November 2003

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Outsourcing Can Drive Profitability In Telecom's Tough Times

BY SUSAN MILLS

They say that old dogs can�t learn new tricks, but old dogs got to be that way by knowing a thing or two about how to survive. Lean times require keener instincts, sharper skills, a readiness to capture opportunity -- and, above all, adaptability. Some call this good common sense. Others label it experience. Everyone who sees the well-fed pooch comfortably dominating his territory year in and year out recognizes this as success.

There aren�t many well-fed companies in telecom these days. The industry is bleak, competitive, and unforgiving. But like our wise canine friend, some companies are holding on to customers, growing their market reach, and embarking on new business model strategies while others are just running for cover. For many companies, outsourcing is making a huge difference and changing the ways winners stay in that position.

In today�s economy, the top dogs are going back to business basics, focusing on core strengths and building alliances that bring greater value to the customer. These alliances leverage an age-old business model -- outsourcing -- to fill (often on an as-needed basis) company needs for manpower, skills, geographic availability, technical knowledge, process management, technology transitions, new business development, and other tasks -- either short or long term.

In telecom, outsourcing may apply to a wide range of projects from long-term strategic relationships to short-term opportunistic events. Some companies are spinning out whole functions to outsourcers, using them as the standard go-to resource for tasks such as large volume installations, routine service management and maintenance, specialty technical or product skills, transition management, and one-time-only project oversight, routine product assembly and quality control, training, documentation, support, and new product trials.

This is a far cry from the old �hand me your leftovers� type of relationship. Outsourcing today, done well, can dramatically change a company�s operating margins, customer response time, quality management, and geographic reach. Outsourcing in today�s market is no long just tactical � now it can change the whole competitive landscape.

Market Change Drives Company Change
When a company must change, the first question deals with what should be the new focus. The answer is strategic and long-term in its implications. But the next question is �how do we do it?� whose answer relates to both strategy and tactics, both short and long term. Given a company�s new direction, how does it allocate and manage resources to balance new opportunities with existing company and customer requirements? How fast is the change needed? What are the risks involved with the transition? What�s the road map for moving from here to there? When? How? Where does a company find help, the exact kind it needs at the time and place it needs it? What does the company have, what does it need, and what�s the best way to fill the gap between where it is and where it�s going?

This is where outsourcing fits in. The company�s new strategy requirements often force a make or buy decision about how to acquire the required resources. Can the company build what it needs itself or does someone else have this in place already, available to rent, lease, or buy ready-made, right now? Does the company know what it�s doing in this new area or would it like to be guided and taught by an old pro who�s best in the business at this particular task? And where is the new knowledge -- is there an expert in the house? Or at least in the neighborhood?
The �make� response of �sure, we can do that� is natural. Companies don�t like to be dependant on others for core capabilities, or give away something that might be both fun and profitable. A new operations strategy grows the company�s knowledge base, provides satisfying opportunities to tackle new technical and management challenges, and broadens the company�s staff, especially since qualified talent is readily available within today�s labor pool.

The problem with the �let�s make it here� approach is that it often requires more time, people, learning through trial and error, and money than the company expects or can afford. While growth is happening internally, competitors are getting to customers faster and locking up new opportunities. The �make� decision requires the dimension of lost sales and market opportunity costs in addition to the other costs. The tradeoffs of keeping an activity in-house versus leveraging an outside resource aren�t always known up front. Sometimes the wrong decision can spell disaster.

On the other hand, outsourcing isn�t risk free either. So-called partners just happen to leave their own business cards behind with the customer instead of the one that carries their client company�s name. In solving the customer problem, the outsourcer adds to his experience and knowledge, not yours leaving you potentially uncomfortably dependant. Customers can get confused about whether the client company (you) or the other outsourcer whom they see frequently provides the better value to them, putting your entire account relationship at risk. Outsourcing requires excellent oversight, just as employees do.

THE BASICS OF A SUCCESSFUL OUTSOURCING PARTNERSHIP
Here are some guidelines to help you evaluate whether or not an outsourcing partnership is a good type of relationship to develop for your business.

Know your core business and competitive value; outsource the other parts.
First, as in any partnership, the trick is to clearly define what is truly core to your competitive advantage, that which you must protect and own, and separate this from adjunct capabilities that, while very important, can be efficiently and effectively provided by those outside of the company. For instance, if your core business is manufacturing, do you really have to own the installation services or could you train and manage a services partner to provide that function.

Define your roadmap to move from outsourcer to in-house as the project matures.
The decision to outsource does not have to be an all or nothing, or now or never, event. It may make sense to use a company who has very mature technical skills, for instance in voice/data integration or TDM to IP technology transitions or the like to set the new course in motion for your customers. Then, as the project moves from its initial first-time-start-up stages to its more completed, routine management stages, the outsourcer backs out of the project gracefully, training your staff on the lessons learned during the project, according to a pre-defined project roadmap. Have a clear cut-over time or event marker to move the outsourced responsibilities in-house.

Focus your staff on ongoing long-term business; Outsource one-time tasks.
Keep your valued staff focused on contributing to your on-going business long-term, not learning new tasks that they may only use once. If a function is only going to be needed for a transitional period, get someone outside the company to do it who manages transition as his routine business focus. This kind of expert can see the pitfalls before they happen and evaluate the quality of decisions and trade-offs because he�s done it time and time again. Don�t risk upsetting your customer or other business functions by diverting a key employee or functional group unless what they do is key to your long-term strategy.

Require project management excellence.
The risks inherent in using outsourcers apply mostly to project management tasks -- keeping communications lines clear, agreeing to clear and definable project performance metrics and planning the entire effort from beginning to end from initial design through implementation through quality control, documentation, and hand-back to the customer. In evaluating an outsourcer, ask to see actual project plans, quality control and documentation done for other companies if possible
 

Ethics are not optional.
It is relatively easy to sense the culture of a company fairly quickly. Notice if your potential outsourcer is responsive, does he answer questions completely and accurately, does he go beyond what�s routine to help you figure out a problem. These are good first markers. But, in partnering with an outsourcer or anyone, you need to do better than �have a good feeling� about the company. Check references with their other clients. Talk to actual client customers to see how the outsourcer�s staff performed at the customer site. Make clear your expectations for account management, company representation, and involvement with the customer beyond the scope of a project. You want the relationship with the outsourcer to be a long-term partnership able to bring value to you as needed over many years so manage it in this light.

CONCLUSION
Right now there is very little business-as-usual in telecommunications. This spells opportunity for those companies willing to think differently about their core business and how they partner. Outsourcing is filling huge gaps in company services and skills. Explore how outsourcing can help you manage your operations costs, improve your product delivery and installation quality, and open interesting new sales and business development opportunities.

You may find yourself in a pretty nice resting spot when this dogfight settles down.

Susan Mills is principal at Technology Marketing Partners. Technology Marketing Partners helps clients define market strategy, defend market position and deliver value to targeted buyers and users.

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Should I Work With An Outsourcer?

A �Make or Buy� Checklist

1. Costs -- How does outsourcing impact my short-term margins, long-term margins and cash flow?
2. Revenues/Sales -- How does outsourcing impact sales and business development opportunities, could outsourcing be a source of improved sales or new business?
3. Business Model Strategy -- Can I use an outsourcing partner for certain routine tasks, thus freeing up a less productive part of my business?
4. Business Development Partnering -- Does the combination of my skills and my outsourcing partner�s skills enable me to bid larger projects, in wider geographies or involving different technologies and solutions?
5. Time and timing -- Does outsourcing open an immediate opportunity that I could not address otherwise, and how long do I require this outsourced relationship for this opportunity, does it help me respond to my customers faster or better?
6. Customer Value/Quality -- Does outsourcing strengthen my overall value to my customers because I can deliver consistent quality, routinely?
7. Manageability -- What is the outsourcer�s strength in regard to project management? Will having the outsourcer require me to provide more management of the relationship than of my own staff?
8. Geography -- Is there a match between the outsourcer�s regions and my business opportunity regions?
9. Credibility and track record -- Does the outsourcer have particular competitive advantages I can leverage, such as a reputation or a customer base or a technology skill set?
10. Risks -- What is the downside if I use an outsourcer; or if I do not use an outsourcer?
11. Business Relationship -- Is the outsourcer trustworthy and how do I know this?
12. Skills -- What skills does the outsourcer have on staff or on call, what if I need new or different skills, what technical credentials are on staff?
13. Values -- What are the outsourcer�s company values and corporate culture and do they fit mine?
14. Project size -- Can the outsourcer handle this (small) (large) size job? How can this be demonstrated?
15. Staffing -- Is staffing flexible or fixed, is there a permanent account and project management team for my company?

Outsourcing In Action

SCI, Inc., based in Buffalo, NY, is a leading voice/data technology outsourcer. They are best known for providing �local� installation services anywhere in the country. As the following examples illustrate, the driver for their clients includes better margins, faster response time, and higher quality work on what has traditionally been seen as the low end of the business. What�s different is that outsourcing is part of their client�s forward-moving strategy, not an afterthought. These days the CEO gets involved and the deal has long-term implications.

� Siemens used its outsourcing partnership to win a hotly contested new account and to grow its value to an important existing customer. In the sales situation, Siemens ICN faced tight margins and an aggressive installation deadline, but won the 5,000-unit station installation to a 44-building corporate campus due in part to their ability to deliver in the timeframe required. The work was performed by SCI who designed a sleek turnkey process that was efficient, manageable, and profitable and which required very limited Siemens resources. In a different case, Siemens won substantial additional work from an existing national retail customer by offering a single point of contact for the company�s entire national installation process, again provided by SCI on an outsourced basis.

� A National Cable TV Provider was experiencing revenue losses by non-subscribers who pirated neighborhood cable services. SCI transformed a manual, inaccurate process into a standardized PDA application loaded with centralized database customer information. The SCI-trained field technician was able to install new services and at the same time easily audit surrounding locations, identifying opportunities to sell more services or disconnect unauthorized users. The project had an impressive and quick ROI.

� Global Quest partnered with SCI to manage several large telecommunications rollouts. First, 250 retail locations were added to the corporate network over a 90-day period. Next, 60 pharmacy store locations had an IVR system installed over six weeks. In a third case, an electronic signature system was added to 40 stores over a four-week period. In all situations, SCI developed the Installation Standard Manual, which detailed the materials, layout and all other aspects of the projects and designed quality control sign-off sheets, digital pictures, and project manager quality audits all worked toward ensuring the jobs were done on time and per spec.

� Wesco sold the Niagra Frontier Transportation Authority products from a written spec that allowed this self-maintained government entity to connect several sites with different voice systems to a fiber WAN. As the installation progressed, it became clear that the NFTA technicians responsible for installing and maintaining the various components would need additional training to be able to implement the recommended unique homogenous solution. SCI was called upon to write a coherent testing procedure and to provide training classes to the technicians for installation and maintenance procedures.

� Turin Networks developed a new class of multiservice transport product for telecommunications carriers. As demand developed, Turin chose to outsource their installation and programming work rather than undertake this inside the company. By working with SCI, Turin believes it can better concentrate the resources on enhancing their product line, using outsourcing to optimize ROI.

� Norstan Communications found ways to improve margins and sharpen focus on new business directions by completely outsourcing the low end of its business � the cable pulling and Moves/Add/Changes associated with several of its product lines. This necessary, but not strategic, part of their business tied up technicians and project managers. Outsourcing freed key staff for new business development work knowing that services to existing customers would continue, and perhaps even improve, under the new outsourcing affiliation.