IBM Software Accelerated Value ROI Case Study

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Cisco’s consumer division used the IBM Accelerated Value Program to support its consumer-facing Web site. Nucleus found the expertise and proactive tuning and guidance IBM program consultants provided enabled Cisco to ensure high availability and uptime, which was invaluable to its customer experience and brand image. The ability of the program to help Cisco resolve incidents 40 percent faster also increased the productivity of internal support staff.
ROI: 178%
Payback: 8 months
Average annual benefit: $188,260
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IBM Software Accelerated Value ROI Case Study

  1. 1. NucleusResearch.com Phone: +1 617.720.2000 Nucleus Research Inc. 100 State Street Boston, MA 02109 THE BOTTOM LINE Cisco’s consumer division used the IBM Accelerated Value Program to support its consumer-facing Web site. Nucleus found the expertise and proactive tuning and guidance IBM program consultants provided enabled Cisco to ensure high availability and uptime, which was invaluable to its customer experience and brand image. The ability of the program to help Cisco resolve incidents 40 percent faster also increased the productivity of internal support staff. ROI: 178% Payback: 8 months Average annual benefit: $188,260 THE COMPANY Cisco Systems designs, manufactures, and sells Internet protocol (IP)-based networking products and other products and services related to the communications and information technology industry worldwide. Founded in 1984, Cisco is traded on the NASDAQ and has grown both organically and through acquisition since its inception. This case study focuses on the experience of Cisco’s consumer business division, largely based on Cisco’s Linksys division in 2003. THE CHALLENGE As a globally recognized leader in networking solutions, Cisco’s technical superiority and high performance are key to its brand and reputation. Cisco’s business has historically been focused on the enterprise market; however, the acquisition of Linksys moved it to the leading position in consumer networking technologies as well. This presented new market opportunities and challenges for Cisco:  Many consumers are less technically-savvy than Cisco’s enterprise customers, meaning support and service are a critical part of customer satisfaction and loyalty.  Because most customers’ primary interaction with Cisco is through its Web site and all support is through the site, the ability to access information when they need it and ROI CASE STUDY IBM ACCELERATED VALUE PROGRAM CISCO SYSTEMS October 2012 Document M131
  2. 2. Page 2 © 2012 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. Nucleus Research is the leading provider of value-focused technology research and advice. NucleusResearch.com October 2012 Document M131 get a high level of responsiveness from Web-based interactions has a clear impact on Cisco’s brand image and reputation.  Given the rise of social networking sites and Web conversations around consumer products and their companies, any customer criticism about a company’s Web interactions can quickly become viral. Cisco first implemented a Fatwire (since acquired by Oracle) content management system running on BEA WebLogic (since acquired by Oracle) in 2005. In 2008, the company was planning a major rebranding effort and, at that point, the company decided to recreate the existing consumer-facing site to reflect the new branding as well as to support the evolving needs of the business. That opportunity led Cisco to also reconsider technology platforms for two reasons: first, because the division had experienced support problems with its existing platform and second, because other divisions’ experience with WebSphere had shown it could provide the level of support and performance Cisco needed. The division determined that moving to WebSphere would support its performance needs while aligning more closely with Cisco’s enterprise architecture strategy. THE STRATEGY Cisco’s consumer division chose to move to IBM WebSphere to support its consumer business in 2008, largely because the enterprise team recommended IBM’s support as being better than any other vendor. As Cisco normally engages for premier support from its vendors, the consumer division adopted the program shortly after the migration in January 2009. The real test of the Accelerated Value Program happened during the holiday season of 2011, shortly after Cisco completed a vendor-recommended upgrade of its content management system. Cisco’s consumer customers visit a support Web site most frequently shortly after the holidays when they start to use gifts they’ve received and have questions. The day after Christmas, Cisco recognized that it had a potential issue with the Web site. The combination of the IBM Accelerated Value Program team’s tuning efforts and rapid problem resolution enabled Cisco to resolve issues, ensure site stability, and support customer demand without a brand-damaging impact on customer experience. Our problem wasn’t even with IBM but with our content management application. The difference is, with the Accelerated Value Program we always get an analyst who understands how our content management is configured with WebSphere. If we tried to open a case with general support, it would just not be the same. We have at least a 40 percent faster time to resolution this way. - Venkat Shatagopam, Manager, Data Center and Platform Services, Cisco Today, Cisco and the IBM program team meet on a regular basis to proactively identify areas for improvement based on the knowledge of the IBM Accelerated Value Program on
  3. 3. Page 3 © 2012 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. Nucleus Research is the leading provider of value-focused technology research and advice. NucleusResearch.com October 2012 Document M131 upcoming product changes and upgrades, performance data, and Cisco’s planned business needs. KEY BENEFIT AREAS Relying on the Accelerated Value Program has enabled Cisco’s consumer division to focus on delivering ongoing innovation and improved customer experience through its Web site while ensuring the high performance and stability Cisco customers expect from a high- tech vendor. Cost : Benefit Ratio 1 : 2.4 Key benefits from the project include:  Improved customer experience. Taking advantage of the IBM program team’s expertise and proactive performance-tuning efforts enabled Cisco to ensure its consumer customers can rapidly access the information and services they need, reinforcing Cisco’s brand image as a high-end experience-focused vendor.  Increased support staff productivity. Because Cisco’s internal support personnel have to spend less time explaining support issues and doing research and troubleshooting to understand the interrelated WebSphere and content management platform, they can devote more time to other activities.  Accelerated time to issue resolution. The program extends beyond WebSphere support to understand the overall platform environment, and the IBM program team can leverage that history and knowledge each time Cisco has an issue, speeding the time to resolution. Cumulative Net Benefit 58,260  246,519  564,779  Year 1 Year 2 Year 3 KEY COST AREAS Because the Accelerated Value Program is a premier service offering from IBM, the only cost incurred by Cisco to take advantage of program was an annual service fee. Nucleus
  4. 4. Page 4 © 2012 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. Nucleus Research is the leading provider of value-focused technology research and advice. NucleusResearch.com October 2012 Document M131 estimated this fee based on the overall annual contract size at Cisco and the share of the IBM program team’s time focused on Cisco’s consumer business site. BEST PRACTICES Cisco recognizes the brand value of having a high-performance Web site for its consumer customers and that having a technology partner that understands not just its own technology but the overall configuration and environment is critical to resolving issues proactively as well as quickly responding to incidents that arise. For companies such as Cisco that need to ensure a high level of quality interaction with consumers, one minor issue can have significant repercussions. Using the Accelerated Value Program helps Cisco to both proactively identify areas to improve performance and quickly resolve potential customer-impacting issues that arise. CALCULATING THE ROI Nucleus calculated the overall investment Cisco made in the program by looking at Cisco’s overall program contract applied across multiple divisions and allocated a portion of the cost of program based on the overall workload devoted to the consumer division. Indirect benefits quantified included an increase in support personnel productivity because of the program, based on the average annual fully loaded cost of a Cisco IT support employee. To quantify the indirect benefit of improved customer experience, Nucleus took a conservative estimate of the potential loss in profits that could result from a bad customer experience issue on the Web site. This was applied to an estimate of the annual profits of the consumer division to quantify the potential impact of performance issues if Cisco didn’t have the Accelerated Value Program. Not quantified in the analysis were the potential investment in additional customer service or branding investment that would have been required if a performance issue had resulted in a visible Web site performance issue. Also not quantified were the similar expected results for the other divisions of Cisco using the Accelerated Value Program to support their Informix Software, Rational Clear Case and Team Concert, WebSphere Portal, IBM Tivoli Composite Application Manager, and IBM Tivoli Workload Scheduler products.
  5. 5. FINANCIAL ANALYSIS IBM Accelerated Value Program Annual ROI: 178% Payback period: 0.7 years ANNUAL BENEFITS Pre-start Year 1 Year 2 Year 3 Direct 0 0 0 0 Indirect 0 318,260 318,260 318,260 Total per period 0 318,260 318,260 318,260 CAPITALIZED ASSETS Pre-start Year 1 Year 2 Year 3 Software 0 0 0 0 Hardware 0 0 0 0 Project consulting and personnel 0 0 0 0 Total per period 0 0 0 0 DEPRECIATION SCHEDULE Pre-start Year 1 Year 2 Year 3 Software 0 0 0 0 Hardware 0 0 0 0 Project consulting and personnel 0 0 0 0 Total per period 0 0 0 0 EXPENSED COSTS Pre-start Year 1 Year 2 Year 3 Software 0 0 0 0 Hardware 0 0 0 0 Consulting 130,000 130,000 130,000 0 Personnel 0 0 0 0 Training 0 0 0 0 Other 0 0 0 0 Total per period 130,000 130,000 130,000 0 FINANCIAL ANALYSIS Results Year 1 Year 2 Year 3 Net cash flow before taxes (130,000) 188,260 188,260 318,260 Net cash flow after taxes (71,500) 103,543 103,543 175,043 Annual ROI - direct and indirect benefits 145% 145% 178% Annual ROI - direct benefits only -100% -100% -67% Net Present Value (NPV) (71,500) 25,269 115,707 258,594 Payback period 0.7 years Average Annual Cost of Ownership 130,000 260,000 195,000 130,000 3-Year IRR 145% 145% FINANCIAL ASSUMPTIONS All government taxes 45% Cost of capital 7.0% Page 6 © 2012 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. All calculations are based on Nucleus Research's independent analysis of the expected costs and benefits associated with the solution. NucleusResearch.com
  6. 6. By the Numbers Cisco's use of the IBM Accelerated Value Program THE PROJECT THE RESULTS Accelerated issue resolution by 40 percent Increased staff productivity Cost : Benefit Ratio - Venkat Shatagopam, Manager, Data Center and Platform Services, Cisco NucleusResearch.com Copyright 2012 Nucleus Research Inc. Nucleus Research Report M131 - IBM Accelerated Value Program ROI case study - Cisco "If we tried to open a case with general support, it would just not be the same. We have at least a 40 percent faster time to resolution this way." Annual Return on Investment Months Cisco’s consumer division used the IBM Accelerated Value Program to support its consumer-facing Web site. Nucleus found the expertise and proactive tuning and guidance IBM program consultants provided enabled Cisco to ensure high availability and uptime, which was invaluable to its customer experience and brand image. Weeks Total time for Cisco to adopt the program 10Number of users: 8.0 $188,260 Average annual benefit 178% 1 : 2.4 The total time to value, or payback period, for the program 2

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