Leaner and Keener Telecom Operators Eliminating Waste Boosts the Bottom Line

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1 Perspective Andreas Späne Dr. Florian Gröne Olaf Acker Dr. Roman Friedrich Leaner and Keener Telecom Operators Eliminating Waste Boosts the Bottom Line

2 Contact Information Berlin Dr. Florian Gröne Senior Associate Delhi Suvojoy Sengupta Dubai Karim Sabbagh Düsseldorf Dr. Roman Friedrich Frankfurt Andreas Späne Olaf Acker Principal Hong Kong Edward Tse Senior Houston Kenny Kurtzman London Michael Knott Madrid José F. Arias Milan Luigi Pugliese Moscow Dr. Steffen Leistner Paris Pierre Péladeau São Paulo Ivan De Souza Senior Sydney Simon Gillies Tokyo Shigeo Kizaki Booz & Company

3 EXECUTIVE SUMMARY In mature telecom markets, declining prices, near saturation, and fierce competition for new products and applications have squeezed margins. Despite all their efforts to drive process excellence and increase cost efficiency, telecommunications companies are running just to stand still. This need not be. Telecom operators still waste more than 30 percent of process-related operations expenditures, though they may not realize where. A lean approach can bring a quick payback by eliminating waste and creating a robust platform for maintaining future margins. The key is understanding, streamlining, and controlling the complexity of processes and products that are threatening to choke telecom companies as they strive to satisfy customer demands using legacy processes, procedures, and systems (or parts of them) and at the same time introduce technology-rich new products. In European and North American telecom markets where prices are under pressure and revenue per user is falling, companies have stripped down operations to optimize cost efficiency where they can. These makeovers usually result in savings on a functionby-function basis. Missing is an endto-end view that identifies the various flashpoints in one silo that contribute to waste and increase costs in another. This transformation requires an evaluation of each process that feeds into the bottom line in order to eliminate all process steps, activity handovers, communication touch points, and product and pricing options that do not create value for the business and its customers. It means viewing telecom companies through the lens of factory-style automation in what has become, or is fast becoming, a commodity business. Telecom operators in mature markets will have to undergo this kind of lean transformation if they are to maintain a competitive edge. This Perspective shows operators how to cut waste to increase profitability while improving operations and customer service. Booz & Company 1

4 BEYOND SATURATION The drive to maintain margins in the saturated telecom market has triggered cost cutting and efficiency efforts. But if these exercises are focused on individual functions within the organization billing, customer service, product development, marketing, personnel companies will not realize the savings of 30 percent or more in operations expenditures that are possible. Achieving that savings requires a holistic analysis of all operations and corporate culture to remove any kind of process waste: a lean transformation. The best analogy for this comes from the world of process manufacturing. Telecom operators need to see all parts of their operations as assembly lines that produce only what their customers want and/or are willing to pay for. Each process must add value to the end product, be it fulfillment, billing, or customer service. Companies have to be ruthless about what products and processes they decide to keep, what they can automate, and what has to go. In an industry burdened by legacy systems in both technology and sales cultures, this kind of change is far from easy. The complexity that has overtaken the telecom business has resulted in organizations with technology frameworks, tariff structures, and product catalogs that if plotted on a chart would resemble a Jackson Pollock painting. One European operator found that it was offering 20,000 different tariffs to 15 million customers in one country; after it analyzed its processes and customer needs, the number of tariffs was reduced to 8,000 (see Exhibit 1). But lean transformation is not just a matter of cutting operations expenditures; it is a matter of survival. In today s market, a telecom company will find pricing pressures unsustainable if it cannot slash expenditures. Exhibit 1 A Typical Operator Can Significantly Reduce Complexity with a Lean Transformation ILLUSTRATIVE BEFORE AFTER IMPACT Process Steps 2,400 2,000-17% Product & Tariff Options 20,000 8,000-60% Organizational Handover Interfaces % Systems & Applications % Process Cash Out 100% 70% -30% Source: Booz & Company 2 Booz & Company

5 THE LEANER AND KEENER TOOL KIT: TAMING COMPLEXITY Complexity is a fact of life for telecom operators, but it is also a cost driver. Legacy systems are maintained alongside next-generation networks. Short product life cycles and overheated marketing are overwhelming the operators, which resort to ad hoc solutions that appear to offer customers what they want, but in fact mask additional costs. These costs, however, may not show up until further down the service delivery chain in other areas of the business, where their root cause may be understood but cannot be addressed across functional boundaries. This is particularly true in sales and marketing. Huge product offerings, pricing bundles, and individually tailored discount schemes result in extra work and complexity in service fulfillment. They make effective customer care more difficult and can force the creation of manual workarounds in billing operations and IT because billing platforms cannot be economically customized to automate every tweak that sales and marketing puts in place. Process complexity ends up costing more than the incremental business brought in by sales. In addition to inflating costs, this hurts corporate reputations as operators cannot always deliver on sales promises. Only when there is end-to-end cost transparency will it be possible to stop a salesperson, whose paycheck is tied to commissions, from closing a deal that he or she knows may create costs in other departments. If the sales Costs may not show up until further down the service delivery chain in other areas of the business. Booz & Company 3

6 commission includes a way to factor in order processing costs, there will be an incentive to drive down complexity and reduce costs. There are four key dimensions in which waste can be eliminated: processes, organizational structure, products, and systems. The lean approach examines end-to-end operations, irrespective of departmental boundaries, beginning with an assessment across each dimension. Processes: Identify if process steps are redundant or unclear and whether they create bottlenecks or unnecessary delays. For example, processes may differ across locations, creating friction, or may not be formalized at all, causing front-line employees to improvise or reinvent how they do things. Organizational structure: Assess over-fragmentation, duplication of responsibilities, or gaps in process oversight. For example, there may be too many handovers between teams and departments to complete one process activity, or it may be unclear who has responsibility for overseeing a process from end to end. Products: Assess the incremental value and/or sales volume associated with products, prices, and tariff options and eliminate options with no or low value added. Systems: Identify missing interfaces, duplication in data entry screens, lack of automation in data validation, and issues in process execution. Once this assessment is complete, the leaner and keener tool kit applies best practices from the world of automated mass-customized production in manufacturing to increasingly complex service industries, such as telecommunications (see Exhibit 2). The goal is to use standard components, similar to the automotive industry s use of standard chassis, to build a product offering that looks custom-made to the customer, but isn t. A holistic, cross-functional analysis and subsequent lean transformation based on this principle can reduce expenditures The lean approach examines end-to-end operations, irrespective of departmental boundaries. 4 Booz & Company

7 Exhibit 2 The Leaner and Keener Tool Kit Lean Transformation Transform & Embed To ensure broad organizational buy-in & deliver fast & enduring results (continuous improvement) Redesign & Measure Business Process Redesign Tools To ensure industry-specific, strategy-based process redesign Six Sigma To ensure consequent customer focus & measurable performance based on key performance indicators Assess & Standardize Telecom Industry Reference Framework (e.g., etom) To ensure full coverage of industry standards (processes, systems) IT Industry Reference Framework (e.g., ITIL) To complement etom & to build foundation for potential certification of ICT service delivery processes Operator-Specific Framework To match organization-specific language to ensure buy-in & avoid misunderstandings Source: Booz & Company Booz & Company 5

8 by as much as a third and provide customers with better solutions and services while significantly reducing the level of frustration within the organization. Show Me Where It Hurts: Assess and Standardize Every end-to-end process requires a baseline analysis of points of waste. For telecom operators, it helps to use an industry-standard process framework such as etom or ITIL as an assessment structure in order to ensure that all relevant processes are covered. The common, neutral language used by these standard frameworks also helps to facilitate an honest assessment that goes beyond shop think of the ad hoc solutions that have become sacred cows within departments but need to be analyzed for potential savings. People on the front lines know how and where process failures lead to headaches in daily operations. Give them a safe workshop environment in which to speak openly, clear assessment guidelines, and fair moderation to ensure a constructive, forwardlooking discussion, and they will identify the root causes of bottlenecks and breakdowns, and suggest solutions. These workshops must include all functions to ensure an end-to-end overview, and have clear support from the division directors or senior management across the departments involved. The causes of waste are not isolated in one department. The first step is mapping these points of waste be they inconsistencies in order taking across channels that add layers of needless complexity to the fulfillment process, or overlaps in product portfolios that confuse the sales staff, service representatives, and customers alike. There are a number of effective tools to use in this exercise, including process visualization, waste walks, and customer value stream mapping; the goal is to understand how people carry out process transactions in reality, not just on a theoretical or conceptual level. Putting senior managers in front of the six different screens required to enter an order for a convergent product bundle, or having them spend a morning with a service engineer who is juggling dozens of technical incident tickets in parallel, can be an eyeopening experience. The result of this mapping operation will be a points-of-waste inventory. In one example, the exercise uncovered more than 600 points of waste across People on the front lines know how and where process failures lead to headaches in daily operations. 6 Booz & Company

9 15 top-level process domains from sales-lead management all the way to bill collections. Design the Lean Future: Redesign and Measure The redesign of operations to eliminate waste should focus on the areas of highest impact. These must be prioritized, based on what is feasible in the short, medium, and long terms. Depending on the root cause, redesign may focus on process procedures, organizational structures, IT automation, or product portfolio streamlining or any combination of the above using business process redesign tools and Six Sigma principles. Companies must continually keep in mind the mantra that if it doesn t serve the customer or the customer is not willing to pay for it, it gets the ax. The end-to-end approach requires first that someone is identified as responsible for processes from start to finish, and second that a focused set of key performance indicators is clearly defined. Redesign may not achieve optimal efficiency the first time around. A lean transformation requires flexibility and the ability to measure and improve in an iterative way. Make the Change Happen: Transform and Embed Short-term benefits from quickfix cost savings will emerge as soon as the top-priority points of waste are identified and addressed. Long-term transformation that produces sustained and continuous improvement comes from embedding the lean transformation capability into the corporate DNA. This may require significant management changes to introduce the practical components of the leaner and keener tool kit. These include, for example, a clearly defined process governance framework a systematic lean process audit and bestpractice management capability to measure process performance and identify areas for change. In this new system, not only management but also the broader workforce needs to be empowered to make lean improvements on an ongoing basis. This requires access to information on process performance to determine the effects of potential improvement measures, decision rights that make it easy to execute improvements without excessive approval layers, and clearly defined incentives to encourage people across all functions to contribute cost-saving ideas, as well as training and skills development to bring the right level of lean know-how, tools, and methodology to all levels of the organization. To succeed, this lean transformation cannot be a static, one-off event. Telecom companies in mature markets need to reengineer their operations when and as the market dictates and be constantly mindful of where waste can undermine efficiency and jeopardize profits. Booz & Company 7

10 CONCLUSION We know that taming complexity and streamlining operations can reduce operational costs by a third and provide customers with better service. The up-front savings achievable in the short term six to 12 months will cover the costs of the initial assessment that identifies how and where to implement a lean transformation. The good news for telecom companies faced with stalled revenue growth is that there are ways to significantly reduce expenditures. Operators that do not undergo this lean transformation, however, will find themselves unable to compete. The decision to adopt a lean and keen approach needs to be made now. 8 Booz & Company

11 Resources Evolution or Revolution? Strategies for Telecom Billing Transformation. Multi-Channel Customer Management: Delighting Consumers, Driving Efficiency. Management.pdf Next-Generation Customer Service: The New Strategic Differentiator. About the Authors Dr. Roman Friedrich is a Booz & Company partner based in Düsseldorf and Stockholm. He leads the firm s communications, media, and technology practice in Europe, and specializes in the strategic transformation of fixed-line and mobile communications, technologybased transformation, and sales and marketing in the communications, media, and technology industries. Andreas Späne is a partner with Booz & Company in Frankfurt. He focuses primarily on telecommunications companies and specializes in strategic restructuring and efficiency improvement programs, as well as in development and implementation management of complex IT/technology strategies. Olaf Acker is a Booz & Company principal based in Frankfurt. He focuses on technology strategy for communications, media, and technology companies. Dr. Florian Gröne is a senior associate with Booz & Company in Berlin. He supports telecommunications companies and information and communication technology service providers in developing their market positioning strategies and improving IT operations efficiency. He also works on customer relationship management strategy and architecture across industries. Booz & Company 9

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