Overseas call centres damage the brand: Update

Back in 2004, I wrote a blog entry on the back of some research published then in BrandRepublic magazine. It revealed that UK companies setting up overseas call centres are losing customers at a rate that actually negates the cost-saving of outsourcing abroad. The following extract described:

The current use of offshore call centres is damaging the brands of UK companies and hitting profits, according to a new survey.

Industry analysts ContactBabel says one in seven customers who used an offshore centre responded by changing supplier.

The report, "Finding the balance: the effect of offshore customer contact on profit and brand", claims that UK businesses are using the offshore call centre industry in a cost-obsessed and unimaginative way that is severely hurting their brands.

The report, which analysed a survey of 1,008 UK adults in February 2004, found that 14.2% of the UK public changed their supplier as a result of using an offshore contact centre.

Out of those who personally experienced offshore customer contact, 74% said they felt more negatively towards the company than before. UK telecoms and insurance companies experienced the greatest levels of offshore-related customer resentment, with Scottish consumers the most likely Britons to change supplier because of an offshore service.

The survey also found that those who experienced offshore contact were also four-and-a-half times more likely to change their supplier than customers who had no direct experience of offshoring.

ContactBabel said that a typical high street bank would save £9.26m a year in operating costs by replacing 1,000 UK agents with the same number in India. However, if only an extra 0.343% of customers defected in protest, the bank's revenues would be reduced by the same amount. Last year, 1.09% of UK banking customers changed banks as a direct result of customer service offshoring.

I wrote then that it seems that generally many businesses view their customer interactions as a COST TO BE REDUCED rather than as a potential investment in experience, dialogue and learning. By automating customer interactions or outsourcing them overseas for example, many companies are at risk of commoditising one of their most precious future innovation assets: the opportunity to learn from and create value with their customers. In most cases such cost-focused initiatives will fail to deliver lasting value. Why? Because organisations use them as quick-fixes instead of addressing their more deep-seated underlying problems - i.e. a lack of customer knowledge, a poor experience and a limited market orientation...

Well, it now seems that the trend to switching operations back from overseas operations could be accelerating. A couple of weeks ago, Powergen - a UK energy business - announced it was to close its Indian customer service operations. Their MD claimed that the cost savings in India were not compensation for loss of quality.  In 2005, Abbey Group did the same following customer complaints. Whats' more, some analysts are now arguing that Indian outfits are beginning to reach the limits of their competent capacity for customer service and that a growing crisis in quality and emerging security issues may entail a reconsideration by many firms of their overseas customer interface.

My view remains the same. All too often, the primary goal of investments in overseas contact centres and the customer interaction more broadly is to reduce cost , increase efficiencies and boost margins.  A more enlightened approach would be to earmark cost-savings made when switching overseas to invest in improving poorly performing elements of the customer experience together with the creation of new added-value services, such as those by First Direct - which have the added benefit of hardly costing anything! 

Back in 2004, I wrote a blog entry on the back of some research published then in BrandRepublic magazine. It revealed that UK companies setting up overseas call centres are losing customers at a rate that actually negates the cost-saving of outsourcing abroad. The following extract described:

The current use of offshore call centres is damaging the brands of UK companies and hitting profits, according to a new survey.

Industry analysts ContactBabel says one in seven customers who used an offshore centre responded by changing supplier.

The report, "Finding the balance: the effect of offshore customer contact on profit and brand", claims that UK businesses are using the offshore call centre industry in a cost-obsessed and unimaginative way that is severely hurting their brands.

The report, which analysed a survey of 1,008 UK adults in February 2004, found that 14.2% of the UK public changed their supplier as a result of using an offshore contact centre.

Out of those who personally experienced offshore customer contact, 74% said they felt more negatively towards the company than before. UK telecoms and insurance companies experienced the greatest levels of offshore-related customer resentment, with Scottish consumers the most likely Britons to change supplier because of an offshore service.

The survey also found that those who experienced offshore contact were also four-and-a-half times more likely to change their supplier than customers who had no direct experience of offshoring.

ContactBabel said that a typical high street bank would save £9.26m a year in operating costs by replacing 1,000 UK agents with the same number in India. However, if only an extra 0.343% of customers defected in protest, the bank's revenues would be reduced by the same amount. Last year, 1.09% of UK banking customers changed banks as a direct result of customer service offshoring.

I wrote then that it seems that generally many businesses view their customer interactions as a COST TO BE REDUCED rather than as a potential investment in experience, dialogue and learning. By automating customer interactions or outsourcing them overseas for example, many companies are at risk of commoditising one of their most precious future innovation assets: the opportunity to learn from and create value with their customers. In most cases such cost-focused initiatives will fail to deliver lasting value. Why? Because organisations use them as quick-fixes instead of addressing their more deep-seated underlying problems - i.e. a lack of customer knowledge, a poor experience and a limited market orientation...

Well, it now seems that the trend to switching operations back from overseas operations could be accelerating. A couple of weeks ago, Powergen - a UK energy business - announced it was to close its Indian customer service operations. Their MD claimed that the cost savings in India were not compensation for loss of quality.  In 2005, Abbey Group did the same following customer complaints. Whats' more, some analysts are now arguing that Indian outfits are beginning to reach the limits of their competent capacity for customer service and that a growing crisis in quality and emerging security issues may entail a reconsideration by many firms of their overseas customer interface.

My view remains the same. All too often, the primary goal of investments in overseas contact centres and the customer interaction more broadly is to reduce cost , increase efficiencies and boost margins.  A more enlightened approach would be to earmark cost-savings made when switching overseas to invest in improving poorly performing elements of the customer experience together with the creation of new added-value services, such as those by First Direct - which have the added benefit of hardly costing anything! 

Comments

[MarcLord]

Chris,

I had missed your original piece back in 2004, thanks for re-surfacing it. Companies lack faith in good customer service because of a general failure of imagination in quantifying how good service and loyalty transfer to the bottom line, and the wide gap between the marketing and cost accounting functions. So it's still an incredible challenge getting the stakeholders to invest in appropriate high-quality call processing systems. There are rays of hope, though, and some academic progress in the area that's starting to seep through to operations. There was an HBR article you'd be interested in if you've missed it, "The One Number You Need to Grow" on the quantifiable growth effects of loyalty and satisfaction:

http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=R0312C