More Evidence that Outsourcing Customer Service Is a Mistake

Ann All

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.

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Add Comment      Leave a comment on this blog post
Jul 14, 2008 8:01 AM Greer Greer  says:
A decade and millions of un-happy customer late aren't they? Reply
Jul 15, 2008 3:11 PM Emily Emily  says:
I agree, i believe that all outsourcing, mainly to India or brgingin Indians to onsite is a whole huge mistake. Im manager of a large mobile company in Scandinavia and wether is outsourced to indian companies or bringing to onsite those elements or just hiring them it always finish in a disaster. It takes them a LONG time just to understand the way of working, the way of talking, etc etc etc. And Im not talking about customer satisfaction (Im their customer and im not satisfied at all) but im refering to IT operations which is suppose to be "cost-effective" but is just cheap and not effective. I hope same university could gather more in depth study of all outsourcing. As Greer above says: a decade and millions of unhappy customers late... right! Reply
Jul 17, 2008 9:57 AM guia guia  says:
I have a 25 seats contact center with highly trained and confident contact center customer service representatives in the Philippines. Our csr and tsr are most often college graduates who have been taught in schools and universities where English is the medium for teaching. Besides having the passioon for work, our people learn the service / product in no time at all. This is the main reason that multinational BPO companies choose to come to the Philippines. Reply
Oct 24, 2008 9:35 AM Kevin Kevin  says:
After having worked for a company that used a group in India to produce title work I can first hand say it was a complete waste of time and resources. Not only did we have to send them the simplest type of titles to put in the system but they could only finish about 8 a day. This compared to the 30 to 40 a typical worker in the states could finish in the same amount of time. Then we had to have someone quality check each one of the titles coming back from India for accuracy. So where exactly was the cost savings? Reply
Oct 24, 2008 6:46 PM Greg Greg  says:
That main problem I have with outsourcing is the communication issue. Even though the person on the other end may speak English, they don't Communicate the same way which leads to frustration and a lot of wasted time. Also, the accents are hard to get past. Having to ask them to repeat themselves multiple times is ridiculous and if they leave a voice message, then forget it. I can't understand at all what they're saying. It's very inefficient and not worth it at all in my opinion. Reply

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