Reference no: EM132290632

CHAPTER END CASE: COST IN

A multinational headquartered in continental Europe had decided on the following strategy: its IT-services division located at headquarters serving domestic clients needed to become more cost efficient. Hence, management has embarked on a program to transfer the whole bundle of IT-services, including the support for the Enterprise Resource Planning system SAP R/3, to a lowwage country, namely India. The areas which were part of this transfer were:

1. First level support for SAP R/3 users (employees of external customers): When an SAP user encounters a problem with the system, they can call the helpdesk for support. The helpdesk usually issues a so-called ticket registering the call and describing the issue. As quickly as possible, the user will receive feedback on the solution to the problem.

2. Second level support for SAP R/3: If the problem the user has encountered is more complicated to solve, the ticket is passed on to the second level support people who are responsible for fixing the problem as soon as possible. They inform first level support of their solution, and first level support gives feedback to the customer about the problem resolution.

In an attempt to reduce fixed costs quickly, it was decided to transfer both levels of support from headquarters to the wholly owned subsidiary in India. This was done in a series of international projects which were all part of the overall cost reduction program. Due to the fact that the customers in continental Europe wanted to continue to talk to the SAP support in their local language, the Indian subsidiary had the task of recruiting employees who had the required language competencies. The project managers of the sub-projects were assured by the Indian subsidiary that feasibility in terms of personnel was given: employees with the right skills, including language skills, were available.

The transfer of the support activities was started. Each manager of a sub-project had the target of moving the activities and tasks within eight months to India. The continental European employees were transferred to a domestic spin-off of the multinational with a 16 per cent lower salary and the prospect of being laid off after the transfer completion. The time estimate for the complete transfer was two to three years. After a while, customers started to call staff at the new spin-off in Europe, complaining about the support they had received from India:

1. One client got really impatient with the fact that his employees first had to spell their names up to ten times before they were allowed to describe the problem. The Indian counterparts frequently could not understand them. This, however, was a mutual problem, as the customers also had difficulties understanding the Indian helpdesk people.

2. Another corporate customer said that his employees were receiving tickets which could not be understood at all. Translated back to English it was something like:

‘Acknowledging running figures on the screen’

3. The next company complained about a lack of support from India. They had the impression that they were not taken seriously by the Indian helpdesk. In a very friendly manner, the helpdesk people said: ‘Yes, Madam, yes, Sir. … This is very unfortunate. Does the system work now? … No, I hope you are ok. Yes, we certainly will take care of it …’

Many times, however, they never got any feedback as to whether the problem had been resolved or not. There were also strong doubts regarding the technical capability of the Indian helpdesk. Some problems were not resolved at all, or resolved very late. The process usually needed to be followed up by the customer which was a nuisance.

4. Yet another client pointed out that the helpdesk came back a couple of times to ask for screenshots. This was perceived as a waste of time and not the usual procedure. Moreover, the request for screenshots frequently only came after one or two days, leaving the users with a dysfunctional system in the meantime.

The employees at the spin-off in Western Europe who were not yet laid off were unhappy, as they sometimes had to work 14 hours a day to fix the problems their 12 Indian colleagues could not get to grips with. In addition, they received all the customer complaints.

After the first year, management was alarmed due to the fact that some corporate clients had changed their supplier for ITsupport. The program manager figured out that more training for the Indian staff was needed. Therefore, training programs for the Indian staff were arranged, mainly in Continental Europe. For two months, the Indian employees were trained in application management, and the different modules of SAP. However, the effect of the trainings was not as positive as expected. A consultant found out only by coincidence that many of the Indian trainees did not sufficiently understand the English spoken by the Western European trainers with their thick local accents. In order not to cause any embarrassment, no feedback on this matter was provided by the Indian subsidiary. In only one sub-project, this resulted in an additional training cost of roughly 81,600 Euros. Of course, this was a comparably small amount compared to the loss of a whole range of customers. Still, it was an unbudgeted, additional cost.

The program manager had to realize that more non-budgeted costs needed to be accounted for:

Due to the fact that the fluctuation in the Indian support teams was at about 20 per cent per annum, training measures needed to be carried out on a continuous basis.

The salary of the Indian support staff had to be increased by an average of 18 per cent annually in order to attract any people at all and to retain staff for at least one or two years.

Training in the local language of the European headquarters had to be carried out, as hardly any personnel could be found who possessed adequate language skills.

More staff from headquarters needed to be sent to the Indian subsidiary in order to facilitate the knowledge transfer, but also in order to bolster up capacities in India. Due to the economic boom, it turned out to be increasingly difficult to hire the necessary number of people there.

Another headache was security. It happened that some temporary staff was ‘smuggled’ into the Indian subsidiary in order to help out without undergoing the proper procedures. They were also granted access to the intranet and other electronic data of the company. The problem was uncovered by a customer in Europe who had insisted that only internal staff would support his company. The whole incident revealed security gaps for the multinational as a whole. In addition, passwords were shared and passed on within the Indian subsidiary, resulting in a loss of transparency and control regarding who was responsible for which changes in the SAP system. This posed a threat to quality.

Having laid off most of the staff at home, the multinational had difficulties taking back responsibilities and tasks from the Indian subsidiary. There were no short-term fixes to the above mentioned problems either. The whole program looked to be doomed.

What had they done wrong? After all, other multinationals, mainly US- or UK-based, have transferred parts of their business successfully to India.

Question and task

1. Case explanation:

Project overview (including goals and scope)

Geographic location & timeline

Industry and Market

Strategy in different levels

2. What risks can you identify?

3. Create a risk register of this project in the third stage of the risk management process (a risk register with a classification of risks, risk triggers, assumptions, risk owners, and contingency plans). Note: For some categories, there is no information available or only limited information.

The case study from "International Project Management" by KATHRIN KOSTER