Myths and Realities of Customer Service Outsourcing

80 percent of customer service outsourcing projects aimed to cut costs are destined to fail, Gartner predicts

  • The worldwide market for customer service outsourcing is set to grow by nearly 50 percent in the next few years, increasing from $8.4 billion in 2004 to $12.2 billion in 2007.

  • Through 2007, 80 percent of organizations that outsource customer service and support contact centers with the primary goal of reducing cost will fail.

  • Up to 2008, 60 percent of organizations that outsource parts of the customer-facing process will encounter customer defections and hidden costs that outweigh any potential savings they derive from outsourcing.

  • Despite the hype surrounding offshore call centers, offshore customer service outsourcing only represents a tiny fraction of the market less than 2 percent in 2005, increasing to less than 5 percent in 2007.

  • By year-end 2005, 70 percent of the top 15 Indian-owned business process outsourcing (BPO) startups that offer customer call centre services will be acquired merged or be marginalized.

  • Outsourced contact centers have higher staff turnover than in-house contact centers.

  1. Identify objectives be certain customer-facing business processes need to be outsourced. Businesses should only consider outsourcing non-core processes and those that are not key organizational competencies. Organizations should ask themselves two questions to identify if the process is core: First, if we were building our business from scratch, would we build this process or buy it? Second, are we so good at executing this process that other organizations might hire us to do it for them?

  2. Map customer-facing processes from end to end and dedicate sufficient management resources to the intersection between outsourced and retained processes. A significant number of failures occur because organizations forget to map the entire customer process from the customer perspective. This frequently results in a poor customer service experience and sometimes customer defection. To be successful, organizations and outsourcers must understand the entire process and clearly articulate each party's entry and exit point.

  3. Develop contracts that require innovation in service delivery to reduce the cost of ongoing operation. To avoid conflicts between the objectives of the enterprise and the goals of the outsourcer, customer service outsourcing contracts should not be based only on operational metrics such as number of calls handled or average call time. In this scenario, the outsourcer maximizes profits by increasing the number of calls handled. Instead, contracts should include pricing related to service levels and customer satisfaction or other quality metrics to measure and motivate outsourcers.

  4. Do not underestimate the management time required to make an outsourcing relationship work. Outsourcing should not be used as a means to offload the responsibility for problems. Effective integration of an outsourcer's services, to ensure it appears seamless to the customer is crucial. That integration needs careful and close management especially in the early stages of the relationship.

Additional Articles of Interest

For more information on procurement business process outsourcing (BPO), see the articles "The Procurement Outsourcing Imperative," "The Procurement Outsourcing Imperative, Part II" and "Has Procurement Outsourcing's Time Come?"