Thursday, August 14, 2008

Bad news about outsourcing customer service

An excellent piece of research appears to demonstrate that outsourcing customer service has a negative effect on customer satisfaction and also appears to have a negative impact on the market capitalization of the company. The research is being conducted in partnership with the National Quality Research Center at the University of Michigan and the India National Association of Software and Service Companies. The research paper is entitled "Does Offshoring Impact Customer Satisfaction?"

The researchers analyzed 150 North American companies and business units from 1998 to 2006. They used the ACSI (American Customer Satisfaction Index) as the measure of customer satisfaction. The researchers found that whether or not the outsourcing was offshore or not, the results were the same; namely customer satisfaction declined whenever a company outsourced customer service. With the decline in customer satisfaction was a drop of 1% to 5% in the company's market capitalization.

There is some good news in the research. The outsourcing of back-office activities (such as IT) had no measurable impact on customer satisfaction.

The bottom line is that outsourcing customer service has a price; namely reduced level of customer satisfaction and a likely reduction in the market capitalization of the company.

Is there an obvious conclusion that customers want to deal with the company? One counter argument is that companies who provide outsourced customer service have an incentive to do as well, if not better, than the company itself in order to keep the business. I am thinking employee loyalty plays a part. While outsourced customer service companies may do all the right things, where is the loyalty of their employees?

The answer to outsourcing customer service, at least for now, appears to be a bad decision. The benefit of reduced costs seems to be offset by the reduction in customer satisfaction and potential loss of market capitalization.

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