Most customer service outsourcings will fail, says Gartner

The research firm also believes that, at least until 2008, 60% of organisations that outsource parts of the customer-facing process will encounter customer defections and hidden costs that outweigh any potential savings they derive from outsourcing.

Some of the difficulties are caused by firms failing to manage the customer service experience sufficiently and by companies locking themselves into long-term outsourcing contracts without conducting appropriate pilot testing.

Other difficulties include risks related to knowledge management and retention, highlighting the fact that customer service outsourcing providers have staff attrition rates of up to 70% to 80%, compared to an average of 19% to 25% in in-house contact centres.

"Our research shows there are significant risks associated with outsourcing customer service," said Gartner research director Alexa Bona. "Historically, outsourcing has been seen as a way to reduce costs by getting others in cheaper locations, or with greater economies of scale, to own the processes that are not core to the business. Companies are encountering problems because they don't approach this strategically. They usually lack information to make meaningful cost/benefit analysis and often focus on inappropriate or unmeasureable service levels and cost metrics."

According to Gartner, companies that outsource successfully can achieve cost savings of 25% to 30%. However, Ms Bona warned that a poorly managed model can reduce the quality of the customer experience, dilute the brand values of the company and fail to deliver cost savings.

She advised organisations new to business process outsourcing to start by outsourcing onshore.

"Don't be lured by the apparent cost appeal of placing end-to-end customer services processes in the cheapest offshore locations without conducting a thorough assessment of the transition methodologies of the off-shore provider, as well as your own ability to manage off-shore relationships," she said.

Gartner has set out its recommendations for organisations when defining their customer service outsourcing strategy:

• Identify objectives – be certain customer-facing business processes need to be outsourced;
• Map customer-facing processes from end to end and dedicate sufficient management resources to the intersection between outsourced and retained processes;
• Develop contracts that require innovation in service delivery to reduce the cost of ongoing operation; and
• Do not underestimate the management time required to make an outsourcing relationship work.

Despite the difficulties, the worldwide market for customer service outsourcing is set to grow from $8.4bn in 2004 to $12.2bn in 2007, with the offshore component of this remaining small, reaching less than 2% in 2005 and increasing to less than 5% in 2007, according to Bona.