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Author's profile photo Jochen Kalkoff

Profitability and Cost Management in Telecommunications

Industry Background

As one of the fastest evolving industries, Telecommunication is rapidly changing and with it also the behavior of their consumers (you may argue if it is vice versa). Classical services like landline phone, DSL etc. are clearing the way for the mobile era: Extended data services, 100% online availability for private and business users, a new dimension of networked social life. Telecommunication and technology providers anticipated the trend and made it real by investing heavily into its network and portfolio (3G, LTE, M2M an many more). Innovative products and service bundles are offered to end customers allowing them to be literally online everywhere and every time.

However this new level of communication has its price for the providers. Data volume multiplied in the past years providing a glimpse on what to expect in the future. Although new services will most likely preserve the revenue per user, the average margin per user will play an eminent role in the performance measurement in the future. Intensive infrastructure investments and tough competition in the mature market will act as the limiting factors in that equation. Only those providers will achieve their targets being able to balance a vital top line growth with a sustainable bottom line one.

This act of balancing adds significant complexity to the strategic decisions and the operative figures they are built upon. To name a few:

  • Technology investments into network, licenses, etc. and cash flows needs to be precisely planned and forecasted in order to deal with their impact and expected return.
  • Strategic budgets across the organization need to be aligned to changing environmental parameters, ideally by simulating possible scenarios.
  • Nested service bundles need to be priced appropriately and their profitability calculated accurately generating a positive business impact.

SAP Solution Portfolio

In order to address those challenges SAP provides a tailored solution portfolio called Enterprise Performance Management. One of its components namely SAP BusinessObjects™ Profitability and Cost Management (PCM) focuses on:

Gain a deep understanding of the levers affecting organizational costs and profitability with the SAP BusinessObjects™ Profitability and Cost Management application. Identify the causes of underperformance and take action to reduce costs and optimize product, customer, and channel profitability.

PCM Industry Template for Telecommunications

Let’s take a closer look on how PCM can specifically be leveraged in the Telecommunication domain and what kind of industry content can support a PCM initiative:

Based on best practices collected during customer projects of the Telecommunication sector an industry template has been created. It exemplarily covers some of the most pressing scenarios and provides a demonstration on how to leverage the PCM capabilities within the Telecommunication domain.

  • Activity based Costing: Understand the difference between activity-based-costing models and traditional approaches and how former can support the allocation of fixed cost based on activities/process usage rather than static values. Particularly relevant for industries with a high fixed cost portion. Learn how this different angle can provide you with deep insights into your cost structure.
  • Customer Segment Profitability: Segment customers based on the grouping in the CRM system, e.g. into enterprises, consumers, etc.  Measure the profitability of each customer segment and understand the true cost drivers per segment. Take the right actions to lower costs and increase the margin within each segment.
  • What-if Analysis: Take advantage of the built-in what-if analysis at an example of a Telecommunication call center. Simulate efficiency scenarios of your call center agents with different inputs identifying the most valuable for your enterprise.
  • Product Bundle Profitability: Combine data, voice, etc. tariffs as the market demands it. Determine the right price for the new product bundles or verify the price of existing ones. Adjust prices and cost structure to increase margins and attractiveness to the consumer market.
  • Economic Value Added (EVA): Exclude the cost of capital in your financial reports and comply with new regulatory conditions during the fiscal closure process.

In a nutshell this template can be viewed as micro model of a Telecommunication company, representing a simplified structure of the organization, costs and processes of an average Telecommunication provider. Leverage it in order to bridge the gap between product capabilities and business process requirements enabling an accelerated and fruitful discussion right from the start.

Understanding the real cost drivers of your products and network infrastructure on a granular level will bring your enterprise in a much better position to cope with the tough market conditions, the growing cost pressure and the extensive capital investments. Please contact your Account Executive to schedule a live demonstration to understand the value of PCM for the Telecommunication industry and specifically your enterprise.

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      Author's profile photo Former Member
      Former Member

      How customers or consulting partners can use this template for Telcos?

      Best regards,
      Miguel García / Capgemini
      Facebook: Miguel Angel Garcia Huidobro