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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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.
Thanks Amit for your comments. I do not agree with your comments related to Human Resource. I believe that the HR function is core to any company and is much larger than recruitment and administration. It can have a lot of impact on motivation and development of the key resource of a company, i.e. employees.
Hi Mohit
This certainly gives us something to think about and is a very useful starting point. I do believe that there will be variations depending on the market and the company involved though.
I’ve been debating something related on Microsperience when I posed the question: what is the telecoms USP? (see http://www.microsperience.com/?p=1666)
I think these two questions are closely related. I also think what is a USP for one firm won’t be for another because CSPs are of many different types and operating different business models. But what’s happening is CSPs are now being forced to question the very basics of doing business and to focus in on this important question: what makes us different?
On the marketing side this appears to be extremely core because ultimately this is what many CSPs do – they market telecoms services. The trouble is they’re mostly not very good at it. So for an MVNO this may be core. But for a wholesale carrier? If you take a look at a marketing software provider like Pontis, you’ll see that they’re operating as basically an outsourced marketing dept for carriers who are pragmatic enough to realise they don’t have the skills. Likewise HR may appear to be core but the lesson we can draw eg from UK public sector is that it isn’t as core as we think. In the UK govt sector it is common for HR to be run (at the strategy and operational level) by external consultants, and to be staffed by external consultants. So even the interviews are being done by an outsourced team, often recruiting other outsourced resources. Why? Because the skilled staff don’t want to be employed and because the sector was looking for “fresh ideas”. It doesn’t necessarily mean that it is always effective – the taxpayer will tell you it has often turned out to be very expensive – but there you have it.
Finally many of the IT/software services are in your upper right hand box. You are right to say that we now need to think the unthinkable and have to consider whether we should outsource. For some the answer will still be no. But then again, a few years back everyone believed that to be a telco you needed a network. How silly that looks now in the era of the MVNO and of network outsourcing. However, I would caution that when we asked the question ‘what truly is the telecoms USP’ the only answer we got back after lots of head scratching was…
DATA.
Be interested to hear if others have a different view.
Thank you for getting us to think about this very difficult question. I really think this is the core of the business problem facing us. At the moment there is still a lack of clarity on this issue so we really do need to stimulate some debate and some thought.
One of the things we should talk about as well is “what does outsourcing mean?” Traditional outsourcing/managed services v BOT v SaaS/Cloud…there are many flavours these days.
Hi Teresa,
Thanks for sharing your post on microexperience. It is really interesting and complements the post I have written.
-Mohit
Hi Mohit,
Excellent article and I agree with you that HR is a core function. HR should be the core function in every company and every industry. It is the quality of people and processes that differentiate one company from other.
As far as telecom is concerned, we too often give Indian (Bharti) examples to highlight the success cases. There have been failures too (ALU-Telstra if i am not mistaken). It is very important to get an organizational buy-in for any outsourcing and people impacted should be handled with utmost care. There are also challenges with the governance models in outsourcing deals.
Would like to hear your views on the pitfalls in outsourcing and some mitigation measures.
Regards
Arvind
Hi Arvind,
You have raised a very valid point. There are pitfalls of outsourcing which need to be managed to get the full benefits (cost is only one part of outsourcing benefits). As described the network is now a hygiene but a necessary component of telecom operator and any outage there cannot be tolerated. It is therefore important to have qualified professionals who can ensure that sufficient redundancies are built in the network. In my subsequent posts, I would be talking about the pitfalls and the benefits of outsourcing of different functions and I hope that should answer all your questions.
-Mohit
The phrasing might be ‘business framework’ that extends the concept of outsourcing for operators to building a flexible framework for conducting business. This should incorporate partnerships, new ventures/services incubators that seek out the best of breed innovations from open source development community and outsourced operations.
The role of outsourcing will grow and shift to increasingly become a strategic asset.
I agree that outsourcing has been less prevalent in N. America but that is changing: Sprint has outsourced network operations to Ericsson. And Verizon and Clearwire have acknowledged that they need to do more partnering, work with open source developers and outsourcing or product and service development and operations. This has become a necessity to deliver competitive services at the rate of change needed and to cost effectively compete.
Furthermore, I expect we will see ‘outsourcing of outsourcing’: major business consultancy and service and product aggregators such as Ericsson and IBM and perhaps the large outsource companies themselves will play a role of being part of the experience base to facilitate ‘transformational business strategies’. While that starts to sound like these firms marketing slogans, the shifts are real.
Dear Mohit,
I thoroughly enjoyed reading your article and the relevant comments. Thanks for a lovely adaptation of Moore’s principle to the telecom industry.
As you rightly pointed out, to remain lean and mean, mobile operators have traditionally outsourced non core areas of operation. However, the definition of “what is core” does change over time, and we have seen this, when Airtel and Vodafone outsourced Network Operations and Customer Support, areas once considered “core” to the main business.
Mobile operators are now focussing more on the marketing end, and it will not come as any surprise if mobile operators will outsource product design, which is currently a very core area for any mobile operator. Outsourcing primary competencies are usually unsuitable since it makes you sacrifice exisiting skills and perceived as giving away your “niche” into other hands. There is always the risk of the company becoming hollow and lacking a core deliverable.
But faced with shorter product cycles, rapid advancement of technology, increasing obsolensce of “vanilla” services and increased cost of capital, mobile operators,especially new entrants cannot longer afford the huge capital outlay.
“Horses for courses” does make sense, and each operator will stick to what one does best.
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 to be outsourced
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.