Effective Operational Transformation:

Effective Operational Transformation:

The Delta Perspective

Effective Operational Transformation: ACT now to ACE the telecoms game
 

Gaurav Govil - Principal - gg@deltapartnersgroup.com
Aditi Asthana - Analyst - ada@deltapartnersgroup.com
 
Overview
Telco operators are today faced with a whole new breed of challenges borne out of a fast-evolving and increasingly unfamiliar market environment. In response, they implemented tactical solutions which have not proved entirely sufficient. What is truly required is a root-and-branch review of the organisation and complete, bottom-up, employee-inclusive transformation so as to adapt to the changing needs of today’s reality – and not just deliver another short-term fix.
 
This paper seeks to outline the operators’ requirements to thrive in this environment by achieving agility, superior customer experience and efficiency and the means to do so through all-inclusive, company-wide transformation.
 

The need for change: Keep pace or keep

The telecom industry is rapidly evolving giving rise to a new, exciting playing field. With each technological innovation, we hurtle forward exponentially, paving the way for yet more growth. However, these new changes bring with them new challenges, forcing operators to deviate from their well-trodden path to profitability through traditional voice and data services. This upshot of the telecom revolution falls under three primary domains:
 
Dwindling overall profitability:
The most evident effect of the new challenges can be seen through reduced profitability. EBITDA takes a hit as customer usage shifts from high-margin voice and SMS services to low-margin data and depressed prices due to competition and regulation. Further on in the financial statements, net cash flows show a further downward trend as operators invest in the infrastructure needed to meet exploding demand and maintain quality of service. The need of the hour is operational efficiencies that can successfully control costs and thus maximise profits.
 
Increasing customer demands: 
At the crux of the issues plaguing operators lies the modern-day-out consumer who is now in a much better position to make informed decisions. It is not surprising then that the increasing knowledge and options are accompanied by increasing demands. Mobile phone users are well aware of their needs and impatiently expect these to be promptly fulfilled. Such impatience leads to greater willingness to change service providers, causing unprecedented levels of churn. It is thus very important for operators to successfully engage with their users to provide them with a level of customer experience that can sustain them while their demands are met to ensure continuing loyalty.
 
Keeping up with technology and competition:
The very source of growth – technological innovation – is also the one that poses the most significant risk. Operators have to constantly innovate and improvise so as to not be waylaid by shortening product life cycles. It no longer suffices to have a solid, legacy value proposition if it cannot be quickly adapted to cater to the constantly-changing demands of technology and the end user. Further, more and more players are entering the telecoms market, eager to embrace the technological boom, leading to overcrowding and shrinking shares of growth. On top of direct competition, the number of substitutive telco options are also on the rise, luring away customers. These factors compel that go-to-market strategies are highly efficient and timely to ensure that the product is not obsolete before it has even established itself successfully. All in all, operators need to be constantly on their toes and develop a heightened sense of awareness and agility of response.
 
Of course, no operator remains unperturbed by this shift in the balance of power. With external dynamics beyond their control, they thus turn inwards for the solutions to thrive in this adversity. To reiterate:
 
-Increasing competition and – fast-changing technologies call for inherent Agility through shorter time to market and faster decision-making.
-The smarter customer – demands Customer experience excellence.
-Only by implementing cost-– minimising Efficiencies can dwindling profitability be checked.
 
Succinctly put, operators must undergo a dramatic change and focus on their Agility, Customer experience and Efficiency; a three-pronged approach that could help them ace the telecoms game.


 

Evaluating operator responses: From far away to getting closer, yet not being close enough

While the need to ace the telecoms game is evident to operators, there appears to be a gap between their understanding of the solution and the actual scope of application.
 
Far away: the inadequate traditional approaches
Operators often tend to be overwhelmed by the immediate nature of the problems and thus inadvertently propose solutions that are both reactive and short-sighted:
 
Agility: Management is often willing to pump large volumes of money into systems that promise to revolutionise operations. However, inadequate consideration of current and future business requirements combined with hasty implementation often result in little or no gain.
 
Customer experience: A plethora of engaging loyalty programmes and attractive branding are typically employed to lure customers. However, although most of these renewed touch-points are overtly visible to customers yet critically do not impact underlying processes, they are largely unsuccessful in retaining customers for long.
 
Efficiency:  Budget cuts, outsourcing and procurement centralisation are often used to bolster short-term profitability. However, unless properly conceived, these may in fact have a detrimental effect in the long run.
 
Getting closer: the bolder attempts
Aware of the limitations of the traditional methods employed to deliver continuous success, some operators have attempted more assertive tactics. These include bolder actions that directly and more comprehensively address their agility, customer experience and efficiency needs.
 
For instance: specialised, dedicated units have been established to help operators focus their efforts; key partnerships and core customer-centric programmes are being explored in a bid to improve customer experience, while; instead of slashing spending, ROIC-oriented budgeting has been found to more comprehensively target efficiency concerns.


 
Still not close enough: some missing ingredients
 
This progression from traditional approaches to more comprehensive solutions has been necessary given the magnitude of the challenges. However, these initiatives are not quite ambitious enough to deliver a long-lasting solution. There still exist some fundamental reasons why these measures and others like them are not completely successful. The major ones are:
 
Internal disconnect:
The key source of difficulty lies with one of the operators’ key stakeholders: their employees. The large and growing distance between the upper echelons of management – the decision makers – and the lower levels of employees – the actual implementers – is a significant roadblock for any strategic initiatives. Management directives rarely ever trickle down in their intended form to implementation. And, when they do, employees have no incentive to apply them and do not receive sufficient direction or encouragement to further advance these.
 
Creation of silos:
Zooming out of the more granular, employee level, you can observe the complex organisational hierarchy split across distinct departments. As is typical for very large firms, each department is run almost separately from the other, resulting in smaller silos within the bigger organisation. When an operational improvement is implemented, its effects are contained and thus limited. In addition, very few people have an end-to-end view of the processes and so are unlikely to be able to take ownership of an initiative.
 
Bureaucratic legacies:
Apart from inter-departmental segregation and uninvolved employees, operators are faced with intra-departmental bureaucracy. The legacy processes that remain from the “telco 1.0” days have become a matter of habit and remain obstinately fixed. Challenging “the way it has always been done” only happens in instances of grave need and the focus is on providing an immediate solution. Once the crisis is somewhat assuaged, more often than not, operations slip back into their previous, not so efficient mode.
 
It is evident that the current initiatives fall somewhat short. Their limitations in delivery hence beg the question – what is the alternative that promises more effective and comprehensive success?
 
To overcome the internal disconnect, initiatives need to be more inclusive and encourage comprehensive immediate solution. Once the crisis is somewhat assuaged, more often than not, operations slip back into their previous, not so efficient mode.
 

The Delta Partners solution: ACT now

The shortcomings of traditional measures indicate that a more complete approach needs to be taken. The challenges which telcos face call for dramatic changes across organisation, processes and behaviour. With this, they need to incorporate the necessary, bolder approaches in a way that is sufficient to ensure continuous gains.
 
To overcome the internal disconnect, initiatives need to be more inclusive and encourage comprehensive participation. To avoid silos, the distinct lines between departments have to be breached and the solution extended across the entire company. Bureaucratic hurdles can only be addressed by a revamping the end-to-end process.
 
In essence, operators need to “ACT” now, i.e. implement All-inclusive, Company-wide Transformation now. 

 
A focussed approach to customer segmentation is required to maximise the effectiveness of the transformational levers. The business must first quantify the value derived from each customer segment before proportionately allocating resources to areas such as customer service, sales or network across the segments based on their value contribution.
 
For example, analysis of the customer base at a major telco client revealed distinct underserved, high customer lifetime value (“CLV”) segments and over-served, low CLV segments. One transformation initiative therefore prioritised the improvement of customer experience for high CLV customers over that for low CLV customers. In parallel, a cost-to-serve reduction exercise applied greater emphasis on the over-served low CLV segment.
 
These tactical approaches helped to doubly reinforce the effects of the exercise and were more successful than a homogeneous implementation across all segments. Thus, a value-based operating model addresses all of the underlying issues to ensure comprehensive transformation yet optimally distributes efforts to amplify the potential gains.
 

Seeing effective transformation in action at a GCC telco

A GCC mobile incumbent was in dire straits given increasing competitive pressure in the market. While it had maintained market leadership, revenues and profits were dwindling.
 
Aware of its need to ace the telecoms game, the operator first considered more traditional means of
improving competitiveness, including:
  • Strengthening network quality
  • Leveraging brand equity
  • Implementing attractive pricing
 
These proved ineffective as the highly-mature market left little room for differentiation between the players. After further analysis, the operator decided that the best approach to the problem was focussed customer experience improvement.
 
However, having been in the market for several years, the operator foresaw the legacy- and bureaucracyrelated resistance to any bold yet ultimately short-sighted endeavours. Instead the operator sought a dramatic shift in customer experience implementation and a redefinition of core processes. In other words, the operator realised the need to act now and turned to Delta Partners for support.
 
Our primary diagnosis of the existing customer interaction capabilities helped recognise critical pain points and process inconsistencies and hence the need for a holistic solution. While the focus was on customerfacing processes, implementation was carried out not in isolation but rather in a broader business process excellence unit.
 
This transformation employed levers spanning the “technical to soft” spectrum, including:
  • A quantitative customer experience model which identified 10 priority domains for sustainable excellence
  • A comprehensive dashboard reporting tool based on over 100 process-related KPIs reflecting customer touch-points
  • Top management buy-in, ensuring constant support throughout the entire exercise
  • An overarching process excellence programme, dictating the quality levels for customer experience (and ultimately other divisions)
 
The transformation helped to revitalise the telco and address its competitiveness concerns. More importantly, it was expected to have a cumulative impact that would remain as long as the programme was managed with the suggested long-term perspective.
 
In line with this, Delta Partners estimates that, within five years, the improved customer experience capabilities could yield an additional ~6% of revenues. Furthermore, we confidently predict that with continued persistence will come continued profits.

The bottom-line

With the winds of change in the telecom industry has come a storm of new issues affecting operator profitability. The typically-employed, traditional solutions garner diminishing traction among modern market dynamics. Such reactive initiatives are akin to using band-aids to hold crumbling walls – well-intentioned but ineffective when what is truly needed is a structural solution that addresses the deep-rooted nature of the problem.
 
It is about time that operators stopped turning a blind eye to their eroding bottom line. A more holistic transformation process is required to address issues at a granular, all-encompassing level. You, as the management and key stakeholders in your organisation, need to reflect upon your own organisational tendencies:
 
  • Are you stuck in the rut of inadequate traditional “problem solving”?
  • Are your bolder attempts at change falling short of the envisaged, longer-term gains?
  • Is your bid for transformation limited by ineffective implementation?
 
If the answer to any of the above is yes, then we suggest that you don’t postpone the inevitable: ACT now to ACE the telecoms game.

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