VoIP: Tip of the Iceberg or Slippery Slope?

By John Sviokla

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Many CIOs 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.

These 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 dollar mistake if they simply race to keep pace with innovation without managing the effort effectively.

According to a recent estimate by the Aberdeen Group, the Fortune 500 spend, on average, $116 million annually for telecommunications. Cutting that budget looks attractive but it's really only a one-time dividend -- any cost advantage will eventually be competed away.

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 Boeing placing big bets on the technology, other companies may feel obligated to follow suit.

Key Questions

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

The debate about VoIP should be part of a larger, strategic discussion about the value of technology to the enterprise. For some companies the technology might provide incremental value. Others might decide that VoIP has the potential to drive change for their entire business.

Coming to the right conclusion will require some experimentation to explore VoIP's potential. But in return, CIOs should expect a rock-solid business case for any major VoIP initiative.

Before they get swept up in the hype CIOs need to answer questions fundamental to the business:

  • 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?
  • Following The Herd

    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.

    VoIP, 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, VoIP has the potential to integrate your communications with your internal information systems to create customer-centric, supplier-centric and employee-centric operations.

    Unfortunately, however, many companies may look at VoIP 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, caution is advisable. Because of the large-scale complexity and multidisciplinary nature of these efforts, the following common mistakes must be avoided (you may notice some of them from past, high-promise, high-hype projects):

  • Underestimating the scope of the project and what's really required to get maximum value from the initiative, resulting in unfulfilled expectations.
  • Lax project management discipline, leading to missed deadlines, cost overruns and frustration.
  • Underestimating the resources required to fully implement the strategy.
  • Managing The Change

    CIOs need to understand the limitations of the technology, and of their own organization to absorb change. They need to create a multidisciplinary team and foster a sense of shared responsibility and teamwork between the communications, IT and functional groups. In turn, that team needs to have strong project management skills and focus on ways VoIP can create value for very specific processes or applications.

    With the hype about VoIP building, maintaining that focus might be hard to do. Most people tend to overestimate the impact of technology innovations in the short term and underestimate its impact in the long term.

    The winners in leveraging VoIP's capabilities will be those companies that are realistic about extracting its value in the short term but have the vision to see how it could fundamentally change business models or entire industries over time.

    John Sviokla is vice chairman of DiamondCluster International, a global management consulting firm that helps leading organizations develop and implement growth strategies, improve operations, and capitalize on technology. DiamondCluster is headquartered in Chicago, with offices across Europe and South America. To learn more please visit our Web site.