When it comes to telco services, a single vendor solution can lead to multiple problems.
When it comes to managing global telecommunications services and capabilities, most large business organisations tend to prefer a single-source vendor solution. This approach would appear to make sense: for one thing, a business operating in multiple global geographies and providing myriad types of telecom services faces complex management issues; dealing with one point of contact should simplify the process. Moreover, identifying and addressing problems should be easier, since - as one Compass client put it - there's only "one throat to choke" for the customer.
In reality, however, Compass has found that single vendor solutions typically are expensive and deliver poor service. Witness the dramatic failure of Concert, Symphony and other such efforts to provide effective worldwide, single vendor sourcing. While the reasons for these failures are many, the most important problems associated with the single vendor approach are high cost, mediocre service delivery and low responsiveness.
Cost: Analysis of bids from carriers who adopt a "prime contractor" position reveals that for services delivered outside the contractor's ordinary area of geographical and technological competence, the prime contractor's prices for long-haul transport are between 20 per cent and 50 per cent higher than those achieved by top performers that competitively source from two to four carriers. For other technical services, such as router management, the added margins are even higher, while for local transport we observe "uplifts" of as much as 300 per cent. By comparison, Compass has never seen an internal networking organisation overhead as high as 15 per cent and most are around 5 per cent.
Service Delivery: Local or national carriers tend to view a foreign partner, carrier, or sub-contractor as just another customer, if not a competitor. From the carrier's perspective, the partnering vendor is a rival who potentially complicates relations with the business customer, and who competes for a share of higher margins and revenues. Even when the "partnership" is formalised ? as those between BT and AT&T, France Telecom and Sprint and then MCI, AT&T and NTT or SingTel all have been ? the foreign carrier is still viewed with suspicion. As a result, the partnership merely becomes a bureaucratic filter, which leads to higher pricing and longer installation lead times. In addition, financial billing and quality of service reporting tend to suffer.
Responsiveness: How useful is it to have "one throat to choke"? A single interface to manage is productive only if that interface has meaningful control of the distant outcome. Otherwise, the single point of contact becomes an expensive filter, which slows down processes. Intermediate suppliers have little control over the "feet on the ground" that work for their cooperating carrier "partner". Typically, the prime carrier has less leverage with the local carrier than a well-managed internal telecom operation, which has a more credible ability to give or withhold future higher margin business than the prime contractor, who provides the local carrier lower margin business and usually has no alternative source of local business.
An Optimal Sourcing Model
To effectively manage telecommunications services on a global basis, a business must address the following questions:
- On a unit cost basis, what are the quality levels and costs, including management costs, of the services used regionally and worldwide?
- What are the equivalent quality levels and unit costs achieved by top performers for similar services in similar geographies?
- How would costs be affected by applying the practices used by top performers to obtain and manage services?
When to Change
If this unit cost-based comparative analysis reveals that top performers are achieving similar or better quality at costs that are 15 per cent or more less expensive, then a business would be well-advised to re-evaluate its sourcing methodology on a market by market basis, with a possible eye to insourcing.
This evaluation should be based upon fully loaded unit costs for both in- and out-sourced environments. Customers should never make a decision to insource or outsource based on total current costs alone (regional or worldwide), as outsourcing vendors will readily trade small, near-term cost reductions for large price increases over the long term.
Critical Success Factors
When internal management costs are included, locally sourced foreign network segments tend to be less expensive, but only in those areas where the buyer has sufficient management and usage "mass". In these cases local management are better equipped to take advantage of local market conditions and are, ultimately, best equipped to determine local service requirements and how well they are being met. This approach typically produces a more responsive, less expensive sub-network and requires much less HQ management time and attention. For European companies, locally sourced sub-networks are usually found in North America and, sometimes, South Asia or South America. For US companies they are usually found in Europe, Canada and Mexico.
For network segments in more thinly staffed regions a strong local provider or partner with its own people in place locally is essential. Such a vendor can provide meaningful Quality of Service (QoS) guarantees as well as transparent reporting of costs and quality.
No single vendor is competent worldwide. Some have worldwide presence, but inadequate speed or technology; most have areas of excellence as well as areas of poor local relations and very high prices. Some local overseas vendors have strong representation in other countries (NTT in the US) and others poor or little local representation (France Telecom and Deutsche Telekom in the US). And some can provide meaningful discounting only when the sourcing is done in their home country.
As attractive as a single vendor solution to networking sounds, the results are usually very expensive and rarely responsive. A hybrid solution, on the other hand, makes it possible to capitalise on the buyer's local strengths, as well as on the strengths of several specific vendors who have a demonstrably superior local presence in a given region. The benefits include lower prices, better quality, and enhanced flexibility.
Carl Pitasi is a Compass (US) senior consultant specialising in telecom and network issues
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