and so on. So customers might buy something that is incompatible with the PC, or they have a problem with the operating system. Guess who they call first? And as our incoming calls have become more complicated, the profile of the call center agent we need to hire has become more complicated. Our ability to find and train these people in large numbers is probably a lot better in countries like India.
The Quarterly: What works and what doesn't work in India?
Romi Malhotra: First, it's important to establish a brand as an employer of choice because it's all about finding the right talent. In my mind, a brand is nothing but reality with a lag. So it comes back to creating the right processes, the right ecosystem for our people—whether that means the right work environment, the right kind of managers, or the right systems to support managers, all the way from hiring, to growing within the company, offering a career path, giving people a voice in what they do, and showing them the journey that they're going to be part of. All of that comes together to create a brand. And just because you're a big brand somewhere else in the world doesn't mean you'll be recognized in India.
Second, your governance model needs to evolve depending on when it makes sense to outsource something and when it doesn't. Part of this evolution is managing the expectations of the people in the corporate center. Often, when people talk about their offshore centers they make things sound simple. But people should be aware of the risks and the difficulties. It can also become difficult when people try to reengineer processes as they're moving them. It's a perpetual debate about whether you move and reengineer or reengineer and move.
Finally, you have to address the people issue—not just recruitment but the cultural differences and how they play into retention. A few years back, we were losing a lot of managers, partly because of how we were treating them. In a lot of cases we were thinking, "We do it like this in our headquarters in Austin, and that's the way we need to do it here." And there just wasn't enough push back on the cultural differences, partly because there were so many opportunities in the local market that no one needed to stay at Dell. They could walk out, add 30 percent to their salary, and have an easier environment. We needed to learn how to work within the culture.
The Quarterly: How do you see the role of the Indian centers evolving? Where do you see them three to five years from now?
Romi Malhotra: I think they will keep growing and become a lot more integrated into global delivery centers. I think it will stop being just an India play. I see this happening already within our company. I think centers will have to own a lot more of the process than they do today. Today, they're doing one part of the job, without having the ability to influence what happens before or after. And there are still some things that cannot be done offshore, for whatever reason—access to legacy systems or transactions that can't support the big distances. But as the Indian centers gain a larger footprint and more responsibility, they'll have a more global focus and won't be so India-centric.
About the Author
Noshir Kaka, a principal, is a leader of McKinsey's outsourcing and offshoring practice and leads the IT practice in India. He is based in Mumbai.
This article was first published in the Summer 2006 issue of McKinsey on IT.
