Browse through Internet discussions focusing on the benefits of on-premises versus hosted interactive voice response (IVR) systems and you’ll find repetitive arguments containing much emotion and less logic. Furthermore, discussions circling financial aspects of the debate reflect an insufficient understanding of financial concepts.
Many debates focus on operating expenses; they are the easiest concept for nonfinancial experts to understand. However, operating expenses are usually the “small potatoes” of the business equation. To improve your future ability to fund quality speech solutions, discuss capital with your chief financial officer.
I am going to take you away from IVR for a moment so you can consider the bigger picture without sticking to preconceived notions about outsourcing. Consider what happened in the United States with goods delivery in the 20th century. Retail was mainly local, with customers picking up their merchandise or retailers delivering it themselves. That is all they knew; retailers could not imagine transacting business in a different way. However, in 1902 the U.S. Postal Service began Rural Free Delivery, and soon retailers decided that spending their capital on expensive horses, wagons, and, later, trucks was not an efficient use of their capital. With growth in shipping, new companies, such as United Parcel Service, began delivering goods. Later, new companies, such as FedEx and DHL, began rapidly delivering the documents associated with goods, thereby turning up the speed of delivery, speed of payment for goods, and improvement in working capital for those manufacturers and merchandisers. By outsourcing delivery of goods and documentation, they eliminated the need for capital investment in the transportation infrastructure, and they received payments faster for their goods, with both changes positively affecting their financial positions by allowing them to increase investment in their core businesses.
Competent to the Core
Can you imagine Amazon.com spending its capital on building a rapid delivery infrastructure across the United States? The world? It is a laughable concept, isn’t it? Nevertheless, control is the most frequent argument against hosted IVR. What if Amazon.com wanted complete control over the delivery of its shipments so it could provide a guaranteed delivery “absolutely, positively” overnight? Still laughing? In addition to intelligent use of capital, also consider the concept of core competencies. Amazon.com is using those billions of dollars it would have had to spend on delivery services—remember Webvan and how fast it flushed $1 billion down the toilet?—to constantly invest in improving its online customer experience, build out its computing capacity, and stay at the forefront of online retailing.
Now consider FedEx. To provide delivery services on behalf of Amazon.com, it requires jets and trucks, which are capital-intensive. For example, its new Boeing 777 Freighters cost more than $200 million each. Since capital isn’t unlimited, the decision would be to spend more than $1 million on a premises-based speech-enabled IVR platform (and for multiple call centers), put it to better use as working capital toward increasing network capacity with another jet, or expand the delivery network with 30 new delivery vans. Being the skillfully run business that it is, FedEx quite rightly decided to apply the funds as working capital to grow its business and relies on hosted speech-enabled IVR.
An additional potential benefit that chief financial officers appreciate is the avoidance of capital write-offs. Given the speed of change in telecommunications, you should consider the potential of not depreciating the capital expense fully. The “what’s in it for me” is twofold; capital saved by hosting can also fund additional application capabilities previously blocked by capital budget limitations, and your ability to fund new projects in the future will increase given your newly increased persuasion with your chief financial officer.
Honestly, are IVR services your organization’s core competency and best use of your capital?
Kevin Brown is an architect at Hewlett-Packard Enterprise Services, where he specializes in speech platform design. He has more than 15 years of experience in designing and delivering speech-enabled solutions. He can be reached at firstname.lastname@example.org. Read his column!