U.S. firms that offshore customer service may save money on labor costs, but they also pay the price in terms of unhappy customers, researchers say.
“Firms are increasingly offshoring front-office functions such as customer service call centers and back-office functions such as information technology to manage their operations and achieve their strategic objectives, including expansion to new markets, access to global talent or improved efficiency,” says M.S. Krishnan, professor of business information technology at the Stephen M. Ross School of Business.
“However, the implications of offshoring from a customer perspective may differ depending on the functions that are offshored.”
Krishnan and colleagues Claes Fornell of the Ross School and Jonathan Whitaker of the University of Richmond analyzed the offshoring and outsourcing activities of 150 North American firms and business units from 1998-2006. They used Fornell’s American Customer Satisfaction Index to measure customer satisfaction and gleaned over 50,000 news reports for information on the offshoring and outsourcing activities of firms.
The researchers found that offshoring and domestic outsourcing of front-office (customer service) functions result in similar declines for customer satisfaction. Prior work shows that the average ACSI decline is associated with a drop of 1 percent to 5 percent in a firm’s market capitalization, depending on the industry.
Other surveys show that nearly nine-in-10 American customers have experienced some kind of problem when contacting overseas call centers, including lack of responsiveness, reliability and other variables of service quality.
“With the cultural, language, distance and time-zone differences inherent in offshore services, one or more of the (service quality variables) may not translate properly in the offshore service setting,” says Fornell, professor of marketing at the Ross School.
When it comes to offshoring back-office functions (information technology, human resources, finance and accounting, and research and development), however, there is no decline in customer satisfaction.
Krishnan, Fornell and Whitaker say that offshoring activities of American firms can be successful if the process is properly managed.
“Firms may have a limited and short-term perspective in their initial decision to outsource — onshore or offshore — based on internal business process performance,” Krishnan says. “Our research enables firms to account for customer perceptions in making their decision and facilitates a more comprehensive approach to the decision process for offshoring and outsourcing.”
