successful virtual workplace business case for collaboration

ISSUE PAPER The Business Case For Collaboration By Irwin Lazar, Principal Research Analyst, Cisco Research Executive Summary Enterprises are struggling to create business cases to justify the adoption of real-time and non-real time collaboration applications and services. Furthermore, business benefits are often difficult to quantify. Business cases enable enterprises to determine potential benefits prior to deployment, and provide metrics for measuring post deployment results. Developing a business case begins with understanding the drivers for IT spending in the organization, and the sources of demand for improved collaboration capabilities. From there, the enterprise can develop use cases based on specific business processes. Approaches such as “Just-In-Time-Fetch-The-Expert” demonstrate how improved collaboration leads to top-line revenue growth by improving customer experiences and increasing sale close rates. Enterprises can apply statistical analysis tools to measure gains in productivity from more effective collaboration, and translate those results into potential cost savings. By taking the time to develop a business before deployment, enterprises can better ensure the success of their collaboration strategies. - 1 - © Cisco Research 2007 The Issue Enterprises are struggling to create business cases to justify the adoption of real-time and non-real time collaboration applications and services. Furthermore, business benefits are often difficult to quantify. Arguments such as “improved worker productivity” don’t resonate with enterprise IT or line of business managers looking to reduce bottom line expenses or increase top-line revenue. What is needed are specific use cases that justify investments in collaboration, or perhaps more importantly, implementation of a methodology that enterprises can use to build their own business cases across various operating units. Drivers for IT Spending Whether you are in IT, human resources or sales, knowing what drives corporate or organizational decisions is one key to knowing how to position your project proposals. In IT, this knowledge is vital. For example, knowing that the No. 1 business driver at your organization is to reduce costs tells you to be prepared to answer how your IT project will help reduce specific line items. On the flipside, if the most important driver is to gain competitive advantage, you’ll need to discuss how your project proposal will help the organization beat the competition—and that requires detailed knowledge of what the competition is and is not doing right. It is also crucial to know how companies in your peer group—those in similar industries or thos e with similar characteristics, such as size, global span, or reliance on technology—rate their business drivers so that you can validate your decision. In Cisco 2007 benchmark Building a Successful Virtual Workplace we found The No. 1 business driver is revenue growth, when assessing organizations of all sizes, with about 35% ranking it as their top business driver (Please see Figure 1: Top Business Drivers for IT Spending, Page 3). The Assistant VP for Tech Services at a national transportation company noted, “Our CEO has two business drivers: velocity and top-line revenue growth.” In many enterprises, all other drivers are simply means to achieve growth. - 2 - © Cisco Research 2007 Figure 1: Top Business Drivers for IT Spending With an understanding of what’s driving businesses to spend, we can then look specifically at the demand for collaboration tools. The predominant drive for collaboration applications is coming from the users of collaboration tools; managers (21%), business units (29%) and individual end-users themselves (17%). In only 22% of enterprises are IT departments pushing tools to end users (Figure 2: Collaboration Tool Demand, Page 4). - 3 - © Cisco Research 2007 Figure 2: Collaboration Tool Demand The implication of this data is clear, if you want a successful collaboration strategy, you’ve got to create pull-based demand from end-users, selling applications on how they benefit individuals, workgroups, and business units, rather than selling products into IT shops. Enterprises need to identify specific business challenges that they can solve with collaboration applications, rather than simply deploy an application and hope that employees will use it. Building A Business Case So given that enterprises see productivity enhancements as the biggest benefit of collaboration applications, what are some specific areas where collaborative applications can enhance productivity? And how can we quantify them to build a business case to justify funding? One such example quantifying the benefits of collaboration services is “Just-in-time-fetch-the-expert (JITFTE).” This model is most applicable for organizations that place a heavy emphasis on reactively or proactively getting information to clients, often with geographically dispersed support teams. In - 4 - © Cisco Research 2007 these organizations effective customer interaction is critical to overall business success. For example, investment managers might need to apprise their clients quickly of events that might affect their portfolios. Community banks might need to answer specific questions about mortgages or consumer or business loans. Closing a sale might require involvement of an individual with specific vertical or product knowledge who is located in a separate geographic region. In these scenarios, collaboration tools help improve close rates by giving sales teams better access to support resources or groups possessing specific subject matter expertise. Salespeople can locate subject matter experts in rapid time to help close a sale. Without JITFTE, the sales person ordinarily would have to take notes, locate an expert, get an answer, and call the customer back—a process that reduces the likelihood of success and potentially puts a company at a competitive disadvantage. Presence-enabled unified communications serves to virtualize corporate resources, enabling individuals to find the experts they need regardless of location, and quickly join them into a call, Web conference, video conference, or audio bridge. JITFTE examines business benefit of improved communications and collaboration by looking at specific business processes, such as sales cycles or length of time required to complete a customer inquiry. The goal of this approach is to determine if the application of unified communications technologies can shorten these cycles, leading to such tangible benefits as increased sales or higher customer retention/satisfaction rates. Consulting Projects Bottom- Line Value of New Number of Incremental Impact of Incremental Impact of Incremental Impact of Projects To Typical Project Typical Close Projects Bid Per Increasing Close Rate Increasing Close Rate Increasing Close Rate Average Project Size Margin Rate Year Consulting Firm by 1% by 2.5% by 5% $250,000 60% 75% 75 $8,437,500 $8,550,000 $8,718,750 $9,000,000 Marginal Improvement $112,500 $281,250 $562,500 Figure 3: Just In Time Fetch The Expert Figure 3: Just In Time Fetch The Expert,” shows a JITFTE scenario for a professional-services firm. In this model, the firm bids on 75 projects per year and has a typical close rate of 75%, for an annual revenue stream of $8,437,500. If the firm is able to apply unified communications technologies to close just 1% in additional business in a year, the tangible benefit is $112,500. This benefit increases rapidly as close rates improve, with a 5% increase in close rates providing a benefit of $562,500. This model can be applied to any organizational process that can benefit from faster access to information or subject-matter experts. - 5 - © Cisco Research 2007 Quantifying Productivity Gains In our research we have found that organizations on average can expect to spend roughly $560 per person on their collaboration implementations. Given an organization size of 10,000 employees, this translates into a need to demonstrate some combination of $5.6 million in cost savings or increased revenues, typically within a payback period of one year or less. Return can be quantifiable, as demonstrated in the JITFTE scenario, or organizations can quantify improvements in productivity. For example, an organization can demonstrate that elimination of phone-tag as a result of presence-enabled communications reduces the time workers spend chasing down each other and retrieving voicemail messages by 30 minutes per employee per- day. Take an example organization with a $30 per hour loaded salary, and this translates into potential cost savings of $15 per-day, per-employee. Again, using our 10,000 employee scenario, this translates into a savings of 123 hours per- employee per year (based on 245 work-days in a year), for a total annual savings of $36.75 million (Please see Figure 4: Communications Efficiency Savings, Page 6). Of course, this assumes that the time saved is used for other productive purposes. If we assume that only 50% of the saved time is reused for productive business activity, we still see a positive return of $15.5. Communications Efficiency Savings Total Annual Minutes Saved Total Annual Cost Savings Work-days Per Day Hours Saved Per Employee Employees Total Annual Cost Savings 245 30 123 $3,675 10,000 $36,750,000 Figure 4: Communications Efficiency Savings Conclusions and Recommendations Deployment of collaboration tools and services offer tremendous opportunity to improve enterprise efficiency, streamlining tasks, improving workflow, shortening project lifecycles, and improving customer interaction. A successful implementation requires enterprises understand these benefits, determine specific business cases that are applicable to their own organizations, and develop a migration strategy that takes both architecture and organizational factors into account. Enterprises should identify specific business processes that they can improve by enabling better ability to share information and communicate among employees. They should create models showing the potential hard dollar savings, or top-line improvements created as a result of the use of collaboration tools and services. By creating these models enterprises will not only be able to justify the procurement of collaboration applications, but will have a deeper understanding of how their use offers positive ROI. Only then will they be able to judge the - 6 - © Cisco Research 2007 success of their implementations. Enterprises will have a solid set of numbers to compare with their actual upfront and on-going costs and benefits to determine if they are seeing benefits in-line, under or over expectations. - 7 - © Cisco Research 2007
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