April 2003

Maximizing ROI In Enterprise VoIP

BY JENNIFER STAGNARO

When Mike Shisko, director of IT for Experio Solutions, an IT consulting company, needed to deploy a new phone system, he evaluated both legacy and VoIP phone systems. When he dug into the detail, he found that different architectures resulted in very different ROI models. In addition to looking for ways to make his team of consultants more productive, Mike had a business decision based on dollars and cents.

Said Shishko, �The differences in ROI were remarkable. One of the solutions we looked at reduced our equipment and installation costs by 50 percent and further reduced our ongoing management and toll bypass expenses by more than 66 percent.�

But determining just what return on investment a VoIP system can bring isn�t a simple matter. At least three fundamentally different types of VoIP architecture are offered by more than a dozen different suppliers; and each architecture has unique requirements that impact ROI. The black box legacy model yields expensive management costs and proprietary phones while the overlay data architecture requires expensive data networking upgrades. There is a third category of architectures that eliminate these hidden costs and delivers a cost-effective, application-rich IP phone system. But how can you tell which one delivers the best combination for your business needs?

Before embarking on your phone system evaluation, an IT manager should compare ROI across the various architectures in acquisition costs (equipment and installation costs), on-going management (including maintenance) and network costs as well as toll expenses.

But cost reduction is just one aspect of the payoff from VoIP. A leading tech news service, for example, now offers a host of easy-to-use collaborative applications to users, including unified messaging, ACD, AA, and conferencing. Employees can file, forward, and store voice mails the way they do e-mail, and can call fellow employees with a click of a mouse. Users can move their extensions from one office to another in a matter of seconds using a four-digit PIN -- without administrator help.

While it�s hard to quantify the benefit of employees and customers working together more effectively, enterprises are making measurable changes in how they operate as a result of the collaborative potential of VoIP. California-based Bay Federal Credit Union used VoIP to make it easier for customers calling their branches to reach the right departments, and complaints about phone service also dropped substantially.

Boston-based OneUnited Bank centralized customer service at one site, allowing the staff at other sites to focus on sales. Cleveland-based Mortgage Information Services uses the collaborative capabilities of VoIP to easily and quickly focus virtual teams from multiple offices on areas that require more support, without having to relocate employees.

So when you look at VoIP keep at least one thing in mind; there are significant ROI differences between architectures. Your choice before install will have a long-term impact on your bottom line, from cost to productivity. Make sure you take a close enough look at your requirements and what different systems actually deliver.

ACQUISITION COSTS VARY ACROSS ARCHITECTURES

Architecture can have a substantial impact on acquisition costs, which typically include telephones, PBX equipment, applications such as voice mail and ACD, network upgrades, training, and installation. Anyone evaluating systems should beware of the low-priced �skeleton� RFPs that look comparable at first glance, then lock the customer into expensive add-ons or proprietary hardware, software, or management support. Some systems support only proprietary phones, or require add-ons for simple things like analog phone support. Before accepting anything at face value, be prepared to ask questions like:

� Can the proposed system be managed by existing staff?

� What are the training requirements?

� Are upgrades hardware- or software- based?

� Is reliability built-in, or is it an extra that requires additional equipment or support?

� What are my phone choices?

EQUIPMENT: RELIABILITY OR PRICE?

List prices are the first place to begin, but beware of the hidden costs to get you to a level of reliability you can live with. For some systems it is extra. You�ll need redundancy for some, network upgrades for others, and some will require both.

One enterprise told the story of a supplier who positioned the aggressive network upgrades required for its �pure VoIP� system as simply �upgrading their network for the twenty-first century.� The enterprise didn�t bite.

Anyone considering VoIP should pay careful attention to whether a vendor mandates the conversion of servers to call-control devices; this is typically not easy or intuitive, and often involves retrofitting solutions across network devices never intended to carry voice traffic. The result can be a tangled network of repurposed and often redundant devices that again require additional networking gear for enterprise-class performance. This may also require disrupting an existing network, which is never without risk.

Legacy PBX/gateway architectures typically require ongoing dependence on the supplier for management and maintenance, training, etc., because the legacy PBX remains the core of the system. Gateways help to reduce toll bypass expenses, but keep the user dependent on the TDM backplane and the old-world complexity. Marketed as an evolutionary approach, this leads to additional equipment and installation expense, with some possible toll cost savings -- but typically the same feature set as before.

Other �gotchas� include high-priced proprietary phones or �standards� that aren�t quite standard yet. What appears at first to be an inexpensive system locks the customer into higher-margin hardware -- not to mention costly support and/or maintenance programs -- over the life of the system. That makes for a happier vendor but a weaker ROI.

INSTALLATION: YOU DON�T HAVE YOUR OWN ARMY?

From an ROI perspective, a high-cost installation is a bad start. While �last-of-breed� legacy PBXs had a notorious reputation for installation challenges, some of the new VoIP architectures haven�t made much headway, and still promote a complex, site-bound approach that virtually recreates the installation experience of the past. Complexity adds expense, and the first sign of complexity is an expensive and/or time-consuming installation.

A supplier bid that is based on time and materials for installation, rather than a fixed cost, may be a clue that the install could contain a few surprises. Other red flags are solutions that have multiple management systems and interfaces. Many purpose-built VoIP systems offer relatively easy installation and a single GUI for all administrative functions.

Whether it�s because of a challenging installation or excessive hardware or software requirements, acquisition often sets the stage for long-term TCO and the potential for a fast ROI. An easy install can mean reduced complexity and lower costs. New York-based SPI Polyols, an international chemical company with about 400 employees across four locations, received an installation bid that represented about 30 percent of total equipment cost before finding an alternative VoIP supplier whose system could be installed with a reasonable effort; the later system also included voice mail, unified messaging, and ACD at no additional cost.


ONGOING EXPENSES ALSO VARY

Valent USA, an agricultural products company, looked at its phone costs in 1999 and was stunned by what was �hiding under the rock� when it came to ongoing management and maintenance expenses. The company converted 12 offices and more than 600 users to VoIP starting in 1999, and saved more in management contracts in the first year than the new system cost to acquire.

Ongoing expenses -- management, maintenance and toll charges -- can add up significantly over time. Many IT and telecom managers simply don�t know how much they pay every year for their phone systems, because traditional suppliers have developed ways to work within multiple budgets and cost centers, spreading out the cost of hardware, software, upgrades, training, and other key elements across the enterprise as spending allows.

Legacy/PBX gateway approaches typically leverage last-of-breed legacy PBXs, so that management and maintenance costs remain about the same, or increase slightly, with the addition of gateways. Systems with a high �cobble factor� are easy to uncover, as they typically use a multitude of interfaces and require substantial training. Many of the new server-based and purpose-built architectures offer easier MACs, yet even among these systems there are considerable differences in the spectrum running between intuitive and complex.

If a VoIP solution involves multiple platforms that are not interchangeable -- e.g., if regional offices require different platforms than small branch locations -- maintenance and support costs are likely to be higher over the long term, especially for a company with a multi-site network and offices of varying sizes. This is reflected in everything from the increased stocking of spares to the training requirements involved with managing multiple interfaces. In a recent lab report by The Tolly Group, such factors caused one vendor�s VoIP solution to be three to five times as expensive as another�s over a period of five years.

TOLL BYPASS

When it comes to toll bypass, each type of architecture also has its own cost and performance implications. Experio Solutions was able to reduce monthly per-employee long distance from over $20 to less than $7 without additional equipment or upgrades. A single telecom manager spends about half his time managing the system. Over five years the company will have reduced their toll-charge expense by more than $600,000, without an additional up-front investment in hardware, software, or acquisition.

GETTING A HANDLE ON TOTAL COST OF OWNERSHIP

Anyone evaluating VoIP should consider all costs of ownership, from acquisition expenses to ongoing maintenance, management, and long-distance charges. A recent focus group found that IT and telecom executives and managers did not know how much their companies were paying for each of these components of phone system costs. Not understanding the significance of architectural differences, they are leaving themselves open for some unpleasant surprises.

Jennifer Stagnaro is Chief Marketing Officer at Shoreline Communications, Inc. Shoreline delivers robust IP phone systems and has been making enterprise-class IP voice communications a reality for over four years. The company has shipped the Shoreline IP voice communications system to hundreds of customers and has delivered over 80,000 individual stations to date. For more information, please visit the company online at www.goshoreline.com.

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