For many firms like yours, there is a perceptible lack of
understanding of the on-going total cost of ownership of IP
technology. Gary Flood rises above the marketing jargon and lays it
on the (bottom) line, assessing how you can get a good
Companies of all sizes - especially smaller businesses like yours -
can benefit financially from switching to communications strategies
based on the widespread IP (internet protocol) standard. The
problem is, you might not know it once you do.
Welcome to the missing link in too many organisations' IT
strategies - understanding the real ongoing cost of technology, the
concept of total cost of ownership (TCO).
TCO refers to the lifetime costs related to your technology
purchase: the amount of cash you'll spend not just on the basic
hardware or license fees, but the plethora of direct (support,
upgrade) and indirect (training, business lost through downtime)
costs that too many organisations are failing to factor in to their
IT budget process.
Beyond the obvious
Calculating TCO means thinking beyond the obvious costs. As Chris
Evans, MD of IP managed solutions provider hSo, says, this should
include taking into account areas such as software upgrades,
maintenance fees, the office floor space taken up by the server and
"even the costs of air conditioning to keep the server from
overheating".
"Most companies in the middle market just don't know enough about
TCO," says Richard Bainbridge, General Manager for Commercial
Management in BT's Global Services arm. Not only could this gap be
stopping you from making the most of your existing technology, it
might prevent you taking advantage of new ways of working around an
integrated technology like IP.
Market watchers see this as a way of enabling users to work from
their desktops with tools like instant messaging, video
conferencing, offering better and more secure collaboration with
documents, and facilitating better remote and mobile-based working
practices.
That's just the tech-speak, of course. But what's the bottom line
pay-off for your firm going to be, once you've decided to make the
shift to an IP network way of working?
According to Mark Blowers, Senior Research Analyst at UK IT
industry researchers Butler Group, it's purely and simply about
what all business people look for - better management of
resources.
"By centralising the management of networks onto an IP
configuration you will immediately get a better handle on what's
happening, and will get away from the ad hoc, disorganised way of
handling your network that you may be experiencing," he says.
"This could take the form of simplifying that task to the point
where it's the responsibility of just one person, instead of a
number with different responsibilities for voice or data. Yes,
there are lots of TLAs (three letter acronyms) and jargon around
IP, but that's the essence of it - better management now and a
platform for applications you may feel are appropriate for your
business in the future."
Saving money
For 'appropriate' you may prefer to read 'saving money'. Mitel
Networks is a global IP telephony company that partners with major
telecoms companies and European Head of Strategic Marketing,
Campbell Williams, estimates that an organisation switching from
leased line to IP could at a stroke reduce monthly wide area
network (WAN) charges by "tens of thousands".
"But there are other benefits. With a leased line you're really
just getting lots of 'narrow' pipes, say 30 64k circuits, whereas
with broadband you'd be getting a true 'fat' pipe with 2 Mbyte
capacity," he says.
But without getting a handle on your TCO, you could be making
easily avoidable mistakes. Say you decide that moving to IP is too
risky for your organisation. That's fine, so long as you have built
into your budget the need for paying for moving staff telephones as
an ongoing cost.
Sounds trivial? Analyst firm Frost & Sullivan estimates that a
medium-sized company moves 15% of its staff around every year,
which in terms of admin and PABX reprogramming could add up to £75
per moved employee at a time. This cost is avoided in the IP world,
as numbers are assigned and controlled on a central basis.
But there is no point trying to avoid such costs if they are not a
major headache. It seems we're back to the issue of getting that
full picture of the technology cost today and what it could be if
the picture changes. A further complication: do you want to go IP,
or fully internet?
Steve Carter is also an executive for BT Global Services, where he
is Manager for IP VPNs. "SMEs we work with are very demanding, know
what they want to do with their business, but don't want to know
too much about technology - they're looking for tools that are easy
to use," he says. He adds that you need to be clear about whether
you want to go IP on the open internet, or take advantage of IP
through a managed service, like his team's equIP offering.
"The choice is about whether you need a network to communicate
between more than one company site by more than just the phone or
whether you also want to centralise servers and applications that
are currently dotted around. The next issue is whether you want to
keep this all on the public internet, which has many advantages but
could open you up to hacker and denial of service attacks, or on a
private, secure network. Another cost you need to factor in the
cost of cleaning your network of viruses and what happens if you
lose it for days at a time."
Modelling package
The good news for those firms that want to get a better handle on
their TCO situation and start exploring some of the benefits of IP
is that there are tools available that you can use to assess your
TCO status.
Working with consultancy Deloitte, Bainbridge's team has built a
TCO-aware modelling package based on state-of-the-art metrics from
organisations like Gartner that can enable you to benchmark your
performance. "You can compare yourself to other firms of your size,
who would be expected to have x number of people doing application
development work, so many doing tech support, this number on admin
and policy. You can also use it to work out what you are spending
on support, service management, programming and your helpdesk
functions. And it can also give you what-if capabilities, to see
what it might cost if you adjusted any of those parameters," he
says.
The chances seem very high that without careful analysis, too many
costs won't get noticed and planned for. "Just because some parts
of communications technology are getting cheaper doesn't mean you
can treat it as a commodity," says Bainbridge. "Don't go to the IP
network shop and get the cheapest one they have. Think about what
it's going to be like to use it, and how your people costs may
change as a result."
In other words, you won't get an acceptable ROI (return on
investment) until you've sorted out your TCO - not only for IP
networks but for all your tech spending.