Seven Imperatives to a Low-Cost, Flexible Operating Model: Managing for the Short Term, Building for the Long Term

Today the outlook for the telecom industry is optimistic, but one thing is certain. In the future, operating models will need to adjust much more quickly to evolving market conditions. Here are seven tactics that could help.

No matter how positive you are about the market over the next few years, I'm sure all would agree that the future is indeed uncertain. In the telecom industry, that uncertainty can be graphically represented by tracking assessments of the potential future value of the major providers over the past 7 to 8 years. Believe me, the picture isn’t pretty. It looks like the design of the first big drop of a major roller coaster, with most companies actually dropping into negative territory sometime in late 2002.

The reasons for this uncertainty include: industry restructuring and consolidation; declining voice volumes; sluggish top-line growth; new competition; technology changes such as network convergence and the rise of IP-based services. Given this uncertainty, how can telecom operators find innovative ways to grow value and reduce costs while managing profitable transformations to next-generation operations?

An effective operating model for the telecommunications industry, regardless of the current uncertainty about the future, can be founded on two rock-solid principles:

1. The requirement to reduce costs will not go away. Revenues are not going up. Wireline players are losing lines; even the more brash wireless industry are beginning to experience flattening subscriber growth. The established, traditional operators are being challenged by up-and-comers who are not burdened by their legacy infrastructure. Add it all up and there's one thing you can definitely count on: a low-cost position will remain critical.
   
   
2. Flexibility is key. Some gurus make their reputation forecasting what the age of technology convergence is going to mean for telecom providers, but the truth is, no one really knows how it will play out. Consequently, it is vital to create an operating model that is agile and flexible, and that can respond quickly to changes in the marketplace. Indeed, this flexibility can even help a company proactively drive some of those changes.

If you can create an operating model focused on both efficiency and flexibility, you're doing something important: you’re managing for the short term, and also investing for the long term.

What are the most important tactics that decision makers can pursue to transform their operating models? Here are seven to think about—all focused on becoming more efficient by reducing unit costs, working smarter to increase effectiveness, and extending capabilities out to customers, partners and employees.

1. Maximize scale. Many companies run multiple networks and parallel environments: a local network, an LD network, broadband and wireless. Companies should be looking to lower their unit costs by consolidating their key fixed assets. Consolidating through TCP/IP and broadband technologies also holds tremendous potential. In general, companies need to be looking for economies of scale because this can deliver big savings.
   
   
2. Automate and integrate. One aspect of the competitive intensity in the industry today is the pressure to reduce the time required for product launch. Not only are the products coming online quickly, they are also more complex. New products cannot be manual, but require higher degrees of automation in the design. In addition, the rise of web services architectures has raised the bar for integration of services.
   
   
3. Globalize operations. The industrialization of the services industry means that, as in the manufacturing industry before, services can now seek out places around the world where work can be performed at high levels of quality for lower costs. Globalized operations is really about managing more effectively what a telecom provider does in a lower-cost environment.
   
   
4. Extend self-service. Companies on the road to high performance are exploring self-service in a number of areas: in the interaction among suppliers and business partners, and in employee access to things like HR services, especially in customer self-service. The telecommunications industry lags behind others in this important area of customer self-service, so there is great potential out there.
   
   
5. Re-skill the workforce. Because of recent technological innovations, the complexities of new products, and the transition to IP-based services, companies are facing a critical need for workers with the right skills. The aging workforce only adds to the critical need for more effective training, recruiting and resource allocation.
   
   
6. Apply insight in real time. Communications providers produce and collect vast amounts of data. What they must now do better, if they are truly to create a flexible operating model, is convert this data into meaningful information that can support business processes and decision making in real time, or in near-real time.
   
   
7. Simplify the business. The communications industry is notorious for its overly complex operations: in products, pricing, customer hierarchies, process and governance. As the traditional providers watch their more nimble competitors who are less constrained by this innate complexity, they are seeing how important it is to simplify, simplify, simplify.

These seven areas of work hold great potential for helping telecom operators reduce costs, and create the kind of nimble business that can survive the uncertain future. An important question remains, however: because it is difficult to do everything all at once, how can companies prioritize their programs to create a low-cost, flexible operating model?

Next month I'll take at look at the relative benefits of these seven keys to success, and suggest some ways companies can prioritize their investments.

Stuart Taylor, associate partner—Communications & High Tech Strategy, focuses on helping communications companies improve the efficiency and effectiveness of their Customer Relationship Management capabilities.