Simplify or Drown: Fighting the Rising Tide of Telecom Complexity

For many consumers, the array of telecommunications options is nothing short of exasperating: Landline, wireless or internet phone? Dial-up, cable, DSL broadband, or WiFi? A prepaid plan or a two-year contract? The telecommunications industry is swimming in a rising tide of complexity, with POTS, the plain old telephone service of the 1960s, giving way to 100 to 150 different products and services.

If consumers are frustrated, so are the telecom carriers, which have been forced into this labyrinth by both rising consumer expectations and increasing competition. Amid the complexity, telecom firms are finding it tough to increase their revenues, keep costs down and still provide customers with an uncomplicated offering. For example, a typical company that offers fixed-line, mobile, cable or DSL broadband services uses different platforms, service delivery processes, and even billing systems for each, and has customer service records scattered across multiple databases. This duplication not only increases costs, but also forces firms to invest in new technology while continuing to support older systems.

While large, well-established companies in more developed markets suffer the biggest headaches, newer market entrants are not immune.

Carriers are addressing the increased complexity with a host of new strategies—from bundling products and services to putting more resources into sales and marketing. They are automating their delivery and support services, and combining their points of contact. Most firms are leaning more heavily on their suppliers to reduce costs and create innovative products. These efforts have had some impact on their top and bottom lines, but usually not enough to satisfy shareholders.

It's clear that incremental simplification efforts aren't enough—it's time for a fundamental transformation. Unless telecom carriers can turn back the rising tide of complexity, they face the very real prospect of drowning in increasingly uncompetitive cost structures or losing out to their less-complex competitors.

Time for a Transformation
A simplified organizational structure can reduce operating and capital expenditures, increase revenues, and improve the customer experience. It works through the virtuous cycle shown in figure 1. Less complexity means more reliable processes, a smaller infrastructure and a streamlined organization, which lead to a clearer market focus. Executives are free to focus on developing offerings that will be more competitive against new players, and on acquiring and retaining profitable customers.

Simplifying an organization begins with determining customer needs and taking a "clean-sheet" approach. Leaders start with a goal in mind and work backward to develop a plan for meeting the goal. The end result should be significantly different than the starting point (see figure 2).

To illustrate this, we can use the case of a full-service provider in Asia that decided to address its high operating costs and lagging share price. Through our analysis, we uncovered an extremely complex organization. The company had more than 860 product platforms, 1,100 IT applications, 160 call centers, 1,200 pricing plans and more than 100,000 price points. When executives embarked on a cost-reduction program, they reduced complexity and costs from 17 to 19 percent, IT applications to 300 and call centers to 30.

The Four Ps of Simplification
Simplification isn't simple, nor is it risk free. But it is possible. Our experience reveals that four Ps—not of marketing but of telecom—can lead to success.

Offer better, not more, products and services. The best products are simple and easy to use, yet differentiated to meet a variety of customer needs. To reach this ideal, companies should offer fewer products and services, but ensure that they have more easy-to-change options. One telecom company put this principle to work. It was supporting a wide variety of corporate data products, each using a different technology platform. When the company stopped selling and supporting its older products and began promoting internet protocol (IP)-based ethernet services—allowing customers to start, stop and change bandwidth to meet their own needs—it reduced its network operating costs by 20 to 30 percent and increased customer satisfaction significantly.

This shift will have an impact in the United States, where operators are accustomed to adding (not subtracting) products and services and then bundling them. U.S. telecom companies should be making plans to work from a few common platforms to make hundreds of extensions and different product combinations.

Build new platforms and demolish the old. Survival for telecom companies will depend on an all-IP vision and master plan. This means abandoning existing networks and platforms and beginning a smooth transition to IP-based next-generation networks. This may seem a broad assertion and expensive proposition, yet a few companies are already doing it. Just look at British Telecom's 21st Century Network project, which is designed to transform BT's existing network, built originally for telephones, into one designed for the convergence of video, voice and data. BT expects to spend roughly $18 billion on the initiative, but ultimately save $2 billion a year. The cost benefits of the new network will come through quickly, so the company won't have a long period of duplicate spending, such as funding the new and the old at the same time. BT also expects to increase revenues from new services enabled by the new network.

Many companies hesitate to move to an all-IP vision, concerned about the short-term financial double hit. Not only do they accelerate the depreciation on their redundant networks, but they also must pay for costly new equipment. Still, the strategic and operational advantages of moving quickly more than outweigh any short-term financial pain, as the BT example illustrates.

Slash duplicative processes. Most telecom companies are familiar with continuous improvement. They're cutting costs, simplifying operating and billing support systems, and improving customer service. But they need to go further and slash duplicate processes. This will require new systems to increase speed and reduce manual intervention and hand-offs.

AT&T is well ahead of the game. In 2002, the company launched two initiatives: Concept of ZeroSM and Concept of OneSM. The first promotes zero defects, zero error and rework, zero human touch, and zero cycle time. Goals are met by automating processes to reduce cycle time and eliminate errors resulting from human-to-human or human-to-machine interactions. The second initiative promotes doing things once—one database, one billing system and one end-to-end process. This requires consolidating variations of the same process into a single best process and replicating it throughout the organization. Although both initiatives are ongoing, AT&T has already managed to scale back headcount by more than half, reduce order cycle time by 20 to 70 percent, and retire nearly 500 legacy IT systems—all while improving customer experience and network performance.

Ingrain a culture of passion for serving the customer. For simplification to work, employees must provide excellent customer service. Streamlining the organization and processes so that employees have fewer rules to follow is an important step toward this goal. Although reducing the number of rules might create chaos within a traditional environment, it is a necessary and liberating move. The key is to ensure the rules reinforce customer satisfaction. Employees in the new organization will need to do what works best for the customer, rather than what is most convenient for them, and functional silos should not get in the way of serving the customer.

Employees with a passion for satisfying the customer will be more innovative and, as a result, they will help the organization grow beyond traditional services and revenues. For example, a company that wanted to speed up its responsiveness to customer inquiries and service issues empowered its frontline employees. Sales and service staff were given the authority and tools to change prices, rearrange bundles and offer discounts on the spot. As a result, frontline staff became true customer advocates, resolving up to 95 percent of sales and service inquiries to customers' satisfaction.

Minimizing the Risks
Complexity is a fact of life for most telecom companies. And the solution, embarking on the four Ps, can seem a daunting if not impossible task. Hesitation is understandable given the risks: Changing too quickly could unravel the whole process, or changing too slowly could give the competition a dangerous head start. Yet success is imperative. Companies initiating simplification programs can take three steps to minimize the risks:

1. Create a vision for the end state. A sound vision helps rally employees, shareholders, board members and senior managers, and keeps everyone focused on a common objective. The vision should be economically sound and practical, and stretch the organization to achieve as much as possible. Leading companies communicate their vision in a simple and easy-to-understand fashion. AT&T's two concepts—zero and one—are great examples because they are easy to remember and capture the essence of the company's transformation goals.

2. Develop a comprehensive migration plan. Companies expend a lot of energy on developing the overall strategy and vision of a simplification plan, but pay less attention to implementing it. Yet the quality of the plan and the subsequent follow-through often determine success or failure. A good plan will outline the major milestones and a timeline for meeting them, such as when certain services or changes will take place, in what form, at what locations, and who they will affect. Knowing the goals is critical to facilitating the execution and ensuring that the initial strategy is sound.

At the same time, communicating the plan externally to investors and internally to the board will force senior managers to follow through on the vision. BT's 21st Century Network implementation plan is a good example. Senior managers are committed to achieving milestones for transforming the network, launching new services and transitioning customers to broadband. This open commitment is one reason for the program's success.

3. Discontinue nonessential products and platforms. Reducing complexity is not just about doing things to simplify the organization, but also about not doing things that might complicate it. Operators should think about discontinuing products and platforms that will not play a key role in improving the customer experience. Candidates for discontinuation may include mainstays such as ISDN, frame relay and even PSTN.

In addition, all new projects should be reevaluated for relevance. Those that aren't part of the long-term plan should not be started. In this way, the organization can ensure that the simplification program doesn't inadvertently add complexity. The biggest risk here is getting caught in the middle—not phasing out all of the old technologies before establishing a new price umbrella for the new (IP voice) technology.

Finally, aligning stakeholders' incentives with the effort will ensure that simplification actually happens. For example, sales people will sell products that are to be phased out if they continue to be rewarded with commissions for doing so. Or, unless new incentives help pave the way forward, a technician whose power is rooted in old technology might invent reasons why the simplification effort is impossible or should be delayed.

Make a Bold Move
Telecom companies have dabbled in some or all of the simplification options discussed here, but few have gone far enough to make a difference. It is time to embrace a bold, new vision of a significantly simpler operating model. Getting there requires making significant changes in the areas of products, platforms, processes and passion. True transformation is risky, but risks can be managed. Companies that take aggressive action to achieve the four Ps will be well on their way to success.

Consulting Authors

Mark Higgins is a vice president in A.T. Kearney's Melbourne office.
Vanessa Moore is a consultant in A.T. Kearney's Sydney office.
Soon Ghee Chua is a consultant in A.T. Kearney's Singapore office.

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