Monday, November 7, 2011

Call Centers: The Still Largely Untapped Operational Profit Vein

I know what you are thinking. “How can he say we haven’t tapped profits from our call centers? We have improved our Website, improved our IVR, and tapped our user community which, taken together, has drastically reduced the number of customer calls we get. So now we don’t need as many agents and our offshore outsourcing has cut our labor rate on the agents we do need. Really, how much value is left?”

The sentiment above summarizes the strategy and results for many companies. It is a good strategy and it has extracted significant savings. However, though it sounds clichéd, it really is the tip of the iceberg…the visible, easy to get at, sources of cost. The lion’s share of the value…revenue and cost…is there for the taking for anyone willing to take a systematic approach. To wet your whistle, I estimate further cost reductions of 40% and call center revenue increases of 3X are easily achievable.

And don’t think that because you outsource and don’t have call centers that this doesn’t apply to you. The outsourcer is charging a price per minute or a price per call. Into that price is built the same inefficiencies you had before you outsourced, in some cases, even more.

Sources of Value

Part of taking a systematic approach is to analyze all the sources of revenue and cost that pass through contact centers and/or that are affected by contact center activity. Once we thoroughly understand the sources of revenue and cost and the drivers of those sources, we can make sure we have plans in place to systematically attack them.

There are four value buckets: three are cost buckets and an “other” bucket that has both revenue and specific kinds of cost not covered by the other three. The three cost buckets are Direct Labor (DL), Indirect Labor (IDL) and Capital Expense (CapEx).

Of these, Direct Labor is obviously and by far the biggest driver of cost. Moreover, the amount of Direct Labor to some extent drives the amount of Indirect Labor (Trainers, Monitors, Coaches, SMEs) and directly drives Capital Expense (Phones, computers, and software licenses for the agents). Drive down Direct Labor and you can proportionately reduce IDL and CapEx.

Before looking at the specific drivers of the amount of Direct Labor, let’s overview what is in the “Other” value bucket. First, poor process capability (agents not handling a call the way they are supposed to every time) results in a significant amount of cross-sell, up-sell revenue being left on the table. Despite the monitoring, the coaching, the incentive plans, etc, agents routinely fail to cross-sell. We have seen situations, where the agents only cross-sell 25% of the time they were supposed to. In situations like these, without improving the sales process one iota, just getting the offer rate near 100% will deliver significant top line benefits.

Another form of revenue left on the table comes from debt collection processes…not reaching the right party, not getting to settlement talks, not agreeing on a settlement number. Improving the collections process instantly puts more money in the hands of the company. (And again, please don’t think “I don’t have to worry about that because we outsource collections,” because your debt collector is leaving your money on the table too.)

In addition to revenue, there are costs in this “Other” bucket. One form is costs accruing in another part of the business due to mistakes being made in the call center. There are numerous small examples, like items returned because an address was entered incorrectly, but a huge source of unnecessary cost comes in the form of warranty processing errors. The agents don’t check the warranty and authorize returns when the warranty has expired, or they have returns sent to the wrong location, or they fail to properly instruct the customer on what to do which leads to other departments having to respond or backstop the call center. These areas are often referred to as “hidden factories” and it is obviously better to stop burning the toast than it is to improve your ability to scrape it.

Third, many companies, especially outsourcers, pay fines either to the government or to their clients for failure to follow the proper process on the call. For example, disclosures not being read to customers can lead to fines (e.g., mini-Miranda rights that collections agents are required to read to debtors.) Further, failure to properly recap calls can lead to outsources paying fines and having to cover customer change fees.

Finally, a source of both cost and revenue, is chargeback processing. Chargebacks come from customers who ordered and received something but then call their credit card company and claim they never ordered the item. Make no mistake, this is not an error made by the agent; this is fraud. But anything the center can do to reduce the possibility of fraud, will increase revenue and decrease the costs associated with responding the fraudulent chargebacks.

So, to conclude this section, now we know where the money is. It is tied up in Direct Labor and in other one-off items where poor call center process capability is resulting in revenue leaks, fines, and costs accruing in other parts of the business.

Drivers of Direct Labor

We know that Direct Labor is the biggest driver of contact center costs. By looking at what drives the amount of direct labor a center carries, we can systematically reduce direct labor expense and, as mentioned, IDL and CapEx, which are correlated with the amount of DL.

The first driver of direct labor is call volume. Simple math, if call volume goes up you need more agents to handle it if you want to maintain your service levels (% Answered in X secs). That is why the self-service options that companies have developed have reduced costs. But another step is possible here. A significant percentage of call center volume is call backs from customers because an issue wasn’t resolved correctly the first time or calls because something wasn’t explained correctly and the customer calls when they get their first bill. We have had clients where an additional 10-20% of their call volume was preventable with some changes to how the agents were handling calls.

A second driver of DL is handle time. The longer the average handle time, the more agents you need to handle the volume. As important as this driver is, with some minor exceptions, call centers have made very little progress in systematically reducing handle time in their centers. The only lever they have is experience, training, and coaching and this has proved remarkably ineffective at decreasing handle time.

A third driver of DL is shrinkage…agents off the phone for any reason. The more the agents are off the phone the more agents you need to make up for the time they aren’t on the phone. Agents get off the phone for breaks, lunches, meetings, training, 1-1 coaching, and after-call work (ACW). Now we are not recommending reducing breaks and lunches and setting up sweatshops. But what if you could reduce the need for training, meetings, and 1-1 coaching and not affect performance? What if you could reduce ACW to near zero and still accomplish the work the agents were doing in ACW? We have seen ACW amount to 15% of average handle time. Reducing ACW reduces the need for DL.

The final big driver of Direct Labor is turnover. Call center turnover is very high…in many centers it was 100% or more prior to the recession. When turnover is high, a higher percentage of inexperienced agents are on the phone. Inexperienced agents have longer handle times, they make more mistakes (contribute to “hidden factories,” and they are off the phones more for 1-1 coaching (more shrinkage). All this drives DL, not to mention IDL in the form of the coaches and trainers and HR people needed to terminate old agents and onboard new ones.

The Solution: Increase Use of Automation

We have discussed how the poor process capability in call centers…agents not doing what they are supposed to do, the way they are supposed to do it…increases cost and results in revenue left on the table. We have also discussed how turnover and shrinkage end up requiring more DL.

There are a host of reasons why agents don’t do what the process requires them to do…they weren’t trained, they forgot, it is too hard to do or remember, they were tired or distracted, they choose not to do it, etc. We could spend a lot of time trying to seal off each of those passages that leads the process to being incorrect or too slow or we could leverage automation which will virtually guarantee the process is performed correctly.

Agent-assisted automation is pre-programmed system actions and pre-recorded audio, directed by the agent to make sure the process is correct. The agent drives the process. If the customer has unique questions the agent uses his/her live voice to address the customer’s needs. If not, the agent uses the pre-programmed paths to resolve the customer’s request.

You build the optimal path and you make it easy for the agent to follow it. This alone will increase the likelihood that the process is done correctly.

But with some simple CRM integration work you can error-proof the process. Error-proofing makes it impossible for the agent to process an order or a customer request unless the key steps…cross-sells, disclosures, credit card checks, mini-Miranda…are carried out. Once the software controlling the automation indicates to the CRM that the steps are accomplished, the order can be submitted.

So what is the theory about how the automation extracts this untapped operational profit. The optimal path you build is obviously error-free and with the CRM integration and the error-proofing, this greatly reduces hidden factories due to call center mistakes.

The optimal path is faster. You have taken out unnecessary steps, streamlined what is said to the customer. Shorter calls reduce the need for DL.

Your pre-programmed system actions allow you to process in parallel which reduces ACW and allows you to lower DL.

The software does the heavy lifting so there is less need form monitors, training and coaching.

The job is easier and more enjoyable for the agents, which lowers turnover, increases call center metrics and reduces the need for IDL.


I listed the theory of the savings above. What are the actual results? Well, the proof of the pudding is in the eating and the eating is good. Going back through untapped profit vein drivers we discussed at the beginning:

1) Do you have a big cost center doing warranty processing? Are customers returning merchandise authorized by the call center that is out of warranty? Using automation to check the warranty and communicate to the customer that the unit is out of warranty, we helped a high tech company go from a 15% error rate on warranty processing to zero.

2) Handle Time too long? After Call work too long? Use automation to build the ideal process, to process things in parallel, and to do the work for the agent that the agent was doing at the end of the call. On cell phone activation calls, we reduced AHT by 40% and eliminated ACW which had been 15% of AHT.

3) Paying fines for failure to leave proper messages and give mini-Miranda rights on Collections calls or failing to recap travel arrangements? We have driven the former to zero defects for every collection agency we work with.

4) Agents giving lots of reasons for not cross-selling? With automation, the cross-sell happens every time. We increased cross-sell revenue 5X, just by making the offer every time.

5) Agents off the phone a lot for training and coaching? If the automation is doing the heavy lifting, there is less need for monitoring and training and the agents spend more time on the call. One client fully recovered their investment in our software just through the savings in agent training time. All the other improvements our software generated were pure upside.

If you think this is just a shareholder play and the other stakeholders…the agents and the customers are being hung out to dry…you would be mistaken. The agents love this solution. They get to rest their voices; they don’t have to be as worried that they will make a mistake; they get to concentrate on really listening to the customer as opposed to focusing on trying to remember the dozens of things they are supposed to do.

Use of automation has been shown to decrease agent stress and increase satisfaction. When a senior leader from our client visited the outsourcer using our pre-recorded automation, it was as quiet as a church and the agents seemed less stressed and genuinely happy to be working there. We have not had a chance to study turnover reduction, but we are confident we are affecting this huge cost driver.

On the customer side, every study of customer reaction and satisfaction shows that the customers are completely accepting of automation. First, the pre-programmed system actions, they never see or hear, so no problem there. Few customers even comment let alone complain about the agents’ use of pre-recorded audio. And the customer satisfaction scores are the same for agents using the software and agents handling the call entirely with their live voice.

And why should we be surprised that customers don’t care about the agents use of automation? We hear prerecorded audio in the IVR. We hear it when we pay automated machines in parking lots. We hear it on buses and trains. We hear prerecorded preflight announcements. Does anyone care that the flight attendants don’t do this? No.

To be sure, organizations have taken costs out of their call center operations. In this difficult economic environment, where companies are looking for and turning over new stones to try to find revenue and profit growth, this article should serve as a reminder that deep seams can sometimes run through areas abandoned as no longer productive.

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