During the
1980s, Toyota revolutionized
automobile production by improving the operation of their assembly
line. Rather than trying to find cheaper labor and parts, Toyota
implemented just-in-time
inventory principles and set higher quality standards. The efficiencies
achieved by eliminating the need to store excess inventory and correct
manufacturing defects resulted in drastic reductions in operating costs.
Toyota�s
example triggered massive changes in the manufacturing industry as a
whole, and it offers an important lesson for corporate managers charged
with the task of taming
telecommunications expenses.
It reminds
us that while rate drops for phone and data services are becoming less
frequent, real savings can be found by improving operational
efficiency. From ordering telecom services, to tracking and charging
back those costs, companies can realize tremendous savings by changing
the way they manage telecommunications spending.
New
Internet-based systems hold the key to these savings by making it
possible to quickly aggregate all telecom spending into a central
database via direct data feeds from the organization or its telecom
providers.
These
systems then provide a series of online tools that enable users to sort
and manipulate that pooled data to compare rates, examine calling
patterns, allocate expenses by department, identify billing errors,
ensure contract compliance, track telecom assets, and much more.
Fringe
benefits include a complete audit trail to satisfy Sarbanes-Oxley
regulations, plus a roadmap that ties directly into the expenses being
stated on a company�s general ledger.
Hard and Soft Savings
Organizations that have adopted these systems are cutting their telecom
bills substantially. A July 2004 Aberdeen Group study concluded that
companies that are leveraging technology to manage telecom costs are
realizing average savings of 26%. In contrast, companies utilizing
manual methods reported an average savings of just 18%.
Part of the
savings is achieved by using the aggregating and processing power of
these systems to uncover otherwise-hidden usage trends. That
information can then be used as leverage in negotiating lower rates or
as a catalyst for switching services altogether.
If an
analysis reveals large combined call volumes to the UK from multiple
business units or company offices, for example, managers may be able to
negotiate a lower US-to-UK rate. If phone traffic between company
offices in Seattle and New York is through the roof, they may decide to
negotiate a fixed fee or perhaps install a
Voice over Internet Protocol
(VoIP)
(define -
news-
alert- tutorial)
system for those calls to cut costs.
Other hard
savings stem from the systems� ability to detect billing errors and
other problems. The same Aberdeen study mentioned above reported that
50% of invoices are inaccurate, providing the opportunity to recoup
millions in corrected billings alone.
These
systems also yield important soft savings by significantly reducing the
time required to manage telecom-related activities.
In the case
of chargebacks, for example, these solutions can automatically report
telecom fees by department and post them to the general ledger through
the company�s ERP system. This
not only expedites the chargeback process but also allows charges to be
assigned to the right department to the penny � something that is
literally impossible in a large company without automation.
One Fortune 500�s Experience
For years,
purchasing and telecom managers ignored these potential savings because
of the complexity and time involved in tracking and analyzing
telecommunications spending � particularly in large multi-national
organizations. Falling rates caused by stiff competition in the telecom
industry during the 1980s and 1990s also made the search for additional
savings a low priority.
Today, with
rates relatively stable and cheaper plans much harder to come by,
companies are recognizing the need to control telecom costs in other
ways.
Consider
the case of one Fortune 500 company that has embraced Internet-based
telecom spending management. In this company, nearly 2,000 managers are
able to view their respective departments� telecom spending and assigned
chargebacks through a suite of Web-based telecommunications cost
management solutions offered on a hosted basis by MBG Inc.
Department
managers in this firm are using the system to confirm that their
departments are being billed correctly, monitor individual usage to
detect personal calls that need to be reimbursed, and so on. Telecom
supervisors, in turn, are tapping into the system to compare rates
across the entire company and use that information to negotiate better
rates across the board.
This
company is also tracking and doing chargeback of
IT costs through the same system, eliminating the need to administer
separate chargeback solutions for telecom and computer services.
Charges are broken down into categories, and users can drill down into
each category to see the supporting details as a means of verifying
costs and identifying abnormalities and errors. Chargeback data is
passed through to the company�s general ledger for seamless integration
with accounting systems.
The Birth of �Telemanagement�
As with
many innovations, the emergence of �telemanagement�
as a way to squeeze maximum savings out of the telecom budget was a case
of necessity being the mother of invention.
During the
era of sharp price reductions in telecommunications rates, senior
purchasing team members negotiated the best rates with multiple carriers
and simply accepted the bills as they received them. But when the rate
reductions began drying up, companies started to look more closely at
their bills to find alternative savings opportunities.
First, they
turned to outside auditors with expertise in telecom billing to find
billing errors and recoup those dollars. This cottage industry of
telecom auditors often charged for their services as a percentage of the
discrepancies they uncovered. These contracts therefore became very
lucrative.
But there
was a missing link in this approach. Auditors only searched for billing
errors. They did not provide a complete picture of telecommunications
spend across the entire organization. Just as new processes and
technologies gave Toyota the visibility into manufacturing expenditures
that was required to make just-in-time inventory a reality, companies
began realizing that they needed to see the big picture in telecom
spending before they could identify new ways to save.
Some
vendors began developing installed software that could do the job, but
the real breakthrough came with the advent of the Internet and the
Application Service Provider
(ASP) model that
eliminated the need for in-house software installation and other
infrastructure investments as well as personnel to manage them.
With this
model, companies now have the information they need to make more
intelligent decisions about their telecom services � including a level
of detail that was never before available � as well as the ability to
handle all analysis and other tasks without resource-intensive manual
operations.
Beyond Technology
One note of
caution is in order here. Automated telecom expense management is not
plug-and-play technology. It is not just about aggregating invoices and
making the results available through the corporate intranet. It
requires a thorough understanding of where to look for savings as well
as the proper tools to take advantage of those opportunities. That, in
turn, requires a service provider with years of experience and deep
roots in the telecommunications community.
With the
proper infrastructure and guidance, however, the bottom-line benefits
can be enormous to large companies that typically spend between $75 and
$500 million in telecom services annually.
As Toyota
and countless other manufacturers have demonstrated, once a process is
improved, the returns can be significant. With telecom ranking as one
of the top five corporate expenses, it is difficult to imagine a more
important area for implementing sophisticated cost controls.
Richard
Simons is the Chief Operating Officer of MBG Inc, a Web-based
Application Service Provider of telecommunications and IT expense
management solutions.
|