Leaders in Call Center Consulting Improving Service & Reducing Costs: The Case for Call Center Consolidation

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1 KRAMER & ASSOCIATES NEWSLETTER Leaders in Call Center Consulting Improving Service & Reducing Costs: The Case for Call Center Consolidation Introduction Cost-effective sales and service delivery has become a key driver for competitive advantage. With customers demanding access 24 x 7, onestop shopping, once and done service, and the integration of sales and service channels, call center consolidation can play a powerful role in your strategy to increase customer satisfaction and reduce operating costs. The concept underlying call center consolidation is simple: through economies of scale in staffing and technology integration, resources can be utilized much more efficiently. At the same time, centralizing call center functions can significantly increase service delivery quality through consistency and process standardization. Consolidation Why Now? Recently, a number of factors have come together to create a favorable climate for considering a call center consolidation strategy. First, the flurry of mergers over the last several years has resulted in redundant call center operations for numerous companies. Second, a local sales and service presence may no longer be necessary or efficient for many industries. Third, with the advent of the Internet, many companies are re-thinking the effectiveness of their field sales operations and are moving to consolidate telesales into a call center setting. Fourth, it is very difficult to support a competitive service model without standardized processes and standards, structured training, and regular call monitoring. Small call center operations typically cannot afford these programs. Finally, new contact center technologies make the practice of routing customers to very small call groups for specialized service both unnecessary and inefficient. As a result, many organizations are now considering the benefits of call center consolidation. Whatever the reason, the fact remains: small groups of agents mean higher costs and lower overall service levels. Through consolidation, significant cost reductions can be realized and at the same time, dramatic improvements can be made to service levels and customer satisfaction. Certainly, the potential for labor savings, operating efficiencies, increased management control, and more efficient use of technology resources are compelling factors, but there are risks that must be evaluated. What about redundancy and disaster recovery? Will the benefits outweigh the costs? How will our customers respond to the new model? How will consolidation impact sales and profitability? These are just a few of the questions that need to be answered. The purpose of this article is to identify the pros and cons of consolidation to help you determine if this is an appropriate strategy for your business. The Key Labor Savings There is no question that one of the most persuasive arguments to consolidate call center operations is the labor savings. KRAMER & ASSOCIATES NEWSLETTER 1

2 To determine whether consolidation is feasible and how it would affect your organization, the first step is to conduct a detailed analysis of the job functions performed by each center. For example, if the functions of each center are very different, it may not make sense to consolidate, other than to share technology. However, for centers or groups that do essentially the same job, consolidation can be an excellent business strategy. The initial analysis of job functions typically includes a comprehensive review of the types of calls taken by each group, the functions performed, the tools used, and the skills required to process the calls. Labor efficiencies can typically only be realized by consolidating like functions. The efficiencies that can be realized depend on the size of the centers and the volume of calls. Although there are many ways to measure efficiency in a call center, an important factor is occupancy. Occupancy is defined as the percentage of time, on average, that agents spend answering calls. Because calls bunch up and call volumes are erratic, small centers experience one of two problems: either high efficiency, with low service levels, or low efficiency with high service levels. To cope with this natural phenomenon, a critical mass of agents is required to realize economies of scale through the powerful pooling principle. By consolidating small agent groups, peaks are smoothed out and efficiency is increased naturally all other factors being equal. An analysis can be used as the starting point to define whether consolidation, at a conceptual level, makes good business sense. Target occupancy rates of 85% - 90% are generally considered to represent good efficiency levels. However, there is an upper limit and sustained periods of occupancy beyond 95% generally lead to burnout and high turnover of call center staff. Figure 1: Labor Efficiency Analysis Example (shown below) illustrates this efficiency phenomenon. For each example shown, we assume the same peak volume of 585 calls, a service level objective of 80/20 (80% of the calls handled in 20 seconds), and an average handle time (AHT) of 210 seconds. In the first column, there are 18 small groups, each with 7 agents. Each group handles approximately 33 calls per ½ hour with a total agent staff of 126. The occupancy per half hour, that is the time actually spent handling calls, is quite low for these groups due to the small size. As shown, it is only 59.75%. If the number of groups is consolidated from 18 to 5, the number of calls handled by each group is now 117 as shown in the second column. However, the number of agents required is not 126, but 95, with equal service levels. The only change is the occupancy, which increased from 59.75% to 78.25% as a result of critical agent mass and economies of scale. This is obviously a much more efficient model, yielding a net staff reduction of 31. The third column illustrates the impact of one group the most efficient model. Again, the number of calls is 585 for the ½ hour period, and the service level and AHT are the same, but due to the powerful pooling principle, only 80 staff are needed. This represents a net reduction of 46 staff and the occupancy factor is increased to 93%. Figure 1: Labor Efficiency Analysis Example Number of Groups or Centers Agents Req d ** Occupancy Net Labor Cost 18 Groups/ Centers 7 per Group 7 x 18 = % $ 4.41 M 5 Groups/ Centers 19 per Group 19 x 5 = % $3.325 M 1 Group/ Center 80 per Group 1 x 80 = 80 93% $2.8 M ** Key Staffing Assum ptions for Peak ½ Hour -CallVolum e = 585 Calls -Average Handle Time (AHT)= 210 Sec -Service Level = 80/20 - AnnualAgentCost-$35,000 Potential Labor/Cost Savings = 46 $4.41 $2.8 =$1.61 M KRAMER & ASSOCIATES NEWSLETTER 2

3 * 8 # Improving Service & Reducing Costs: The Case for Call Center Consolidation Figure 2: Optimized Daily Staffing Levels Example # of Reps :00-8:30AM 8:30-9:00AM 9:00-9:30AM 9:30-10:00AM From a cost perspective this is good news. When 18 centers are reduced to 5, a net annual savings of $1.085 million can be realized (a reduction of 31 staff at $35,000). When 18 centers are reduced to one, a net annual saving of $1.61 million can be realized (a reduction of 46 staff at $35,000). It is important to remember that this analysis only works for like functions. This means the agents in the new, consolidated center must be trained as universal agents to take all of the calls formerly handled by each individual center. 10:00-10:30AM 10:30-11:00AM 11:00-11:30AM 11:30-12:00PM 12:00-12:30PM 12:30-1:00PM 1:00-1:30PM Staff Assigned to Handle Electronic Interactions 1:30-2:00PM 2:00-2:30PM Tim e of Day in 1/2-hour Segm ents 2:30-3:00PM 3:00-3:30PM Ele ctronic Staffing Phone Staffing Total Staffing 3:30-4:00PM diagram, time can be scheduled to handle electronic contacts and/or other non call-related work. Better Utilization of Expensive Call Center Technology Call center consolidation also translates into better utilization of expensive technology. Today s call centers are expected to have multi-channel access, with IVR (Interactive Voice Response) and integrated Web-based applications as well as robust enterprise-wide customer data, including transaction history and buying 4:00-4:30PM 4:30-5:00PM 5:00-5:30PM 5:30-6:00PM patterns. The technology and systems required to provide this kind of service is expensive. Consolidation enables the enterprise to utilize its technology budget more efficiently and at the same time obtain the functionality it needs. Call center technology can be configured to network separate sites from one main location, enabling the enterprise to virtually consolidate any number of small centers. This enables calls to be overflowed and load balanced between sites. An example of this kind of state-of-the-art multichannel contact center technology architecture is shown below in Figure 3: Customer Contact Center Technology Architecture Example. Not only has call center technology become increasingly complex over the past decade, but also the number of applications and vendors has proliferated. These developments have enormous impact on the call center. First, the sophistication of call center In addition to staff savings, typically, call center consolidation provides a larger critical mass for better load balancing. This is illustrated in Figure 2: Optimized Daily Staffing Levels Example (shown above). With a greater number of staff to schedule, efficiencies can be gained by matching staff more efficiently to call volumes. For the brief periods of overstaffing, which are noted by the green shaded area in the Custom ercontactc hannels Phone IVR VoIP Web Server Integrated Fax Server Figure 3: Customer Contact Center Technology Architecture Example Call Center Applications Agent + CTI Workstation + WFM + Monitoring CRM Customer Interaction Repository Multichannel Interaction Server(s) ecommerce Environment ecommerce Remote Agents/ Outsource Support Enterprise Application Interface/ Middleware Customer Data Mining/Analytics Customer Information Supply Chain Data Storage Legacy Systems Backend Fulfillm ent KRAMER & ASSOCIATES NEWSLETTER 3

4 technology requires on-site specialists to maintain. Second, dedicated support is needed in the center during operating hours. However, since many call centers have extended hours, often, around the clock coverage is needed in-house from the IT/Telecom support staff. It is much more efficient and far less expensive to support extended hours in a consolidated environment. Third, user licensing, equipment maintenance, and upgrades can be handled much more efficiently with a dedicated staff in a centralized environment. Increased Customer Satisfaction Through Consistent Delivery of Service Quality The final point is about consistency of service delivery, a critical component to customer satisfaction. Performance variation among decentralized call centers often represents a major barrier to world-class service. The resources required to develop and maintain structured training and a topnotch quality assurance program is typically not economical. Through consolidation, consistency can be significantly enhanced to standardize service delivery. differences and standardize. This results in improved customer satisfaction and call handling efficiencies. With centralized resource availability, high levels of quality can be achieved through structured training curriculums, certification procedures, and regular quality monitoring. An example of a training program for a consolidated environment is shown below in Figure 4: Structured Training Program Example. Identify the Risks of Consolidation Although there are many benefits to consolidating small centers into a few sites, there are risks. One of the most important questions is whether the savings and benefits outweigh the costs. If the initial analysis suggests substantial savings, then it behooves the enterprise to identify the risks and develop strategies to mitigate those risks. One of the most critical risks to evaluate is the impact of Figure 4: Structured Training Program Example consolidation on customer retention, which ultimately impacts sales and profitability. Often with decentralized centers, agents are assigned to individual customers providing personalized service and preferential treatment. If that level of specialized treatment can t be duplicated in the new consolidated environment, those customers are not likely to stay. One of the key strategic questions then, is how to provide the same level of personalized service in the new consolidated environment? Part of the answer involves identifying the positive impact that the consolidation will have on customers. Typically, where service is personalized in small centers, response is not necessarily timely because customers are dependent on a single agent or a small group of agents to handle their requests. Consolidation increases the response time and timeliness through sheer size. Through training and technology such as CTI, sophisticated routing, and CRM, a corporate memory can be created so that the same level of personalized service Level 4 Level 5 COLLECTIONS In addition, procedures often vary in decentralized centers. As a result, service delivery can be inconsistent across the enterprise. One of the greatest benefits of consolidation is the opportunity to standardize service delivery processes, in which customer contact processes are redesigned for efficiency and quality. Consolidation presents the opportunity to identify process Order Entry/General Level 1 Classroom Training 10 Supervised Calls 2 Live OJT Calls 1 Total 14 DELINQUENT Level 3 ACCOUNTS Level 2 Training Time Customer Service Total 16 Billing Total 16 Total Training Time = 16 Weeks Delinquent Accts. Total 16 Collections DELINQUENT ACCOUNTS Total 16 Level of Call Difficulty Depth Chat Phone KRAMER & ASSOCIATES NEWSLETTER 4

5 can be provided. The management team must determine if this risk is worth the benefit. However, a number of companies have successfully made this paradigm shift. Another step in the risk analysis is to identify how consolidation will enhance the organization s service delivery strategy and competitive position. The customer benefits of consolidation include instant access to knowledgeable representatives, the ability to extend service hours, the standardization of best practices, the use of technology to identify preferred customers, and the ability to provide robust self-service applications. If the decision is to move forward, it behooves the enterprise to communicate the benefits of a consolidated service model to customers to ensure their satisfaction. How about redundancy and disaster recovery issues? Most technology vendors recommend redundant or fail-over systems for both telephony and data backup. With the cost of computing systems becoming much more affordable, this is no longer an expensive proposition. However, in most cases, the probability of a technology failure is not as great as a local disaster phone lines being cut inadvertently or bad weather. In these cases, disaster recovery can be handled by temporarily rerouting calls to another site or to an outsourcer. Outsourcers or 3 rd party centers can be set up to handle calls for a variety of purposes, such as overflow, unexpected peaks, late hour call volume, and of course, disaster recovery. The risk analysis must be comprehensive, examining in detail consistency in service delivery and operational savings, as well as the potential support costs and risks. Projected savings will vary depending on various staffing configurations and desired service levels. Since there is a point of diminishing returns, consolidating many small centers often yields a much greater savings than consolidating several larger centers. Strategic performance improvements and savings should be carefully weighed against the negatives such as increased long distance charges, the expense of hiring and training new staff, severance costs for existing staff, site development or expansion, expenses for technology, and consultant costs. However, the best strategy is to run the numbers and evaluate the pros and cons. Part of the risk analysis involves a review of potential sites for the consolidated center or centers. Locations should be selected that offer both a strong labor pool and a locale that is typically not shut down due to adverse weather conditions. However, determining optimum call center size and the total number of sites requires extensive analysis. A number of factors and variables need to be considered, requiring detailed modeling to evaluate the myriad of pros and cons of each scenario. Conclusion The purpose of this article has been to help you determine if consolidating call center operations is an appropriate strategy for your business. Escalating customer expectations and cost reduction strategies are key drivers of consolidation. More and more organizations are considering call center consolidation as an ideal opportunity to reengineer inefficient or outmoded processes. At the same time, consolidation offers the potential for improved customer service and the prospect of reduced operating costs. In a competitive business climate, call center consolidation can be an attractive business proposition that should not be overlooked. About Us Kramer & Associates is a call center consulting firm specializing in consolidation, ebusiness integration, call center audits and reviews, development of CRM business requirements, business process mapping and redesign, and technology assessment. The firm is experienced with both B2B and B2C applications. For more information, call us at , us at or visit our website at KRAMER & ASSOCIATES NEWSLETTER 5

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