Like the consumers who weigh nutrition, quality and price when food shopping, management must balance quality of service and budget constraints to retain customers who are more valuable than ever.

To cope with pressures to cut costs while maintaining service, call center managers and executives are weighing live agent handling with IVR and Web self-service; in-house call handling with outsourcing; on-site call centers with teleworking ; and whether to locate shrunken or consolidated call centers in the US or internationally.

John Boyd, of The Boyd Company (Princeton, NJ), expects to see more call centers consolidating operations under current economic conditions.

"Finding cost savings is the only way many companies can increase profits," he says. "There's nothing else they can do to improve the revenue stream."

Self-service Hits the Wall

Web and IVR self-service remains one of the best methods for call centers to cut costs. According to research from Gartner (www.gartner.com), Web self-service costs 24 cents per transaction and IVR runs 45 cents; outsourcers say speech rec-enabled IVR runs 50 cents to 55 cents. That compares with $5.66 for live agent assistance.

Self-service deployments are helping to slow growth in the number of new North American call center seats. Growth dipped to 2.75% in 2002 from 2.87% in 2001, reports Elizabeth Kennedy, analyst with research firm Datamonitor (www.datamonitor.com).

"More companies are looking to upgrade what they already have," she says. "[They're] adding IVR or text-to-speech functionality to existing seats, rather than buying new seats."

But IVR self-service appears to have hit a technical wall. The transactions that can be automated, such as locating dealers, resetting passwords, accessing schedules and placing simple orders, has been done in most businesses.

According to Ronald Gruia, program leader, enterprise communications solutions for Frost and Sullivan (www.frost.com), IVR and speech rec-enabled technology is not yet ready to assume the work of first-level customer service and support agents.

"You can do some of that today, with techniques such as word spotting," he says. "But factors such as the long amount of time spent in understanding those questions and getting them answered, and the potential negative reaction to a synthesized voice, can prompt many customers to zero out to live agents."

The Outsourcing Trend

Companies are taking a hard look at outsourcing much of their call and contact volume as a temporary or permanent strategy to cut direct capital and operating costs. But each firm must consider its financial situation and internal policies and practices to determine if outsourcing is right for them.

In theory, outsourcing costs more than handling calls and contacts in-house because, like other contractors, outsourcers need to make profits and factor that into pricing.

Outsourcers and clients have access to the same labor pools, locations, carriers and technologies. (More about individual outsourcers in the February issue.)

With business falling, some companies that both outsource and have in-house call centers reportedly shifted outsourced calls to in-house agents to avoiding laying off reps. (Downsizing generates severance costs, reduced morale and bad press.) Why outsource and make money for someone else when one's own employees do not have enough work?

But in reality, in-house call handling is often more expensive by corporate preference and by terms agreed on in collective bargaining agreements.

Boyd says that companies tend to locate in-house call centers in pricier and more prestigious office parks, not in old shopping centers that outsourcers often favor. They also often offer more pay and benefits.

(Sharp-penciled corporations also choose low-cost buildings. Dell recently opened two call centers in former supermarkets.)

Other site selectors say that many unionized firms' in-house call centers have much higher wage/benefit costs and less leeway to cut and reassign staff than outsourced call centers.

Katherine Shariq, analyst with Frost and Sullivan, says that outsourcers tend to have higher productivity than in-house call centers. Bureaus usually maintain tighter control over their service metrics and have the latest, most efficient technology.

"A lot of in-house call centers are [also] not as quick to adopt new technologies and operational processes as outsourcers," says Shariq.

The key benefits of outsourcing are greater flexibility and reduced risk. Outsourcers' clients can grow and cut programs as necessary. And they can do so with greater speed and without the headaches that in-house closures and layoffs entail.

While the outsourcing boom predicted for early 2002 did not happen, site selectors and analysts say it is now underway as companies figure out their strategies.

"Companies are reluctant to expand their in-house call centers," says Susan Arledge, principal, Arledge Power Real Estate (Dallas, TX). "They see outsourcing as a way to cut costs."

Outsourcing is driving much of site selectors' business. King White, vice president, Trammell Crow Call Center Site Selection Group (Dallas, TX), says that half of his business is from outsourcers. That compares with just 25% two years ago.

But Mark Seeley, director of consulting, and James Trobaugh, senior vice president of CB Richard Ellis Call Center Solutions Group (Phoenix, AZ), say that a few of their clients took their programs back in-house because they were not pleased with outsourced agent performance.

"Some of our clients are concerned about cultural issues, such as communicating their core values to end-customers," says Trobaugh. "They feel their employees can do a better job of representing their corporations in their own call centers because they are living their firms' values by working in their facilities."

James Beatty, president of NCS International (Omaha, NE), has seen more companies test outsourcing over the past year and then leave some functions to the bureaus while taking other functions in-house.

Only the outsourcers that demonstrate superior levels of customer service and investment in technology have been securing contracts.

"Companies are outsourcing their more costly [functions], like e-mail response and basic service and sales," Beatty explains. "But they are keeping in-house their high-touch/high-quality calls where agents really need to know their products and their customers."

Handling American Calls by Non-Americans

No one can relate to an American better than another American, irrespective of the person's ethnicity and origin. But the US is a very expensive location.

Hence, call centers that can't afford to keep all call handling in the US are wrestling with how much to move outside of the US. Both companies eyeing new locations for in-house centers and those looking at outsourcing are confronting this issue.

Like the consumers who weigh nutrition, quality and price when food shopping, management must balance quality of service and budget constraints to retain customers who are more valuable than ever.

To cope with pressures to cut costs while maintaining service, call center managers and executives are weighing live agent handling with IVR and Web self-service; in-house call handling with outsourcing; on-site call centers with teleworking ; and whether to locate shrunken or consolidated call centers in the US or internationally.

John Boyd, of The Boyd Company (Princeton, NJ), expects to see more call centers consolidating operations under current economic conditions.

"Finding cost savings is the only way many companies can increase profits," he says. "There's nothing else they can do to improve the revenue stream."

Self-service Hits the Wall

Web and IVR self-service remains one of the best methods for call centers to cut costs. According to research from Gartner (www.gartner.com), Web self-service costs 24 cents per transaction and IVR runs 45 cents; outsourcers say speech rec-enabled IVR runs 50 cents to 55 cents. That compares with $5.66 for live agent assistance.

Self-service deployments are helping to slow growth in the number of new North American call center seats. Growth dipped to 2.75% in 2002 from 2.87% in 2001, reports Elizabeth Kennedy, analyst with research firm Datamonitor (www.datamonitor.com).

"More companies are looking to upgrade what they already have," she says. "They're adding IVR or text-to-speech functionality to existing seats, rather than buying new seats."

But IVR self-service appears to have hit a technical wall. The transactions that can be automated, such as locating dealers, resetting passwords, accessing schedules and placing simple orders, has been done in most businesses.

According to Ronald Gruia, program leader, enterprise communications solutions for Frost and Sullivan (www.frost.com), IVR and speech rec-enabled technology is not yet ready to assume the work of first-level customer service and support agents.

"You can do some of that today, with techniques such as word spotting," he says. "But factors such as the long amount of time spent in understanding those questions and getting them answered, and the potential negative reaction to a synthesized voice, can prompt many customers to zero out to live agents."

The Outsourcing Trend

Companies are taking a hard look at outsourcing much of their call and contact volume as a temporary or permanent strategy to cut direct capital and operating costs. But each firm must consider its financial situation and internal policies and practices to determine if outsourcing is right for them.

In theory, outsourcing costs more than handling calls and contacts in-house because, like other contractors, outsourcers need to make profits and factor that into pricing.

Outsourcers and clients have access to the same labor pools, locations, carriers and technologies. (More about individual outsourcers in the February issue.)

With business falling, some companies that both outsource and have in-house call centers reportedly shifted outsourced calls to in-house agents to avoiding laying off reps. (Downsizing generates severance costs, reduced morale and bad press.) Why outsource and make money for someone else when one's own employees do not have enough work?

But in reality, in-house call handling is often more expensive by corporate preference and by terms agreed on in collective bargaining agreements.

Boyd says that companies tend to locate in-house call centers in pricier and more prestigious office parks, not in old shopping centers that outsourcers often favor. They also often offer more pay and benefits.

(Sharp-penciled corporations also choose low-cost buildings. Dell recently opened two call centers in former supermarkets.)

Other site selectors say that many unionized firms' in-house call centers have much higher wage/benefit costs and less leeway to cut and reassign staff than outsourced call centers.

Katherine Shariq, analyst with Frost and Sullivan, says that outsourcers tend to have higher productivity than in-house call centers. Bureaus usually maintain tighter control over their service metrics and have the latest, most efficient technology.

"A lot of in-house call centers are also not as quick to adopt new technologies and operational processes as outsourcers," says Shariq.

The key benefits of outsourcing are greater flexibility and reduced risk. Outsourcers' clients can grow and cut programs as necessary. And they can do so with greater speed and without the headaches that in-house closures and layoffs entail.

While the outsourcing boom predicted for early 2002 did not happen, site selectors and analysts say it is now underway as companies figure out their strategies.

"Companies are reluctant to expand their in-house call centers," says Susan Arledge, principal, Arledge Power Real Estate (Dallas, TX). "They see outsourcing as a way to cut costs."

Outsourcing is driving much of site selectors' business. King White, vice president, Trammell Crow Call Center Site Selection Group (Dallas, TX), says that half of his business is from outsourcers. That compares with just 25% two years ago.

But Mark Seeley, director of consulting, and James Trobaugh, senior vice president of CB Richard Ellis Call Center Solutions Group (Phoenix, AZ), say that a few of their clients took their programs back in-house because they were not pleased with outsourced agent performance.

"Some of our clients are concerned about cultural issues, such as communicating their core values to end-customers," says Trobaugh. "They feel their employees can do a better job of representing their corporations in their own call centers because they are living their firms' values by working in their facilities."

James Beatty, president of NCS International (Omaha, NE), has seen more companies test outsourcing over the past year and then leave some functions to the bureaus while taking other functions in-house.

Only the outsourcers that demonstrate superior levels of customer service and investment in technology have been securing contracts.

"Companies are outsourcing their more costly functions, like e-mail response and basic service and sales," Beatty explains. "But they are keeping in-house their high-touch/high-quality calls where agents really need to know their products and their customers."

Handling American Calls by Non-Americans

No one can relate to an American better than another American, irrespective of the person's ethnicity and origin. But the US is a very expensive location.

Hence, call centers that can't afford to keep all call handling in the US are wrestling with how much to move outside of the US. Both companies eyeing new locations for in-house centers and those looking at outsourcing are confronting this issue.