In the key area of customer services, there is still a good deal of dissatisfaction.
Few companies now provide their own security, catering or window-cleaning services. Many have contracted out their information technology help desks, and some have even outsourced their accounting and human resources departments.
But if outsourcing is a such a well-established business phenomenon, and if all the experts are convinced we will see more of it in future, why are the majority of companies so dissatisfied with the results?
Take an international survey on outsourcing carried out last year by PA Consulting. As many as 66 per cent of respondents said they were disappointed with the results of their outsourcing contracts. Of the companies polled, 49 per cent said they had realised only part of the benefit they had expected from outsourcing. An extraordinary 17 per cent said they had seen no benefits from outsourcing. Only 26 per cent said that outsourcing had been everything they expected.
According to the PA survey, only 39 per cent of the companies surveyed said they would renew their outsourcing contract with their existing supplier. As many as 15 per cent said they planned to bring the service back in-house.
More than 60 per cent of companies said that outsourcing had failed to improve customer service and satisfaction. Many customers will wonder whether the remaining 40 per cent of companies really understand how bad things have become.
The evidence is anecdotal but it regularly arrives in FT email inboxes. Customers complain about two things. First, when they telephone a company with a problem, they are met with offhand service and, occasionally, rudeness. Many customers are convinced this is because they are talking to a third-party call centre rather than to the company itself. Second, when they ask to speak to someone more senior, they are told "there is no one else to speak to".
One reader, recounting his dissatisfaction with call centre service, wrote: "I have tried, of course, to complain, but there is a terrific shield in place that protects these 'managers'. I put that in quotes because I'm unsure quite what they are managing. It ain't to my satisfaction, that's for sure."
Having outsourced customer service to a third party, many companies cut themselves off. They appear to believe that as someone else is dealing with the customers, they no longer need to do so. The worst offenders are those companies that, on their websites and in the telephone directories, provide no contact numbers other than the call centre that has already let the customer down.
But underlying all this dissatisfaction is a paradox. Companies are unhappy with the results of outsourcing but they are not unhappy with the companies providing the outsourcing services. Indeed, the companies say that suppliers of outsourcing services are generally delivering on their contractual commitments.
As many as 78 per cent in the PA survey said they were either satisfied or very satisfied with the service provided by their main outsourcing supplier.
If suppliers of outsourced services are doing what they said they would, why do companies find the results so unsatisfactory? To answer the question, we need to go back a step and ask what outsourcing was for in the first place.
Underlying the trend for companies to outsource what they used to do themselves were two thoughts. The first was the idea of core competences and the second was cost. The two were intimately related. In their drive to cut costs, increase margins and raise productivity, companies began to ask themselves: what do we actually do best? And could the activities that are not central to our business be done more cheaply and more effectively by someone else?
In all sectors, whether manufacturing or services, catering, security and cleaning, went to outside suppliers. They were followed by the company's business travel department and many aspects of IT management, including, in some cases, the entire computer department. Other companies became more adventurous: they discovered accounts could be handled more cheaply by outsiders, particularly if they worked in low-cost countries such as India. Outsiders, some companies decided, could handle many aspects of human resources more cheaply and, they hoped, more efficiently than the companies could themselves.
Many companies had already contracted out large parts of their manufacturing when the fashion for outsourcing began to take off. Aircraft and automobile manufacturers had long ago given up making everything themselves. They retained responsibility, however, for final assembly. Other companies, such as clothing, footwear and toy makers, contracted their manufacturing out completely. They concentrated all their efforts on what they thought was their core competence: design and marketing.
One of the reasons for the dissatisfaction revealed in the PA survey may be that outsourcing has gone too far; that in contracting out what they thought was a peripheral activity, companies have given away something too important to be left to outsiders. In particular, if you allow others to deal directly with your customers, to speak to them on the telephone and to answer their complaints and queries, have you ceded control of one of the central functions of the business?
Those involved in providing outsourcing services insist not, but they say companies must ensure dissatisfied customers have a route back to someone within the organisation to deal with serious complaints at a higher level.
The McKinsey Quarterly in 2001 suggested companies rethink exactly why they want to outsource some of their activities. They needed to be sure they were not simply passing on unresolved problems to someone else. "Through outsourcing, companies can now dump operational headaches and bottlenecks downstream, often capture immediate cost savings, and avoid labour conflicts and management deficiencies. We are aware of no managers who have been taken to task for farming out in-house operations," the journal says.
It adds: "In the race to hand over capital-intensive manufacturing assets to outside suppliers, companies may be ceding the very skills and processes that have distinguished them in the marketplace."
At the very least, companies must ensure that they remain in control of their brands and reputations.
Aruna Jayanthi, head of Cap Gemini Ernst & Young's outsourcing practice in India, adds that what is also needed is better management of outsourcing by both sides. Ms Jayanthi, whose company provides outsourced IT support services from Bombay, says: "I think there's still a lot of learning to be done on both sides. I've seen situations where the customer side may not know exactly how to manage the relationship."
Passing responsibility for a particular business function to outsiders means it is that much more difficult to find out what is working and what is not. It is very different from having the service provider in the same organisation or the same building. Once an activity is outsourced, "you can't just stand up and shout out over the partition," Ms Jayanthi says. Companies and outsourced service providers are learning all the time, but are not necessarily benefitting from what they have discovered. "I think the learning is there, but I don't think it is captured effectively and communicated effectively," she says.
