The Governance of Customer Support Relationships

Increasingly, firms outsource customer support to external service providers. This creates a triadic situation where the outsourcing provider performs customer support services to end customers on behalf of the client. Outsourcing downstream functions poses an agency problem as the outsourcing provider may not be able to deliver optimal support services to end customers (adverse selection problem), or may not be motivated to do so (moral hazard problem). We propose that outsourcing firms can cope with the adverse selection problem by selecting a customer-oriented outsourcing provider. In addition, we argue that the moral hazard problem can be resolved by aligning a customer-oriented outsourcing provider through formal or informal commitments. Since both ability and motivation are essential for high quality service provision, we propose that the effect of the service provider’s customer orientation on the quality of customer service provision is contingent on formal and informal commitments. We extend the contingency model by also considering contextual factors that moderate the effect of customer orientation on customer service provision. We provide two empirical tests of the developed theory, one among 135 Indian outsourcing providers and another among 175 Dutch outsourcing firms. The findings corroborate that selecting outsourcing providers that have a reputation for being customer oriented improves customer service provision, but only under particular contingency conditions. We derive managerial recommendations regarding how firms should select and align with their outsourcing providers, and regarding outsourcing providers’ signaling behaviors toward potential clients.