Back to the Forefront: Taking another look at the back office

Sep 29, 2004 12:00 PM, By John MacLean

During the heady halcyon days of the 1990s, growth in telecommunications sector seemed endless, driven in part by the insatiable appetite of the marketplace to consume any new technology thrown at them. Technology was, and would continue to be for some time, the foundation for growth, competitive advantage and profitability. Customer marketing was the weapon of the moment to fend off the competition, meaning other areas of the business did not receive the attention or investment needed to support and sustain this rapid growth rate.

The back office is a case in point. Although recognized as a critical element for managing the process of provisioning telecom services and billing customers, the back office was practically ignored as attention was squarely focused on sexier front-end technologies.  This led to widespread inefficiencies and, ultimately, lost revenue. If a new service to be introduced required significant change in the existing business processes supporting current services, quite frequently the billing or provisioning system simply could not cater to it. The chosen solution to this problem was to buy another billing or provisioning system to handle the new service and operate it alongside the existing system, or in some cases, multiple systems.

Everything was fine until the bubble burst. During the boom, telecom companies were focused on increasing the overall size of their customer base. Over time the focus shifted--for mobile operators in particular--to squeezing more out of existing customers by increasing the average revenue per user (ARPU).  In fact, a telecom company's very survival during the last three difficult years has hinged on increasing ARPU. In practice, this has meant an increased focus on revenue assurance, or the process of minimizing revenue leakage and loss, along with tighter control on operational costs. However, a recent study by the U.K. firm Analysys revealed that while most telecom companies cite one percent to be the largest annual revenue loss acceptable, most actual losses in Europe are closer to eight percent annually. Other industry statistics estimate service providers are losing anywhere from 3% to 11% of gross revenue each year due to leaks and undetected errors in operational processes. Clearly, most have quite a ways to go before resolving these issues.

One primary issue to address is the dysfunctional back-office infrastructure. Either through inadequate or unwise past investment, most back-office infrastructures are incapable of effectively supporting the demanding IT solutions and complex business processes inherent to the telecom market. This problem is at the heart of improving revenue assurance and reducing costs, so attention has finally shifted to improving these back-end functions.

A prototypical telecom back-office has multiple software applications performing similar or overlapping functions. There was little evidence of any business process management linking multiple tasks and software applications together to streamline operations. Older legacy systems could still perform key functions, but were also unwieldy and difficult to replace. There was also a large amount of expensive software purchased, but never fully implemented because of the complexity of installation or inability to integrate with existing systems (fondly known as "shelfware"). Indeed, the Analysys report highlighted poor integration between systems as one of the more significant reasons for revenue loss for telecom companies during this time.

In the past year, an increasing number of service providers have begun to address these back-office issues. In the process, they have already begun to realize the powerful benefits gained from achieving back-office efficiency, including revenue increases (over 3% in some cases) and operational cost reductions. These are improvements that go right to the company's bottom line. In addition, streamlining back-office business processes can deliver competitive advantage by improving the ability and speed a service provider can bring new lucrative services to market.

Those service providers that have not yet achieved back-office efficiency are in danger of losing ground even further as time goes on. As economic optimism continues within the telecom market, it's inevitable that some laggards will not have learned their lesson and will quickly return to the paradigm of aggressively launching and marketing new service after new service. They will do so, however, with a permanent disability in the form of a back-office infrastructure that drastically underperforms compared with the competition.

Another common scenario from a couple of years ago was a result of the rapid consolidation of service providers from M&As and involved the challenge of integrating several regional operations into one back-office system. Some would pull back the covers to discover 37 different customer order systems and 12 billing systems that needed to be integrated!  This was compounded by the challenges of deregulation-induced competition and the growing competitive threat of the mobile operators.  In practical terms, the disparate nature of back-office processes meant that it could take anywhere from six weeks to six months to process a customer order--clearly not a sound foundation for staying ahead of the competition. 

Instead of adding additional systems to the mix, some service providers recognized a need to develop business process "best practices" to compete and thrive. This was especially true for those with so many types of disparate systems. The first step is to find an integration solution to solve the immediate tactical issue of linking existing applications while also robust and flexible enough to solve similar problems down the road as they become more complex.  A total system upheaval, however, is unnecessary and also quite expensive. Telecom companies should select an integration solution that seamlessly integrates with existing systems to reduce costs and the burden on IT manpower. 

One option is to purchase pre-built integration packages based on common telecommunications standards and business rules. The solution must provide the architecture framework, data requirements and conversion rules, business events and templates required to ensure quick and efficient execution of business processes. Once data is moving around easily and efficiently, service providers can then take the next step and begin integrating and managing not just individual data flows, but entire business processes throughout customer care, billing and other automated back-office functions.  By focusing on specific managing business processes, service providers can solve numerous operational issues and create future efficiencies that will positively impact the bottom line. Key business process management benefits include the following:

• Faster order-to-cash cycle times from greater flow-through provisioning

• Reduced order queries and subsequent billing queries via improved accuracy

• Fewer unbilled or under-billed services

• Increased customer retention due to reduced errors in provisioning and billing

• Improved customer care via instant order status across multiple product lines, systems and departments

• Accelerated rollout of new products and services through flexible automated processes and policies

• Less frequent system upgrades and/or replacements (the focus is on refining and improving the processes, not adding more hardware or software to the system!)

As most know all to well, in today's economy technical efficiencies must be closely linked to business benefits.  Service providers with an emphasis on the back office are not only seeing improved bottom line results today, but are also building a stronger foundation for adding and driving revenue from the services tomorrow. The streamlined processes can accelerate revenue capture up to 60% through the reduced order-to-fulfillment and fulfillment-to-cash cycle times, as well as the shorter to-market cycle for those new products and services. Additionally, business process management can reduce manual order processing costs up to 25% simply by automating the manual processes and reducing the common errors that would require rework. 

Customer churn will continue to be a huge concern of telecom companies for the foreseeable future. By accelerating service activation, reducing service and billing errors and enabling faster response to customer service and billing inquiries, this churn can be greatly reduced. 

The drive to improve existing technology and develop exciting new ones will remain one of the long-term priorities of the telecom industry--consumers expect this and demand it.  In today's deregulated world where the competition is relentless, business sense dictates that the focus on technology be balanced by more practical considerations around actually doing business. The back-office is where the most impact can be made. Increasingly, service providers are realizing this and promptly moving back-office issues to the forefront of their business strategy for the very first time.

John MacLean is director of marketing for Europe, the Middle East and Africa at Vitria, a provider of business process integration solutions based in Sunnyvale, Calif.

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