How Cisco IT Helps Manage Operations Expenses

By Lance Perry, vice president, IT Customer Strategy and Success, Cisco

As Part I detailed, Cisco IT helped management get skyrocketing telecom costs under control by deploying several new applications. Part II looks at how those applications brought cost efficiencies to light.

One of the reasons Cisco invested so intently in its new Telecom Cost Management (TCM) program is that industry watchers report that between 7 percent and 12 percent of billed telephony services are in error. The TCM program achieved cost savings in line with these industry estimates and is expected to exceed them as the program continues to evolve and grow to include Cisco's international operations.

In its first years, even with manual management of invoices and initial spending reports, Cisco achieved dramatic cost savings by identifying billing errors and by changing the spending habits of its employees. The automated telecom billing solution continues to trim telecom costs quarter by quarter. Since its inception, the TCM program has delivered an overall 15 percent reduction in networking, telephony, and PC vendor services spending. Several years ago, these services accounted for more than $300 million in operating costs; that 15 percent reduction translates into nearly $50 million of trimmed expenses. This savings is even more dramatic when viewed in light of other changes that have taken place over the same period:

• Employee headcount has increased.
• There has been an increase in telephony innovations and applications, including improvements to the network infrastructure, the introduction of IP telephony, and the migration to a companywide mobile desktop platform.
• The number of service providers has increased significantly, with many more services now offered to employees. For example, when choosing a network access solution, employees have almost twice as many options available today as in the first days of the TCM program.

In its first year, the automated invoicing solution yielded savings of 5 percent annually, or more than $10 million. Mark Edmondson, manager of IT services expenses for Cisco, says, "We are continuing to enhance our tools and expect to increase our savings another 2 to 7 percent per year. Some of this will come from the continued drop in service prices, but part will come from our extension of the program to our global operations." Edmondson adds that IT would like eventually to completely automate the handling of invoices, so that personnel can focus exclusively on analysis and the identification of strategic cost-management opportunities.

Cultural Changes

The invoicing solution has also changed the culture at Cisco. Increased visibility, through the IT-initiated reports of usage, raised awareness of spending at all levels of the company. But this did not always generate positive feedback. Some people were shocked to find out what they were spending, and upset that they were singled out or that their managers were notified. Others simply had questions regarding how their usage compared to other divisions. To address these concerns, IT project manager Pam Lisotta compiled a sheet of tips and tricks—such as not using cell phones with credit cards or to call Cisco toll-free numbers—to help people reduce their telecom costs. "By sending the sheet to everyone," she says, "we saw significant changes in usage and big savings as a result."

When the program started, some individual cell phone users' bills exceeded $1500 per month; many of those users have since cut their bills by more than half. They also have a better sense of how they can justify their charges, especially if they travel internationally. More important, everyone has become smarter and more aware about asset usage. This has resulted in an important cultural shift. In the past, high service costs weren't considered to be a problem. Now people know they can't spend excessively and that there are options to avoid it. "We routinely advise users about best practices and negotiating better services and pricing," Lisotta adds.

Going Global

The TCM automated solution has been in use in the United States since 2003. In August 2004, IT deployed a global database with initial coverage handling locations in Europe, the Middle East, and A Africa. The goal, as with the U.S. system, was to automate, track, and report on telecom spending by carrier, function, service type, employee, and country. But because EMEA comprises 45 countries, IT is deploying the database one country at a time. International services are much more expensive than those in the United States—sometimes ten times the price of the U.S. offering—so it's that much more important to control costs and gain visibility.

As in this country, the EMEA solution initially caused concerns and strong reactions. In some cases, Cisco was paying for phone service to a house an employee had sold years before, or managers were being billed for services to employees who had left the company. Beth Gesson, IT project manager for the EMEA deployment, says, "It was surprising to discover the variance in best practices. We realized we had no consistency between countries when it comes to who gets a mobile phone, what kind of phone they get, and who pays for a lost phone."

Raising the visibility for these issues creates the opportunity for Cisco to establish more effective policies and best practices. In the future, the company is optimistic that it will be able to enjoy cost savings by establishing service policies and guidelines that span broad regions. While Gesson says it has been shocking to identify the costs, managers and employees are fast to respond. When, for example, the program discovered high spending on corporate calling cards in the United Kingdom—in excess of £30,000—the management team set new policies and made spending visible to users and managers. As a result, costs dropped almost 90 percent.

While the Cisco culture has traditionally given freedom to every employee, that freedom in the case of telecom services led to some unwise usage patterns. "If we had put the telecom billing solution in place from the beginning, even before the costs warranted strict controls, we could have avoided the need to adjust user attitudes and habits," Edmondson notes. "Relearning can be a painful process for a group of creative individuals."

Edmondson adds that Cisco continues to look for ways to automate the billing solution and to make use of the data now available. Questions and ideas continue to come in from managers and employees. "As we respond to these," he says, "our solution will continue to grow in terms of the value that it delivers to the company's success."