1 © 2002, Cisco Systems, Inc. All rights reserved. The Business Case and ROI Analysis for IP Telephony at Cisco Systems Cisco Account Team Date

© 2002, Cisco Systems, Inc. All rights reserved. 222 Table of Contents 1Cisco’s Internal IP Telephony Deployment Strategy 2Background to the ROI Analysis 3Results of the ROI Analysis 4Appendix I: Detail Behind the Results 5Appendix II: Sensitivity Analysis

3 © 2002, Cisco Systems, Inc. All rights reserved. Cisco’s Internal IP Telephony Deployment Strategy

© 2002, Cisco Systems, Inc. All rights reserved. 444 Cisco AVVID and Cisco IP Telephony: Supply Chain E-Learning Key Components of Cisco’s E-Business Strategy: 1)Optimising Cisco’s Workforce 2)Caring for Cisco’s Customers Customer Care Workforce Optimisation

© 2002, Cisco Systems, Inc. All rights reserved. 555 Cisco IP Telephony: Key Ingredient to Employee Mobility in an Optimised Workforce HR Scalability ’94–’96 Productivity ’97–’00 Extended Enterprise ’01– Cisco Annual Productivity Gains E-Finance E-Procurement Basic e-HR E-Finance E-Procurement Basic e-HR $74M Employee Mobility Integrated Self-Service Workforce Development Employee Mobility Integrated Self-Service Workforce Development $500M+ Directory Communications Static Portal Directory Communications Static Portal $19M Cisco IP Telephony is a key enabler of Cisco employee mobility

© 2002, Cisco Systems, Inc. All rights reserved. 666 Cisco IP Telephony: Key Ingredient of “The Contact Enterprise” Agent/Employee ManagementSenior Executive Center Virtual Center Branch Home Vehicle Level Location Call Centre Contact Enterprise Example: Cisco’s CEO, John Chambers is proactively notified of high priority technical support cases that have not met their required service levels and follows up directly with the relevant individuals involved Cisco IP Telephony and Cisco IP Contact Centre are key enablers of Cisco’s vision of “The “Contact Enterprise”

© 2002, Cisco Systems, Inc. All rights reserved. 777 Business Drivers for Cisco’s Internal Adoption of IPT Showcase Cisco’s Technology Hard Cost Reduction Increase Employee Productivity Cultural Enhancement

© 2002, Cisco Systems, Inc. All rights reserved. 888 Single Tel # Address Single IP Network Cisco Employee After 2002 Routing Queuing The Role of Cisco IP Telephony Home Tel # Mobile Tel # Office Tel # Voice Networks Data Network Address Cisco Employee Before 2002 User constrained by: Geographic location Different devices on different networks Lack of contact transparency User chooses preferred device, on demand User defines business rules concerning contactability Wired and wireless connectivity User benefits from integrated productivity applications: Messaging applications Inbound/outbound routing applications Web-access applications CTI applications Audio & video conferencing applications

© 2002, Cisco Systems, Inc. All rights reserved. 999 Cisco’s IP Telephony Deployment Strategy Business Benefit of Cisco IP Telephony (Relative Scale) 2005 Year Office 1 Office 2 Office 3 Office App 1 App 2 App 3 App x... Cost of Cisco IP Telephony (Relative Scale) Deployment of Converged E-Business Applications Maintenance & App Dev Cost Focus on deploying converged applications on IPT infrastructure across all Cisco offices IP & Web Foundation Expanded to Include Voice Infrastructure Cost Focus on changing out PBX infrastructure with IP Telephony infrastructure across all Cisco offices

10 © 2002, Cisco Systems, Inc. All rights reserved. Background to the ROI Analysis

© 2002, Cisco Systems, Inc. All rights reserved. 11 Real Benefits of Cisco IP Telephony Single Network Maintenance, Cabling, Administration, Support, Power, Moves/Adds/Changes (MAC’s), Staff Voice Business Continuity Integral component to an effective voice business continuity plan Can be compared against other less effective plans Voice message backup/restore Real Estate Space Utilisation, Reduced Operational Costs, Flexibility Reduced Call Costs Reduced mobile phone usage Extension Portability Campus Roaming, Home Office, Other Location Outbound Call Management Unified Messaging Audio Conferencing Small Branch Office Centralised Call Processing Elimination of voice trunks IP Toll Bypass No on-site PBX Reporting, Billing, Cost Management Cross-Enterprise telecom reporting Cross-Enterprise call cost management Predictability of telecom bills Reduced PC Costs IP phone can replace a web-enabled PC or laptop in certain environments Hard-dollar cost savings Employee Productivity End User Applications Audio Conferencing Unified Messaging Personal Assistant Web Access Computer Telephony Integration IT Operations Facilities Mgmt Ops Productivity increases that can be safely quantified Benefits that are very real, but difficult to quantify Cultural Enhancement Customer Satisfaction Employee Retention Geographic Flexibility Competitive Positioning Faster Application Deployment Voice Business Continuity Difficult-to-Quantify Productivity via Converged Applications = Quantifiable benefits that are applicable to Cisco Systems and used in this ROI Analysis

© 2002, Cisco Systems, Inc. All rights reserved. 12 Business Case Framework for the Benefits Applicable to Cisco Systems BUSINESS CASE ROI ANALYSIS COSTS Real Estate Space Management Capex Avoidance Workspace Sharing Efficiencies Bucket-Specific Costs Common Costs Single Network MAC’s Maintenance IP Toll Bypass Staff Cabling Bucket-Specific Costs Reduced Call Costs Reduced mobile phone usage Extension Portability Campus Roaming Home Office Other Location Outbound Call Management Inbound Call Management Unified Messaging Audio Conferencing Bucket-Specific Costs Employee Productivity End User Apps Audio Conferencing Unified Messaging Personal Assistant XML TRC Case Facilities Services Taxi Services CTI Screen Dial Screen Pop IT Operations Facilities Mgmt Ops Bucket-Specific Costs Cultural Enhancement Customer Satisfaction Employee Retention Geographic Flexibility Competitive Positioning Faster Application Deployment Voice Business Continuity Difficult-to-Quantify Productivity via Converged Applications BENEFIT BUCKETS

© 2002, Cisco Systems, Inc. All rights reserved. 13 The Business Case for IP Telephony at Cisco Scope: All Cisco offices in Cisco’s Europe, Middle East & Africa (EMEA) region (total of 96 offices) Five year time horizon: FY FY2005 (= August 99 to August 2004) All Voice communications on IP Platform IP Handsets and Extension Portability Cisco Softphone on laptops (Wired or Wireless LAN connectivity) IP Blue Softphone on Compaq IPAQ PDA’s (Wireless LAN connectivity) Suitable Productivity Applications: Cisco Unity Unified Messaging Cisco Personal Assistant Web Access Applications (via Web Browser on Screen of IP phone) Computer Telephony Integration Applications (via JTAPI interface to Cisco Call Manager) Audio Conferencing

© 2002, Cisco Systems, Inc. All rights reserved. 14 Guiding Principles Analysis must be “Boardroom Survivable” Objective Analysis will be scrutinised by objective third-parties (e.g. Gartner Group) Transparent All assumptions and calculations supportable to the most granular level of detail Conservative Similar to manner in which third-party consultant would perform analysis Standard: Use Generally Accepted ROI Principles & Practices Use Cash Flow analysis, not Profit/Loss analysis Simple Use Plain English Terminology

© 2002, Cisco Systems, Inc. All rights reserved. 15 ROI Approach & Methodology Individual Cisco offices form the fundamental building blocks of the ROI analysis All offices categorised as Large, Medium or Small Perform detailed analysis on one of each of the three office types Tie all benefits to a “per employee” benefit Total EMEA-wide ROI figures prorated based on office size and office headcount Pricing of Cisco equipment is representative of what a large enterprise customer would pay, not what Cisco Systems would pay Analysis takes into consideration the timing of each individual office going live on IPT infrastructure, as well as the time in which applications launched EMEA-wide Only 50% of any benefits dependent on integration and/or development are realised in the first year of deployment In line with the highly conservative nature of the analysis, the approach assumes Cisco offices are NOT greenfield sites: i.e. the “Do Nothing Option” is to continue using and maintaining an existing PBX

© 2002, Cisco Systems, Inc. All rights reserved. 16 The ROI Model for Cisco Systems Large Office (Bedfont Lakes) Medium Office (Frankfurt) Small Office (Sophia Antipolis) ROI (Small) Payback Month (Small) NPV (Small) Range: 1-50 Employees ROI (Large) Payback Month (Large) NPV (Large) Range: >151 Employees ROI (Medium) Payback Month (Medium) NPV (Medium) Range: Employees Cisco EMEA ROI = xx% Cisco EMEA Payback Month = yy Cisco EMEA NPV = US$zz Linkage of the Large/Medium/Small office ROI analyses to the EMEA-wide consolidation CountryOfficeRelevant Headcount Deploy Date ROIPayback Month NPV UKBedfont Lakes 1147Xx/yyyyROI (BL)xxNPV (BL) NLAmsterdam883Xx/yyyyROI (Ams)xxNPV (Ams) FranceParis576Xx/yyyyROI (Par)xxNPV (Par) S. AfricaDurban2Xx/yyyyROI(Dur)xxNPV(Dur) ZimbabweHarare2Xx/yyyyROI(Har)xxNPV(Har) LatviaRiga1Xx/yyyyROI(Rig)xxNPV(Rig)

17 © 2002, Cisco Systems, Inc. All rights reserved. Results of the ROI Analysis

© 2002, Cisco Systems, Inc. All rights reserved. 18 Actual ROI Results for Cisco EMEA: FY FY Business Benefit of Cisco IP Telephony (Relative Scale) 2005 IP & Web Foundation Expanded to Include Voice Deployment of Converged E-Business Applications: Unified Messaging Personal Assistant 2 x CTI Applications 3 x XML Applications Web-Based Audio Conferencing Year Net Benefit (US$) $2.6 m =$340/emp. $12.4m =$1625/emp. $33m =$4320/emp. $9.4m =$1230/emp. $33m =$4320/emp. ROI = 126% Payback Month = 10 NPV %) = $60 million

19 © 2002, Cisco Systems, Inc. All rights reserved. Appendix I: Detail Behind the Results

© 2002, Cisco Systems, Inc. All rights reserved. 20 Benefit Differences of the Large, Medium, Small Offices Large Office Results: Cisco EMEA Headquarters, Bedfont Lakes/London, UK: 1147 Employees ROI = 130% Payback Month = 9 NPV = $12.3 m Medium Office Results: Cisco Eschborn/Frankfurt, Germany: 171 Employees ROI = 120% Payback Month = 10 NPV = $1.8 m Small Office Results: Cisco Sophia Antipolis, France: 35 Employees ROI = 111% Payback Month = 11 NPV = $330 k

© 2002, Cisco Systems, Inc. All rights reserved. 21 Breaking Down the Benefits: Large Office Example The Single Network Cabling (+) Staff (!) (!)= Annual Recurring Benefit (+)= One-Time Benefit Maintenance (!) Moves, Adds & Changes (MAC’s) (!) $500k $120k $60k $450k Notes: Cabling benefit is a one-time benefit and is only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) Costs for Moves, Adds and Changes (MAC’s) are based on the average cost of an outsourced PBX MAC, versus that of a Cisco IPT MAC Total Recurring $630k Total One-Time $500k

© 2002, Cisco Systems, Inc. All rights reserved. 22 Breaking Down the Benefits: Large Office Example Real Estate Workspace Sharing Efficiencies (!) Capex Savings (+) Space Management (!) $452 k $1.6 m $66k (!)= Annual Recurring Benefit (+)= One-Time Benefit Notes: Capex Savings benefits associated with real estate are only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) The origin of the Workspace Sharing Efficiency benefit stems from Cisco IP Telephony’s ability to allow Facilities Managers not to have to accommodate “swing space” when planning a new building, or reallocating space in an existing building Total One-Time $452k Total Recurring $1.67 m

© 2002, Cisco Systems, Inc. All rights reserved. 23 Breaking Down the Benefits: Large Office Example Reduced Call Costs Extension Portability > Home Office > Outbound (!) Audio Conferencing (!) (!)= Annual Recurring Benefit (+)= One-Time Benefit Outbound Call Management (!) Unified Messaging (!) $270 k $195 k $970 k $25 k Notes: Within this sub-section of the analysis, the benefits of Unified Messaging only represent call cost savings associated with reduced external access to corporate voice mail - they do not represent increased employee productivity. Outbound Call Management represents the major call cost savings associated with mobile employees using Cisco Personal Assistant to route outbound calls over the Cisco corporate network, taking advantage of either IP Toll Bypass OR bulk corporate-discounted PSTN rates Audio conferencing addresses replacement of a portion of existing outsourced audio conferences by the Cisco Conference Connection product The Extension Portability > Home Office > Outbound benefit entails the use of the Cisco hardware VPN client to allow employees working at home to accept/receive calls on their DDI desk phone number Total Recurring $1.45 m

© 2002, Cisco Systems, Inc. All rights reserved. 24 Breaking Down the Benefits: Large Office Example Employee Productivity CTI Screen Dial Application (!) XML Facilities Services Application (!) (!)= Annual Recurring Benefit (+)= One-Time Benefit $590k $475k $1k $12k $24k CTI Screen Pop Application (!) XML Taxi Services Application (!) XML TRC Case Application (!) Notes: The ROI project team made a judgement call that, even though the productivity of Cisco employees is undeniably increased through the use of Cisco’s Unified Messaging (UM) and Personal Assistant (PA) applications, the benefits modelling process would be unacceptably vague because the associated business processes and policies are not yet defined (e.g. incurring a GSM call to have PA speak over the phone) This situation will change once the new business processes surrounding UM and PA are defined. Productivity benefits of CTI applications are substantial because they emulate those of agents at large, CTI-enabled call centres yet can be implemented at a fraction of the cost Benefits of XML applications are actually small for Cisco because almost all Cisco employees have laptops and ubiquitous access to the Web. Organisations that are not in this same situation will most likely benefit more than Cisco due to not having to provide a PC to all employees Unified Messaging & Personal Assistant (!) $???k Total Recurring $1.1+ m

© 2002, Cisco Systems, Inc. All rights reserved. 25 Breaking Down the Costs: Large Office Example IPT Common Capex Costs (+) $1.1 m TDM Infrastructure Capex Costs (+) IPT Bucket Specific Ongoing Costs (!) IPT Common Ongoing Costs (!) IPT Bucket Specific Capex Costs (+) $0 $1.5 m Total Capex $2.6 m $300 k $20 k Total Opex $320k Notes: In line with the highly conservative, non-greenfield approach, the ROI analysis assumes that TDM-based infrastructure (PBX, voice mail system, multiplexors, etc.) was already in place, before migration to Cisco IP Telephony Hence TDM-based infrastructure capex costs are $0 – i.e. all capex costs used in the analysis are representative of Cisco IP Telephony equipment only Costs

26 © 2002, Cisco Systems, Inc. All rights reserved. Appendix II: Sensitivity Analysis

© 2002, Cisco Systems, Inc. All rights reserved. 27 Sensitivity Analysis: Examining Three Alternative Scenarios Alternative Scenarios: 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems

© 2002, Cisco Systems, Inc. All rights reserved. 28 Sensitivity Analysis: Cisco EMEA: (7639 Employees) Cisco EMEA ScenarioPayback Month ROINPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 10126%$60 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 3050%$32 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 10126%$44 m 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 2670%$6.2 m

© 2002, Cisco Systems, Inc. All rights reserved. 29 Large Office: Bedfont Lakes/London, UK (1147 Employees) Cisco Large Office ScenarioPayback Month ROINPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 9130%$12.3 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 2247%$6.8 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 9130%$5.8 m 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 2566%$715 k

© 2002, Cisco Systems, Inc. All rights reserved. 30 Medium Office: Eschborn/Frankfurt, Germany (171 Employees) Cisco Medium Office ScenarioPayback Month ROINPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 10120%$1.8 m 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 1955%$1.2 m 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 10120%$875 k 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 1778%$230 k

© 2002, Cisco Systems, Inc. All rights reserved. 31 Small Office: Sophia Antipolis, France (35 Employees) Cisco Small Office ScenarioPayback Month ROINPV Base Case = Cisco Case Includes all benefits applicable to, and accepted by, Cisco Systems 11111%$330 k 1) No Real Estate If organisation under consideration does not accept real estate savings as a legitimate business benefit 2062%$245 k 2) No Employee Productivity If organisation under consideration does not accept increased employee productivity as a legitimate business benefit 11111%$140 k 3) Only Benefits of the Single Network If organisation under consideration only accepts the benefits associated with those of deploying and managing one IP network, instead of separate voice and data networks 1674%$100 k