1 © 2002, Cisco Systems, Inc. All rights reserved. The Business Case and ROI Analysis for IP Telephony at Cisco Systems Cisco Account Team Date

1© 2002, Cisco Systems, Inc. All rights reserved.

The Business Case and ROI Analysis for IP Telephony at

Cisco Systems

Cisco Account Team

Date

© 2002, Cisco Systems, Inc. All rights reserved. 222

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


Cisco’s Internal IP Telephony Deployment Strategy


Cisco AVVID and Cisco IP Telephony:

Supply ChainSupply Chain

E-LearningE-Learning

Key Components of Cisco’s E-Business Strategy:1) Optimising Cisco’s Workforce2) Caring for Cisco’s Customers

Customer CareCustomer Care

Workforce OptimisationWorkforce

Optimisation


Cisco IP Telephony: Key Ingredient to Employee Mobility in an Optimised Workforce

HR ScalabilityHR Scalability

’94–’96

ProductivityProductivity

’97–’00

ExtendedEnterpriseExtendedEnterprise

’01–

CiscoAnnual

ProductivityGains E-Finance

E-Procurement Basic e-HR

E-Finance E-Procurement Basic e-HR

$74M$74MEmployee Mobility

Integrated Self-ServiceWorkforce Development

Employee MobilityIntegrated Self-Service

Workforce Development

$500M+$500M+

Directory CommunicationsStatic Portal

Directory CommunicationsStatic Portal

$19M$19M Cisco IP Telephony is a key enabler of Cisco employee mobility

Cisco IP Telephony is a key enabler of Cisco employee mobility


Cisco IP Telephony: Key Ingredient of “The Contact Enterprise”

Agent/Employee Management Senior Executive

Center

VirtualCenter

Branch

Home

Vehicle

Level

Lo

cati

on

CallCentre

ContactEnterprise

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

Cisco IP Telephony and Cisco IP Contact Centre

are key enablers of Cisco’s vision of “The “Contact Enterprise”

Cisco IP Telephony and Cisco IP Contact Centre

are key enablers of Cisco’s vision of “The “Contact Enterprise”


Business Drivers for Cisco’s Internal Adoption of IPT

Showcase Cisco’s Technology

Hard Cost Reduction

Increase Employee Productivity

Cultural Enhancement


Single Tel # E-mail Address

Single IP Network

Cisco Employee After 2002

• Routing• Queuing

The Role of Cisco IP Telephony

Home Tel #Mobile Tel #

Office Tel #

Voice Networks

Data Network

E-mail Address

Cisco Employee Before 2002

User constrained by:• Geographic location• Different devices on different networks• Lack of contact transparency

• 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


Cisco’s IP Telephony Deployment Strategy

2000 2001 2002 2003 2004

Bu

sin

es

s B

en

efi

t o

f C

isc

o I

P T

ele

ph

on

y(R

ela

tive

Sc

ale

)

2005Year

Office 1 Office 2 Office 3 Office 96. . . . . App 1 App 2 App 3 App x. . .

Co

st

of

Cis

co

IP

Te

lep

ho

ny

(Re

lati

ve S

cal

e)

Deployment of Converged E-Business Applications

Maintenance & App Dev Cost

Focus on deploying converged applications

on IPT infrastructure across all Cisco offices

IP & Web Foundation Expanded to Include Voice

Infrastructure Cost

Focus on changing out PBX infrastructure with IP

Telephony infrastructure across all Cisco offices


Background to the ROI Analysis


Real Benefits of Cisco IP Telephony

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

Hard-dollar cost savings

Employee Productivity

• End User Applications• Audio Conferencing

• Unified Messaging

• Personal Assistant

• Web Access

• Computer Telephony Integration

• IT Operations

• Facilities Mgmt Ops

Productivity increases that can

be safely quantified Benefits that are very real, but

difficult to quantify


• Customer Satisfaction• Employee Retention• Geographic Flexibility• Competitive Positioning• Faster Application

Deployment• Voice Business Continuity• Difficult-to-Quantify

Productivity via Converged Applications

= Quantifiable benefits that are applicable to Cisco Systems and used in this ROI Analysis


Business Case Framework for the Benefits Applicable to Cisco Systems

BUSINESS CASEBUSINESS CASE

ROI ANALYSISROI ANALYSIS

COSTS

Real Estate

• Space Management• Capex Avoidance• Workspace Sharing

Efficiencies

Bucket-Specific Costs

Common Costs

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



• Customer Satisfaction

• Employee Retention• Geographic

Flexibility• Competitive

Positioning• Faster Application

Deployment• Voice Business

Continuity• Difficult-to-Quantify

Productivity via Converged Applications

BENEFIT BUCKETS


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


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


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


The ROI Model for Cisco Systems

Large Office(Bedfont Lakes)

Medium Office(Frankfurt)

Small Office(Sophia Antipolis)

ROI (Small)

Payback Month (Small)

NPV (Small)

Range: 1-50 Employees

ROI (Large)

Payback Month (Large)

NPV (Large)

Range: >151 Employees

ROI (Medium)

Payback Month (Medium)

NPV (Medium)

Range: 51-150 Employees

Country Office Relevant Headcount

Deploy

Date

ROI Payback Month

NPV

UK Bedfont Lakes

1147 Xx/yyyy ROI (BL) xx NPV (BL)

NL Amsterdam 883 Xx/yyyy ROI (Ams) xx NPV (Ams)

France Paris 576 Xx/yyyy ROI (Par) xx NPV (Par)

Ci

sc

o

E

M

E

A

R

OI

=

xx

%

Ci

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M

E

A

Pa

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ac

k

M

on

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=

yy

Ci

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M

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A

N

P

V

=

U

S$

zz

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)

Linkage of the Large/Medium/Small office ROI analyses to the EMEA-wide consolidation


Results of the ROI Analysis


Actual ROI Results for Cisco EMEA: FY2000 - FY2005

2000 2001 2002 2003 2004

Bu

sin

ess

Be

nef

it o

f C

isco

IP

Te

lep

ho

ny

(Rel

ativ

e S

cale

)

2005

IP & Web Foundation Expanded to Include Voice

Deployment of Converged E-Business Applications:

•Unified Messaging•Personal Assistant•2 x CTI Applications•3 x XML Applications

•Web-Based Audio Conferencing

Year

Net

Ben

efit

(US

$)

2000 2001 2002 2003 2004 2005

$2.6 m=$340/emp.

$12.4m=$1625/emp.

$33m=$4320/emp.

$9.4m=$1230/emp.

$33m=$4320/emp.

• ROI = 126%

• Payback Month = 10

• NPV (@12 %) = $60 million


Appendix I: Detail Behind the Results


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


Breaking Down the Benefits: Large Office Example

The Single Network

Cabling (+)

Staff (!)

(!) = Annual Recurring Benefit(+) = One-Time Benefit

Maintenance (!)

Moves, Adds & Changes (M

AC’s) (!)

$500k

$120k

$60k

$450k

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 Total

Recurring$630k

TotalOne-Time

$500k



Real Estate

Workspace Sharing Efficiencies(!)

Capex Savings (+)

Space Management (!)

$452 k

$1.6 m

$66k


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

TotalOne-Time

$452k

TotalRecurring$1.67 m



Reduced Call Costs

Extension Portability > Home Office > Outbound (!)

Audio Conferencing (!)(!) = Annual Recurring Benefit

(+) = One-Time BenefitOutbound Call Management

(!)Unifie

d Messaging (!)

$270 k

$195 k

$970 k

$25 k

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 Total

Recurring$1.45 m



EmployeeProductivity

CTI Screen Dial Application (!)

XML Facilities Services Application

(!)


$590k

$475k

$1k

$12k

$24k

CTI Screen Pop Application (!)

XML Taxi Services Application (!)

XML TRC Case Application

(!)

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

Unified Messaging & Personal Assistant (!) $???k

TotalRecurring$1.1+ m


Breaking Down the Costs: Large Office Example

IPT Common Capex Costs (+)$1.1 m

TDM Infrastructure Capex Costs (+)

IPT Bucket Specific Ongoing Costs (!)

IPT Common Ongoing Costs (!)

IPT Bucket Specific Capex Costs (+)

$0

$1.5 mTotal

Capex$2.6 m

$300 k

$20 kTotalOpex$320k

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

Costs


Appendix II: Sensitivity Analysis


Sensitivity Analysis:Examining Three Alternative Scenarios

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

Base Case = Cisco CaseIncludes all benefits applicable to, and accepted by, Cisco Systems


Sensitivity Analysis: Cisco EMEA:(7639 Employees)

Cisco EMEA Scenario Payback Month

ROI NPV

Base Case = Cisco Case

• Includes all benefits applicable to, and accepted by, Cisco Systems

10 126% $60 m

1) No Real Estate


30 50% $32 m



10 126% $44 m



26 70% $6.2 m


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

Cisco Large Office Scenario Payback Month

ROI NPV



9 130% $12.3 m

1) No Real Estate


22 47% $6.8 m



9 130% $5.8 m



25 66% $715 k


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

Cisco Medium Office Scenario Payback Month

ROI NPV



10 120% $1.8 m

1) No Real Estate


19 55% $1.2 m



10 120% $875 k



17 78% $230 k


Small Office: Sophia Antipolis, France (35 Employees)

Cisco Small Office Scenario Payback Month

ROI NPV



11 111% $330 k

1) No Real Estate


20 62% $245 k



11 111% $140 k



16 74% $100 k

Documents

1 © 2002, Cisco Systems, Inc. All rights reserved. The Business Case and ROI Analysis for IP Telephony at Cisco Systems Cisco Account Team Date