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Is TCO in the Contact Center a Fantasy?

Total cost of ownership (TCO) has long been used to evaluate communications technology purchases, but as the cloud gains prominence, it might be time to re-evaluate how decisions are made.

At Interactive Intelligence's recent Interactions conference in Indianapolis, I had the opportunity to listen in as two industry watchers debated the value of determining TCO for contact center solutions. Dave Michels, No Jitter contributor and TalkingPointz analyst, and Don Van Doren, principal and co-founder of UniComm Consulting, talked about TCO for on-premises and cloud contact center solutions, and left the audience no doubt wondering whether calculating TCO was worth the effort.

The importance of determining TCO largely depends on whether a business is considering an on-premises or cloud contact center solution, Michels said.

"On the premises side, I think TCO is largely a fantasy," Michels said. "It's a great concept; it's a great theory ... but it's what we want to happen. We often use TCO as a means to justify a decision, but to really gather TCO for any given product or solution is pretty darn hard, and it's filled with a lot of assumptions. ... There are so many moving parts going on here."

This makes any long-term TCO calculation a work of fiction, Michels said. "Our assumptions are borderline correct tomorrow and almost always wrong five years from now."

This does make a good case for the cloud, however, with flexibility its most valuable feature, he added. Further, all the risk becomes the problem of the cloud provider.

In most cases, when comparing on-premises to cloud from a TCO perspective, cloud will win, Michels said. But even if it doesn't, changing requirements and wrong assumptions have led many CIOs to ditch the five- to 10-year projections in favor of a shorter two-year time frame.

However, when it comes down to it, changing business processes or the way people work is really difficult, Van Doren countered. The reality is that people may not really be ready to step up and change in the way adopting a cloud solution might require.

"We really have this kind of duopoly in terms of how companies view this," Van Doren said. "There are some companies that absolutely are driving down costs and they're working for operational efficiency. That's their core business strategy and that's how they're trying to do it. So they're really driven by cost in many senses. Other companies, who perhaps are more competitive in the marketplace or are trying to differentiate themselves on the basis of customer service, view this quite differently."

Even if the cloud makes sense from a TCO perspective, the fact remains that many businesses still have and want to keep their contact centers on premises. In fact, a quick survey of the roughly 50 people in the room revealed that about 80% had on-premises solutions in place.

When it comes to evaluating on-premises solutions, Michels advised businesses to pick a class of products or services much like they would when buying a new car. First you pick luxury vehicle or compact, for example, and then figure out what you want and like within that class. Do you want a BMW or a Ford? "And if you're willing to pay for it, that's great." But working your way into that decision mathematically is hard, he said.

"In the contact center, there are very clear classes of products," Michels explained. "There's the basic ACD that comes with the PBX and then there are about five or six levels up to the unit level. So I think it's really important to pick the level of product."

One attendee asked whether companies should be focused more on determining the cost or the value (ROI) of the solution. Michels answered that the only way a TCO comparison really works is when all options are normalized, but since every solution has its nuances that's really hard to do. And, in truth, attempting to normalize solutions in order to do a TCO defeats the purpose of looking at different types of solutions within a class, he added.

To illustrate the importance of going with a class, Michels shared a conversation he had with Interactive Intelligence executives on pricing. They told him Interactive couldn't raise its prices because they're competitive and it wants to stay competitive.

This is one of the reasons I say go with a class, Michels said. "You still have to work as hard as you can to get the best deal, but you pick the class of product you want to work with, and you focus on the value of that product, and you focus on your business and less on the minutiae of what costs what."

Further, because of all the self-service options available today, when a customer does call in to a contact center, it's usually a pretty significant request, Michels noted. You don't have the entry-level agents working the phones anymore. "You're actually trying to solve problems. And if the whole issue is trying to break down these barriers, differentiate yourself, earn loyalty, then looking at how do we minimize our costs is usually the wrong way to go about it."

When looking at the customer experience, repetition of information is one of the top components negatively affecting a customer relationship, Michels said. "It takes a higher class product to illuminate these things. And so you decide on a higher class product and you pick the one that works best for your company, but I don't think TCO is the right approach."

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