Press One for Better Service

Something was wrong on my credit-card bill, so I placed a call to the issuing bank's customer-service line. The computerized voice told me to press "1" for customer-service inquiries on existing accounts, then to press "3" for credit cards. Following that, I entered my account number, and then my personal-identification number. After listening to an automated message that seemed designed to guess what my question was and encourage me to hang up the phone, I was put on hold.

When a human being finally picked up, it turned out that I'd done the wrong thing: I had a billing inquiry, not a customer-service inquiry. After a transfer and another stint on hold, I got to talk to the right person, who needed my identifying information again. But she said she couldn't help me -- I needed to talk to the company that put the charge on the account in the first place. From there it was back on the phone, back to another round of button pressing and electronic voices telling me that "for quality-assurance purposes, your call may be monitored."

I was stuck in the world of call centers, where quality is most definitely not assured, for customers and workers alike. After a roughly 20 percent annual growth during the 1990s, call centers now employ an estimated 3 percent of the American workforce, and almost everyone has contact with at least one fairly regularly. By and large, it's a dismal experience for both parties. For employees, a company determined to cut costs as low as possible will seek to offer minimum-wage salaries and minimal benefits, leading to terrible service experiences for customers.

New research from the Russell Sage Foundation, however, shows that it doesn't need to be that way. The study found -- as the rare company has also discovered -- that the high-road approach often works better: Companies that offer reasonable pay and benefits attract skilled, well-trained workers who provide customers with quality service.

Both the low road and the high road are self-perpetuating systems. Where bad salaries are offered, new hires will have limited education and skills, leading employers to make the jobs as simple and repetitive as possible by requiring the use of scripts in conversation with customers and the use of electronic-monitoring equipment to ensure compliance. This leads to bad customer service, forcing callers to navigate long "phone trees" before they can speak to a live person, and if their question is off the script, they are transferred to someone else.

Employees in these jobs don't like them very much, leading to turnover rates of up to 400 percent. And employers who know that their employees will likely leave after a few months don't invest much time and money in training, putting more pressure on managers to structure jobs to be as simple, repetitive and boring as possible. And so the cycle continues: Bad jobs beget a low-skilled workforce begetting even lower job quality. It's not pretty, but as a means of reducing costs, it works.

The high-road alternative is also a self-perpetuating cycle -- but one that ultimately leads to greater revenue as a well-run operation builds customer loyalty and sales. Companies pursuing this strategy need to train and maintain a skilled workforce, which means offering employees higher pay, a lower call volume, less intrusive electronic monitoring, more flexibility to deviate from scripts and more opportunities for career advancement.

USAA, a San Antonio, Texas-based insurance company, is known throughout the industry for its excellent customer-support operation, which boosts business both by building client loyalty and by "cross-selling" items so that customers who call about one product often wind up purchasing others as well. The company departs drastically from standard call-center practices by declining to measure the amount of time its agents spend on the phone per customer and setting no minimum standards in this regard. Instead, it treats its employees as professionals who have been trained to handle customer concerns efficiently and who should be trusted to use their own judgment. USAA offers above-market salaries to attract and retain the best personnel. Consequently, money spent on training -- including a week-long orientation that all new hires attend -- does not go to waste on high turnover. To maintain quality-service standards, agents are differentiated not according to which scripts they read but to areas and levels of expertise. For less-educated workers, this is a boon, as they can advance through on-site training. USAA, which handles 92 million annual inbound calls, has been named to Fortune magazine's list of the top 100 companies to work for, Computerworld's 100 best places to work in information technology, Training magazine's top 50 companies with the best training programs and Working Mother's top 100 companies -- all while staying competitive in an industry known for bad customer service.

In principle, companies should pursue the high-road strategy when it will prove cost-effective. But most don't. Often the main determinant is the presence or absence of unions. Most call centers are nonunion. By far the largest number of unionized call-center agents work in the telecommunications sector, where the Communications Workers of America (CWA) has a strong presence at AT&T and the former "Baby Bells." Collective-bargaining agreements have earned unionized workers 20 percent pay premiums over their nonunion peers in the customer-service and sales trades. As in other industries, however, unions representing call-center workers find their positions threatened as deregulation and technological progress make it increasingly feasible to siphon work outside of unionized core companies.

As well as fighting outsourcing directly through negotiations, the CWA is pushing the connection between job quality and service quality by promoting "consumer's right to know" legislation. In New Jersey, which is taking the lead, the bills vary in detail, but the basic principle is to require call-center agents to tell consumers where they are located and who they work for.

The idea is that a consumer ought to know whether his or her interaction is being conducted with the company whose name is on the product or by some subcontractor, often located in India or another English-speaking developing nation, or even a U.S. prison. Diverted to Dheli, a documentary that aired recently on Australian public television, reveals the wide array of deceptive practices -- fake accents, fake names, etc. -- that contractors instruct their employees to use in order to convince customers that they are working in America for the company customers think they are calling. To some extent, both the corporate deception and the union's push for honesty are responses to irrational xenophobia on the part of consumers, but there are legitimate concerns in play: A customer being asked to divulge confidential financial and identification information, after all, has good reason to want to know who, exactly, he or she is handing this information over to.

Don Rice, the CWA's New Jersey legislative director, describes the bills as a "major priority that we intend to do nationwide," and notes that even a victory in a single state could have a major impact as the bill "applies to every company that does business in New Jersey which has 25 or more employees whose primary and significant duties are to answer calls and customer-service e-mails." Because a company can't know ahead of time where any given caller lives, the rules would de facto apply to all centers that get some calls from New Jersey.

But even in America, unions are not powerful enough to ensure good quality everywhere. Under existing labor laws, it's extremely difficult to organize new call-center workers into unions. Legally nothing prevents a company from simply shutting a facility down in response to an organization effort, and because a call center is much cheaper to build than a factory, few logistical hurdles stand in the way of such tactics. When the first group of MCI customer-service representatives was organized in 1987, the company responded by simply closing the call center and opening a new one elsewhere. In 1994, a group of Sprint employees in San Francisco began to organize; one week before voting on whether to join the union, the workers were told that the center would be shut down.

Contrast this with Cingular Wireless, where the CWA has made steady progress over the past five years in unionizing employees, largely in the customer-service field. The company was formed by a merger between the wireless operations of BellSouth and SBC Communications, where the CWA already represented 10,000 workers who'd been shifted to the new firm. Finding that the high-road strategy has been a successful business model, Cingular has been relatively friendly to organizing efforts. As a result, workers won a 2001 contract guaranteeing a 15.3 percent raise over five years, the establishment of a grievance-resolution system, and the maintenance of retirement and health benefits.

A more intermediate case is AT&T, where the CWA represents directly employed long-distance customer-care workers but where 70 percent of calls from home consumers are shipped to outsourcers, some in the United States, others in India, Canada and Mexico. The differences between the union workers and the outsourced ones is stark: Union members make $35,000 annually after four years with the company, while employees working for domestic outsourcers get between $14,000 and $20,000 a year. Workers in the developing world, meanwhile, take home about $2,400 in a year. Nonunion workers are also subject to much more intrusive monitoring and maximum call-time rules. The disparity trickles down to service. A survey undertaken by the union and AT&T together found that in-house workers are superior in terms of resolving customers' problems on the first call and are better at adjusting billing errors and generating sales. Customers calling about complicated problems often find that if they are first directed to an outsourcer, they wind up getting transferred to a unionized call center because the nonunion worker either lacks the skills to resolve the problem or because time-management policies make him or her reluctant to take on the most difficult tasks.

To a surprising extent, evidence exists that the trend toward low-quality jobs is the result not of the iron logic of the market or the inexorable forces of history but rather of poor decision making on the part of managers. According to Larry Hunter, one of the authors of the Russell Sage report, companies "systematically underrate the value of lowering turnover and providing better services," in part because the contributions call centers make to corporate profitability are hard to measure. It may also be that companies tolerate and even welcome high turnover because a constantly changing workforce is almost impossible to unionize.

Hunter recounts the story of a bank he studied for a paper on human-resource management. That bank -- featuring a high-quality, high-cost call center -- merged with another bank whose call-center operation followed the low-road model. Upon merging, the new management decided that the expensive call center was a waste of money and dismantled it. Soon enough, however, sales began to fall, and other branches of the bank organization complained that they were no longer getting the support they were used to from the call center. Soon enough, the bank began to rebuild the customer-service operation along the old lines. Profits increased until the bank became an attractive partner for another merger, at which point the story repeated itself, complete with a third dismantling of the high-quality call center and a third effort at rebuilding.

In a 1997 article, Australian call-center consultant Niels Kjellerup described an entire industry -- especially in the United States -- in the grips of an unsound "galley slave" system in which electronic-monitoring equipment is used to set strict minimum-productivity standards measured in terms of call length and call quality. The results are disappointing. "[W]ithin 18 months to two years," Kjellerup wrote, "the management is invariably moved out because of lack of productivity improvement, high staff turnover, and low morale." By then, adds Kjellerup, conditions have deteriorated, leading to the rise of what he calls the "gulag call center," requiring workers to handle ever more calls and leading to Soviet-style customer-service quality.

There are some benefits to offshore outsourcing -- particularly to India, where the potential call-center workforce is both cheaper and better-educated than its American counterpart. Still, such outsourcing is likely not a winning strategy in the long run. "If companies want to compete on the basis of quality and services," explains Cornell University's Rosemary Batt, the lead author of the Russell Sage paper, "then outsourcing is not a very good idea," even if it can reduce costs. That's because any time a company outsources, other firms can simply purchase an identical product from the same outsourcer, thus negating any advantage that the company might have obtained. It is hard, moreover, to invest subcontracted employees in the success of a company they don't work for and in which they have no prospect of being promoted.

Some local government agencies are trying to intervene in these matters. The state-run Glendale Community College in Phoenix, where call centers are an important part of the regional economic-development strategy, has formed a partnership with Best Western that involves the opening of a small center for hotel booking agents on the college campus. Best Western spokeswoman Carolyn Marion explains that her company is working with the college to "develop a curriculum aligned with the hospitality program," where students would work in the call center as part of their training for a career that would ultimately take them into other, more lucrative aspects of the business. Best Western gets access to a relatively well-educated, well-trained workforce, and the students get an entrée into the industry.

Government policy -- local and national -- can influence which road employers choose. Cities and community colleges can work with corporations to develop and reward worker skills. Federal rules can make it easier or harder to organize unions, and they can give or withhold tax breaks for corporations that shift jobs overseas. As citizens, Americans can use their government to upgrade work.

Job quality also rests in the hands of Americans as consumers. If people care about the quality of the service they receive and express their desires through what they purchase, companies are more likely to create good jobs to attract competent employees. But in many cases, consumers lack meaningful choices. If consumers are content with firms that don't invest in customer service and citizens accept unregulated markets that fail to provide high-quality, high-wage employment, good jobs will continue to disappear.

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