Andrew Holt finds that outsourced operations fail the customer service satisfaction test

The motivator for companies opting for outsourcing is cutting costs. Reducing labour costs accounts for 70% of companies moving offshore and reducing other costs accounts for 69% according to a study by the United Nations Conference in Trade Development (Unctad).

Cost savings are cited to be in the region of 20%-40%, according to the same survey. But the downside is a fall in customer service.

According to Unctad half of the companies contacted (51%) said that there was a decline in service quality as a result of outsourcing and offshoring, and 42% said there was a loss of institutional knowledge.

Tor Bjørn Fredriksson senior economist at Unctad warns that countries need to offer a more all-embracing criteria if they are to offer a full service, not just based on cost saving labour.

"To attract offshored services, countries need to offer the right mix of skills, costs, infrastructure and legal framework," he says.

The trade-off of accepting poor customer service at the expense of making cost savings is also noted by offshore consultancy CM Insight.

Mike Havard, from CM Insight, says that service quality levels dip by 75% with offshore operations. "But it seems there is an accepted trade-off as long as the business keeps growing the dip in quality customer service is worth the compromise. But this is a time-bomb for companies to deal with and the clock is already ticking."

He notes that almost 60% of customers said they were willing to pay more to deal with UK based staff.

"With these offshoring operations there is no focus on customer behaviour. Service quality fails compared to onshore operations, but this is often ignored," he warns.

CM Insight's research covered all financial services and all types of offshoring and outsourcing operations and the negative
customer service response was the same in all cases.

The actual cost of making the offshore move has also taken many companies by surprise, with the average cost being a third higher than companies projected. But is this anomaly down to over optimistic planning by companies?

At the same time attrition and absenteeism rates are seen as casting a long shadow over the future of outsourcing. "The difficulty of hiring and holding staff will lead to wage escalation as the offshore market matures. We have already seen significant wage increases in India," says Havard.

And this could have an even further negative impact on an already bad customer service levels. "Quality and customer satisfaction will suffer further as a result of fast changing, inexperienced front line staff," says Havard

Relatively small
As a result of this, it is probably not too surprising to learn that outsourcing is still not that prominent among major companies. "Seventy per cent of the top 1,000 firms have not offshored to lower cost locations, so it is still relatively small," says Fredriksson. But he adds: "We have only seen the tip of the iceberg in offshoring, but we do not know how big the iceberg is."

Fredriksson also says it is a myth to suggest that offshoring jobs removes work from the original domestic environment. "Only 2.8% of all IT/software jobs that disappeared in the US in 2000-2003 were due to offshoring. Technical change is a much bigger threat than offshoring."

For all this, Havard says that offshoring/outsourcing has a future - but only if companies deal with the service quality issue.

"Companies speeding up their offshore deployments today must beware of a false sense of security. Though we remain convinced that offshore presents a viable long-term business model, action must be taken to address service quality and staffing issues." IT

Topics