How Offshore Outsourcing Affects Customer Satisfaction |
By Dr. Jonathan Whitaker, University of Richmond, Dr. M.S. Krishnan, University of Michigan and
Dr. Claes Fornell, Ross School of Business. Wall Street Journal, September 13, 2008.
The outsourcing of customer service to offshore providers has gotten a lot of bad press in the U.S.,
with reports citing language problems and the exporting of jobs. But, despite the potential for such
reports to alienate consumers, this offshoring continues to grow, driven mainly by the lower labor costs
overseas.
Are companies that send customer service abroad making a mistake? It's hard to answer that question
without knowing offshoring's actual impact on customer satisfaction.
Our research indicates the effect in most cases is significantly negative --but similar to the effect of
outsourcing customer service domestically. That suggests companies shouldn't necessarily forgo the
savings they can reap from offshoring. But if they're going to do it, they'd better do it right.
Negative Numbers
We analyzed the offshoring and outsourcing activities of 150 North American companies and business
units from 1998 to 2006. As a group, those that outsourced customer service saw a drop in their score
on the American Consumer Satisfaction Index, or ACSI, a measure created by the National Quality
Research Center at the University of Michigan. The declines were roughly the same whether
companies outsourced customer service domestically or overseas.
ACSI scores tend to move in the same direction as companies' share prices. Based on the historical
data showing that connection, the average ACSI decline we found at companies outsourcing customer
service is associated with a drop of roughly 1% to 5% in a company's market capitalization, depending
on what industry the company is in. That's a steep price to pay. But there are ways to make outsourced
customer service more palatable to customers or to mitigate its negative effects, and in some respects
that may be easier to do with offshoring. And there are offshoring alternatives that can save a company
money without damaging its relationship with its customers.
An important step companies can take to improve the quality of outsourced customer service is to
ensure that the provider has all the information necessary to help the customer and full authority to do
so. Sometimes, because a company wants to protect information about its customers, the customerservice
provider isn't given complete customer histories and profiles. Or the provider's authority to
resolve complaints is limited; for instance, the provider may not be permitted to grant credits to
customers. Companies need to weigh their concerns about information security and financial control
against the damage that such arrangements can do to customer satisfaction.
Tapping Technology
Companies can also make customer service more effective by taking advantage of the technological
innovations that some providers offer, and here there may sometimes be an advantage in offshoring.
That's because some foreign outsourcing providers have offerings their domestic counterparts can't
match in terms of technologies that help guide customer service by recognizing patterns in consumer
behavior.
One way to mitigate the damage from outsourcing customer service is to invest the money the
company saves to improve the quality of the company's products or services, or to cut prices, rather
than simply pocket the savings as extra profit. Our findings suggest that this isn't happening in most
cases. Among the companies we studied that had outsourced customer service, there was no increase
in the perceived value component of their overall customer-satisfaction score: Their customers didn't
feel that they were getting any more for their money than they did before the company started
outsourcing.
Here again there may be an advantage in offshoring. If a company can save more by sending
customer service overseas, it will have more opportunity to devote at least some of that money to
upgrading its business.
In addition to considering whether or not to offshore customer service, companies should consider
whether back-office functions such as information technology may be suitable for offshoring. Our study
found that back-office offshoring had no effect on overall customer satisfaction. So the savings a
company garners this way aren't offset by dissatisfaction among customers.
This article has been reprinted under licensing with the Wall Street Journal. |
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| About the Author: |
Dr. Whitaker is an assistant professor of management at the University of Richmond's Robins
School of Business in Richmond, Va.
Dr. Krishnan is a Hallman fellow and professor of business information technology at the University
of Michigan's Ross School of Business.
Dr. Fornell is the Donald C. Cook professor of business administration, a professor of marketing,
and the director of the National Quality Research Center at the Ross School of Business. |
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| September 2008 |
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