Telecoms remain in the top three business expenses
- 02 July, 2007 16:48
Telecommunications continues to rank in the top three of business expenses so its not surprising to learn it is often the first victim of cost-cutting.
According to analysts business can milk up to 30 percent from telecom expenses with routine savings of 10 percent by negotiating contracts via request for proposals (RFPs), implementing Telecom Expense Management packages (TEMs) and expanding communication services to obtain long-term benefits.
TEM packages and software tools control acquisition, operation, and support of corporate telecom and network assets, by cross-referencing bills and monitoring contract provisions like SLAs and performance penalties. They obtain carrier bill refunds, support contract negotiations and resolve gaps between enterprise spending.
However, telco experts have unanimously warned businesses to take a strategic, long-term review of their communication requirements, noting 'savings' can be more bangs-for-bucks, better technology, and less bucks in total.
Gartner analyst, Ted Chamerlin, said the enterprise should decide which changes are nice to have, which changes they would strongly like to have, and which changes are 'deal breakers'.
Matt Atkinson, managing director for TEM vendor Aurora Kendrick James (AKJ) said IT and finance departments will blow-out budgets if they use telco band-aids such as swapping vendors or impulsively buying new technology.
"Too often IT, procurement and finance departments undertake one-off price reviews or audits which give short-term price reductions but ignore the underlying problems that drive up costs," Atkinson said.
He blames this impulsive decision-making on IT and finance directors who do not understand their communication requirements, and the capacities of emerging technology.
"Most excess cost comes from over [provisioning], misuse of technology, billing errors, poor processes and a lack of clear management information," Atkinson said.
Atkinson believes TEM packages can save mid-sized corporates with a $1.2 million communication budget about $235,000 in the first year of rolling out an effective strategy, and will produce ongoing savings and budget insights regardless of vendor changes.
"You will benefit from improved staff productivity, a clear understanding of requirements, and being able to make informed decisions on new technology and services," he said.
However, BuddeComm telecom analyst Paul Budde warned cost cutting must not impede company operations and strategies.
"Business must exercise discretion when cutting cost from any department as ruthless cutting can degrade service and efficiency and end up costing far more than what could be saved," Budde said.
The art of bleeding money from telco budgets without making your business sick requires a strategic overview of telecommunication operations, orientations and expenses. You will need to establish whether you are splurging or scrounging, and on what technologies, and what telco strategies should be conducted in lieu with operations and customer service reviews.
Contract benchmarking across internal departments and against obliging industry peers will highlight disparate service pricing, according to Telsyte managing director Warren Chaisatien.
He said teaming-up with external business puts pressure on telco vendors, and should be done religiously every three to five years, or whenever large changes occur.
"Benchmarking is absolutely essential. Compare telco costs against peers and competitors of similar size, telecom use and infrastructure to assess cost differences, and benchmark departments for efficiency," Chaisatien said, noting contracts can often bump up costs beyond agreed values.
While recommending to obtain multiple quotes is stating the obvious, Budde said they must be based on specific telecommunication bills over the last six months.
He said this helps business to avoid seemingly attractive offers such as bundled mobile, PSTN and broadband which can be traps for some.
"While most companies are better bundling their requirements (mobile, PSTN, broadband and so on) because of benefits like reduced vendor management and tariff discounts, those companies having difficulty should look at the total use and commitment rather than individual deals," Budde said.
Gartner analysts Katja Rudd and Leif-Olof Wallin outlined the value in creating a dedicated team comprised of IT, HR, legal and finance to manage contract negotiations in the Top 10 Tips for Negotiating Voice Contracts report, commissioned in 2006.
Rudd and Wallin assert that a "single point of responsibility makes it easier to negotiate contracts and to establish a status of the current position in terms of total fixed and mobile spending, user patterns, and trends".
They said the team should be responsible for managing the entire contract negotiation process; from obtaining the initial status, through to the assessment of requirements, and the evaluation and selection of a service provider.
The team should also be responsible for fixed and mobile voice usage, according to Rudd and Wallin who said it will allow business to establish the focus for future negotiations.
In his study entitled, What Businesses Should Negotiate and Expect in Carrier Contracts, Chamberlin said enterprises should establish a set of contract priorities to structure negotiations.
"The enterprise should decide which changes are nice to have, which changes they would strongly like to have, and which changes are 'deal breakers'," he said.
"If there are more than one or two deal breakers, the enterprise should re-evaluate them. Similarly, within each clause, the enterprise should determine what its best case is and what its minimum requirements are."
Gartner vice president and research director Geoff Johnson recommended businesses scrutinize billing invoices as financial errors can favor carriers over enterprises two to one
"The net outcome of records being out of date is that unused lines and billing errors usually favour carriers rather than user organizations," he said adding that audits can easily milk five percent to eight percent simply by resolving errors.