The Business Case and ROI
Analysis for IP Telephony at
Cisco Systems
Cisco Account Team
Date
© 2002, Cisco Systems, Inc. All rights reserved.
1
Table of Contents
1 Cisco’s Internal IP Telephony Deployment
Strategy
2 Background to the ROI Analysis
3 Results of the ROI Analysis
4 Appendix I: Detail Behind the Results
5 Appendix II: Sensitivity Analysis
© 2002, Cisco Systems, Inc. All rights reserved.
2
Cisco’s Internal IP Telephony
Deployment Strategy
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3
Cisco AVVID and Cisco IP Telephony:
Key Components of Cisco’s E-Business Strategy:
1) Optimising Cisco’s Workforce
2) Caring for Cisco’s Customers
E-Learning
Workforce
Optimisation
Supply Chain
© 2002, Cisco Systems, Inc. All rights reserved.
Customer Care
4
Cisco IP Telephony: Key Ingredient to Employee
Mobility in an Optimised Workforce
HR Scalability
Extended
Enterprise
Productivity
$500M+
Cisco
Annual
Productivity
Gains
Employee Mobility
Integrated Self-Service
Workforce Development
$74M
E-Finance
E-Procurement
Basic e-HR
$19M
’94–’96
© 2002, Cisco Systems, Inc. All rights reserved.
Cisco IP Telephony is a
key enabler of Cisco
employee mobility
Directory
Communications
Static Portal
’97–’00
’01–
5
Cisco IP Telephony: Key Ingredient of
“The Contact Enterprise”
Vehicle
Location
Home
Cisco IP Telephony and
Cisco IP Contact Centre
are key enablers of
Cisco’s vision of “The
“Contact Enterprise”
Branch
Virtual
Center
Contact
Enterprise
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
Call
Centre
Center
Agent/Employee
© 2002, Cisco Systems, Inc. All rights reserved.
Management
Level
Senior Executive
6
Business Drivers for Cisco’s
Internal Adoption of IPT
Showcase Cisco’s Technology
Hard Cost Reduction
Increase Employee Productivity
Cultural Enhancement
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7
The Role of Cisco IP Telephony
Cisco Employee Before 2002
Cisco Employee After 2002
Single Tel #
Mobile Tel #
E-mail Address
Home Tel #
Single IP
Network
Voice
Networks
Office Tel #
Data
Network
E-mail Address
• User chooses preferred device,
on demand
• User defines business rules
concerning contactability
• Wired and wireless connectivity
• User benefits from integrated
productivity applications:
• Routing
• Queuing
• 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
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8
(Relative Scale)
Business Benefit of
Cisco IP Telephony
Cisco’s IP Telephony Deployment Strategy
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
Office 2
Office 3
(Relative Scale)
Cost of Cisco
IP Telephony
Office 1
.....
Office 96
App 1
Infrastructure Cost
2000
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2001
2002
App 2
App 3
...
App x
Maintenance & App Dev Cost
2003
2004
2005
Year 9
Background to the ROI Analysis
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10
Real Benefits of Cisco IP Telephony
= 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
Productivity
increases that can
be safely quantified
• 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
© 2002, Cisco Systems, Inc. All rights reserved.
Employee
Productivity
• End User Applications
• Audio Conferencing
Benefits that are
very real, but
difficult to quantify
Cultural
Enhancement
• Unified Messaging
• Personal Assistant
• Web Access
• Computer Telephony
Integration
• IT Operations
• Facilities Mgmt Ops
• Customer Satisfaction
• Employee Retention
• Geographic Flexibility
• Competitive Positioning
• Faster Application
Deployment
• Voice Business Continuity
• Difficult-to-Quantify
Productivity via Converged
Applications
11
Business Case Framework for the
Benefits Applicable to Cisco Systems
BENEFIT BUCKETS
Real Estate
• Space Management
• Capex Avoidance
• Workspace Sharing
Efficiencies
Single Network
•
•
•
•
•
Bucket-Specific
Costs
MAC’s
Maintenance
IP Toll Bypass
Staff
Cabling
Bucket-Specific
Costs
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
COSTS
Common Costs
Bucket-Specific
Costs
Cultural
Enhancement
• Customer
Satisfaction
• Employee Retention
• Geographic
Flexibility
• Competitive
Positioning
• Faster Application
Deployment
• Voice Business
Continuity
• Difficult-to-Quantify
Productivity via
Converged
Applications
ROI ANALYSIS
BUSINESS CASE
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12
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
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13
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
© 2002, Cisco Systems, Inc. All rights reserved.
14
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
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15
The ROI Model for Cisco Systems
Linkage of the Large/Medium/Small office ROI
analyses to the EMEA-wide consolidation
ROI
Large Office
(Bedfont Lakes)
Payback Month
Country
Office
Relevant
Headcount
Deploy
UK
Bedfont
Lakes
1147
NL
Amsterdam
France
Paris
(Large)
NPV (Large)
Range: >151 Employees
ROI
Medium Office
(Frankfurt)
(Large)
(Medium)
Payback Month
Payback
Month
NPV
Xx/yyyy
ROI (BL)
xx
NPV (BL)
883
Xx/yyyy
ROI (Ams)
xx
NPV (Ams)
576
Xx/yyyy
ROI (Par)
xx
NPV (Par)
Date
Cisco EMEA ROI = xx%
(Medium)
NPV (Medium)
Range: 51-150 Employees
ROI
Cisco EMEA Payback Month = yy
Cisco EMEA NPV = US$zz
ROI
Small Office
(Sophia Antipolis)
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(Small)
Payback Month
(Small)
NPV (Small)
Range: 1-50 Employees
S. Africa
Durban
2
Xx/yyyy
ROI(Dur)
xx
NPV(Dur)
Zimbabwe
Harare
2
Xx/yyyy
ROI(Har)
xx
NPV(Har)
Latvia
Riga
1
Xx/yyyy
ROI(Rig)
xx
NPV(Rig)
16
Results of the ROI Analysis
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17
• ROI = 126%
(Relative Scale)
• Payback Month = 10
• NPV (@12 %) = $60 million
Deployment of Converged
E-Business Applications:
•Unified Messaging
•Personal Assistant
•2 x CTI Applications
•3 x XML Applications
•Web-Based Audio Conferencing
IP & Web Foundation
Expanded to Include Voice
2001
2000
(US$)
Net Benefit
Business Benefit of Cisco IP Telephony
Actual ROI Results for Cisco EMEA:
FY2000 - FY2005
$2.6 m
=$340/emp.
2000
© 2002, Cisco Systems, Inc. All rights reserved.
$12.4m
$9.4m
=$1625/emp.
=$1230/emp.
2001
2003
2002
2002
2004
2005
$33m
$33m
=$4320/emp.
=$4320/emp.
2003
2004
Year
2005
18
Appendix I: Detail Behind the
Results
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19
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
© 2002, Cisco Systems, Inc. All rights reserved.
20
Breaking Down the Benefits:
Large Office Example
The Single Network
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
$450k
$60k
Total
Recurring
$630k
$120k
(!) = Annual Recurring Benefit
(+) = One-Time Benefit
Cabling
© 2002, Cisco Systems, Inc. All rights reserved.
(+)
$500k
Total
One-Time
$500k
21
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
$1.6 m
(!) = Annual Recurring Benefit
(+) = One-Time Benefit
$452 k
© 2002, Cisco Systems, Inc. All rights reserved.
Total
One-Time
$452k
22
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
(!) = Annual Recurring Benefit
(+) = One-Time Benefit
Reduced Call Costs
$25 k
$970 k
Total
Recurring
$1.45 m
$195 k
$270 k
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23
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
$1k
$475k
Total
Recurring
$1.1+ m
$590k
(!) = Annual Recurring Benefit
(+) = One-Time Benefit
$???k
© 2002, Cisco Systems, Inc. All rights reserved.
24
Breaking Down the Costs:
Large Office Example
Costs
Total
Opex
$320k
$20 k
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
$300 k
$1.5 m
Total
Capex
$2.6 m
$0
$1.1 m
© 2002, Cisco Systems, Inc. All rights reserved.
25
Appendix II: Sensitivity Analysis
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26
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
© 2002, Cisco Systems, Inc. All rights reserved.
27
Sensitivity Analysis: Cisco EMEA:
(7639 Employees)
Cisco EMEA Scenario
Payback
Month
ROI
NPV
10
126%
$60 m
30
50%
$32 m
10
126%
$44 m
26
70%
$6.2 m
Base Case = Cisco Case
• Includes all benefits applicable to, and accepted by,
Cisco Systems
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
© 2002, Cisco Systems, Inc. All rights reserved.
28
Large Office: Bedfont Lakes/London, UK
(1147 Employees)
Cisco Large Office Scenario
Payback
Month
ROI
NPV
9
130%
$12.3 m
22
47%
$6.8 m
9
130%
$5.8 m
25
66%
$715 k
Base Case = Cisco Case
• Includes all benefits applicable to, and accepted by,
Cisco Systems
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
© 2002, Cisco Systems, Inc. All rights reserved.
29
Medium Office: Eschborn/Frankfurt, Germany
(171 Employees)
Cisco Medium Office Scenario
Payback
Month
ROI
NPV
10
120%
$1.8 m
19
55%
$1.2 m
10
120%
$875 k
17
78%
$230 k
Base Case = Cisco Case
• Includes all benefits applicable to, and accepted by,
Cisco Systems
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
© 2002, Cisco Systems, Inc. All rights reserved.
30
Small Office: Sophia Antipolis, France
(35 Employees)
Cisco Small Office Scenario
Payback
Month
ROI
NPV
11
111%
$330 k
20
62%
$245 k
11
111%
$140 k
16
74%
$100 k
Base Case = Cisco Case
• Includes all benefits applicable to, and accepted by,
Cisco Systems
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
© 2002, Cisco Systems, Inc. All rights reserved.
31