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May 2014
The Delta Perspective
Effective Operational Transformation: ACT now to ACE the
telecoms gameAuthors Javier Garabal - Partner -
[email protected]
Gaurav Govil - Principal - [email protected]
Asthana - Analyst - [email protected]
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 todays 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.
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2The 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
The need for change: Keep pace or keep 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
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3technological 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.
Major challenges Key implications
Increased competition from telcos and other -much more dynamic-
players
Shorter and shorter lifecycles for Products & Services
Strong need for shorter time tomarket and fasterdecision
making
Agility
EBITDA margins under high pressure Harder-to-find growth
opportunities will not
compensate the EBITDA gap
More and more cost optimisation initiatives needed every
year
Efficiency
Increased choice for customers who have become more and more
demanding
True excellence in customer experience is a must
Customer experience
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4Evaluating 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.
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5Still 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.
Key implications Traditional solutions Bolder, more
comprehensive solutions
Efficiency Top-down budget cuts Outsourcing & offshoring
Centralised procurement
ROIC-focused budgeting Asset sharing and consolidation Smart
sourcing
(e.g. vendor consolidation)
Agility Increased IT budget to cope with
P&S pipeline
"Let's buy a new Data warehouse tool"
Spin-off of "digital units" Organisation restructuring
(e.g. "creation of product factory")
MIS / Big data
Customer experience
Branding and communication Loyalty / reward programs 'Explicit'
customer touch points
based initiatives
'Integrated' customer-centric programs
Partnerships with key brands "Quality-oriented outsourcing"
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6Bureaucratic 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
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
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?
The Delta Partners solution: ACT now
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.
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7All-inclusive efforts aim to drive holistic cultural change by
improving participation and shifting mind-set towards execution
orientation. Top
management has an additional responsibility to maintain
motivation and
momentum by clearly and consistently communicating its plans to
the entire
organisation.
Company-wide implies shared ownership and cross-functional
impact of initiatives. This does not necessarily mean that every
initiative is applied to
every department. Rather, no department is revamped in isolation
from
related functions. This process requires complex coordination
between various
business units but can build deeper capabilities at a core
level.
Transformation is multi-pronged yet comprehensive, revamping the
struggling divisions and building on the sturdier ones. In
addition, it is oriented towards
long-term, sustainable growth. Quick wins remain however crucial
but
primarily as stepping stones to the complete programme
lifecycle.
To ensure success, the ACT initiative employs certain key
implementation levers,
ranging from highly technical to softer levers:
All-inclusive Company-wide Transformation
All-inclusive Company-wide Transformation
All-inclusive Company-wide Transformation
'ACT'
Methodology
Measures & Objectives
Management & Decision-
Making
Mindsets & Skills
Create accountabilityConstantly measure results and act on
them
Maximise employee potential(Re)build systems, tools and
processes
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8Methodology: The implementation methodology for the
transformation combines several
tools and systems, including systems automation and the
development of
templates and tools. Applying this lever of transformation in
one of our
Middle-Eastern telco clients involved significant transformation
of procedures,
including:
Mapping processes to a customer lifecycle value chain
Defining clear objectives and differentiating factors for key
processes
Developing an overarching automation strategy for effective
implementation and monitoring
Measures and objectives: Process efficiency is of utmost
importance in a transformation programme.
Various means can be employed to set and measure objectives and
ensure
that the end goal remains on track and meets expectations,
including:
Creating well-defined KPIs incorporating long-term successes
Developing dashboards that effectively track SLA/KPI
progress
Ensuring consistent communication of status
Management and decision-making: Incentives serve to keep
employees motivated but are irrelevant if not aligned
to a sound governance model. Management should be pushed to
assume
accountability across their spheres of responsibility,
including:
Demarcating clear roles and responsibilities without being
hierarchical
Defining clear guidelines for conflict resolution
Ensuring ownership and empowerment yet with clear escalation
matrices to optimise decision-making
Mindset and skills: All of the above, in any transformation, aim
to stimulate innate employee
potential. This can be maximised through personnel development,
including:
Providing coaching and training to develop employee
potential
Appointing mentors, role models and change champions at all
levels to
propagate change
Communicating clearly and frequently to foster inclusion
Highly Technical
Softer initiatives
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9A 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.
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10
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 qualityLeveraging brand equityImplementing
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 bureaucracy-
related 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 customer-
facing 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 excellenceA 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 exerciseAn 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.
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11
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:
The bottom-line
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 dont
postpone the inevitable: ACT now to
ACE the telecoms game.
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12
Delta Partners is the leading Advisory and Investment firm
specialised in Telecoms, Media and Digital with offices in the
Middle
East, Africa, Europe, Asia and Latin America. With more than 200
professionals, the group operates globally and covers the
emerg-
ing and high-growth economies. Our unique combination of
Management Advisory, Corporate Finance* and Investment
Services*
creates unparalleled value for our clients, investors and
business partners.
Advisory: Delta Partners advisory team leverages its industry
expertise, unique intellectual capital and 360-degree view of the
TMD
industry to help its clients solve their most-challenging
strategic questions. We work with global and regional telecom
providers, digital
players and other TMD clients on a wide range of topics, from
the more strategic to the eminently operational.
Corporate Finance*: Delta Partners provides corporate finance
services and has been involved in several buy-side and sell-side
telecom
transactions in the region. As true industry specialists, we
offer a differentiated value proposition to investors and industry
players in
the region. Delta Partners actively leverages its close link to
its private equity arm to access the investor community as well as
top-level
financial talent.
Investments*: As a fund manager, Delta Partners manages an USD80
million private equity fund, targeting investment opportunities
in the TMD space in high growth markets. The focus is the Middle
East, Africa, Eastern Europe and Emerging Asia. Delta Partners
private equity fund leverages the groups unique TMD industry
expertise to create value for our investors throughout each stage
of the
investment cycle, from deal sourcing to supporting portfolio
companies in driving value extraction.
Delta Partners delivers tangible results to clients and
investors through its exclusive sector focus on Telecoms, Media and
Digital with a
unique approach that combines strategic perspectives with a
hands-on pragmatic approach.
* Delta Partners Corporate Finance Limited and Delta Partners
Capital Limited are members of the Delta Partners Group of
companies and are authorised and regulated by the DFSA.
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