Outsourcing Framework for Mobile Operators

Like any business, we face the dilemma of outsourcing even in Telecom Industry. There are various views on outsourcing and the arguments of the proponents and opponents are equally convincing. Indian companies like Bharti Airtel, Idea, Vodafone Essar have outsourced some of the functions like network and IT which is still considered as core by many telecom operators in the western world.

Outsourcing is an important decision and it cannot be decided without giving proper thought to it. A framework is needed to help the operators decide on the contentious issue of outsourcing. If a function is core to the success of a company, then it cannot be outsourced but the problem is how do we identify the core. Geoffrey Moore explains the concept of core vs. context in his book “Living on the Fault Line” –

Everything begins with strategy. Strategy determines what is core to a company’s competitive advantage. Sustainable differentiation is the basis of economic success. Differentiation creates the basis for customer preference and gives a company pricing power. Sustainability is based on a barrier to competition and increases the returns on investment. Core is defined as any process that contributes directly to sustainable differentiation. Context is all other processes required to fulfill a company’s commitments to one or more of their stakeholders. Everything that gets done in a company is either core or context.

In optimizing resources, the goal in core is to create competitive advantage. Differentiation is critical here. This is the place to invest human and financial capital. On the other hand, with context activities, the goal is to meet market standards. Differentiating on context is a mistake and one that is costly. The key is to extract human and financial capital from context wherever possible and repurpose for core.

Moore uses the 2×2 matrix to determine the functions that can be outsourced but also cautions on the way it should be outsourced. I have taken the same matrix and applied on the Telecom Industry to arrive at the outsourcing framework for mobile operators (refer figure below).

The above becomes a very good framework to decide what needs to be outsourced and how. The companies cannot outsource the core that is mission critical. I would say that no operator can outsource its customers to any other company. Similarly, the development of employees cannot outsourced as it is the employees that define culture of the company and they bring in the customers. Strategy and Finance functions should always be kept close to the heart as they certainly help a company differentiate itself from others.

Anything in the top right quadrant (context and mission critical) is difficult to outsource but can be outsourced as they do not differentiate the business from competitors. Network operations were probably core when the mobile services were being rolled out but now it is no longer a differentiator (it is a hygiene) and hence can be outsourced. If we continue to insource network operations, we are likely to waste scarce resources and attention in an activity that does not give us any advantage. This may result in missing the opportunities due to lack of focus. The outsourcing of non-core activities also help us unlock the company’s wealth that can lead to higher stock prices.

IT services should also be outsourced as the companies do not have enough resources and cannot focus on development of cutting edge IT systems. Similarly, there could be other companies that can manage the VAS and customer support services better. One company’s context can be core of some other company. It is always better to outsource the context functions to a company that treat them as core. This would ensure that the value keeps generating within the system.

Functions that are support or non-mission critical and context can easily be outsourced. The challenge here is to ensure day-to-day quality and period quality checks should give the desired results.

For the context and yet mission critical quadrant, we need to have a very robust outsourcing strategy as the key challenge is keeping the control. The partner selection needs to be very carefully thought decision and the relationship should be governed by strong service level agreements (SLAs). In the next few articles, I would focus on how to outsource and what should be strategy of the operators while outsourcing.

References:

1. Geoffery Moore’s presentation on book ‘Living on the Fault Line’ – Geoffrey Moore – Core vs Context

2. Interview of Don Price, CTO-Bharti Airtel

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12 Comments on "Outsourcing Framework for Mobile Operators"

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Amit Agarwal
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Amit Agarwal
5 years 10 months ago

I differentiate core vs non core in very simple terms. For me any activity which could be done by some other company better/cheaper/value generative than what you can do yourself is non-core or context. Else the activity is core. I think this fits well with the graph shown above and all the functions in core and vice-versa remain same barring one that is Human Resources. I believe apart from conducting last 2 rounds of interview everything else could be done better by someone else outside. Hence I dont believe Human Resources is core.

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AMIT KUNDRA
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AMIT KUNDRA
5 years 10 months ago
If we see the in-place MS agreemenets between the Cellular Service Providers (CSP)& the Vendor companies it is very clear that the best model for MS is where the CSP is able to offload the technicalities part from their main business targets – of Brand Value Creation, Marketing of Services . So, a CSP can outsource the Technical Operations to the Vendors . There is however a very clearly defined categorization of the Managed Services Models. There are broadly 3 categories for the MS- Network Led- , Services Led- & Consultancy- Led . which decides the fine categories whihc need… Read more »
Janit
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Janit
5 years 10 months ago

Hi Mohit,
Thanks for another wonderful post.
I also think that over a period of time as the industry matures more and more functions can be added to the disengage part of the quadrant. For example. HR, I believe is essential, but a lot of the functions of recruitment can be outsourced. Same goes true for marketing communications, marketing and finance too. But it requires a mature market with lots of players that would help provide the relevant expertise to service providers.

Wajid
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3 years 9 months ago

Thanks for the valuable info. With many other benefits of outsourcing , it enable business owner to focus more on the core activities.

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