Collaborative: More Than a Pretty Face

Posted: 08/2002

More Than a Pretty Face
Web Conferencing Shows Off Serious ROI

By Tara Seals

interfaces and snazzy point-and-click functionality, at first blush may seem
like a fancy, niche application. However, case studies and analyst commentary
show Web conferencing for what it is under the razzle-dazzle: a workhorse of
cost savings, capable of significantly reducing expenditures in enterprise
environments with specific application needs, like product demonstrations and

Companies increasingly are looking
for return on investment (ROI) assessments to justify ways to streamline their
costs. Information Week reports at least 80 percent of all companies and roughly
90 percent of Fortune 500 companies now require a ROI analysis to justify any
new initiative.

"More than ever, demonstrating
a ROI to your business client is paramount," says Scott Clague, director of
channel sales at master agency Communication Management Services Inc. (CMS)"And
the nature of the cost savings that Web conferencing produces, compared to
holding physical meetings, is an excellent ROI."

Payback Time

The process of determining ROI
compares one internal process (i.e., traveling for business meetings) to another
(carrying out a Web conference instead), with a detailed look at various
statistics. Nucleus Research Inc., which specializes in ROI-focused analysis,
advice and financial modeling to help companies calculate the value of
technology, suggests companies become familiar with important metrics before
evaluating a solution for ROI.

"Financial metrics such as ROI
and payback period commonly are used by companies to calculate the viability of
new projects or capital investments," says Rebecca Wettemann, research
director at Nucleus Research. "Understanding how to apply those basic tools
to evaluate technology decisions enables companies to evaluate and justify their
IT decisions in terms of the financial impact on the business."

Clague says CMS recognized the trend
for businesses benefits assessment, and decided to create a tool, the Conference
Calling Center, that showed companies the benefit of Web conferencing,
particularly from a ROI perspective.

The online platform provides agents
a single source for strategic guidance on conference calling, including vendor
comparisons and analysis, ROI calculations, market research and custom solutions

CMS helps its agents conduct a
comprehensive needs analysis for a customer, via the portal. Once the
cost-savings potential and necessary applications are determined, vendors bid
for the business, and the Conference Calling Center provides three competitive
quotes. Clague says customers, on average, will experience break-even within one

Statistics are key to understanding
cost savings. For instance, Latitude Communications Inc. sponsored an
"Earth Car-Free Day" this spring. Among other Earth-friendly
initiatives, Latitude asked its 225 staff members to conduct their meetings
using the company’s product, MeetingPlace voice and Web conferencing technology.

Carefully keeping track, the company
found 90 Latitude employees avoided driving 2,993 miles by conducting 188
virtual meetings with customers, coworkers and others online via MeetingPlace,
on Earth Day. By not driving to work, they saved in gas and car mileage, and
were more efficient, the company reports.

That day, 107 meetings were
conducted with employees worldwide, 44 with customers, 14 with prospects, 14
with partners and nine with vendors, resulting in a savings of $34,804 for the
day, including the savings from avoided car and air travel and expenses.

"Given that Latitude, with
under 250 employees, realized significant savings from operating virtually, the
costs and downtime that a global 2,000 company can save by reducing travel is
sure to be far larger," says Matt Cain, vice president of Web and
collaboration strategies for research firm The META Group.

That prediction is borne out in a
testimonial from Charles Weiner, an executive with Latitude customer
Bristol-Myers Squibb Co. He says, "We’re on pace to save over $1 million
dollars in our first year of using MeetingPlace."

Barry James Folsom, president and
CEO of PlaceWare Inc., estimates the average cost of a traveling employee to be
around $1,000 a day, taking into account conservative estimates for a rental
car, meals, hotel, airfare, meeting room materials and catering, and employee
downtime. Writing at, an online resource center, Folsom
said a price comparison between one actual seminar event and the cost of a Web
conference revealed a difference of $220,000.

Other potential savings should be
considered besides travel costs. Latitude promotes MeetingPlace’s integration
with groupware applications such as Microsoft Outlook and Lotus Notes, and with
corporate databases used to drive other enterprise applications. It also can
reside on the enterprise’s network.

The company says this streamlined
approach generates a quick ROI in several ways. First, by integrating with other
programs and databases it reduces administrative overhead associated with
maintaining separate systems. Its location on a customer network tightens
overall security and network control. Also, customers avoid paying the retail
rates for internal use that come from using an "outside" conferencing
service — a perk the company says could pay for a new MeetingPlace system in
"a matter of months."

"Soft" cost savings also
factor into ROI considerations. The Latitude initiative, for instance, included
the soft benefit of aiding the environment. The company estimates it eliminated
91 gallons of would-be pollution by holding virtual meetings.

"Considering that ground-level
pollution aggravates allergies and serious lung conditions including asthma, it
is noteworthy when a company finds ways to reduce just one gallon of
emissions," says Alan Gertler of the Desert Research Institute.

Raindance Communication’s online tool helps customers calculate ROI

Targeting the Application

To achieve maximum ROI, enterprises
should select the right conferencing tool for specific collaboration,
conferencing and communications needs. For instance, while audio conferencing
provides significant savings over business travel, the case for Web conferencing
becomes stronger when looking at, for example, its use in distance training or
sales processes.

The U.S. Coast Guard Performance
Training Center in Yorktown, Va., released a study of live Web-based training
with Web collaboration tool Web-4M, from JDH Technologies Inc. The study
compares Web-based, instructor-led sessions (featuring slide shows and
interactive questioning) to traditional classroom-based (or
"resident") instruction, and found that using Web-4M for e-learning
delivers a high ROI.

Five Coast Guard courses were taught
with the same instructor for resident and Web-based versions of each class. Pre-
and post-testing was performed with students from each class. The Coast Guard
expects the use of Web-4M cut costs by approximately $200,000 per 500 trainees,
and a ROI of almost four times the initial investment. Savings are based on an
average cost of $500 for the first seven days of resident training and
additional days at $10 per day, per student.

The Coast Guard also is concerned
that even a minor personnel shortfall due to resident training requirements
could impact mission readiness significantly. The live Web-based training
allowed interactive teaching to personnel in the field, including at one point a
cutter six miles offshore working buoys, thus saving money in downtime and
personnel shuttling.

Experts say another high-ROI Web
conferencing application is sales process streamlining. "Business people
need a new means of communicating and collaborating without losing any of the
face-to-face interaction," says CMS’s Clague.

In a research report on web
collaboration tools, Paul Ritter, program manager of the Internet business
strategies planning service at analyst firm The Yankee Group explains Web
conferencing can streamline the four distinct stages of a product’s life cycle:
product design and development; product launch and marketing; direct selling;
and customer service and support. In stage one, Web conferencing can be used to
collaborate visually on product design without having to arrange face-to-face
meetings between designers. In stage two, companies could use Web conferencing
to get the word out about a product via a corporate Website, in stage three
salespeople can use Web conferencing for product demonstrations and customer
contacts, and in stage four, companies can show customers how to resolve issues
by hands-on and visual explanations.

"Enterprises are seeking new
ways to streamline their operations and speed up the process of getting new
products to market," Ritter says. "Web collaboration solutions are
proving to be one mechanism companies are using to achieve these

Systar, for example, needed a
conferencing application that would allow it to perform product demonstrations
for potential clients via the Internet. According to Kelly Michaud, manager of
U.S. events and lead generation programs at Systar, its adoption of Raindance
Communications Inc.’s Web Conferencing Pro has been so successful that Systar
has integrated the solution into its lead generation process. "We are not
that well-known in the United States and we rely on this to create awareness.
Our salespeople use it three to five times a week," Michaud says.

Systar may send a mailer or call a
prospect, but the ability to give a presentation at the spur of the moment can
turn a cold lead into a hot lead quickly, she Michaud. "Setting
appointments is difficult — with this, when you have someone on the line
already, you can keep them on the phone and perform the demo then and
there," she explains.

"This is a timesaver that
allows us to touch more prospects."


Return on investment is the average
of the net benefits divided by the initial cost of the project, multiplied by
100. For instance, if a project cost $50 and returned $100 in the first year,
the ROI in the first year would be 100/50 or 200 percent. To calculate ROI over
three years, use the average savings during the three-year period divided by the
initial cost. Thus: ROI = ([Net Year 1 + Net Year 2 + Net Year 3] / 3 / Initial
Cost) X 100

The amount of time before an
investment covers its costs is known as the "payback period." To
calculate the payback period, if the initial year cost is less than the first
year benefit, then a company should divide the initial cost by the benefit for
the first year. For example, if a company spent $300 during the first year on a
conferencing system that returned $200, the company is still out $100. During
the second year however, the company is out $100 but say it recaptures $300. The
payback calculation would be (100/300), or, one-third. So the payback period is
16 months.

The payback period is a barometer of
risk. If a company invests in a top-of-the-line Web collaboration tool with a
three-year ROI of 1,000 percent, but the payback period is two years, the
company runs a greater risk of its expensive solution becoming obsolete before
it is paid for.

Steps for Calculating ROI:

Pick a start date for the project. All costs and savings before the start date
are considered in the initial year, and everything after is in year one, year
two and so forth.

Calculate the fully loaded cost per employee (salary + benefits and indirect

Gather cost information. Count everything that is directly associat ed with the
project, such as a new server, but don’t count existing infrastructure items.

Cost categories:

  • Software and maintenance*

  • Hardware and maintenance*

  • The depreciation amount at each
    year for a five-year straight line is 20 percent per year.

  • Personnel — Calculate the
    number of hours of internal personnel time and multiply that by the fully
    loaded cost.

  • Consulting — If you hired
    outside help.

  • Training — How many employees
    spent how many hours in training? Multiply this by the fully loaded-cost.
    Include items such as trainer time and airfare.

  • Other

Determine benefits. There are two types of benefits: direct and indirect.

Examples of Direct Benefits

  • Savings in travel costs

  • Savings in paper costs

  • Reduction in accounts receivable

  • Limiting express mail

  • Reducing staff Increased sales

  • Recurring savings should be
    included in every year.

Examples of Indirect Benefits:

  • Employee efficiency

  • Employee productivity

Keep in mind that sometimes two
benefits are the same, with different names. For example, increased sales rep
efficiency theoretically causes increased profit, so count the more direct
result (profit) rather than the indirect result (increased productivity).

Total Costs

Total Value of Benefits.

For example: To value productivity
changes, first measure or estimate the expected change in time or productivity.
For example, you can estimate 1,000 employees will save 10 minutes per year, for
a total of 166.6 hours. Next, correct productivity gains for inefficient
transfer of time. Finally, multiply the gain by the fully loaded cost of an
employee to calculate the value of the benefit.

Plug Total Cost and Total Savings (Net) into original formula for resulting ROI.

ROI = ((Net Year 1 + Net Year 2 +
Net Year 3) / 3 / Initial Cost) X 100

Source: Compiled by the
author, based on information from Nucleus Research Inc.


Management Services Inc.

Technologies Inc.

Communications Inc.

Research Inc.


META Group


Communications Inc.


Yankee Group


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