E-Business TransformationChallenges and Opportunities for Telecom Operators

Perspective Carlos SeverinoJosé Antonio TortosaDr. Florian GröneChristopher Rischard

Booz & Company

Contact Information

BerlinDr. Florian GröneSenior Associate+49-30-88705-844florian.groene@booz.com

DubaiKarim SabbaghPartner+971-4-390-0260karim.sabbagh@booz.com

DüsseldorfStefan EikelmannPartner+49-211-3890-110stefan.eikelmann@booz.com

Roman FriedrichPartner+49-211-3890-165roman.friedrich@booz.com

FrankfurtOlaf AckerPartner+49-69-97167-453olaf.acker@booz.com

Andreas SpänePartner+49-69-97167-408andreas.spaene@booz.com

Hong KongDr. Edward C. TsePartner+852-3650-6100edward.tse@booz.com

LondonDr. Michael PetersonPartner+49-89-54525-640michael.peterson@booz.com

MadridCarlos SeverinoPartner+34-91-563-7308carlos.severino@booz.com

Jose TortosaPartner+34-91-563-7693jose.tortosa@booz.com

Christopher RischardSenior Associate+34-679-289-364christopher.rischard@booz.com

MunichGregor HarterPartner+49-89-54525-554gregor.harter@booz.com

New YorkChristopher VollmerPartner+1-212-551-6794christopher.vollmer@booz.com

ParisPierre PéladeauPartner+33-1-44-34-3074pierre.peladeau@booz.com

São PauloIvan de SouzaSenior Partner+55-11-5501-6368ivan.desouza@booz.com

SydneyVanessa WallacePartner+61-2-9321-1906vanessa.wallace@booz.com

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EXECUTIVE SUMMARY

To achieve this, they must go through an e-business transformation. This entails developing online capabil-ities—similar to those of the best online retailers—across their entire business operations, from back-room processes and logistics to customer service and sales. This is an essen-tial step for capturing and retaining today’s savvy customers, who expect the same kinds of benefits from all technologically oriented service pro-viders. An e-business transformation will also reduce costs in the long run, and it is a prerequisite for effectively delivering digital goods and services that bring new revenue growth.

But an e-business transformation is not a simple step for telecom opera-tors to take. Complex legacy systems and isolated business functions are difficult and costly to migrate and integrate without disrupting opera-tions. Simply improving websites and introducing multichannel marketing are not enough.

Adopting an e-business model involves a reevaluation of all busi-ness operations. How this is done, and in what sequence, varies from company to company and requires careful planning, but the benefits are the same: better customer service and greater customer retention, an increase in average revenue per user, significant operational cost savings, and a platform foundation for digital services and the world of apps.

Some telecom operators—those with management structures that have developed and thrived in silos—may resist the change. But if they do not undertake this transformation, they will risk losing market share and missing the opportunity to leverage their current clout for long-term growth. Telecom operators have been slower than most to capitalize on the new e-business opportunities. The time to catch up and move ahead is now.

Telecommunications today is increasingly a commodity business. For traditional telecom companies, maintaining customer loyalty and delivering growth in the face of fierce price competition and new market entrants requires a new way of operating.

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For most of the past decade, telecom operators have faced 10 percent annual declines in the price of their basic services. By now most of these companies have reached the limits of optimization and cost reduction with their current architectures and operating models. Customers are less interested in who provides the connections than in price, service, and features. Couple this with the global recession, fierce competition, and the emergence of powerful new players that successfully leverage or bypass telecom operators—such as Apple and Google with their smartphone and application ecosystems, or Amazon’s digital goods and cloud service business—and there is reason to question where significant future growth will come from for the once dominant telecom monopolies. This transformation applies to technology platforms, organizational structures, people, and business processes. It is a redesign based on lean management principles that includes determining which legacy processes and systems can be transformed and how. But it can also mean a greenfield start, in which new processes are designed and off-the-shelf systems are built into the e-business online platform. The goal is to take a typical siloed operation with its legacy systems, processes,

and organization and turn it into a seamlessly integrated business system built around an online core.

Few companies have yet made a full commitment to an online platform. Most offerings so far focus on core data and voice transmission services. Some have leveraged Internet-enabled technologies to offer online e-shopping and e-care channels. There are also a few cases of online channels integrating successfully into a cohesive multichannel environment. But all of these efforts fail to capture the full potential and power of a comprehensive e-business transformation.

The good news is that most telecom operators start with significant advantages: deep experience in Internet technologies, large customer bases, well-known brands, and substantial online and storefront operations.

The bad news is that time is running out. The competition has already embraced the e-business paradigm. Mobile virtual network operators have built their entire operations around e-business cores. IT, media, and the big e-tailers have e-business in their DNA and are already luring the traditional telecom subscriber with communications products, add-ons, and services.

THE E-BUSINESS IMPERATIVE

The goal is to take a typical siloed operation and turn it into a seamlessly integrated business system built around an online core.

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Telecom operators must first understand the four business ratio-nales underpinning the e-business imperative:

To keep and defend their customer • base, companies must provide supe-rior, consistent, personalized cus-tomer experiences. This requires a consistent way to follow customers on their journey across sales and service channels—an automated support system that remembers customers’ needs and preferences and is accessible from all internal and external touch points.

To own and monetize the cus-• tomer interface, companies must establish a strong e-business platform for the delivery of goods and new services. This platform would deliver next-generation digital services. For example, a telecom operator’s smart app could use customer profiling to suggest and deliver new offerings ranging from music and video suggestions to personal banking, health, and security services.

To be the provider of choice,• a company must be agile and flex-ible in the face of fast-changing customer needs. That means it must have the technical ability to add new features quickly when custom-ers demand them, such as providing log-ins across social networking sites and setting up e-commerce accounts tied to phone bills.

To increase efficiency and auto-• mation, telecom operators must be able to scale up their online customer offerings. That means predicting and tailoring products and services to individual subscrib-ers quickly and seamlessly. It also requires in-depth knowledge of customer preferences. This is a basic prerequisite for holding on to your customer base.

Achieving this level of transformation is not easy. There are general princi-ples and methodologies to follow, but the specific e-business approach for your company should be distinctive, reflecting your goals and ambitions, the constraints of your legacy systems, your market environment, and your investment capacity.

STEPS TO E-BUSINESS SUCCESS

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Today most telecom operators are either implementing or updating a multichannel sales and service approach. One main objective of this strategy is to give customers the same personalized experience whether they

interact with the company online, in a store, or through a call center, thus enhancing the customer relationship and delivering better service and more opportunities for customer retention and up-selling.

This approach is effective, but it does not go far enough to realize the full benefits of “e-enabling” business processes across the entire operation. The key difference between this and the horizontal e-business cross-channel strategy is the degree and scope of the integration (see Exhibit 1). The horizontal e-business platform is applied across all channels

and business processes, not just Web and mobile portals. An operator that uses a multichannel approach may be able to present a seamless interface to the customer, but behind the scenes its back-office processes, such as billing and product delivery, are handled by separate platforms. Sales and customer service effectiveness are compromised, and costs mount.

A fully integrated e-business approach builds online technology and capabilities into all front- and back-room business processes, eventually transforming the operation into an “online company”

BASIC E-BUSINESS ARCHITECTURE

Exhibit 1 Multichannel Strategy Versus Integral Cross-Channel E-Business Strategy

Source: Desktop Research; vendor interviews; Booz & Company analysis

ARCHETYPES AND THEIR CHARACTERISTICS*

InnovatorExample: Apple

- Introduces new and creative products or services to the market - Needs to balance innovation with practicality and user acceptance

Premium PlayerExample: Nordstrom

- Offers high-end products or services and superior customer service- Develops differentiated position in market- Must understand cost of increased quality

CustomizerExample: Avon

- Leverages customer intelligence to offer tailored products or services- Is able to flexibly adapt to market demands- Must ensure balance between flexibility and profitability

Differentiated Green

Example: General Electric

- Focuses on sustainability as good business- Addresses the supply chain needs of green products and low carbon emission; ready to invest in differentiated technology products - Must understand cost of a green supply chain

AggregatorExample:

Amazon.com

- Provides convenience of one-stop solution- Can either manufacture or subcontract- Must ensure that value-add does not become commoditized

Value PlayerExample: Ikea

- Develops a low-cost supply chain to pass savings on to customers- Allows for additional investment elsewhere- Cannot let low cost impact quality and service

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CROSS-CHANNEL E-BUSINESS STRATEGYMULTICHANNEL STRATEGY WITH INTEGRATED ONLINE CHANNEL

Call Centers

Retail Shop

Back EndProvisioning/fulfillment management

Credit and billing management

RetailPortal

WebPortal

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WebPortal

CMC OS

Back EndProvisioning/fulfillment management

Credit and billing management

MobilePortal/Apps

ILLUSTRATIVE

MobileChannel

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E-Business Platform

OnlineLegacy

OnlineChannel

MobileChannel

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Cost savings and additional income present a compelling case for an e-business transformation. But the proof is in the implementation.

with Internet technology-based processes at its core. In the face of the increasing costs for network expansion, upgrade, and maintenance and the falling margins, telecom operators can use this online platform transformation not only to integrate sales and service channels but also to lower overall cost structures. E-business capabilities can shift high-volume, high-cost transactions, such as customer profiling and setting up accounts, to much lower-cost processes by encouraging customers to complete transactions online. This improves process efficiency and delivers better service to both internal users (account managers, billing departments) and customers.

Our analysis of the short- and long-term effects of introducing an e-business platform, based on the experience of several European telecom operators, demonstrates the bottom-line benefits. There are five e-business value creation levers:

Reduced acquisition and retention • cost: Telecom operators can save €50 (US$71) to €200 per customer by migrating sales and top-ups online, which cuts out commissions and processing costs.

Capturing new customers: • Today’s 18- to 34-year-olds buy online. If telecom operators fail to capital-ize on this fact, they will miss key market segments. In addition, the high-value customer demographics are increasingly using the flexibility and comparability of online shop-ping, even for expensive items. Our benchmark analysis shows benefits of as much as €700 per postpaid customer and up to €600 per fixed-line customer.

Enhanced average revenue per • user (ARPU): Operators can expect an increase of 0.5 to 1 percent in ARPU from e-business optimization. For a customer base of hundreds of thousands, this is a significant bottom-line boost. First-time sales and up-selling are cheaper, easier, and more flexible online. Products that stimulate greater data usage (games, social networking) are available only online. The creative use of Web pages provides opportunities for both advertising and affiliated mar-keting. Customers spend more, and per-sale costs are less.

Extended customer lifetime:• We estimate that enhanced customer

satisfaction from cross-channel offerings of both new products and better service translates into a reduced churn of 2 to 4 percent. These extra offerings are often called “loyalty options,” since they give customers free add-on services that cost the company little or nothing but generate high levels of loyalty.

Reduced cost-to-serve: • When customers migrate to the online world, they cost less to service. This savings can represent 50 cents to €4 per contact, depending on the chan-nel. Paper billing and mailing costs evaporate, and self-service product selection cuts down the need for expanded call centers. The trick is to not only make the platform a compelling service center but also use it as a sales platform to further maximize customer visits.

Overall cost savings and additional income present a compelling case for an e-business transformation. But the proof is in the implementation, and for this, companies must follow a well-defined step-by-step planning process.

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Resistance to change is often broad and deep, so strong leadership is a critical factor for a successful implementation. For a seasoned telecommunications executive, transforming a company into a true

e-business means, in effect, making it a different type of business: an “online” company, with a strong specialization in telecommunications services. Unless the benefits of such a change are clearly understood, it will not win the support of those who are key to its implementation. Moreover, there is no single “silver bullet” approach. Every company’s starting position and goals differ and require careful assessment.

In introducing fundamental change to a telecom business, the correct

execution and sequence are critical. Moving too quickly can lead to excessive organizational stress; moving too slowly can sap support for change. Careful planning and top management buy-in can avoid these mistakes.

Management must first carefully determine both the scope of change and the timetable. The answers to five key questions explicitly define the objectives and help map the journey (see Exhibit 2):

STEP-BY-STEP IMPLEMENTA-TION

Exhibit 2 Sequence for E-Business Transformation

Source: Booz & Company

INTENT & SCOPE

DELIVERY PLATFORM

Strategic Business Priorities

Why?

… sets objectives for …

Market Segment &

Product Boundaries

For Whom?

… implies priorities to scope …

Process & ChannelUniverse

What?

… defines scope & priorities for …

Operating Model

Process,People, Culture

Transformation

PlatformArchitecture

Vision

How?

… clarifies needs & context for …

Sourcing Model

Who?

Execution

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E-BUSINESS TRANSFORMATION APPROACH: DESIGN FRAMEWORK

Design principles1. Strategy-based2. Market-back3. Purpose-driven

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Why? • The company must establish strategic business priorities. Is the transformation for growth, market differentiation, cost leadership, or a combination of the above? The goal will significantly determine the transformation road map.

For whom?• Is the transformation necessary for all business units, or can it be applied to a particular market? The company will have to decide which parts of the busi-ness will be impacted: consumer product lines, small and medium-sized businesses, large corporate accounts, mobile customers, fixed-line customers, or everything. Scope determines complexity, cost, and speed.

What? • The operator must decide which processes and which chan-nels will be e-enabled and in what sequence. For example, will the e-business transformation be lim-ited to marketing and sales or will it focus on retention and loyalty management or customer care processes? And will it move beyond the Web and mobile interface to

e-enable additional customer touch points, such as call centers or the retail footprint?

How?• An e-business transforma-tion can be an incremental process, or it can take place all at once. Each company will have to decide which implementation model is fea-sible and how it affects processes, people and culture, and technology platform architecture.

Who? • Is there an in-house capa-bility to develop the necessary IT framework for all parts of the busi-ness, or should this be bought or licensed from off-the-shelf provid-ers? How critical will bringing in external skills and talent be to the success of the transformation?

E-business transformations follow one of three implementation models:

Incremental development: • The company decides to enhance specific processes and e-channel capabilities that are closely aligned to the existing operating model. It then plans a system-wide front- and

back-end evolution by ensuring that current enhancements are compat-ible with the future target design (choice of vendors, standards, interfaces).

Big bang: • The company may be confident and bold enough to decide that it doesn’t have time to introduce incremental transforma-tion but will instead opt for step-change improvements by completely redesigning its business processes around an online core. This could mean using one of several com-mercial off-the-shelf platforms and enlisting external help. A “big bang” initiative should be driven by a clear top-level mandate and man-aged by an internal leader who is authoritative and well connected.

A greenfield approach: • This company-within-a-company model starts from scratch without the burden of legacy systems and builds an e-business platform for a specific market segment using new people and new methods.

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E-business is the future of telecom-munications, just as it is for banking, travel, retail, and other industries. Telecom operators that do not adapt not only will lose out on significant growth opportunities but also may find it hard to fend off core business attrition. E-business is not just a new sales or service channel; rather, it involves a holistic end-to-end rethink-ing of all operations from back-room IT architecture to front-end customer touch points. The ultimate goal is to bring as many operations as feasible online in an integrated fashion, not only for better customer relationships

but also to improve internal business operations.

An e-business transformation may seem daunting, but it can be an invigorating prospect for large com-panies. If it is done well, the payoff is substantial in terms of cost savings and growth potential; more impor-tant, it gives telecom operators a chance to reset their business model. By taking this opportunity to adapt to the online sales environment now, they can move quickly and confi-dently into one of the 21st century’s strongest growth businesses.

CONCLUSION

An e-business transformation may seem daunting, but it can be an invigorating prospect for large companies.

About the Authors

Carlos Severino is a partner with Booz & Company based in Madrid and a member of the communications, media, and technology practice. His areas of expertise include strategy development, specifically related to marketing, customer service, and sales channels.

José Antonio Tortosa is a partner with Booz & Company based in Madrid and a mem-ber of the communications, media, and technology prac-tice. He focuses on business strategy, marketing, and sales for fixed, mobile, and conver-gent operators across Europe and Latin America.

Dr. Florian Gröne is a senior associate with Booz & Company based in Berlin and leads the firm’s CRM Center of Excellence in Europe. He supports tele-communications companies and ICT service providers in developing their market positioning strategies, manag-ing large-scale front-office transformation efforts, and improving technology delivery efficiency.

Christopher Rischard is a senior associate with Booz & Company based in Madrid, primarily working with media, telecommunica-tions, and high-tech clients. His focus areas include capabilities-driven digital and e-business strategy and operating model design and transformation.

“Evolution or Revolution? Strategies for Telecom Billing Transformation,” by Jens Niebuhr, Andreas Späne, Dr. Germar Schröder, and Dr. Florian Gröne (Booz & Company, 2010). www.booz.com/media/uploads/Evolution_or_Revolution.pdf

“Leaner & Keener Telecom Operators: Eliminating Waste Boosts the Bottom Line,” by Andreas Späne, Dr. Florian Gröne, Olaf Acker, and Dr. Roman Friedrich (Booz & Company, 2010). www.booz.com/media/uploads/Leaner_and_Keener_Telecom_ Operators.pdf

“Multi-Channel Customer Management: Delighting Consumers, Driving Efficiency,” by Dr. Michael Peterson, Dr. Florian Gröne, Dr. Karsten Kammer, and Julius Kirscheneder (Booz & Company, 2010). www.booz.com/media/uploads/Multi-Channel_Customer_Management.pdf

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References

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