The True Cost of Hosted E-Mail Solutions

September 19, 2010

Most businesses take e-mail as a given. However, the true costs of managing e-mail accounts are seldom assessed. As an illustration of the costs, assume a Small to Mid-Sized Business (SMB) with 1000 e-mail boxes for non-IT users, four servers to service the accounts and Microsoft Exchange Platform. Further assume that the IT group gets about 3000 requests on the average annually.  Requests include account set up, password reset, backup, & restore, synchronizing the e-mails with PDAs such as iPhone and Blackberry, and other support.   To properly support the users, two skill sets are required:  helpdesk support and exchange administration.  If the SMB maintains the expertise in-house, hosting costs, staff, virus and spam filtering and Exchange license costs are in the neighborhood of $300,000 to $400,000. It effectively amounts to $350 per user per year.  There are essentially two options:

Option 1:  Outsourcing to a hosted e-mail solution and maintain the helpdesk in-house.

Option 2:  Outsource to a hosted solution and outsource the helpdesk.

Option 1 Analysis:  Typical costs of hosted e-mail solutions range from $10 to $20 per mail-box per month.  If you add a minimum of two support personnel, the costs are not significantly different from in-house costs.  However, the service levels are significantly better.

Option 2 Analysis:  The challenge here is that outsourcing helpdesk for low volume of requests actually results in higher costs.  The primary reason is that most firms providing outsourced helpdesk charge between $25 to $60 per ticket or $30 per user per month.

For this reason, most SMBs have just managed e-mail in-house.  There is an alternative solution.  It takes advantage of the Global blended model more typical of applications outsourcing.  The solution is not to use hosted e-mail, but use hosted servers and use RIM (Remote Infrastructure Management) to manage the servers and off-shore helpdesk.   Although one individual typically is required on-site, the overall costs are significantly lower.  Many off-shore companies now offer a per ticket charge.   These costs are usually in the neighborhood of $4 to $10 per ticket.  Remote infrastructure management is typically $100 per server per month.   This implies that SMBs can reduce their costs by over 40% annually.   The best part is that the service levels are significantly higher than traditional e-mail hosting solutions.  Most Fortune-1000 companies have taken advantage of these benefits.  The growth of focused niche Service Providers will pave the way for SMBs to take advantage of the blended global sourcing models.   The challenge is to find the right Service Provider.  Brokers who connect SMBs to Pre-credentialed Service Providers accelerate the search and contracting process.

Notes:

Industry analysts have identified Self-Service as an area of high return on investment derived from reduced cost per incident, enhanced agent utilization rates and customer satisfaction improvements.

Case in point the average fully-burdened cost per incident:

  • Walk Up            $29.30
  • Phone               $27.60
  • Email                $21.67
  • Fax                   $18.90
  • Chat/IM             $17.90
  • Self-Service       $13.50

* Help Desk Institute, Practices and Salary Survey

Research indicates that agent efficiency in a typical call center is 75% – not an acceptable level in tight economic times.


How do we get the most value from IT?

June 2, 2009

In order to understand this complex subject, we must first define value. Information theory teaches us that there is perceived value, real value, and normative value.   Perceived value is intuitive and subjective.  For example, no one questions the value of e-mail.  Real value is measured.  An IT project may reduce operational costs by x% or may increase revenues by y%.  Normative value refers to valuation that is based on theory, for example financial models such as Net Present Value.

All three methods of valuation have challenges.  Measurement is a challenge in getting the real value.  What are the attributes to measure? How to measure each attribute?  How do we handle measurement errors, validation, reliability, and longitudinal variations?  How does each attribute affect value? How do each attribute affect each other? When does the learning curve end?  Perceived value is subjective, and therefore difficult to assess.  For example, most perceive that ERP systems have provided significant  value, but in fact measurements have shown quite the opposite.  Normative value relies on theory, and it is difficult to keep the practice of IT aligned with theory and visa versa.

Balanced Score Card (BSC) provides an integrated framework of developing IT that provides optimal value.  The  BSC approach integrates value across Financial, Customer, Process (internal) and Strategy/Knowledge (learning and growth).  BSC places IT as a key component of Strategy and treats IT as an enabler for implementing Business Process Transformation.  It also helps prioritize IT projects.  The main drawback of the BSC approach is that it is very hard to distinguish value of IT when muddled with everything else.  Furthermore,  gaining consensus on vision and future scenarios is non-trivial.

Let us use a simple case study to illustrate the BSC approach.  The company is a 5 year old manufacturing firm with 100 M$ revenues and 300 employees.  The BSC approach looks at four areas: 1) Financial, 2) Customer, 3) Internal Process, and, 4) Learning and growth.

For the financial area, the objectives could be to increase revenues (target is 20%) and lower costs (target gross margin is 45%) .  The resulting IT initiatives could be to develop key performance metrics and track them on a real-time basis using dashboards.

For customers, the objectives could be to improve service rating from 3.5 to 4.5 on a 1 to 5 point scale.  The resutling IT initiative could be to enhance the existing Customer Relationship Management system with service tracking to measure actual performance and develop processes to improve the service.

For the internal process, a business initiative could be to improve the manfuacturing process. The key objectives are to improve manufacturing time and eliminate supplier delays.  It is critical to define the measures for assessing IT value.  Two measures defined for this initiative are time to manufacture (target is 1 day), and time to procure (target is 3 days).  In order to achieve this target, three major decisions are to add a manufacturing channel, lock in suppliers with incentive programs, and implement web services for suppliers. 

For the learning and growth area, the objectives could be fast turnaround on repair requests and reducing training costs.  Measures for this initiative could be: hours to fix the device (target is 1 hr), and reduce training time (target is 5 hrs).  Examples of IT initiatives that achieve these targets are computer based training and a built in diagnostics tool based on historical trends. 

The key aspect of BSC is to rate the various measures and develop an overal score.  This score helps provide a guideline as to the value of IT.  Different IT initiatives could be reviewed to rank and test the overall score.  Tools such as Assess OnDemand™ help organziations to classify measures, survey stakeholders, collect, score and rank various strategies to ensure they are getting optimal value from their IT investments.