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 Shula Neuman Director, News and Information, Olin Business School and Department of Economics sneuman@wustl.edu (314) 935-5202 |
March 2, 2005 -- When a company decides to turn to a call center to handle its customer service, company heads assume that signing a contract is the best way to get the best service. Not necessarily, says Tava Olsen, associate professor of operations and manufacturing management in the Olin School of Business at Washington University in St. Louis.
"Many common call center contracts misalign the incentives so that a call centers, acting in its own best interest, actually gives contract customers quite poor service, when considered in practical terms beyond the contract," said Olsen.
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After hearing about the disparity of service through a random conversation with a call center manager, Olsen and co-author Joseph Milner of the University of Toronto decided to study whether or not call center contracts were usually beneficial to companies.
Call centers often establish service-level agreements with some of their clients who assume that a contract will ensure their calls will be handled with more care than other customers who do not have contracts. One standard contract promises that 80 percent of the calls for a given company must be served within 20 seconds. An 80/20 contract can be a good deal for a customer if the call center actually provides preferential treatment to reach this service level.
"The call center is also trying to attract non-contract customers," Olsen said. "So the incentive is for call centers to meet the 80/20 contracts in a way that is most beneficial for the non-contract customers."
The authors found that the benefit of an 80/20 contract only holds up when preferential treatment is given consistently — even under the heaviest flow of calls. As it turns out it is precisely during those peak periods that the call center is likely to treat its contract customers poorly.
To prove their point, Olsen and Milner created a hypothetical call center that met its contractual obligations by providing high levels of service only during off-peak hours. During high-peak times the call center operators actually treated calls for contract customers less preferentially than calls for non-contract customers. The call center met its contractual obligations by making up for lost time during off-peak hours.
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| Tava Olsen |
"Because these contracts only specify that 80 percent of the calls must be handled quickly, there is no contractual obligation for the call center to treat the remaining 20 percent of the calls well." Olsen said. "That 20 percent is probably going to be neglected during peak times when the call center needs the most capacity. Delays for these calls can be extremely long with no contractual repercussions."
Olsen contends that such a policy is rational for the call center because when non-contract, pay-as-you-go customers receive good service, they might generate additional revenue for the firm. What's more, those clients could become repeat-customers or even enter into contracts of their own. However, the paper shows that such policies are undesirable for the customer. In fact, if the call center schedules calls strictly from its own preferences the contract customers can end up with poorer service than if they hadn't signed a contract in the first place.
To find a possible solution that could benefit the contracting company, Olsen and Milner's study suggests seeking more detailed contracts that do not result in the call center handling a client's calls inconsistently, rather it would provide the customer with the preferential treatment they were expecting. The benefits of such contracts compared with the standard service-level contracts described above are shown to be potentially large for the customer without being unduly taxing on the call center.
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