Using Business Intelligence to Improve Profit Margins
Susana Schwartz
10/01/2005
The cost of customer acquisition and customer profitability is pushing companies to look more closely at profit margin analysis to reduce costs and increase revenue. That task, however, is complicated by the migration to softswitch environments and the resulting difficulties in identifying call origination and calling party numbers. Moving from TDM to IP makes understanding calls more difficult because traditional signaling information no longer exists. Additionally, the expansion into multi-service, multi-network, and multi-partner environments has made cost management complex, because many carriers don’t truly understand the accuracy of inventory and assets, customer profiles and business users’ needs.
While carriers struggle to compete by offering creative service bundles, they often fail to conduct detailed margin analysis to understand the costs associated with those bundles, making it difficult to implement profitable plans and eliminate unprofitable services—and customers.
Marrying RA and CM
For carriers to understand their profit margins, there must be a clear view of both costs and revenues on a per-product and per-customer basis. This requires that carriers change their mindset in treating revenue assurance (RA) and cost management (CM) as two totally different departments within their business.
Ultimately, cost management departments will have to communicate and share data with revenue assurance departments so that marketing can truly understand the impact of acquisition costs on profitability. This will require using fine-grained revenue measures that exceed the capability of existing general ledger and accounting systems The ‘glue’ holding together the product/business unit and the cost management and revenue assurance units is the CDR. “The CDR sits in the middle, and its usage and consequent charges need to be known on a detailed level,” says Jim Hayden, vice president of business intelligence for Vibrant Solutions. Visibility into the granular detail of CDRs will be necessary, if telcos are to understand how their profit margins tie into network operations cost, interexchange costs, and reciprocal compensation.
While accounting 101 teaches that the topline (revenue/sales) and the bottomline (income=revenue/sales, minus expenses) are equally important, most carriers continue to treat them as two separate entities. In order to draw together data for both cost management and revenue assurance, there needs to be a transformation in thinking. "Service provider profitability will increase as the result of the RA groups’ focus on identifying revenue leaks, and the cost management groups’ managing and reducing costs,” says Robert Becklund, vice president of business development and marketing for 10e Solutions, a data management and business profitability analytics company. “Both groups should be working together to create an enterprise view."
“We are seeing more and more carriers realizing the benefits of analysis for one side of the house benefiting the other,” says Steven Bruny, president of the Americas for Azure Solutions, which is expanding its revenue assurance focus to include cost management through its partnership with Control Point Solutions, an invoice verification company. “We had one customer’s revenue assurance team come to us to understand why so many DSL line cards were not being utilized. The byproduct of the project was discovery of line cards, which were then put back into inventory. By communicating with cost management, the company was able to compensate for allocation of monies for buying new cards in the future,” says Bruny.
For synergies to be realized and control margins to improve, there needs to be end-to-end revenue monitoring systems that start with provisioning of services and continue all the way through to invoice verification in cost management.
Today, however, it’s more common to see RA and cost management report separately to the CFO, and in some cases, to two different corporate groups. That means the CFO often gets a data dump in the form of reports, which sometimes lack any detail or unity in format, making it difficult to accurately assess product and customer profitability.
When cost exceeds revenue for specific products within a market, C-level executives have a tough time conducting a profitability analysis with an integrated enterprise view. They need that view to know what is happening in finance, operations, and sales, lost revenue and non-chargeable telco expenses. More often than not, these variables can be left unaccounted for at the direct line item, only to be rolled up into the summary level later on.
For example, when an enterprise customer churns, an LD line from New York to San Diego may be disconnected, but in many cases, existing systems, processes and protocols do not capture the disconnecting local terminations. Relying on audits can take months, ultimately creating significant expense around hidden anomalies.
“The key is going beyond an audit report dumped on a desk. Rather, carriers have to focus on attaining partners who help them recover the assets hidden in the pages of those reports,” says Hayden.
Because finance usually ‘owns’ profitability, esoteric models and analyses often do not help higher-level executives to understand product and customer profitability. In addition, sophisticated allocation models used as a base for competitive market and operational decisions sometimes become outdated, leading to their costs in specific markets to be many times higher than what they expect.
That problem is exacerbated by the challenges of consolidating many billing, inventory and mediation systems that are accumulated through acquisitions and mergers. Huge numbers of systems are extremely costly to maintain and generate so many separate bills and reports, it is difficult for an enterprise to maintain maximum profitability in products—whether existing or new.
When migrating multifarious systems to softswitch environments, service providers are forced to create manual workarounds so that systems co-exist with legacy systems. That creates and errors, as manual workarounds and immaturity of next generation systems combine to mean there is little documentation. That fact haunts carriers once disconnects or service changes come into play, thus making it difficult to optimize order and service provisioning processes.
Since most companies are not at that point of sophistication to truly integrate cost- and revenue management, some are managing to derive business intelligence (BI) directly from billing and OSSs via rapid-query tools, analyses and reporting capabilities.
Business Intelligence Integrates Cost and Revenue
Because cost and revenue management systems generally are not integrated, carriers are increasingly applying BI data integration techniques. “BI is more prevalent for presenting results in a consistent manner throughout the enterprise when companies are trying to avoid incurring the cost and perhaps operational impact of system integration,” says Brian Herbert, product manager for network business intelligence, Ace-Comm, which is broadening its network business intelligence capabilities through its acquisition of 2Helix, a UK-based RA and network asset assurance company. “We see telcos using BI data integration techniques to integrate results from both cost and revenue management so that business users can analyze results.”
Using BI, service providers usually are able to reduce their direct marketing costs as a result of the integration. Dashboards or presentation systems offer visualization through software tools that extract, analyze and present data into application-like, rather than model-like views. “Through in-depth mediation, you collect switch data and layer that information on top of marketing demographics culled from customer care and billing [i.e., postal data] for overall analysis,” says Herbert.
While Herbert doesn’t see BI as an expansion of billing or OSS, he does view it as a “new layer,” of integration. “Service providers have to pull data from different billing and OSS, and roll it up so that business intelligence enables business users to visualize results so that action can be taken.”
The process of doing that is often referred to as a “mash-up” of network and capacity, customer and demographic data, which are all layered onto maps so that users get a visualization of where excess capacity exists and where attractive pockets of customers are for which that capacity can be used.
He believes RBOCs will experience a “coup” when they use such dashboards to gain an understanding about which components of data sources are valuable in understanding margin analysis. “They should get to a point where they can pull important data into a central location for one view of what’s going on as their baseline,” says Hayden. “By considering all pertinent data from all of their silos, carriers can derive one view--separated by customer, by product, or by region.
For that reason, most RFPs today have requests for customized dashboards, which may ultimately replace data warehouses as tailored interfaces catering to marketing, billing, finance, IT and legal departments.
When business users can evaluate the same data in different ways, assessment of product and customer profitability is possible. Then, marketing, billing, customer care, legal and finance departments can all derive value from each other’s research and knowledge.
As BI platforms become more prevalent in telecom, they will help carriers to establish integration among financial measures of profitability and operational key performance indicators (KPIs). “Integration involves establishing a common approach to defining KPIs and measures used throughout the business,” says Herbert, noting integration also requires common agreements on which systems and data to measure, so that disconnects between departments are avoided.
BI Reaches Across the Enterprise
Because of the greater role BI is playing at companies like BellSouth (See Sidebar “BellSouth Open Up Its Data Store”), it is expected to extend across enterprises, rather than falling into specific OSS or point solutions areas
Because there is substantial data correlation that touches many systems in many functional silos within OSS, there has to be a broad reach across enterprise systems to see network assets, customer demographics and marketing. “There has to be correlation among inventory systems, customer care, billing and the network,” says Ace-Comm’s Herbert. “Carriers will have to synch up to find discrepancies in circuits queried, accounts billed and assets provisioned.”
As carriers improve ordering, provisioning, inventory and billing through point solutions, they must have a deeper understanding about the elements of their data stores that are important to profitability. To use just data stores long-term for service intelligence and margin analysis is destined to fail, as purpose-built systems are not made for intelligence. “Indeed, a billing system does possess information about the customer and usage, but it lacks much of the information necessary to understand wholesale rates, contract rates, and cost-per-call by various call types, such as international, domestic, intra and inter LATA,” explains Hayden.
In other words, if carriers look at only what they bill, without marrying information to what they know of costs (i.e., what wholesale providers charge), then they have only half the picture.
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