IVR may be used with both public switched telephone networks (PSTN) and also with voice over IP (VoIP) networks. An interactive voice response phone system typically consists of the following components:

1. A TCP/IP network to provide internet and intranet connectivity.
2. Databases to supply IVR applications with relevant data.
3. A web/application server where the IVR software applications will live. This server can host multiple applications, which are all written in VoiceXML. For example, there could be applications for contact centers, outgoing sales calls and speech-to-text transcription.

From here, one of three types of IVR systems is typically constructed.

• Touch-tone replacement: This system prompts callers to use a touch-tone keypad selection to access information. For example, a pre-recorded message might say, “Press one for store hour information,” and the caller would respond with “one.”
  
  
• Directed dialogue: This type of IVR provides specific verbal prompts to callers depending on their inquiry. For example, the recording might ask, “Are you looking for store hours or location information?” The caller may respond with “store hours.”
  
  
• Natural language: This advanced IVR system uses speech recognition to better understand user requests. For example, the system prompt might ask, “what information are you looking for today?” and the caller might reply with “I’m looking for store hour information” or other similar phrases.

Interactive voice response technology offers competitive advantages to large and small businesses, and improves their automation efforts. Some key benefits include:

• Improved customer experience: After obtaining relevant information from a caller, IVR solutions route callers to the appropriate call-center agent, reducing wait times and increasing first contact resolutions. Customer support can also be provided 24/7 without the need for staffing a call center outside of normal business hours.
  
  
• Lower operational costs: IVR systems are incredibly cost-effective. They not only reduce high call volumes for customer service representatives, but they can extend access to FAQs and information outside of business hours, such as nights, weekends and holidays. If a discussion is requested, the IVR system can also suggest leaving a voicemail for a callback during regular business hours.
  
  
• Error reduction: When deployed effectively, IVR call center software can reduce errors within the customer service process as it does not depend on a human customer service representative to take notes and route incoming calls.
  
  
• Data collection: Customer requests can be automatically tracked for greater insights into the most common actions and problems.
  
  
• Increased security: Some IVR systems incorporate voice recognition technology—not to be confused with speech recognition—to verify the identity of an individual, adding an extra layer of security. This can be helpful for highly sensitive personal information, such as Social Security and phone numbers, checking and savings account information, and lab results from doctor’s appointments.

While interactive voice response can offer benefits to businesses, the technology still has limitations that need to be resolved and optimized for. Organizations should monitor the metrics of, at least, the most-used options: average hold time and success rate. Challenges include the following:

• Overcomplex IVR menu options: While IVR technology can streamline the call flow within call centers, it can also frustrate callers if the automated messaging system is too complex. Overly long, pre-recorded messages might require callers to wait unnecessarily long to select their intended option, resulting in lower customer satisfaction.
  
  
• Long hold times: Despite the advances in technology, long wait times remain a problem on many IVR systems. Callback functionality can alleviate frustration as callers can continue with other tasks in their day until a customer service representative is able to attend to their request.
  
  
• Impersonal communication: When customers are calling a support line, they could already be highly frustrated by a product or service issue. An automated messaging system might deepen their frustration, as a recording does not have the ability to empathize with their current problem.

Poorly deployed IVR systems can lead to high call abandonment rates and negative customer sentiment. Since low customer service satisfaction can harm a brand via negative reviews and public social media complaints, businesses should be thoughtful in their deployment of an IVR contact center solution.

Interactive voice response solutions have been utilized across a wide variety of industries. Below we’ll delve more deeply into these use cases.

Banking: IVR can be leveraged for a variety of tasks within banking and finance, such as providing account inquiries, including account balances and loan application statuses, as well as enabling transactions, activations and changes to investment portfolios.

Customer service: Customer service call centers straddle across multiple industries. Organizations can configure centers to handle a high volume of inbound calls using automated menus and pre-recorded messages to handle customer queries and complaints. Some IVR solutions include a callback option where customers are in a queue and receive an outbound call when an agent is ready to help them. 
 
Education: Research¹ has shown that educational institutions can implement IVR to assist parents in retrieving a status update on their child's performance and attendance in school. Parents can register with the system and then input a username and password to access key information on future calls. 
 
Government:  Constituents call government offices for important information or with requests. Much of this can be automated with IVR, such as confirming polling places and times, licensing and permits, taxes or unemployment insurance. In addition, requests can be routed to the correct department for discussion. 
 
Healthcare: IVR technology has a number of practical uses within healthcare, such as pre-treatment questionnaires, patient satisfaction surveys, lab and appointment scheduling, post-discharge follow-up, lab results and patient monitoring. This research² also highlights how it can increase overall patient satisfaction by reminding patients to adhere to their medication schedule.

Hospitality and travel:  Bookings, cancellations, and customer service contacts can speed and improve customer service for airlines, hotels, railroads and vehicle rental agencies. By determining the reason for the call—booking, change of plans, delay—customers can be routed directly to the correct department.

Retail and e-commerce:  Customers can now verify delivery and return status quickly and easily. Self-service or live chats for retail can answer many customer questions, but then telephone calls can also be routed to a live agent for discussions.