Roland Berger Strategy Consultants

content

The best from all industries as

a role model | Telcos are suffering
from pressure on margins and
growing technical complexity|
Customers' concerns are often
countered with outdated strategies | In the process, many are
losing sight of the client | Yet
they could well learn from other
industries how to provide a
better service

January 2012

Fresh thinking for decision makers

Clear structures required

Telcos are under intense pressure. Merely to react to new
competitors, to growing complexity, and to increasingly
exacting customer requirements is not to answer the fundamental
question, which is where and how they aim to earn money in
the future. A reorientation of the entire company is required.

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Delivery Model 2.0

For decades, good money was easy to earn in the telecommunications industry. Demand
for communication and the spread of initially fixed and then mobile internet access were
so robust that handsome profits were there to be made. That situation has since changed,
however. Reliable growth has slowed down significantly and competition is becoming
increasingly aggressive. Cable providers in the fixed-line network sector and no-frills providers in the mobile sector are putting pressure on prices.
At the same time, customers' requirements are on the increase. Providing the fastest
internet connection used to be sufficient. In the future, telecoms must also get their
brand promises and functionality right. Customers no longer want to enjoy content on just
one device; they also want to enjoy it on their smartphone or tablet PC and on their internet-enabled TV or other terminal devices. That adds to the complexity as an ever greater
number of devices are expected to function smoothly when they are networked. In addition
to the existing networks, new technology platforms such as FTTx (fiber optics) and LTE
(mobile telephony) are to be set up, operated nationwide, and delivered along with customer service. At the same time, there is virtually no possibility of switching off legacy
platforms in the foreseeable future. New IP services must be provided in co-operation
with third-party providers as triple play morphs into multiplay.
In short, a whole lot of work lies ahead for telecommunications corporations that used to
be accustomed to growth and earnings, if they are to secure profits. The challenges are so
diverse that simple restructuring and individual measures such as improvements to the
hotline service will no longer be enough. Short-term optimization on the sales or cost side
will also be a mere piecemeal, patchwork approach if all it involves is sales optimization or
endeavors to boost the efficiency of technical service, such as have frequently been undertaken as one-time measures in the past. If all you do is try to bring into line closely interlinked processes that have evolved over years so that they just fulfill the latest requirements, you will be lagging behind developments again tomorrow. What is required is a
reorientation across the entire enterprise that comprises all areas, from product development via sales to customer service and makes the company and its business model, its
products and its structures future-proof.

Vision for the future business model Delivery Model 2.0

This reorientation toward a successful Delivery Model 2.0 is a two-stage process that first
requires a clear idea of where the focal points of business are to be in the future. Core issues
in this regard are:

How is the market environment going to change user behavior, complexity of offers,
competitive structures?
What part is the company to play in the future communication-information-entertainment
complex?
Which key changes will prevail on the product and/or service side?

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02

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Slowdown in growth
Between 2000 and 2005, growth rates
averaged 6.6% in Western Europe.
Growth has since slowed down to a mere
0.8% per year.

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Roland Berger Strategy Consultants

What are the company's core competences? What added value is it to deliver?
How is it to set itself apart from the rest of the market?
The answers to these questions will provide a clear idea of the future shape of the company
that will have a decisive influence on its appearance and success in the years to come.
Once this blueprint for the company has been agreed, the necessary and appropriate measures can be deduced and implemented in its organizational structure. To do justice to the
increase in customer requirements and the growth in complexity, the main focus of attention
should be on two areas, namely:
Those in which an interaction with the customer takes place, in other words sales,
provisioning, troubleshooting and customer service, and
In-house processes and workflows that need to be adjusted to the new structure with
friction losses kept to a minimum.
The good news is that tried and tested solutions models for many specific corporate reorganization measures already exist in both of these areas, albeit less in telecommunications and
mainly in other industries. These can serve as models and be adapted for the implementation
of the company's corporate strategy.

>30%
9%
2010

14%
2012

2018

Upgrading the webstore

By 2018, up to 30% of telco customers
are expected to place their orders on the net.
That will only happen if their webstore concepts
are attractive.

Once more with feeling: emotionalizing customer interaction

Emotionalizing the shopping and service experience is the key to selling successfully
many products and services that seem at first glance to be comparable. Once more, Apple
demonstrates that this can be achieved even with complex and networked systems. The
Californian cult computer company set up so-called Genius Bars at its Apple Stores. Genius
Bar employees are not required to fulfill sales or any other targets set by the Controlling
department. Their only task is to generate enthusiasm about the Apple universe among
existing and prospective customers. Someone who is already interested may soon be
aware of the benefits of, say, an iPhone, but what are the benefits of connecting the iPhone
to an Apple computer and how do you play iPhone video clips on a TV set? By means of
these and other, similar questions the Genius Bar employee attracts prospective customers in ever greater depth to the Apple universe and thereby succeeds both in explaining
complex products and at the same time in emotionalizing them. From there it is only a
short step to buying them. This concept has made Apple a role model for telecommunication companies when it comes to offering the services to the customer as an attractive
package.
Selling successfully by making products exciting may well be even more important for
internet sales than for selling in a physical store. Yet only a handful of telcos currently
make sufficient use of the specifics and opportunities of selling on the Web. Webstore
pages are often static in design, product presentation varies in quality, and different offer-

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Delivery Model 2.0

ings are hard to compare. Here too, looking further afield can reveal new ideas. The Esprit
label, for example, does a better job of it even though a view long held in the fashion
industry was that fashion could not be sold on the internet. Esprit demonstrates how to do
it: by means of emotional presentation. The website is designed attractively to display different garments in the effect they create and the combinations in which they can be worn.
In addition, the Esprit Shop provides suggestion functionalities that offer further incentives to buy and prompt shoppers to browse. In this way the feeling of an in-store shopping
experience is at least partly transferred to the webshop. What is it that makes Esprit so
successful? It has a "mini CEO" in charge of its e-commerce activities across Europe. The
online sales channel was set up as a separate business unit and was thereby able to gear
itself entirely to the specifics of online sales, even if that meant a conflict between channels with stationary trade in local stores. Upgrading online business in this way is an ideal
model for telcos, whose web offerings have had only limited success. In 2010, only around
9% of telco customers used the online shopping cart, whereas an industry target of at least
14% has been set for 2012. For 2018, analysts anticipate an online market share of more
than 30%.
Another example of opportunities that the internet provides is the BMW Car Configurator.
The customer can use it not only to make up precisely the car that he or she wants; he can
then share the configuration and simulated images of it on social media platforms and
seek comments, opinions, and the advice of friends. In this way a product that in reality
leads only a virtual existence and is also extremely detailed and complex becomes an item
to be experienced, an item that is already almost the user's personal property. At the same
time BMW succeeds in making a complex product very "easy to buy" for the customer.
"Playing" with the BMW Car Configurator may even prompt the user to revisit the website.
What a contrast to many telcos' current product pages!
Emotional shopping experiences of this kind set a standard for all sales platforms on the
internet. They must be the yardstick of all telco websites. Social media channels may here
have an important part to play for a target group that is online-savvy. Target group specific
sites can be established there with a constantly changing range of offers or local information about, say, cultural events. That is how to build a community and to make visiting a
telecommunication company's website a pleasurable browsing experience.
Over the medium term, the borderlines between a physical store and an online shop are likely to become blurred. Ideally, product advice given in the past or customer service inquiries
have been directly linked to a customer profile. These data records are directly interlocked
in the event of both a subsequent in-store consultation and webshop research or an online
order. Online and offline go hand in hand. The customer and the company "know each
other." What matters is for the company to establish transparent, authentic communication
(including data protection) that offers customers an added value experience regardless of
whether it involves technical advice without obligation or a specific service concern. Thanks

Taking control of complexity

The automotive industry proves demonstrates
that the customer can individualize even highly
complex products.

Roland Berger Strategy Consultants

to social media platforms and the communication channels that are embedded in them, this
direct interaction between company and customer is growing faster and more direct, and is
often apparent to third parties which makes it even more important.

Satisfied customers from the outset

Customer communication is another area in which only a few telcos provide a satisfactory
quality of service, and that applies both to order processing and to customer service.
Due to the telcos' longstanding "silo mentality," processes aimed at dealing with customers' concerns, such as taking a problem to a satisfactory solution, are seldom networked
optimally. As a consequence, many business units operate alongside each other, in some
cases even using different IT systems. Linking different departments is a never-ending
construction site. Customers have to wait an undue length of time for their concern to
be processed and their problem to be solved. Across the industry, most customers who
wants to use a broadband connection needs a technician's support more than once
(1.4 times is the industry average). In individual cases, however, this number can rise to
2.5. Another instance that is far from pleasurable for the customer is the need to use the
services of a call center. The first-call problem solution rate is around 55%, and this too is
an average figure for the industry. Some providers' first-call success rate is a mere 20% or
so, and even the best in the industry achieve a success rate of only 80%. In other words,
not even the best provider solves one out of five callers' problems during the first call.

55%
A solution for only every
other caller
Call centers solve only around 50% of problems
right away. Better providers achieve a first-time
solution rate of 80%. Less successful ones solve a
mere 20% of callers' problems at the first attempt.

Yet marketing people convey to the customer an ideal image of an integrated enterprise where all parts of the entire range of products and services fit seamlessly. This
image can frequently no longer be upheld if the customer actually makes use of several
offerings in parallel, such as signing up for a wireless connection in addition to a landline. In-house processes in many telcos are so poorly integrated that customers then
have different service hotlines, different customer numbers and passwords, and different customer profiles for their two contracts. They may even be billed separately. That
may seem a little cumbersome, but it is acceptable if everything works. Even then, however, the procedure can generate costly customer service inquiries. But woe betide the
customer if something fails to function in this uncoordinated process or, indeed, external partners over-the-top service providers such as YouTube (Google) or Lovefilm
(Amazon) are to be incorporated in the offering. Customer service then often finds the
different status of the various services very difficult to reconcile. This lack of transparency arising from in-house processes that are not integrated is in stark contrast to the
uniform and transparent single-source product experience that the customer wants and
rightly expects.
This uniform product experience can only work if all business units involved in the customer transaction operate hand in hand and access the same data. Lufthansa, for example,
has designed its IT system so that the relevant interfaces always know, in interaction with

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Delivery Model 2.0

a customer, which next step lies ahead for the customer regardless how he or she
contacts the airline. The ticket is bought online via the website, the customer checks
in by smartphone, the baggage is handed in at the flight desk, and the employees
at the gate know which seat was reserved and can arrange for alternatives if
required. Passengers can expect as a matter of course that the airline will bridge all
of these communication gaps to deliver an integrated service and product experience. Processes also run smoothly at logistics service provider FedEx, and that is
superbly apparent during the order process. When placing their order, customers can
specify the information they wish to receive about their consignment at which stage
of processing and the medium via which e-mail, text or letter this information is
to be transmitted. That is the yardstick to emulate. It is an experience that customers
remember and expect of their telecommunication company!

sMS

Uniting media diversity

Vision and strong leadership

So a great deal is at stake en route to a Delivery Model 2.0 that is comprehensively geared to what the customer has in mind. It is no less than the entire
corporate organization, including all in-house processes and all areas in which
the customer interacts specifically with the company. And even if all areas collaborate smoothly, that alone is still no guarantee of success. Even a lean and
efficient company absolutely needs a visionary view of which target groups
are to be addressed by which services and where the focal points of business
activity are to lie in the future. Developing this vision is the management's task.
Examples of best practice from other industries can provide suggestions on how
interaction with the customer can be emotionalized and in-house workflows can
be further optimized.

Some companies can already deliver without

difficulty the means of communication their
customers want.

IF YOU HAVE ANY QUESTIONS, PLEASE FEEL

FREE TO CONTACT US:
Alexander Mogg, Partner
+49 89 9230 8310
[email protected]
Christian Hoffmann, Principal
+49 211 4389 2238
[email protected]
Philipp Leutiger, Principal
+49 89 9230 8904
[email protected]

think:act CONTENT
ditors:
Prof. Dr. Burkhard Schwenker, Dr. Martin C. Wittig
Project management: Dr. Katherine Nlling
Roland Berger Strategy Consultants GmbH
Am Sandtorkai 41
D-20457 Hamburg
+49 40 37631-4421
[email protected]
www.think-act.info

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