Financial Justification For Convergence
We have introduced the concept of convergence before and
we never touched on the financial implications of converging
networks to assist senior managers in defining the Information
Technology (IT) and networking directions of their companies,
and to provide the necessary strategic and financial justification
to make effective decisions regarding voice, data, and video
convergence.
The term convergence, also known as multi-service networking,
refers to the integration of data, voice, and video solutions
onto a single (IP-based) network. Convergence has progressed
to the point that most organizations should seriously evaluate
its role in the future of their networks. A converged network
can play a critical part in helping a company identify new
ways to generate revenue, reduce operational costs, increase
organizational flexibility, and generate a sustainable advantage.
Many of the new business that are now deployed on converged
networks provide immediate ways to increase personal workgroup
productivity, while enhancing customer care and responsiveness.
Convergence can also accelerate business cycles and enterprises
realize the benefits of their investments faster.
As an IT investment, convergence is unique because of its
ability to impact the entire organization. Whether it is workforce
optimization, e-commerce, supply chain management, or customer
relationship management initiatives, a converged network provides
the necessary foundation to decrease implementation time and
maximize an organization’s investment in new technologies.
This is especially important given that the costs implement
a packaged software solution is two to three times the cost
of the actual software. Convergence also allows organizations
to challenge many of the traditional assumptions regarding
labor, facilities, and capital investment by providing the
tools to empower the organization to mobilize its workforce
and centralize its infrastructure and network management.
However, the far-reaching implications of convergence often
make it a difficult concept for organizations to understand
and evaluate.
Moving to a converged network can substantially reduce an
organization’s total cost of ownership for its network,
and reduce the ongoing costs required to maintain and upgrade
the network. And by simplifying the administration of the
network, an organization’s IT staff can focus more on
strategic initiatives that can generate demonstrable business
benefits. While the hard cost savings are enough to justify
migrating to a converged network, the less easily quantifiable
“soft” benefits provide the most compelling argument
for why an organization should begin migrating to a converged
network. In order for organizations to understand the reasons
to migrate to converged networks, they must understand the
impact upon not only a company’s cost structure, but
also how convergence can help their businesses more quickly
and more effectively reach their overall goals.
IT projects are now faced with a greater degree of scrutiny
than ever before. Recent economic downturn have made it that
much more important for IT Heads to justify the strategic
and financial value of proposed IT investments. However, regardless
of the economic environment, organizations are continuing
to invest in IT projects that support specific business goals
and producing quick returns.
A well-planned IT strategy will allow a business to emerge
from adverse market conditions in a better position to take
advantage of new opportunities. As IT has gained greater acceptance
as a strategic component of running a business, the parties
involved in making the decision have expanded to include business
and financial managers who want greater strategic and financial
justification on why they should invest the organization’s
capital. Business and financial managers want to understand
how these investments will help them realize their business
goals of generating more revenue, reducing operational costs,
and creating a sustainable competitive advantage in the hopes
of either boosting or creating value for shareholders. They
also want to understand how an investment in IT can accelerate
the pace of an organization and increase organizational flexibility.
Early adopters of IP telephony have proven that voice over
an IP network is reliable even across shared low bandwidth
circuits. Sending voice over the wide-area-network (WAN) was
one of the initial drivers behind migrating to a converged
network. Initial deployments of IP telephony have ranged from
several hundred phones all the way up to 25,000, highlighting
the scalability of a converged network. IT decision makers
are faced with the task of creating a vision for the future
of the network that will help their organizations achieve
business objectives. At the same time, organizations must
also identify the correct stage in the technology life cycle
at which the best benefits can be realized while incurring
the least risk. The technology life cycle plays a critical
role in the investment decision and is often the most difficult
.htmlect of evaluating an IT investment.
Assuming that an IT investment must be a key source of an
organization’s competitive advantage to be justified,
this is only true if the technology is adopted and integrated
faster and better than the competition. The critical drivers
that should lead an organization to begin evaluating converging
their networks are the hard cost savings related to infrastructure,
staffing, and facilities as well as the improvements in productivity
and customer care. There are however, several key transitional
events that can accelerate the evaluation and adoption process
as well as the financial payback: In addition to these events,
convergence makes particular sense for organizations that
are rapidly changing in size and location by opening new branch
or regional offices. Adding further urgency to the development
of a convergence strategy is the exponential growth of data
traffic relative to total network traffic. Data traffic is
now growing 10 times as fast as voice traffic and will surpass
total voice traffic in the near future. As they evaluate new
data equipment purchases, they should also make sure the networking
equipment could support not only data, but also voice and
video.
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