By Kate McEnroe, President of Kate McEnroe Consulting
Call centers have always been the classic example of site selection projects that put labor cost and availability at the top of the list of critical location factors. Today, even as talks of skilled worker shortages and skills gaps dominate economic development conversations, the call center workforce remains one of the most difficult to pinpoint and predict. There is more data available to help companies evaluate labor markets than ever before, but more data doesn’t always mean better data, and in fact can just confuse the issue. Like Advanced Manufacturing, another population “industry” type, Call Centers aren’t really an industry in the classic sense that can captured by a single NAICS code and call center employees aren’t really captured by a short group of occupation codes.
One thing is clear, however – with few exceptions in the United States, the labor-related costs that are necessary to sustain a call center go up as the size of the community increases. Community size is almost always a greater determinant of labor cost than geographic region.
Many call centers set location criteria that inexorably lead them to locations in the larger metro areas of the country. Most often this is the result of the size model that the company prefers – how many seats will be in the center – though there can be other factors such as proximity to a major airport, other company operations or in the case of Business Process Outsourcers, proximity to a client.
Generally this preference for large centers occurs for some combination of the following four reasons:
- a desire for a large minimum number of seats or employees to fully leverage the cost of telecommunications infrastructure,
- a desire for a large minimum number of seats or employees to minimize the amount of necessary management overhead by optimizing spans of control,
- a need for specialized skills in the call center agents that are not available in sufficient numbers in smaller markets, or
- a need to use the site as some type of showplace or prototype that requires easy access via a major airport or proximity to other company functions.
In these cases, even if there is an operating cost trade-off relative to smaller communities, company teams conclude that there is an overall economy of scale to a single site or a network of fewer, larger centers. In one way or another, therefore, these are strategic sites and their locations are chosen not to minimize costs of the centers themselves, but to serve some larger goal. A strategic site serves a specific purpose today, and if its geographically variable operating costs are higher than they could be there must be some offsetting benefit. Often, however, the term is used inappropriately to describe a site that is not so much strategic as it is one that has been a part of the company for so long that it may escape the type of scrutiny others receive – a legacy site. Similarly, the size model can also become a legacy decision, one that can and should be challenged from time to time in order to make the best decisions.
As a quick example, the Economic Research Institute’s Salary Assessor program estimates that the cost differential for a customer service representative in Atlanta as compared to Nashville is almost $2,000 per year. For a center of 500 seats, and assuming a benefit ratio of
25 percent, that is a labor cost penalty of $750,000 – $1,250,000 per year, every year, not to mention what could be higher real estate costs. In this case, either community could likely satisfy the need to provide a sufficiently large labor force, so that cost differential represents a cost penalty that would have to be made up by other factors. In the case of a still smaller community, while the labor cost differential may be greater, the market may not be able to satisfy a 500 seat requirement. Even so, using the ERI data and a comparison between Atlanta and a market like Augusta, GA or Greenville, SC the labor cost differential would rise to about $2,000,000 per year; the question is, would that be enough to justify choosing a model that requires two 250 seat centers in these less expensive markets versus one 500 seat center in a first or second tier location?
Source: Economic Research Institute Salary Assessor 3q2014; General Customer Service Rep Median Salary
Varying the number of desired seats in a single site can have a profound impact on the community options and cost profiles that are available to a company, so the rationale behind that requirement should be tested whenever a new location, expansion, or consolidation project is identified.
In the case of telecommunications infrastructure, economic assumptions are not always rigorously challenged even though enormous changes continue to occur in network design and costs. As a result this particular rationale for establishing the preference for a larger sized center and therefore a larger size community may or may not result in the lowest overall cost of the operation when the higher wage rates and potentially real estate costs in larger cities is factored in. One of the things that make this type of analysis difficult is the difference in the timing of available information and the degree of confidence in predictions.
Telecommunications equipment and services can be priced with a relatively high degree of certainty in advance of the siting decision and the purchase; by comparison, salary variations by location are somewhat predictable but not guaranteed, nor are ongoing turnover costs.
Another reason to prefer larger centers is optimizing the span of control that exists under a single management and technical staff.
Spans of control between agents and first level supervisors can range widely from as few as five in a highly -specialized center to as high as 20 agents per supervisor in more basic, scripted functions sites. This supervisor to agent span of control is widely discussed with regard to the quality of service provided, but the more relevant factor for choosing a location is the span of control of the center manager and supporting staff such as trainers, technical support staff, and human resources staff. A compromise for some centers is to design a hub and spoke type of network of centers, which can allow a single management staff to be responsible for multiple centers, using technology to deliver some services virtually.
Specialty call centers also tend to flock to larger metropolitan areas. Examples of these include centers staffed by health-care related occupations such as nurses, licensed social workers and pharmacists or financial call centers that depend on a staff of licensed counselors and brokers to service customers. Another specialty that can require a larger labor pool is a need for bi-lingual employees, especially if a variety of languages are required. In these cases, the larger communities are often in fact the best option, though it is important to remember that a large metro area is made up of a number of individual submarkets, and the analysis should be conducted at that level to get a true measure of labor availability. If a small area is under consideration, the opposite is often true: the technical definition of the community and the data on its labor market may underestimate the true labor draw area that would be better evaluated based on a commute time geography.
Finally, there are often centers that operate in part as showplaces for how the company can deliver service to its internal or external customers. For a third party firm, these sites are often used to demonstrate to potential customers how their business would be handled, while for internal operations, they are often co-located with other functions in order to maximize coordination.
Whether a new site or an expansion is under consideration, it is tempting to pick one size model and only rarely re-evaluate it. A review of the location choices of more sophisticated companies will reveal that they often develop a network of sites of a variety of sizes in communities of a variety of sizes, and this flexibility allows for a more cost effective bottom line.