Looking to grow your support team and reduce costs? Here’s why AI trumps outsourcing customer service

Written by Can Ozdoruk on Aug 7, 2020

As a way to grow a support team, scale to new markets, provide 24/7 support and reduce costs, many companies hire a business process outsourcer (BPO) to farm out customer service. Over the last few years, AI-powered customer service automation has become a viable alternative to BPOs, helping companies achieve these same end-goals with less risk and higher ROI. 

In this post, we’re exploring the hidden costs of outsourcing and the risks to a company’s reputation, customer experience and bottom line. We will also explore why AI is safer, more cost-effective, and most importantly, delivers a better customer experience as compared to BPOs.

Why outsourcing became a thing…..and why it should be a thing of the past 

Companies like Bank of America, Ford Motor Company and the Wall Street Journal use overseas workers to cover all or part of their customer service. This is because in the 1990s, when outsourcing began to gain prominence, the cost of labor and overhead costs was much more favorable, and it provided a way to offer more around-the-clock coverage. 

Most commonly, outsourcing jobs go to India –  70% of consumer support in the world is managed here1 – and the Philippines. There are also near-shore hubs, including Central America and the Caribbean, that offer benefits of more aligned time zones and more native English speakers, but labor is not as cheap in mature cities like San Jose, Costa Rica and Panama City, Panama.

At the time when outsourcing rose in popularity, customer service was not as critical to the health and viability of a company’s bottom line. Over the past few years, though, customers started basing their buying decisions based on the customer experiences they received. Studies have shown that 90% of Americans use customer service as a deciding factor when choosing to do business with a company2. Even one instance of poor customer service can frustrate a customer enough to switch to a competitor. The horror stories of poor experiences with farmed out call centers are well known, and we’ve all likely had our own personal experience. These poor customer interactions have resulted in U.S. businesses losing $62 billion each year3.

Not all outsourcing is bad, of course. Gartner recommends that “activities that have less of an impact on CX, like collections and data analytics …. are more suitable for a [BPO]4.”  Not customer service. 

Customer service leaders need to ask themselves what the impact of outsourcing customer care on their customer experience is worth in saved labor costs.

Hidden costs: Companies lose money when outsourcing customer service

While labor costs will be lower overseas than keeping customer support in-house and onshore, there are many fees that customer service leaders often overlook.

Customer service leaders typically plan for the expected labor and overhead costs. Dedicated agents usually cost anywhere from $1,500 to $2,500 per month and you’ll pay higher for industry specialists with more in-depth domain knowledge5. There are also costs associated with benefits for full-time employees, Supervisor/Supervision costs and occupancy/infrastructure/technology costs.

An expensive hidden cost comes when selecting a vendor itself. According to MIT, companies expect to spend an additional 1 to 10% on vendor selection and initial travel costs6. This includes: documenting requirements, sending out RFPs and evaluating the responses, and negotiating a contract. Also consider costs associated with education, setting up the training process and retraining as business evolves.

“There are practical reasons why an outsourcer’s service level is seldom as high as what you’ll get from your own people. If outside contractors cut costs, it might be because they’re more efficient. But it’s far more likely that the savings occur because contractors pay their people less, spend less on training, or both.”

— Jeffrey Pfeffer, CNN Money7 

The risks of outsourcing customer service 

Many companies that have farmed out customer service overseas report that the costs far outweighed the benefits and brought it back in-house. In fact, Gartner says that 80% of customer service outsourcing projects that are designed to cut costs will fail8. This is because there are many risks with outsourcing customer service, including: 

1. A negative impact on CSAT

The biggest risk with outsourcing customer service is the negative impact it can have on the customer experience. One single bad experience is enough to lead 33% of customers to switch companies9. In general, U.S. consumers have a bad taste of international support, even if it has improved over the past few years.

MIT Sloan Management Review reports that outsourcing has led to measurable decreases in customer satisfaction for a number of North American businesses8. This is due to ”declines in customer satisfaction from front office offshoring may be partly attributable to language and cultural issues, and partly related to other gaps for outside service providers (offshore or onshore) to adequately serve and satisfy consumers.”10

Are the savings in labor costs worth losing your most loyal customers? 

2. The health of a company’s balance sheet

If a negative customer experience is not enough of a deterrent, a company’s shareholders might be. The average decline for a company on The American Customer Satisfaction Index (ACSI) for companies outsourcing customer service is associated with a drop of roughly 1% to 5% in a company’s market capitalization, depending on what industry the company is in11.

3. Disconnect from your brand

The overseas agents hired by BPOs to be the voice of a brand to customers are not officially employees of the company they represent. The BPO hires and trains its own agents. As the outsourcing company, you have no control over who is hired. Sometimes, agents work for multiple companies at the same time. When there’s such a disconnect, it’s difficult to build the same company love.

Brain Scudamore,  the founder and CEO of O2E Brands, the banner company for 1-800-GOT-JUNK?, WOW 1 DAY PAINTING and Shack Shine, refers to outsourcing as “the worst customer service mistake you can make.” He describes a time when 1-800-Got-Junk? outsourced customer service to a company in Atlantic Canada. “They were enthusiastic, even painting their office our signature 1-800-GOT-JUNK? blue and sending us pics of the team wearing our silly promotional wigs. But after a few months, we had to bring the call center back in-house. Why? Even with the best of intentions, you just can’t replicate your company culture from afar – and customers pick up on that.12” 

4. Fractured process to re-train 

Call center agents work off of pre-approved scripts. Sometimes, things rapidly evolve – such as during the early days of the Covid-19 pandemic. When your team is offshore, retraining agents is more difficult. If you use a BPO, you’ll also need to think of how to efficiently communicate changes from marketing, sales and engineering to your contracted agent team.

Learn how a virtual contact center differs from a traditional call center.

While high agent attrition is not exclusive to outsourced teams (contact center turnover typically exceeds 20%13) the impact of relying on a human-only team can’t be ignored. And there are a few downfalls that are more prominent with an international team: burnout is accelerated by graveyard shifts in which agents rarely see sunlight and experience isolation from friends and family by working off-hours. A Forbes article highlighting a call center in India talks about the “culture shock and social trauma that almost all employees suffer.12” 

6. Cultural Nuances and Barriers

Customers easily pick up on cultural differences and if any experience is not on brand as expected, it can negatively impact customer satisfaction. 

One call center worker described the training they undergo to bridge the culture gap and the shortcomings. Companies train people to think like Westerners, to talk like them, and to spend all day talking to them. The culture seeped through, but not all of the culture. They know only what they have learned in school, in training, and in their routine conversations with customers. There are enormous gaps in their mental picture of America that they simply fill with their imagination and the movies, sometimes seeing the West as little but the rock concerts, parties, and fast lifestyle the entertainment industry loves to promote it as.12“ 

While this Hollywood-interpretation sounds great, it’s not the everyday reality of U.S. customers.

“CSS leaders must not lose sight of CX needs when deciding what to outsource to prevent customer disloyalty”

– Gartner 

Why AI beats outsourcing customer service 

The ideal use cases to farm out support to another country are tickets with low complexity and high volume. As it turns out, these are also the optimal use cases to delegate to an AI-powered virtual agent.

Here are the biggest benefits of AI over outsourcing, whether companies are scaling support across email, chat, messaging, social, or SMS customer service

  1. There’s zero-risk:  AI platforms like Netomi enable you to launch AI “behind-the-scenes” keeping an agent in the loop to approve, edit, or reject AI-recommended responses. The AI will continually learn based on the agent’s actions, boosting its accuracy. Only when the accuracy reaches a certain threshold, an AI agent would start interacting directly with customers.
  2. You’re in complete control: While contracted employees of a BPO are not employees of your company, an AI agent is part of your team. You have complete control over training (and this can be done easily with historic data). Training an AI can be done in 2-4 weeks, about the same time as transitioning support to an outsourced team. An AI Agent is also easily re-trained and responses can be updated at any time, so optimizing the experience is seamless.
  3. Scale up in seconds: AI Agents can manage an infinite number of tickets at a time. At a moment’s notice, you can’t hire and train new agents, and your customers are the ones who suffer. When Covid-19 saw WestJet ticket volume increase 45-fold, its virtual agent Juliet was able to deflect tens of thousands of calls from its human agents14. Even if you can anticipate a surge in tickets, such as a seasonal spike, hiring temporary workers is costly.
  4. Expand to new channels at near zero marginal cost: Customers expect to receive service through any channel and on any device. As your customer service team extends support to new channels, the same AI can be deployed on many channels with minor changes to the conversational design.
  5. Uplift your team, don’t fire them: Companies look at AI to uplift their current workforce – replacing tasks, not replacing jobs. In fact, the ability to rationalize the company’s headcount was the least-often cited impact of bots (about one in 10). AI removes mundane tasks, letting human employees focus on work that requires higher-level thinking (which pays off in employee satisfaction and happiness). With the unemployment rate at 11% in the United States (as of June 2020), every job matters.

Gartner research has found that customer support leaders expect 80% of technologies – including AI- deployed to return more value in the next two years than they do now15. The benefits of AI snowball over time. With outsourcing, the cost-benefit barely improves.

Can we tell you more about why AI provides a better ROI than outsourcing your customer service overseas? Let’s chat!   

For more information, check out The Ultimate Guide to Delivering Exceptional Customer Support in 2022.


  1. https://www.31west.net/blog/5-biggest-us-companies-offshore-india/ 
  2. https://us.business.trustpilot.com/reviews/why-a-personalized-consumer-experience-matters-in-the-ecommerce-world 
  3. https://www.newvoicemedia.com/blog/the-62-billion-customer-service-scared-away-infographic 
  4. https://www.gartner.com/smarterwithgartner/prioritize-cx-outsourcing-customer-service/ 
  5. https://www.quora.com/How-much-does-it-cost-to-outsource-customer-service-for-a-small-business 
  6. http://web.mit.edu/outsourcing/CIOmagazine-hiddencosts.htm 
  7. https://money.cnn.com/2006/03/01/magazines/business2/costofoutsourceing/index.htm 
  8. https://www.computerworld.com/article/2569384/gartner–customer-service-outsourcing-often-fails.html
  9. American Express WellActually Customer Service Research
  10. https://www.wsj.com/articles/SB121441852405104029 
  11. https://www.forbes.com/sites/brianscudamore/2016/08/16/this-is-the-worst-customer-service-mistake-you-can-make/#1e8c8df73cfc 
  12. https://advisory.kpmg.us/content/dam/advisory/en/shared-services-outsourcing/pdfs/archive/next-generation-contact-centers.pdf 
  13. https://applied.economist.com/articles/how-to-use-ai-to-scale-up-customer-service 
  14. https://www.gartner.com/en/newsroom/press-releases/2020-03-03-gartner-identifies-the-top-five-customer-service-tech