effective operational transformation

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May 2014 The Delta Perspective Effective Operational Transformation: ACT now to ACE the telecoms game Authors Javier Garabal - Partner - [email protected] Gaurav Govil - Principal - [email protected] Aditi 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 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.

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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.

  • 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

  • 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

  • 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.

  • 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"

  • 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.

  • 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

  • 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

  • 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.

  • 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.

  • 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.

  • 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.

    Copyright 2014 Delta Partners FZ-LLC. All rights reserved.

    For a list of all Delta Partners white papers please visit:

    http://www.deltapartnersgroup.com/our_insights/whitepapers

    [email protected]

    For more information about Delta Partners please visit:

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