Don’t deploy VoIP to reduce costs, says Avaya CEO

Business transformation should be the goal of VoIP installations, Peterson says

Avaya CEO Don Peterson surprised some IT managers at VoiceCon Spring 2006 by declaring that managers should not deploy IP telephony to lower communications costs. Instead, he says, they should look to improve their business operations.

Peterson’s comments, made in a keynote address to the conference, stood in stark contrast to presentations from several businesses well on their way to outfitting their companies with new IP-based networks, phones and applications.

Jeff Lemmer, manager of global telecommunications at Ford, says the carmaker conducted a thorough financial review of voice-over-IP technology before starting a three-year rollout to 60 sites in Michigan. The company is about halfway through the effort to replace 40,000 analogue phones with VoIP phones from Cisco Systems, according to Lemmer.

Lemmer says the review included “detailed financial modelling” to determine return on investment. He would not comment on details of the review but says the “financial savings are on target”.

PPL has saved more than US$1 million (NZ$1.55 million) annually on maintenance and toll calls with a VoIP system put in place two years ago, says Dave Stever, manager of communications technologies at the US supplier of electricity and natural gas.

In addition, Vantis Credit Union in Winnipeg, Canada, projects that the installation of IP-based video-conferencing kiosks from Nortel Networks in eight remote offices over the next two months will boost annual revenue by 15% to 20%, says CEO Michel Audette. The kiosks will enable customers in remote offices to discuss business with officials in other facilities, and also reduce the need for staffers in the remote offices, he says.

Process over telephony

Despite such examples, Peterson says, “we don’t believe IP telephony is a cost-reduction case. I fundamentally believe that the real value is how it changes the business.”

Some IT managers agreed with Peterson that process improvements stemming from VoIP can be substantial.

Catherine Brune, CIO at Allstate Insurance, says VoIP helped her company quickly set up emergency trailers in the field to help with claims filing and to easily transfer calls to call centres hundreds of miles away in the aftermath of Hurricane Katrina.

“This technology can enable a different business process,” Brune says. When the network near New Orleans failed after the storm, Allstate was able to move to another carrier within 24 hours, thanks to the flexibility of VoIP. “If your job is to take care of customers, this is a technology for you,” she says. Brune did say that start-up costs may prevent IT managers from making a persuasive business case to get approval for funds to start a VoIP deployment. She suggested that managers use internal resources to prove the business value and then seek more funding later on.

Gary Bixby, director of support services for the school district of Cheltenham Township, credits a new Alcatel VoIP system with significantly improving the district’s emergency preparedness process. Teachers can be discreetly informed of an emergency, such as an intruder in the school, over a graphical display on IP telephones, he says.

Bixby began researching VoIP more than a year ago and has so far deployed about 300 IP telephones. The district will eventually deploy twice that number in a project expected to cost it about US$300,000.

In the future, the school district hopes to use Alcatel’s IP telephony to interface with Session Initiation Protocol-based videoconferencing technology, which would be invaluable for distance learning, he says.

Another Nortel customer, Erlanger Health System in Chattanooga, has seen productivity gains since moving to IP telephony, because nurses can now respond quicker when a patient needs assistance, says John Haltom, network manager at the healthcare provider. Erlanger has 1,500 IP phones, about 20% of the total it plans to deploy, he says.

Peterson’s argument that improving business processes should be the primary reason for using VoIP did not surprise Zeus Kerravala, an analyst at Boston-based Yankee Group Research. “Peterson is absolutely correct,” he says. “Business productivity is what you have to focus on. You get more bang for your buck by focusing on productivity than cost reduction.”

Kerravala says the larger the organisation — and the implementation — the smaller the savings.

“In a very large organisation, in fact, going to VoIP could be more expensive,” he says.

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