Offshoring: How to deal with customer backlash

Articles and commentary on IT offshoring and BPO in India and elsewhere will be appearing on silicon.com during the coming weeks. You can find them all here.

The threat of a backlash against offshore outsourcing of IT and call-centre work to countries such as India has tended to focus primarily on the US but recent developments suggest a more organised and growing opposition to moving work overseas is beginning to emerge here in the UK.

On the jobs front, the Amicus trade union, which recently merged with financial services union Unifi, has warned of "by any means necessary" strike action in protest at the large numbers of jobs it claims are being moved abroad purely to cut costs. HSBC, which last month announced some 3,500 jobs are to leave the UK, looks set to be the first target.

But it is the customer backlash that is now gaining prominence, with a controversial report by call-centre industry analysts ContactBabel claiming it would need only a small percentage of customers to switch allegiance over offshoring to wipe out any cost advantage of doing it in the first place.

In response to this, we asked the silicon.com CIO Jury this week whether customer backlash now figures in the overall business equation for offshoring. Overwhelmingly the panel voted 'yes', with only one out of 12 respondents disagreeing.

The topic elicited the largest response yet for a CIO Jury question. One of the themes to emerge was quality of service and the damage it can do to the company's brand if offshoring is handled badly.

Paul Allen, head of IT at Commerzbank's UK online share dealer subsidiary Comdirect, said: "We would be unlikely to offshore as our customer service 'quality' is a key factor for the company. Our call centre isn't large enough to justify the additional complexity."

Pete Smith, director of IT and telecoms at Inmarsat, said the only lasting backlash occurs not in protest at jobs being lost but in relation to customer service levels.

"Customer preference must be one of the factors considered when deciding if a service should be offshored," he said. "I have not seen any customer backlash specifically linked to offshore services. Those that I have seen occur when the quality of service drops below the customers' expectation - this happens regardless of where the service is located."

Customer perception rather than reality is another important factor to take into account, according to Frank Coyle, IT director at John Menzies Distribution. "Customers require confidence that the manner in which you manage the business will be able to support them now, and into the future. If they suspect that you have made key decisions for short-term effect, then they will look elsewhere," he said.

But the customer backlash is less likely to directly affect pure IT offshoring compared with call centre and customer support services. Phil Pavitt, CIO at NTL, said: "In sensitive areas like customer service, it is now a factor in our evaluation. For IT we do not feel it has any influence."

The problematic nature of evaluating and mitigating any customer backlash is neatly summed up by Ted Woodhouse, IT director at Leeds Teaching Hospitals NHS Trust. "Customer service is ever more important, and perceptions matter more than reality," he said.

This is all backed up by the UK's National Outsourcing Association (NOA), which warns against offshoring decisions being driven by short-term cost-cutting.

Martyn Hart, chairman of the NOA, said: "There's no denying that cost is the primary driver when it comes to the decision to outsource, no matter what the financial services companies say. Having a business process done for the fraction of the cost in Mumbai can be tempting for any company trying to maximise their budgets but it should not be done to the detriment of the company, its staff and its shareholders."