ROC On: Creating the Revenue Operations Center to Maximize Profit

Imagine flying a passenger jet. As the pilot responsible for the lives of hundreds of passengers and the safe navigation of a multiton aircraft through congested airspace, you must make a multitude of decisions precisely and quickly. Now imagine performing the same task when you cannot see anything outside the windows of your cockpit. Suddenly, the responsibility you bear seems that much heavier, the demand for precision that much more acute.

This demanding task is undertaken successfully on a daily basis by pilots around the globe. They are successful because of the discipline and protocol called, in airline industry jargon, “Instrument Flight Rules,” which means they operate their planes solely by the data they observe on their instrument dashboard and receive from air traffic control. Pilots do not rely on visual observation; they make decisions precisely and quickly by interpreting data and acting on it.

Now imagine piloting the communications service provider enterprise in the same manner, with the same level of precision, based solely on data you receive from your operations.

If we suppose that sustained profit is the chief objective of service providers, then how useful is your operational data in helping you to understand the trajectory of your enterprise?

Are services hitting their financial performance targets? Are resources being used efficiently and for maximum impact? Are market penetration figures for new service offerings matching the plan? Which services are most profitable, and which need to be modified or even killed? Is your service provisioning process hitting the desired throughput rate to maximize revenue and achieve the desired customer experience?

Most important, how useful is the data coming to you from operations in answering any of these questions? If you are like the typical communications service provider today, the answer is: “Not very.”

However, a convergence of several operations management disciplines has begun to turn this around. The emerging concept of operational assurance aims to help service providers understand the impact of operations on revenue, costs and, ultimately, profit.

Enabling Profit and Agility

Twenty years ago, the manufacturing sector was revolutionized by a series of operational transformations that caused a dramatic shift in the competitive landscape. Among these innovations was an enhanced focus on operational precision, marked by a better understanding of the costs associated with producing each unit of end product, along with better techniques for managing inventory. The resulting principles of “lean operations” distinguished many of the manufacturers in the automotive industry, whose lower-cost structure enabled more robust profit margins and an enhanced ability to compete.

Leaner operations became the basis for enterprise agility. Some auto manufacturers discovered they could offer desirable vehicles at competitive price points and still make a profit. Their less-agile competitors, in contrast, did not have the same level of margin to fuel innovation and long-term growth.

The telecommunications industry is now in a comparable phase. And if the end goal is sustained profit to drive innovation, the primary variable in the equation over which the service provider has direct control is cost. Just like in the manufacturing context, the key to success is to employ a lean operating model, enabling the service provider to maximize revenue through innovation.

For this to be possible, the service provider must evolve its processes and OSS to gain better visibility and control over its revenue and costs. One approach to this is operational assurance, which ties operational actions to their impacts on either revenue or costs, and then monitors these impacts and takes action to optimize profit. Operational assurance can be thought of as an extension of revenue management, the discipline that encompasses revenue assurance and fraud management, where monitoring the impacts on revenue is an essential component of managing the integrity of the revenue chain. However, operational assurance extends this capability to the consideration of costs and cost drivers to arrive at a more complete understanding of the profit profile of a given set of service offerings, or of a segment of subscribers, or of any operational domain.

The concept of operational assurance has led some operators to establish a Revenue Operations Center, or ROC. A ROC is a collection of systems and processes that enables a service provider to gain better visibility into revenue performance while also understanding the costs associated with service delivery and consumption. Whereas a Network Operations Center enables a service provider to understand the status health of the network, a ROC focuses on revenue and service delivery costs. A ROC also permits an operator to identify areas of cost abnormalities, process throughput problems, revenue leakage and other process issues, and address them before they greatly impact profit.

The functional modules within the architecture of a Revenue Operations Center are tied together by a common data repository.

A ROC can help service providers understand how service offerings are performing in relation to their targets. It also can identify areas of cost overruns or order delays caused by fulfillment process fallout and enable the timely correction of the issue before the damage is done.

Verizon’s Revenue Operations Approach

Verizon has been developing an approach to operational assurance that builds on its success in revenue assurance and incorporates cost considerations to arrive at a more optimized state of profitability.

“Revenue operations is the process of assuring an accurate, customer-friendly billing experience across all product lines,” said Kathy Romano, executive director of revenue assurance and billing at Verizon. “By using this approach, we can ensure that a customer is billed accurately, resulting in a greater chance the customer will pay his or her bill and will be less likely to call customer service. In the end, we are making sure that all due revenue is booked and that costs are kept to a minimum, which leads to optimized profitability and an improved customer experience.”

To achieve this level of operational assurance, Verizon is establishing detailed monitoring of control points throughout the systems and process flows tied to the management of a service for a subscriber. These control points would exist in the host of systems that extend throughout the various stages of the service delivery process, from front-end ordering portals, to order management systems, provisioning systems and partner-settlement and billing systems. As these points are monitored, an unexpected result or discrepancy at a control point can indicate a process problem with the potential for revenue leakage or cost overruns.

Although it is rooted in revenue assurance techniques, Verizon’s program represents an extension beyond the traditional bounds of revenue assurance, and it considers the broader impact of billing errors and cost drivers on the profitability of the enterprise.

“Overbilling and confusing bills lead to more calls to call centers, which drives up costs,” Romano said. “Furthermore, customers who call with billing issues often have a higher propensity to churn, which also increases costs. In addition, a good revenue operations program considers other aspects of the costs of service delivery, such as off-net costs or other third-party costs. So it’s only by integrating these two views, of revenue and cost, into a proactive end-to-end monitoring process that you can start to optimize profitability.”

Building a ROC

Many operators that are embracing the concept of operational assurance are approaching the objective pragmatically by establishing hooks into existing processes and systems to gather control data. This data then is used to formulate key performance indicators (KPIs) that are monitored on a regular basis to uncover potential performance issues and drive decision-making.

The diagram below illustrates a generic framework for a ROC, based on the various forms of operational assurance monitoring that service providers are employing.

In this form, the ROC consists of the following key functional areas:

• Fraud management: Monitoring, detecting and correcting unauthorized consumption of resources.
• Risk Management: Decreasing the risk of subscriber default and other accounts receivable issues.
• Service Provisioning & Inventory Assurance: Ensuring services are provisioned as required to meet subscriber commitments, that fulfillment processes are accurate and efficient, and that resources are consumed and documented with greater precision.
• Usage Integrity Assurance: Employing revenue assurance techniques to ensure service usage is properly accounted for and reflected in a range of planning and operations management processes.
• Billing Assurance: Ensuring billing accurately represents all expected revenue and can be tied to resource utilization to maximize the monetization of network resources.
• Margin Management: Tracking transaction-based costs and revenue to understand overall business performance of individual products and services in order to identify other margin-affecting and cost issues, such as outpayments, SLA penalty payments, customer rebates, bad debt write-offs, etc.

To use these systems to conduct effective operational assurance, the framework must be topped by analytics functions that permit the tracking and trending of data; calculation of thresholds and targets; and data mining for developing profitability profiles and KPI analysis and tracking. Lastly, a function for reporting and dashboarding enables the wide range of data available from a ROC to be focused and tailored to the needs of a particular audience: operations, finance, marketing, senior management or some other stakeholder.

ROCs and ROC-like frameworks figure into the OSS transformational initiatives that are so commonly discussed in the industry today. In transformational scenarios, many complex legacy systems will be maintained for years to come. Next-generation systems will augment legacy systems with workflows crossing both old and new. There will be an increasing number of outsourcing and third-party suppliers, which business processes also will touch. Finally, organizational structures will become increasingly complex in order to match the diverse sets of products and services and customer segments. In this emerging mass of complexity, it will be essential to understand how operations are performing, how they impact business processes, what financial implications result, and how to detect and correct any issues. This is the very essence of operational assurance.

Ultimately, this ability to drive operations based on profit-oriented data will mirror the ability of an aircraft pilot to make decisions about engine thrust, aileron angles, nose pitch and a host of other variables, based solely on the data from the cockpit dashboard. Those service providers who embrace the “fly-by-data” concept will find themselves better-positioned to run leaner operations and achieve sustained profitability.

Mark Nicholson is CTO and Adam Boone is vice president of strategic marketing at Subex, an OSS provider for communications service providers.