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Is Outsourcing a Cost Disadvantage?
A new Gartner report directly challenges some of the key assumptions and conventional wisdom surrounding service provider decisions.
Posted Jul 29, 2004
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"Debunking the Myths of Contact Center Outsourcing," a new Gartner report, directly challenges some of the key assumptions and conventional wisdom surrounding service provider decisions. The report calls out five outsourcing "myths," most notably that contact center outsourcing tends to create substantial cost savings. On the contrary, Gartner believes that over the next three years, four of every five companies looking to cut costs through outsourcing will come up empty-handed. According to the report, the average cost per interaction charged to an outsourcing client is 30 percent higher than the average cost per interaction for internal contact centers. "Some organizations have mitigated that by getting better upsell, cross-sell, and revenue generation out of the contact center outsourcer if they have incented [the outsourcer] appropriately in the contract," says Alexa Bona, Gartner research director. "But those that have only gone in with the goal of reducing cost haven't done due diligence." Outsourcers do enjoy advantages of flexibility in location and some economies of scale, but Bona warns against assuming that these advantages translate into anything but service provider profit. "Do they pass the savings along to you? The answer is no, they don't always pass on all the benefits and cost savings." Bona concludes that outsourcing decisions are too often made on the basis of outsourcer hype and managerial insecurities, rather than the true costs and benefits involved, and may sell their internal operations short as a result. "If you look at the best of the best, they can reach the same levels as outsourcers," she says. One of the more common concerns about outsourcing is a loss of customer intimacy, ultimately leading to a drop in customer satisfaction levels. Although Gartner did find that satisfaction scores were higher for customers of in-house call centers than for outsourced call centers (3.96 versus 3.6 on a 5-point scale), Bona says the gap is smaller than most assume, saying that many business executives assume satisfaction ratings will be slashed in half.
Potential outsourcing clients must look for value to be created in the customer interaction itself. "What you end up looking at is, how innovative is the outsourcer's approach to the problems in your industry? Whether it is churn if you're in telecom, or dealer loyalty if you're an automotive company, [look for] something that would change the way you provide service, and provide it in a more effective way," Bona says. "Not all [outsourcers] have a coherent story." Related articles: Creating the Intelligent Contact Center Customer Care Merger Validates Onshore Outsourcing Offshore Versus Onshore Contact Centers
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