Anyone who has exchanged stories about atrocious technical support calls will no doubt be aware of the horror stories that come from people who were shunted to a foreign call center where a person with an impenetrable accent proved incapable of providing anything resembling support. There are some pretty significant economic issues behind these anecdotes, though, as it's not clear whether the poor service is truly turning away customers or if the reduced costs are being passed on to buyers at a rate that draws more in. A new study takes a look at precisely these issues, and concludes that companies that outsource customer service can wind up doing themselves more harm than good.

The study has been placed online for comment prior to publication by its authors, who are looking for feedback from their fellow economists. It was enabled by a truly heroic effort by one of the authors, who scanned over 50,000 news reports over an eight-year period in order to gain a fairly comprehensive view of which Fortune 500 companies in the US were engaging in some form of outsourcing (they found 150 of them had). The authors recognize that this dataset isn't complete, but an Indian trade industry group was able to verify about 80 percent of the reports, suggesting it's reasonably accurate and comprehensive.

The authors then determined how consumers' views of that company might be changing as a result of the outsourcing. They divided the services sent out of the company based on whether they were front office (which would include support calls) or back-office services, such as in-house IT support. Various measures of consumer satisfaction were obtained from the National Quality Research Center. Measurements analyzed included customer satisfaction, loyalty, consumer expectations, and perceived value of products and services. The authors included adjustments for the industry involved and the year involved, as various measures tend to increase with time.

Overall, the analysis indicates that offshoring back-office services has no effect on most measures of customer contentment. Oddly, it actually appears to raise customer loyalty slightly, although the marginal statistical significance makes that determination somewhat suspect.

Things were far more clear in the case of front office services, and the news was uniformly bad for the companies that do so. Measures of customer satisfaction, customer loyalty, perceived quality, and customer expectations all dropped when companies outsourced. Although impenetrable accents are the stuff of bad tech support legend, they aren't the root cause of this problem, as these negative perceptions held even when companies outsourced their front office work to a company located in the US. The authors suggest this can, in part, be explained by the lack of specialized expertise in those providing customer support.

Ostensibly, the potential payoff is that saved costs will be passed on to consumers, which will allow them to perceive the company as providing better value. The reality is that there was no correlation between outsourcing and perceived value; the authors suggest the companies are simply using the savings to increase their profits instead. As a result, from the consumer's perspective, outsourcing is a complete negative.

Should companies care? The authors note that they make use of one measure of overall customer satisfaction, the American Customer Satisfaction Index™, which has significant implications for a company. "Higher ACSI scores," they write, "have been linked to higher firm profitability, shareholder value and risk-adjusted stock returns." In essence, by reducing customer satisfaction without offering anything in return, companies that have handled outsourcing poorly (which appear to be in the majority) may be shooting themselves in their collective feet.