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The real costs of turnover: lessons from a call center.

Article Excerpt
Servicing customer demands in a high-quality and cost-effective manner presents challenges for organizations, particularly call centers. Rapidly changing work environments, combined with the manner in which many customer service operations are managed, often lead to high stress. High stress along with other factors can result in high turnover rates. Managers often have difficulty creating the business case for eliminating the root causes of high turnover because they lack financial data on the true cost of turnover. A model is developed to estimate conservatively the real cost of turnover, using a call center as an example. This model is designed to quantify both the direct (tangible) costs of turnover and the more difficult to quantify intangible costs from turnover.

Human resource managers know first-hand the benefits of committing the resources and activities necessary to reduce employee turnover. Not only do they understand the direct costs of replacing employees, they are also aware that less-visible costs are associated with the replacement of an experienced employee with an inexperienced new hire. Replacing employees involves more than just advertising for positions, interviewing candidates, and providing initial training. But obtaining quantitative data to determine the true cost of turnover is often difficult. Managers need a systematic method to capture and consistently calculate the cost of turnover. These data are critical for making the right decisions to commit resources and change organizations to reduce employee turnover.

Decision makers tend to understand the total cost of replacing a higher-level executive, because they are more familiar with the demands of these types of jobs and the costs associated with losing and replacing experienced executives. On the other hand, these same decision makers often do not fully comprehend that replacing an experienced employee with an inexperienced employee at any level of the organization, including entry levels, involves more than the easily measured direct costs.

This article presents a model that accurately computes the total cost of turnover by capturing both the tangible and intangible costs of replacing an experienced employee with a new hire. While the specifics used here apply to call centers, the basic method is applicable to other entry-level jobs as well. We focus particularly on turnover in call centers because call centers have become an increasingly important function for many organizations and are often the "sole source" of contact with customers. In addition, there is increasing pressure on call centers to minimize all costs including those associated with turnover or risk having the jobs outsourced to low-cost providers off-shore. With a more realistic estimate of the true cost of turnover, organizations will be better positioned to make informed decisions about the importance of taking actions that will result in a reduction of turnover.

Importance of Turnover in Call Centers

Since the opening of the first call centers by the aviation industry in the late 1960s, call centers have become a basic business requirement for customer support, service, and marketing for businesses, large and small. Call centers employ between 1 percent and 3 percent of the workforce in the United States and Europe (McBain, 2002). For many organizations, the front-line employees frequently referred to as customer service representatives (CSRs) are the employees with the most direct knowledge of customers. They are familiar with the questions, concerns, and desires of their customers long before others in the organization are. Often, the call center representative is the sole personal contact available to customers and thus plays a significant role in shaping the customer's perception of the organization.

Once considered a potential replacement for call centers, the Internet has actually increased the need for "real-time" sales and service support as found in the call center. E-commerce and web sites have enabled additional channels into the organization, channels that also terminate in the call center. This is particularly...

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