When an enterprise looks for savings in their communications budget, there are two possibilities, one-time and continuing savings. An Enterprise Connect panel in Orlando 2011, "Top Five Ways to Save Money on Communications" was the stimulus for this article. Robin Gareiss of Nemertes Research, Doug Carolus of N'Compass Solutions, Stephen Leaden of Leaden Associates and I all presented our recommendations to reduce communications costs. The panel was moderated by Byron Battles of the Battles Group. Although we were asked to present just 5 ideas for the presentation, we went overboard and delivered 8 ideas in detail and mentioned another 6 savings ideas.
Some of the recommendations appear to be modest in their savings but can add up if applied across the board in a large enterprise. Small enterprises may benefit even more because the IT staff is stretched thinly and may not have found time to investigate the potential savings. The savings are listed in the order they were presented. The speaker's name is next to the recommendation title. I have added my own comments to each presentation.
Selecting Low Power IP Phones (Gary Audin)
You can save by selecting the right low power IP phone. Power over Ethernet (PoE) power ratings are classed in three levels of power consumption of IP phones:
1. Class 1 consumes under 4 watts (very few IP phones)
2. Class 2 consumes 4 to 7 watts (most IP phones are in this category)
3. Class 3 consumes greater than 7 watts (these are older multi-featured IP phones)
The following recommendations produce continuous savings:
* Look for the lowest maximum and idle power consumption.
* Select IP phones that have an idle display shutdown.
* Consider a 4 watt Class 2 IP phone instead of a 6 to 7 watt IP phone.
The savings can range from $12 to $30 per IP phone per year by selecting the lowest power consuming IP phone. Many in IT only consider the direct IP phone power consumption. But remember: the cost to cool the PoE equipment that powers the IP phones adds nearly double to the cost of operating the IP phone.
Cloud Based Communications Service (Gary Audin)
Migrating communications services to the cloud is a form of outsourcing. This means that the enterprise moves from capital investments (CapEx) to an operating expense (OpEx) financial position. The advantages of a cloud solution are:
1. The enterprise saves capital/investment dollars that can be applied to other IT projects and/or other business investments. This is important when capital for investment is hard to acquire.
2. When the enterprise budgets the cost of communications service by the seat/phone, the cloud service can be much cheaper.
3. By outsourcing the communications function, the enterprise can reduce its IT staff since most of the work will be the responsibility of the cloud provider.
4. The enterprise does not have to deal with or pay any licensing or software subscription fees. Many of these fees must be paid in advance in the first year for a premise based system, reducing the available capital investment dollars in the first year.
5. Enterprises want 99.99+% availability. This is expensive to accomplish. Enterprises also must have the resources on hand in case there is a system disaster. The cloud service can satisfy both requirements at a much lower cost.
I recently posted an article at No Jitter, "Cloud/Hosted Communications Providers: Survey Results” that is worth reading to understand the providers of cloud communications.
Understanding Your Current State and Options (Doug Carolus)
Doug’s opening remark was "You can’t save what you don't know", meaning that knowledge of your communications environment is critical to the goal of reducing costs. What IT knows and does not know about its investments and operations may be an open question at many enterprises. The problem may be that documentation is not up to date, the communications infrastructure was inherited, the business has been operated in a decentralized manner with local offices making their own decisions, or there has not been IT staff time allocated to look at expenses.
The first question to ask yourself is "Do you REALLY know your current infrastructure and OpEx?" This is as much an inventory question as a state of your network question. How many organizations really have an accurate and up to date inventory file or document?
The answer(s) can be divided into five different areas:
1. Network Services--60% of your network cost is access charges, and this is a big candidate for cost reduction.
2. System Maintenance (hardware and software)--You may be able to create a competitive situation when your next agreement needs to be signed, and force the incumbent to reduce their fees.
3. System End of Sale/Support/Life and Extending System Life, which can postpone capital investments.
4. Licenses--How many have you purchased or subscribed to vs. how many do you actually need and use?
5. Managed Services vs. Owned (audio/web conferencing)--It may be much cheaper to outsource some of the communications technologies, especially those that vary in use over time.
What is the state of your contracts and their termination dates? It may be time to revisit all the agreements to determine if they are out of date and lower rates are available.
Another question is "Can you defend your OpEx to the lines of business?" What if the IT organization had to compete with managed or outsourced services like a third party vendor? One financial firm did this. The end result kept the function inside IT but the IT department was driven to streamline their organization, reduce costs and to monitor their costs continuously.
A final question: "Is your WAN/Communications architecture current and relevant?" Having the latest and greatest can be attractive, however what is the cost to modernize your communications? It may turn out that some of the older technologies are still relevant and you reduce costs by not replacing them. In other cases, the maintenance cost for older technologies may be more expensive than acquiring new technology. This happens when a vendor wants to force the enterprise to upgrade or replace their technologies by increasing the maintenance fees significantly.
Contract Management/Procurement (Doug Carolus)
Many enterprises have shifted responsibility for contract and procurement management to remote locations, a decentralized approach. Trying to centralize this management may be a political problem. If the change to centralized management is cost justified rather than presented as a control issue, you may win the argument. Central procurement usually leads to volume discounts that benefit all locations.
You need to understand the current market conditions and players. What discounts can be expected? Are there new competitive players that should be included in the next RFP? A competitive procurement is a must! Competition forces incumbents to rethink their proposals. This position provides leverage for the enterprise during negotiations. You may want to continue with a specific incumbent OEM vendor. Pitting one channel partner against another for the same OEM products and services will also create the competition that can reduce costs.
Make sure that the software licensing aligns with business requirements. Look at the prepaid fees for software maintenance and upgrades and make sure that you are not paying for software you are not going to use, and you know what is not included in the licenses. Cisco User Connect Licensing (UCL) for example, does not include contact center, customer voice portal, IP IVR and video conferencing. You should learn the differences of the Cisco Unified Workplace Licensing (CUWL) vs. UCL.
Consolidate Devices (Robin Gareiss)
Robin started by enumerating the common employee’s range of devices and licenses such as:
* BlackBerry--$200 CapEx and $70/month OpEx + support
* I* Phone--$300 CapEx and $80+/month OpEx + support
* Desktop IP phone--$300 CapEx with a $741/annual OpEx
* Softphone--$50 license
* USB headset--$50-$300
The bill per user adds up to a significant CapEx and OpEx. One solution is replacing hard phones with softphones. The cost of the softphone is about $50 per licenses plus a $50 to $75 headset. Robin cautioned that cheaper USB headsets do not always work well and some enterprises had to opt for the more expensive $300 headsets. This counteracted the softphone savings vs. a hard IP phone.
Some enterprises have opted to only support a mobile phone and eliminate all the other options. This however leads to a huge issue of privately owned mobile phones vs. enterprise owned mobile phones. The private phone approach avoids managing the phones and contracts and can considerably reduce the cost to the enterprise. Issues such as security and compliance become more difficult to enforce with private mobile phones. Sensitive enterprise information could be on the private mobile phone and its loss can create a number of problems. For some enterprises, the mobile phone may be too risky.
Robin posed the question, "How many ways does each employee need to communicate?" The answer is not the same for all enterprises. The savings for a personal phone may be outweighed due to the security and compliance requirements. Evaluate the most cost-effective option by user profile, not by providing all the same features for every user.
Evaluate Managed & Hosted UC (Robin Gareiss)
Robin presented the table below comparing the costs and savings for a smaller to larger business when considering hosted vs. an on premise system for IP Telephony and UC. The important issue is to mandate the comparison of hosted vs. premise systems. This can force the IT staff to consider how they do business inside the enterprise. The hosted solution also provides a benchmark to compare the premise based system to a competitor that offers the same features.
One of the best ways to look at the costs is to define them on a per user basis per year. The table shows that the per user cost is consistent for the hosted solution in the first and second years. The premise solution has a higher cost in the first year and a lower cost in the second year. The break even point between the two solutions is at the beginning of the fourth year, and then the premise solution is cheaper. However, the premise solution requires a significant capital expenditure up front. If the enterprise is capital rich, the premise solution looks best. If the enterprise must push the costs into the future because of a lack of capital, then the hosted solution is better.
Competitive Procurements (Stephen Leaden)
Stephen recommends that during a competitive procurement, the analysis should include a seven year Total Cost of Ownership (TCO) calculation. In his recent experience with a procurement for 2,000 endpoints, the low to high bid was a 40% difference with an average of a 20% difference. The maintenance variation was a 57% difference from the low to high bid and a 32% average. The software subscriptions averaged about 25% difference. The dollar difference was $880,000. This demonstrates the value of a good RFP and analysis process
Network Optimization (Stephen Leaden) When a needs assessment is performed, the enterprise is usually having problems with their current infrastructure. Interviews with the business managers become important to understand where their needs are going. The enterprise must also have an accurate snapshot of their existing network.
SIP trunking replacing the PRI circuits and the reduction of PSTN connections is a reasonable cost reduction. Many SIP trunking providers bundle the outbound local and long distance calls into the SIP trunk agreement, thereby offering even greater savings.
The maintenance savings can be dramatic when migrating from a legacy system to an IP based system. One of Stephen's projects reduced the operating cost so much that the enterprise was able to modernize 5,600 endpoints without increasing their budget. The savings paid for the modernization, a break-even situation.
(for a larger version of this figure, click here)
The panelists each had more recommendations to offer. Here is the list of other cost reduction recommendations that the panel did not have time to discuss.
* Reducing LAN Switch Power Consumption
* Negotiating Mobile Contracts
* Utility Company Sponsored Energy Efficiency Study and Rebates
* Lines of Business Collaboration: BA and CEBP Opportunities
* Self Management Model
* Real Estate--Per Square Foot Rental/Support Costs
