Telcos : get LEAN and MEAN not EXTINCT !!

Presentation1

Telcos are under constant pressure to optimize operational costs, gain agility and offer superior services to customers. In a wicked competitive environment , containing costs, streamlining operations, retaining customer loyalty, and maximizing the Average Margin Per User (AMPU) becomes a business imperative. Short product life cycles and over¬heated marketing are overwhelming the operators, which resort to ad hoc solutions that appear to offer custom¬ers 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.

Complexity is a fact of life for telecom operators, but it is also a cost driver. Legacy systems are maintained alongside next-generation networks .The complexity that has overtaken the telecom business has resulted in organizations with technol¬ogy frameworks, tariff structures, and product catalogues that if plotted on a chart would resemble a Jackson Pollock painting.One European oper¬ator found that it was offering 20,000 different tariffs to 15 million custom¬ers in one country; after it streamlined its processes to respond to real customer needs, the number of tariffs was reduced to 8,000 !! Analysis by the BCG shows that Telecomms is one of the most inefficient industries with over 40 % of its cost base gobbled up by waste in various telecoms processes.

So what do we do ?? To start with look at TM Forums’s Business Process Framework (eTOM) : a widely deployed and accepted model and framework for business processes in the Information, Communications, and Entertainment industries. As a key part of TM Forum’s Frameworx, the Business Process Framework represents the whole of a Service Provider’s enterprise environment in a hierarchy of process elements that capture process detail at various levels.The Business Process Framework (eTOM) describes and analyzes different levels of enterprise processes according to their significance and priority for the business . For CSP’s , the Business Process Framework serves as the blueprint for process direction. Here are some case studies to vindicate e TOM’s effectiveness.

Qwest wanted to transform its service delivery to shorten the time-to-market for new products, including cloud services, reduce its operating costs, and have visibility and traceability from products to services to resources. It was also determined to reduce individual service component redundancy and enforce Qwest’s high standards for the overall customer experience.To reduce investment risk and prove the viability of what it wanted to achieve, the operator and its partners turned to TM Forum’s Frameworx and Catalyst Program before it embarked on the transformation. Within a year of the deployment Qwest saw a 4 percent increase in revenue, a 5 percent cost reduction, a 25 percent improvement in new product deployment cycle times, and a decrease in unique provisioning and assurance job steps.

Magyar Telekom’s project to convert a legacy provisioning system into a single platform successfully enables the provisioning and activation of multiple product lines. The implementation relied heavily on TM Forum Frameworx and is delivering many benefits. They include cutting service activation by 20 percent and increasing the ratio of successful automated activations by 30 percent. Time-to-market for services was reduced by up to 20 percent, while the time needed to integrate new network management systems fell by 30 percent. When manual interventions are needed, they take 70 percent less time. The deployment of a zero-touch home gateway has lessened field force activity by 30 percent. New and existing services are being migrated to a new platform, and CRM will be enhanced to support trouble ticketing and the management of service level agreements.

Concurrently with e TOM an approach called Lean Six Sigma ( used so succefully in corporates from the Fortune 500 financial , manufacturing and service industries ) can be implemented to cut waste and inefficiency in Telco processes. Lean Six Sigma is a managerial concept combining Lean and Six Sigma that results in the elimination of the eight kinds of wastes / muda (classified as Defects, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, Extra-Processing) and provision of goods and service at a rate of 3.4 defects per million opportunities (DPMO). Lean Six Sigma utilises the DMAIC phases similar to that of Six Sigma. DMAIC (an abbreviation for Define, Measure, Analyze, Improve and Control) refers to a data-driven improvement cycle used for improving, optimizing and stabilizing business processes and designs.

There are 4 overarching strategies in the endeavour to create a LEAN MEAN Organisation.The categories can be seen as structural, transformational, changes with high complexity. Pursuing any of these should not be seen as a replacement to the first strategy of continuous improvement – there is always something more that can be done to improve the efficiency within the business as it is today.

# Improve cost efficiency and productivity through automation, centralisation, market differentiation and reengineering of work processes (including partnering)
# Realise national economy of scale by mergers & acquisitions with competing operators (including network sharing)
# Achieve international economy of scale by implementation of cross-border working processes
# Leverage national economy of scope by integrating fixed, broadband, TV or mobile businesses

Today, every aspect of your telco’s operations needs to be measured against the touchstone of COST EFFICIENCY to ensure it brings profits. Whether it is investment in Transformative IP programs, in merging and acquiring enterprises, or in outpacing competition; eliminating redundancies and optimizing processes is essential. Getting rid of people ( to cut costs ) hardly requires imagination unless senior execs have overloaded the Company with relatives , buddies and PA’s who double up as girlfriends !! Using both e TOM and Lean Six Sigma Telcos can cut costs INTELLIGENTLY in a variety of areas as identified by the gurus at AT Kearney :

Network, marketing, and IT : These three areas have the most potential for optimizing operational and capital expenditures, typically by reducing complexity.

Supply chain and procurement : Some Global Telcos aspire rapid international growth—often through acquisitions presents plenty of opportunities to improve supply chain and procurement capabilities. By standardizing purchasing requirements and internal technical specifications, consolidating volumes, and optimizing deals with suppliers, operators can cut costs without affecting core operations.

Back office : Consolidating back-office functions such as HR and finance, potentially by establishing central or regional shared services, can increase efficiency

Information technology : Centralizing IT services and standardizing or consolidating applications and hardware can substantially reduce costs and often improve service.

Infrastructure sharing : Sharing infrastructure among operators is another way to optimize costs and leverage economies of scale. For example, Bharti, Millicom, and Vodafone (Spain, Germany, U.K., India, and Ireland) have shared networks with other operators. In Sweden, 3 and Telenor’s joint venture, 3GIS, covers around 70 percent of its network with shared infrastructure.

Outsourcing: Outsourcing non-core activities, such as fleet services and facility management, can improve efficiency and allow more management focus on customers. Newer outsourcing models include managed capacity, where an outsourcer is paid on a variable utilization or capacity basis. These models, besides increasing efficiency, reduce risk, and limit financing needs while fundamentally shifting the focus from operations to customer experience and partnership management.

Energy efficiency : Energy efficiency can cut costs while reducing environmental impact. France Telecom-Orange, for example, is aiming to reduce energy consumption by 15 percent between 2006 and 2020. By the end of 2010, the group had fitted more than 8,000 network sites with optimized ventilation systems, cut energy consumption at data centers, and installed solar-powered base stations (mainly in Africa and the Middle East).

Telenor, for example, reduced its software licensing costs by 34 percent by replacing local licensing agreements with global deals.Telcos will need to use the full scale of their groups to create synergies, reduce external spending, and benefit from solid supplier relationships, which can bring earlier access to new handsets and network equipment.Bharti Airtel’s so-called “Minutes Factory” has enabled it to target millions of pre-paid customers that would have been too costly to serve using the conventional subscriber-led model. The factory’s key elements include outsourced network equipment, which enables fixed costs to convert to variable costs. Bharti’s partnerships enable it to add network and IT capacity quickly and efficiently, as needed.

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 using eTOM and Six Sigma methodologies.The good news for telecom companies faced with stalled revenue growth is that there are ways to significantly reduce expenditures. Telecom carriers will have to lower their operating expenses for traditional telecom services to maximize free cash flow, which can be invested in nontraditional services. Telcos must focus on operating efficiency when offering a suite of non traditional services in the 4G data world services, as there are no “killer” applications.

Operators that do not undergo a lean transformation, however, will find themselves unable to compete. The decision to adopt a lean and mean approach needs to be made before you become extinct !!

Sadiq Malik ( Telco Strategist

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