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Dell lessons for the Royal Bank of Canada

April 9, 2012

When I heard that the Royal Bank of Canada is starting to outsource some services to India this year, I had an initially negative reaction. Like most people, I incorrectly assumed that if a bank has “Canada” in the name it would have some responsibility, even peripherally, to the welfare of the Canadian economy, job sector, level of service and just generally the Canadian market. This is, obviously, a fallacy. Like all banks, including the Bank of Canada, issuer of Canadian money, the Federal Reserve, issuer of US currency, and most other similar institutions, they are private for-profit corporations.

It is quite certain that somewhere in India a lucrative deal has been struck that will considerably reduce the costs of keeping the business running by removing the pesky need for employment insurance, costly deductions, health insurance, retirement funds, decent working conditions, etc. About the only good news, really, is that there are a lot of poor people in India that stand to get a job paying peanuts, and an Indian Mr. Moneybags will make a tidy profit from their reassignment to telephone call duty from whatever unemployment, or terrible jobs they may be currently forced into.

So since RBC has no responsibility whatsoever to keep jobs in Canada, and offshoring jobs is likely to be very lucrative for a few chosen individuals, it stands to reason this will go ahead. And as more and more jobs transition out of Canada to Bangalore, or other parts of India, the image of the bank will gradually change in the public eye.

Of course, current management stands to gain significantly, as profits in the short term will rise, expenses will go down, and their balance sheet will be stellar. These same managers will take great care, I’m equally sure, to be gone by the time the real impact of these changes on the business will begin to appear in a few years from now.

The real impact I am referring to, negative impact, will come when the services level is inevitably reduced to a point that even internal employees will be complaining and customers close their accounts. I foresee many a lengthy discussion, mostly consisting of misunderstood English being repeated to someone with a total of 4 weeks of English classes (standard training in Bangalore), only to be told they can’t help with that particular problem, and they don’t know who can. (Not making this up, actually. Happened to me with Dell)

Oh, Dell, you silly corporation…

I remember well the downward slide of my favourite computer manufacturer, when they outsourced their service center to Bangalore between 1997 and 2004. Then Michael Dell resigned, at the top of the game, with the company looking great.

By the time the corporation realized the huge mistake off-shoring had been, and that their after-sale reputation was all but destroyed by their Bangalore service center it was too late. Over the next two years, despite superhuman efforts both in returning call centers to the US, aggressive marketing campaigns and expensive ads, Dell consistently lost market share until, in 2006, it was no longer the #1 manufacturer in the US.

Rollins, their CEO resigned, taking the blame, Michael Dell came back intending to be a saviour, but despite his own best efforts, by 2009 its stock was completely down the crapper trading for less than a quarter its value during the peak years when Michael Dell originally quit. Dell simply never recovered, despite doing cool things, like buying Alienware.

Now I’m not saying that the reason for Dell’s decline is strictly customer support related. Dell’s low R&D spend, increasingly cutting corners on component quality and a maturing desktop market were all to blame, but the perception of poor support, and poor customer service, more than any other element, contributed to people who were sold on Dell, like myself, to hesitate, slow, and stop buying Dell altogether. Of course, when they started catching on fire… that didn’t help sales either.

Let me close the Dell parenthesis and say that the bottom line is that I’m not going to cry if in 10 years time there is one less bank of “Canada” in Canada, or a significantly weaker bank at RBC.

Go for it! I can’t wait to see what happens. I wouldn’t be surprised if RBC management take off before the shit hits the fan only to come back later when the reputation of their successors is destroyed, like Dell did, and try to revive a company on the brink of death.

My reaction isn’t all that negative now. It will make for an interesting case study.

FYI, Dell isn’t out of the woods yet, either.

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    Paul Apr 09, 2012

    Do you know what services are due to be outsourced? Typically the banks separate business and personal banking, although I’m sure there are some common elements within their infrastructures. They might only be outsourcing one aspect of their work.
    On the business banking side, one would think there is more international competition, resulting in a cost-reduction strategy for banks that deal with multinational corporations. However, individuals and small, local businesses usually don’t have this option and are the ones who get hosed if there is a drop in the quality of service.
    Interesting story on Dell — we’ve been lucky with them so far, including the Indian support staff, but I know they have had plenty of problems.

    Lloyd Feb 07, 2013

    Great article! I just heard today that RBC Investment Services (formerly RBC Dexia) is going to offshore 50 head office jobs to India, and so it goes on and on. Would love to know what we can do to draw more public attention to these treasonous acts by corporate Canada.

    Rich Mar 11, 2013

    Outsourcing RBC jobs to iGate in India actually started prior to 2008. In the few years since, entire departments have been outsourced to India, including all technical support for bank branch staff, much to their despair. More and more jobs and departments go ti iGate every month, quietly. Even seeing many iGate staff working at head office in roles formerly held by full time RBC staff, guess that’s how upper mgmt skirts any potential off shoring laws or outcry. The kicker is, I’ve yet to encounter iGate staff working at head office that is NOT an Indian national, so near shoring is being used but jobs are not going to Canadian citizens. Don’t see any of the six and seven figureyear executives getting trimmed in a similar fashion. To top it off, RBC just had a record first quarter for the year, morale is terrible and no change in sight. A scared hopefully not former RBC employee.

      Alex Nuta Mar 12, 2013

      But, Rich, it is my understanding that service for some type of products, take TFSAs for one, simply can’t be exported. Does it not stand to reason that some products, and therefore services, must remain in Canada for legal reasons? Then can’t outsource the whole darn business, can they?
      What I don’t understand is why in the business community, this doesn’t seem to be a big deal. Given the track record of Indian companies, and divisions of iGate in particular, on lax security and breach of confidentiality why are no major clients going “Ummm. This is a bad idea, I’m taking my money out of here.” ?

    Richard Apr 07, 2013

    Seen the current fallout on CBC and various other Canadian news sites? Things are coming to light…

      Bob Apr 07, 2013

      It’s not just _corporate_ Canada that’s doing this. The Ontario government is sending millions of dollars to India at the expense of Ontario IT jobs and the Ontario economy.

        Ian Apr 08, 2013

        Absolutely true!

    James Apr 08, 2013

    “, and try to revive a company on the brink of death.”

    Except in this case, we, the tax payer, will be the one reviving the TBTF RBC bank…

    Mohamed Apr 08, 2013

    What does it REALLY cost to keep these 45 people employed? I would guesstimate that they are earning around $80k/year so straight salary is $3,600,000.00 – on average an employee’s additional labor cost is about 25% (to the employer which would include benefits etc.,) so add another $900,000 to this figure. Total for one year is $4,500,000 – of their profit which was about $2b last quarter, this is a savings of .00225% – if my math was correct. So – really???

    bill Apr 08, 2013

    I’ve spoken to people on three different continents while dealing with TELUS. (formerly BC Tel) I severed ties for other reasons, but any loyalty was erased when they raised fees, while still reducing their costs through outsourcing. I understand that public companies’ soul mission is to profit, so IT (pardon the caps) IS GOVERNMENT’S JOB TO PRESERVE JOBS AND THE TAX BASE THROUGH REGULATION. This has been going on for a while, but they made the mistake of doing it on such a large scale and bringing the workers to Canada. It falls on voters and social media to call out this shameful outsourcing. Speak out if you know of any foreign outsourcing, it’s hurting us like it has hurt the US. (Even the government is outsourcing, the BC Liberals have outsourced medical data management)


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