How to Successfully Outsource Customer Service

By Geoffrey James

Even the best sales reps can get blindsided by customers who are angry at poor service. That’s why it’s important for CRM customers to realize that one of the biggest trends in CRM – outsourcing customer service – could turn out to be a bad investment, even if it saves some money.

According to Gartner, the world’s largest high-tech research firm, the worldwide market for customer service outsourcing will grow from $8.4 billion in 2004 to $12.2 billion in 2007. Gartner estimates, however, that through 2007, 80% of attempts to outsource customer service with the primary goal of reducing costs ultimately will fail. The problem is that outsourcing customer-facing processes can result in customer defections and hidden costs that outweigh any potential cost savings.

Historically, outsourcing has been seen as a way to reduce costs by taking advantage of cheap offshore labor, creating greater economies of scale and shedding processes that aren’t core to the business, according to Gartner Research Director Alexa Bona. Most companies fail to make meaningful cost-benefit analysis, however, and often focus on inappropriate or immeasurable service levels and cost metrics. As a result, outsourcing can reduce the quality of the customer experience, thereby diluting the company’s brand equity.

Gartner recommends that organizations looking to expand CRM to include the outsourcing of customer service should take the following steps.

1. Identify your real objectives. Be certain about which customer-facing business processes really need to be outsourced. Businesses should outsource noncore processes that are not key organizational competencies. Organizations should ask: If we were building our business from scratch would we outsource?

2. Look at the big picture. Map your customer-facing processes from end to end and dedicate sufficient management resources to the intersection of outsourced and retained processes. A significant number of outsourcing failures occur because organizations don’t map the entire customer process from the customer perspective. This can result in a poor customer service experiences and, eventually, the defection of customers to your competitors.

3. Pay attention to the contracts. Make sure your contracts require measurable results and costs reductions. Don’t base your outsourcing contracts purely on operational metrics, such as number of calls handled or average call time. Such measurements encourage the outsourcer to maximize profits by increasing the number of calls handled rather than handling calls well. Instead, make sure your outsourcing contracts include pricing related to service levels and customer satisfaction or other quality-oriented metrics.

4. Plan for some problems. 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 to some other company. Effective integration of an outsourcer’s services with your in-house services is essential because customers want a seamless view of your firm. That level of integration needs careful and close management, especially in the early stages of the relationship.

5. Move slowly and smartly. Organizations new to business process outsourcing should start by outsourcing onshore, where they can have greater control. Don’t be lured by the apparent cost savings that are supposed to result from placing end-to-end customer service processes in the cheapest offshore locations. If going offshore, always conduct a thorough assessment of the offshore provider’s transition methodologies as well as your own ability to manage offshore relationships.