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Pharos Systems International

White Paper Document Output Management Market Position/Cost Savings Analysis

July 11th, 2003


Market Position – July 2003

Pharos Systems International

Overview The market for document output – printing and copying – has been in a state of technological change for the past decade. During this time, with rare exception, companies have had little focus on document output as a core Information Technology investment and subsequently, very few companies have managed their document output needs on a fact-based and controlled basis. This has led to large scale over investment in equipment and ongoing overpayment of daily operating costs. These costs represent a significant portion (1%-3%) of a customer’s revenues. With the help of new technologies and services to identify and manage document output, new awareness is emerging across many industries of the cost-savings and business process opportunities that can be gained through an increased focus on document output asset management. Today, companies can reap savings of more than $150 pr employee by simply managing document output. These savings can be realized with: 

limited investment of IT staff and resources,



no end user training,

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no impact on key business processes,

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very little capital investment,

and the savings can be easily proven and documented.

Situation Lack of Market Awareness

The vast majority of newly purchased copiers in the market remain standalone, despite the manufacturers’ technology changes that enable them to be network citizens. These new copiers are added to the older light lens technology brethren that are standalone by technology requirement. Collecting information on these devices has been labor intensive and distributed. Information on printing technologies has not been much better despite the fact that most of these devices are network citizens. The number of printers within an organization remains a mystery to most IT organizations. The volume of printing – and the demographics of that volume – remains an even greater mystery. Aided by the traditional “razor / razor blade” business model of inexpensive printers and expensive supplies has enabled printers to proliferate throughout the organization to the point where most institutions have a network printer for every three to four desktops. Most of these printers were priced low enough to have been purchased under the radar of typical departmental spending limits, with supplies purchases being made throughout the organization as one purchases pens, paper and pencils today.

All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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Market Position – July 2003

Pharos Systems International

Document Output is Expensive

The use of these document output devices is very expensive. Industry analysts suggest that the cost for document output fleets is typically 1-3% of revenue1. Through dozens of Pharos’ document output assessments and independent research, we have identified that the typical knowledge worker prints over 650 pages per month and copies an additional 350. Many industries will routinely surpass 1,000 pages of document output per employee per month. Industry analysts and even printer and copier manufacturers note that the direct cost2 of this output is routinely $0.05-0.08 per impression3. This equates to $50-80 per month per employee or $600 to $960 annually. This output cost often exceeds the cost of providing computer and desktop network services for those same employees. Figure 1: Production and Office Output: Pages Per Month

Monthly Paper Output Per Employee 295 pages

637 pages

Production copying Production printing Office fax Office copying

243 pages



99 pages

537 pages

Office printing

Source: Ashburnham Group analysis and industry metrics applied to the 1998 Fortune 1,000 US Companies and Fortune Global 500 Companies4

Poorly Managed / Unmanaged

Most organizations are not aware of this spending, nor do they have any process to track, account or control document output. Data on document output is difficult to collect, very decentralized and considered “low technology” by IT professionals. While purchasing agents may typically negotiate contracts for copier and printer purchases – and even supplies, their control of the actual purchases, audits of true invoices and identification of insufficient or excess capacity is non-existent. This has lead to an infra-structure that is rife with excess capacity.

1

Gartner Flash Report, April 9, 2001 Direct cost includes the amortized cost of the printer and copier, the maintenance of the device and the consumable usage of paper and toner. Color output and related network and support costs will increase these cost assumptions. 3 Managing Office Document Output in the Digital Era, Paula Bursley et al, Research and Advisory Services, Gartner Group, 12 October 2000, p19 4 The Knowledge You Need For the Office You Want, Xerox Corporation 2

All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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Market Position – July 2003

Pharos Systems International

Getting Worse

The situation for most companies is getting worse. Without implementing any control or measurement process, the companies continue to make decisions based on little to no data and therefore continue to invest in excess capacity. As the technology shifts further with multi-function product, printing capabilities are being added to existing standalone copiers and copy capabilities are being added to existing networked printers. Companies find that they are duplicating purchases department by department. In addition, color printing and copying is quickly being embraced by office workers and adds another, very expensive element to the document output environment. Color output costs are minimally 5 times the costs of black & white output but typically ten times the cost. These impacts have been accelerated in industries that have been undergoing employee reductions or company consolidations through mergers and acquisitions.

The Cost of Capacity

0.800 0.700 0.600

Low Utilization

HP 9000 MFP HP 8550 HP 5100 HP 4550

0.500 0.400 0.300

Average Utilization

0.200

30% Savings

Target Utilization

0.100

60 %

40 %

9% 20 .0 %

7%

3% 5. 0%

0.000

0. 2% 0. 6% 1. 0% 1. 4% 1. 8%

Cost per Page (5% coverage)

0.900

% Utilization

Figure 1 The cost of excess capacity – per page costs as usage declines per printer.

All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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Market Position – July 2003

Pharos Systems International

Solution Many organizations are stepping up to the challenge to rein in this element of excess spending. As companies aggressively pursue ways to save money – especially in important Information Technology spending, document output is very attractive and easy target for reduction. Easy to Fix

Document output technologies are in a mature state. Copiers, printers, and multi-function products are rapidly becoming commodities in the market and will increasingly be so as copier and print vendors encroach on each other’s traditional spaces. End users are little enamored with the need for specialty services in office output. Reliable and functional equipment is readily available. The vast majority of institutions have a very large excess capacity for output. The result of a typical Pharos Rapid Output Assessment from an actual customer with 511 employees is included as an appendix to this white paper. As collected from multiple assessments, the average printer utilization is less than 2% of total capacity, with many printers operating at less than 1% of total capacity5. These institutions generally do not need to purchase new infrastructure to capture savings, rather they can capture savings by reducing their infrastructure. Removing excess capacity can reduce per page costs by $0.05-0.10 between low and reasonably utilized printers6. Simple, non-intrusive and easily implemented software solutions can simply identify points of excess capacity and make recommendations to reduce the capacity by eliminating unneeded equipment. This has the dual effect of eliminating real expenses for equipment lease and maintenance and also reducing per unit costs by pushing the remaining devices to their optimal utilization. Typical savings of 25-40% can be realized through this management activity7. This equates to savings of $150 to $350 per employee per year. Low Business Impact to Optimize

A project to optimize all of the output devices within an organization can be undertaken with minimal disruption and limited impact to business operations. Most organizations can consolidate numerous output devices that are within feet of each other, leaving employees fewer choices of locations to print, but with no further to travel to get their output. Since most devices are running at less than 3% of their capacity, there is little impact to queues at the devices as well. To capture these first level savings, employees need not change any behavior nor receive any additional training. The negative impact of reducing the number of output devices for each employee is very short5

For the purpose of this analysis, capacity is defined as throughput speed for a single shift usage. Most vendors recommend a duty cycle for these devices at between 40 and 60% of this capacity. 6 Based on HP published printer purchase amortized over 48 months, maintenance, and supplies at 5% toner coverage per page. 7 Output Assessment Tools May Lower Output Costs 40 Percent. Gartner Group, February 2003 All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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Market Position – July 2003

Pharos Systems International

lived. More importantly, implementing a document output asset solution does not directly impact and therefore jeopardize core business processes. We are aware of no other cost savings opportunity this significant with this little impact to business operations and this ease of implementation.

Execution Many organizations can implement these programs themselves with a minimal investment in software and staff training. The technology is relatively straight-forward and the skills already available within the institution to reduce the output assets and renegotiate contracts. However, we typically see organizations relying on consultant specialists to analyze and provide recommendations on output consolidation. This model has less impact on the short-staffed IT resources and the dual advantage of experience and independence for the company. Developing Market Capacity to Support

Most copier and printer manufacturers as well as document outsourcing companies are providing some level of document output assessment consulting services. While these organizations know more about output equipment and usage profiles than other service providers, they do have the negative incentive of also selling output devices in addition to this consulting service and can be viewed as biased. Several independent consultants are beginning to see this market opportunity and establish business consulting practices around document output asset management. Several are offering cost savings “sharing contracts” to reduce the risk and upfront costs to the target organizations. While these consulting groups are emerging, there is still less capacity to provide this important consulting service in the market than demand would justify. We anticipate an increasing focus on this consulting opportunity over the next several quarters as this opportunity proves itself throughout end customer sites. Key Business Processes Creating Additional Demand

This market for document output infrastructure and management tools is also being aided by vertical industry requirements for document accounting anc control applications. Among these requirements are: ƒ

Print Cost Recovery

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Client Chargeback

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Security

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Department Billback

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Outsourcing Audit and Control

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Business Process Output Assurance and Tracking

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Waste Reduction

All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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Market Position – July 2003

Pharos Systems International

The significant cost savings opportunities that are available to organizations by better managing document output devices will begin to become commonplace. This will elevate the importance and real costs of document output management within the IT Asset management organization and create additional focus and demand for the above services. Summary

Document Output management represents a significant cost savings opportunity for organizations and institutions of all sizes. They simply need to acknowledge the opportunity exists and do something about it. Pharos Systems has the software and services available to make this the easiest IT improvement project you’ve ever done. Let’s start today! (www.pharos.com)

References Managing Print Costs with Usage Based Solutions, Gartner Group / November, 2002 The Page Wars: Copiers are Losing the Battle, Gartner Group / January 2001 Output Assessment Tools May Lower Output Costs 40 Percent, Gartner Group / February 2003

All material contained in this document is the property of Pharos Systems International. This document may not be reproduced in whole or in part and may not be distributed without the written consent of Pharos Systems International.

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