Hosted IVR Might Be Right for You

The hosted/managed service business model is compelling. With the on-demand model, enterprises of all sizes have access to interactive voice response (IVR) and other contact center technologies they need to cost-effectively provide an efficient and outstanding customer experience. The hosting/managed service model allows companies to acquire leading technology and applications without a large capital investment, start-up costs, or long-term commitment. It also is scalable and gives users ongoing technical support and access to upgrades at no additional cost. Ease of provisioning, reduced maintenance, and the opportunity to try before you buy also make hosted solutions attractive and low-risk alternatives to on-premises solutions. Depending on the needs of the enterprise and how long it wants to use a hosted solution, the benefits and return on investment (ROI) can be significant.

While many benefits can be derived from using hosting and managed service offerings, prospects should perform a financial lease (hosted/managed service) versus purchase/license analysis to understand the impact of this acquisition model on their bottom lines. Chief financial officers often prefer the hosted/managed service acquisition approach because it allows them to hold onto their companies’ capital—considered a scare resource, particularly in a recession—even knowing that after three to five years the cumulative cost to their companies’ bottom lines could be higher from a hosted/managed service model. In general, if the cash outlay for the hosted solution remains consistent during a three- to five-year period, then it will have cost these companies more to host during this period than if they bought a license. However, this is not typical, and during a three- to five-year period, enterprises owning IVR systems are often confronted with hardware and software upgrade fees, the opportunity to purchase innovation that will improve their operating environments, the need to add capacity, and other unplanned expenses beyond basic maintenance. 

Following is a list of the top reasons why companies are investing in hosted/managed service IVR solutions:

1. The need to upgrade legacy systems, reduce maintenance costs of legacy solutions, or add to or improve self-service options; 
2. Expense reduction from no capital investment, low or no up-front costs, fixed monthly operating expenses, lower administrative/overhead costs, fewer unexpected expenses, and no need to buy or build to meet peak traffic;
3. Investment protection, with no software or hardware upgrade costs to affect the total cost of ownership;
4. Fewer IT resources required to maintain the hardware and, depending on the business model, the application;
5. Protection against technology obsolescence;
6. Avoiding long-term commitments/contracts, allowing a company to easily change solution providers as needed; and
7. Avoiding capital write-offs.

In addition, users of managed service offerings in which the vendor takes care of the hardware, software, IVR script, and all other aspects of the implementation, also realize the following benefits:

1. Availability of IVR and vertical domain experts when you need them;
2. Expertise available at reasonable prices;
3. Continuous optimization of the self-service application without substantial investment of in-house resources;
4. Improved customer service; and
5. An enhanced customer experience.

Sized to Fit

The hosted/managed service IVR providers have proved to be practical and to appreciate the need to address many challenges and concerns associated with speech-enabled IVR implementations. Besides the classic benefits associated with any hosted and managed service IT implementation, IVR vendors have innovated with highly flexible offerings, pricing models, and implementation strategies. Users of all sizes can find solutions that meet their needs. Specifically, many of the hosted/managed service IVR providers offer:

1. Flexible and aggressive pricing models, some of which are based on per-minute cost, others on completed transactions, and still others on success rates;
2. Willingness to amortize up-front start-up costs instead of requiring customers to pay large setup and implementation fees;
3. Rapid implementations, even for complex projects; and
4. Payback in three to nine months, and sometimes as quickly as within the first month. 

What’s clear is that these vendors understand their customers and are willing to put together a package that addresses the specific needs of each. Of course, there are trade-offs. Customers who want to amortize their start-up costs over the life of the contract must be willing to pay a slightly higher transaction fee and commit to a time frame that allows the vendors to recoup their initial investments.

A major reason companies invest in hosted/managed service solutions is that they realize a very rapid and quantifiable return on investment without a large capital investment or major start-up costs. This is also the reason that hosting is popular, even during tight economic times.

IVR solutions are rightly considered mission-critical for contact centers. IVRs typically handle 40 percent to 80 percent of all calls received by an inbound customer service contact center. Since many of these departments handle millions of calls each month, it’s clear that the IVR is an essential production workhorse. As a result, when capacity is needed, this is not an investment that can be delayed—it’s much more costly to defer investments that could have diverted calls from live agents. (The typical cost of an IVR transaction is 5 cents to 40 cents versus $3.50 to $6 for an inbound call handled by a live agent.)

Figure 1 shows the expected payback period provided by seven leading vendors analyzed in depth. Vendors and users told DMG that customer payback can be as short as one month or as long as a year, although three to nine months is most common. Payback depends on many variables, in particular the size and complexity of the project, as well as the start-up and integration costs. 

To win business, some of the hosted/managed service providers do not charge a start-up fee to cover the cost of application development and integration. Instead, they increase the cost per minute during the initial contract. However, to ensure they recover their start-up fees, the initial contract is generally for two to three years. This indicates that there are flexible hosted/managed service vendors that work with their customers to identify the pricing model that works best for them.

Because of increased competition in the hosted/managed-service IVR market, vendors large and small are willing to negotiate most aspects of their client relationships, including price and start-up costs. Many strong and viable hosted/managed service offerings exist, but they are not all the same. To make sure their full range of needs will be met, prospects need to carefully assess many factors, including technology, platform, scalability, integration capability, contingency/backup capabilities, development environment and resources, reporting and analytics, functional capabilities, management tools, ongoing service and maintenance, optimization capabilities, customer references, vendor responsiveness, financial strength, and planned research and development investments by the vendors they are considering. Price is important, but it should not be the primary deciding factor. 

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Donna Fluss is founder and president of DMG Consulting, a provider of contact center and analytics research, market analysis, and consulting. She is author of The Real-Time Contact Center, The 2008 Contact Center Executive and Management Briefing, and many other industry reports on contact center hosting, IVR, speech analytics, performance management, workforce management, surveying and analytics, and quality management/liability recording. She can be reached at donna.fluss@dmgconsult.com.