Findings from McKinsey's Telecom IT diagnostics which shows how performance and investments in certain areas of IT correlates with profit margin of operators.

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Improving business results
through digital transformation
Insights from McKinsey’s Horizon360 Telecom IT Diagnostic
TM Forum Live!
Nice, June 2015

2. 1
A few words about us
www.mckinsey.com www.horizon360.com
Duarte_Begonha@mckinsey.com
+351 96659 7900
Duarte Begonha
Giuliano_Caldo@mckinsey.com
+39 (348) 8952934
Giuliano Caldo
Telecom O&T leader Head of IT Diagnostics

3. 2SOURCE: Horizon360 Telecom IT Diagnostic
Our research is based on the Telecom IT Diagnostic, which has been run
at 80 telecom operators globally…
6 participants
▪ 2 integrated
▪ 4 fixed/cable/satellite
48 participants
▪ 26 mobile only
▪ 6 fixed/cable/satellite
▪ 16 integrated
15 participants
▪ 6 mobile only
▪ 1 fixed/cable/satellite
▪ 8 integrated
4 participants
▪ 2 integrated
▪ 2 fixed/cable/satellite
7 participants
▪ 3 mobile only
▪ 2 fixed/cable/satellite
▪ 2 integrated
US and Canada
Europe
Latin America
Middle East / Africa
Asia/Pacific

4. 3
…and covers well beyond IT spend
Scope of Horizon360 Telecom IT diagnostic
IT Efficiency
IT Capabilities
Voice of the
Business
IT Effectiveness /
Digital
How does my IT spend
compare to others?
▪ Quantitative
benchmarks of IT spend
and FTE
across all
towers and functions
▪ Includes key efficiency
metrics (e.g., server
utilization)
How specifically can we
improve our
performance?
▪ Qualitative survey of the
IT organization against
a catalog of best
practices
How does the business
actually see it?
▪ Survey of business users
covering business/IT
alignment, quality, and
performance
Is IT providing adequate
value to the business for
what we spend?
▪ Sector specific analysis
of functionality in critical
business domains
▪ Diagnostic of level of
digitization (channels, key
processes)
SOURCE: Horizon360 Telecom IT Diagnostic
Based on
standards

5. 4
Over time, telcos have been able to increase their IT efficiency
Cohort of 7 telecom operators in mature markets; Index: 2008=100
SOURCE: Horizon360 Telecom IT Diagnostic
-3.2%
-6.4%
-11.7%
0.5%
85.0
71.7
53.5
0,0
20,0
40,0
60,0
80,0
100,0
120,0
2008 2009 2010 2011 2012 2013 2014
103.0
Number of customers IT spend Revenue Company FTE
CAGR

6. 5
Furthermore, IT has been effective at reducing product
time-to-market (TTM)
SOURCE: Horizon360 Telecom IT Diagnostic
Cohort of 7 telecom operators in mature markets; Weeks
5
-6%
6,2
4,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
2008 2010 2012 2014
Average consumer
TTM (weeks)
-11%
8,0
6,8
4,44,0
9,0
2008 2013 2018
Bundle
component
change
-6%
7,6
5,8
5,5
4,0
9,0
2008 2013 2018
Change
in existing
tariff
-4%3,9
5,1
3,23,0
5,0
7,0
2008 2013 2018
New
tariff
-11%
11,8
6,8 6,6
5,0
10,0
2008 2013 2018
New
bundle
CAGR

7. 6
Investment in IT likely
misplaced/ ineffective
to enable margin growth
But good IT does not necessarily lead to high profit margins
SOURCE: Horizon360 Telecom IT Diagnostic
10 15 20 25 30 35 40
45
50%
15
20
25
10%
40
35
30
Profitability
Percent
Functionality score
Index
Mobile telecom operators
Measured through a
balanced score of 180
areas of IT functionality,
spanning all of TM Forum’s
TAM application domains

8. 7
Telcos with a high profit margin have high IT effectiveness in selected
areas of digitization and analytics
43
21
High margin
players
Low margin
players
SOURCE: Horizon360 Telecom IT Diagnostic
Profit margin
Percent
Areas of IT effectiveness most
correlated with profit margin
Effective use
of customer analytics
Digitization of order
management
Digitization of CRM
Streamlining of IT
architecture
Automation/
streamlining of IT
infrastructure

9. 8
Highly profitable players make effective use of customer information
Customer information & Analytics
1
SOURCE: Horizon360 Telecom IT Diagnostic
High margin Low margin
1
2
3
4
Key practice
Automation of campaign
management: up
to micro segments
A
Integration of customer
data in the call center
B
Real time availability
of customer data across
channels
C
Real time analytics:
implemented for
Marketing & Sales
D
Duplication/Redundancy
in data entry
(1: >80%, 4: <40%)
E
Implications for Telcos
▪ Real time Customer data
across channels,
improving Call-center/
PoS/Digital channels
efficiency
▪ Harvest Customer data
for insights/campaigns
and analyze current state
of business with real time
Marketing & Sales
Analytics
▪ Reduce redundancy
in data entry, starting
from customer order
A
B
CD
E
1= worst
practice
4= best
practice
2 3

10. 9
Highly profitable players are ahead at digitizing order management
Order Management
2
SOURCE: Horizon360 Telecom IT Diagnostic
High margin Low margin
1
2
3
4
▪ Integrate Order
management with CRM
and Work force
management systems
▪ Centralize Order
Management systems,
offering business users
flexibility to configure new
products & tariffs
▪ Automate product
activation for subscribers
reducing back-office work
Key practice Implications for Telcos
A Automation : Integration
of front office and back
office
B Centralized order
management for product
bundles
C Order management
system allows users
to configure new
products & tariff
D Automated Activation for
Mobile & VAS products
Provisioning system’s
full integration with
Workforce management
system
E
A
B
CD
E
1= worst
practice
4= best
practice
2 3

11. 10
Highly profitable players are ahead at digitizing CRM
CRM & Service Management
3
SOURCE: Horizon360 Telecom IT Diagnostic
High margin Low margin
1
2
3
4
▪ Integrate Sales with
Service channels across
different lines of business
▪ Enhance user traceability
and gather voice of the
customer from digital
channels (e.g., twitter,
Facebook) to empower
cross-selling and micro-
segmentation
▪ Offer self-service
functionalities through
automated channels (e.g,.
apps, online) to increase
customer satisfaction while
reducing back-office costs
Key practice Implications for Telcos
Integrated Sales &
Service for all products
A
Systems allow
traceability of User
requests, tickets &
complaints
B
Use of Micro-blogging:
for customer
intelligence/ interaction
C
Buy & Manage on
automated channels:
multiple products for
B2C & B2B customers
D
Range of Assurance
activities possible at
Point of Sale
E
A
B
CD
E
1= worst
practice
4= best
practice
2 3

12. 11
Highly profitable players are streamlining the IT landscape
Architecture
4
SOURCE: Horizon360 Telecom IT Diagnostic
High margin Low margin
▪ Partner with business
for architecture design,
adopt standardization
& reduce fragmentation
of functionality across
applications to simplify
business and IT to ensure
agility and TTM
▪ Establish unified (single if
possible) sources of data
▪ Set an architecture board
for application rationalization
and compliance to enforce
a simpler IT
1
2
3
4
Key practice Implications for Telcos
Partnership of business
and IT in designing
system architecture
A
Reduce fragmentation of
functionality across the
application landscape
B
Unified accounting viewC
Architecture compliance
review in place
D
Application
rationalization in place
E
A
B
CD
E
1= worst
practice
4= best
practice
2 3

13. 12
Highly profitable players are streamlining and automating infrastructure
Infrastructure Services
5
SOURCE: Horizon360 Telecom IT Diagnostic
High margin Low margin
1
2
3
4
▪ Automate server
handling end to end,
from deployment to load
balancing
▪ Adopt technologies
for effective capacity
management of existing
resources
Key practice Implications for Telcos
Use of Automated load
balancing
A
Automated call routing
& SLA management
in helpdesk
B
Automated deployment
of server images
C
Minimize performance
overheads with proper
use of Lpars
D
High speed internal
network usage
& adoption
E
A
B
CD
E
1= worst
practice
4= best
practice
2 3

14. 13
40
50
60
70
80
90
100
2 4 6 8 10
IT spend/revenue
Percent
Telecom operators can transform to increase their performance
Transformation roadmap for an integrated player
A
DC
B
SOURCE: Horizon360 Telecom IT Diagnostic
Telco 2 - end state
Applications
▪ Best of breed solutions + few internal
solutions
▪ Siebel CRM for B2C,B2B LoBs
▪ Order management transformation
▪ Full SOA architecture
▪ Sunset of unused applications
Infrastructure
▪ Improve utilization. Currently one of the
operators with having most highly utilized
infrastructure in its data center
▪ New consolidated data center up in 2010
Total IT spend: decrease in absolute terms
Telco 2 - transformation program
3 prong strategy for Telco 2 from 2008-2014
▪ Application transformation
▪ Infrastructure Transformation
▪ Operating model change
Median line201220112009 20102008 2013
Telco 1 Telco 2 Telco 3
IT Effectiveness Score
All this while IT supported critical changes in business, like 4G, 4P
convergence
Balanced score based on
▪ Functionality ▪ Time-to-market ▪ Service availability