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Network Procurement: The Journey from

CAPEX through TCO to Business Value
As more sophisticated products with lengthened lifecycles enter the IT
environment, TCO may be a better procurement yardstick than CAPEX.

he procurement process for enterprise network

productivity, agility and cost savings. It seems as if, almost

technologies can be difficult. Although procure-

overnight, the purpose of the network is no longer solely

ment teams have excellent financial backgrounds,

to connect user desktops to IT resources. Not only has

they may lack the technical expertise to assess the value that

the computing model evolved, but the network itself has

networking innovations can bring to the business. Thus, initial

evolved along with it.

capital expenditure (CAPEX)a simple and quantifiable num-

As a result, the network can no longer be considered as

bertends to be given disproportionate weight when evalu-

simply plumbing; nor is it the commodity purchase many

ating equipment purchases. To be sure, total cost of owner-

organizations might think it to be. That means a procure-

ship (TCO) analyses are frequently undertaken, but even here

ment process that relies too heavily on capital expenditures

CAPEX can dominate the conversation. And further lost in

is a danger to both the procurement and IT teams. Heres

the debate is the original intent of the purchaseto provide

why: Implementing a least-cost network now will cost you

unique value to the business operation. As a consequence,

sooner rather than later. The IT organization will be unable

the network runs the risk of being considered a commodity.

to accommodate advances in current computing trends,

This approach gained some attention during the last

denying the company the business value that they bring.

few years while IT budgets were flat or reduced, and much

Essentially, the company trades a low CAPEX for strategic

of the world was experiencing a recession. After all, who

business opportunities. If push comes to shove, the only

doesnt want to save money when resources are scarce? But

means of accommodating these strategic technologies is to

the recession didnt put technological advances on hold.

refresh the network outside of the standard refresh cycle.

Mobility, virtualization and cloud computing have evolved

That is a much more expensive proposition than spending

during this time period, with the promise of increasing

more on initial CAPEX.

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A Better Approach to Procurement:

Total Cost of Ownership

2
A next-generation network
transforms the
network into a
service-delivery
mechanism
that enables
CIOs and their
IT organizations
to say yes
to strategic
revenueenhancing
business
opportunities.

lowest common denominator of all the vendors. In addition, costs of sparing,1 maintain-

The reality is, when building an IT network,

ing multiple service contracts and integrating

about 20% of the budget goes to acquiring

the different vendors should be considered.

the hardware and 80% goes to operating

Another cost that is often overlooked is re-

costs. But saving money on that 20% up

cruiting or training for the specialist exper-

front can be more than offset by increases

tise to manage and operate equipment from

in the 80% if, for example, there are higher

multiple vendors.

integration costs, more downtime or seri-

Even in these times of rapid technological

ous security breaches. The network that you

change, some industry pundits are encourag-

considered good enough to handle your

ing IT organizations and their procurement

current business requirements may not be

teams to make network purchasing decisions

good enough to handle your future ones.

based on CAPEX alone. They also encourage

A more strategic way to approach the

the multivendor network that can result from

procurement of networking technologies is

such procurement practices. But a multiven-

to calculate the solutions TCO. TCO takes

dor network shifts the IT organizations focus

into account hard costs beyond network

away from driving strategic value. Instead of

equipment acquisition, including hardware

planning how to enable the business, the IT

and software service and support, deploy-

organization becomes consumed with net-

ment costs, and billable IT costs related to

work operationsintegration, management,

ongoing IT operations. It can also include

security, etc. Thus, a multivendor network

financial benefits that procurement teams

inherently increases operating expenses

may hesitate to incorporate because they are

(OPEX) while decreasing return on invest-

more difficult to calculate: employee produc-

ment and business value.

tivity, IT agility, security, new business capa-

When calculating the TCO, procurement

bilities enabled by the network, and so on.

teams and the CFO should be careful not

Calculating TCO requires IT organiza-

to underestimate the business value to be

tions and their procurement teams to think

gained from strategic opportunities. With the

beyond the price tag of things like warranty,

implementation of a low-CAPEX network, IT

service and support. When it comes to

organizations risk having to say no to new

these items, you get what you pay for. Some

technologies or business ventures because

vendors bundle support into their product

the network is not capable of supporting

offerings, but it may be support restricted to

them. That means no to bring-your-own-

business hours or only for initial setup issues.

device policies; no to expanding virtualiza-

Hardware replacement may be available,

tion efforts to mission-critical business ap-

but not on a schedule that aligns to your

plications; no to cloud services; no to rich

business needs. A TCO approach requires

media. All of the cost savings, competitive

the business to consider the implications of

advantage, productivity and agility benefits

these offerings beyond their price tag.

are lost because of a few dollars saved on

Another pitfall of a CAPEX-weighted

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end network capabilities are restricted to the

the network. However, these same benefits

approach is that it tends to leave your IT

can offset the total cost of a premium, next-

department with an assortment of vendors

generation enterprise network, enabling the

providing the network infrastructure. End-to-

business to say yes.

Sparing is the practice of keeping equipment in reserve so that it can be deployed in the case of component failure. Like is replaced with like. In a single-vendor
environment with standardized platforms, sparing costs are N:1. In a multivendor environment, sparing costs can be as high as 1:1.
1

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3
Cisco delivers
capabilities
that can result
in improved
uptime, more
robust security
and increased
employee productivity, as well
as the economic
and productivity benefits
that come from
todays strategic
opportunities.

TCO in the Real World

What is a Next-Generation Network?

As previously mentioned, some networking

A next-generation network provides a lower

vendors are still encouraging CFOs and their

TCO because it is strategically developed to

procurement teams to view the enterprise

optimize for requirements today and in the

network as a commodity. This, of course,

future. It accommodates unanticipated tech-

works to their benefit when they have an

nology disruptions and provides investment

offering with a low CAPEX. But they seldom

protection. In other words, a next-generation

provide a TCO comparison. So Cisco com-

network is a dynamic network that supports

missioned a third-party business consulting

trends around mobility, cloud computing and

firm to evaluate the business impact and

the changing threat landscape. It also trans-

TCO of a Cisco network, and compare them

forms the network into a service-delivery

to the TCO of a competitive network de-

mechanism that enables CIOs and their IT

signed with the same physical and logical

organizations to say yes to strategic reve-

design requirements.

nue-enhancing business opportunities.

The firms findings revealed that, on average, up-front investments for Cisco hardware

how a least-cost or good-enough network

and software were higher than competing

differs from a next-generation, business-

solutions. However, when comparing net-

enabling network:

work TCOwhich includes the lifetime costs

for labor, service and energyCisco offered
up to a 13% TCO advantage.
But, as a next-generation network, Cisco

Purpose of the network: A nextgeneration network unifies access and

control. Thus, not only are you getting

delivers far more capability than competi-

more value for your network dollar,

tors. These capabilities can result in im-

but also, because the network serves

proved uptime, more robust security and

multiple purposes, you avoid the cost

increased employee productivity, as well as

of additional equipment to provide

the economic and productivity benefits that

those services.

come from todays strategic opportunities.

Part of this TCO advantage is derived

Security: In a good-enough network

security is bolted on. In other words,

from the extended lifespan that many Cisco

security consists of point products that

customers identify from their Cisco net-

dont necessarily integrate very well.

work. On average, Cisco customers claim a

A next-generation network integrates

complete network lifecycle of 6 to 8 years,

security capabilities. Your IT team

compared with a 4- to 5-year lifecycle for

spends less time on initial integration

comparable competing products.

and trying to keep disparate security

Soft cost savings, resulting from improved

network uptime, higher user and IT productivity, lower threat of security breach, and comSPONSORED BY

Lets take a closer look and contrast

systems coordinated, lowering your

operations costs.
Application intelligence: A good-

prehensive professional and technical services

enough network is application- and end-

have the potential to drive TCO even lower.

point-ignorant. It operates on the notion

When CFOs calculate how much they

that data is just data. A next-generation

can save by lengthening the network refresh

network is application- and device-

cycle and enabling the IT organization to say

aware. Applications are the lifeblood of

yes to strategic opportunities, the cost of

most businesses. What are the financial

Ciscos hardware premium versus competi-

implications of having them work slowly

tors quickly dwindles.

or not at all?

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Quality of Service: Todays good-enough

A third-party
TCO comparison of a Cisco
network versus
other vendors
illustrates that
Cisco can
deliver a 13%
better TCO
even before
business
benefits such as
network uptime
and employee
productivity are
considered.

how the Cisco long-term vision is mapped

exception. If you expect video to be per-

out to deliver a new set of network services,

vasive across the organization, then the

to support the demands of the business

network needs to support that model.

and end users. These services enhance

The cost to retrofit your network to sup-

the ability of the organization to meet the

port video will far exceed that of a net-

demands of users and IT. Intelligent network

work that was built with video in mind.

services are fundamental to driving down

Standards: A good-enough network is

standards based without concern for
the future. A next-generation network

TCO and increasing ITs ability to deliver

new business capabilities.
At the end of the day, many CFOs want to

not only supports current standards but

transform IT into a strategic services organi-

features innovations that drive future

zation. The ability to grow IT capacity with-

standards. Many of these newer stan-

out adding headcount requires efficiencies in

dards implementations can be deployed

IT systems management processes. Ciscos

at incremental (and sometimes no ad-

Borderless Networks architectural approach

ditional) cost.

is the foundation for delivering those efficien-

Warranty: Good-enough networks come

cies, enabling IT to meet changing end-user

with a form of limited support for mainte-

demands and maintain control of cost and

nance and a warranty statement. Next-gen-

complexity in the business.

eration network providers offer a warranty,

plus intelligent services with integrated
management that reduce IT time and head-

Conclusion

count impact of each new project.

With CAPEX accounting for only 20% of

Acquisition cost: Saving money on CA-

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less Network Architecture. This defines

network is built to support video as the

the cost of a network, it is important to look

PEX can be more than offset by increases

beyond initial expenditures and consider

in OPEX if there are higher integration

TCO and the business value a network can

costs, more downtime or serious security

provide. A third-party TCO comparison of a

breaches. While good-enough network

Cisco network versus other vendors illus-

vendors downplay these costs, next-

trates that Cisco can deliver a 13% better

generation network vendors promote a

TCO even before business benefits such as

systems approach that not only reduces

network uptime and employee productivity

networking costs related to OPEX but

are considered. Further, the Cisco Borderless

also drives IT services improvements

Network Architecture acts as a platform for

and new business opportunities, thereby

service delivery, allowing your IT organiza-

increasing ROI.

tion to say yes to business and revenueenhancing opportunities.

The Cisco Borderless

Network Architecture

If you would like to learn more about the

Cisco has positioned a framework for the

how it compares with your current net-

next-generation network called the Border-

work, go to www.cisco.com/go/enterprise.

total cost of owning a Cisco network and