Executive Considerations on VoIP

(Editor's Note: This article was submitted by consultants at DiamondCluster.)

Many CEOs will be keeping a close eye on Boeing Company's efforts to roll out Voice over Internet Protocol (VoIP) voice, video and data services to more than 157,000 employees worldwide and Verizon's July 22 announcement to launch a similar phone service for consumers.

The recent announcements could be just the tip of an iceberg of pent-up demand among corporations for a seamless network of digital capabilities. But the complexity of getting real value from a VoIP initiative could also put companies on a slippery slope towards a multi-million mistake if they race to keep pace with innovation without managing the effort effectively.

The Fortune 500 spend on average $116 million annually on telecommunications expenses, according to a recent estimate by the Aberdeen Group. "Cutting that budget looks attractive but it's really only a one-time dividend -- any cost advantage will eventually be competed away," said John Sviokla, vice chairman of management consulting firm DiamondCluster International.

"The larger reason why the CEO should care about voice over IP is because opportunities to structurally change their cost base and capabilities don't come around very often in a CEO's career. This could be one of those opportunities," Sviokla said.For large enterprises, switching to an effective VoIP system could require an investment of $20 to $40 million or more. One reason to make the move to VoIP is that traditional networks are aging and suppliers like Nortel, Lucent and Alcatel have yet to introduce their next-generation circuit switching technology. VoIP technology has hurdles to overcome, as well, but its strategic potential is compelling and with companies like

With Boeing placing big bets on the technology, other companies may feel obligated to follow suit. Retail banks, for example, may consider VoIP as a means of providing customers with access to a wider range of interactive financial data from the direct demand deposit system and other data sources than they ever could through a conversation with a customer service representative.

Boeing is teaming with Cisco IP Communications for its global IP telephony rollout. That has the traditional telecom industry players concerned, said Mark Keeley, who leads DiamondCluster's telecom industry practice in North America.

"The traditional carriers we work with are all creating strategic responses to the threat from Internet service providers, mobile operators and other technology firms," Keeley said. "They want to avoid cannibalizing their existing voice telephony business. And they want to design their own voice over IP offers."

"That innovation," Keeley said, "is good news for companies in virtually every industry because competition in the voice over IP space will provide them with a greater variety of communications options."Key Questions the CEO Must Address

With various vendors -- from hardware manufacturers to cable companies to the traditional carriers -- rolling out VoIP services options, CEOs would be wise to rise above the hype over features and functions, Keeley adds.

"The debate about voice over IP should be part of the strategic discussion about the value of technology to the enterprise," said Keeley. "For some companies the technology might provide incremental value; others might decide that voice over IP has the potential to drive change of their entire business model."

"Coming to the right conclusion will require some experimentation to explore voice over IP's potential," Keeley said. "But in return, CEOs should expect a rock-solid business case for any major voice over IP initiative."

"Before they get swept up in the hype CEOs need answers to questions that are fundamental to the business," Keeley suggests. "What competitive advantage can we create? How can this technology change our relationships with customers by improving service levels, creating new services or reducing customer churn? Can it have a profound impact on the way we interact with suppliers and partners? Is 'better, cheaper, faster' good enough or should we reach higher?"For example, buzz about Boeing's plans to improve collaboration among its design teams around the world shouldn't compel other companies to jump headfirst on the VoIP bandwagon, cautions DiamondCluster executive Joe Bonocore, author of Commanding Communications: Navigating Emerging Trends in Telecommunications (John Wiley and Sons, 2002).

"Voice over IP, if done correctly, may enable new applications and new functionality that companies can deploy to increase revenue, reduce costs and improve efficiencies. What's exciting is that, because it is a data-based system, voice over IP has the potential to integrate your communications with your internal information systems to create customer-centric, supplier-centric and employee-centric operations," Bonocore said.

"Boeing is counting on their investments to improve collaboration internally but the real potential may also lie outside the enterprise," Bonocore said.

"Unfortunately, however, many companies may look at voice over IP simply as a way to replace old communications systems with a new and cheaper alternative. Instead, they should also explore this technology as a fundamental building block to restructure the way the corporation processes its work and delivers its products and services."

However, Bonocore advises caution. Because of the large-scale complexity and multidisciplinary nature of these efforts, the following common mistakes must be avoided: