Synergize before you centralize: Cooperating to generate value through technology synergies
Olaf Acker, Hilal Halaoui, Karim Sabbagh, and Dany Sammour
Telecom groups can respond to the uncertainties of today’s business climate by changing their approach to technology synergies. Through collaborative synergy programs, they can generate quantitative and qualitative results that provide the group with a leaner and fitter cost agenda.

Today, the rapidly changing and highly competitive telecom market has spurred a strong need for technology synergies. After all, the industry is characterized by telecom groups that have direct business interests in their home markets and possess large portfolios of wholly or partially-owned stakes in operating companies in other markets. With capital costs becoming a major line item for them, these telecom firms are continuously striving to obtain favorable prices from vendors. As a result, they have traditionally sought to achieve technology synergies by centralizing procurement. However, while this method is potentially effective, it has proved to be contingent on specific conditions and greatly consume both time and resources. read more >


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Synergize before you centralize Cooperating to generate value through technology synergies

Strategy& is part of the PwC network

Contacts

About the authors

Beirut Bahjat El Darwiche Partner +961-1-985-655 bahjat.eldarwiche @strategyand.pwc.com Dubai David Tusa Partner +971-4-390-0260 david.tusa @strategyand.pwc.com Dany Sammour Principal +971-4-390-0260 dany.sammour @strategyand.pwc.com Düsseldorf Jens Niebuhr Partner +49-211-3890-195 jens.niebuhr @strategyand.pwc.com Düsseldorf/Stockholm Roman Friedrich Partner +49-211-3890-165 roman.friedrich @strategyand.pwc.com Frankfurt Germar Schröder Principal +49-69-97167-426 germar.schroeder @strategyand.pwc.com

Frankfurt/Dubai Olaf Acker Partner +49-69-97167-453 olaf.acker @strategyand.pwc.com Kuala Lumpur David Hovenden Partner +61-2-9321-1966 david.hovenden @strategyand.pwc.com New Delhi Ashish Sharma International Director +91-124-499-8700 sharma.ashish @strategyand.pwc.com Riyadh Hilal Halaoui Partner +966-1-249-7781 hilal.halaoui @strategyand.pwc.com

Karim Sabbagh was a senior partner with Booz & Company. Olaf Acker is a partner in Strategy&’s Frankfurt and Dubai offices. He focuses on business technology strategy and transformation programs for global companies in the telecommunications, media, and high-tech industries. Hilal Halaoui is a partner with Strategy& in Riyadh. He specializes in information and communications technologies and has extensive experience in marketing, business planning, technology planning, product development, sales strategies, and customer experience strategies. Dany Sammour is a principal with Strategy& in Dubai. He specializes in strategy development for telecom operators, focusing on areas including operating models, technology planning, telecom market assessment, analysis of large technology investments, technology cost optimization, realization of technology synergies, and CTO and CEO agendas.

This report was originally published by Booz & Company in 2012.

Ali Nawab also contributed to this report.

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Executive summary

Telecom groups can generate substantial value by implementing technology synergy strategies that maintain significant autonomy for operating companies inside their portfolio. This is achieved by building on the capabilities that come from a culture of collaboration among the group and its operating companies, an approach that maximizes synergy creation for stakeholders and that can generate value beyond direct procurement savings. The push for synergies comes from the rapidly changing and highly competitive telecom market. In particular, capital costs are a major line item for telecom firms. Getting the best prices for often highly complex equipment is difficult because of technical intricacies and vendor pricing strategies. Telecom groups have often sought to achieve technology synergies by centralizing procurement. Although potentially effective, this method can consume time and resources. By contrast, a decentralized, cooperative approach is easier to establish, does not require large-scale restructuring, and can be similarly effective. In the collaborative method, the group acts as a service provider for the operating companies and allows them to adapt to local considerations based upon their experience. The group suggests rather than mandates. By achieving synergies first, the group can later move to centralization, if appropriate. Collaborative technology synergies yield quantitative and qualitative benefits. The quantitative gains include improving the group’s position with vendors, for example, thanks to the greater visibility of procurement prices within the group and through the group’s ability to obtain volume discounts from suppliers. On the qualitative side, sharing knowledge and experience across operating companies can improve the customer experience and encourage innovation. Better management of technology costs can make the telecom group and its operating companies set for growth by turning technology spending from a problem into a choice. Improved technology spending also allows the group and its operating companies to concentrate on the capabilities that will differentiate them from their competitors.

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Key highlights
• Telecom groups with multiple operating companies in diverse markets can achieve technology synergies by using a decentralized, cooperative approach. • Quantitative benefits include allowing the group to approach vendors with a stronger hand. Procurement prices within the group become clearer and comparable to a very detailed level, enabling the group to achieve substantial savings by aligning all operating companies unit prices to the lowest. In addition, global volume discounts can be enforced on suppliers. • Collaboratively generated technology synergies have qualitative effects, thanks to sharing knowledge and experience across operating companies. These include improved customer retention and the fostering of innovation. • The capability to achieve collaborative technology synergies helps a group and its operating companies draw up a cost agenda that distinguishes productive from non-productive costs. This is an important step in becoming lean and set for growth.

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Centralized procurement: The established standard
Telecom groups can respond to the uncertainties of the business climate and cost pressures by changing their approach to technology synergies. By starting with synergy programs that are collaborative rather than centralized, they can generate quantitative and qualitative results that provide the group and its operating companies with a leaner and fitter cost agenda. The capability to separate costs that lead to growth from costs that hold an organization back is what positions an organization to grow. Telecom groups and their operating companies that develop these capabilities will differentiate themselves in the marketplace and will acquire the right to win in today’s highly competitive arena. The need for technology synergies stems from the structure of the telecom sector and its financial environment. The telecom industry is characterized by telecom groups that have direct business interests in their home markets and that possess large portfolios of wholly or partially owned stakes in operating companies in other markets. Technology spending typically accounts for over 80 percent of group costs and can run into the billions of U.S. dollars for a group and its operating companies. Telecom groups therefore have every incentive to use their scale to obtain favorable prices from vendors. This is not just about saving money. Rather it is part of the greater process of becoming positioned for growth, which involves sorting between investments that promote growth and less-productive expenditures. The need to generate cost savings also stems from multiple financial pressures on telecom groups. Intensifying competition in the provision of services to consumers and enterprises, along with regulation, make it more difficult for companies to charge more. Competition in the consumer and enterprise markets comes not just from other telecom firms. There are new players in the field, such as technology and

Technology spending typically accounts for over 80 percent of group costs and can run into the billions of U.S. dollars for a group and its operating companies.

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Internet companies. Fiscally challenged governments also see the cash flow–rich telecom sector as a source of easy pickings. At the same time, consumers are more demanding. They want their telecom providers to offer the latest technology, forcing companies to invest in greater network capacity and increased connectivity. Consumers and businesses can also switch operators more easily than before.1 Telecom groups have responded to these pressures with a continuous rally to improve cost efficiencies, with centralized procurement an important approach. Centralizing procurement has an intuitive appeal to telecom groups with holdings in multiple operating companies. By consolidating most procurement at the center, groups save money through the standardization of equipment and aggregation of purchasing power. Moreover, telecom groups’ business model seems to encourage centralized procurement. Globalization and international expansion, which are often centrally directed, have delivered more cost benefits than has direct incremental revenue growth coming from the operating companies. Synergy programs usually bring together technology procurement across a telecom group’s international footprint. The group uses the combined scale of its technology needs to obtain favorable prices by purchasing standard equipment for all of its operating companies. A well-known example of this approach is Vodafone. As a group, Vodafone has over two dozen operating companies and owns part of the giant U.S. carrier Verizon Wireless through a joint venture. The British telecom group has initiated technology synergy programs that have coalesced from a collaborative approach — which involved the group and its operating companies — into a centralized approach with a procurement company in Luxembourg. These programs have evolved significantly since their inception in 1995. Over the years, Vodafone has managed important cost savings, although this has required a considerable corporate effort (see Exhibit 1, page 7). In 2008, Vodafone created the Vodafone Procurement Company, whose services are available to Vodafone’s operating companies and outside telecom firms. The limits of centralized procurement The centralized procurement model may be less applicable to many telecom groups in today’s more volatile marketplace. Centralized buying of technology helps large telecom groups that have spent several years building group-level procurement capabilities. Time and predictability are important factors in a viable centralized procurement program. For these reasons, centralized procurement has worked in other industries where operations are geographically concentrated and there are well-defined procurement cycles.
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See the following Strategy& publications for more on this topic: Olaf Acker, Peter Weichsel, Adel Belcaid, and Bassam Hajhamad, “Speed-Dialing in to Innovation: The Pressing Need for Telecom Operators to Innovate or Lose Relevance,” 2012; Strategy&, “Annual Communications Leaders’ Summit 2012,” 2012; Karim Sabbagh, Chady Smayra, Amr Goussous, and Nans Mathieu, “Managing Telecom Portfolios for Sustainable Growth,” 2012; Karim Sabbagh, Roman Friedrich, Bahjat El-Darwiche, and Milind Singh, “Maximizing the impact of digitization,” 2012.
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These conditions, however, do not hold for emerging telecom groups. They do not have the luxury of engaging in a long-term centralization effort and their technology needs are frequently redefined by the accelerating pace of innovation. Indeed, emerging telecom groups should not pursue centralized procurement, and technology synergies generally, as ends in themselves. Rather, properly understood synergies,

Exhibit 1 Centralized technology synergies take time
Evolution of Vodafone Synergy Initiatives, 1995–2008

Centralized technology function Global Price Book concept started, and collaboration between operating companies and suppliers initiated1 1995 Vodata–VAS launched in the U.K. and used by many subsidiaries 1998 Offered converged global handsets for Vodafone (10 handsets) Globalization of network purchasing relationships 2001 Global program of technology selection initiated in order to launch common 3G network/service 2002 Created One Vodafone to harmonize network spend, standardize network designs, and share commodity purchasing best practices 2004 Negotiation of global contracts 3G launched in reduced time scales in seven countries 2005 2006

Centralization of network supply chain management completed. Expected to save £250 million. Standardization of network expected to save 8% of £3.3 billion network spend 2007 2008 Vodafone Procurement Company launched

Established supplier performance management process Developed e-auctions and demand management Web app for operating companies Initiated best-practice sharing on commodity purchasing
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Collaboration Centralization

From Christopher J. Ibbot, Global Networks: The Vodafone-Ericsson Journey to Globalization and the Inception of a Requisite Organization (Palgrave Macmillan, 2007). Source: Vodafone annual reports

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whether generated from the center or not, are valuable precisely because they go beyond mere cost considerations. They can create value for emerging telecom groups by helping them to ask questions about their cost agenda and whether it positions the group and its operating companies for growth. In particular, centralized procurement specifically poses three main difficulties for emerging groups in the telecom industry seeking to implement this approach: • adapting to local considerations • exerting management control over operating companies • striking the right balance between local and central procurement Adapting to local considerations. Local technological considerations can hamper a centralized approach. This is a particular concern for telecom groups that have operating companies in a number of very different markets of varied levels of maturity. Each of these operating companies faces unique competitive, technological, and economic factors. For example, some operating companies within the same group may be focusing on competing on voice services while others are targeting data provision. This leads to very different equipment and application needs. A blanket approach can unintentionally tie local managers’ hands as they seek to adapt to local conditions. Exerting management control over operating companies. Centralization requires that a group exert an appreciable degree of management control over its operating companies. Such control typically comes through majority shareholdings in the operating companies. The group may have to use this position to push centralized procurement onto the operating companies to ensure their participation and to guarantee sufficient scale to generate cost savings. There is a risk that operating companies opposed to centralization will be marginalized. This will dilute overall scale unless there is adequate management control to mandate centralization. Striking the right balance between local and central procurement. For all its theoretical appeal, centralization can lead to practical difficulties because it is hard to ensure the correct balance in terms of procurement between the group on the one hand and its operating companies on the other. The problem is that even the most concentrated system needs some local procurement. It is simply not feasible for the center to buy everything. Consequently, there is always some overlap of procurement staff and skills. Drawing the boundaries between what should be purchased locally and centrally can become a tug of war between the needs of the group and those of the operating companies. Such overlap and demarcation issues contribute to a certain corporate flabbiness.
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Among the emerging telecom players likely to encounter these three problems are the main telecom groups in the Middle East. These groups have expanded rapidly in recent years, branching out well beyond their home turf (see Exhibit 2). For example, the Emirates Telecommunications Corporation (Etisalat) is present in 17 countries

Exhibit 2 Emerging groups operate in dispersed markets
Wide Geographic Footprint

Etisalat MTN Qtel STC

Source: World Cellular Information Service 2012; telecom groups’ annual reports 2010

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and has 27 operating companies in these markets, a presence largely built up in the last six years. Etisalat, whose home market has a total population of just 7.5 million, now has 167 million customers and 53,000 employees. As they find their feet in these new, often developing markets, these groups have to be sensitive to local considerations. The maturity level of the local markets will drive very specific technology choices on the operating companies, that will prevent the groups from standardizing and centralizing their procurement (see Exhibit 3). Similarly, these emerging players often own a portfolio consisting of majority and minority shareholdings. Among major groups in the Middle East, half of their operating companies are partially owned, which reduces the efficacy of a centralized synergy approach.

Exhibit 3 Technology synergies are available across different markets without standardization
Markets by Maturity; Capital Expenditure Budgets

45 40 35 30 ARPU (US $) 25 20 15 10 5 0
Developing Markets High-Growth Markets

Capex in 2010 (in US$ Millions)
Developed Markets

0 RAN Tx Core Other tech IT VAS OSS

200 400 600 800 1,000

Potential savings 20%–30% 10%–15% 10%–15% 10%–15% 5%–10% 10%–15% 10%–15% 0%–5%

0%

5%

10% 15% 20% Data as % of ARPU

40% 45%

Non-tech

Etisalat MTN Qtel STC

Note: ARPU = average revenue per user; RAN = radio access network; Tx = transmission; IT = information technology; VAS = value-added services; OSS = operational sub system. Source: World Cellular Information Service 2012; telecom groups’ annual reports 2010

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Synergizing before centralizing

Telecom groups can generate substantial value and reduce their capital costs if they create a culture of cooperation among the group and its various operating companies. This decentralized approach to technology synergies will also provide considerable qualitative benefits in terms of knowledge sharing, customer experience, and encouragement to innovate. Managed in this way, technology capital expenditures become positively regarded investments, rather than negatively regarded costs. Telecom groups can transform how they operate in terms of technology acquisition and management, allowing them to identify which costs will give them the capacity for growth. The groups are therefore in a position to focus on the differentiating capabilities that will enable them to stay ahead of their competitors because they have eliminated fat in their spending and are positioned for growth. For telecom groups in the Middle East, similarly structured groups, and those facing similar challenges, a decentralized, collaborative approach will work better than starting with centralization. By generating synergies before centralizing, telecom groups can leverage their corporate diversity to realize quantitative and qualitative synergies across their operating companies. They can avoid the large-scale restructuring often demanded by centralized procurement. Instead, decentralized synergies build the corporate muscle needed to reduce wasteful spending and focus on winning capabilities. Putting collaboration before standardization allows each element of the corporate structure to play to its respective strengths. The group’s central vantage point, its convening power, company-wide expertise, and ability to achieve scale are melded with the operating companies’ knowledge of local considerations and their sensitivity to their individual markets. The

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group is responsible for a corporate goal in which the operating companies actively participate while retaining full flexibility to adapt to local conditions. By sharing and partnering, rather than centralizing and commanding, the group and the operating companies achieve important quantitative and qualitative benefits. Costs seen as a burden on the budget become investments; procurement processes become collaborative methods that grow into winning capabilities to innovate and retain customers. This virtuous process is what generates a lean cost agenda for a group and operating companies that are positioned to spend wisely and grow strongly. Building a decentralized synergy program There are two main elements to building a decentralized, collaborative synergy approach: making the group the service provider and allowing the operating companies the flexibility to adapt to local considerations based on their experience. These elements bring together the group’s synergy team with their counterparts in the operating companies. They involve thinking differently about the roles of the group and the operating companies. The service provider model. Group technology synergies should be coordinated through a service provider model. The group-level synergy team proposes initiatives that the operating companies have the option to endorse. Operating companies can decline to adopt group proposals that do not fit with their locally driven strategies. Culturally, this means brainstorming ideas and deciding together, not handing down decisions or imposing mandates. By acting as a service provider, the group synergy team supports operating companies during purchasing cycles. The group team does this by sharing price analyses, vendor selections, and negotiating tactics that draw on the experiences of other operating companies — information collated and processed through the shared tools. One of the most important effects of the service provider model is the alignment of group procurement targets with tangible benefits for operating companies. Group technology synergies are coordinated at group level rather than enforced by the group synergy team. By contrast, in the centralized approach, the group’s desire to use its purchasing power, and pursue standardization, can impose inflexible requirements on the operating companies. Similarly, the collaborative approach strikes a fair balance in the relationship between group-level coordination and local decision making. Each operating company maintains its control over design, purchasing
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cycles, and required specifications, giving it the ability to adapt its technology strategy based on local business needs. Chief technology officers (CTOs) in the operating companies can pursue their marketspecific agendas. The group fosters a culture in which everybody benefits — even if some operating companies gain more than others at some moments, or some sit out certain initiatives. Such an approach gives operating companies an incentive to participate fully in technology synergies so that they can take advantage of the group’s buying power. The result is that the group saves on costs while the operating companies’ particular needs are respected. Operating company leadership. The collaborative, decentralized approach allows the operating companies to lead the synergy realization program through two bodies. The first is a team of experts that draws on the experience of participating operating companies. The expert team supports the implementation of technology synergy initiatives. The second body is a governance council of operating company leadership teams. The purpose of the council is to ensure adequate buy-in from all stakeholders. The council has the power to approve new initiatives and monitor progress of ongoing efforts. The group convenes the team of experts and the governance council, and participates in both of them. Through these mechanisms, the decentralized approach tackles the three main problems that can crop up with centralization. First, by aligning the group’s targets with operating companies’ needs, the collaborative method does not ignore local considerations. Second, the group does not need to exert intrusive management control over the operating companies. By encouraging their participation, the team of experts and the governance council deal with the problem of resistance from operating companies that guard their autonomy. Third, the challenge of achieving the correct balance between local and central procurement is addressed through decentralized cooperation. Technology synergies occur because of cooperation that preserves the different roles of the group and the operating companies (see Exhibit 4, page 14). The quantitative benefits of decentralization The collaborative, decentralized method has clear quantitative benefits. These come from building powerful quantitative tools that lead to direct cost savings. These tools allow for rapidly analyzing spending at a very deep and detailed level. This enables a group to develop precise, detailed reference models that can build its benchmarking capabilities. As a result, a group can look at data from a new operating company very easily, which is a useful capability when performing due diligence during an acquisition or negotiating prices for a large contract.

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Exhibit 4 Through cooperation, the group can achieve quantitative and qualitative synergies
The Roles of Group and Operating Company Teams

Group Procurement center of excellence Develop price books Bid support Provide price visibility Knowledge center Identify trends and best practices Promote knowledgesharing Design authority Group technology office Cost Alignment between group and operating company needs

Consolidate Supervise tech operating roll-outs company technology road maps Evaluate operating company design Develop group tech strategy

Negotiate volume discounts

Support vendor strategy

Quantitative synergies

Operating company Procurement center of excellence Identify technology needs Manage procurement cycle Bid support Lead vendor negotiations Knowledge center Identify lessons learned Design authority Develop tech road map Group technology office Deploy technology solutions Align with group tech strategy

Knowledge

Define vendor strategy

Collaborate with Develop operating network design companies

Individual operating company Qualitative synergies

Note: The group and operating company activities portrayed are non-exhaustive. Source: Strategy&

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The practical impact is clear. One leading Middle East telecom group that used the collaborative approach generated short-term savings of 15 percent to 35 percent on different aspects of technology spending. These benchmarking methods deliver the benefit of price transparency. They go beyond the high-level tools often used by companies in various sectors to bring some clarity to procurement prices. Unlike high-level tools, collaboratively generated benchmarking has the power to make “apples to apples” comparisons of unit prices through reference models — rather than by enforcing standardized configurations. These comparisons allow the group to approach vendors fully armed with pricing information and use to advantage its obvious visibility as a strategic buyer across multiple geographies and product lines. The group team also establishes global price books to allow for better cost comparisons. To further assist the operating companies, the group team can sign framework agreements with different vendors to lock in maximum unit prices. The operating companies then locally manage subsequent negotiations directly with the vendors. The collaborative approach allows telecom groups to clarify otherwise opaque technology equipment prices at the most detailed level possible. Vendor pricing strategies and technical complexities mean that roughly similar equipment can cost various operating companies substantially different amounts. Equipment is becoming increasingly complex, characterized by myriad features that seem to make meaningful comparisons almost impossible. Indeed, the difficulty of accurately comparing prices is clear from the fact that many CTOs believe they are obtaining the best prices available from their vendors. Fortunately, the decentralized method is as effective as standardization in addressing the opacity of technology prices. This is because collaboration yields information in the form of reference models that enable unit price comparison. The group uses rapid spend analysis to build the models in concert with operating companies’ procurement teams. Group teams follow a three-step process that first understands the operating companies’ model maps, second, maps the equipment to reference models, and third, allows price comparisons among these models (see Exhibit 5, page16). The reference models provide a fully functional alternative to group-wide standardization. They impose no constraints on operating companies’ decision making and fully preserve confidentiality between operating companies and vendors. They allow operating companies to conform to price disclosure constraints.

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Exhibit 5 Collaboration provides full flexibility for operating companies (opcos) in purchasing and price visibility to reduce unit costs
Reference Model Benchmarking Approach

Area - Provides clear bottom-up spend baseline for group through bottom-up analysis - Allows operating companies to maintain full flexibility in purchasing according to their needs 2G

Model 2x2x2 (1800 Mhz) 4x4x4 (1800 Mhz) 1x1x1, 256 CE, 15 HS Codes 2x2x2, 384 CE, 45 HS Codes 3x3x3, 512 CE, 90 HS Codes 2G: 2x2x2 1800 Mhz 3G: 1x1x1, 256 CE, 15 HS Codes 2G: 4x4x4 1800 Mhz 3G: 1x1x1, 256 CE, 45 HS Codes 2G: 4x4x4 1800 Mhz 3G: 2x2x2, 512 CE, 90 HS Codes 3G

Op Co 1

Op Co 2

...

Op Co 7

Understand operating companies’ model map

3G

Single RAN (2G+3G)

1

2G 2x2x2, 900 MHz Chassis HW RF Processors Cabinet Power Supply Unit Main Controller RF Unit Antenna Remote Electronic Tilt Feeders Cables Hatch Plate Roxtec Instalation Material Alarm Box Roxtec Multi Carrier Lic

LTE 1x1x1, FDD 2600 MHz, 2x10 MHz, 80 Users, 100Mbps Chassis RF Processors Cabinet Power Supply Unit Main Controller RF Unit Baseband Unit Antenna Remote Electronic Tilt Feeders Cables Hatch Plate Roxtec Instalation Material Alarm Box Roxtec Active Users Lic Bandwidth Lic Power Lic DL 2x2 MMO

1x1x1, 256 CE, 40W, 5 HS, Codes 3.6 Mbps Chassis RF Processors Cabinet Power Supply Unit Main Controller RF Unit Baseband Unit Antenna Remote Electronic Tilt Feeders Cables Hatch Plate Roxtec Instalation Material Alarm Box Roxtec HS Codes CE Lic Power Activation Lic Multi Carrier Lic

Antenna 2 Map to reference model AUX Feeders

Antenna Feeders

Antenna Feeders

Materials

Materials

Materials

SW

- Provides reference models comparison - Quick and effective process (new operating companies added with minimal effort) - Overall reduction in prices for the group as individual operating companies reduce their prices via benchmarking. Price and compare reference models

100 90 Unit Cost (US$ Thousands) 80 70 60 50 40 30 20 10 0 ZTE NSN Huawei Ericsson Op Co 1 Op Co 2 Op Co 1 Op Co 3 Op Co 3 Op Co 2 Op Co 5 Op Co 1 Op Co 4 Op Co 3 Op Co 5

Op Co 2 Op Co 4 Op Co 1

3

Source: Strategy&

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The benefits of the collaborative approach also extend to IT. Groups and operating companies can achieve technology synergies for commodity items such as servers, storage, software, and other end-user computing products. There are also opportunities for companies to define performance levels when managing IT vendors, as well as the chance for cost savings in IT services. Collaboratively built technology synergies provide telecom groups with an improved negotiating position when buying in verticals dominated by a few large, best-in-class vendors. The qualitative benefits of decentralization Technology synergies have important qualitative effects, with consequences that build a group’s capabilities. These benefits include improved knowledge sharing and innovation, which can lead to better customer experiences, and so revenue protection and growth. Groups may not obtain these benefits if they use a centralized procurement approach before achieving technology synergies. Experience suggests that knowledge development is more effective through a collaborative model because this involves putting technology synergies first. The most obvious qualitative impact is an improvement in knowledge and experience sharing throughout the group and its operating companies. This is achieved by having the group synergy team support the operating companies in their identification of common areas for knowledge sharing. The group also assists the operating companies to consolidate their mutually held knowledge by convening workshops, fora, and knowledge-sharing platforms. This qualitative benefit has a bottom-line impact by improving the customer experience, an important capability in an era of consumer choice. Using the decentralized approach encourages operating companies to work together on technology improvement initiatives that can increase customer retention rates. Even an improvement in customer loyalty of just 1 percent will have a more substantial and wide-ranging effect on profits than direct procurement savings. Another forward-looking, qualitative gain is the ability of operating companies to fruitfully cooperate on such technologies as New Generation Operations Systems and Software (NGOSS). These technologies demand that companies implement platforms that are often very complex. Operating companies that collaborate together can quickly

Technology synergies have important qualitative effects, with consequences that build a group’s capabilities.

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build on lessons learned from each other, which will allow them to become more agile and fast-to-market. Operating companies can also jointly innovate on areas such as machine-to-machine technologies, mobile health, and mobile commerce applications. They can eventually build a third-party developer ecosystem that leverages existing sales and support channels, and that will lead to revenue growth. Similarly, operating companies can viably institute knowledge exchange programs on business improvement areas. This allows them to swap notes on billing convergence, digitization, and customer analytics. Perhaps the ultimate qualitative benefit of collaboration is to help telecom leaders overcome the inherent difficulties involved in technology investment decisions. By sharing their experiences with business cases, technology trials, network design, vendor selection, and rollout, operating companies can join forces on new technologies such as Long Term Evolution (the latest goal for high-speed wireless data transmission). In the decentralized framework, the total number of years of employee experience available to any individual operating company increases significantly with each partner who joins the team. As the telecom sector becomes more technologically advanced and complex, telecom groups will need such mechanisms to leverage their knowledge and experience to the maximum.

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Conclusion

The decentralized, collaborative approach to technology synergies allows telecom groups and their operating companies to deliver value and significant qualitative gains. Encouraging such collaboration will allow groups to create value despite the challenges of local considerations, control over operating companies, and the difficult balance between local and central procurement. This decentralized method is characterized by stable knowledge-sharing platforms and a partnership-driven culture. The decentralized approach works better than centralization and standardization because it challenges synergy teams to look beyond mere procurement consolidation. Collective knowledge and operating companies’ experience provide the winning edge in local and international markets. Pooled experience and expertise allows teams to capitalize on shifting market dynamics and the rapidly changing technology landscape. This collaborative model can work for any group of companies beyond the telecom sector facing similar procurement issues. The winning model will be one that evolves into a procurement service provider that leverages group-level visibility to provide a combination of procurement, experience sharing, and advisory services to help operating companies achieve their goals. Some telecom groups are already looking beyond working with their operating companies. They are forging partnerships with other telecom groups to derive maximum benefits when procuring the latest technology, creating value on a large scale. Most important, collaborative technology synergies help telecom groups and their operating companies manage their costs and deploy technology resources for the expansion and growth that they need. Telecom groups can focus on their priorities and turn their costs from problems into choices. Operating companies have full flexibility in this model. The precise focus of spending is driven by the priorities that they identify and that are unique to each of them. This approach is akin to a tailored fitness regimen that builds corporate muscle and decreases costly flab. By reducing some categories of expenses and concentrating spending on developing their most distinctive capabilities, companies become leaner, differentiated from their competitors, and ultimately set for growth.
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This report was originally published by Booz & Company in 2012.

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© 2012 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

 

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