detecon study costing system maturity in telecommunications companies. results of a detecon survey

8/8/2019 Detecon Study Costing System Maturity in Telecommunications Companies. Results of a Detecon Survey

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Costing System Maturityin TelecommunicationsCompaniesResults of a Detecon Survey


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Results o the Detecon Survey Study Study Results o the Detecon Survey

Detecon International GmbH2

This publication or parts there of may only be reproduced or copied with the prior writtenpermission of the publishers.

Published by Detecon International GmbHOberkasseler Strae 2, D-53227 Bonn

www.detecon.com


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1. Executive SummaryThe objective o this survey is to give a brie overview o the maturity o cost accounting systems at European tele-communications operators by ocusing on the ollowing aspects: What is the position o the costing departmentin the company?, What in ormation does the costing department currently deliver every month?, What are thedeliverables used or? and What tools are used to produce this in ormation?.

Detecon interviewed 22 costing pro essionals o 16 European telecommunications operators in the period o Augustto November 2009 to nd out i there is a speci c costing trend.

Each interviewee was asked to answer 20 questions. Interviews were conducted either by phone or in one-to-onemeetings. O those interviewed, 32% came rom xed line carriers, 32% rom xed + mobile carriers, 27% rommobile carriers and 9% rom other telecommunications-related companies (e.g. satellite operators). The intervie-wees included 55% Costing Pro essionals and Managers, 33% Executives and 15% Others. The responses o the

interviewees were grouped into three regions. The regional grouping was done as ollows: Region West (Germany,Luxembourg, Switzerland, UK), Region East (Czech Republic, Georgia, Poland, Romania, Russia, Slovakia, Ukraine,Uzbekistan) and Region South (Croatia, Macedonia, Turkey). Due to the selected amount o participants, nocomments are made as to the interpretation o regional responses.


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3. Detecons ConclusionsDriven by lower EBITDA margins and greater cost pressures, many European operators have drastically improvedtheir costing capabilities in the last 5 years and continue to do so with increasing intensity. By now, most haveimplemented the relevant costing tools to calculate and report monthly on cost and pro t per service and tari toMarketing, Finance, Strategy and Senior Management. These unctions have become used to this costing in orma-tion based on services and tari s and use it in many cases as an essential input, speci cally or strategic businesscases and pricing decisions. Also, operators have invested in costing experts to continuously re ne the costingmethodology, improve the quality o reported numbers and assist the business to better understand the economicimpact o business decisions. Many operators are now making the next step by moving small-scale Microso t Excelor Access tools into the existing ERP environment.

So ar, so good.

However, the costing managers that Detecon interviewed highlighted a number o areas that seem to still causeconsiderable concerns.

The telco world is just at the beginning o a consolidation wave . We will probably see more mergers and ac-quisitions in Europe as well as throughout the world which will lead to bigger and more complex telecommuni-cations companies. In this process, costing systems will need to be changed and adjusted to the new situation.The challenge will be to work in more international costing teams and at the same time agree to one costingstandard to be used throughout the company.

As pro t margins in the telecommunications industry are declining, shareholders become more active in the

management o their investments and put more per ormance pressure on management. One o the obser-vations is that shareholders are increasingly calling or more operational per ormance in ormation thanwhat is already provided or in the regular statutory reporting packs, or example Pro t and Loss Statements ata segment, product or service level. Thus, costing managers no longer nd themselves in a situation where theyneed to provide cost and pro t in ormation only to internal customers. Instead they are aced with all the chal-lenges o external reporting and communication, which means whatever they report to external parties needsto be o a very high in ormation quality, in alignment with the statutory results, approved by relevant internalparties (e.g. Legal, Management), commented and communicated in alignment with the general strategy o the company.

The telecommunications market is acing a number o technological disruptions. A very important one is the

change rom traditional public switched telephone networks to Internet Protocol systems . For costingmanagers it means that the allocation o network costs to marketing services needs to be altered. In a tradi-tional public switched telephone network a call will take a pre-de ned route to get rom the caller to the callrecipient. However, in an Internet Protocol System the call can take any number o di erent routes dependingon the con guration o the system, the time and utilization o the network. As a result, in the latter case, costingmanagers have to estimate the probabilities or a call to take a speci c route to be able to calculate the cost o that speci c call which makes network cost allocation much more complex.

Most costing systems are only capable to calculate service and tari cost based on historical accounting gures.

However, company budgets and orecasts are typically not integrated into the costing systems. This limitsthe ability o costing managers to calculate incremental and orward-looking service and tari costs which arerecognized by all parts o the business.


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4. Detecons RecommendationsDetecon suggests that every costing manager should at least consider the ollowing action points:

1. Responsibilities and ownershipsIn anticipation o potential consolidation and/or growth activities, establish the costing team under the Group CFOand work out a clear policy on costing ownerships throughout the company. Integrate costing team members intoimportant decision-making bodies o the company (e.g. or strategic business cases, pricing, regulatory).

2. Methodology, documentation and communicationsDocument a standard costing methodology to be used by all business parts. Communicate regularly to allstakeholders how service, customer and tari costs and pro ts are calculated.

3. Integration o costing results into the statutory reporting pack

Agree on the level o cost accounting details to be reported to external parties along with the existing statutoryreporting packs. Implement a rigid internal quality control or these numbers as well as a new reporting work

fow that is in alignment with the existing external communication work fow. Align the comments o the costingreport with those o the strategic communication o the company. Be prepared to start more detailed operationaldiscussions with shareholders and agree on how you want to involve shareholders in a stronger per ormancemanagement. I you are in the phase o a merger or acquisition ensure that you implement these reporting changeswithin the rst 100 days a ter the transactions in order to demonstrate to shareholders that management under-stands and controls the operational per ormance o the company.

4. Agreement on standard service unit cost Agree on standard service unit cost to be used by all business parts or a certain period o time. Make sure thatstandard service unit cost is based on a statistical trend rather than a speci c month in order to avoid statisticaldistortions.

5. Budgets and orecastsIntegrate budgets and orecasts into service, tari and customer costing. Improve statistical trending based onhistorical periods and orecasting assumptions. Determine a methodology to calculate the uture value o customersand tari s and agree this methodology with Marketing.

6. Accounting data improvementHelp the Accounting Department to improve the quality o the monthly company P&L, especially with regard to

Accrual and Revenue Recognition Policies, but also with regard to optimizing the use o the Chart o Accounts andthe Asset Register.

7. Operational data improvementHelp the operational departments to report accurate results or the cost drivers used as inputs to the cost system(e.g. tra c data).

8. Pre-emptive planning o technological changes Work with Marketing and Network Engineering on the most realistic technology scenarios or the coming 3 yearsand prepare a plan o how that will impact the costing system.

9. KISS = Keep it short and simple!Despite the growing technological complexity aim at maintaining the basic and simple standards o cost allocationand be very care ul to not over-engineer the costing tools.


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5. Survey ResultsQuestion 1:

I agree that the Costing team or department is an essential unction in our business.

1

2

4

0

5

10

15

No commentStrongly agree Neither agreenor disagree

23

1

7

Agree

1 1

Disagree Disagreevery much

West

South

East

N u m

b e r o

f r e s p o n

d e n

t s

2

1

1

3

0

1

2

3

4

5

6

7

8

9

No commentDisagreevery much

Disagree

4

Neither agreenor disagree

4

Agree

4

Strongly agree

3

East

SouthWest

N u m

b e r

o f r e s p o n

d e n

t s

More than 60% o interviewees agree that the costing department is an important unction o the business.

Question 2:

I agree that the Costing team or department have proven their value-added in a number o projects.

Nearly 60% o interviewees believe that the costing department has delivered added value to the business. 20%neither agree nor disagree and 20% do not think that the costing department has delivered value added.


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Question 5:

I agree that we are able to calculate the cost and the proft o our customers.

2

1

1

1

2

0

1

2

3

4

5

6

7

8

9

10

11

12


Disagree

9


Agree

6

Strongly agree

East

South

West

N u m

b e r o

f r e s p o n

d e n

t s

1

1

1

1

112

0

1

2

3

4

5

6

7

8


Disagree

5


Agree

2

Strongly agree

12

3

1

South

West

East

N u m

b e r o

f r e s p o n

d e n

t s

Only one interviewee strongly agreed that the costing department is able to calculate the pro t o customers. 45%agreed, however another 45% disagreed. This seems to suggest that nearly hal o the respondents cannot yetcalculate the cost and pro t o customers.

Question 6: I agree that we are able to calculate the cost and the proft o our sales partners.

At a sales partner level, interviewees had even more opposing views. Only 23% agree that their costing departmentcould calculate the cost and pro t o sales partners. However, 45% agreed.


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Question 9:

I agree that this in ormation is provided regularly (monthly or quarterly) by the Marketing department.

3

3

1

0

1

2

3

45

6

7

8

9

10

11

12

No comment

2

Disagreevery much

Disagree

7


2

Agree

4

Strongly agree

East

SouthWest

N u m

b e r

o f r e s p o n

d e n

t s

Only 3 interviewees agreed that in their case the costing in ormation is regularly provided by the Marketing depart-ment. It seems that in most participating companies costing calculation is in the hands o Finance, although thecosting output is very much used by the Marketing department.

Question 10: I agree that this in ormation is actively used by the Marketing department or pricing decisions or dataproducts.

The majority o interviewees agreed that the Marketing department uses costing in ormation or pricing dataproducts.


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Question 13:

I agree that this in ormation is actively used by the Marketing department to determine the value o cust-

omers.

1

1

1

1

3

0

1

2

3

4

5

6

7

8

9

10

11

12

No comment

1

Disagreevery much

Disagree

7

1


Agree

6

Strongly agree

East

South

West

N u m

b e r o

f r e s p o n

d e n

t s

1

1

1

2

2

0

1

2

3

4

5

6

7

No comment

1

Disagreevery much

Disagree

5

2


Agree

3

Strongly agree

East

South

West

N u m

b e r o

f r e s p o n

d e n

t s

45% o interviewees agree that Marketing uses costing in ormation to calculate the value o customers. However,in more than 50% o cases this does not seem to be the case yet.

Question 14:

I agree that this in ormation is actively used by the Marketing department to manage customers di erently

depending on their value.

Only 27% o interviewees agree that customer costing in ormation is used by Marketing to manage customersdi erently depending on their value. A large number o interviewees do not believe that customer costing in or-mation is used or managing customers di erently.

Furthermore, it appears that even though some Marketing departments use costing in ormation to determine thevalue o customers, they do not use this in ormation or managing the customers.


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Question 17:

I agree that this in ormation is actively used or regulatory purposes (e.g. interconnection pricing).

1

1

12

1

1

1

0

1

2

3

4

5

6

7

8

No comment

1

Disagreevery much

1

Disagree

1


4

Agree

3

Strongly agree

4

EastSouth

West

N u m

b e r o

f r e s p o n

d e n

t s

2

2

1

1

2

0

1

2

3

4

5

6

7

8

9

10

11

12


1

Disagree

1


1

Agree

5

Strongly agree

6

South

East

West

N u m

b e r o

f r e s p o n

d e n

t s

50% o interviewees agree that costing in ormation is also used or regulatory purposes. Due to the sensitivity o the issue a number o interviewees made no speci c comment.

Question 18:

I agree that this in ormation is calculated using an internal system solution (e.g. MS Excel or MS Access).

Most interviewees replied that they are using a simple Microso t Excel or Access solution to produce costingreports.


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6 The CompanyWe make ICT strategies work

Detecon is a consulting company which unites classic management consulting with a high level o technologyexpertise.

Our companys history is proo o this: Detecon International is the product o the merger o the managementand IT consulting company Diebold, ounded in 1954, and the telecommunications consultancy Detecon, oun-ded in 1977. Our services ocus on consulting and implementation solutions which are derived rom the use o in ormation and communications technology (ICT). All around the globe, clients rom virtually all industries pro t

rom our holistic know-how in questions o strategy and organizational design and in the use o state-o -the-arttechnologies.

Detecons know-how bundles the knowledge rom the success ul conclusion o management and ICT projectsin more than 160 countries. We are represented globally by subsidiaries, a liates, and project o ces. Deteconis a subsidiary o T-Systems International, the business customer brand o Deutsche Telekom. In our capacity asconsultants, we are able to bene t rom the in rastructure o a global player spanning our planet.

Know-how and hands-on expertise

The rapid development o in ormation and telecommunications technologies has an increasingly signi cantinfuence on the strategies o companies as well as on the processes within an organization. The subsequentcomplex adaptations a ect business models and corporate structures, not only technological applications.

Our services or ICT management encompass classic strategy and organization consulting as well as the planningand implementation o highly complex, technological ICT architectures and applications. We are independent o manu acturers and obligated solely to our clients success.

For urther in ormation please contact:

Carsten SchrderManaging Partner Corporate FinanceMobile: 0049 175 932 3583

eMail: [email protected]

Christian BarteTeam Leader Per ormance EngineeringMobile: 0049 160 989 42969

eMail: [email protected]

Detecon International GmbHOberkasselerstr. 253227 Bonnwww.detecon.com


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Detecon International GmbHOberkasseler Strae 253227 Bonn Germany

[email protected]

detecon study costing system maturity in telecommunications companies. results of a detecon survey

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