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Debunking
the Myths of
Outsourcing Offshore:
A Delphi Research Study by
University of Pittsburgh Katz School of Business
and Knight Research Orlando1
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Abstract:
The business case to that would lead a Company to reconsider outsourcing offshore contact
center services is validated by a simple model developed by the Delphi Research Team. This model
predicts that a 1% decrease in customer satisfaction can cause a 0.6% decrease in customer loyalty.
Hence, a 10% drop in customer satisfaction can lead to a 6% drop in customer loyalty. This is significant
when you consider that companies such as Johnson & Johnson and 3M consider 50% to 55% to be world
class customer loyalty ratings.
In addition, just the direct impact on contact center operating costs of below average FCR
(< 80%) from comprehension issues with the cultural context of inquiries means that 25%-to-30% of the
total contact center operating budget is applied to handling those repeat callers seeking an answer to their
first inquiry. The frustration of not resolving inquiries on first call affects morale and lowers employee
satisfaction, leading to costly employee turnover too.
The data driving the simple model and study recommendations were aggregated from 12 independent
studies and forecasts from contact center industry experts.
Katz School Professor Dan Dennehy (BS, MBA) International Marketing and Franky Supriyadi (PhD Candidate, Strategy)
and Knight Research, Sara Lamason (BA, MBA) and Lou Musante (BA, MLS).
This research was funded in part by a grant from the Contact Centers of America (CCA), Founder Mr. Joe Jacoboni, a
pioneer of the contact center movement in the 1980s. See Side Bars pages 6 and 16 for more information on CCAs
philosophy and new contact center model.
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Table of Contents
Cover Page and Abstract.....................................................................................1
Table of Contents...............................................................................................2
Executive Summary .........3
Detailed Findings: Contact Center Industry Environment ....................4
Root Cause of Customer Dissatisfaction .................5
Side Bar: Contacts Centers of America: 21st Century Model for Contacts Centers .....6
Industry Change: Globalization ..........8
Delphi Secondary Research Data Summary ...8
Blogosphere Speaks Out on Outsourcing Offshore of Contact Center Services ..13
Sample of Cost Escalation Calculation using the Simple Model .....15
Real Economic of Customer Dissatisfaction Driven by Brand Loyalty Erosion ..15
Recommendations for Call Center Operators ..16
Side Bar: The Hidden Costs of Offshoring vs the Long term benefits of Onshoring ..16
Appendices:
Appendix A: What is a Delphi Study? ............18
Appendix B: Simple Brand Loyalty Impact Model ..20
Appendix C: Contact Center Benchmarking Tool and Calculator ..22
Appendix D: McKinsey and Nexaweb on Call Center Operational Economics .......23
Appendix E: Annotated Bibliography ....23
End of White Paper .....26
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Executive Summary
The contact center industry is undergoing unprecedented technological, social and economic change
both domestically and globally. This white paper focuses on the impact of global social change relative to
customer brand loyalty and the economics of contact center operation.
Estimates from the Call Center Satisfaction Index2 (CCSI 2008) and other industry sources
indicate that when a U.S. caller has reached a contact center, between 15% and 20% of those think
they have contacted an offshore contact center. Contact center location impacts about one in two callers
relative to the decision with whom they want to do business.
Offshore contact centers have improved significantly but still score far below their domestic counterparts
even if issues were resolved on the first call. The customer satisfaction gap between onshore and offshore
remains large, 75 versus 59 (CCSI 2008) on a scale where 0 = Low and 100 = High using the American
Customer Satisfaction Index. Customers who believe they are dealing with an offshore contact center are
more than twice as likely to sever relations with the company.
The University of Pittsburgh, Katz School of Business and Knight Research in Orlando, FL have designed a
Delphi Research Study to identify and aggregate a sundry of studies and data sets on globalization trends
in the contact center industry and its impact on customer brand loyalty. The data has been used to develop
a simple model for forecasting the impact of offshoring on brand loyalty. The model has three major parts:
First Call Resolution (FCR), Assurance & Empathy and Abandonment.
In particular, language barriers are leading to lower offshore productivity and extended call times and are a
prime cause of customer frustration as well. Problems with comprehension occurred in an average of 18%
of offshore contact centers (about one-in-five) compared to 4% of calls in onshore contact centers. Each
of these problems is estimated to extend the length of the call (LOC) by between 39% and 105%.3
Many offshore contact centers have worked on accent neutralization. However, the issue goes deeper, into
comprehension and understanding the callers exact problem and situation in the context of a U.S.-based
culture. Many of the behaviors that Americans intuitively expect from a customer service representative
are literally and figuratively foreign to international representatives, according to Frieda Barry, Chairman of
the Call Center Industry Advisory Council.4 Representatives need to be able to empathize with customers
and respond in a culturally-appropriate manner.4
Teodoru, Sheri. How Contact Center Customer Satisfaction Impacts the Bottom Line, Contact Center Satisfaction Index
2008, CFI Group North America.
Scarott, Scott. Offshore Call Centers Are Damaging Reputations, Compass Management Consulting, May 13, 2007.
Barry, Frieda. Why Some International Call Centers Have Failed, Call Center Industry Advisory Council (CIAC), 2006.
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{Empathy + First Call Resolution + Abandonment Rate} u Trust u Customer Satisfaction u Brand Loyalty
In addition, just the direct impact on contact center operating costs of below average FCR can mean
that 25%-to-30% of the total contact center operating budget is applied to handling those repeat callers
seeking an answer to their first inquiry. The frustration of not resolving inquiries on first call affects morale
and lowers employee satisfaction, leading to costly employee turnover.
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Detailed Findings:
Contact Center Industry Environment
The contact center industry is undergoing unprecedented technological, social and economic change both
domestically and globally.
The Delphi Research Team believes that consumer spending in the U.S. remains weak and the economy
appears to only be starting to bottom out. The situation appears the same and in some regions, worse,
globally. Hence, many organizations are focusing on customer retention and less on new customer
acquisition. As the faceless interface with customers, contact center employees can make or break the
customer experience. In many industries, contact centers foster the supplier-customer relationship and
bear the bulk of the responsibility for maintaining and building customer loyalty.
Satisfied and loyal brand customers exhibit two critical behaviors that drive business success: they do
business with the same company repeatedly, and they recommend the company to
others. Conversely, dissatisfied customers exhibit the opposite behaviors. Relative to the two
key building blocks of brand loyalty, the CCSI 20081 indicated that:
95% of customers who have a satisfying contact center experience will do
business with the same company again, compared to only 35% of dissatisfied
customers
92% of customers who have a satisfying contact center experience will
recommend that company to others, compared to only 9% of dissatisfied
customers
The behavior of dissatisfied customers can have a dramatic impact on both the top line and the bottom
line of contact centers, especially when considering the Life Time Value (LTV) of a loyal customer. Not
only does customer defection increase significantly after a negative experience, the Net Promoter Score
(NPS) or the customers willingness to refer or promote a brand to friends and family decreases even more
dramatically.
According to the CCSI 2008, offshore contact centers have improved significantly,
but still score far below their domestic counterparts even if issues were resolved on the
first call
Customers who believe they are dealing with an offshore contact center are more
than twice as likely to sever relations with the company
The numbers of customers who think they have contacted an offshore call center
increased significantly between 2007 and 2008, from 11%-to-15%, or about
one-in-six calls. Customers perceive a rise in offshore contacts centers in the
banking, cable and satellite TV, computer and retail industries
The customer satisfaction gap between onshore and offshore remains large
75 versus 59 for telephone-based transactions
Before we drill down further on the onshore-offshore debate, lets review some background on other issues
driving contact center customer dissatisfaction.
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Software Support Inc. founded by Joe Jacoboni was the pioneer of the first technical support contact center company.
See www.ContactsCentersOfAmerica.com Press Release, Orlando, FL, May 22, 2009 Contact Centers of America to
Re-Invent the Contact Industry. See Side Bar on CCA.
page
Almost all organizations today will tell you they are customer-centric, service minded and realize that
contact centers are much more than a necessary cost of doing business. However, the CCSI scores for
the past two years (2007 and 2008) hovered around 71 on a scale where 100 is high. Hence, in the
U.S., customer service is almost an oxymoron, and average at best. Who wants just average service? The
industry is not walking its talk.
The push for efficiency (more FCRs in less time) has helped produce these low satisfactions. Three major
issues are at the heart of this trend in dissatisfaction according to VendorSeek.com6.
1. Employee Turnover: The job of call center employees has always been difficult.
Customers are more sophisticated today than ever before. They expect much from the
companies with which they do business, including customer service. But the call center
work environment is difficult on employees. Most call centers are run under efficiency
principles that dictate that agents must constantly be on the phone, with no breaks to
decompress after handling a difficult call. Turnover in the industry is traditionally
very high.
2. Automated Voice Systems: The need to save money has led to many evolutions in
the call center industry, some of which undermine companies desires to solve customer
complaints effectively. One of these is the automated voice system. Developed in order
to allow customers to solve problems without the help of an agent, the idea was that
companies would need fewer agents, and agents could spend less time on simple
requests and more time on complex customer complaints. However, the automated
system does have drawbacks, a major one being its capacity to enrage customers who
just want to talk to a human being. A significant development in automated voice
technology is voice recognition, which allows customers to speak directions into the
phone. The voice recognition system will recognize the directions and deliver the
customers requested information. Businesses hope that, with voice recognition
technology, customers will feel more like they are interacting with human agents.
However, the most successful call centers are still those that allow customers to
contact an agent quickly.
3. Offshore Outsourcing: One of the most significant changes in the call center industry
is outsourcing. In the early days of the industry, call centers were managed in-house or
outsourced to local American companies. However, businesses soon discovered that by
outsourcing to countries like India and the Philippines, where employees can live
comfortably with wages up to 90% lower than American call center employees are
paid, they could save millions of dollars annually. As a result, many customers calling
American companies today have their calls answered by call centers thousands of
miles away.
Theres no getting around the resentment this can among American customers. While
businesses have been outsourcing their customer service to American call centers for
a long time, the term outsourcing has been generally linked with the practice of
outsourcing work to other countries, often less-developed ones where employees will
work for dramatically less. Many Americans feel betrayed by companies who lay off
their local workers to move their operations overseas. Call center employees in countries
such as India are often coached in speaking English without an accent and encouraged
to tell customers that they are U.S.-based in order to avoid [verbal] abuse.
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Experts have conflicting opinions on whether outsourcing your call center overseas is
good for the American economy as a whole, good for the country where you are outsourcing,
or good for your customers. However, U.S. customers consistently have been shown to
prefer local call centers that stick to the basics of customer service: short waits,
efficient service, and human contact. If your business delivers, your customers will
thank you for it.
The new administration in Washington, D.C. is pushing Buy America. Clauses and riders
attached to emerging infrastructure funding, as well as legislation in development, will
most likely favor onshoring and drive repatriation of contact center services from India and
the Philippines.
Language barriers are one of the root causes of this dissatisfaction, even though many
offshore contact centers have worked on accent neutralization. However, the issue goes
deeper into comprehension and understanding the callers problem and situation in the
context of the U.S. culture. Many of the behaviors that Americans intuitively expect
from customer service representatives are literally and figuratively foreign to international representatives, according to Frieda Barry, Chairman of the Call Center Industry
Advisory Council. Representatives need to be able to empathize with customers and
respond in a culturally appropriate manner.
Katz School Professor Dan Dennehy (BS,MBA) International Marketing and Franky Supriyadi (PhD Candidate Strategy).
Knight Research, Sara Lamason (BA, MBA) and Lou Musante (BA, MLS).
page
The SSCI 2008 study indicated a significant majority of customers believe that they
have reached a contact center located in the U.S., but the percentage of those who
think they have contacted an offshore call center increased to 15% in 2008, up from
11% in 2007.
Although offshore call centers have achieved significant gains in satisfaction between
2007 and 2008, as was mentioned earlier, the customer satisfaction gap between on
shore and offshore remains large 75 versus 59.
2. Offshore Call Centers = Low Trust Levels: According to a recent Harris Interactive
survey, four out of five UK adults feel negative about the trend of locating contact
centers overseas, with more than half feeling very negative particularly those who
have used an overseas contact center.
The survey found that 47% of adults have less respect for companies that outsource
contact centers overseas and 50% do not trust giving their personal information, such
as financial details, to overseas contact centers. This may have a negative impact on
the centers productivity as well as its reputation, says Harris.
Almost a third of respondents (31%) claimed they have either refused to give their
business to or have switched away from companies that outsource overseas; suggesting
short-term cost savings could turn into long-term loses.9
3. Comprehending Cultural Context Trumps Language Barriers: The Call Center Industry
Advisory Council (CIAC) in a paper by Frieda Barry, President and Chairman of the
Board, outlined some of the main reasons CIAC sees some international contact centers
failing. The most obvious issue is CSRs with heavy accents and hard to understand
names. Through accent neutralization training and by issuing easier-to-understand
monikers, these challenges can be readily resolved. According to the CIAC research,
when a representative makes a connection with a customer, the accent is irrelevant.
The deeper challenge is cultural. Many of the behaviors that Americans intuitively
expect from a CSR are literally and figuratively foreign to international reps. U.S-based
customers expect a representative to offer empathy, but some of those traits are deemed
offensive to the CSR, which means that you cannot expect an overseas representative
to instinctively employ them. Representatives need to be able to empathize with
customers and respond in a culturally appropriate manner. If not, the representative can
come across as unfeeling and disconnected.
4. Comprehending Cultural Context Trumps Language Barriers (Confirming Data):
Pepperweed Consulting (St. Joseph, MI) reports it is Time to Offshore Call Centers
Home10. A number of firms, including AT&T Home Internet, are bringing overseas
contact centers back to the U.S. Their hoped-for benefits of reducing costs did not
materialize. Three services challenges were identified that negatively impact brand
equity. These are language barriers, culture and resolution.
10
Spafford, George. Offshore Call Centers: Time To Bringem Home, October 11, 2006.
10
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11
White, King. Call Center Absorption Report, Press Release June, 2008.
12
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The value of the U.S. dollar, labor market saturation, growth of the middle class in BRIC (Brazil, Russia,
India and China) countries as well as language and comprehension barriers will drive repatriation
from there.
Below is a summary of market share data for the major global call center regions.
World Region
Growth
Share 2006*
United States
High
50%
Canada
Low
2%
Philippines
High
22%
India
Low
12%
Latin America
Moderate
High
Mixed
Growing
Western Europe
Declining
Declining
*Share = Job Creation as determined by Site Selection Group 2007
7. Offshore Call Centers = No Cost Advantage: An analysis of 50 offshore and onshore call
centers, by Compass Management Consulting (Greenwood, Indiana) found that any cost
benefit of offshoring decreased substantially over a three-year period, compared to
onshore environments where improvements had been implemented. The study had a
financial services focus.
The Delphi Team concluded that comprehension of cultural context was one the main
reasons, if not the number one reason, outsourcing offshore is cooling in the U.S. and
other English speaking countries.
Compass found in earlier work that outsourcing providers were winning business by
pricing contracts in such a way that produced savings up to 18% in the first year
compared to the cost of doing the work in-house. But, costs quickly began to climb in
subsequent years, reaching 36% above comparable top quartile internal operations by
year three.
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8. First Call Resolution Makes or Breaks Operational Costs: Focusing on First Call
Resolution by Greg Levin13 Service Quality Measurement (SQM) Group found that, with
each call back a customer must make, customer satisfaction drops an average of
15%. A study of 150 contact centers conducted by SQM Group found that centers
which had achieved world-class customer satisfaction ratings (85% of customers are
very satisfied with their experience) had an FCR average of 86%, while centers that
were not among the elite in customer satisfaction had an FCR of only 67%.
It is hard to believe but if you are running at 67% FCR, you need to understand
that somewhere around 33% of your total call volume is coming from customers
calling back.
9. First Call Resolution Makes or Breaks Operational Costs: Research findings from Down
Under (Australia) directed by Niels Kjellerup of four large contact centers (more than
200 seats each) found a minimum of 20% of all calls were repeat calls from customers
needing an answer or help they did not receive the first time. The cost of a complaint
call not handled at the point of entry escalates by 500% when it is referred, while an
unhandled query costs 350% more than a call resolved on the first attempt.
Down Under estimates that 25%-to-30% of a contact centers operating costs are spent
on dissatisfied customers that is, no FCR, then spending to rectify it.14
10.
When asked, What do you see as the biggest challenge for the call center industry over
the next 24 months?, 40% responded customer satisfaction and another 36% cited
quality of service. The question was designed to allow multiple answers and 66%
answered operating costs.
Employee satisfaction was cited by 40% of the respondents as the biggest challenge as
well. To that end, 36% of the respondents had a virtual @home representative program.
Furthermore, 31% of the sample was considering implementing work-at-home
representatives within the next three years.
11. Most Companies Not Receptive to Offshore Outsourcing Call Center Services: The
second edition, 2008, of the U.S. Contact Center Operational Review of 204 randomly
selected U.S. contact centers is derived from more than 4,000 contact centers that
account for over 1.8 million professionals worldwide.15
Levin, Greg. Focusing on First Call Resolution, Call Center Management Review, April 2005, 3pgs.
13
Levin, Greg. Focusing on First Call Resolution, Call Center Management Review, April 2005, 3pgs.
14
15
American Teleservices Association (ATA). U.S. Contact Center Operational Review, 2nd Edition, 2008, Chapter 3 Outsourcing.
13
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12. Balancing Costs, Revenue and Quality = Call Center Success: McKinsey: A Pioneer in
Outsourcing - January 23, 2009 According to McKinsey16, every Fortune 500 company
has at least one call center and, on average, employs over 4,000 call center agents.
Rising customer service costs, combined with lost service revenues and high agent
turnover are forcing companies to modernize their Call Center operations. But, consoli
dating call centers may require companies to re-train and re-equip agents, which can
disrupt and/or lower the quality of customer service. Additionally, making corporate IT
systems available to Call Center agents in new call centers -- especially those that are
offshore/remotely located -- is expensive and time-consuming to administer.
Call centers have become essential to the marketing and customer care strategies of
many businesses over the past 30 years. But our experience shows that most of these
facilities dont maximize their usefulness. No one can argue with the need to keep
a firm grip on costs, but indiscriminately moving customer traffic to a companys Web
site or haphazardly outsourcing call centers can make them less rather than more
effective. The key is to develop a customer service strategy that successfully balances
costs, revenues generated, and quality. Only then can companies transform their call
centers into strategic assets that provide a competitive advantage and promote growth.
Companies that get the most from their call centers act on three imperatives. They
define a customer service strategy that goes beyond merely providing good service at low
cost. To deliver their strategy, they put in place an infrastructure that uses outsourcing
and technology in a judicious way. And they ensure the best possible execution by their
workforce in all interactions with customers by investing time and money in coaching
and in performance-management systems. These companies can reap big benefits,
increasing revenue from call centers by 20% to 35 % while cutting costs.
16
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And to make matters worse she didnt answer my questions at all and kept repeating the
same answer. How bizarre! There isnt an email address for AMEX so I am stuck for
7 days.
Kim of Fresno, CA March 23, 2009
Hewlett-Packard Company Complaint
If You Want Tech Support In India - This Is The One For You - Hewlett Packard
Notebook Computer
Posted By: Shelley101 on 5/3/2009
Location: Albuquerque, NM
Dear Sirs:
I bought a HP Pavilion Notebook for my daughter Lila and have sent it back, knock on
wood, at least 7 times, because of various problems.
They have paid FedEx to and from and the only satisfaction I have is that whatever profit
they had in it is long gone. The initial problem was that when you opened the notebook,
the lights in the seem go on, but the screen remained black.
When I told the, what they laughingly called tech support, the problem, he told me to
(and I am NOT making this up) adjust the brightness. I asked him what part of black
do you not get? He just didnt get it.
They lie to you and actually tell you that their name is Mark Johnson. I told them look
Vijay or Rahim, I dont know what your real name is, but it is NOT Mark Johnson.
I finally got a supervisor on the phone and she sounded American. After 4 aggravating
transfers, I said Please tell me you are an American. She replied No, I am a
Canadian. I told her Close enough and got the problem solved.
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Ask where their Tech Support is, the next time you buy a computer. If it is not in the
good old USA, DONT buy it. Believe me, you will avoid future aggravation. Because
Hewlett Packard has Tech Support in India, which they dont readily admit, I will
NEVER buy another of their products, nor should anyone else. Those jobs belong to
Americans. See the movie Slumdog Millionaire. The main character works at a call
center. BUY AMERICAN !!!
2.
(1 in 5 calls)
*This number should be considered a minimum based on the data aggregated for this Delphi Research Study
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Based on the data compiled and analyzed for this Delphi Study, contact center operators
cannot afford to outsource offshore contact center services. The impact on brand equity
and customer loyalty far outweigh any supposed cost savings.
Comprehending the cultural context of inquiries is a major issue in building trust with
customers and prospective customers. Screening during recruiting and measuring
customer service representatives performance on this critical factor is recommended.
3.
The talent now available using virtual representatives and hosted models can significantly
impact FCR and overall employee satisfaction. We believe you cannot have happy loyal
customers if you first do not have happy, loyal employees. Experiment with this model.
4.
Consider benchmarking your internal customer satisfaction metrics with the CCS. It is
the most definitive set of data available to contact center operators today.
5.
Consider benchmarking your call center operational cost metrics against the
Contact Centers of America (CCA) benchmarking model.
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Analyze the customers needs, the value of the customer relationship, and design the
appropriate, cost effective support strategy
Use best of breed technology to create ideal solutions and efficient processes
Hire Inspired and Knowledgeable workers who can serve as your brand ambassadors
18
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Appendices:
Appendix A: What is a Delphi Study?
Appendix B: Simple Brand Loyalty Impact Model
Appendix C: Benchmarking Tool and Cost Calculator
Appendix D: McKinsey: Thoughts on Call Center Costs and Strategy
Appendix E: Annotated Bibliography
19
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20
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21
Trust
Customer Satisfaction *
Resolution on the first call
(Percentage of calls closed on first
contact)
Customer Loyalty*
Onshore = 75
Offshore = 59
Onshore with FCR = +38%
Offshore with FCR = -52%
ESAT ! CSAT
Onshore Employee Turnover = 25
-35%
World Class = 2%
Industry Average = 5%
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Model Calculations:
Relationship between Customer Satisfaction, Loyalty, and Costs
1.
Data:
Ninety-five % of the customers who have a satisfying contact center experience will do
business with the same company again, compared to only 35% of dissatisfied customers.
(Contact Center Satisfaction Index, 2008)
Formula:
Or
Where:
CL = 0.6 * CS
Data:
Ninety-two % of the customers who have a satisfying contact center experience will
recommend that company to others, compared to only 9% of dissatisfied customers.
(Contact Center Satisfaction Index, 2008)
Formula:
Or
Where:
CR = 0.8 * CS
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3.
Data:
A minimum of 20% of all calls are repeat calls from customers needing an answer
or help they didnt get. The cost of a complaint call not handled at point of entry
escalates by 500% when it is referred. (Levin, 2005. Focusing on first-call resolution)
Formula:
A 10% increase in No First-Call Resolution (NFCR) will increase the total cost of
complaint call by 40%.
Or
Where:
If on average a call center operates at 25% repeat calls (or 75% FCR),
its cost of complaint will increase by 100%.
NFCR = 4 * CC
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Medium
Center
Large
Center
National
Average
CCA
Model
CCA
Difference
Facilities
74.9%
75.7%
74.7%
75.1%
52.2%
- 22.9%
Fixed Labor
5.4%
4.4%
6.4%
5.4%
0.7%
- 4.7%
Technology
2.6%
4.4%
5.9%
4.3%
4.4%
+ 0.1%
Telecom/Networking
4.6%
5.0%
3.9%
4.5%
0.6%
- 3.9
Facilities
7.2%
5.2%
3.8%
5.4%
5.0%
-0.4%
Miscellaneous
Overhead
5.3%
5.2%
5.3%
5.3%
4.6%
-0.7%
Source: Bocklund, L, and Hinton, B. Cost structure and distribution in todays contact centers. White
Paper Strategic Contact, March 2008.
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