Communications on the Premises or in the Cloud: How do You Make the Choice?

This is the first post in a series of commentaries on the dichotomy of premises-based versus hosted/cloud communications.

Economic Realities Mandate a New Approach to Communications Investments

The global recession caused a lot of fear and uncertainty in all business sectors worldwide. As revenues declined, business customers had to curtail their spending, including communications and IT investments, in order to limit their losses. As a result of these actions, such businesses have not been able to benefit from recent advancements in UC, mobility, videoconferencing, and other next-generation communications technologies. Many customers are still holding onto outdated communications platforms that may still meet basic needs but can offer little in terms of productivity enhancement, greater customer satisfaction or competitive differentiation.

In the meantime, the competitive landscape in all industry sectors is constantly changing. The financially strong market participants are able to move ahead by re-enforcing their competitive advantage through technology investments and more aggressive marketing. The others should not wait until the economy reaches its peak again since, by then, it will be even more difficult to catch up with the market leaders. In fact, turbulent waters create favorable conditions for the more nimble and resourceful participants to advance more rapidly. As communications vendors and service providers struggle with the consequences of the recession, businesses can use their temporary weakness to negotiate better deals on pricing, features, and services.

Overall, the recent recession brought forward the need for a new approach to communications investments, also mandated by other economic realities such as the rapid technological evolution and the acceleration of business processes. It demonstrated that business customers should seek to deploy their next-generation communications infrastructure with the following factors in mind:

Flexibility: At times of crises, businesses recognize the value of greater flexibility in terms of access to resources, including communications capabilities. One of the biggest challenges during a recession is the need to downsize, which results in a lot of unused communications capacity in the case of premises-based implementations. Hosted services, on the other hand, offer businesses the possibility to discontinue lines and services as capacity needs change. Further, workforce reduction frequently impacts IT and telecom personnel as well, rendering the business unable to properly manage its infrastructure and avoid downtime, proactively update and upgrade capabilities, and so on. Alternatively, in a managed or hosted services scenario, a third party is compelled to provide adequate capabilities as part of its contractual obligation regardless of economic circumstances.

Speed to Market: As tough economic conditions force businesses to tighten their purses, they find themselves unable to quickly react to market opportunities. R&D activities slow down, marketing and sales staff shortages leave the door open for competitors to steal customers away, and communications infrastructure inefficiencies prevent overwhelmed employees from effectively collaborating internally and communicating with customers and partners. However, businesses that chose to leverage advanced communications to compensate for workforce reduction and macro-economic challenges are better able to maintain internal productivity and customer satisfaction levels. Outsourced communications and IT resources are more effective in providing access to required capabilities faster, with minimal or no initial cash outlay, and with the ability to adjust capacity on demand.

Risk Mitigation/ Risk Sharing: Businesses tend to become particularly risk-averse during an economic downturn. While suspending or postponing new communications investments help conserve cash, this is not a viable long-term strategy as obsolete technology cannot support evolving businesses processes and needs. A more sustainable approach would involve sharing the risk with a trusted partner. In a premises-based implementation, more flexible leasing and managed services offerings could help alleviate some concerns over excessive financial exposure. A hosted offering can, however, completely transfer the risk to a third party by eliminating most CAPEX and delivering capacity based on actual company performance and needs.

Risk mitigation is key in favorable economic conditions as well. In a booming economy, growing R&D investments drive even more accelerated technology advancements requiring more frequent upgrades and staff re-training in the case of premises-based implementations. Alternatively, the risks of technology obsolescence could be absorbed by a hosted provider in an outsourced communications scenario.

Focus on Core Competencies: Businesses and individuals are equally overwhelmed with the amount of information and expertise required to remain competitive today. Businesses are, therefore, finding they can grow more rapidly and improve their bottom line by focusing on their core competencies. As the complexity of communications technologies increases, it becomes even more compelling to partner with a trusted communications expert to ensure that the company’s infrastructure is properly deployed and efficiently managed without wasting valuable internal resources. A managed or hosted communication solution can enable customers to leverage advanced communications for a competitive advantage while focusing entirely on their core business.

Economies of Scale: As businesses grow and expand virtually through multiple remote sites and users, their communications infrastructure needs to evolve as well. Hardware-centric premises-based communications platforms are typically not very cost-effective for multiple small sites of less than 50 users. During periods of rapid growth, such solutions do not scale economically as they require new servers to be purchased, integrated and managed for additional capacity. A hosted service, on the other hand, allows a more gradual addition of incremental capacity based on the actual number of users. Also, it typically provides a uniform set of features, a common dial plan, a consistent customer interface (through a network-based auto attendant or IVR) and some other benefits to geographically dispersed organizations. Further, as businesses increasingly seek to connect with their customers, suppliers and partners, a hosted service can more effectively provide federation across disparate organizations.

Future-proofing Investments: The recession along with the accelerating pace of technology evolution are driving the need to future-proof investments in communications and IT infrastructure. Businesses need to ensure that their services and solutions are flexible and based on open standards so they can be integrated with other applications and platforms at deployment or in the future. Since SIP is becoming the de-facto industry standard, SIP-based, SOA platforms and SIP-based services offer a significant amount of flexibility and investment protection. Such solutions integrate with a wide range of endpoints and other SIP-based applications. Another important factor in future-proofing the communications infrastructure is to ensure greater redundancy and disaster recovery capabilities. Frequently, a hosted, SIP-based service can provide all these capabilities more economically than a premises-based platform.