This is part two of our article on web conferencing ROI based on the Frost & Sullivan and WebEx document dedicated to the return on investment for web conferencing services. In part one of this article, we have established that the main benefits which can be derived from web conferencing are not forcibly those that seemed obvious at first sight. The prominence of the productivity factor is obvious.
However, one still has to build a business case around that and try and estimate how much productivity can be derived from the usage of this ICT tool, and what impact it can have on either sales, profits, or even other business factors such as the investment of this productive time into other activities which in turn can generate either more revenue and profits or even lead to a leaner organisation.
Amongst the qualitative benefits which were uncovered by Frost & Sullivan and WebEx in the White Paper, we can actually list:
- time savings implied by the reduction in travel,
- positive impact on CO2 emissions,
- improved communications between employees and partners in an ever increasingly globalised world where the workforce is scattered around the globe,
- faster decisions and improved results
over and above all these qualitative benefits we have already established (see part one of this article) that the most important factor was productivity. But how can we measure this properly and put numbers behind this assumption? Frost & Sullivan did carry out a survey - on behalf of WebEx - of the activity of a given WebEx customer (in fact a Fortune 500 client in the high-tech sector) and even zoomed in on one of its department; the most obvious choice for this study was the sales department. Indeed, web conferencing is often used by salespeople in order to present and even trigger live product demos remotely (at least in this particular vertical) even before they have organised a face-to-face meeting with a potential client (as a matter of fact, I have established over time that web conferencing is most powerful when applied to the qualification of a prospective customer. Whereas face-to-face interaction is required at some stage of the sales process, remote presentations can actually save time and money on the qualification process so that the sales person actually focuses only on those clients are well worth a visit).
This Fortune 500 companies no small fry. $250 million in revenues per annum and a handsome 35% gross margin figure, but it's not a big fish either. With only 250 employees, Frost have targeted a mid-tier player with exceptionally high productivity per employee ($1 million revenue per employee p.a.). Frost then went on analysing this ROI by breaking it down into three distinctive, nested benefits (see chart 1.3)
with this methodology in mind they were able to put numbers behind the increase of productive time in productive time and resulting effectiveness. In essence, this methodology shows that the ROI exercise doesn't just stop at measuring travel cost optimisation, but it shows how much of the time saved from reduced travel can be invested back into sales. (Note: this company had been using WebEx for over two years when the ROI calculation had been performed. Hence, ramp up and training issues had been significantly absorbed and solved by the implementation team, although a correction factor was applied by Frost and Sullivan on this calculation).
In order to account for the fact that all the time saved by employees is not entirely applied to the increase in productivity (due to "learning curve issues" and "inefficient use of technology"), Frost decided to opt for a "correction factor" which they applied on the numbers. This collection factor was set arbitrarily to 0.5 (this is probably one of the grey areas of this ROI exercise; we will get back to this point in part three of this article). Labour cost savings have also been accounted for in those cases for which few employees were required to do the job due to the increase in productivity resulting from the use of conferencing.
The result produced by this elaborate ROI calculation is rather spectacular (see page 12 of the Frost white paper for details). In the following pages, I will only unveil some of the numbers which have been disclosed by Frost in their White Paper; those readers who are eager to find out more about it are advised to download the WebEx White Paper at this address.
Chart 1.6 shows the final numbers. And the bottom line is very impressive. The ROI from productivity is estimated to be more than 3 times as much as the one triggered from travel. (expressed in percentages, 277% for productivity, versus 88% for travel). The total ROI being assessed at 465% (please note that the scope was a team of only 10 sales representatives).
The total ROI formula is more complex than the mere addition of these 2 items though. The actual formula includes in addition to travel cost savings and travel time savings, the productivity benefit from increased effectiveness i.e. the amount of sales which can be generated from this increase in productivity.
The main takeaways from the Frost document are the following:
- total annual travel time saved in hours: 383
- 25% of which being applied to cost reduction (labour force optimisation) and 75% being reinvested in other activities, therefore resulting in productivity improvements
- cost savings from reduced travel: $51,000 on long-distance and $2,700 on short haul, i.e. $53,700 in total productivity benefits from travel time savings estimated at $22,000 including potential revenue with a correction factor of 0.7. Additional revenue from increased effectiveness is estimated to be worth $87.50
- total cost for WebEx including set up and monthly fees ($200 per seat and per month for the 10 sales representatives - 2005 numbers) i.e. only $29,000. No upfront investment is required due to the fact that WebEx is operating on a Saas model.
- the payback period for the sales department as a result is estimated by Frost to be less than 3 months. A similar exercise was carried out in another department - the training department to be precise - at the end of which Frost concluded that the payback period was 4 months, and the ROI less spectacular but still showing similar proportions (21% for travel, 114% for productivity, 235% for the total Roi).
These numbers are indeed impressive, they confirm and underpin our first impressions. Savings generated from travel - mainly long haul - are significant but nothing compared to the productivity gain generated by the use of the web conferencing tool.
In part 3 of this article we will focus on the in-depth analysis of these numbers and we will endeavour to take a bit of hindsight as well as a critical look at the ROI calculation, therefore revealing the ROI paradox.
I specialize in information systems, HighTech marketing and Web marketing. I am author and contributor to numerous books and the CEO of Visionary Marketing. As such, I contribute regularly on this blog for Orange Business Services account on cloud computing and cloud storage topics.