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The Business Case and ROI Analysis for IP Telephony at Cisco Systems

The Business Case and ROI Analysis for IP Telephony at Cisco Systems. Cisco Account Team Date. Table of Contents. Cisco’s Internal IP Telephony Deployment Strategy Background to the ROI Analysis Results of the ROI Analysis Appendix I: Detail Behind the Results

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The Business Case and ROI Analysis for IP Telephony at Cisco Systems

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  1. The Business Case and ROI Analysis for IP Telephony at Cisco Systems Cisco Account Team Date

  2. Table of Contents • Cisco’s Internal IP Telephony Deployment Strategy • Background to the ROI Analysis • Results of the ROI Analysis • Appendix I: Detail Behind the Results • Appendix II: Sensitivity Analysis

  3. Cisco’s Internal IP Telephony Deployment Strategy

  4. Cisco AVVID and Cisco IP Telephony: • Key Components of Cisco’s E-Business Strategy: • Optimising Cisco’s Workforce • Caring for Cisco’s Customers E-Learning Workforce Optimisation Supply Chain Customer Care

  5. $500M+ Employee Mobility Integrated Self-Service Workforce Development $74M E-Finance E-Procurement Basic e-HR Cisco IP Telephony is a key enabler of Cisco employee mobility $19M Directory Communications Static Portal Cisco IP Telephony: Key Ingredient to Employee Mobility in an Optimised Workforce ExtendedEnterprise HR Scalability Productivity Cisco Annual ProductivityGains ’94–’96 ’97–’00 ’01–

  6. Contact Enterprise Cisco IP Telephony and Cisco IP Contact Centre are key enablers of Cisco’s vision of “The “Contact Enterprise” Call Centre Cisco IP Telephony: Key Ingredient of “The Contact Enterprise” Vehicle Home Location Branch Example: Cisco’s CEO, John Chambers is proactively notified of high priority technical support cases that have not met their required service levels and follows up directly with the relevant individuals involved Virtual Center Center Management Senior Executive Agent/Employee Level

  7. Business Drivers for Cisco’s Internal Adoption of IPT Showcase Cisco’s Technology Hard Cost Reduction Increase Employee Productivity Cultural Enhancement

  8. Cisco Employee Before 2002 Cisco Employee After 2002 Single Tel # E-mail Address Mobile Tel # Home Tel # Voice Networks Data Network Single IP Network • Routing • Queuing Office Tel # E-mail Address The Role of Cisco IP Telephony • User chooses preferred device, on demand • User defines business rules concerning contactability • Wired and wireless connectivity • User benefits from integrated productivity applications: • Messaging applications • Inbound/outbound routing applications • Web-access applications • CTI applications • Audio & video conferencing applications • User constrained by: • Geographic location • Different devices on different networks • Lack of contact transparency

  9. Focus on deploying converged applications on IPT infrastructure across all Cisco offices Focus on changing out PBX infrastructure with IP Telephony infrastructure across all Cisco offices Deployment of Converged E-Business Applications IP & Web Foundation Expanded to Include Voice Infrastructure Cost Maintenance & App Dev Cost Cisco’s IP Telephony Deployment Strategy Business Benefit of Cisco IP Telephony (Relative Scale) . . . . . . . . Office 1 Office 2 Office 3 Office 96 App 1 App x App 2 App 3 Cost of Cisco IP Telephony (Relative Scale) 2001 2000 2003 2002 2004 2005 Year

  10. Background to the ROI Analysis

  11. = Quantifiable benefits that are applicable to Cisco Systems and used in this ROI Analysis Hard-dollar cost savings • Single Network • Maintenance, Cabling, Administration, Support, Power, Moves/Adds/Changes (MAC’s), Staff • Voice Business Continuity • Integral component to an effective voice business continuity plan • Can be compared against other less effective plans • Voice message backup/restore • Real Estate • Space Utilisation, Reduced Operational Costs, Flexibility • Reduced Call Costs • Reduced mobile phone usage • Extension Portability Campus Roaming, Home Office, Other Location • Outbound Call Management • Unified Messaging • Audio Conferencing • Small Branch Office • Centralised Call Processing • Elimination of voice trunks • IP Toll Bypass • No on-site PBX • Reporting, Billing, Cost Management • Cross-Enterprise telecom reporting • Cross-Enterprise call cost management • Predictability of telecom bills • Reduced PC Costs • IP phone can replace a web-enabled PC or laptop in certain environments Productivity increases that can be safely quantified Benefits that are very real, but difficult to quantify • Employee Productivity • End User Applications • Audio Conferencing • Unified Messaging • Personal Assistant • Web Access • Computer Telephony Integration • IT Operations • Facilities Mgmt Ops • Cultural Enhancement • Customer Satisfaction • Employee Retention • Geographic Flexibility • Competitive Positioning • Faster Application Deployment • Voice Business Continuity • Difficult-to-Quantify Productivity via Converged Applications Real Benefits of Cisco IP Telephony

  12. Real Estate • Space Management • Capex Avoidance • Workspace Sharing Efficiencies • Single Network • MAC’s • Maintenance • IP Toll Bypass • Staff • Cabling • Reduced Call Costs • Reduced mobile phone usage • Extension Portability • Campus Roaming • Home Office • Other Location • Outbound Call Management • Inbound Call Management • Unified Messaging • Audio Conferencing • Employee Productivity • End User Apps • Audio Conferencing • Unified Messaging • Personal Assistant • XML • TRC Case • Facilities Services • Taxi Services • CTI • Screen Dial • Screen Pop • IT Operations • Facilities Mgmt Ops Bucket-Specific Costs Bucket-Specific Costs Bucket-Specific Costs Bucket-Specific Costs Business Case Framework for the Benefits Applicable to Cisco Systems BUSINESS CASE ROI ANALYSIS BENEFIT BUCKETS • Cultural Enhancement • Customer Satisfaction • Employee Retention • Geographic Flexibility • Competitive Positioning • Faster Application Deployment • Voice Business Continuity • Difficult-to-Quantify Productivity via Converged Applications COSTS Common Costs

  13. The Business Case for IP Telephony at Cisco Scope: • All Cisco offices in Cisco’s Europe, Middle East & Africa (EMEA) region (total of 96 offices) • Five year time horizon: FY2000 - FY2005 (= August 99 to August 2004) • All Voice communications on IP Platform • IP Handsets and Extension Portability • Cisco Softphone on laptops (Wired or Wireless LAN connectivity) • IP Blue Softphone on Compaq IPAQ PDA’s (Wireless LAN connectivity) • Suitable Productivity Applications: • Cisco Unity Unified Messaging • Cisco Personal Assistant • Web Access Applications (via Web Browser on Screen of IP phone) • Computer Telephony Integration Applications (via JTAPI interface to Cisco Call Manager) • Audio Conferencing

  14. Guiding Principles Analysis must be “Boardroom Survivable” • Objective • Analysis will be scrutinised by objective third-parties (e.g. Gartner Group) • Transparent • All assumptions and calculations supportable to the most granular level of detail • Conservative • Similar to manner in which third-party consultant would perform analysis • Standard: Use Generally Accepted ROI Principles & Practices • Use Cash Flow analysis, not Profit/Loss analysis • Simple • Use Plain English Terminology

  15. ROI Approach & Methodology • Individual Cisco offices form the fundamental building blocks of the ROI analysis • All offices categorised as Large, Medium or Small • Perform detailed analysis on one of each of the three office types • Tie all benefits to a “per employee” benefit • Total EMEA-wide ROI figures prorated based on office size and office headcount • Pricing of Cisco equipment is representative of what a large enterprise customer would pay, not what Cisco Systems would pay • Analysis takes into consideration the timing of each individual office going live on IPT infrastructure, as well as the time in which applications launched EMEA-wide • Only 50% of any benefits dependent on integration and/or development are realised in the first year of deployment • In line with the highly conservative nature of the analysis, the approach assumes Cisco offices are NOT greenfield sites: i.e. the “Do Nothing Option” is to continue using and maintaining an existing PBX

  16. ROI(Large) Payback Month (Large) NPV (Large) Range: >151 Employees Large Office (Bedfont Lakes) Cisco EMEA ROI = xx% Cisco EMEA Payback Month = yy Cisco EMEA NPV = US$zz ROI(Medium) Payback Month (Medium) NPV (Medium) Range: 51-150 Employees Medium Office (Frankfurt) ROI(Small) Payback Month (Small) NPV (Small) Range: 1-50 Employees Small Office (Sophia Antipolis) The ROI Model for Cisco Systems Linkage of the Large/Medium/Small office ROI analyses to the EMEA-wide consolidation

  17. Results of the ROI Analysis

  18. ROI = 126% • Payback Month = 10 • NPV (@12 %) = $60 million Actual ROI Results for Cisco EMEA: FY2000 - FY2005 Business Benefit of Cisco IP Telephony (Relative Scale) • Deployment of Converged E-Business Applications: • Unified Messaging • Personal Assistant • 2 x CTI Applications • 3 x XML Applications • Web-Based Audio Conferencing IP & Web Foundation Expanded to Include Voice 2001 2000 2003 2002 2004 2005 $12.4m =$1625/emp. Net Benefit (US$) $9.4m =$1230/emp. $33m =$4320/emp. Year $33m =$4320/emp. $2.6 m =$340/emp. 2001 2000 2003 2002 2004 2005

  19. Appendix I: Detail Behind the Results

  20. Benefit Differences of the Large, Medium, Small Offices • Large Office Results: • Cisco EMEA Headquarters, Bedfont Lakes/London, UK: 1147 Employees • ROI = 130% • Payback Month = 9 • NPV = $12.3 m • Medium Office Results: • Cisco Eschborn/Frankfurt, Germany: 171 Employees • ROI = 120% • Payback Month = 10 • NPV = $1.8 m • Small Office Results: • Cisco Sophia Antipolis, France: 35 Employees • ROI = 111% • Payback Month = 11 • NPV = $330 k

  21. Breaking Down the Benefits: Large Office Example • Notes: • Cabling benefit is a one-time benefit and is only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) • Costs for Moves, Adds and Changes (MAC’s) are based on the average cost of an outsourced PBX MAC, versus that of a Cisco IPT MAC The Single Network $450k Total Recurring $630k $60k Moves, Adds & Changes (MAC’s) (!) Maintenance (!) $120k Staff (!) (!) = Annual Recurring Benefit (+) = One-Time Benefit Total One-Time $500k $500k Cabling (+)

  22. Breaking Down the Benefits: Large Office Example • Notes: • Capex Savings benefits associated with real estate are only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) • The origin of the Workspace Sharing Efficiency benefit stems from Cisco IP Telephony’s ability to allow Facilities Managers not to have to accommodate “swing space” when planning a new building, or reallocating space in an existing building Real Estate $66k Total Recurring $1.67 m Space Management (!) $1.6 m Workspace Sharing Efficiencies(!) (!) = Annual Recurring Benefit (+) = One-Time Benefit Total One-Time $452k Capex Savings (+) $452 k

  23. Breaking Down the Benefits: Large Office Example • Notes: • Within this sub-section of the analysis, the benefits of Unified Messaging only represent call cost savings associated with reduced external access to corporate voice mail - they do not represent increased employee productivity. • Outbound Call Management represents the major call cost savings associated with mobile employees using Cisco Personal Assistant to route outbound calls over the Cisco corporate network, taking advantage of either IP Toll Bypass OR bulk corporate-discounted PSTN rates • Audio conferencing addresses replacement of a portion of existing outsourced audio conferences by the Cisco Conference Connection product • The Extension Portability > Home Office > Outbound benefit entails the use of the Cisco hardware VPN client to allow employees working at home to accept/receive calls on their DDI desk phone number Reduced Call Costs $25 k Unified Messaging (!) $970 k Total Recurring $1.45 m Outbound Call Management (!) $195 k (!) = Annual Recurring Benefit (+) = One-Time Benefit Audio Conferencing (!) $270 k Extension Portability > Home Office > Outbound(!)

  24. Breaking Down the Benefits: Large Office Example • Notes: • The ROI project team made a judgement call that, even though the productivity of Cisco employees is undeniably increased through the use of Cisco’s Unified Messaging (UM) and Personal Assistant (PA) applications, the benefits modelling process would be unacceptably vague because the associated business processes and policies are not yet defined (e.g. incurring a GSM call to have PA speak e-mail over the phone) • This situation will change once the new business processes surrounding UM and PA are defined. • Productivity benefits of CTI applications are substantial because they emulate those of agents at large, CTI-enabled call centres yet can be implemented at a fraction of the cost • Benefits of XML applications are actually small for Cisco because almost all Cisco employees have laptops and ubiquitous access to the Web. Organisations that are not in this same situation will most likely benefit more than Cisco due to not having to provide a PC to all employees Employee Productivity $24k $12k XML TRC Case Application (!) $1k Total Recurring $1.1+ m XML Taxi Services Application (!) $475k XML Facilities Services Application (!) CTI Screen Pop Application(!) $590k (!) = Annual Recurring Benefit (+) = One-Time Benefit CTI Screen Dial Application(!) $???k Unified Messaging & Personal Assistant (!)

  25. Breaking Down the Costs: Large Office Example Costs • Notes: • In line with the highly conservative, non-greenfield approach, the ROI analysis assumes that TDM-based infrastructure (PBX, voice mail system, multiplexors, etc.) was already in place, before migration to Cisco IP Telephony • Hence TDM-based infrastructure capex costs are $0 – i.e. all capex costs used in the analysis are representative of Cisco IP Telephony equipment only $20 k Total Opex $320k $300 k IPT Bucket Specific Ongoing Costs (!) IPT Common Ongoing Costs (!) $1.5 m Total Capex $2.6 m IPT Bucket Specific Capex Costs (+) $0 TDM Infrastructure Capex Costs (+) $1.1 m IPT Common Capex Costs (+)

  26. Appendix II: Sensitivity Analysis

  27. Sensitivity Analysis:Examining Three Alternative Scenarios Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems Alternative Scenarios: 1) No Real Estate • If organisation under consideration does not accept real estate savings as a legitimate business benefit 2) No Employee Productivity • If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 3) Only Benefits of the Single Network • If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks

  28. Sensitivity Analysis: Cisco EMEA:(7639 Employees)

  29. Large Office: Bedfont Lakes/London, UK(1147 Employees)

  30. Medium Office: Eschborn/Frankfurt, Germany(171 Employees)

  31. Small Office: Sophia Antipolis, France(35 Employees)

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