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Tech Companies, Here’s Why Outsourcing Could Be Your Best Cost-Saving Solution  

October 26, 2023

Rising costs and interest rates, inflation levels the U.S. hasn’t seen in 40 years… It’s no surprise that companies are scaling back in the face of economic uncertainty. The U.S. tech industry has been hit particularly hard, laying off more than 176,000 workers this year alone. Which, often means downsizing customer experience (CX) teams, as businesses look to cut costs to manage increased expenses. At the same time, companies are doubling down on tech investments, hoping that artificial intelligence (AI) or automation will boost efficiency just enough to offset rising labor costs. What if the solution were simpler than that? What if outsourcing could be the best cost-saving solution that doesn’t force you to compromise the quality of your CX? 

Tech Used to Be Booming: How Did We Get Here? 

The pandemic years were a boon to the tech industry. The sudden surge in online activity, coupled with the near total shift to remote work, led to record-level profits and hiring frenzies.  

Tech firms expanded their business operations. Meta and Amazon doubled their workforces, while app-based companies like Uber took advantage of record low borrowing costs to expand their businesses, allowing them to offer their services at rock bottom prices to build their customer base. This led to many companies accruing huge corporate losses, but with the promise of a greater return in future, as though no one ever expected the era of cheap credit or the online boom to end.  

Then, the pandemic waned, people started returning to the workplace, resuming much of their pre-pandemic behaviors. Consumer demand rose faster and higher than anyone expected, yet our shattered supply chains failed to keep up, which drove the cost up for nearly everything, from food to fuel. American consumers saw price increases jump from the steady annual inflation rate of 2% to over 9%, as the Federal Reserve fought to stabilize the economy and avoid a deep recession.  

In the tech industry, sales slumped as people quickly reduced their spending and spent less time online. Ad revenues, which accounted for a large portion of tech companies’ total revenue, dried up, as many businesses cut advertising budgets in response to recession fears.  

Tech stocks fell over 35%, the third-worst year for tech since the 2008 crash and the bursting of the dot-com bubble in 2000. The industry had simply grown too big too fast and had reached a certain maturity where markets were oversaturated. Everyone had already adopted their services, so tech companies were seeing a slowing in their customer acquisition rates.  

Tech’s Two Choices: Doubling Down or Cutting Staff 

By and large the tech industry’s response to lagging sales and sluggish revenues has been one we’ve seen played out before. Many times, the first response is to cut staff, as payroll is often one of the biggest business expenses.  

Virgin Orbit cut 85% of its workforce and Elon Musk reportedly cut almost 80% of X’s workforce (formerly known as Twitter) when he assumed control of the company. Google and Amazon, two global giants who many thought were too large and too successful to fall victim to a downturn, have laid off over 10,000 staff members just this past year.  

While for some this action may be necessary, there should be some caution about cutting headcounts in customer care and tech support. This could lead to higher wait times, and burned-out, frustrated workers who are left to cope with the same volume of calls but fewer colleagues to help. In turn, this could lead to costly employee churn, and worse yet, unhappy customers.  

 After all, recessions may come and go, however the impression companies make on their customers is often long-lasting, and the chances to make a good impression are often fleeting. In their Customer Experience Report, PwC found that 1 in 3 customers will leave a brand, even a brand they love, after just one bad experience, and 92% will leave after only two or three negative interactions. 

Though it may seem counterintuitive to keep staffing levels high when trying to reduce expenses, those who do not maintain the quality of the customer journey, even during tough economic times, may pay a price. McKinsey research from 2008 found that companies who excelled in CX during a recession generated 3x higher returns for stakeholders than competitors who lagged. They found that CX becomes even more crucial during a recession because it helps retain customers and can even attract new ones.  

Hoping to “Tech” Our Way Out of Trouble 

There’s also a belief that technology will save the tech industry. Deloitte’s 2022 Global Intelligent Automation survey shows that organizations are increasingly turning to intelligent automation technologies, such as AI and RPA (Robotic Process Automation), to improve productivity, efficiency, and cost reductions.  

More than three-quarters of tech leaders surveyed say they expect their organization to spend more on technology in the coming year, with 63% of companies planning to increase their spending on AI. According to Forbes, 56% of businesses are already using AI technologies for customer service tasks.  

However, while some automation may drive greater efficiency in your overall operations, and would certainly reduce costs, this may not be the best approach if you want to keep customers happy.  

According to a UserLike survey, chatbots can reduce customer service costs by as much as 30%, yet, 60% of people still prefer to speak to a live customer service representative and are concerned that chatbots cannot accurately understand their queries.  

That’s not to say that technology doesn’t have a part to play in managing recession-like conditions. It can enhance human skill and capability, and as tech leaders expect customer requests to increase over the next 12 months, we will need to work faster and more effectively, and technologies like AI can help us streamline workflows and speed up response times.   

Yet, generative AI programs, like ChatGPT, are not the ideal solution if the only purpose is to reduce staffing costs. While removing human agents from the equation may seem like a step towards greater efficiency, it may be at odds with what customers actually want and could hurt your retention efforts. 

Sometimes, the best way to keep customers is much simpler and involves going back to the fundamentals of what it means to deliver great customer service, which is more about effective communication, listening skills and human connection. In fact, a study from Oracle found that 86% of U.S. adults will pay more for a quality customer service experience, which is something to keep in mind in an economic environment where raising prices may be inevitable.  

Outsourcing Could Be the Best Cost-Saving Solution 

Though there isn’t any one answer to the situation in which tech companies find themselves, one thing 84% of tech leaders agree on is the importance of providing excellent customer service during economic downturns.  

The question is how to do so in a more cost-effective way? If one of the main reasons for laying off employees is concern over rising staffing costs, outsourcing may prove to be the better option, as it can still help you source the same world-class talent at cost savings nearing 50%.  

Nearly three-quarters of technology decision-makers also reported that they had significant challenges recruiting the right talent. Outsourcing makes it easier to access the technology skills and IT capabilities that are in high demand by tech companies by allowing you to recruit beyond geographic borders.  

Many up-and-coming tech hubs across Latin America and the Caribbean have highly skilled and experienced developers, engineers, and tech support staff, but at a fraction of the cost of their U.S. counterparts. 

itel’s customized approach to recruitment allows you to find these “right-fit” candidates faster and more efficiently. Our candidate personas are refined to your specifications, with the ability to specify certain aptitudes, industry certifications, and skills such as sales abilities. With 7 nearshore locations in our service portfolio, we can work with you to find the location that best meets your needs and cost requirements.  

The important thing to remember is that you don’t have to sacrifice quality for cost. We can help you deliver that outstanding customer experience even when cost reductions are necessary, and our flexible CX services allow you to scale up or down as needed, so you can respond confidently to rapidly changing industry conditions.  

At itel, we can help you find the right service “fit” for your technology company. Contact us today. 

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