Nimble digital challengers are cutting deeply into Communications Service Providers (CSPs) profit pools. To compete effectively, traditional service providers need to free funds to fuel growth.
Zero-based budgeting (ZBB) does just that, requiring organizations to "start from zero" to determine what line items should cost. Many service providers will still fall short of achieving the necessary cost savings. The top 50 CSPs' current cost reduction plans will achieve only 35 percent of the savings needed.
The solution? Take ZBB a step further with a Zero-based Mindset (ZBx). It combines ZBB's budgetary discipline with the firepower of emerging technology, allowing for even more savings.
To achieve the cost optimization needed for growth, CSPs need to prioritize three areas:
Reducing core—Network and IT—Costs
A major CSP eliminated 20 percent of total annual expenses by completely rethinking all operating expense (Opex) network costs. We see potential of up to 30 percent reduction for some CSPs.
Simplifying the organization
Customer acquisition and retention costs represent 20 percent of a typical CSP's annual operating cost. But technologies like Robotic Process Automation (RPA) and machine-to-machine learning can shave these costs dramatically.
Better managing external spend
Third-party expenditure on general overhead represents 15-20 percent of a typical CSP's annual operating costs. Consider how effective strategic cost optimization helped a leading CSP realize a US$550 million annual cost reduction—US$250 million derived from new Selling, General & Administrative (SG&A) initiatives and US$300 million achieved in core spend areas. Improved margins helped the company invest for growth.
Implement ZBx to eliminate "non-working" money immediately. This strategy avoids headcount impacts and can rapidly demonstrate the positive financial impact of a zero-based mindset.
Use a combination of cost-driver analysis and machine-to-machine learning technology to define a new target network cost—looking at it from a clean-sheet, zero-based perspective. Because this area contains the largest expenditures, it is key to improving profitability and creating investment headroom for growth.
Redefine the new zero-based organization by pushing the boundaries in automation and analytics, and becoming a leader in the deployment of artificial intelligence. The combination of emerging technologies is key for maximum effect.
ZBx has freed the funds. Now what does growth look like?
When CSPs utilize ZBx, they create potential new revenue streams from: