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October 1998

Big Decisions For The Small Call Center


Small call centers encounter tremendous difficulties in today's competitive markets. Larger call centers benefit from the same economies of scale that place the small call center at a disadvantage.

If you have 35 call center agents or fewer, you face the difficult task of providing a world-class center that executes its mission statement in a cost-effective manner. Although small call centers vary in needs and characteristics, they share common challenges: high capital expenditures, low occupancies, shortage of technical knowledge and high training costs.

In this article, we examine some of the issues surrounding the following strategic operational choices for the small call center:

  • Running your call center in-house,
  • Outsourcing your center's functions,
  • Hiring an insourcing firm to run your call center in-house.

To make the right decision for your center, you need to understand the relative advantages and disadvantages of each approach. This article will help you in that process.

We begin by looking at an important question many call centers face: what are the implications of outsourcing? After discussing the issues concerning outsourcing, we will focus on some important considerations when running your small call center. Last, we will offer several tips to improve operations in small call centers.

The Big Picture: What Does Outsourcing Really Mean?
About 17 to 20 percent of all call center functions are outsourced. Outsourcing involves purchasing a call center service where another company, the teleservices agency, manages and runs your company's call center off-site. In the outsourcing model, the third-party vendor uses its call center expertise on your behalf.

An attractive feature of outsourcing can be the shift of management and legal demands from your company to the teleservices agency. In a high-turnover environment like the call center, the logistics of recruiting, hiring and (sometimes) firing agents can be somewhat mind-boggling. Outsourcing mitigates call center management demands, so a company is able to focus on its business, not running the call center. At the same time, real investment in a physical call center is compromised.

When evaluating the relative merits of outsourcing and the do-it-yourself call center, it is crucial to look beyond simple cost estimates. The following questions and discussion will help you begin the process of examining how each operational model would work for you.

Can Outsourcing Work For You? - Some Diagnostic Questions To Consider

  1. Do you have the most current call center technology and expertise, or are you willing to invest in call center technology and expertise?
  2. Is there a good labor pool in your area from which to hire agents?
  3. How much does each alternative cost?
  4. How much control do you need?
  5. What are the future plans for your call center? Do you anticipate a lot of growth or changes in your organization?

Do you have the most current call center technology and expertise, or are you willing to invest in call center technology and expertise?
If your answer is "no," you should think twice before embarking on establishing a call center on your own. As a small call center, it is vitally important that you have the most current technology. In many instances, you are trying to look like a much larger center, and any breakdown in your systems would be detrimental to your business. Although you are small, the demands on your hardware and software are great, especially if your call center is open around the clock. If your company is not willing to invest (or doesn't know how to invest) in developing a sound infrastructure, you should consider outsourcing.

Is there a good labor pool in your area from which to hire agents?
In a tight labor market, it is extremely difficult to recruit and hire agents. Call centers are high-turnover environments, and a small labor pool will make recruiting a time-consuming and frustrating task. You also pay agents higher wages in a tighter market. If you know that unemployment is very low in your neighborhood, you should consider outsourcing. Outsourcers are typically located in areas where labor is more available and less expensive.

How much does each alternative cost?
This question can only be answered after careful research. A company without call center experience will be unable to create an accurate estimate of costs alone, and the price of a call center consultant can be well worth avoiding the danger of using a call center operational model that is wrong for you.

The per-seat cost of outsourcing varies widely, from as little as $25 per hour up to $60 per hour. Price variation depends primarily on the "kind" of agents required to staff a campaign. For example, if a software company decides to outsource overflow from its software support center, it might require trained software engineers to answer technical support questions. In this scenario, the per-agent cost would be much greater than a campaign requiring agents to take routine customer orders. This is because the teleservices agency pays trained software engineers higher wages than customer service representatives.

When outsourcing costs are compared to do-it-yourself costs, a difference in price is likely. This price differential is frequently due to economies of scale (refer to Table 1: Erlang Can Equal Trouble For The Small Call Center). Whereas an in-house call center must provide a complete solution for just a single call center, an outsourced center is part of a much larger, blended call center operation, where several separate companies' calls are handled. Such a model means fewer idle agents and the overall efficiency of the call center increases. In addition, a third-party teleservices center's capital investments are amortized over long periods of time and over a number of campaigns, further mitigating the per-seat cost.

How much control do you need?
Outsourcing involves very little control or management over the call center by the contracting company. This may seem like a good thing: after all, your company can concentrate on the business itself.

However, companies sometimes need a high level of control over their call center, for the good of the business. From this control perspective, there is an attractive alternative to both the outsourced and do-it-yourself call centers: insourcing. Insourcing means that an outside firm comes to your location and operates your call center for you. Insourcing releases the company from a great deal of responsibility - the insourcer becomes the legal employer of the agents. This means that the insourcer recruits, hires, trains and (sometimes) fires the agents. Another attractive feature of the insourcing model is that the insourcer provides MIS support, which is crucial for the small center.

With insourcing, your company buys more than a service: it buys technical expertise and infrastructure. Insourcing gives your company the option of exerting as much control as needed to keep the call center coupled tightly to business practices.

Of course, the advantages of insourcing come with a penalty: cost. Because insourcing requires investing in call center infrastructure and purchasing the services of an experienced call center management company, it may be as costly as both in-house and outsourcing options, combined!

What are future plans for your call center and your company? Do you anticipate a lot of growth or changes in your organization?
If you are looking to implement new technology in your call center, like e-mail, you might want to think twice about doing it yourself if you don't have the infrastructure. Many small call centers have found outsourcing to be particularly beneficial when bringing new technology into the mix. The latest technologies typically exist at teleservices agencies, and agents are already up to speed on how to use it.

If your company is going through a merger or another dynamic change, it might be best to have the call center off-site. This leaves the company time to focus on other operational activities outside of the call center.

Doing It Yourself
After conducting the appropriate research and running your numbers, you may decide that your company should have its own, in-house call center. The following tips will help you set up and run your call center smoothly. Of course, there are many more keys to success that will only be discovered through your particular experiences. However, the following will help you start out on the right foot.

Design Flexibility Into The Call Center Model
Inefficiency is the most dangerous enemy of a small call center. Because of its small size, a drop in the incoming call rate can cause a low-occupancy, low-efficiency situation extremely quickly (recall the Erlang table). To guard against this type of inefficiency, maintain as much flexibility as possible. You will need a fixed number of full-time agents, but a flexible group of full-time agents, part-time agents with movable hours, and on-call agents for particularly heavy times. Another option is to make arrangements with a teleservices agency to take overflow calls during particularly busy times. This brand of outsourcing enables your call center to scale in size without making a commitment to managing a larger call center.

Take advantage of the fact that agents are in-house. Design additional responsibilities (answering e-mail, filling out paperwork) for agents to fulfill during idle time so that overall productivity can be sustained even if call volumes are variable.

MIS Expertise Is Mission-Critical
The technical expertise to correct call center failures in software and hardware must be in-house or instantly available. As a small call center, you often wish to give the appearance of a much larger center. Therefore, you need to make sure you have the support you need so your call center can be online quickly after any plausible failure. The need for solid MIS is often underestimated because it may appear to have a prohibitively high cost. It is, however, well worth the price when you consider the alternative of a nonoperational call center.

Choose The Right Hardware And Software
A large call center needs effective software support to manage its plentiful resources effectively. A small call center also needs effective software - not because its resources are plentiful, but because its resources are so limited that efficient management has a significant impact on overall productivity.

Critical software ingredients include scripting, workforce management and database management software. Software integration with the rest of the company may be desirable as well. A small call center definitely needs to invest in a quality ACD, but may not necessarily need an IVR.

While making these hardware and software investments, small call centers should always keep in mind the possibility of purchasing high-quality, previously-owned call center equipment. Used equipment keeps costs down without sacrificing quality.

Invest In Your Agents
The cost of recruiting, hiring and training agents is high. In Purdue University's latest Call Center Benchmarking Report, call centers report that the average cost to train a new agent is over $6,500. The average call center spends over 180 hours training each agent (including both classroom time and on-the-job training). These statistics show how expensive and time-consuming it is to hire and train new agents, especially in a high-turnover environment like the call center.

To reduce employee turnover, it is best to give agents some time off the phone. Have agents respond to e-mail or perform other administrative tasks. Another necessity is ongoing training or seminars.

It is important to remember to develop agents' product knowledge and their expertise in dealing with customers through the development of skills and techniques. Weekly updates on products and campaigns are essential. Both kinds of training will increase their knowledge base and also let them know that you value them enough to make an investment in them.

Attend seminars and trade shows. Invest in videos. Read your trade publications, and look to other call centers for innovative ideas.

Be An Advocate For The Call Center
Your small call center will often be up against other "departments" when it is time to dole out the budget. Always remember that a call center is mission-critical. In our competitive business world, customer service is rapidly emerging as an important differentiator between companies. As the sole point of contact for many customers, call centers often provide customers with their only impression of the company.

Small call centers face a number of operational difficulties relatively unknown to the large call center. With limited resources, a small call center needs to carefully guard against inefficiency, closely monitor capital expenditures, continually renew technical knowledge and watch training costs - all while keeping up with significant hardware and software demands.

At first glance, these challenges appear overwhelming, but there are several workable solutions available to the small call center. A small call center should consider the issues surrounding the following operational options: outsourcing a small call center's functions, running a small call center in-house, and hiring an insourcer to manage the cal center. For each operational scenario, issues to evaluate include: the cost of alternatives, current technology, availability of labor in their area, the amount of control needed in the call center, and future business plans. If a small call center decides to keep its operators in-house, designing a flexible model and increasing MIS expertise can aid greatly in any call center's success. Also, selecting the right hardware and software, investing in agents and being an advocate for the call center can have very positive effects on operations.

Although a small call center differs in scope from a larger one, the ultimate goal of both is an effective call center in line with a company's mission statement. Small call centers perform many of the same important functions of those that are larger, yet are sometimes ignored by the call center industry. While small, these centers are just as mission-critical as their larger counterparts. It is time to give small call centers the options - and respect - they deserve.

Dr. Illah R. Nourbakhsh is chief scientist at Blue Pumpkin Software and assistant professor of Robotics at Carnegie Mellon University. He received his Ph.D. in Computer Science from Stanford University. Shannon Hughes is a marketing manager for PrimeTime F&S, a workforce management system developed by Blue Pumpkin Software. She is a graduate of Wellesley College.

The authors would like to thank the following people for help in the preparation of this article: Steve Darnell and Tom Rocca of Intek Information, Mary Jo Kulp and Gregory Burton of Primary Matters, and Ofer Matan of Blue Pumpkin Software

Table 1: Erlang Can Equal Trouble For The Small Call Center
Calls / hour   Agents needed % of calls ans'd in 30 sec % occupancy
100  6 92.39 55.56
250  12 92.96 69.44
500  21 92.15 79.37
1,000 39  93.84 85.47
2,500  90 93.06 92.59
5,000   174 92.57 95.79
10,000 341 91.57 97.78
16,000  541 90.48 98.58

This Erlang table demonstrates the dramatic efficiency gains as a call center grows. This table has been generated for a scenario in which the average handling time for each call is two minutes. The goal is to answer at least 90 percent of all calls within the first 30 seconds. The first column shows increasing call rates, and the second column shows the smallest number of agents that can achieve the service level, based on the Erlang model.

The first important characteristic to note is that the relationship between the number of agents needed and the number of calls is not proportional. For instance, for 100 calls, six agents are needed. But for 10 times as many calls, 1,000 calls, only 39 agents are needed, which is far fewer than the 60 agents that you may expect. Multiply by 10 again, and at 10,000 calls per hour only 341 agents are needed. If call centers were proportional, 600 agents would be the answer - almost twice as many!

In the lowest-volume case, six agents need to answer 100 calls per hour. However, those 100 calls will never be perfectly distributed, evenly over the hour. Sometimes, one or two or even three calls will arrive at the same time. Therefore, the six agents need to be able to handle the 100 calls even if some of those calls come roughly at the same time.

With only 100 calls per hour, there will also be times when no calls are coming in, and the agents will be idle. The lower the call volume, the higher the likelihood that many of the calls will bunch together, while much of the hour will have few calls. This is the basis of Erlang, but it comes with a penalty: because agents have idle time, the total proportion of time they spend on the phone is quite low.

The fourth column of Table 1 shows the occupancy rate for each scenario. In the six agent case, each agent is on the phone for only 56 percent of each hour. But, according to Erlang, six agents are required to meet the 90 percent service level goal.

As the call volume and the number of agents increase toward the bottom of the table, the occupancy rate actually approaches 100 percent. At 10,000 calls per hour and 341 agents, the occupancy rate rises to almost 98 percent. That is almost double the occupancy rate at 100 calls per hour and six agents, which explains that fact that only 341 agents are needed rather than 600 agents. In such a large call center, the number of incoming calls is so large that there is much less variation in the call volume, and so the agents are almost never idle and therefore extremely efficient.

Outsourcers use Erlang to their advantage by sometimes combining several campaigns. In doing this, outsourcers push up the call volume and cause the occupancy of their agents to increase. For example, with far fewer than five times as many agents, they can handle five times the call volume as a small, in-house call center.


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