When 600 workers jumped on their tech company's new "Bring Your Own Device" smartphone program, expenses went through the roof: collectively $300,000 over budget in the first year, says Network Sourcing Advisors, a mobile consultancy that helped the company rein in costs.
"It was just outrageous," says David Schofield, partner at Network Sourcing Advisors.
After Network Sourcing Advisors exposed hidden costs and crafted a comprehensive policy for the tech company, expenses dropped. Now the cost of BYOD is only slightly higher than the cost of company-issued smartphones that preceded it.
Truth is, most companies would do well to break even with BYOD smartphones. Hidden costs can spiral out of control and wreak havoc on a company's bottom line. That's not to say companies shouldn't adopt BYOD. Rather, they might want to learn what they're up against when it comes to BYOD's dollars and sense.
The aforementioned tech company's biggest misstep: trusting employees to do the right thing. Network Sourcing Advisors found widespread employee abuse, such as expensing family plans, upgraded phones and termination fees, signing up for maximum data plans even though they weren't necessary, and racking up thousands of dollars in overseas data charges.
Network Sourcing Advisors ironed out an enforceable policy that included a monthly stipend for BYOD expense reports. If an employee goes over the stipend and still wants to get reimbursed, he'll have to prove that the overage is business related and that steps were taken to reduce costs.
"It was a significant cost reduction for the company," Schofield says. "But even in their stipend situation, people are still over-buying. In BYOD overall, they're net losing, although not as much as they were."
Cost Savings: BYOD's Mixed Message
The idea that a company spends more on BYOD smartphones than company-issued smartphones flies in the face of conventional wisdom. After all, if companies no longer have to pay for phones, then that should add up to a whole lot of savings, right?
(To be fair, many companies choose to adopt BYOD not for cost savings but increased worker productivity. Intel, for instance, claims to have a return of $7,500 per BYOD employee per year, in the form of 57 extra minutes a day per employee, compared to $2,500 per employee to enable, manage and secure BYOD, reports InfoWorld.)
Slideshow: 15 Best iPhone Apps for Busy CEOs
High-tech companies such as Cisco, VMware and Ingram Micro began mandating BYOD smartphones, and they're claiming huge cost savings. "I feel very comfortable saying that I will save seven figures this year," VMware CIO Mark Egan told me earlier this year.
But these cases just might be the exception, not the rule.
Last month, Nucleus Research predicted BYOD will decline in 2013, stating: "The reality is that the support costs, compliance risks, and usage reimbursement typically lead to a higher total cost of ownership with no discernible return on investment or productivity gains. As enterprise CFOs take a closer look at the true pros and cons of BYOD in 2013, they will seek to pursue the most fiscally responsible option: corporate-based accounts."
BYOD Hidden Costs Revealed
Adding up the cost of transitioning from corporate-owned smartphones to BYOD smartphones is messy business. In order to clear up some confusion, we've broken down a few hidden costs:
Transition costs: Make no mistake, the transition to BYOD is labor intensive. It's a good bet there are a lot of company-owned smartphones lying around. Employees will have to take over liability. This means they'll have to work closely with carriers, which aren't known for providing stellar customer service.
Companies might have to hire a consultancy to ease this transition before it leads to thousands of upset and unproductive employees.
"We average about 20 to 25 minutes per user to convert from a corporate-liable to an individual-liable line-and we're good at it," Brandon Hampton, a founding director of Mobi Wireless Management, a software and services provider advising Fortune 100 companies on wireless strategies, told CIO.com. "If you've got a few thousand users, you can do the math."
Subscription costs: In the corporate-issued smartphone scenario, a company can pool phone and plan purchases for a volume discount. An average-sized company can get the monthly wireless bill to around $50 per user. The best an individual employee can do in a similar plan would be $80. Under a BYOD scenario, this works out to $360 more per employee per year.
David Schofield, Network Sourcing Advisors
Even worse, BYOD is supposed to mean that the employee shoulders the cost of the phone, but companies actually will end up paying for most of it. Consider this scenario, courtesy of Slate
When an employee dips into his pocket to buy a $200 subsidized iPhone from AT&T, the cheapest two-year contract is $85 per month for 1GB. Most, if not all, of this monthly bill will be expensed. Thus the company will end up paying $2,040 over two years.
It doesn't make sense for the employee to purchase a non-subsidized iPhone for $650 and hook it up to T-Mobile. Never mind that the monthly rate from T-Mobile sans a contract would be only $60 per month for twice the data, 2GB, totaling $1,440 over two years-or nearly $600 less than the subsidized iPhone on AT&T.
In essence, the company operating under BYOD is paying for the iPhone as the carrier subsidy finds its way onto the expense report.
Employee behavior costs: Employees like those at the aforementioned anonymous tech company aren't bad people. But employee behavior naturally tends to favor their own wallets. That is, they'll ask for the highest stipend and sign up for the biggest data plan so that they won't be hit with overage charges.
Also, BYOD employees will often try to use up their entire stipend every month, in order to get the most bang for the expensed buck.
While Intel puts a lot of trust in its BYOD employees, others will use technology to watch employees. Schofield has seen many cases where globe-trotting employees expensed mobile bills worth thousands of dollars under the BYOD policy that went through because no one was watching.
The trick is to get employees to think about BYOD smartphone usage pragmatically, which includes finding a realistic plan to match their use case and taking the time to look for free WiFi spots, especially when overseas. But that's hard to do.
"A BYOD employee will tend to over-purchase," Schofield says. "You have to set boundaries."
Expense reporting costs: On the topic of expense reports, Aberdeen Group released a report earlier this year that found a typical mobile BYOD environment costs 33 percent more than a well-managed wireless deployment where the company owns the devices.
A big reason for this is the hidden cost of processing expense reports. A BYOD policy will undoubtedly lead to employees filing more expense reports. A single expense report costs about $18 to process, says Aberdeen. (For more on this, see BYOD: If You Think You're Saving Money, Think Again.)
And it gets worse. "Chances are, if you have all these BYOD expense reports, you may need telecom expense management software," says Schofield. "That'll run you $3 to $4 per user, per month."
Training costs: Expense reports can lead to another hidden cost, in the form of BYOD training. In the old days of corporate-issued smartphones, IT traditionally monitored use. Any spikes in data usage or minutes could be automatically flagged.
In today's expense report-driven BYOD environment, other groups will be making sure employees don't game the system. Will these groups have the capability to monitor BYOD smartphone usage? Will they even know what to look for?
"Training is one of the biggest costs, but I don't know how to track it," Schofield says.
Support costs: Much has been written about BYOD support costs because it's such a moving target. CIOs who have ushered in a BYOD smartphone mandate say that the actual number of BYOD smartphones is almost always more than the previous number of corporate-issued smartphones, yet the percentage of help desk tickets decline.
It's important to look at the total number of help desk tickets, not the percentage. Chances are you'll find that your IT department is handling more tickets. It's a hidden cost of BYOD.
Project rollout costs: Nothing increases cost like a project that starts and stops, and starts and stops again. BYOD is one of those projects. The problem is that BYOD touches all parts of an organization: IT, legal, HR, finance, business units, even maybe customers.
A common case: BYOD smartphones get pushed out by IT as the CIO hopes to reap cost savings. Business units get involved to determine which employees are eligible, which, in turn, drags in the human resources department. The process gets bogged down because the finance department realizes it has to deal with the expense reporting. Legal comes late to the game to hash out employee privacy issues.
If all these departments aren't involved from the get-go, Schoefield says, "it's going to be a long slide."
Slideshow: 15 Ways iPad Goes to Work
Then there are the unexpected twists and turns. For instance, let's say a company institutes a BYOD smartphone mandate. One of the employees has a poor credit rating and can't obtain a phone with enough data and minutes to do his job. Does this impact his future with the company? By having to disclose his poor credit rating, was his privacy violated?
BYOD is wrought with these kinds of complex issues and hidden costs. Unfortunately, too many companies jump on the BYOD bandwagon without proper planning, only to get a reality check on their balance sheets.
"Companies that are not really getting out in front of this, it's kind of embarrassing," Schofield says. "They're not seeing cost reduction, they're seeing cost transfer to other areas. And in some cases, it's going up."
Tom Kaneshige covers Apple and Consumerization of IT for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Tom at email@example.com
Read more about consumer it in CIO's Consumer IT Drilldown.