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The research firm found that outsourced operations are 30 percent more expensive than the top quartile of in-house customer service operations.
Alexa Bona, research director at Gartner, said businesses often fail to take hidden costs, such as in-house backup support to the outsourced function, into account.
"The outsourced service is often more efficient, but then outsourcers need to make a profit too," she said.
Gartner also said 80 percent of organizations that outsource their customer management operations purely to cut costs will fail to do so, while 60 percent of those who outsource parts of the customer-facing process will have to deal with customer defections and hidden costs that outweigh any potential savings offered by outsourcing.
"If all you are trying to do is save money, you are not going to be successful," Bona said.
The worldwide market for customer service outsourcing is predicted to grow from $8.4 billion in 2004 to $12.2 billion in 2007, although the offshore element will still only account for five percent of that market by 2007.
Bona said organizations are still being very selective about which customer-facing functions they are prepared to send overseas.
"Most (offshore deals) are for level-one enquiries but not the full end-to-end customer service. People are sending bits of processes, but they have got wise as to what is and what is not suitable to be sent offshore," she said.
The Indian business process outsourcing, or BPO, start-ups--as opposed to the big established players like Infosys Technologies, Tata Consultancy Services and Wipro Technologies--are also set to undergo radical consolidation, with Gartner predicting 70 percent of the top 15 will be acquired, merge or disappear by the end of 2005.
"Many of those smaller companies are owned by VCs. They have grown really dramatically, and when you are growing at that rate, processes break down and it becomes harder to retain staff," she said.
Despite all this, companies can still achieve cost savings of 25 percent to 30 percent if they outsource successfully, Gartner said.
Andy McCue of Silicon.com reported from London.
See more CNET content tagged:
outsource, Gartner Inc., outsourcing, BPO, customer service
When a recent purchase would not work as advertised and I spent time trying to convince a rep sitting in India somewhere that it was Palm's fault (and failed) I returned the product and will never, ever, purchase from them again.
This COST Palm a formerly loyal customer. Can you put a cost factor on the life-long loss of a customer? If they had their customer service in house then the problem could have come to their attention and been corrected (advertising was the problem, and technical incompatibility of two products sold in a bundle that will NEVER work together).
I'm just one person, but I am sure I'm not the last one to have the same experience.
Why doesn't the outsourced customer service alert the company? Why should they? They don't really know how to fix any problem that comes up, they are reading responses from a manual.
I'm especially ticked off because I'm a former tech support person who actually DID know how to troubleshoot and fix problems and escalate what I couldn't fix. It's a personal insult to now have to deal with an outsource who is little more than an elaborate FAQ. If the FAQs could have fixed what was wrong I wouldn't have ever called for support.
Now, let's discuss the other cost that is not counted in outsourcing. How many Palm handhelds is that tech in India going to buy? Maybe one? More likely zero because he's being paid so little. By not paying for service here, where the worker makes more money, you are taking money AWAY from the consumers and moving it to a place where you have no consumers.
Henry Ford, for all his otherwise irrational behaviors, understood that if he didn't pay his workers enough to allow them to buy his cars they wouldn't become customers. If Ford realized that over fifty years ago why aren't today's overpriced morons in tailored suits wise to this (Yes, Mr. C*O in the corner office, this means YOU!)?
Bottom line? Your bottom line is falling because you can't sell product to unemployed people and you can't sell it to people you pay too little to.
It is cliche to say "let's kill all the lawyers". I think the second round of executions, though, should go to the guys who think only of the stock price this quarter and not the bigger picture. They are driving the economy of this country into the dirt!
Any CEO or President worth his salt should get out of the Ivory Tower once in a while and see how the employees in the trenches are really making out. I believe that reality would be a major shock to some of them...
First, there is the loss of customer loyalty. Most of us with a technical background simply refuse to deal with offshore support centers after having had our time wasted too many times.
Second there is the loss of employee loyalty. Companies have developed the bad habit of implicitly or explicitly threatening employees who complain about the poor service their outsourced service desks provide. When the network goes down or the response time becomes untenable, we simply take a break. Sometimes one of several hours.
Thirdly there are the questionable statistics generated by outsourcers. When a problem is called in, the representative can either fail to enter it as a system error, or can sit on his/her hands until someone else handles the problem, at which point he/she marks it as successfully resolved. It once took me a dump of their problem database and some legwork to find out the games they were playing.
But the other more unfortunate truth is, we are just damn greedy. The Executives driving their company into the dirt is doing so because it's profitable FOR THEM! They personally are making money hand over fist and when the hammer finally falls, they'll be so financially independant it doesn't matter. National economy in the ground? So what! They have enough money to live comfortably in Europe the rest of their lives.
They don't have incentive to care about the direction of the company. They are well paid even if they fail. Can you say the same thing about your job? If I as a software engineer were offered a $200K salary in addition to $300K in case I was a bad employee, chances are good I'll end up a bad software engineer. Everyone is like that. People change once they're the boss. Suddenly they start to remember all the crap they had to deal with in their life, and grab the cash while they can.
Also, most American customers are going to be immediately angry when they start talking to an outsourced tech support rep, where in many rural areas people speak fairly clean, correct English.
Offshore tech/customer support staff primarily read from a script to solve a problem. If a problem falls outside the script, they are sunk. Because of the large difference in culture, society, and income between a 1st world and 3rd world country, they have little direct, personal relevant experience to draw on to help solve a problem. That tech support person on the other end of the phone will not have personally used the product they are tasked with supporting, because they cannot afford it. They will not have used basic, ancillary services like FedEx, that you and I use every day. They will not know what "no signature required" means or why you would want it. Because of their culture, and desire to keep their job at all costs, they will not admit to you that they don't know what you are talking about. So they just politely say, "yes" to everything you ask, and lead you to believe they understand what you are talking about when in reality they don't have a clue.
In the end, I do not blame the offshore tech support folks on the front line for wanting to make a good life for themselves, and wanting to do a good job. I think they are well intentioned, hardworking folks. But I do blame the local management of these companies for failing to do their job to make their workers successful, and I unmercifully blame U.S. companies for having simplistically outsourced these functions to save a buck. They have embarrassingly failed to do their due diligence on these offshore arrangements to ensure an acceptable customer experience. Perhaps they spent too much time being wined and dined by their hosts and were blinded by the lure of cutting their support costs by 50-75% or more.
The upside for me in all this is that it provides me with a thriving business providing local, stellar tech support to my customers. I draw on my 20 years in I.T., my M.B.A., my love of technology, and my personal use of technology in my wired/wireless gadgeted home-of-the-future to offer innovative solutions that no offshore support person could ever offer. They would not even understand the question, let alone the solution.
Keith
www.techcando.com
JMH
Working out the numbers really explains more than talking an Essay about it - It works out to be just Incredible from a company's point of view!
Customer loyalty - This is the hardest thing to earn. You not only have to have a solid product, you have to have solid support behind it or you will NEVER gain brand loyalty. Repeat customers are how you make your bread and butter. Losing loyal customers is dumping your plate on the floor to the dogs.
Consumer employees - As mentioned, Henry Ford understood this in the 1920s. Palm, among others, broke this rule and it is going to kill them. Maybe not today, but not very long from today. Remember, you heard it here first.
These are NOT replaced by the supposed cost savings in the short term. These factors are as inevitible as the tides. Investors need to look beyond the quarterly margins and realize there is only one job in the entire company that really should be done by someone overseas. The CEOs!
(Hey, if cheaper is better then why are all the CEOs who earn big bucks still from the U.S.? I can hire 100,000 guys in India for the cost of one American CEO.)
BPO (i.e. the outsourcing of internal functions) has generally dramatic and positive effects on the running and profitability of companies. However, what works for procurement, IT, finance and (possibly) HR cannot, and I believe will not, be translated into success when dealing with consumers.
Basically Gartner speaks with a forked tongue!!!. They are simplys mountpiece for their latest paymasters of the moment!!!
Okay, it's not very new, as some companies used this, but it works out very well. People in areas with lower cost of living demand less money (sometimes, considerably less) than people from "hot" tech spots. It's the whole cost of living vs. wage ratio plus living in smaller cities/close to home appeals to people.
I believe, CNET or some other publication had an article about this a few weeks ago.
"In almost every programming office I've visited in India during the past 15 years, I've been surprised by the number of people standing around, and watching a smaller number of people doing the actual work. By contrast, most of the US programming offices that I've visited since the early 1990s look like they've been hit by a neutron bomb - lots of empty cubicles, very few people, and every one of the workers (and managers) madly scurrying around, like crazed rats in a maze, trying to accomplish the jobs of two or three people."
I suppose that the 10 (surely 3 at most?) people you hire for every one American consists of 9 people standing around while one tries to read the script.
- MB
http://www.offshoringmanagement.com
- Statistics. ...
- by b2bhandshake May 31, 2005 12:38 AM PDT
- ?An old adage goes, can be used to prove anything; this current ?analysis? seems to be in the same genera?
- Like this Reply to this comment
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(18 Comments)- MB, Author, Consultant
http://www.offshoringmanagement.com