Cost Justification and ROI of Unified Communications

Updated: May 20, 2010

What is Unified Communications?

Businesses have been using applications like email, instant messaging, mobile phones, faxes, and video-conferencing phones for years, but often these IP-based solutions are isolated and used as separate communications tools. Today, many organizations are turning to unified communications to connect people, information, co-workers, partners, vendors, and customers to enable better collaborative experiences and improve productivity. Enterprise unified communications (UC) incorporates real-time communications services including IP telephony, conferencing, softphones, telecommuting services, mobility, e-mail, unified messaging, instant messaging and presence services into the workflow of an enterprise. Another key capability of UC is that it offers a method to integrate communication functions directly with business applications. For example, imagine the ability to allow everyone in the business to connect to a central platform, see a project management spreadsheet, and collaborate on the spreadsheet in real time. An investment in unified communications delivers improved productivity, availability, cost savings, and user/customer satisfaction.

How Do Companies Utilize UC Within Their Organization?

Most organizations today have a workforce that is increasingly distributed, mobile, virtual, and global, creating complexity and inefficiency for communications. Projects are delayed because of the inability to reach mobile and remote colleagues, the inability of dispersed workgroups to communicate spontaneously, the lack of visibility into the availability of colleagues, the inability to quickly locate critical decision makers, and scheduling concerns for collaborative work sessions.

Unified Communications seeks to increase efficiency, improve customer intimacy, and speed time-to-resolution for both customer and employee problem-solving. It also offers a cost-effective way to more directly connect the company to its customers, employees to employees, and more tightly bind business partners and suppliers. Examples of UC usage include:

• Seeing the presence and status of an individual in real-time
• Receiving voice messages in an email inbox
• Making phone calls from a laptop computer
• Transferring calls between a smartphone and a desk phone
• Keeping messages accessible anytime, anywhere, from a wide variety of devices, including phones, fax machines, and PCs
• Voice-activating commands to access calling and conferencing capabilities, voice, fax, and email
• Group calendaring - view calendars and schedule appointments without playing phone tag
• Reading voicemails anywhere, anytime via speech to text capabilities,

Where Can I Find Business Benefits & ROI In My Organization?

When determining ROI for a Unified Communications project, understand what sorts of benefits, tangible or intangible, are available. The challenge is that CIOs must defend the purchase with a more intangible justification, because UC is all about productivity gains—a tough sell in many boardrooms.

• Cost reduction - direct cost savings, for example from conference calling or using IP telephony
• Cost avoidance - using IM rather than a toll call
• Revenue gains - additional sales (more time to sell, better productivity)
• Revenue acceleration - Completing sales more quickly
• Intangible benefits - increased customer satisfaction and loyalty, happier employees, employees work from any location
• Productivity gains - accelerated business processes
• Efficiency gains - improved business processes

Cost reduction, cost avoidance, and revenue gains are easily defined and captured. Intangible benefits are more challenging to put numbers to. The bottom line impact of revenue acceleration, i.e. getting each sale done more quickly, begins with closing sales faster and sending invoices out sooner. Having information at hand needed to complete the sale facilitates faster closings. Acceleration of sales may also lower sales expenses as a percentage of revenue since the sales rep is involved in each sale for less time.

Other intangible benefits may include the ability to speed answers to customer questions, or help in service applications. Although such instances may not directly result in an immediate revenue gain or cost reduction, the long-term bottom-line impact of customer retention, loyalty, and referrals is well known. There may be actual cost reductions here too - quicker answers can translate into helpdesk personnel answering more questions, or in Tier one, staffers more successfully answering more questions. The goal is to determine how these personal productivity gains can realistically aggregate into a benefit measurable at the group, division, or corporate level, and then include that aggregate benefit in calculating ROI. If a salesman gains personal efficiency and can realistically turn that extra time into a measurable increase in sales calls, then this benefit should be included in the ROI.

Many enterprises use the ROI process and budgetary mechanisms to capture costs both before and after implementing UC. In the sales example above, it may be possible either to increase the quota per sales rep or to lower the expense to revenue ratio for the sales department to reflect the potential impact of UC tools.

With UC-based efficiency and productivity gains, sales organizations may be able to ensure customers always get answered and served on the first call. Internally, UC can be used to track down fellow employees. We've all wasted time by playing telephone tag, but UC reduces human latency, as well as employee and customer frustration. In general, productivity gains will translate into profits when companies carry the analysis through to capture the impact on the bottom line. However doing a good job of estimating the impact before implementation is still a significant challenge.

ROI of Unified Communications:

Return on Investment (ROI) for UC is often hard to provide in dollars and cents, as much of the value comes from improved communications among employees and customers.

The best business case for adopting UC comes from the streamlining of mission-critical processes in various vertical markets. For the healthcare market, UC can facilitate the calling and paging of medical staff. On campuses, instant notifications can alert faculty and students to emergency situations as they arise. Within schools, attendance can be taken automatically. For the government sector, notification of non-emergency services can be enhanced. For the financial services sector, customers can be notified when market activity sets off certain triggers. Consumers can instantly check account balances, place orders, refill a checking card for a child, or communicate with the bank in the case of lost or stolen cards. For the transportation industry, UC can alert drivers of the need to take another route for traffic or other reasons. Within a call center environment, the use of presence and other UC capabilities let workers quickly connect callers with subject matter experts, regardless of where they're located throughout the enterprise. Embedding unified communications capabilities into business processes allows companies to optimize the customer experience. For example, high-end Japanese retailer, Mitsukoshi, embedded unified communications capabilities in its inventory application. By properly assessing and addressing critical business and technical requirements prior to the implementation, in six months Mitsukoshi's unified communications-enabled RFID inventory application increased top line growth by 113 percent over the previous year, reduced its sales cycle time by 20 percent, and dramatically improved customer satisfaction.

Extending unified communications to customers and partners can also add benefit. JJ Food Service, a UK-based distributor, extended UC capabilities to its most important customers, achieving a $6.5 million annual gain in productivity in its contact centers by reducing the number of transfers and callbacks. This reduction was accomplished by tightly integrating the contact center with its CRM application, and by taking advantage of the intelligent call routing capabilities of UC to dramatically streamline the process. At JJ Food Service, seventy agents handle inbound and outbound calls to serve 20,000 customers, with peak hourly sales approaching a quarter of a million dollars. When the company decided to build a new distribution center, it evaluated five contact center systems. The company wanted to keep IT functions in-house and make sure that the system never had any down time. It deployed its system in a redundant configuration with servers in different buildings each connected to separate routers with multiple lines from different service providers. For additional resilience, the company uses Cisco IP Phone Agent as a backup for agent PCs and utilizes phones that are powered by an uninterruptible power supply so they remain on at all times. Because customer service is what differentiates its business, JJ Food pays close attention to contact center statistics-number of calls answered, average call time, and sales-publishing them on a key performance indicator (KPI) system visible on the company intranet. With the company's previous call center solution, an IT staff member had to manually enter report information into the KPI system, creating delays and increasing workload. The system has eased the administration burden because of its ease of use and the ability to easily develop new contact center forms using XML. The company is in the process of setting up its agents to work from home using a wireless phone and laptop to allow them more flexibility in working hours. A centralized monitoring server connects to agent's PCs, allowing the company to record and monitor calls as if the agent was in the office. By providing resilience, better agent management, ease of administration, and home office setups, JJ Food is able to run their contact center the way they want to and for a lower cost.

Enterprise adoption of UC continues to increase, yet adoption rates remain low primarily because companies have not seen the return on investment they need in order to cost justify the system. Typically, UC deployments entail high upfront costs driven by the need to upgrade older systems and deploy new software and hardware. The slow adoption is the result of multiple technical and organizational issues, including:

• Enterprises have large investments in communication infrastructures that must be preserved, leading to a slower evolutionary approach rather than a "rip and replace" approach.
• Many applications and products are complex to deploy and may require organizational changes or extensive product customization and integration.
• The business case frequently is based on a soft ROI or a strategic investment, such as productivity improvements, rather than on hard ROI, such as cost savings. As a result, in a conservative economy, deployments occur more slowly, perhaps as part of a broader technology update.

Legacy enterprise voice systems were TDM (time-division multiplexing) based PBXes and cost approximately $30 - $45 per seat per month for voice connectivity. This expense included dedicated data lines for each branch office, long-distance charges, and support costs. With the advent of IP telephony, enterprises are able to route internal site-to-site calls over the corporate data network, lowering long-distance and maintenance/support costs by up to 25%. Adding a UC system can save an additional 25% because of the ease of deployment, especially for mobile workers who simply have to plug an IP phone into an Internet connection.

Enterprises with lots of small branch offices are increasingly taking advantage of SIP trunking to lower per-seat voice connectivity costs. SIP trunking lets companies make full use of their installed IP-PBXs and not only communicate over IP within the enterprise, but also outside the enterprise. Unlike in traditional telephony, where bundles of physical wires were once delivered from the service provider to a business, a SIP trunk allows a company to replace these traditional fixed lines with PSTN (Public Switched Telephone Network) connectivity via a SIP trunking service provider on the Internet. SIP trunking also gives enterprises more flexibility and less complexity permitting new offices to be provisioned quickly.

The greatest ROI benefits result when SIP trunking is combined with other collaboration innovations including those that can be cost-effectively extended beyond the boundaries of a single enterprise. Video calls can use the same interconnects and SIP trunks, and communications can include high-fidelity experiences between two different companies or organizations.

The greatest returns from implementing UC come from integrating the technology into business applications throughout the enterprise. By altering business practices, unified communications provides employees, business partners, and customers greatly improved communications on a global basis in real-time. This seamless ability to stay in touch can streamline business processes currently limited by communications gaps. Implementing the technology requires both infrastructure upgrades and deployment of new systems.

Perhaps the most intriguing aspect of unified communications is presence detection, or presence awareness, which is the ability to determine where intended recipients are at any time. This feature enables employees to collaborate regardless of how far apart they are or where they happen to be during the day. The interactive directory permits any combination of voice, text, file, or video information exchange within a period of a few minutes. For example, a customer service representative can answer a buyer's technical question immediately by contacting a specialist who happens to be on the road. Eliminating delays such as "phone tag" should provide customers with unprecedented response times and improve efficiency within the organization.

Adoption of Unified Communications: The SaaS Approach

Vendors have begun to develop new architectural models and cost-effective bundled solutions for UC to address concerns about cost, equipment integration, flexibility, and scalability. Many vendors use service-oriented architectures to leverage existing equipment, centralize network intelligence, and distribute capabilities to business users. UC as a service has emerged as a means for further reducing costs and easing deployment.

The Software as a Service (SaaS) approach gives companies the productivity benefits of UC without the high upfront costs. Businesses can quickly realize the return on investment of the solution due to faster deployment times, flexible payment methods, and limited to no upfront costs. Organizations can adopt a pay-as-you-go model where only the services that are required are paid for. Services are delivered via the Web, eliminating the need for new or additional hardware or software.

One reason companies prefer SaaS-enabled solutions is that these systems are typically upgraded 3 or more times a year, while on-premises software tends to be upgraded only every 12 to 18 months, which can be quite a long time to have to wait for new features and functionality. SaaS boosts faster problem resolution. Customers don't have to describe the problem they are having to the vendor support rep because they can both look at it at the same time, which means resolution will be quicker. Also, because workers can access the system from any location at any time, productivity increases since employees can work elsewhere besides the office.

Many major perceived hurdles regarding SaaS hinder its adoption and limit the applications, like unified communications, that an enterprise is willing to move to the new model. Atop the list of concerns are questions over total cost of ownership, integration issues, security concerns, impact on application performance, lack of customization, and overly complex pricing models.

Many companies have concerns over interconnectivity with existing infrastructure and applications. The problem is that it is difficult to integrate SaaS applications because these apps cannot be customized. Plus, since most UC implementations consist of a variety of solutions from a multitude of vendors, the problem is magnified.

Various options exist for integration, such as the use of middleware or an application integration platform. Integration as a service (IAS) solutions exist that provide a common integration hub for all SaaS-to-SaaS and SaaS-to-on-premises integrations. SaaS API's are typically implemented using Web services via SOAP, REST or other Web technologies. You can directly execute these using any modern Web-enabled middleware and application development tools. As more and more vendors adopt the SOA model, these integration issues will go away.

To successfully integrate SaaS applications within an enterprise, companies need to develop an overall integration strategy that includes SaaS taken together with other operations. Take time to fully understand business process requirements before starting integration work. Information architects will need a deep understanding of the business process requirements as well as the technology issues. Some enterprises choose to put all data on-premises in a common repository to serve as the core repository and traffic cop for data exchanges. This ensures that everyone within the corporation uses the right data.

Other concerns exist for SaaS. For some companies, hosted applications that are leased and paid for under a subscription model may cost more in the long run than software that is bought and installed on the company's servers. Each company needs to do its own evaluation. The costs of support services, customization for integration, and consulting services need to be considered when evaluating a SaaS-based product

Many have concern over security, including fear about putting company data into the hands of a third party. Other concerns about application performance and availability, also deter adoption.

IT and business executives want to ensure that their corporate data is protected and that privacy policies are properly enforced. They also want to be sure they can regain control of their data if they are unhappy with their SaaS provider, or if their SaaS vendor goes out of business or their services are seriously disrupted.

However, SaaS vendors are making significant investments in security technologies, skills and certifications, well beyond what most businesses can afford themselves. They have employed encryption where appropriate, developed user access control mechanisms, and deployed other best practices such as automated patch management systems. They have instituted process management controls to prevent unauthorized users from making system modifications or accessing data, they partition user data, and ensure that their security is continually evolves to meet new threats.

These security measures far exceed what most small- and mid-size enterprises (SMEs) can put into place. They also go beyond the safeguards of many large-scale enterprises by, among other things, providing integrated auditing capabilities. And, the off-site hosting brings built-in disaster recovery and business continuity benefits.

As a result, the SaaS approach can eliminate the security risks associated with lost laptops, inadequate activity logs or other vulnerabilities that have been commonplace in traditional corporate environments.

The ‘multitenant' architecture that underlies the leading SaaS offerings actually enables every customer to get the same level of security as those with the highest security standards. In contrast, legacy software was built to sit behind a firewall with access limited to legitimate end-users or authorized third-parties. This has made traditional, on-premise software trickier to manage especially for the mobile workforce.