the future of network operations and management – an economic perspective - keynote presentation...
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The future of network The future of network operations and management operations and management
– an economic perspective -– an economic perspective -Keynote presentation to APNOMS, Fukuoka
Japan
3rd October 2003
Gregory Fidler
Strategic Management Team, TMForum
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North American fixed line capex 1990 – 2006E ($bn)North American fixed line capex 1990 – 2006E ($bn)
$22 $22 $22 $23 $23
19901990 19911991 19921992 19931993 19941994 19951995 19961996 19971997 19981998 19991999 20002000 20012001 20022002
Pre Liberalization
$84
The Bubble Correctio
n
NewEra?$67
$103
20032003
$47
$31 $33$39
Post Liberalizatio
n - Pre Bubble
Utility Industry Utility Industry?Growth Industry
20042004 20052005 20062006
16% 15% 15% 15% 15% 19% 17% 19% 20% 26% 35% 29% 14% 12%E 12%E 13%E13%E
Capital Investment as % of revenue
Source: RHK Telecom Economics Program
$35
We live in interesting times….We live in interesting times….
Aberration
Normality
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With multiple downward pressures on price .… With multiple downward pressures on price .…
Over-capacity
Newtechnologies
Competition(direct
and indirect)
Government&
regulators
Price
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But operating costs remain stubbornly highBut operating costs remain stubbornly high
Source: RHK Telecom Economics Program
505560657075808590
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
Ope
ratio
ns c
osts
as
a %
of r
ev
British Telecom Deutsche Telecom Telecom Italia
NA ILECs NA IXCs
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Prices falling faster than costs in many marketsPrices falling faster than costs in many markets
1999 2000 2001 2003 2004 2005
Un
it c
osts
/ re
ven
ues
Average revenue /unit
Average cost/unit
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…….The question is…..The question is….
…are we seeing a short-term
impact…
…or are we seeing the
emergence of “Moores law” in
the mobile industry
…where the price decreases and service level
is expected to rise
…and where survival means re-inventing the
way you do business
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In reality, operators have 2 businesses to In reality, operators have 2 businesses to managemanage
Commodity voice / messaging services
Market won on price / quality
High volumes / high market share
Ultra-low operational costs
Low churn through significant levels of customer service
Advanced services Market won
innovation, speed, brand
High operational flexibility
Very fast reactions
Highly scaleable operations
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In other words… continuously .… In other words… continuously .…
Drivedowncosts
Driveup
revenue
Driveup
businessflexibility
Driveup
customerloyalty
Just squeezing an organization ‘until the pips squeak‘
won’t achieve these goals – we have to be smarter
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Although management thinking Although management thinking is is changingchanging
• Bottom line focus• Demand-led•‘Just in time’ investment• Market led• Focus on operating costs and business flexibility• Improving wallet share• Reducing debt• Reducing risk
•Top line focus•Investment led•Network led•‘Build-it-and they-will-come’•Growth management•Handset subsidies
Very few have said that they intend to be the
lowest cost, most flexible player in their chosen market
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Financial freezes are like antibiotics – they kill good good things
as well as bad
In any case they don’t solve underlying
problems
The real enemies are operating cost and
business inflexibility
Many are still managing via fiscal squeezesMany are still managing via fiscal squeezes
And you can’t attack these with piecemeal approaches that try to justify ROI on a case-by case basis
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……often risking a death spiraloften risking a death spiral
Declining profitability
Market share declines Customer service
and quality declines
Across the board opex and capex cuts
Declining profitability
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This is the core problem:This is the core problem: - - Silo based organisations with poor integrationSilo based organisations with poor integration
Mar
ketin
g
Sal
es
Cus
tom
er
serv
ice
Eng
inee
ring
Pla
nnin
g
Fin
ance
The majority of operators are high cost, inflexible and slow
High manpower costs because of a lack of automated process flow-through
Poor time-to-revenue because of have rigid and inflexible business processes
Weak customer service because of poorly integrated & systems with
inaccurate data
Slow growth because processes and systems can’t scale
Slow new service introduction because of high risks & costs to make
changes
Poor economies of scale because of using hundreds of suppliers
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Just like many other industries in the pastJust like many other industries in the past - the Toyota lean production model- the Toyota lean production model
‘Craft’ production•Manual assembly•Hand-built, non standard parts•Slow, expensive but flexible•Limited availability•Weak competition
1890’s-1930’s
‘Mass’ production• Manual assembly• Mass produced standard parts• Fast, cheap but inflexible• Competition on price
1930’s -1990’s
‘Lean’ production• Automated assembly•Just-in-time standard parts• Fast, cheap and flexible• Competition on features
1990’s - present
Today’s information
services
Today’s PSTN & mobile voice
services
This is the target
Manufacturing, retailing, financial services etc. have all become ‘lean’
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‘‘Lean’ is not the same as ‘low cost’Lean’ is not the same as ‘low cost’
Lean operators have:
Ultra low cost operations
High levels of automation/ very low manpower levels
High levels of integration
High quality and excellent customer service
‘Right first time’ data integrity
Customer self management
Low cost of change
Use standardized, commercially available, off-the-shelf, software
Highly flexible infrastructure
Rapid introduction of new services & features
Fast time-to-revenue
Easy and flexible response to business changes
Fast reactions to competitive moves
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7 Lean ‘must do’s7 Lean ‘must do’s
Must have ownership of transformation strategy at Board level
Must have clear business goals
Must be in this for the long haul but with continuous wins
Must be prepared to reshape company
Must have clear end-end process owners
Must have unified target for processes, systems and data
Must have a strong investment in integrated and automated IT
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7 steps to becoming a ‘Lean operator’7 steps to becoming a ‘Lean operator’
Stretch the organisation - Set stretching goals for operating cost, flexibility and cost of change to cause transformation
Transform processes and systems progressively - heroic change programs are less effective than continuous change with consistent goals
Drive home flexibility – progressively get rid of ‘hardwired’ processes & systems
Unlock the business intelligence - unlock the vital customer information buried in today's fragmented systems
Design in the ability to react to the unknown – markets are volatile. Build scalability and changeability into the mix
Know where to differentiate and where to collaborate
Build relationships with key supplier partners
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Lean systems – 4 things to get rightLean systems – 4 things to get right
• What are the process steps and policies?
• Is the information understandable by the next step?
• Can each step interoperate?
• Can I tell which part is working correctly?
Defining and developing each of these uniquely is prohibitively expensive
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has developed NGOSS - has developed NGOSS - a comprehensive ‘lean operator’ frameworka comprehensive ‘lean operator’ framework
Marketplace + legacy = many hundreds of:
architectures
data models
user interfaces
Result =
High ‘integration tax
Poor automation
Weak flexibility
NGOSSNGOSS
NGOSS has the ‘power of one’ – i.e. a worldwide industry ‘magnet’ to line up the
fragments
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Hitchhiker’s Guide to NGOSSHitchhiker’s Guide to NGOSS
Information framework Methodology Shared information & data models
Business processes framework Principles Definitions & models Framework Supports multiple viewpoints Combination of policy and process management Systems framework
Integration framework Technology-neutral architecture Technology-specific implementations Contract interface definitions Component-based Distributed networking and computing services
Compliance framework Testable and provable
Business Process
Framework
Compliance Framework
Integration Framework Information
Framework
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Final thoughtsFinal thoughts
• If we are arriving at a “Moore’s law” type of communications market:
• Operators must change their business fundamentally to cope, or are you just tweaking around the edges?
• If they do not aim to be the lowest cost, most flexible player in the market, how will they survive?
• They must have a strategic transformation plan including an industry owned target process and system architecture
•TM Forum’s NGOSS is now at a mature state and can now be deployed