Gartner riles outsourcing industry

A Gartner statement that 80% of customer service outsourcing projects aimed to cut costs are destined to fail has raised the ire of the Western Cape outsourcing industry.

Gartner research director Alexa Bona recently presented a report entitled "The myths and realities of customer service outsourcing" at the company`s Customer Relationship Management Summit 2005 in London.

The presentation identified business risks associated with customer service outsourcing, addressed a perceived number of misconceptions surrounding the dominance of offshore call centres and offered key recommendations to make customer service outsourcing pay.

According to the presentation, the worldwide market for customer service outsourcing is set to grow from $8.4 billion (R50 billion) in 2004 to $12.2 billion (R73 billion) in 2007, but the offshore component will remain small.

"Through 2007, 80% of organisations that outsource customer service and support contact centres with the primary goal of reducing costs will fail," Bona said in her presentation.

She said that up to 2008, 60% of organisations that outsource parts of the customer-facing process would encounter customer defections and hidden costs that outweigh any potential savings they derive from outsourcing.

Luke Mills, executive director of Western Cape contact centre promotion agency CallingtheCape, has rejected the report, saying: "If 80% of such projects are destined to fail, then why are companies still doing it?"

Mills says the South African value system of voice outsourcing was never based on cost savings alone, but rather the complete offering surrounding the service.

The Western Cape Provincial Government has identified voice contact centres as a key investment sector for the province. The sector now employs more than 11 000 people and this number is expected to increase by about 20% this year.

Mills says cost should never be the only factor. "Factors such as culture and knowledge are also important, especially when it comes to unscripted contact centre solutions."

Martin Vergunst, MD of Computer Sciences Corporation (CSC) South Africa, agrees. He says CSC has always maintained that successful outsourcing cannot be based on cost savings alone.

"Our model takes the view that only end-to-end strategic outsourcing services, where we own and manage all aspects of the relationship, can add sustainable value to the client`s operation."

Vergunst says that to be successful, outsourcing needs to be capable of evolving.

But the key is sustainability, he says. "Transformation is not about simply changing from one state to another, it is about continuous ongoing optimisation of business processes."

Gartner`s Bona said offshore customer service outsourcing only represented a tiny fraction of the market - less than 2% in 2005, increasing to less than 5% in 2007. By year-end 2005, 70% of the top 15 Indian owned business process outsourcing start-ups that offer customer call centre services will be acquired, merged or marginalised.

According to Gartner, companies that outsource successfully can achieve cost savings of 25% to 30%. However, Bona warned that a poorly managed model can reduce the quality of the customer experience, dilute the company`s brand value and fail to deliver cost savings.