It was the summer of 2003, and Gary Griffiths's clients were on the verge of a full-scale revolt. The issue was customer service. As CEO of Everdream, a software provider in Fremont, Calif., Griffiths had built his business, in part, on efficient service. But lately, an unrelenting parade of Everdream's customers had been complaining that the company's help-desk reps suddenly seemed to be shooting in the dark. Even when they managed to snuff out problems, annoying phone-line static made their instructions hard to understand. And the grumbling was only growing louder.

The timing could not have been worse. Founded in 1999, by 2003 Everdream boasted some 300 clients, revenue of $20 million, and was creeping toward profitability. A big step toward that goal was the company's recent decision to shutter its North Carolina call center and instead use 40 reps in San Jose, Costa Rica. The move would trim about 25% in operating expenses, but the real benefit, Griffiths hoped, was that Everdream would no longer be bogged down with help-desk headaches. Instead, the company could focus on what it did best -- creating technology that remotely manages its customers' software, applications, and data protection capabilities. "We did not view ourselves as a call center," Griffiths says. "We wanted to know that as our business grew, we would have a partner who could grow with us. We didn't want to hire additional employees and add infrastructure we didn't need."

Griffiths and his team did not make the decision lightly. Working without the aid of a consultant, they drafted a 21-page request for proposal and sent it to a dozen potential outsourcing partners, eventually narrowing the list to five. After five months of interviews to determine which company could best embrace the sophistication of its product, Everdream settled on an outsourcing provider known for working with some of the nation's largest tech companies. The fact that the company had the flexibility to use any of its numerous offices around the globe helped seal the deal. Everdream explored locations both within the U.S. and abroad, but chose Costa Rica because of its affordable labor pool. What's more, Griffiths believed that opting for a "near shore" outfit would reduce logistical snags that offices halfway around the world might present.

Everdream started slowly, bringing 15 of the Costa Rican reps to its U.S. headquarters for more than four months of training. The idea was for them to work side-by-side with Everdream's current first responders and return to San Jose ready to pass their newfound expertise on to their colleagues. But when the program began officially in June 2003, so did the complaints. "Right away, the customers knew something had changed," Griffiths says. Language was a problem, and about 10% of callers reported "unacceptable levels" of static. Even when the calls were crystal clear, the advice Everdream clients were receiving was not the friendly cure-all they had come to expect. For example, resetting a system password, typically a five-minute job, was taking more than 10. The learning curve proved surprisingly steep for the contract workers, and facing upward of 500 calls a day allowed for little on-the-job training. Seemingly overnight, the company's trademark customer service, one of its key advantages in the marketplace, was starting to erode.

Having spent months setting up the operation, Griffiths was reluctant to pull the plug right away. Besides, he was convinced he could make it work. He sent a trusted manager to San Jose; his contractor also agreed to move some U.S. staffers to Costa Rica. That smoothed out some rough edges. But customers were still complaining, and Griffiths had to do something. In August, he reopened his call center in Charlotte, hoping former employees would provide breathing room while the Costa Rican team cut its teeth on Everdream's smaller clients. But even that wasn't enough. With demand for service increasing, Griffiths put a hold on hiring in Costa Rica, instead adding new workers locally. The overseas staff shrank from 40 to 30 -- not exactly a textbook outsourcing operation.

Griffiths began wondering whether any outsourcing arrangement would work. Everdream had long been determined to make customer service a "pleasurable" experience. "Any problem that customers had, we would go to all ends of the earth to solve it," Griffiths says. Instead, inquiries were now being processed in a more systematic, assembly-line fashion. And that assembly line, facing the nuanced problems of Everdream's clients, wasn't particularly efficient in Costa Rica. Far from outsourcing his customer service woes, they had become the biggest headache Griffiths had.

The Decision

In December 2003, seven months after embarking on its adventure in outsourcing, Everdream began a gradual phaseout of the operation. Griffiths didn't even consider switching contractors. "We finally said, 'Outsourcing is a great thing for some kinds of businesses, but for us it just wasn't the right fit," he says. The last Costa Rican agent stopped working for Everdream in mid-April.

Having pleaded with customers to remain patient throughout the process, Griffiths turned his full attention to mending fences. For months, he traveled around the country, meeting with top customers and delivering personal calls to others. After explaining the cause of the problems and informing customers that the help desk would return under Everdream's immediate supervision, Griffiths heard a common, if not surprising, refrain: Thank you. They were frustrated and disappointed with the decline in service, he says, but expressed a great deal of gratitude that their complaints were not only heard but addressed. "I give them all the kudos in the world," says Anne Pollard, director of IT for Charlotte-based CSX World Terminals, an Everdream client. "In a lot of cases, things like this are driven by the bottom line, and it's really tough to reverse those decisions once they happen. So I was very impressed that they cut the cord." Everdream, Griffiths says, did not lose a single customer as a result.

In total, Griffiths brought back 25 of the 40 offshore positions, 15 of those in the reopened Charlotte office, with the other 10 going to the help desk at headquarters. The increased cost of doing business onshore, Griffiths concluded, is just that -- the cost of doing business. Looking back, Griffiths admits he really did not see the collapse coming. With careful planning, and a successful pilot program, all signs pointed to a smooth transition. He remains convinced that outsourcing is a valuable resource for the U.S. economy, particularly for small, fast-growing companies, but it is by no means a one-size-fits-all venture. The key, he says, is making sure the tasks being outsourced are transferable and easily repeatable.

Today, says Griffiths, Everdream is a stronger company for the experience. "We went into this with the conventional wisdom that running a call center was not a core competency of ours, but we realized it was after all," he says. "And it was something we needed to cultivate, rather than outsource."

The Experts Weigh In: Should Everdream pull the plug on outsourcing?

When you outsource, you're going to have issues. Once you sign with an outsourcer, it takes constant care and attention. It's the same thinking you would use for your own company. And that's something companies often miss. Once they outsource, they set it and forget it. They want it to go away, and you can't do that with something that's very important to the business. It can go astray. They really have to watch it as much as they would watch anything else within their four walls.

Steven Richard, President,
Corporate Solutions, Pittsburgh

You've got to pull back as soon as it really starts affecting your business. With this type of firm, the people who call for help are probably very tech savvy. They're probably IT people -- not your average computer user, which you might get if you moved, say, your retail call center offshore. If it truly is a volume game, where you can train someone very quickly, it's much easier to send this kind of work overseas. But if people are calling in who actually know the product, it's very difficult. If I ever sent a call center overseas, I would make sure I employed those people. If they're my employees, it doesn't matter if they're here or there.

Jai Shekhawat, CEO, Fieldglass, Chicago

Everdream might have reacted a bit too quickly by closing down the whole operation and bringing it back to the U.S. I think it overestimated the ease of doing this. There's a six months to a year period of inertia until you can see results, where one person offshore is equal to one person onshore. The reality is many, many outsourcing relationships fail, whether they're offshore or onshore. Sixty percent of projects work, 40% don't. But there is no replacement for patience. It took me over 10 years, honestly, to understand this thing.

Amit Maheshwari, CEO, i-Vantage, Cambridge, Mass.