Global cost benchmarking for mobile communications industry
With increasing pressures on mobile operators and their flat growth rates in nearly all regions of the world, cost management has become critical. The first step in improving cost management is to understand the industry’s costs of operation. This view then serves as the benchmark against which a company can evaluate its costs and determine improvement targets.
Since 2002, A.T. Kearney has been comparing operators' costs on a yearly basis. The cost benchmarking for mobile operators began in Europe with a comparison of 60 operators, and it has become the standard used by approximately 90 operators.
In 2005, we extended the cost benchmarking significantly to include non-European operators. Annual Global Cost Benchmarking (GCB) provides cost transparency to industry competitors.
Baseline for operational excellence
For many operators, the GCB is the first of three steps towards improving their cost management. The operational excellence (OPEX) approach builds on the benchmark to identify root causes of high costs and quantified savings potential. In the third step, OPEX drives a program for efficiency and cost improvement, which forms the basis of a cost-conscious culture.
Based on results in the last five years, an improvement program typically identifies a 15 to 20 percent efficiency gap in operational costs. Of this gap, 30 to 60 percent can be converted into savings that are typically realized within two years.
Details of cost benchmarking
Our cost benchmarking approach focuses on measuring the operational efficiency of process-related, indirect costs. To ensure a comparable benchmark, our stringent methodology includes:
- Cost segmentation of each operator's raw cost data into predefined segments using an activity-based costing approach
- Cost harmonization of cost data across operators by adjusting country-specific factors
- Cost normalization by dividing the data by the relevant cost driver, using detailed correlation analysis
- Cost comparison of additional clusters of operators (in addition to the operators’ panel) with similar structural characteristics
- Cost documentation in a final report for executive management with a comprehensive summary, plus a cost analysis per activity, process cost dashboard, and operational efficiency key performance indicators
To date, mobile operators using the cost benchmarking plus the OPEX approach are achieving significant operational improvements. Several of the 90 participating mobile operators have reduced indirect costs by 20 percent or more.
Contact
To learn more about A.T. Kearney’s cost benchmarking and OPEX approach, see additional explanation in "Mobile Operators: Tired of Margin Pressures?"
Soeren Grabowski is a principal in A.T. Kearney's Berlin office.
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