More Evidence that Outsourcing Customer Service Is a Mistake

Earlier this week I wrote about the trend of companies reversing earlier decisions to offshore their customer-service positions, largely because of a growing awareness that such positions play a key role in customer satisfaction.

New research from the University of Richmond's Jonathan Whitaker and the University of Michigan's M.S. Krishnan and Claes Fornell lends credence to such reversals. The biggest takeaway from the research, detailed in The Wall Street Journal, is that outsourcing customer service knocks down a company's score on the American Consumer Satisfaction Index (ACSI), a measure created by the National Quality Research Center at the University of Michigan. Interestingly, a drop occurs whether the outsourcing happens onshore or offshore.

According to the researchers, the average decline in ACSI scores due to offshoring customer service results in a 1 percent to 5 percent reduction in a company's market cap.

As the researchers note, "that's a steep price to pay." Companies can mitigate the negative effects of outsourcing, they say, by ensuring that quality of service is strong. Giving service agents complete access to customer histories and profiles goes a long way toward achieving that, though it may also raise data security concerns. Another smart move: contracting with providers that use sophisticated technology such as software that recognizes customer behavior patterns.

Another way of offsetting a drop in satisfaction, suggest the researchers, is to use savings achieved through outsourcing to cut customer prices and/or improve the quality of products and services. If companies do intend to apply savings to improvement efforts, offshoring is a better option than onshoring because it should yield greater savings, say the researchers.

Offshoring back-office functions such as IT does not appear to reduce customer satisfaction, note the researchers.