The Delta Perspective

May 2014

Effective Operational
Transformation: ACT now
to ACE the telecoms game
Authors

Javier Garabal - Partner - jg@deltapartnersgroup.com

Gaurav Govil - Principal - gg@deltapartnersgroup.com
Aditi Asthana - Analyst - ada@deltapartnersgroup.com

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.

The need for change: Keep pace or

keep out
The 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 lowmargin 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

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

technological 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 goto-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.

Increasing competition and

fast-changing technologies
call for inherent Agility
through shorter time to
market and faster decisionmaking.
The smarter customer
demands Customer
experience excellence.
Only by implementing costminimising Efficiencies can
dwindling profitability be
checked.
Succinctly put, operators
must undergo a dramatic
change and focus on their
Agility, Customer experience
and Efficiency; a threepronged approach that could
help them ace the telecoms
game.

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:

Major challenges
Increased competition from telcos and other much more dynamic- players
Shorter and shorter lifecycles for Products &
Services

Increased choice for customers

who have become more and more
demanding

EBITDA margins under high pressure

Harder-to-find growth opportunities will not
compensate the EBITDA gap

Key implications

Agility

Customer

experience

Efficiency

Strong need for

shorter time to
market and faster
decision making

True excellence in
customer experience
is a must

More and more cost

optimisation initiatives
needed every year

Evaluating 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 touchpoints 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.

Key implications

Traditional solutions

Increased IT budget to cope with

Agility

P&S pipeline

"Let's buy a new Data warehouse

tool"

Customer

experience

Efficiency

Branding and communication

Loyalty / reward programs
'Explicit' customer touch points
based initiatives

Top-down budget cuts

Outsourcing & offshoring
Centralised procurement

Still 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

Bolder, more comprehensive solutions

Spin-off of "digital units"

Organisation restructuring
(e.g. "creation of product
factory")

MIS / Big data

'Integrated' customer-centric
programs

Partnerships with key brands

"Quality-oriented outsourcing"

ROIC-focused budgeting
Asset sharing and consolidation
Smart sourcing
(e.g. vendor consolidation)

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.

 Bureaucratic 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

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

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

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.

All-inclusive

Company-wide

All-inclusive

All-inclusive efforts aim to drive holistic cultural change by improving

Company-wide
Transformation
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

Company-wide implies shared ownership and cross-functional impact of

Transformation
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

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:

Constantly measure results and act

on them

Create accountability

Management
& DecisionMaking

Measures &
Objectives

'ACT'

Methodology

(Re)build systems, tools and processes

Mindsets &
Skills

Maximise employee potential

Highly Technical
Methodology:
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
Softer initiatives

A 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.

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 valuebased operating model addresses all
of the underlying issues to ensure
comprehensive transformation yet
optimally distributes efforts to amplify
the potential gains.

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.

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 quality
Leveraging brand equity
Implementing 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 bureaucracyrelated 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 customerfacing 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 excellence
A 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 exercise
An 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.

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The bottom-line
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.

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

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:

yes, then we suggest that you dont

postpone the inevitable: ACT now to
ACE the telecoms game.

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Delta Partners is the leading Advisory and Investment firm specialised in Telecoms, Media and Digital with offices in the Middle
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