Drew Rockwell is the Chief Executive Officer of MDS Group. Mr Rockwell joined MDS Lavastorm Analytics in 2002 to lead its transformation to a global analytic software and services company. He remained as Chief Executive when the company was acquired by MDS in 2005. He assumed responsibility for Group operations in 2010
The on-going drive to reduce costs while increasing the scope of service capabilities is forcing CSPs to consider outsourcing. MVNOs rely entirely on outsourced networks, while CSPs augment their capability and reduce costs. Providers of managed services can deliver lower costs, efficient services on modern, compliant systems and efficient service due to economy of scale. Outsourcing can be provided as (a) SaaS, with always up-to-date software, or as (b) Managed Services, with turn-key CRM and billing too, or (c) outsourcing the entire business process, taking over operations of whole departments. In all cases, the delivery details must be enshrined in an accurate SLA, which should be a ‘living’ document, to support the required business agility.
For the last thirty years, the telecoms industry has been marked by its continual service evolution, driven by a need for communication service providers (CSPs) to differentiate themselves in an increasingly competitive market. The Indian market is a prime example of a developing telecoms market with substantial growth and competition. Currently, it has a market value of about US$32 billion, according to the Boston Consulting Group. Service evolution has led CSPs to offer considerably more services than they envisaged thirty years ago – with hosted services bringing ever more potential to the proposition list. The market opportunity for telecoms services in India is estimated to be worth US$116bn in the next three years.
At the same time, alongside these expanding services, driven by the same aggressive market conditions, price erosion has been a constant threat to innovation. This is forcing CSPs to constantly reinvent their market offerings, in an effort to attract and retain customers that are ever-more discerning, demanding and quick to switch for a sweeter deal. With a penetration rate of about sixty per cent, India is a perfect example of a market with a dual challenge: the demand for competitive prices versus innovation. So how to tread the line between increased costs of evolving service portfolio (and the infrastructure and resource investment this requires) and the unceasing requirement to drive profit up? These two forces can only work together if operational efficiencies allow CSPs to keep a firm hand on costs. Outsourcing that responsibility – through managed services – is becoming one of the most popular methods of doing this.
There are a number of things that need to be considered when CSPs are looking to outsource operational processes. Managed services are not something that is a one-size-fits-all solution. Businesses need to think carefully about their requirements prior to outsourcing any of their business processes. The first consideration should be what operations remain in-house and what should be outsourced. Careful thought of what should be outsourced will make the most of the additional resource from managed services, but also enable internal operations to operate at a more effective level with the internal resource pressure removed. Once a decision has been made of what to outsource, it will become much easier to source the right provider.
The benefits of outsourcing operations
Across the globe, time-to-market and rapid turnaround of services are critically important, as CSPs look to capitalise on rapid growth areas such as mobile data, video and value-added services. One of the biggest areas of conflict within any CSP business occurs when the R&D and services teams run ahead of operations, devising new products and launching them without due thought to the back-end requirements. Outsourcing responsibility for these essential activities can free the CSP staff to focus on innovation, reassured that these vital operational elements are looked after.
The main benefits of managed services are lower costs, access to new technology, reduced risk and higher flexibility as well as a quicker time-to-market, which is crucial in today’s fast-paced market. Linked into this, CAPEX can also be significantly reduced, making a big difference to the balance sheet.
Compliance is also an important consideration for CSPs, as regulatory requirements are rapidly evolving. An outsource partner should be able to not just adhere to current governance requirements, but they should be engaged with a view to easing the transition of new regulatory structures as they come into force.
The business case
Careful consideration needs to be given to build a solid business case for the value of moving to the right outsourced service, in order to truly maximise the business benefit from it. In calculating the business case, the first step for CSPs is to understand current IT costs. This will provide valuable insight into where improvements need to be made, and what additional resource is necessary for improvement.
These costs should include the direct costs of hardware, software, electricity and staffing, as well as indirect costs such as revenue leakage and inflated customer care costs due to inefficiency in billing or other IT services. Other miscellaneous costs that need to be factored into this analysis include missed opportunities due late or cancelled service launching and costs associated with day-to-day reactive activities instead of proactive and strategic initiatives. Many CSPs may not have a holistic view of these costs, so outside help may be needed to assess this, and provide independent advice on which managed services option is best for them.
Having decided to outsource business processes, the next stage for CSPs is to look at the characteristics, benefits and costs of the main options: Software-as-a-Service (SaaS), managed services and full outsourcing.
a) SaaS is a good option for CSPs that want a particular piece of technology without the need to maintain it in-house. It is a practical option for businesses where seasonal demand is commonplace, therefore rapid scalability, even temporary scalability is needed. CSPs will need to ensure that any SaaS implementation integrates with current IT services and functions. SaaS business models are a predominantly subscription fee plus a usage-based charge on a pay-as-you-go basis.
b) Managed services can provide extra levels of control and insight, beyond those brought by SaaS. They enable better control of individual functions such as billing, network management, and CRM channels. This means that CSPs can more effectively differentiate their service offerings to current and prospective customers. It is particularly important where there is a land grab for new and innovative services and the customers to buy them. Additionally, managed services can aid CSPs in increasing the return on investment (ROI) from IT infrastructure by reducing total cost of ownership, increasing operational efficiency and driving up commercial agility. Managed services can also help manage the risk of staff change and enable fast ‘on-boarding’ of expertise, which may be in short supply internally.
c) The third and most encompassing option is full business process outsourcing. This model provides support for CSPs throughout the software lifecycle, from acquisition to optimisation, possibly including third-party service providers. This means that certain departments within a CSP become redundant. This in itself may not be desirable for CSPs as they will lose some of the internal control. It leaves much to be sorted out via the service level agreements. However, business process outsourcing ensures that costs are fixed, as charging is dependent on outcomes rather than usage or demand. Due to its nature, contracts tend to be long-term. This can aid businesses in terms of planning and fixing budgets ahead of time.
Once a CSP has decided on the type of service to use, they need to think about how they can most effectively manage the relationship. Service-level agreements (SLAs) are critical, not just to the success of the relationship, but also to ensure that both parties have a formal means of measuring the level of service (which will usually have penalties for non-adherence, a key benefit of outsourcing compared to using an internal IT department).
SLAs are unique in each case, however there are some common threads. The SLA should define the services that will be provided, as well as a clear definition of roles and responsibilities between the CSP and managed service provider. It also provides a guarantee of the service levels that the managed service provider will provide. Frequently, providers may make exaggerated claims in order to win a contract. By paying close attention to the SLA, CSPs can see how efficient the processes are and how expert and responsive the staff are, and take the appropriate action if the standards fall short. The extent of the service guarantee will usually be where the financial penalties for sub-standard services are found.
Providers of managed services should be happy to provide measurements of their performance, with benchmarks and case studies that will give CSPs peace of mind. The provision of timely and accurate data to CSPs from the provider is essential. It offers the assurance that at any time, specific and accurate deep-dive search of data can be made, analysing any anomalies, so that they can be resolved in a timely fashion. This highlights the necessity for easy access to data that is both accurate and meaningful.
SLAs are particularly important when CSPs look to sell on managed services to their own MVNOs. MVNOs have very specific requirements, often different to those of their host network provider. As they don’t have their own networks, managed services can deliver great benefit in terms of drilling down to identify whether a problem lies within their own domain, or in the hosted network.
The key to a successful SLA is for both the parties to negotiate and re-negotiate the terms and conditions - it should not be viewed as a static agreement. As business requirements change, SLAs should evolve to match the most accurate picture of the business’ needs.
In conclusion, outsourcing business processes can be an very useful tool for CSPs and MVNOs alike, helping to increase ROI from IT infrastructure by decreasing total cost of ownership, increasing operational efficiency and driving up commercial agility. Choosing hosting partners needs to be given careful consideration to make sure that the skills and needs of the CSP or MVNO are accurately matched, to ensure a positive investment and prevent future issues.