WHITE PAPER ROI and Market Opportunity of Datacenter Print Environments

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F WHITE PAPER ROI and Market Opportunity of Datacenter Print Environments Sponsored by: Canon Riley McNulty February 2006 INTRODUCTION Randy Perry Datacenter cutsheet print environments represent significant opportunity for manufacturers and their channel partners. This opportunity is driven not only by the significant print volumes of these environments, but also by evolving output challenges faced by datacenters for which they need solutions. Datacenters often have legacy systems in place that are no longer optimized for today's document output requirements. The needs of datacenter print environments are varied. They often revolve around workflow or data stream management issues. Datacenters need to be flexible enough to manage multiple data stream inputs while being able to produce documents in multiple formats. In many cases, older and inefficient data streams do not leverage the full printing capabilities of newer printing engines. Furthermore, in some cases, inhouse central reprographic departments (CRDs) and datacenters are merged into one operation, thus requiring a broader set of print and copy capabilities from installed output equipment. Datacenters face short print windows for mission-critical applications. When print operations do not function efficiently, costs increase for both the print operation and the eventual document users. Fortunately for datacenter print managers, these challenges can be addressed by solutions providers that combine the right skill sets and tools to deliver a win-win solution for both the customer and vendor. ROI FINDINGS SUMMARY In this study IDC found the following benefits at seven enterprises that consolidated their datacenter print operations using Canon solutions. Improved print performance. Print speed and volume increased 8% and 27%, respectively; time spent waiting for documents decreased by 76%. Increased reliability. Reprinting was reduced by 50% due to fewer errors; print resources downtime was reduced by 85%. Reduced datacenter costs. Total hard costs were reduced by almost 30% Savings and productivity benefits. Financial benefits over the three years totaled $77,724 per 100 users

2 Three-year ROI of 398%. Total benefits were $259 annually per user at an investment of only $49 per user. SITUATION OVERVIEW Datacenters provide critical documents to customers that can be internal and/or external to their enterprise. They produce a wide array of document types, which require sophisticated output capabilities. As a result, it is no surprise that they face many different challenges when servicing their customers' document output needs. Datacenters are often associated with transactional print, such as bills, invoices, and statements. While these are the most common document types printed in datacenters, these operations also print many other applications, including reports, prospectuses, manuals, promotional materials, and direct mailings, among others. Due to this diversity of document types, datacenters need to manage multiple data streams or page description languages (PDLs). For example, it is not uncommon to find a datacenter that utilizes PDLs or formats such as PostScript, PCL or PDF, in addition to data streams more typically associated with datacenters, such as IPDS/AFP, LCDS, or Metacode/DJDE. This variety of print output creates other challenges for datacenters beyond the need to manage multiple data input formats. Datacenters facing the convergence of print applications, which can range from transactional print to publishing applications, such as promotional materials, need flexibility in their print workflow. This is because convergence drives the need for new capabilities, for example, additional substrate support, finishing, and more complex print resource management. As a result, datacenters face the challenge of adapting print operations to meet demand for new print capabilities. This is often not an easy migration for them, because many datacenters utilize inflexible legacy workflows based on proprietary data streams. Nevertheless, the growth of variable data printing (VDP) illustrates how many datacenters enhanced their value proposition. They did so by diversifying the range of applications they produce beyond transactional print into new areas. VDP leverages customer data to produce marketing messages within versioned or personalized documents. It goes beyond traditional mail-merged documents, invoices, or statement printing that incorporate variable content. VDP enhances the usage of the printed documents, and in turn enables datacenters to offer new applications, such as direct mail and other marketing materials. A 2003 IDC survey found that 50% of the datacenters had adopted VDP. Furthermore, 60% of datacenters seeing an increase in VDP stated that this was the result of their marketing staff being more aware of the capabilities of digital print. These findings demonstrate that datacenters see the need to expand their print capability to meet customer demand, which in turn often requires substantial change in their workflow. Another challenge for datacenters is the ever present need to control costs. This requires greater control of print operations, which can also increase productivity. There are several areas where cost savings can be achieved for datacenter print operations. 2 # IDC

3 Replacing older equipment with more modern and reliable printers can increase uptime of devices. When a machine is down, servicing it can take several hours. Meanwhile, full-time employees are waiting for the printer to come back up in order to finish the job. The result is expensive overtime that has to be paid to employees who stay late because the customer needs the job to be completed within a specified print window. Up-to-date equipment that is capable of printing a broader range of applications can also reduce the amount of jobs that have to be outsourced. This enables datacenters to save money by leveraging existing investments in and excess capacity on datacenter printers. In addition, enterprises sometimes combine datacenter and CRDs when upgrading equipment. This can drive savings on equipment, numbers of full-time employees, and real estate. Another area of opportunity to control costs is workflow and document distribution. Datacenters can increase efficiency by improving operator control and workflow capabilities. Centralized control allows users to more effectively: Monitor preproduction approval processes Track print job status Maintain centralized resource management (i.e., package resources with data streams) Cost savings are derived from fewer errors and misprints, reduced resource downloads, and reduced printing from the host computer. For example, via the right solution, users can print once from the host and feed multiple output processes, rather than incurring costs from multiple downloads from the host to output documents in hardcopy and other electronic formats. Other workflow solutions can also reduce costs by: Enabling job splitting to maximize production capacity through load balancing Enabling job routing to distributed users, reducing courier expenses Optimizing poorly constructed data streams to enable taking advantage of full printer capabilities (e.g., running at rated speeds) Clearly, datacenter efforts to control costs depend on multiple factors, including hardware, software, and services. Similarly, improved productivity depends on the same three factors. To optimize productivity and savings, datacenters must take stock of the total print infrastructure they currently have installed and how their output needs are evolving. Then they should investigate the new solutions available that will provide a value-added augmentation to their print operation's capabilities IDC #

4 ROI FINDINGS ROI Summary In this study IDC interviewed seven enterprises that had deployed Canon solutions. These companies reported the following benefits of consolidating their datacenter print operations using Canon solutions. Increased datacenter print performance output. Print speed and volume were up 8% and 27%, respectively; time spent waiting for documents was reduced by 76%. Increased reliability of their print operations. Reprinting was reduced by 50% due to fewer errors; print resources downtime was reduced by 85%. Reduced datacenter costs. Total hard costs were reduced by almost 30% through reduced costs of supplies, maintenance, toner, and click charges and elimination of preprinted forms, courier services, and outsourced printing services. Overall total benefits over the three years totaled $77,724 per 100 users. The total benefits were drawn from increased user productivity, reduced printing costs, and increased print staff productivity (see Figure 1). Total benefits added to $259 annually per user at an investment of only $49 per user to yield a three-year ROI of 398%. FIGURE 1 Three-Year Savings (per 100 users) User Productivity (52.5%) Cost Reduction (40.3%) Print Staff Productivity (7.3%) Total = $77,724 Source: IDC, # IDC

5 Methodology In mid-2005, IDC interviewed seven companies that had deployed from one to four Canon imagerunner 110 solutions. Companies ranged in size from 80 to 5,000 employees and had an average of 10,156 document users including both employees and customers. Participants included financial services, manufacturers, government agencies and a hospital. All companies interviewed for this study were identified by Canon. All study participants had either centralized printing datacenters or a combination of centralized centers mixed with distributed hosts at work groups. About half of the companies have adopted VDP. Most of the companies deployed the 110 solutions to reduce costs. However, after an average of 6 12 months, they have identified multiple benefits stemming from Canon's higher performance, reliability, and flexibility. The companies were asked to provide detailed information on printing in datacenters in their company, before and after the Canon implementation, as well as the investment in the Canon solution. IDC created the ROI analysis based on information gleaned from these interviews. Business Value Analysis Benefits of Canon Datacenter Print Solutions All companies in the study experienced a reduction in their printing costs and faster response times. Datacenter performance (output speed up 8%, print volume up 27%) enabled companies to support a growing variety of document requirements while at the same time reducing their costs. Reduction in printing costs accounted for 40% of the total benefits recognized by the companies in the study. Direct cost reduction was recognized in the following general categories: Systems integration and consolidation. Consolidating the assets into one or more datacenters made for optimized utilization of equipment and led to reduced printing costs. Consolidated equipment lower supplies, maintenance, click-charge costs Decreased service contract costs Lower software costs and software maintenance Reduced outsourcing Digital print capabilities. The single largest area of cost reduction was the reduction in document distribution costs, which accounted for 57% of printing cost reduction and 23% of total savings. Using the advantages of electronic distribution, companies were able to dramatically reduce their paper output and 2006 IDC #

6 the high costs associated with distribution, such as preprinted forms, courier services and mailing. In one example, a company was distributing 50,000 pages per month to 40 internal customers. Now they send most of their documents electronically nearly eliminating the requirement for a courier and the $70,000 annual cost. Another company experienced the benefit of eliminating mailings, stating, "Because we are converting to PostScript, we are able to create PDFs and documents totaling about 120,000 pages that we had to print before so we did reduce the mailing costs by as much as $2.5 million. In three years...it could be about $7 million." Print staff efficiency. Companies were able to reduce its print staff, which perform printing, scanning and distribution operations, by 6.2%, saving $2,476 per 100 users annually. One company was able to lower their labor costs by two FTEs by having the printers do the numbering of the pages before it goes to manual process. In addition, companies were able to lower training costs as fewer manual activities took place. Cost savings found in the study are summarized in Table 1. TABLE 1 Cost Reduction (per 100 users) Year 1 3-Year Total Average Print staff savings ( efficiency and training) $2,104 $7,429 $2,476 Systems consolidation and integration (lower supplies, maintenance, click charge costs; decreased service and maintenance costs, decreased running costs toner, click charges, maintenance) Digital print capabilities (reduced preprinted forms, courier services, mailing) $1,791 $5,972 $1,991 $5,363 $17,789 $5,930 Total $9,257 $31,189 $10,396 Source: IDC, 2005 Impact on Worker Productivity The single largest area of benefits enjoyed by the study participants (accounting for over half of the total annual benefit) was the increase in worker productivity. Worker productivity is a measure of the time that workers have to perform their primary job requirements. Worker productivity is treated as an indirect cost savings, but it has a direct impact on how the solution delivers value to the organization and translates into ROI. Worker time spent waiting for documents to be printed is only 80% productive by the measurement of the companies studied. Their Canon solutions increased productive 6 # IDC

7 time by delivering increased performance and higher reliability: Figure 2 shows the key elements of increased worker productivity: Faster printing meant workers spent 76% less time waiting for documents. Reprinting was reduced by 50% fewer errors. Help desk calls were almost eliminated, dropping from.2 hours per month to.03 hours per month per worker. Downtime hours, incidents and percentage of workers affected all significantly dropped, so total lost time dropped 85%. Overall, each worker was given back about 12.8 hours per year. FIGURE 2 Hours Lost Per Year Per Worker (Hours Lost ) Before Waiting for documents Help desk Reprinting Downtime After Source: IDC, 2005 Print Staff Productivity Print staff productivity also increased by 37%. Automation reduced the time for document layout, finishing, and mailing. Finishing was the biggest area of savings accounting for 89% of the print-staff timesavings. Better reliability and management meant 10% less time with help desk, 24% less time on maintenance, and 30% less troubleshooting, repair, and reporting. Hardware and software management went down 18% IDC #

8 Print staff productivity gains and cost savings are shown in Table 2. TABLE 2 Print Staff Productivity (per 100 users) Monthly Savings Annual Savings Help desk 10% $4 Hardware/software management 18% $65 Finishing paper documents 43% $1,683 Mailing paper documents 4% $11 Electronic document formatting and layout 10% $12 Maintenance (hardware/software) 24% $71 Troubleshooting & repair 30% $14 Reporting 55% $52 Total 40% $1,890 Source: IDC, 2005 ROI Analysis Total benefits over three years from cost reductions and productivity enhancements taken at 12% discount equal about $61,838 per 100 users. Total investment in Canon print solutions, including hardware and software purchase integration and deployment and ongoing maintenance and support, totaled $12,420 per 100 users. A benefit minus costs analysis yields an NPV of $49,417 per 100 users. Participants in the study all experienced a positive ROI of 398% on average and paid back the investment in a little over 4.2 months (see Table 3). TABLE 3 3-Year ROI for Datacenter Consolidation (per 100 users) Annual benefits (undiscounted) $25,908 Total investment $12,420 Net present value (NPV total benefits over 3 years discounted at 12% minus the total investment) $49,417 ROI = NPV/investment 398% Payback period (Investment/ first-year cash flow) 4.2 months 8 # IDC

9 TABLE 3 3-Year ROI for Datacenter Consolidation (per 100 users) Discount rate assumed 12% Source: IDC, 2005 FUTURE OUTLOOK Datacenters will continue to produce large volumes of print. Additionally, they will need to manage both hardcopy and electronic document output requirements. Competition from electronic document distribution and Web presentment will limit growth in print volume for standard datacenter print applications. Nevertheless, the sheer volume of print within datacenters will remain an attractive opportunity for hardware vendors and their channel partners for some time to come. The need of datacenters to work with multiple data inputs and to present documents in multiple formats increases the value of what solutions providers have to offer. Managers of datacenter print operations face an array of decisions that have to be made when upgrading their hardware and workflow. In many cases, they are not aware of what the market currently offers that will help them meet all their output needs. As a result, savvy suppliers who know how to leverage software and hardware partners to address datacenter challenges are well positioned to capitalize on the datacenter opportunity. The datacenter opportunity is also increasing because the printing industry is increasingly moving to open standards, away from proprietary workflows. Open standards enable datacenters to have greater workflow flexibility and vendor independence. Consequently, datacenter purchase decision makers have a broader spectrum of hardware and software providers to choose from. In the past, choices for hardware were typically limited to two to three suppliers. In effect, open standards open up this market segment, where in the past barriers to entry were very high. CHALLENGES/OPPORTUNITIES Addressing datacenter-printing needs requires a total solution that maximizes productivity. Datacenters produce mission-critical documents, and print production cannot afford to be stopped during tight print windows. Vendors selling into this segment must provide aggressive service level agreements. Inevitably a print engine will go down, and the customer must be assured that a service technician will be on hand to address the situation within the agreed upon service guidelines. Otherwise, the datacenter will be at risk of significant losses in productivity and increased costs. In fact, hardware vendors and resellers are already in the business of providing preventative maintenance and service agreements. For many resellers, enhancing service capabilities to meet the more demanding needs of datacenters is within the realm of possibility IDC #

10 Additionally, vendors selling into this segment will need to work with software partners that provide key enablers within the total solution. Partners can include companies that provide data-stream transform software, print servers, software for centralized job management, and workflow tools. Working with software partners may require new skill sets with regards to selling datacenter print solutions. To surmount this challenge, hardware manufacturers often facilitate sales and product training. Additionally, the software vendors themselves are eager to develop their own distribution channels and often prepared to assist in joint sales activities. Also, they are already set up to provide service and support on their software offering. While datacenters have unique requirements that produce new challenges, they nevertheless represent a significant financial opportunity for resellers. For starters, the initial equipment and solution sale into datacenters typically involves higher margins than office equipment. After the sale, the very high datacenter print volumes create the opportunity for substantial post-sale consumable and service annuity streams. Therefore, selling into datacenters can increase revenue and improve overall gross margins for resellers. Penetrating datacenters also creates excellent cross-sell opportunities within existing customers, enabling resellers to deepen relationships with strategic accounts and reducing the risk of being displaced by aggressive competition. Many resellers have expanded their relationships with IT departments as a result of selling increased numbers of connected multifunction peripherals. Resellers that already have relationships with CRD managers can leverage them to build contacts with datacenter print managers, bypassing difficult cold call sales. Most office product resellers face the obstacle of limited growth opportunities in core product segments (e.g., office copier sales). To remain competitive and to protect profit margins, resellers need to develop the capability to sell a range of solutions encompassing software and services in addition to hardware. Developing the core competency of selling into datacenters is an excellent opportunity to do this. Not only is this achievable, it also enables a reseller to differentiate itself from the competition. Consequently, datacenters not only represent profit opportunity for today, they also can be part of a strategy that ensures long-term competitiveness in a mature, but ever-changing market. CONCLUSION Datacenters present complex printing challenges. However, they also represent tremendous revenue opportunity for resellers because of the significant print volumes they produce. Print solutions providers who have not previously sold into these environments should consider this opportunity. Investments will need to be made in order to develop the capabilities to sell to datacenters. But if they are made wisely, then the risk will be well outweighed by the return on investment. 10 # IDC

11 APPENDIX IDC ROI Methodology IDC has developed an ROI methodology that measures the total costs of deployment and the sum of the savings achieved. The methodology calculates the ROI in a threestep process: 1. Ascertain the investment made in the purchase and implementation of the solution and the associated training and maintenance costs. To get an accurate assessment, IDC asked for the deployment, setup, upgrade, and maintenance costs, as well as the total cost of the software and training. 2. Measure the gains in IT staff and user productivity from deploying the solution, revenue recaptured from reduced downtime, and cost savings from increased IT staff efficiency and lower capital and operating expenses. Even in the full business case, most of the savings were hard dollar savings and only a small fraction would be considered soft savings. IT staff productivity indicates how effectively IT managers and their staff use their time. Besides reducing operations costs, gains in IT productivity can free up staff to implement new initiatives more rapidly, helping to create a competitive edge. Providing the productivity boost required to grow the business while keeping the IT staff headcount level flat is considered a hard savings area because only a fraction of the overall time saved by the team is counted toward a hard ROI result. User productivity is increasingly dependent on service uptime as organizations become progressively more network-centric. When users are unable to access network resources, their productivity may be severely impaired. User productivity also suffers when employees have to wait for help desk support or other IT administrative tasks. Because users often are able to move to other business applications when service interruptions or performance degradations occur, only a small fraction of the potential user impact time is counted toward the final ROI result. Lost revenue. Higher service availability also contributes to a business' top line because less revenue is lost due to downtime, and potential service penalties are avoided. Additionally, downtime can be costly in terms of diminished customer satisfaction and possible loss of a customer's business. Cost savings. IT staff efficiency is a measure of how well the IT management organization can achieve economies of scale and scope of work with its people, tools, and practices. To remain competitive, companies must be able to grow their systems and networks at a faster rate than the IT staff required to support them. Skilled IT professionals continue to be scarce; therefore, companies are expecting existing staff to take on more work and responsibilities. Because improved IT staff efficiency reduces payroll costs, the savings are hard savings. Other hard savings include cost reductions 2006 IDC #

12 from lower travel expenditures and from reduced spending on hardware, software, communications, and facilities. 3. Calculate the payback period and ROI for the deployed solution. From the results of the interviews, IDC was able to calculate the average payback period and rate of return from investing in Canon print solutions, as well as the net present value of the savings. IDC also calculated a separate hard ROI using only the hard savings and excluding the soft savings from improved IT staff and user productivity. IDC bases its calculations on a number of assumptions: Time values are multiplied by burdened salary (salary + 28% for benefits and overhead) to quantify efficiency and manager productivity savings. Downtime values are a product of the number of hours of downtime multiplied by the number of users affected. The impact of unplanned downtime is quantified in terms of impaired end-user productivity and lost revenues. Lost productivity is a product of downtime multiplied by burdened salary. Lost revenue is a product of downtime multiplied by the average revenue generated per hour. The net present value of the three-year savings is calculated by subtracting the amount that would have been realized by investing the original sum in an instrument yielding a 12% return to allow for the missed opportunity cost. Because every hour of downtime does not equate to a lost hour of productivity or revenue generation, IDC attributes only a fraction of the result to savings. As part of our survey, we asked each company what fraction of downtime hours to use in calculating productivity savings and the reduction in lost revenue. We then tax the revenue at that rate. Further, because IT solutions require a deployment period, the full benefits of the solution are not available during deployment. To capture this reality, IDC prorates the benefits on a monthly basis then subtracts the deployment time from the first-year savings. Copyright Notice External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the 12 # IDC

13 proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2006 IDC. Reproduction without written permission is completely forbidden IDC #