What’s More Important in Your UC Spend: TCO or ROI?

Our consulting practice is often hired to help clients develop a roadmap for acquiring and deploying unified communications (UC) solutions. One of the first questions we are asked in most of our engagements is, “Will this cost us more or less than we are spending today?”

Before answering, I often take a breath, and then explain that although it depends on a number of factors, it will most likely cost more. At that point the client sighs, and says, “I thought so.” I add that more importantly the color of money will probably shift around in the corporate budget.

Whenever I can, I encourage clients to approach cost analysis from two directions: total cost of ownership (TCO) and return on investment (ROI). Some clients are focused only on TCO. But in my view, it’s more valuable to assess the impact on ROI of new functions and capabilities on productivity, customer satisfaction, and operational cost savings. In fact, as the conversation moves from TCO to ROI, calculating TCO actually becomes easier.

A better way to view costs

As anyone who has been paying attention knows, UC technology can be premise- or cloud-based, hosted or hybrid — all offering essentially the same features and functions.

In general, the industry has moved to a consumption model, with premise-based solutions typically requiring more capital funding. In contrast, cloud solutions tend to result in higher operating costs, but are more flexible, while hosted and hybrid solutions require capital as well as increased operating cost.

My advice is to start by determining exactly where your telephony costs are today, and where they would be with a UC system — whether you are moving to premise- or cloud-based solution. In calculating future TCO, be sure to consider such factors as:

  • Local Telco Cost (including all taxes and fees)
  • Long Distance and International
  • Site Connectivity
  • Staffing (quantity/skills)
  • Maintenance
  • Software Assurance

Back in the day when organizations were migrating from Time Division Multiplexing to VoIP, a client might start with four telephone technicians at $50,000 salaries, for a total budget of $200,000. In theory, ROI would appear after the transition to VoIP was complete — and the organization would need only two network (as opposed to telephone) technicians. In the best-case planning cost analysis, there should be a 50%, or $100K savings — a level of ROI that unfortunately was rarely achieved. The problem was that in most cases, three network technicians were required, and their salaries were closer to $90,000.

Business drivers of UC technology

In the world of UC, I am seeing the same phenomenon, but with a different twist. Today, funding for new technology is often hard to find, and critical projects are understaffed. Small wonder that management is looking to outsource voice services to the cloud, hoping to free up staff to work on other projects. While this is smart strategy, we are finding that cloud systems still need technical staff on site to work with end users, manage billing, and monitor license usage. By using a cloud solution, I find clients can move the telephone support function from the network group to desktop support. Desktop support tends to be a starting point for many IT staff, and cloud license management could fall under general desktop license management organizations.

As the conversation moves from TCO to ROI, the cost of ownership becomes easier to justify. If a business can figure out during the requirement discovery process what will be the “killer app” of their UC deployment, the new system could literally transform how business units work. This is why we work to identify UC features and functions that will help create a positive ROI by reducing cost, increasing revenue, eliminating business bottlenecks, or improving customer service.

To get at this level of insight, questions in our requirements discovery process move from, “How do you use this feature?” to “How does your business compare to industry peers in the way you use UC’s new features?” This last point is critical, since the competitor who finds the most impactful way to use UC technology will likely gain market share at the expense of others, and in the process, also improve ROI for their technology spend.

There’s a lot on the line

My bottom-line advice: thoroughly know your current cost elements before embarking on a system replacement, and dig deep to find that killer app of UC that could make it possible to not only transform your business, but also help you gain market share.