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TMW preview - High-flying lean machine
It’s not by accident that one of the keynote speakers at this year’s TeleManagement World is Stelios, founder of ‘lean’ airline, easyJet, a company which has flourished by giving customers exactly what they want. Keith Willetts explains
Like so many industries before it, the telecom sector has reached a crossroads where operators have to seriously rethink their business models if they are to remain relevant and competitive.
Not only are the established operators feeling the heat of customers deserting to competitors, the underlying profitability of their core lines of business is rapidly declining as prices tumble in a 'Moore's Law'- like progression.
So it's not surprising that the overarching theme of TeleManagement World Nice 2006 is about how operators can change their business model to meet the needs of the 21st century telecom market. We think “Managing Profitability in Today's Telecom Market: Customers, Convergence and Competition” nicely sums up the challenges that operators around the world are experiencing. The TeleManagement Forum is the industry's global trade association for the business of management of communications services and networks and as such, is a key thought leader in helping the telecom industry take a close look at its processes and start looking for ways to transform itself.
Operators face a critical crossroads
I like to use the example of the three-legged stool to illustrate how operators need to move. Operators need to improve their overall customer experience in order to drive up customer loyalty and thus help keep the customers they already have. But at the same time, they need to get much faster and smarter at developing new sources of revenue while simultaneously making dramatic reductions in operating cost. That formula is hard to do in organisations as rigid and inflexible as many operators, some of who have been in business for many decades.
But just like a stool that falls over if one leg is shorter than the other, it's these three key issues that need to be grappled with if profitability is going to grow.
It's something that other industries like manufacturing, retailing and financial services have already tackled. Companies like easyJet, Dell or Wal-Mart have successfully drawn ideas from Toyota's lean manufacturing model and made them work in diverse industries. They took the notion that you had to pay more for better quality and turned it on its head. What Toyota showed, and what other firms outside of manufacturing have picked up on, is the concept of giving customers more and more for less and less. If you look at Dell or Apple, every year they give you faster processors and more memory, at lower prices but still with great quality. And as Toyota shows, it can also be immensely profitable.
The telecom industry is absolutely going in this direction – people want more bandwidth, more service features and better customer service but they want to pay the same or less. Few operators today have really internalised the more and more for less and less approach. Externally they may have transformed their image, but their business processes are distinctly 20th century. But some CEOs are starting to get it and espouse the value in shifting the business model, but it's a huge challenge to make that work in companies where their corporate DNA isn't structured that way. They know how to reduce costs through downsizing, but that often reduces the quality of customer care and slows new service introductions – giving the customer less for less rather than more for less.
That's the main reason one of our keynote speakers at this year's event is Stelios, Chairman of easyGroup, who revolutionised the European airline industry by pioneering the lean airline model in Europe through easyJet. Lean doesn't mean just low cost – easyJet's fleet is one of the most modern in the world and offers an extensive service. Since founding easyJet, Stelios's easyGroup has gone on to take that same “lean” operations model and branch out into everything from credit cards and financial services to car rentals and a cruise line and pay-as-you-go mobile service. The company does this by giving customers exactly what they want and cutting out extraneous costs from the overhead of each business.
Lean operators: flexible and agile
Getting back to telecoms, the operators that will be around in five or ten years will be the ones that run on this agile lean model. Getting there will require significant changes to the structure of operators, particularly in their business processes and systems. Like manufacturing, it means a high level of process automation. This means don't use people for tasks unless you absolutely have to, go through your business process with a fine-tooth comb and iron out any hot spots of inefficiencies and high cost. This includes creating a highly integrated, highly efficient infrastructure that reduces cost and makes things work faster.
We are finally starting to see operators make significant investment in programmes to get to this point. BT's 21st Century programme is based on a $20 billion investment by the carrier to completely overhaul and transform its network for IP and converged services. But it's not a brand new network that transforms BT's ability to compete, it will be the collapsing of many duplicated lines of business, each with their own network, processes systems, customer care etc., into one unified approach that will deliver the results. AT&T's “Concept of One” approach is also following the consolidation approach, retiring systems at the rate of one per week. Other carriers such as Telstra and Vodafone have also announced major investment programmes with the specific intent to drive up business agility, quality and innovation while driving down operating costs.
So, while capital investment by operators is beginning to flow again, they have a massive undertaking in front of them. They have to seriously deal with the convergence issue, where a variety of services are hosted on a single network, and instead of 30 to 40 stacks of systems you have one generic one. This is straight out of the book of being a lean operator: Get highly consolidated and efficient in your production.
A related theme involves enabling a just-in-time approach to offering services. Instead of spending a lot of money on building out an extensive network and hoping customers will come and money will roll in, you hook up customers as they order. When you have this type of model, you can afford to take risks and try out new services without betting the company on it. The crossover between these approaches has been very recent. Instead of spending billions in speculative investment in fibre to the home, operators are proving demand first by just-in-time DSL based services. Instead of rushing into 3G build-outs, many are proving the market in a 2.5G environment first.
Any industry needs to be profitable to survive. The new trick here is changing your business model to be continuously profitable in markets where prices generally decline year-on-year. For telecom, this isn't a temporary phenomenon; prices are going to continue to decline just like they have for most high tech products and services.
When you view your business from a just-in-time perspective, the rate of innovation increases because you no longer have to worry about the high costs of building new services. But to do that, we in the telecom industry have to adopt the themes that manufacturing pioneered, and that retail and finance have taken up. Telecom is just the latest industry to take up these ideas and apply them to their business processes.
By thinking outside the box, operators can accomplish their goals of giving customers what they want as well as reaching profitability. That's why the topic of this year's TeleManagement World Nice is the total transformation of the traditional telecommunications business and operations model. We will be looking at how to create a management roadmap for success, the leadership steps executives must take and some of the breakthrough steps organisations must adopt to become lean, innovative and excel. •
Keith Willetts is Chairman, TeleManagement Forum, and can be contacted via e-mail: kwilletts@tmforum.org www.tmforum.org
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