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# DIGI TAL
IMPACT
MARKETING,
SALES & SERVICE
NETWORK & IT
SUPPORT FUNCTIONS
LEAN TELCO
JUNE 2014
THINK ACT
LEAN TELCO
THE BIG 3
1
transition
The telco business in Europe has seen many cost-cutting rounds without
fundamentally rethinking business models and organizational principles.
To become fit for the future, telcos should combine growth and efficiency
strategically in a "new lean" blueprint.
p. 3
innovation
Lean means powerful, flexible and adjustable to current and future market
needs. It's not just cutting costs but delayering operations and pushing
innovation.
p. 6
delayering
Defining three key layers with a clear focus on strategy and steering.
Every single function has to be identified as core or non-core for the
company. Core functions remain the key priority while non-core functions
can be outsourced or carried out in partnerships.
p. 11
The
lean telco
matrix
p. 7
2
THINK ACT
LEAN TELCO
Launch of GSM
in Europe
Cable
internet
Auction of
3G
licenses
in UK
1992
1997
2000
Rollout of
UMTS
networks
ADLS2+
for HDTV via
internet
First iPhone
sold in Europe
Cable internet
via Docsis 3.1
2003
2007
2013
1987
1996
1999
2002
2006
2009
2016
European
Union
recommends
deregulation
Deutsche
Telekom goes
public
Launch of
DSL
Fiber era is
taking off, due
to FTTX
systems
Launch of
broadband
VDSL
Launch of
LTE
90% of all
Europeans
own a smartphone
First smartphone
Nokia Communicator
THINK ACT
LEAN TELCO
A
-2%
467
+7%
450
432
448
442
428
404
421
413
409
406
403
398
368
338
310
287
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e
THINK ACT
LEAN TELCO
THINK ACT
LEAN TELCO
The new paradigm. Lean means powerful, flexible and adjustable to current
and future market needs. It's not just
cutting costs but delayering operations
and pushing innovation.
Before telecom players define their future operating
model, it is absolutely crucial for them to clarify their
strategy first. Which functions will be categorized as
"core"? Which will be "non-core" and thus up to negotiation? Every business segment should be tested regarding market position as well as current and future financial contribution. The same holds true for product lines.
When growth was driven by new services and products,
managing the increasing complexity was given lower priority. As a result, telecoms started to run several services, often with additional systems not fully integrated
into the IT landscape, leading to a tangled mess.
Our survey revealed three key questions for clarifying the strategy and in the second step reducing
complexity in products and services:
> Which markets do we want to be active on?
> Which services/products do we want to offer?
> How do we get from here to there?
The general guideline should be: Eliminate as many
services and offers as reasonably possible and reduce
process complexity from a value perspective. Scrutinize
every function in your company: "We have analyzed every single function from two points of view: Do we need
it on a local or on a global level?" a manager at a UK
telecom player told us. "And do we have to control it
completely or could it be managed by an external partner?" Proximity and ownership those are the two
parameters that have to be analyzed on the way to becoming lean. They are easy to visualize in a matrix. B
6
THINK ACT
LEAN TELCO
from small office/home office (SoHo) business, because the latter use the same network infrastructure.
Becoming "lean" is about more than just downsizing an operator. Our lean telco approach aims at
strengthening its core. The overarching principle is to
minimize complexity on a strategic level. That's what
we call "lean". Lean does not mean small. Lean means
powerful, flexible and adjustable to current and future
market needs. With this clarified strategy of smart reorganization, the operator can focus on growth again.
This growth is not achieved with endless product variations realized through complex IT solutions, but rather
with a flexible core that allows the integration of additional modules via clear interfaces.
This opportunity to refocus on growth is particularly
important in an industry accustomed to growth. First,
the capital markets want a story with elements of growth
as a major value driver. An ongoing, multi-year focus on
efficiency can't be a story in itself. Second, the transformation toward lean requires various structural changes
with considerable impact on the employees, as significant portions of the workforce could be transferred to
partner companies or joint ventures. This might lead to
relocations for employees and a modified financial
structure, for instance. Therefore, growth elements
should be interwoven with messages purely focused on
higher efficiency and better operating models.
Once the redefined strategy and its growth story
are in place, the blueprint has to be tailored to the
telco's specific situation.
Our interviews revealed four essential components
for doing so:
1. Defining core and non-core functions
2. Partnering for non-core activities
3. Delayering the operator
4. Pushing innovation
High
Global partnership/
outsourcing
Global core/
headquarter function
Local partnership/
outsourcing
PROXIMIT Y
Low
Low
OWNERSHIP
High
THINK ACT
LEAN TELCO
"Defining clear
interfaces helped
us to identify the
core processes.
This additional
transparency
itself increased
efficiency."
EXECUTIVE OF A EUROPEAN TELECOM
INCUMBENT
THINK ACT
LEAN TELCO
network equipment vendor by transferring responsibility for network operations to the vendor, for instance.
The latter can create synergies by integrating the unit
into its global operations center.
Other partnership models include working with
competitors and specialized service providers. If
carve-out models are relevant and the carved-out
units have a reasonable size, financial investors can be
partners, too. Even IPOs for carved-out units can be
considered with a high number of shareholders as
financial partners.
To foster innovation, the incentive system should incorporate it as a central element. Industries such as the
semiconductor business, with its consistently defined
research career paths and awards for inventions and
technological breakthroughs, can be role models in
this regard. The incentive system might include idea
contests for all employees, innovation training and
workshops and publicly announced rewards for the
best inventions.
4. Pushing innovation
For both core and non-core activities, it will be
increasingly important to focus on innovation. In the
past, operators innovated mainly on the product
level, either through large-scale introductions of
completely new service lines such as DSL and mobile
broadband or, more often, by offering new tariffs. In
the future, process innovation will be the major driver
to generate an advantage in customer perception,
automate processes and provide services cost-efficiently. A look at other industries can help provide
know-how in production systems (e.g. aviation) or
automation (automotive industry).
ROLAND BERGER STRATEGY CONSULTANTS
THINK ACT
LEAN TELCO
C
3
10
MARKETING,
SALES &
SERVICE
STRONG BRAND
Marketing
Sales & channel steering
Customer service
NETWORK
& IT
INTEGRATED NETWORK
Fixed network planning
& management
Mobile network planning
Lean IT architecture
SUPPORT
FUNCTIONS
STREAMLINED HQ
Strategy
Procurement
Finance & Controlling
Talent Management
ROLAND
ROLAND
BERGER
BERGER
STRATEGY
STRATEGY
CONSULTANTS
CONSULTANTS
Shop partnerships
Call center partnerships
Field service joint ventures
E-sales joint ventures
Wholesale centers
Network partnerships
> e.g. 2G/3G/LTE sharing,
FTTx
Billing partnerships
> e.g. with another telco
Outsourcing
> Fixed network
construction
> Unbundled local loop
platform
> I T
Shared services
> Accounting
> Payroll
> Procurement joint
ventures: network,
devices, IT, content
Outsourcing
> Facility Management
> Fleet Services
THINK ACT
LEAN TELCO
11
THINK ACT
LEAN TELCO
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LEAN TELCO
"The process to a
lean telco provider
will be a very slow
one. Many still
think in their old
structures and
lean thinking is
not anchored in
their minds."
STRATEGIST OF A EUROPEAN TELECOM
ATTACKER
13
THINK ACT
LEAN TELCO
100
up to
-20%
80-88
before
after
14
THINK ACT
LEAN TELCO
ABOUT US
Roland Berger Strategy Consultants
Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies.
With around 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations
in all major international markets. Roland Berger advises major international industry and service companies
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"It's character that creates impact!" www.rolandberger.com
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DELIVERY MODEL
2.0: Vision for the
future business
model
Merely reacting to
new competitors, to
growing complexity,
and to increasingly
detailed customer
requirements does
not answer the
fundamental question
for telcos, which is
where and how they
aim to earn money in
the future. A reorientation of the entire
company is required.
CONNECTED
MOBILIT Y 2025
WWW.THINK- ACT.COM
ROLAND BERGER STRATEGY CONSULTANTS
15
THINK ACT
LEAN TELCO
Publisher
ROLAND BERGER
STRATEGY CONSULTANTS GMBH
Mies-van-der-Rohe-Str. 6
80807 Munich
Germany
+49 89 9230-0
www.rolandberger.com
PHILIPP LEUTIGER
Partner
+49 89 9230-8904
philipp.leutiger@rolandberger.com
TIM BOTTKE
Partner
+49 89 9230-8790
tim.bottke@rolandberger.com
MICHAEL TRENKWALDER
Project Manager
+49 89 9230-8250
michael.trenkwalder@rolandberger.com
This publication has been prepared for general guidance only. The reader should not act according to any information
provided in this publication without receiving specific professional advice. Roland Berger Strategy Consultants GmbH
shall not be liable for any damages resulting from any use of the information contained in the publication.
2014 ROL AND BERGER STRATEGY CONSULTANTS GMBH. ALL RIGHTS RESERVED.