Understanding IP Telephony in the Contact Center: When Should You Invest?

About Datamonitor
Datamonitor plc is a premium business information company specializing in industry analysis. We help our clients, 5000 of the worlds leading companies, to address complex strategic issues. Through our proprietary databases and wealth of expertise, we provide clients with unbiased expert analysis and in-depth forecasts for six industry sectors: Automotive, Consumer Markets, Energy, Financial Services, Healthcare, and Technology. Datamonitor maintains its headquarters in London and has regional offices in New York, Frankfurt and Hong Kong.

Introduction

IP telephony is the fastest growing technology in the contact center market. In 2004, more customers than ever will invest in IP telephony for their contact centers. Meanwhile, many call center technology firms are pushing IP as the foundation of next generation customer contact. This report is a guide for businesses which are considering investing in IP contact centers. It will enable the reader to: 1. Understand the key drivers and inhibitors in the uptake of IP telephony in contact centers. More and more companies are investing in IP; but some are holding out. This paper will investigate the drivers which cause firms to spend money on IP, and the inhibitors which will insure that some companies stick with their existing traditional call center architectures. 2. Consider the key benefits and drawbacks of investing in IP. Compared to traditional telephony, IPs promised benefits of easier multimedia routing and queuing, multi-channel integration, remote agent deployment, multi-site virtualization and reduced costs are all compelling. But, on closer examination, it is important that any potential customer for IP feels that issues such as reliability, quality of voice delivery, and TCO have been fully addressed. 3. Decide when to invest. In some cases, deploying IP sooner will help firms gain a definite competitive advantage. However, the rollout of IP in contact centers is in its early stages, and many companies will invest in the medium to long-term.

IP Telephony: Business Drivers and Trends

What is an IP contact center? Datamonitor defines an IP contact center (IPCC) as one in which all forms of communication, including voice, are treated as data within a single enterprise network using Internet Protocol (IP). IPCC telephony consists of several building blocks: the two major blocks are the PBX platform (which can be hybrid or pure IP-based) and the interaction management application which sits on top. Why are companies investing in IP telephony? There are a host of reasons companies are spending money to migrate existing call centers to IP or to establish new IPCCs. Each driver will be discussed in some depth below. However, it is critical to keep in mind that there is one over-riding reason for any IP telephony investment: efficiency. Any application which can offer customers higher operational efficiency (in terms of more effective communication and at a lower cost) has a good chance at taking the market by storm. This is exactly the proposition of IP in the contact center. Driver 1: Growing multi-channel contact One of the main drivers for adoption of IP telephony is the changing nature of customer contact. In the late 1990s, many analyst houses predicted a slow decline of contact center activity and a shift from voice-based contact to email, or e-contact, as consumers migrated to the Internet and used the new contact channels in preference to the telephone. Has this materialized? No. The telephone is as important as ever, and is the basic tool of customer contact. This will remain the case in the short, medium and long-term. Even today, 5 years after the height of the Internet boom, over 90% of customer contacts into companies are via the telephone. The call center is not dying; its merely changing. IP telephony is the main beneficiary of this change. One way of dealing efficiently and intelligently with a growing number of multimedia contacts (instead of making a point investment in email management software) is to migrate to IP telephony. The benefits (and drawbacks) of this migration are discussed in a later section of this report. The bottom line: Many companies facing a growth in multimedia traffic are seriously considering IP as a way to handle all traffic over all channels through one single, integrated telephony application.

Driver 2: The need for a single enterprise-wide telephony architecture Datamonitors research has consistently found that in the past year, there has been a subtle shift in most businesses in terms of control of the contact center. After years of being considered a separate, almost independent part of many businesses, contact center operations at many companies are being brought under the observation of C-level executives. Such executives often have final sign-off in terms of contact center spending and IT investment. One of their primary concerns is that the applications in the contact center should work with, and be tightly tied to, existing enterprise applications. No longer is the contact center in its own world. With this in mind, many CC investors turn to IP telephony because it enables the easier management of network resources across the entire business. With IP telephony, there is no distinction between the telephony and data networks, and this often translates into reduced system support costs. The bottom line: One of the primary reasons companies take their first steps towards IP telephony in the contact center is the involvement and concern of key decision makers from outside the contact center. Having invested in IP telephony in the broader business, most executives want to see this carried through to the contact center, thereby fully integrating CC operations within those of the business as a whole. Driver 3: Flexibility When deployed effectively, IP telephony will enable greater flexibility than traditional telephony (TDM) when managing and changing a contact center. In basic terms, it is simpler and easier to make additions/changes in an IP telephony environment than in a TDM environment (see below for a more in-depth discussion). Most contact center managers are looking for a way to scale up and down their operations quickly, to make use of remote agents, to deploy additional features without upheaval, and to manage queues with less human resource. The bottom line: Many call center managers and decision makers are drawn to IP telephony because of its inherent flexibility. While traditional ACDs can handle change, their architecture is proprietary, meaning that changes come at a relatively high cost. IP telephony can reduce overhead in call centers which must be responsive to changes in location, traffic, channel and contact volume. Driver 4: Standards The emergence of standards coincides with the emergence of IP. Standards-based enterprise applications have made serious inroads into most businesses. But it is still early days for standards-based telephony applications. IP is not just about architecture, but about business applications.

A telephony application programming standard such as SIP, which allows for easier passing of information from one application to another, and which has particular strengths in the area of presence management has one effect: it opens up the telephony applications development world to a greater number of developers. This brings down cost, and increases the number of applications and functions available off the shelf, or with a minimal amount of customization. A new architecture never sells itself. IP telephony wont be popular simply because its supporters think its new and better. What drives IP telephony uptake and what accounts for its increasing popularity among business decision makers is the availability of rich functionality and applications which meet key business needs at a reasonable cost. The bottom line: Contact center decision makers are showing increased interest in IP telephony as standards (such as SIP) grab hold and spawn a growing number of inexpensive, feature-rich applications. What does this mean? IP telephony makes innovation less expensive. Compared to traditional TDM telephony, changes and innovation in an IP telephony environment cause less expense and less upheaval, thereby allowing contact centers to respond more quickly to the demands of the enterprise and its customers.

Benefits and Drawbacks: A Changing Picture

Despite the drivers discussed above, traditional contact center telephony is extremely robust and reliable, and many companies will not invest in IP until all of its potential drawbacks have been addressed by IP contact center technology vendors. This section addresses both the positive and negative aspects of IP as a contact center technology. Every business should consider all benefits and drawbacks carefully before making an IP investment (see Figure 1 below). And every company should ensure its chosen IP vendor offers concrete solutions to any potential drawbacks.
Figure 1: Perceived benefits and drawbacks of IP, Source: Datamonitor
Easier with IP bu t can be d one using traditional routing A concern in a mission critical environment such as a cal centeter such a call l cen r Reliability Still ex perienced by users Easier channel integration Latency Call cente r managers still like to centralize operations and decision power. Telecoms managers prefer traditional ACDs

Unive rsal routing and queuing

Impo rtant in the long term but not in the short term Mostly useful for remote offices.

Fle xib ility Controversial benefit. Should be assessed case by case.

Conservatism

Reduced costs

Implementation and maintenance costs

Lower telecom co sts but higher IT costs.

Datamonitor has strong opinions on the benefits and drawbacks of IP telephony, and what the market in general perceives does not always match reality. While IP growth rates will be high, there are many companies which will not invest in IP telephony, and there are several reasons for this. It should be noted that despite discussing the drawbacks below, as IP telephony evolves, many of those drawbacks are diminishing. This is especially true as the adoption of standards is driving increased IP telephony developer involvement; more applications, and more choice, leads to higher quality and reliability. Reliability / resilience / latency Vendors can now prove that IP can match reliability levels of traditional telephony, but it is only in the past year that there is a track record of successful implementations in mission critical environments. This means that many large companies have not yet chosen IP as a technology for their support centers, which is usually a large market for advanced routing solutions providers. The same goes with financial services and communications companies. Datamonitors take: Companies considering IP telephony for larger contact centers should obtain and verify case studies of successful large-scale implementations from prospective vendors. Careful attention should be paid to maintenance issues and server redundancy and downtime.

Universal queue Not all IP contact centers act as multimedia contact centers; in fact Datamonitor estimates that only half of all IP-architected contact centers are currently true multimedia contact centers. What this means is that many companies are investing in IP for reasons other than the need for a multimedia queue. This points to the fact that while one of the primary advantages of IP telephony over TDM is the ability to manage a UQ, there are other advantages which trigger investment. Datamonitors take: IP telephony is not always about multimedia or UQ. For some companies, the ease of installing and maintaining an IP contact center is enough of a benefit, even without the additional channels. In cases where multimedia is not required, it is therefore most relevant to consider IP when building a new contact center or when older TDM infrastructure has reached its sell-by date.

Cost / conservatism Most existing contact centers already have a perfectly good voice network, and in the current economic environment companies are reluctant to spend money to replace technology that already works well. Moreover, the cost of implementing some of the IP solutions available on the market at present is often higher than that of maintaining a traditional solution.

Datamonitors take: Low initial costs can be deceptive in this market. Hence, Datamonitor envisages the popularity of hosted and managed solutions in this market. Companies with tight budgets and which are conservative in their approaches to new technologies should consider the hosted/networked IPCC option. In addition, many companies may have other priorities in terms of CC investment (for example, agent performance management software). In certain cases, those may prove a better ROI case than a shift towards IP applications.

Flexibility / remote offices Flexibility in terms of location and scale is important. The key benefit of IP is in linking remote offices, not individual remote agents (branches in a retail bank, for example, or shops in a retail chain). But making branches distributed contact centers requires a great deal of organizational change, and will not happen in the short term.

Datamonitors take: IP does offer increased flexibility over TDM. However, companies with existing TDM contact centers who wish to establish remote contact center functionality or take advantage of IP will likely implement IP in their newer CCs and avoid a forklift upgrade to their existing CCs.

Deciding When to Invest in IP Telephony

In conclusion, who should adopt IP telephony, and when? And who is adopting it now? While the decision will and should vary on a company-by-company basis, Datamonitor believes that there is a strong case for investing sooner rather than later for a set of companies with certain distinct needs. For many firms, investing in IP telephony would be premature. In other cases, however, Datamonitor believes that companies with certain requirements will be able to gain a significant competitive advantage by investing in IP telephony sooner rather than later.

IP Shows Strong Market Growth

The data below presents a stark picture. Investment by call centers in traditional telephony will decline from now through 2008. In contrast, spending on IP telephony will grow at a rate of almost 40% a year. This is higher than any other contact center technology. Spending on maintaining and upgrading the installed TDM base will still be huge; but the pendulum has swung in favor or IP telephony. By 2008, half of all telephony application spending in CCs will be for IP. When one considers that there are well over 4 million call center agent

positions in the world today, and that post-2008 the majority of spending will be for IP, one gets a grasp of the scale of the IP success story. However, as always, it is important to consider a move to IP carefully, and to evaluate when such a migration might be appropriate, or alternatively when it should not be prioritized. In that light, who are the early adopters, who will be mid-term adopters, and what questions should be asked before considering IP?
Figure 2: The Global ACD market by technology, $m, 2003-2008, Source: Datamonitor

3,000 2,500

TDM. CAGR: -5.8% IP. CAGR: 38.8%

Revenues ($m)

2,000 1,500 1,000 500 2003 2004 2005 2006 2007 2008

Early Adopters
For smaller contact centers with high ratios of e-channel contacts, new contact centers and virtual contact centers, the case for investing in IP is strong (whether via premise-based or hosted solutions). IP uptake is surging in both mature contact center markets such as North America and northwestern Europe, and in immature, fast-growing regions such as Asia-Pacific and CALA. While IP is not yet widespread even in these sectors, investment by early adopters will drive strong growth in uptake.

Mid-term Adopters
Others, particularly those with existing contact centers in more mature national markets, need to determine their state of IPCC readiness before investing in IP technology. Datamonitor has developed the following guidelines to help contact center decision makers determine their IPCC readiness.
Figure 3: IPCC readiness checklist, Source: Datamonitor

Criteria
Virtualization

Key Question
Do you need to link together disparate contact centers within your organization? Do you need to distribute contact center functionality to remote offices, shops or branches? Do you handle a large number of e-channel contacts? Will this increase? Are you in a cost and volume environment where investments in routing which lead to efficiency gains will pay off? Would you be open to migrating to IP agentby-agent rather than all at once?

Flexibility/Remote

Multimedia

Intelligent routing

Migration

The more positive responses Figure 3 generates, the more likely a typical mid-term adopter should consider investing in IP sooner rather than later. However, decision makers should still approach the IP opportunity with caution, and ensure that all benefits and drawbacks are addressed. Assuming such firms have the right set of requirements, businesses in mainstream vertical markets where CRM investment has traditionally been strong can gain significant competitive advantage through tactical investment in IP.

Q&A
The Benefits Of IP-Based Contact Center Solutions, Paul Segre, Senior Vice President and Chief Technology Officer, Genesys

Q. A.

How would you describe the current state of the market? The Internet explosion has brought Web self-service to the forefront of contact centers minds, but the phone still remains the primary source of customer interaction. Service Providers and enterprises are frustrated with the limitations of their legacy voice environments, and are demanding an infrastructure based on IP and open standards, whereby, voice can run as an application on any data network. The move from circuitto packet-based technology is changing the voice telephony business from a proprietary, hardware-based, capital-intensive situation to a more open innovative and competitive business, enabling rapid applications development, deployment and management of a variety of applications from a common infrastructure. What are the emerging trends in telecommunications today? The days of treating digital voice data differently than other data are drawing to a close. Now telephony functionality is provided by an application server on the network like any other data-centric application. Much in the same manner an organization chooses one vendors email and another vendors CRM, customers now have the power to choose the best contact center software and pair it with the most reliable, scalable telecom switching application. Further, as opposed to proprietary common-control equipment the size of several refrigerators, the hardware providing telephony is industry-standard servers that an enterprises data staff is very familiar with maintaining. Genesys believes that migration from TDM to IP is a technology disruption that allows customers to consider new paradigms such as open IP Telephony (IPT). Open IPT offers the freedom of choice in hardware and software, avoiding vendor lock in, expensive upgrade and maintenance costs, and the capability to deploy new innovative applications as they come to market. SIP is becoming the de-facto communication protocol adopted by the Internet Engineering Task Force. This protocol has a strong backing from various players such as Microsoft (Windows XP Messenger), Cisco (IP phones), 3G mobile systems (3GPP) group and large telcos (MCI, AT&T, NTT, BT, etc). The benefits of an IP telephony system that supports SIP are improved interoperability, increased flexibility (particularly when planning for disaster recovery), and the option of

Q. A.

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purchasing low-cost SIP-based IP phones. Based on industry research, this latter benefit alone can significantly strengthen the ROI equation. Industry analyst firm, Forrester Research, Inc., states that the largest single cost associated with a new IP telephony infrastructure is the IP phones, which represent about one-third of the total cost of deployment. With SIP, the phone role changes allowing users to access the content they need when they need it. For example, the same endpoint will allow a user to become an agent by dialing in the contact center application server to manage 800 inbound traffic one day and connect to the enterprise voice application another day to become a regular employee with standard telephony features such as voice mail.

Q. A.

What do you see as the advantages of an IP-based Contact Center? Companies are challenged with improving customer service, increasing productivity and reducing operational costs all at the same time. By moving to a converged IP contact center, companies can meet these challenges. IP telephony (IPT) in the contact center offers the following benefits: Centralized contact switching reduces capital expenditures by 30-50% and ongoing maintenance and support by 12-15% by radically reducing application and application infrastructure complexity. This reduction in complexity makes the contact center more agile when responding to changes in the competitive landscape. Virtualization increases staffing efficiencies in the range of 15% by pooling agent resources across the enterprise. Virtualization also enables the functions of the contact center to be available to resources that are located inside the enterprise, therefore exposing more customer contact beyond the traditional contact center.

Q. A.

What do you see as the benefits of open-based systems over traditional technology? Open IP-based systems offer a number of advantages over traditional voice infrastructures: The capability to develop your own IPT ecosystem by selecting multiple and interoperable vendors per technology domain (gateways, servers, phones, operating systems, etc). SIP is becoming the standard communication protocol to connect various application servers and as result guarantee application interoperability. Businesses will be capable to build a best of breed, modular application infrastructure while avoiding vendor lock in, expensive upgrade and maintenance costs.

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The ability to upgrade building blocks as needed and quickly deploy new innovative applications as they come to market such as: - On-demand network IVR that make use of IP-based media servers and the Web; offering non-stop content delivery (for example directory assistance, Human Resources portal, etc); - IP-based video conferencing/video kiosk; - Tighter enterprise-wide integration allows seamless transfers of interactions (voice and data) from the contact center to an expert (escalation process) or offers callers a direct access to the right decision maker, or delivers interactions to extended agents when the contact center is experiencing an unexpected volume of calls (Peak of traffic management); - Use of softphone technology on agents desktop allows the use of headsets with USB connectors instead of IP phones; - Holistic business reporting, offering cost/revenue for each interaction, per customer, per line of business.

Q. A.

What should contact centers consider when evaluating IP? When pursuing the benefits of introducing IP Telephony in a contact center, managers should first evaluate the environment. Will geographically separate centers need to act as a single virtual site? What business rules and routing strategies need to be in place to ensure anytime/anywhere customer access? Does the enterprise have specially trained personnel in the back office, the field or in home offices who need network access? Quantifying the reach of the contact center is also important in understanding bandwidth requirements. Finally, test and pilot extensively (technology and people). What distinguishes Genesys IP Contact Center solution in the marketplace? Genesys IP Contact Center is the most powerful IP-ACD in the market. It can be used with or without CTI in any next generation or legacy contact center and leverages open standards like SIP and H.323 for seamless integration. The most significant differentiator of Genesys IP Contact Center solution is that it does not require any 3rd-party Automatic Call Distributor (ACD)/Private Branch eXchange (PBX), just Genesys software running on off-the-shelf industry standard hardware. For customers choosing to have an IP PBX from Alcatel, Avaya, Cisco, NEC, Nortel, Siemens, etc, Genesys IP Contact Center integrates with the CTI links of these systems and delivers a complete integrated solution.

Q. A.

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Genesys is the leading provider of open, standard-based contact center applications. With over a decade of experience in delivering intelligent applications to the contact center, Genesys is the natural choice for offering a truly converged solution to our customers. This solid understanding of voice and data within the context of customer interaction cannot be overstated. Genesys understands that business applications drive convergence - not infrastructure!

Corporate Headquarters
2001 Junipero Serra Blvd, Daly City, CA 94014 T 415.437.1100 F 415.437.1260 Info@genesyslab.com www.genesyslab.com

AN ALCATEL COMPANY

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