|Considerations For Call Center
Development: A Case History
BY ROB COPITO, THE STAUBACH COMPANY
Three years ago, wireless communications provider Nextel Communications was a $300
million business. Today, its annual revenue is nearly $2 billion. In the
telecommunications business, this kind of growth leads to increased pressure on corporate
infrastructures, particularly customer care centers.
According to Katrina Menzigan, an analyst at International Data Corporation, call
centers are becoming the center of all customer activity, so infrastructures must handle
an increased workload.
"Billing services and sales functions are increasingly being transitioned into the
domain of the call center," said Menzigan. "This is because it is difficult for
companies to establish salespeople in new areas at a pace quick enough to support their
Nextel anticipated this trend and took steps to ensure that its customer care centers
supported the company's growth strategy.
"We realized that in order to keep our reputation for providing the best-possible
service to customers, we need to make continual investments in call center infrastructures
as our business grows," said Albert Shotwell, vice president of real estate at
The McLean, Virginia-based firm had a digital subscriber base of 2.96 million at the
end of 1998. Its call center facilities were no longer adequate to serve the increasing
number of customers and volume of calls. Expansion of call center operations would be
necessary to sustain Nextel's growth and promote shareholder value.
In fact, Menzigan reported that the telecommunications industry is one of the top
consumers of call center services.
"As the wireless communications industry becomes more competitive, firms are
turning to customer service centers with 24-hour customer service to differentiate
themselves from the competition," said Menzigan.
A Strategic Approach
First and foremost, call center development that maximizes value and
opportunities requires enough time for research and due diligence.
Many firms are eager to have their new call centers up and running quickly due to the
importance of such a critical, around-the-clock function that interfaces directly with the
customer. However, many companies later sorely regret jumping at the first option
available when they discover operation costs are extremely high, labor is difficult to
find, or they are unable to eventually expand the facility.
The three factors discussed below map out the key areas of the methodology to consider
for call center location decisions.
Labor drives the decision as to where to locate a call center, and Nextels
labor research shows why. The company compiled data on labor availability in different
regions, labor competition (some call centers actively target competitors
employees), educational level and wage rates. Geographical factors, such as cost of
living, quality of schools and transportation, are also included since they impact the
suitability and quality of the labor pool. These data were formatted into a matrix and
ranked according to each location.
We wanted to ensure that we made an informed decision and that we werent
jumping into the selection process blind, said Shotwell. Understanding the potential
for both success and failure of a call center, Nextel partnered with a commercial real
estate strategy and consulting firm.
Nextels labor studies enabled it to narrow 40 possibilities down to only 10, and
eventually to two: Winchester, Virginia and the Hampton/Norfolk, Virginia area.
Together with the consulting firm, Nextel tested the labor market in each city by
running advertisements for call center jobs in the local newspapers. In Hampton, Virginia,
one response mechanism generated 500 replies via e-mail, indicating an abundant labor pool
with a propensity toward technology.
Even though call center development has exploded in the last five years because
companies across the board want to provide customer service in this fashion, there are
only a handful of call center clusters. Currently, the greatest concentrations are in the
Southeast and Midwest, where the climate is not too harsh and there is less chance that
weather can knock out power. Nextel considered both areas, but focused on the Southeast
because of the positive results of the labor research.
Own Or Lease?
Once the short list of cities is determined, the next decision is whether to
lease or own call center space. In the case of Nextel, its management team and the
consulting firm determined that leasing was the best option since Nextel did not want its
capital tied up in real estate.
We want our money available to make investments that will allow us to continue to
grow, said Shotwell. The leasing option provides much more inherent
However, some firms dont know if they want to lease call center space or purchase
land for development. If this is the case, it is suggested that they first look for
available space in their target cities to ensure they are not limiting their options.
Regardless of a firms preference for leasing or owning, a conversion opportunity
can be a sensible choice. Former retail buildings or semi-industrial facilities, such as
discount stores or supermarkets, can possess features, including infrastructure, building
design and parking, that make them attractive for a call center conversion.
Sufficient room for parking is critical because call center employees often work
late-night shifts that public transportation cannot accommodate. The parking area should
be on the ground level and outside because this is less costly to build and maintain than
indoor parking structures.
Many conversion opportunities already have this parking configuration, and they are
located in appropriate neighborhoods. They are not surrounded by high-rise buildings,
which tend to be built in areas with high real estate values that needlessly drive up
costs. With a one-level structure, they tend to have more surrounding space which allows
for future expansion opportunities.
Nextels newest customer care center in Hampton, Virginia is a 100,000-
square-foot, one-story facility with plenty of surrounding open space. This provides
abundant employee parking and is making it possible for the company to add an additional
43,000 square feet to the facility for the first quarter of 2000. The first 57,000 square
feet was occupied in early August 1999.
A good infrastructure is also critical. Fiber optic cable and the buildings power
and security systems are all things that need to be put in place if they are not already
there. Nextel and its consulting firm noted that the Hampton, Virgina site was within a
few miles of several corporate headquarters buildings, which indicated a lot of fiber
optics were already in place. In general, Staubach estimates that the cost can be up to 50
percent lower when converting a former semi-industrial or retail facility as opposed to
developing a new building from the ground up.
An often overlooked yet critical element of call center development is securing
municipal incentives from the city and state governments. Since call centers bring job
growth and employment opportunities to an area, telecommunications firms can receive tax
incentives, grants, low-cost financing, workforce allowances and road improvement
subsidies. In addition, the government will often give cash abatements and real estate tax
breaks to firms that create new jobs in a region.
For Nextel, the $2.3 million saved through negotiations for state and municipal
incentives also led to the decision to select Hampton, Virginia for the call center site.
Skillfull negotiators and experience in dealing with local and state governments add
tremendous value, Shotwell said. It made the difference between a fair offer
and one that was simply too good to pass up.
Central to all three of the factors discussed above labor, real estate and
incentives is that they all center around finding the most reliable and
Today Nextel has customer care operations in Rutherford, New Jersey, Denver, Atlanta and
most recently in Hampton, Virginia. Nextels national real estate portfolio presently
exceeds four million square feet.
The methodology employed by Nextels consulting firm paid off. In addition to the
savings generated through negotiations with the local and state governments, the chosen
building was the least expensive deal and Nextel saved $600,000 on pure construction costs
related to the expansion of the building. Since a region with a large, proven labor pool
was selected, less competition for labor exists, which results in lower wages. These
savings prove that proper due diligence and skillful negotiations can save a company a lot
in the long run. This process is one that Nextel will continue to use when selecting new
call center sites or expanding its existing ones.
Rob Copito is a senior vice president with The
Staubach Companys Northeast Regional Office. The Staubach Company is a
commercial real estate strategy and consulting firm. Copito specializes in strategic real
estate planning and transactional work for the telecommunications industry.