There is general consensus within the communications industry that VoIP
is the technology driving the next generation of enterprise telephone
systems. Multiple vendors, including start-ups and established PBX or key
system suppliers, are in the process of marketing and selling their first
generation of VoIP products. There are many drivers that make convergence
technology more feasible to IT professionals -- a change in a company's
business environment such as a move or acquisition; or a
"right-sizing" of a business, for example. Now that Y2K compliance
is no longer as an issue, many companies have the ability and/or the
resources to evaluate the value that IP telephony brings to the table.
In order to make an accurate evaluation, IT professionals will need to
review the anticipated applications enabled by IP telephony, while CIOs must
examine the costs. An IP-based infrastructure for voice enables new
IP-centric applications that could not otherwise have been easily
implemented within a traditional PBX system. Total cost of ownership (TCO)
reduction enhances this picture for many IT decision-makers today.
Research analysis indicates that there is a significant up-front
investment in the technology required to migrate to IP telephony for most
organizations (e.g., network upgrades to add additional bandwidth and
quality of service support). However, over a multi-year migration program,
TCO can be reduced, particularly for multi-site organizations and those with
rapid growth and a dynamic user community.
Depending on the size of your enterprise and your goals, IT and Telecom
managers can review the realistic financial implications and benefits of a
converged IP voice and data network. This article provides the return on
investment (ROI) for typical single and multi-site organizations migrating
to VoIP over a three- to five-year period. In addition, while toll bypass
can result in savings for some organizations, the real cost savings from IP
telephony are a result of decreased capital and support costs over the long
term. These include:
Reduced capital infrastructure to support a single network;
Consolidation of support skills and personnel required;
Simplification of, and reduced cost of, moves/add/changes (MACs) of
personnel; and
Easier integration and support for home office/teleworkers.
In order to provide a cross section of organization types and their
potential ROI in migrating to VoIP, three different enterprise models will
be discussed. These scenarios have been chosen to represent relatively
common business cases that can be found in the commercial world today. They
are:
Large multi-site enterprise with a North American corporate office,
adding two new branch offices in North America and the UK. Migration
over 5 years.
Small-to-Medium multi-site enterprise with a North American corporate
office, adding one new branch office in North America. Migration over 4
years.
Small-to-Medium standalone enterprise. Migration over 3 years.
Certain factors will affect the overall costs and benefits to
organizations wishing to undertake the transition to VoIP capability. The
analysis requires individual input into the following categories in order to
properly evaluate the benefits for a particular environment: Corporate
environment; financial information; and facilities.
Scenario 1 Large Multi-Site Business Enterprise
This analysis looks at a typical scenario in a large corporation with
expansion of new offices. Key model inputs that determine this model are:
1,000 employees in year one, growth of 20 percent per year;
Opening small branch office in North America in year two;
Opening a small European/UK office in year three;
Savings of one voice network employee in year four;
Analysis over a five-year period;
20 percent of the long-distance calls are for inter-site traffic; and
14 percent of their support staff labor spent in managing moves.
TABLE
1. Large, Multi-Site Business Scenario (Scenario 1)
Year
1
Year
2
Year
3
Year
4
Year
5
I M P
L E M T A T I O N C O S T S
Capital
Costs
$300,800
$363,552
$430,902
$503,337
$581,414
Staff
Costs
$8,046
$10,132
$13,324
$17,166
$23,970
Facilities
Cost
$19,248
$45,761
$83,057
$113,491
$150,266
Total
Costs
$328,094
$419,445
$527,283
$633,994
$755,650
S A V
I N G S
Capital
Savings
$-
$270,000
$291,600
$314,928
$340,122
Staff
Savings
$63,000
$149,778
$253,155
$428,929
$592,105
Facility
Savings
$61,200
$120,960
$179,950
$238,854
$298,377
Total
Savings
$124,200
$540,738
$724,705
$982,711
$1,230,605
Return
on Investment
(62)%
29%
37%
55%
63%
Scenario 2 Small-to-Medium Multi-Site Enterprise Business
This is a typical scenario in a small-to-medium sized corporation, including
also the expansion of new small branch offices. Key model inputs, which
determine this model, are:
200 employees in year one, growth of 20 percent per year;
Opening small branch office in North America in year two;
Savings of one voice network employee in year four;
Analysis over a four-year range;
20 percent of the long-distance calls are for inter-site traffic; and
14 percent of their support staff labor spent in managing moves.
TABLE
2. Small-to-Medium Multi-Site Business Model (Scenario 2)
Year
1
Year
2
Year
3
Year4
Implementation Costs
Capital
Costs
$37,600
$45,444
$53,863
$62,917
Staff
Costs
$3,092
$2,850
$2,838
$2,302
Facilities
Costs
$2,406
$8,485
$10,743
$14,624
Total
Costs
$43,098
$56,779
$67,444
$79,843
Savings
Capital
Savings
$-
$27,000
$29,160
$31,493
Staff
Savings
$7,875
$19,441
$32,372
$94,863
Facility
Savings
$7,650
$15,120
$22,494
$29,857
Total
Savings
$15,525
$61,561
$84,026
$156,212
Return on
Investment
(64)%
8%
25%
96%
Scenario 3
Small-To-Medium Standalone Enterprise
This is a typical scenario in a small, single site corporation. Key model
inputs that determine this model are:
100 employees in year one, growth of 20 percent per year;
Analysis over a three-year range; and
14 percent of their support staff labor spent in managing moves.
Comparison Comparison of the results for the different business scenarios is given
in the table below:
As detailed in Table 4, there is a significant up-front investment in the
transition to VoIP. Depending on the characteristics of the organization,
the positive return on investment may take two or more years before showing
a net positive return, speaking strictly from a cost perspective.
TABLE
4. Comparison of Different Scenarios
Site
Classification
Year
1
Year
2
Year
3
Year
4
Year
5
Large
Multi-site
(62)%
29%
37%
55%
63%
SME
Multi-stie
(64)%
8%
25%
96%
SME
Single site
(77)%
(18)%
(6)%
The analysis shows that ROI is significantly affected by:
Cost per user of data and voice networks.
The amount of MACs that the company supports in a year.
The growth rate of the organization.
The amount of intra-site communications currently incurring toll
charges.
THE BOTTOM LINE The easiest justification for transition to VoIP is where the
applications enabled provide unsurpassed convenience to the user, or when
there is a clear cost-benefit to make the change. Cost savings in migration
to VoIP come from several different areas.
MACs
The first is savings from the easier relocation of people. With dynamic
allocation of IP addresses, it is possible for personnel to simply plug a
phone in at a new location and still receive the full suite of functionality
for which their phone had originally been configured. This type of savings
will be important to clients who have a very dynamic organizational
structure where people are constantly moving. An example of such an
organization would be an engineering or consulting company where people are
structured into project teams.
Infrastructure Reduction
The second area of savings results from reductions in required
infrastructure. Ideally, in a new building environment, this would mean
having to install the wiring for only one type of network, and realizing the
associated savings in wiring closets. In an existing office facility, it
means not having to spend money on a PBX for a new branch office or major
expansion. Telephones could be installed by users at the branch office and
managed centrally in headquarters. No skilled technician is needed at the
remote site to install or configure a PBX or the phones.
Long-Distance Savings A third potential area of savings is with reduced toll-charges. This is
most significant with a user community that has a number of branch offices
and/or a large component of voice/fax traffic between offices.
Staff Efficiencies/Converged Skill Sets
The fourth area of cost savings is through staff efficiencies and
convergence in skill sets. This would typically benefit organizations where
the size of the support staff is sufficiently large enough that a reduction
in IT personnel could be achieved through reduced workload. In the case of
smaller offices, the work-load can justify one person with a standard skill
set, rather than two underutilized people, one specializing in voice
networks and the other in data networks.
Scalability
Less tangible savings are in the area of scalability. The iPBX is only
involved in the call setup. Voice is switched in the IP network. This
implies that the system can grow much more flexibly than conventional TDM-based
systems.
Remote Access Finally, the move to VoIP will also provide benefits to telecommuters.
Telecommuters and road warriors can access their office computing
environment and voice facilities over the same wide area IP network.
Gayle Moss is product marketing manager, for the IP telephony division
of Mitel. Mitel Corporation is a
designer, manufacturer and marketer of telecommunications products.
In the near future we will likely see the true global e-business economy
mature to the point where a significant volume of business-to-business and
business-to-consumer communications and commerce takes place via the Web.
Customers will be the real power brokers in the e-business economy because
they will be able to do business with virtually anyone, anytime, and
anywhere.
Although the global, digital economy is developing rapidly, there is
still quite a distance to travel. As you prepare your business and your IT
infrastructure to support an e-business model, you must also begin preparing
your organization for a new level of customer communications and management
capabilities.
The Changing Enterprise
The call center has traditionally been the central point of contact between
a business and its customers. Typically consisting of a group of dedicated
agents closely supervised at a single location, the responsibility of the
call center organization is to handle incoming calls and initiate outbound
calls. The performance of call center agents, who are usually engaged in
sales or support issues, is usually based on the quantity of calls completed
during the course of a business day.
The traditional call center model has worked well over the years, but
there are several reasons why this model needs to change in order to meet
the requirements of the enterprise competing in a global economy:
Customer care is becoming a mission-critical requirement and a core
business process.
The responsibility for customer care extends beyond the boundaries of
the call center.
Enterprises are making changes that will enable faster, more effective
customer response.
All of this leads to a requirement to create a new model for building and
managing customer relationships. This model must take the "center"
out of call center. Rather than managing customer contact through a
centralized organization and function, the responsibility for customer care
in the e-business economy ultimately belongs to virtually everyone in the
company, including employees in sales, marketing, support, order processing,
operations, finance, and engineering. This new distributed customer care
model requires a shift from "quantity of customer touch" to
"quality of customer touch." In such cases, these
location-independent knowledge workers with unique skill sets need to be
available on an "as-needed" basis in order to participate in a
customer-care issue. The issue will often be totally unrelated to a specific
sales transaction, but if managed properly, will ensure a continued revenue
stream from a happy customer. The key point is the ability to distribute
this function.
Delivering a real-time, total response capability will result in
increased customer satisfaction and stronger long-term customer
relationships. This is possible only through a distributed customer care
strategy enabled by distributed voice and data applications that are
integrated on the knowledge worker's desktop.
A New Model For Customer Care Implementing the type of distributed, location-independent customer care
capabilities described here is possible using traditional PBX technology,
yet the inherent cost and complexity make it a very undesirable or
impractical solution for most companies. This is true not only in terms of
the problem of distributing and integrating voice communications, but also
in the difficulty of seamlessly integrating the customer care application
into the process. This is why many companies are looking to IP
communications as the newer, preferred solution.
There are important differences between a pure IP communications platform
and a traditional PBX switch with add-on IP capabilities. These hybrid,
IP-compatible systems merely add IP line cards and trunk cards into an
existing PBX switch. While add-on cards provide users with VoIP, the
switching is still handled by the PBX, and therefore all IP communications
must be converted between IP and circuit switching. While this type of
system may offer some benefits, the real efficiencies occur through the
implementation of a pure IP architecture. For example, a PBX can be made
IP-compatible by adding an IP trunk card for toll bypass. Unfortunately, if
your company has multiple sites, you still need to manage a separate PBX
with an IP gateway trunk card at each location. Furthermore, the customer
care application must be deployed separately at each location.
A far easier, and much more elegant solution is to leverage a single IP
voice and data network infrastructure in the LAN, and across the WAN, in
order to unify all knowledge workers, voice services, and customer data
applications into one integrated customer care process. This gives IT
organizations the flexibility to dynamically create and modify multiple,
knowledge worker-based customer care groups anywhere there is IP network
access. This allows even home-based teleworkers the ability to function as
customer care agents. In addition to improving customer relationships, the
converged customer care infrastructure reduces costs, improves productivity,
and provides a competitive advantage for virtually any size company. Adding
a true converged application provides out-of-the-box integration and
eliminates the need for complex CTI technology.
Companies must prepare now for the customer-care requirements of this new
economy. The cost of retaining a customer is far less that the cost of
acquiring a new customer. If your company's success depends on a strong,
loyal customer base, then the time is now to begin managing those
relationships with a converged, IP-based, distributed customer care
solution.
Franklyn Jones is vice president of marketing at Shoreline
Communications in Sunnyvale, CA. Shoreline delivers a Next Generation
voice communications platform, unifying sites, people, and applications.
A look at today's LAN telephony offerings should bring a screeching halt
to any thoughts a telecom manager harbours about looking for a traditional
PBX system.
LAN telephony products -- also referred to as VoIP or network telephony
-- do away with the substantial cost-per-feature burdens of the older,
legacy PBXs, while at the same time bringing a new measure of administrative
simplicity to telecom management. Add to these an almost unlimited capacity
to add new features "for free," and it's easy to see why
increasing numbers of legacy PBXs are being overlooked in favour of the
newer, data-centric LAN telephony systems.
In fact, telecom managers should evaluate LAN telephony products on the
basis of how well they fulfill each of three basic criteria: Administrative
simplicity, economy, and feature richness. To be considered among the best
of today's LAN telephony breed, a product family must satisfy all three
requirements.
Administrative Simplicity
One of the greatest and most visible benefits of a LAN telephony system is
the way it converges with the typical company Ethernet LAN.
For most firms, the LAN telephony system components, including the phones
themselves, become simple Ethernet ports in the local-area network. There is
now a single Ethernet cable routed to each user's cubicle -- gone is the
separate phone line, separate LAN line, as well as the many hassles of
running phone lines to new offices, or splicing phone cables to switch users
over to new phone networks.
Administrative simplicity shouldn't end in the wiring. In a best-of-breed
LAN telephony system, the phones should possess self-discovery and
auto-configuration features. This way, a user can unplug a phone from one
office, go to a new office, plug in the phone, and instantly get the same
phone number and the same features, including pre-programmed
"speed-dial" numbers, as before.
Finally, administrative simplicity should extend to user programming and
system management. Large, easily understandable feature buttons and
browser-based programming software make it simple for users to program their
own phones. The same browser-based functionality should be in place to make
life easy for administrators who are managing the system and setting up new
users.
Economy like never before Over the years, legacy PBXs gained a reputation
for being expensive. Adding new features often meant either bringing in new
hardware, or commissioning expensive software upgrades. Frequently, changing
a major system component also required "forklift" upgrades of all
related components.
Studies have shown that adding new features can incur per-user costs as
high as several thousand dollars with legacy systems. One example is a
telecommuting feature, making it possible to give the remote user all the
benefits of his or her office system, from voice conferencing to
computer-integrated telephony (CTI), as well as the actual office extension
number. To outside callers, it appears as if the user is in the office, when
in reality he or she might be at a hotel on the North Shore of Hawaii. In a
legacy system, the cost of this feature, with its necessary extra phone
converters and other hardware, can amount to several thousand dollars per
user. By contrast, with a LAN telephony system, this feature comes at a very
low extra cost, and requires no hardware beyond the user's own, on-location
DSL router (or similar device).
This is today's reality, and in general, the future cost trend favors LAN
telephony as well. While PBX ownership costs typically rise as new features,
and especially new hardware, are added, Ethernet technology (the technology
base for LAN telephony) regularly falls in price. For instance, in 1998 the
average Ethernet network switch cost about $250 per port; two years later,
that cost has dropped to under $100. At the bottom line, LAN telephony
offers users an up-front cost savings of about 40 percent over traditional
PBX-based systems, as well as regular, on-going cost savings as new features
are added.
Delivering the features New features are the one area where LAN telephony
should be held to the same standards as traditional PBXs.
Every 18 months or so, traditional PBX vendors come out with major new
feature upgrades for their PBXs, and while many users don't want or need
these features, they enable some companies to provide necessary services in
more efficient manners. Many small firms that want to compete with larger
companies know they must possess world-class phone systems, and upgraded IP
services offer the same feature potential as those of the major PBX vendors.
It is simply not enough for a new LAN telephony vendor to hit the market
with a system that's simple to administer and inexpensive to own. The system
must also have access to the feature power of the largest and best PBXs.
A system should possess call-management features ranging from multiple,
multi-level auto-attendant capabilities to call center, call forwarding, and
PC-telephony integration, as well as robust call-routing features, hunt
groups, and automatic route selection (ARS). The system should also include
voice-messaging features, from integrated voice mail and unified messaging,
to multimedia messaging and off-site notification, where the phone system
reaches out via pager, cell, or regular phone to alert traveling users to
important messages.
Leveling The Field By giving companies the three major benefits of simplicity, economy and
feature richness, best-of-breed LAN telephony systems can help level the
competitive playing fields. More than two million companies are expected to
purchase new phone systems next year, and these cost-saving, value-added
features offered through LAN telephony should persuade a look beyond
traditional suppliers when implementing a new telecommunications system.
Ed Wadbrook is director of strategy and New Market Development at 3Com
Corporation. 3Com Corporation enables individuals and organizations
worldwide to stay connected by communicating and sharing information
anytime, anywhere.