Reduce Complexity for Future Growth
Dan Elron, Global Managing Partner for Strategy in Accenture’s Communications and High-Tech Operating Group talks to InterComms about how reducing complexity can help the communications industry grow again.
Q: How do you see the industry overcoming some of the recent challenges that have hampered growth?
In the last few months I have seen the telecomm industry – which in many respects had been “frozen” in the past two years- begin to address some of the fundamental issues that have constrained its growth. One of these constraints to growth is the very complexity of the industry. Not only do we have many technologies and many players within the industry, we have also created an environment where it is very difficult for other, complementary industries-such as the providers of content and gaming services - to work with the communications industry. Collaboration with these complementary industries, in my view, is critical to generate further growth.
Q. Do you believe the industry has significant opportunities for growth?
Our recent analysis shows that companies in the communications, media and entertainment and high tech sectors have significant opportunities to generate growth and to create value. As an aggregated opportunity, it can be measured in the billions of dollars. However, this growth will not come from core transport of voice, data and images, but from added- value services that meet new customer needs- and make it easier for the customer to buy and use high-tech services.
Q: Can you elaborate on what you mean by complexity? Can you give us some examples?
One of the biggest causes of complexity is the communication industry’s propensity to add new products without removing old ones – for example to provide billing and management options, and to add new technologies (such as IP) without regard to the old ones. While it may be easier to add products or systems on an-hoc basis, the long –term effect is that of high costs and inflexibility. Customized “managed” services for large corporate customers are a good example of adding complexity, usually resulting in a negative margin for each contract.
The long-term price of complexity is high. Having multiple interfaces and standards, as opposed to common processes, platforms and even agreements on intellectual property, are hampering our ability, for example, to provide games over DSL or to create integrated wireline and wireless offerings. At present the industry often expects the customer to be the point of integration, rather than the industry taking much of the complexity and need for integration away from the customer.
Q: What is Accenture doing about complexity in the communications industry?
We are increasingly reusing capabilities across our communications clients, thus reducing custom, complexity- increasing work. For example, we have developed standardized “platforms” that hide the complexity and help accelerate the deployments of products like video over DSL.
Surprisingly, outsourcing – a rapidly growing part of Accenture’s business mix- can also help to address this issue of complexity by making it visible and creating the accountability to manage and reduce it. We call many of these engagements “transformational outsourcing”; these force us to deliver tangible business results, such as demonstrably lower customer care costs. To achieve these results, we minimize business rules, we evaluate the cost/ benefit of treating customer segments differently and we only add valuable features and functions when there is a clear business case. For example, at AT&T, we are in the process of shifting customer service activities to the web and to interactive voice-response systems. The underlying architecture is highly modular. We are reducing the cost of basic transaction handling, so agents can deal with direct selling to their most valuable customers. Our governance model makes the “cost of complexity” very visible to AT&T, whilst removing the complexity that AT&T has to deal with. We also reduce the cost of making business changes, changing technologies and dealing with subcontractors.
Q: all that you’ve said sounds a bit abstract…given the current times and conditions, is it worth spending a lot of time on this issue of complexity?
Absolutely. This is the time for the winners to position for growth. Some carriers will need to become pure IP connectivity providers: this means that they will need a very simple, low cost infrastructure. Others will succeed with new services such as managed services, entertainment - which will require close collaboration with other asset owners and wholesale carriers. They will also need to have better interfaces with their suppliers, alliance partners and customers. Both types of positioning require managing your business complexity, including interfaces, product variations, etc…
And if you think about complexity as seen from the user, you might deliver services where customers actually can use more than a few features (as they do today with cell phones) and are happy to pay for them.
Q: Will the expected industry consolidation help us to reduce complexity?
Many of the carriers who merged in the past did not reduce their internal complexity. They continued to run many platforms, systems, and, in many cases, tolerated several concurrent corporate cultures. If telecomm carriers merge in ways similar to those of the past, complexity may well increase. On the other hand, if careful approaches are used, as in the HP/Compaq merger, complexity reduction may well accompany the merger. And that will make it easier for larger carriers to compete with the inherently more simple cable companies.
Q: How does IP change the picture?
IP is, quite simply, revolutionizing the industry. It will allow carriers to reduce the complexity of their products and operations. Why? Because they will need fewer standards and OSS’s in the core network. It will allow others to deliver functionality from one place to customers all over the world- possibly by- passing the carriers. It can enable a much simpler business model. For incumbents who fail to eliminate the complexity of legacy networks, and who think that a more complex set of services, provided by complex, highly functionally- oriented network elements, the IP model is an immense threat. On the other hand, IP creates huge opportunities for new services and for service-enabling offerings: directories, security, delivery guarantees. Carriers should provide theses services to reduce complexity for the providers of solutions and applications.
Q. How do web services help?
We see web services being first used internally to connect disparate elements in systems and networks and to hide the complexity of legacy systems. Carriers cannot afford to replace their systems wholesale- so it helps to hide their complexity and to provide a web service infrastructure to link a variety of systems. We have had CEOs who are stunned by the ability of web services to do that. They significantly improve the functionality as seen by their customer representative or the users, without the cost of replacing the underlying legacy environment. This is something that these companies have been struggling with for ten years or more. Eventually, web services will allow for assembling more complex services from several companies in our industries, and other industries as well.
Web services illustrate the fact that while hardware has made enormous progress recently, we believe software has been slower. One of the key elements in connecting the capabilities of the various telecommunications and high-tech companies is the ability of software to bridge the gaps between them as well as hiding and managing the complexity that we’ve created within, and across, the industries. This is an area in which Accenture is doing a lot of research.
Q. How is IP impacting on your work?
Many of our consultants are working on the impact of IP, focusing for example on how high in the “stack” a carrier needs to be to compete. IP can have enormous opportunities for the communications industry, but can also be a threat to many of the carriers. Knowing how to leverage that and generate the right set of alliances and service arena partnerships is absolutely critical, and that is a topic of some of our strategy work. We are implementing a variety of IP-enabled services, such as messaging, and implementing IP ordering and management systems. We are also spending a lot of time on the customer side-on defining the “all-IP enterprise”, and on understanding how carriers can make that vision happen- profitably…
Q: So, overall, given Accenture’s work across so many communications industry players and segments, what is your outlook for the telecom industry?
Let me try to summarize: we see more consolidation, the dominance of IP- enabled business models, a greater focus on cost and simplification, an active hiding of complexity, and a widening of the gap between winners and losers. Not all management teams can achieve reduction in complexity. The prize, however, is billions of dollars in opportunity.