The Business Case and ROI Analysis for IP Telephony at Cisco Systems Cisco Account Team Date

Table of Contents Cisco’s Internal IP Telephony Deployment Strategy Background to the ROI Analysis Results of the ROI Analysis Appendix I: Detail Behind the Results Appendix II: Sensitivity Analysis

Cisco’s Internal IP Telephony Deployment Strategy

Cisco AVVID and Cisco IP Telephony: Key Components of Cisco’s E-Business Strategy: Optimising Cisco’s Workforce Caring for Cisco’s Customers E-Learning Workforce Optimisation Supply Chain Customer Care

Cisco IP Telephony is a key enabler of Cisco employee mobility Cisco IP Telephony: Key Ingredient to Employee Mobility in an Optimised Workforce Extended Enterprise HR Scalability Productivity Employee Mobility Integrated Self-Service Workforce Development $500M+ E-Finance E-Procurement Basic e-HR $74M Cisco IP Telephony is a key enabler of Cisco employee mobility Cisco Annual Productivity Gains Directory Communications Static Portal $19M ’94–’96 ’97–’00 ’01–

Cisco IP Telephony: Key Ingredient of “The Contact Enterprise” Cisco IP Telephony and Cisco IP Contact Centre are key enablers of Cisco’s vision of “The “Contact Enterprise” Call Centre Contact Enterprise Vehicle Home Location Branch Example: Cisco’s CEO, John Chambers is proactively notified of high priority technical support cases that have not met their required service levels and follows up directly with the relevant individuals involved Virtual Center Center Agent/Employee Management Senior Executive Level

Business Drivers for Cisco’s Internal Adoption of IPT Showcase Cisco’s Technology Hard Cost Reduction Increase Employee Productivity Extended Beta operation Feedback loop into product development Continue to support the current Cisco culture – empowerment, etc. Cultural Enhancement

The Role of Cisco IP Telephony Home Tel # Mobile Tel # Office Tel # Voice Networks Data Network E-mail Address Cisco Employee Before 2002 Single Tel # E-mail Address Single IP Network Cisco Employee After 2002 Routing Queuing User chooses preferred device, on demand User defines business rules concerning contactability Wired and wireless connectivity User benefits from integrated productivity applications: Messaging applications Inbound/outbound routing applications Web-access applications CTI applications Audio & video conferencing applications User constrained by: Geographic location Different devices on different networks Lack of contact transparency

Cisco’s IP Telephony Deployment Strategy Deployment of Converged E-Business Applications Maintenance & App Dev Cost Focus on deploying converged applications on IPT infrastructure across all Cisco offices Business Benefit of Cisco IP Telephony (Relative Scale) IP & Web Foundation Expanded to Include Voice Infrastructure Cost Focus on changing out PBX infrastructure with IP Telephony infrastructure across all Cisco offices Cisco is currently in the middle of a rollout plan All offices are converted to AVVID infrastructure by mid-2002 Once all offices are up and running on AVVID (and Microsoft Exchange), can switch on applications and accelerate benefits . . . . . . . . Office 1 Office 2 Office 3 Office 96 App 1 App 2 App 3 App x Cost of Cisco IP Telephony (Relative Scale) 2000 2001 2002 2003 2004 2005 Year

Background to the ROI Analysis

Real Benefits of Cisco IP Telephony = Quantifiable benefits that are applicable to Cisco Systems and used in this ROI Analysis Single Network Maintenance, Cabling, Administration, Support, Power, Moves/Adds/Changes (MAC’s), Staff Voice Business Continuity Integral component to an effective voice business continuity plan Can be compared against other less effective plans Voice message backup/restore Real Estate Space Utilisation, Reduced Operational Costs, Flexibility Reduced Call Costs Reduced mobile phone usage Extension Portability Campus Roaming, Home Office, Other Location Outbound Call Management Unified Messaging Audio Conferencing Small Branch Office Centralised Call Processing Elimination of voice trunks IP Toll Bypass No on-site PBX Reporting, Billing, Cost Management Cross-Enterprise telecom reporting Cross-Enterprise call cost management Predictability of telecom bills Reduced PC Costs IP phone can replace a web-enabled PC or laptop in certain environments Hard-dollar cost savings Employee Productivity End User Applications Audio Conferencing Unified Messaging Personal Assistant Web Access Computer Telephony Integration IT Operations Facilities Mgmt Ops Productivity increases that can be safely quantified Benefits that are very real, but difficult to quantify Cultural Enhancement Customer Satisfaction Employee Retention Geographic Flexibility Competitive Positioning Faster Application Deployment Voice Business Continuity Difficult-to-Quantify Productivity via Converged Applications

Business Case Framework for the Benefits Applicable to Cisco Systems ROI ANALYSIS BENEFIT BUCKETS Real Estate Space Management Capex Avoidance Workspace Sharing Efficiencies Bucket-Specific Costs Single Network MAC’s Maintenance IP Toll Bypass Staff Cabling Bucket-Specific Costs Reduced Call Costs Reduced mobile phone usage Extension Portability Campus Roaming Home Office Other Location Outbound Call Management Inbound Call Management Unified Messaging Audio Conferencing Bucket-Specific Costs Employee Productivity End User Apps Audio Conferencing Unified Messaging Personal Assistant XML TRC Case Facilities Services Taxi Services CTI Screen Dial Screen Pop IT Operations Facilities Mgmt Ops Bucket-Specific Costs Cultural Enhancement Customer Satisfaction Employee Retention Geographic Flexibility Competitive Positioning Faster Application Deployment Voice Business Continuity Difficult-to-Quantify Productivity via Converged Applications COSTS Common Costs

The Business Case for IP Telephony at Cisco Scope: All Cisco offices in Cisco’s Europe, Middle East & Africa (EMEA) region (total of 96 offices) Five year time horizon: FY2000 - FY2005 (= August 99 to August 2004) All Voice communications on IP Platform IP Handsets and Extension Portability Cisco Softphone on laptops (Wired or Wireless LAN connectivity) IP Blue Softphone on Compaq IPAQ PDA’s (Wireless LAN connectivity) Suitable Productivity Applications: Cisco Unity Unified Messaging Cisco Personal Assistant Web Access Applications (via Web Browser on Screen of IP phone) Computer Telephony Integration Applications (via JTAPI interface to Cisco Call Manager) Audio Conferencing

Guiding Principles Analysis must be “Boardroom Survivable” Objective Analysis will be scrutinised by objective third-parties (e.g. Gartner Group) Transparent All assumptions and calculations supportable to the most granular level of detail Conservative Similar to manner in which third-party consultant would perform analysis Standard: Use Generally Accepted ROI Principles & Practices Use Cash Flow analysis, not Profit/Loss analysis Simple Use Plain English Terminology

ROI Approach & Methodology Individual Cisco offices form the fundamental building blocks of the ROI analysis All offices categorised as Large, Medium or Small Perform detailed analysis on one of each of the three office types Tie all benefits to a “per employee” benefit Total EMEA-wide ROI figures prorated based on office size and office headcount Pricing of Cisco equipment is representative of what a large enterprise customer would pay, not what Cisco Systems would pay Analysis takes into consideration the timing of each individual office going live on IPT infrastructure, as well as the time in which applications launched EMEA-wide Only 50% of any benefits dependent on integration and/or development are realised in the first year of deployment In line with the highly conservative nature of the analysis, the approach assumes Cisco offices are NOT greenfield sites: i.e. the “Do Nothing Option” is to continue using and maintaining an existing PBX

The ROI Model for Cisco Systems Linkage of the Large/Medium/Small office ROI analyses to the EMEA-wide consolidation Large Office (Bedfont Lakes) Medium Office (Frankfurt) Small Office (Sophia Antipolis) ROI (Small) Payback Month (Small) NPV (Small) Range: 1-50 Employees ROI (Large) Payback Month (Large) NPV (Large) Range: >151 Employees ROI (Medium) Payback Month (Medium) NPV (Medium) Range: 51-150 Employees Cisco EMEA ROI = xx% Cisco EMEA Payback Month = yy Cisco EMEA NPV = US$zz Country Office Relevant Headcount Deploy Date ROI Payback Month NPV UK Bedfont Lakes 1147 Xx/yyyy ROI (BL) xx NPV (BL) NL Amsterdam 883 ROI (Ams) NPV (Ams) France Paris 576 ROI (Par) NPV (Par) S. Africa Durban 2 ROI(Dur) NPV(Dur) Zimbabwe Harare ROI(Har) NPV(Har) Latvia Riga 1 ROI(Rig) NPV(Rig)

Results of the ROI Analysis

Actual ROI Results for Cisco EMEA: FY2000 - FY2005 Payback Month = 10 NPV (@12 %) = $60 million Business Benefit of Cisco IP Telephony (Relative Scale) Deployment of Converged E-Business Applications: Unified Messaging Personal Assistant 2 x CTI Applications 3 x XML Applications Web-Based Audio Conferencing IP & Web Foundation Expanded to Include Voice 2000 2001 2002 2003 2004 2005 $12.4m =$1625/emp. Net Benefit (US$) $9.4m =$1230/emp. $33m =$4320/emp. $2.6 m =$340/emp. $33m =$4320/emp. Year 2000 2001 2002 2003 2004 2005

Appendix I: Detail Behind the Results

Benefit Differences of the Large, Medium, Small Offices Large Office Results: Cisco EMEA Headquarters, Bedfont Lakes/London, UK: 1147 Employees ROI = 130% Payback Month = 9 NPV = $12.3 m Medium Office Results: Cisco Eschborn/Frankfurt, Germany: 171 Employees ROI = 120% Payback Month = 10 NPV = $1.8 m Small Office Results: Cisco Sophia Antipolis, France: 35 Employees ROI = 111% Payback Month = 11 NPV = $330 k

Breaking Down the Benefits: Large Office Example The Single Network Notes: Cabling benefit is a one-time benefit and is only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) Costs for Moves, Adds and Changes (MAC’s) are based on the average cost of an outsourced PBX MAC, versus that of a Cisco IPT MAC $450k Total Recurring $630k $60k Moves, Adds & Changes (MAC’s) (!) Maintenance (!) $120k Staff (!) (!) = Annual Recurring Benefit (+) = One-Time Benefit Total One-Time $500k $500k Cabling (+)

Breaking Down the Benefits: Large Office Example Real Estate Notes: Capex Savings benefits associated with real estate are only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) The origin of the Workspace Sharing Efficiency benefit stems from Cisco IP Telephony’s ability to allow Facilities Managers not to have to accommodate “swing space” when planning a new building, or reallocating space in an existing building $66k Total Recurring $1.67 m Space Management (!) $1.6 m Workspace Sharing Efficiencies(!) (!) = Annual Recurring Benefit (+) = One-Time Benefit Total One-Time $452k Capex Savings (+) $452 k

Breaking Down the Benefits: Large Office Example Reduced Call Costs Notes: Within this sub-section of the analysis, the benefits of Unified Messaging only represent call cost savings associated with reduced external access to corporate voice mail - they do not represent increased employee productivity. Outbound Call Management represents the major call cost savings associated with mobile employees using Cisco Personal Assistant to route outbound calls over the Cisco corporate network, taking advantage of either IP Toll Bypass OR bulk corporate-discounted PSTN rates Audio conferencing addresses replacement of a portion of existing outsourced audio conferences by the Cisco Conference Connection product The Extension Portability > Home Office > Outbound benefit entails the use of the Cisco hardware VPN client to allow employees working at home to accept/receive calls on their DDI desk phone number $25 k Unified Messaging (!) $970 k Total Recurring $1.45 m Outbound Call Management (!) (!) = Annual Recurring Benefit (+) = One-Time Benefit $195 k Audio Conferencing (!) $270 k Extension Portability > Home Office > Outbound (!)

Breaking Down the Benefits: Large Office Example Notes: The ROI project team made a judgement call that, even though the productivity of Cisco employees is undeniably increased through the use of Cisco’s Unified Messaging (UM) and Personal Assistant (PA) applications, the benefits modelling process would be unacceptably vague because the associated business processes and policies are not yet defined (e.g. incurring a GSM call to have PA speak e-mail over the phone) This situation will change once the new business processes surrounding UM and PA are defined. Productivity benefits of CTI applications are substantial because they emulate those of agents at large, CTI-enabled call centres yet can be implemented at a fraction of the cost Benefits of XML applications are actually small for Cisco because almost all Cisco employees have laptops and ubiquitous access to the Web. Organisations that are not in this same situation will most likely benefit more than Cisco due to not having to provide a PC to all employees Employee Productivity $24k $12k XML TRC Case Application (!) $1k XML Taxi Services Application (!) Total Recurring $1.1+ m XML Facilities Services Application (!) $475k CTI Screen Pop Application (!) $590k (!) = Annual Recurring Benefit (+) = One-Time Benefit CTI Screen Dial Application (!) $???k Unified Messaging & Personal Assistant (!)

Breaking Down the Costs: Large Office Example Notes: In line with the highly conservative, non-greenfield approach, the ROI analysis assumes that TDM-based infrastructure (PBX, voice mail system, multiplexors, etc.) was already in place, before migration to Cisco IP Telephony Hence TDM-based infrastructure capex costs are $0 – i.e. all capex costs used in the analysis are representative of Cisco IP Telephony equipment only Total Opex $320k $20 k $300 k IPT Bucket Specific Ongoing Costs (!) IPT Common Ongoing Costs (!) $1.5 m Total Capex $2.6 m IPT Bucket Specific Capex Costs (+) $0 TDM Infrastructure Capex Costs (+) $1.1 m IPT Common Capex Costs (+)

Appendix II: Sensitivity Analysis

Sensitivity Analysis: Examining Three Alternative Scenarios Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems Alternative Scenarios: 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks

Sensitivity Analysis: Cisco EMEA: (7639 Employees) Cisco EMEA Scenario Payback Month ROI NPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 10 126% $60 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 30 50% $32 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit $44 m 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 26 70% $6.2 m

Large Office: Bedfont Lakes/London, UK (1147 Employees) Cisco Large Office Scenario Payback Month ROI NPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 9 130% $12.3 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 22 47% $6.8 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit $5.8 m 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 25 66% $715 k

Medium Office: Eschborn/Frankfurt, Germany (171 Employees) Cisco Medium Office Scenario Payback Month ROI NPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 10 120% $1.8 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 19 55% $1.2 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit $875 k 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 17 78% $230 k

Small Office: Sophia Antipolis, France (35 Employees) Cisco Small Office Scenario Payback Month ROI NPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 11 111% $330 k 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 20 62% $245 k 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit $140 k 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 16 74% $100 k