Why operational efficiency does not guarantee success

Efficiency is always good - right? Chief Analyst Teresa Cottam looks at the risks around operational efficiency and why high levels of efficiency are not a guarantee of future success.


Young Woman Picking Fruit - Mary Cassatt

Young Woman Picking Fruit, Mary Cassatt, 1891



 

For a long time we've been hearing why operational efficiency is so important to the telco industry. The revenues from core services are under sustained pressure and are commoditising if not commoditised; competitive pressure continues to exert a downward pressure on revenues in many markets.

 

The focus on operational efficiency was brought into sharp focus when the recession hit in 2008. CSPs have clearly articulated their need to reduce both their capital and operational costs, and have explored new ways of doing so - including managed services, outsourcing, use of the Cloud, shareware, freeware and public domain software, as well as the old strategy of negotiating hard with their vendors.  There has been redundancies, offshoring and offloading of business units.

 

How successful these strategies have been is a matter for another post. Suffice it to say that how they could save you money was for a number of years one of the key slides in any vendor's PowerPoint deck.

 

But that's changed.

 

Even in recession-hit Europe, CSPs have realised that operational efficiency on its own won't save them. Operational efficiency is now just table stakes in the telco game. It's something we need, and need to keep improving, but we need more than just this.

 

Operational efficiency and the customer experience

Another facet of operational efficiency is the role it plays in the customer experience. Customers don't want delays in an ordered service being fulfilled, or hours on the phone while their CSP tries to figure out what's wrong with their service.  Where operational efficiency yields a better customer experience it is far more valuable than cost saving alone. But while this is another facet of operational efficiency, a great customer experience on its own will also not save telcos.

 

Operational efficiency and revenue maximisation

The final component is, of course, the ability to generate more revenues. The truth is that minimising costs becomes a game of diminishing returns. While CSPs are concentrating on pushing their costs down they risk, or are experiencing, the collapse of top line revenues. It's like lavising effort on the foundation (important as that is), but forgetting to prop the roof up. As the diagram shows, CSPs urgently need to prop their roof up - that is, their top line revenues. And to do that they need to innovate and deliver against evolving customer need; but they need to ensure that they can generate revenues from doing this as well. Meeting customer needs is all very well, but if you cannot turn that into revenue then you just became an efficient charity.

 

 

Avoiding the (in)efficiency trap

I explored the problems of bad automation in my post Why you need to avoid automation annihilation, but in brief the problem is that if you become too obsessed with automation and "efficiency" then you can create unforeseen or unfortunate outcomes for your customer and your business. Just as bad automation can frustrate your customers, so too can too much efficiency. The housewife's bane, "false economies" are where you scrimp on something only to find that it ends up costing you more overall to continually replace or mend, or it never does the job satisfactority.

 

An example of a false economy or false efficiency is where your CSRs are targetted to deal with as many customer support calls as possible during their shift. While this might seem a desirable target, it is not if it means the problem is not resolved (leading to more calls and dissatisfaction) or if the CSR misses the opportunity to facilitate a sale because they are rushing. Targetting CSRs on calls per hour may look efficient, but is it efficient to miss millions of euros of revenue because you are focused on cost and thus on maximising throughput and not on maximising your revenue?

 

Operational efficiency underpins better business performance

The trick of course is to run lean without starving the business of what it needs to maximise its opportunities - this involves the use of appropriate efficiency measures. This will always be a judgement call; but it also requires joined up thinking that enables the business to determine whether investments are effective. It means not just focusing on upfront cost, but on considering ongoing cost. And it means understanding the business and customer impacts, as well as the operational impact, of decisions taken.

 

Importantly, operational efficiency should go hand in hand with a better customer experience and revenue maximisation initiatives in order to create a successful long-term business.

 

That's why operational efficiency may be desirable but should not be the only or even the most important goal. Operational efficiency matters, but operational effectiveness matters more.


Note: Readers may re-use the diagram in this post provided they include an acknowledgement of the source (eg Source: Telesperience 2012).


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Comments (2)

Newest · Oldest · Popular

Hi Seth

Maybe Noam could share some of his thoughts on this topic with the community for the benefit of those who cannot attend BBTM? (I'll be there though!)

 

It's a great topic for a chat event :-)

Teresa

Teresa,

 

Our concerns about the ability of mobile operators to thrive in the future echo your post - Efficiency good; Customer Experience and new revenue streams critical. It can be achieved once operators start to believe in themselves and evolve past the wholesale bit merchant phase.

 

I hope you will be joining Mobixell at Broadband Traffic Management in London in two weeks. Noam Green, our VP Products & Marketing will be talking about this topic precisely on day 1 of the conference. 

 

Seth Greenberg

Director, Corporate Marketing

Mobixell

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