Tuesday, March 8 2005 17:34 Hrs (IST) - World Time -

Washington: Around 80 per cent of companies that outsource customer service projects to cut costs will fail by 2007 because of high staff attrition rates and many of them neglect to manage their outsourced operations, research firm Gartner has predicted.

"Companies are not looking at processes from a customer point of view and this is risky," said Gartner research director Alexa Bona. Companies, that outsource internal functions such as human resources and finance, don't have the same level of exposure because problems are dealt with by their own staff, Bona said.

Gartner predicted that through 2008, some 60 per cent of companies that outsource customer-facing functions, will face client defections and hidden costs that outweigh any potential cost savings.

It, however, predicted that the customer service outsourcing market would continue to grow, from $ 8.4 billion in 2004 to $ 12.2 billion in 2007.

Companies should choose their outsourcing firms wisely, Bona advised, especially since there is a great deal of movement and mergers in the Indian outsourcing market at present. Gartner forecast that 70 per cent of the top 15 Indian-owned start-ups, that offer call center services, will be bought or marginalized by the end of this year.

"When that kind of rapid growth occurs, processes break down," Bona said.

While outsourcing key customer-facing functions carries a high level of risk, successful outsourcing of other non-core operations can reap cost savings of 25 per cent to 30 per cent, Gartner said.