How Interactive Voice Response (IVR) Works

By: Dave Roos
A man wearing a head set to receive calls.
Many companies are switching from staffed receptionists to interactive voice response. Alistair Berg / Getty Images

Meet Emily. Emily works for Bell Canada, answering phones for the customer service department. She's from the province of New Brunswick, got her degree from Carleton University and enjoys listening to music in her spare time. She's also a computer.

"Emily" is the name of Bell Canada's interactive voice response (IVR) system (her bio was provided by a ']press release.) When a customer calls with a question about their bill or to talk to a support specialist, they'll talk to Emily first. In a calm, pre-recorded voice, Emily guides them through the menu options, using speech-recognition software to understand the difference between "billing" and "support." If the customer wants to talk to a "real" customer service rep, he can always press zero. Emily won't be offended.


It's hard to think of a customer-oriented business that hasn't made the switch from live operators to IVR. When you call your credit card company, you can use the IVR to pay your balance or report a fraudulent charge. Airlines use extensive IVRs to book reservations and check the real-time status of flights. Pharmacies use IVRs for refilling prescriptions. And just about everybody uses IVRs to route calls to separate extensions or to access the company phone directory.

Large and small businesses have adopted IVR technology because it saves money that would otherwise be spent on living, breathing (expensive) employees. An IVR system's effectiveness is rated by the percentage of callers who ask to speak to a live operator. The lower the percentage, the more successful the system. Of course there are some IVR systems that never give you the option of speaking to a live operator. But even among IVR fans, that's considered bad practice.

So how do these automated phone systems work? Are we actually talking to a robot or just a smart piece of software? Read on to learn more about the technology behind IVR systems.


IVR Systems

­IVR allows callers to enter prompts so they're immediately directed to the right department.
© Tim Boyle/Getty Images

IVR systems are an example of computer-telephone integration (CTI). The most common way for a phone to communicate with a computer is through the tones generated by each key on the telephone keypad. These are known as dual-tone multi-frequency (DTMF) signals.

Each number key on a telephone emits two simultaneous tones: one low-frequency and one high-frequency. The number one, for example, produces both a 697-Hz and a 1209-Hz tone that's universally interpreted by the public switched telephone network as a "1."


A computer needs special hardware called a telephony board or telephony card to understand the DTMF signals produced by a phone. A simple IVR system only requires a computer hooked up to a phone line through a telephony board and some inexpensive IVR software. The IVR software allows you to pre-record greetings and menu options that a caller can select using his telephone keypad.

More advanced IVR systems include speech-recognition software that allows a caller to communicate with a computer using simple voice commands. Speech recognition software has become sophisticated enough to understand names and long strings of numbers -- perhaps a credit card or flight number.

On the other end of the phone call, an organization can employ text-to-speech (TTS) software to fully automate its outgoing messages. Instead of recording all of the possible responses to a customer query, the computer can generate customized text-like account balances or flight times and read it back to the customer using an automated voice.

Many of today's most advanced IVR systems are based on a special programming language called voice extensible markup language (vxml). Here are the basic components of a VXML-based IVR system:

  • Telephone network -- Incoming and outgoing phone calls are routed through the regular Public Switched Telephone Network (PSTN) or over a VoIP network.
  • TCP/IP network -- A standard Internet network, like the ones that provide Internet and intranet connectivity in an office.
  • VXML telephony server -- This special server sits between the phone network and the Internet network. It serves as an interpreter, or gateway, so that callers can interface with the IVR software and access information on databases. The server also contains the software that controls functions like text-to-speech, voice recognition and DTMF recognition.
  • Web/application server -- This is where the IVR software applications live. There might be several different applications on the same server: one for customer service, one for outgoing sales calls, one for voice-to-text transcription. All of these application are written in VXML. The Web/application server is connected to the VXML telephony server over the TCP/IP network.
  • Databases -- Databases contain real-time information that can be accessed by the IVR applications. If you call your credit card company and want to know your current balance, the IVR application retrieves the current balance total from a database. Same for flight arrival times, movie times, et cetera. One or more databases can be linked to the Web/application server over the TCP/IP network.

[source: VoiceXML Review]

A company or organization can choose to purchase all of this hardware and software and run it in-house, or it can subscribe to an IVR-hosting service. A hosting service charges a monthly fee to use its servers and IVR software. The hosting service helps the organization customize an IVR system that best fits its needs and provides technical support should anything go wrong.

Now let's talk about some of the most common uses of IVR systems.


Common IVR Applications

­With interactive voice response, callers are routed to the right department or can obtain simple information.
© David Silverman/Getty Images

One of the most common uses for an IVR system is to route calls within an organization. In the past, you'd hire a receptionist or a switchboard operator to answer all incoming calls and route the callers to the right extension. An IVR system is especially useful when fielding customer-service calls. The system can present a caller with a list of menu options and questions about the nature of the call. If possible, the system itself can answer more frequently asked questions and route the rest of the calls to trained specialists.

IVR systems are ideal for retrieving simple, real-time information from a database. Movie times are a good example. Each week the movie listings are updated on a central database. This database can also be used to populate the movie theater's Web site. When a call is made to the theater, the caller can look up movie times in the database through voice or keypad commands. The same system can be used for checking account balances, reviewing recent credit card purchases, checking flight schedules, refilling prescriptions at a pharmacy, scheduling car maintenance, university class registration. The list goes on and on.


IVR systems are also useful for sales. A sales department can set up an IVR order form that callers can fill out using their telephone keypad. When the form is complete, the computer can then fax or e-mail a copy of the form to a member of the sales staff. A sales department could also use the IVR as a virtual brochure highlighting the features of a product or service with an option for speaking to a live representative at any time.

Marketing departments and political pollsters can use the outgoing call features of IVR systems. A political campaign could set up an outgoing message that includes a poll that voters can fill out over the phone. A marketer could gauge a customer's interest in his products or services. For those interested in the marketer's automated pitch, they could press a key to talk to a sales associate.

IVR systems can also be used as electronic notification systems. Let's say your organization has employees who work from home and are based around the world. The IVR system can be programmed with employee contact information: home phone number, cell phone, fax number, pager, e-mail address, et cetera. If a call needs to be routed to that employee, the IVR system will try each and every contact method in succession until a connection is made.

An interesting use of IVR technology is for transcribing medical records. Doctors currently record their patient records and send the audio to a medical transcription service. But with powerful voice recognition software, a doctor could call up the IVR system, record his notes and have a transcribed copy of the record e-mailed or faxed to his office.

So what are the advantages and disadvantages of using an IVR system instead of live operators? Read on to learn more.


Advantages of Using IVR Systems

­IVR systems can be used to answer simple questions so employees can focus on more difficult problems.
© Lara Jo Regan/Getty Images

The biggest advantage of IVR for small and large organizations is to save time and money. Answering phone calls takes a lot of time, and not every phone call deserves the attention of a trained employee. IVR systems can take care of most of the frequently asked questions that an organization receives (office hours, directions, phone directory, common tech support questions, et cetera) and allow customer service reps, salesmen and tech support specialists to concentrate on the harder stuff.

If a large company is able to shave even a second off the average length of each phone call with a live operator, it can save them hundreds of thousands or even millions of dollars a year [source: Human Factors International].


IVR systems have the advantage of making callers and customers feel like they're being attended to, even if it's just by a machine. If you have a simple question, it's better to get a quick answer from a computerized operator than to wait ten minutes on hold before talking to a human being.

Another advantage is that IVR systems don't sleep. They don't take lunch breaks. They don't go on vacations to the Bahamas. An IVR system can be available 24 hours a day to field questions and help customers with simple tasks.

An IVR system can make a small company look bigger. Let's say you work from home as a consultant. By using a hosted IVR service to answer your phones, you already appear like a larger organization. You can get tricky by adding several menu options for different departments, all leading to separate voice mail boxes. Some IVR hosting plans even set you up with an 800 number to look more official.

Subscription IVR hosting plans make it easier for businesses and organizations to use these automated phone services. This is a big advantage of days past, when only large companies with big telecommunications and computing budgets could afford the hardware, software and staff to run in-house IVR systems.

Now check out the next page to learn about the disadvantages of IVR systems.


Disadvantages of Using IVR Systems

­Some companies still offer live customer service as callers often dislike talking to automated machines.
© David Silverman/Getty Images

The greatest disadvantage of IVR systems is that many people simply dislike talking to machines. Older adults may have a hard time following telephone menus and lengthy instructions. And younger callers get frustrated with the slowness of multiple phone menus.

The problem with IVR systems is that it's hard to design a good one and easy to design a bad one. Here are some of the most common user complaints with IVR systems:


  • Menus are too long. Experts recommend that no menu should exceed four choices [source: Customer Management Insight]. This makes it easy to remember the options and doesn't waste the caller's time listening to tons of choices.
  • There's too much information. When writing a script for IVR systems, start with the least amount of extraneous information possible; for example, info on how to use the phone menu system, hours of operation, extension numbers, et cetera. Wait for a caller to ask for help or request more information instead of offering it all up front.
  • Voice prompts are hard to understand. This could be caused by two different factors. To save money, the organization didn't hire professional voice talent and may have recorded the audio over the phone instead of in a studio. Or, if the organization opted to use an automated voice, they may have chosen cheap text-to-speech software that's hard to understand.

Sales departments need to be careful when using IVR systems to receive customer calls. If a customer or potential customer has shown enough interest to actually pick up the phone and call to find out more about a product, he doesn't want to feel like he's being ignored. So if a sales staff is going to use IVR as a virtual brochure or an automated order form, it must make it clear that the caller can talk to a live representative at any time.

People are particularly adverse to receiving automated calls as part of telemarketing campaigns or polling. It's bad enough to get a call during dinner from a guy trying to sell you health insurance, but it's even worse when that guy is a computer.

Now let's look at a few IVR companies and the specific products and services that they offer.


IVR Providers

­IVR systems are helpful in many circumstances and are increasingly being used to save money.
© Photographer: Savone | Agency: Dreamstime

Let's take a look at a few of the most popular IVR service providers: Voxeo, PlumVoice and inContact. Voxeo offers two basic options for leveraging its IVR technology and services. As an organization, you can either buy Voxeo's servers and software and install it in-house, or you can subscribe to its IVR hosting service and pay by the month.

Voxeo's IVR technology runs on the VoiceCenter platform. VoiceCenter is VXML-based and can be integrated with existing telephone and Internet networks using the VoiceCenter server. An advantage of the VoiceCenter platform is that the software is written using open standards, so that in-house or third-party developers can write customized IVR applications. And since many larger companies already have Web/application servers and databases, it's relatively easy to integrate the VoiceCenter server into the corporate network.


Voxeo claims that its hosted IVR service can save a company thousands of dollars in hardware, software, administration and maintenance costs. By Voxeo's calculations, it costs a company $3,000 per phone line to set up an in-house IVR system, requiring 100 hours of installation and configuration by the IT staff [source: Voxeo]. As a comparison, Voxeo charges $0.11 a minute for its hosted IVR service with a minimum monthly charge of $500 for an unlimited number of phone lines.

Voxeo focuses its marketing attention on the open nature of its IVR platform. It even gives away its software to third-party developers so they can build applications that make the system even more robust.

PlumVoice offers technology and services that are very similar to Voxeo. It sells on-site server and software solutions as well as off-site, full-service IVR hosting. PlumVoice also sells lots of pre-built IVR applications customized to different industries and different-sized organizations. The advantage of these applications is that an organization can deploy an IVR system quickly by recording a few menu options and integrating with existing databases.

InContact is different than Voxeo and PlumVoice in that it only offers subscription IVR hosting, not in-house server and software configurations. Its hosted service is similar to those offered by Voxeo and PlumVoice, with more of a focus on simple user controls.

The inContact service comes with a software package called inControl that lets an organization easily customize scripts and IVR system configuration through a graphical interface. You drag and drop boxes into a virtual workspace. Each box represents a different step in the automated call process. One box might signal a prompt to enter a pass code and another box plays hold music. You can also preview the call sequence before deploying it live.

All three of these companies offer free demos or trial versions of their products and services.

We hope this HowStuffWorks article has helped you better understand the world of IVR. For more information on interactive voice response and related topics, check out the links on the next page.


Frequently Answered Questions

What is the purpose of an Interactive Voice Response IVR system?
The purpose of an IVR system is to provide a way for customers to interact with a company using their voice. This interaction can be used to gather information, make selections, or carry out transactions.
Whats IVR stand for?
IVR stands for Interactive Voice Response.