VoIP: Tip of the Iceberg or Slippery Slope?

With the buzz building around VoIP, CIOs should understand the technology holds promise but key questions remain unanswered, writes CIO Update guest columnist John Sviokla, vice chairman of DiamondCluster International.

By John Sviokla | Posted Aug 10, 2004
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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?
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