What’s More Important in Your UC Spend: TCO or ROI?
Clients often hire TTG to help develop a roadmap for acquiring and deploying unified communications (UC) solutions. Usually, one of the first questions the client asks is, “Will this cost us more or less than we are spending today?”
Before answering, I often take a breath, and then explain that although it depends on a number of factors, it will most likely cost more. At that point the client sighs and says, “I thought so.” I add that more importantly, the “color of money” will probably shift in the corporate budget, i.e., the solution will skew personnel and capital expenses (capex) toward operating expenses (opex).
We encourage clients to approach cost analysis from two directions: total cost of ownership (TCO) and return on investment (ROI). Some clients are focused only on TCO. TCO is relatively simple to calculate. Include all recurring (facilities, staffing, technology refreshes, maintenance, training, replacement equipment) and non-recurring (capital purchases, physical renovations, installation) cost items for each type of solution, i.e., premises, cloud-based, hybrid/hosted. Then run the costs out for a set time period, (because few clients want to go through this process more frequently) with assumptions for annual cost increases, and compare the final costs.
But in my view, the more valuable approach is to assess the impact on ROI of new functions and capabilities on productivity, customer satisfaction, and operational cost savings. This requires a baseline of costs, time, process, and results, but the investment in a solution, whatever the amount, should be recouped in a timeframe acceptable to the client. In fact, as the conversation moves from TCO to ROI, the ROI results likely exceed the TCO investment.
A Better Way to View Costs
As anyone who has been paying attention knows, UC technology can be premises- or cloud-based, hosted, or hybrid — all offering essentially the same features and functions.
In general, the industry is moving to a consumption model, with premises-based solutions typically requiring higher capex. In contrast, cloud solutions tend to result in higher opex, but are more flexible, while hosted and hybrid solutions require capex and opex.
Our advice is to determine exactly where your telephony costs are today, and where they would be with a UC solution — whether you are moving to a premise- or cloud-based solution. In calculating future TCO, be sure to consider such factors as:
- Local Telco Facilities Cost (including all taxes and fees), e.g., tie lines, analog lines, usage etc.
- Long Distance and International, e.g., access trunks and usage
- Site Connectivity, e.g., primary rate interface (PRI), session initiation protocol (SIP) trunking
- Staffing (quantity/skills)
- Software Assurance, e.g., upgrades, patches, and fixes
- Potential physical renovations
- Technology refreshes for the network
Costs will shift among solutions, not necessarily decrease. One example is staffing. Back in the day as organizations were migrating from time division multiplexing (TDM) to voice-over-internet-protocol (VoIP), a client might start with four telephone technicians at $50,000 salaries, for a total budget of $200,000. In theory, ROI would appear after the transition to VoIP was complete — and the organization would need only two network (as opposed to telephone) technicians.
In the best-case planning cost analysis, there should be a 50%, or $100K savings — this ROI was rarely achieved. Why? The reality was that three network technicians were required whose salaries were actually closer to $90,000.
Business Drivers of UC Technology
In the UC world, we see the same phenomenon but with a twist. Today, funding for new technology is often hard to find, and critical projects are understaffed. It is only logical that management is looking to outsource voice services to the cloud, hoping to free up staff to work on other projects. While this is sound strategy and a cloud solution (and its monthly recurring charge per license) relieves the client of ownership responsibilities, we find that cloud systems still need technical staff on site to work with end users, manage billing, troubleshoot issues locally, and monitor license usage.
As focus moves from TCO to ROI, the TCO investment should become easier to justify. If a business can figure out during the requirement discovery process what will be the “killer app” of its UC deployment, the new solution could literally transform how business units work. This is why we work to identify UC features and functions that will help create a positive ROI by reducing cost, increasing revenue, eliminating business bottlenecks, or improving customer service.
To get at this level of insight, the questions in our requirements discovery process move from, “How do you use this feature?” tactical perspective to a more strategic “How does your business compare to industry peers in the way you use UC’s new features?” This last point is critical, since the competitor who finds the most impactful way to use UC technology will likely gain market share at the expense of others and in the process, also improve ROI for its technology spend.
There’s a Lot on the (Bottom) Line
My bottom-line advice is pretty straightforward:
- Thoroughly know your current cost elements before embarking on a solution replacement.
- Articulate your business requirements by establishing the baseline of costs, new functions and capabilities on productivity, customer satisfaction, and operational cost savings.
- Dig deeply to find that “killer UC application” that could make it possible to not only transform your business, but also help you gain market share.
- Select and implement the appropriate solution to meet your business requirements.
- Very importantly, compare the end results with the baseline to verify your ROI projections.