Virtualization of Telco Services

Centralizing core network functions is a challenge…

For the first time, large operators can seize the opportunity arising from virtualization to realize genuine effects of scale by centralizing core network functions parallel to one another. The realization of such a restructuring, however, represents a challenge as it is likely to encounter obstacles both within and outside of the organization. In this article, we look at ways to manage these challenges efficiently, focusing on the changes inside the organization that are necessary for any project involving centralization in a company of a certain size.

…and must be managed carefully

This new type of production is, of course, efficient only if the time of parallel production (production of services in the new organization and n-times locally on dedicated platforms) is kept to a minimum – the longer the transition period, the lower the economic benefits over the project lifetime. Realizing these benefits demands significant preparatory investment funded by the head office. In addition, however, a part of local resources must be redistributed and invested in the envisioned centralized target (same production model for everyone). The involvement of many different stakeholders with many different interests is unavoidable and must be managed carefully.

Change Management is needed

Implementation of the new structure is an enormous change project because it turns the production model of a telco operator upside down. An adaptation of Kotter’s change management model from 1996 can help to structure the areas that require attention and action.

We believe that, owing to the nature of the changes tackled in such a project, it is of utmost importance to amend the model in such a way that employees feel more involved and communication is not treated as a one-time effort only (as was originally the case in Kotter’s model). In addition, we decided to exclude the last element (“anchoring the change in the culture”) for the scope of this article – not because it is unimportant, but because it is less relevant to our focus here.

Crucial factors for project success

• Convince local entities of the desirability of centralized production and its benefits: lower productions costs with higher profits in the long run (win-win situation for group an local entity)
• Concentrate on delivery performance - ensure that the initial business case is positive, then update it at regular intervals (e.g., every two years) rather then in „real-time“

Implementation Road Map

1. The sense of urgency: 

Integrated production as a response to market pressure
The external market puts a lot of pressure on telcos; OTTs can provide their services from one central point in the cloud, giving them advantages in production costs, great flexibility in updating and introducing new features, and an edge when launching entirely new products. Integrated telco production has become an essential step for leveraging the following advantages:

Technology disruption: Virtualized network services in combination with digitization of core software-defined networks (SDN) enable completely new approaches to the international delivery of core network services.

Synergies and scale (centralization): Using one virtualized production environment for all services and the ability to shift peak loads from whichever service experiences them at any given point in time in a certain location creates real synergies in service delivery within a telco group for the first time! The enterprise profits from economies of scale by bundling the investments in new hardware and software components into a single unit.

Supplier squeezing: A stronger position during negotiations with vendors is another benefit. SDNs can run on standard hardware instead of dedicated telco hardware. The number of available suppliers for servers and storage increases, tilting the balance of power on the market in the buyer’s favor.

Fast “go to market”: The quick introduction of new services on all markets (development of a service only once instead of n-times) and immediate testing determine success or failure on specific markets. The lessons learned from failure can be incorporated quickly into future actions. The same principle applies to the development of additional features and reduces complexity in adapting systems and operating the business as usual (BAU).

Steal markets (TV, music): Services that would otherwise not be possible – for example, delivery of television services to countries with a small customer base that would normally be too small to support a dedicated platform for this service – can be offered.

2. Create a vision and build coalitions -get the team together: 

A committed and visionary team is key to the success of any centralization project of such magnitude. Working together with local managers on the development of a common vision is important; after all, they are the ones expected to profit the most from the project in the long run. Their input to the vision creation process will be important and valuable. A dual citizenship approach is ideal: it ensures that local managers have a role to play in the creation of the broad vision of the project while simultaneouslyintegrating early on the perspectives only they can provide such as detailed knowledge of local markets and trends. In addition, involvement in the creation of the overall objective will secure important and valuable allies once the implementation process starts.

Another aspect that must not be forgotten is that local managers’ individual goals and corporate goals must be in harmony with one another. C-level managers will probably not like the prospect of curtailed freedom in making decisions, a reduction of the resources at their disposal, and the loss of employees in their chain of command in the short- to middle-term – and all three of theseprospects will most likely become reality when the target production model is implemented successfully. Strong leadership – aligning all involved C-level managers and forming them into a team that strives to realize future telco service production and create benefits for the group as well as for local markets – in combination with the right incentives designed to achieve successful completion of the project is therefore a necessity.

Most importantly, however, the group executives have the task of allaying all doubts and fears that local entities might associate with this integration of production. No management that takes its customers and shareholders seriously will agree to cut resources currently used for the production of services without knowing whether a future centralized structure will satisfy local demands. There will likely be doubts about the new unit’s ability to deliver, especially when new technology plays a key role in the process; such concerns must be anticipated and laid to rest beforehand because the complexity of technology projects, especially those involving new technology, is easily underestimated (especially from the head office’s point of view).

On the other hand, local management tends to overestimate complexity, which is why regular and transparent communication to identify jointly serious challenges is so important. If the head office wishes to have the commitment of local units, it must be willing to make a commitment as well, namely, to ensure smart budgeting for any services that integrated production, contrary to original expectations, is unable to deliver on time and that must still be produced locally. The benefits are twofold: the proactive consideration of local management’s worries and the exposure of any political games being played on the pretext of protecting customers and shareholders that in actual fact arise from fears of loss of power and importance.

3. Communicate vision: 

The vision of cloud production must be easily understandable and be communicated to all employees involved in the project. It is essential to make the reasons for this project transparent: evolving markets will soon be lost if there is no adaptation to changing circumstances, and this threatens every local business unit’s position in the telco business. Ensuring this transparency and communicating how this project is a tremendous opportunity to respond to unfavorable changes and trends on the market are especially important. Some local units may subsequently even be able to offer to their customers services previously deemed unprofitable (owing to small size and the lack of scaling effects). Such positive points must be emphasized, demonstrating that the possibly disruptive changes the units are facing also have an upside.

Centralization often tends to scare people – they fear the loss of their jobs because such projects are typically accompanied by headcount reductions. Although this project is no different in that respect, affected employees will have a key role to play in the realization of integrated production and will have an opportunity to acquire and develop further new and immensely useful skills in virtualization, turning them into experts who will be highly sought in years to come. Pointing out this prospect to employees might possibly convert the initial fears of loss into the optimism of acquiring a valuable new asset that will most likely prove to be useful in any future scenario for them. Know-how about specific services will still be required even when the target structure is up and running; specialized teams comprising the best experts who, for example, can also collaborate virtually will be assigned the task of advancing the development of service and the customer experience.

4. Vision realization: business case: 

No organization will be willing to set off on a project demanding such high investment without running the numbers – the creation of a business case is, of course, an essential element. However, it is crucial that this does not become a document that is created at the start, only to be ignored forever after. Understanding that it is the first step on the path to the realization of the vision is critical and will assure the proper design of the business case right from the beginning, laying a viable foundation for later adjustments in consideration of new insights or developments and for the identification of countermeasures and mitigation of risks.

The business case itself must live up to the following key aspects:

• It must be positive and demonstrate the economic feasibility of the project (gain sustainable cost advantage on the market, creating a win-win situation for all stakeholders).
• It should comprise a small number of logical building blocks (such as central investment, local implementation, management of legacy costs).
• It should be simple and based on solid assumptions – engage relevant experts to develop assumptions.
• It should clearly distinguish between internal delivery of value creation (e.g., from local units) and external spend and investments.
• The major levers with the greatest impact on overall case performance must be easily identifiable.
• A suitable model based on demand that can be used to price the services delivered from the centralized production unit to the local units must be developed and implemented.
• Impact on local units as well as on the group must be clearly determined.

One mistake that many organizations tend to make is to update constantly the business case in response to recent developments – they become ensnared in their zeal to calculate precisely whether the initial assumptions still hold. While this might appear to be a worthy objective, in reality it easily leads to standstill and delayed decisions by top management, creating a vicious circle: delayed decisions lead to delayed investments and delayed savings because it is not possible to reduce local legacy, negatively affecting financial performance capability overall.

This trap can be avoided by directing primary focus on the execution of the initial plan and concentrating strictly on its implementation. Obviously, major aberrations in certain initial assumptions must be identified, recorded, and subsequently run through much simpler models to determine their financial impact. Taking the results as a basis, an annual strategy review can be carried out and the progress of the project can be effectively monitored with little effort.

5. Deliver quick wins: 

Once the vision has been translated into a more concrete form (the business case), it is crucial to eliminate any remaining doubts by demonstrating early on that the plan works. Quick wins are essential for this because “showing that it works” is the most effective and powerful way to achieve the goal.

The possible quick wins must be identified at an early stage so their delivery can be credibly demonstrated.

The services needed to act as the focal points can be identified by creating a simple matrix based on two dimensions of complexity (how critical for business, interfaces requiring adaptation, number of customers, etc.) and estimated implementation time and mapping the services on this matrix. Bubble size can be used to indicate required investment or expected potential savings as the financial aspect; however, this should not be the driving factor in the decision-making process since services of low complexity with short implementation times are precisely the quick wins you want!

At this stage, it does not matter much whether the financial impact is huge; it is more important to deliver and to establish trust in the new delivery model among all local entities which will be using the centrally produced services in the future! Once their trust has been won, you can move into the quadrant with more complex services, proving that the production model’s effectiveness is not limited to less complex services.

As soon as local management sees the opportunities this new production model offers them and realizes savings for the first time, their willingness to cooperate will be strengthened and potential roadblocks will be removed, accelerating the project significantly.

6. Remove obstacles: 

Any project has obstacles – when you turn the production model of a telco provider upside down, there are bound to be a lot of obstacles. They must be identified and removed bit by bit.

As mentioned before, quick wins are perfect for winning over doubters, but it is hard work and demands continuous stakeholder management. A stakeholder matrix can help to prevent losing sight of the most important ones who require constant attention. Everyone is likely to demand updates and reports, and it is wise to offer them early on to secure trust and support.

Different stakeholders are likely to demand different information, but we recommend one specific action for all of them: once service delivery has started and the initial migration of services have been successful, move away from the overall picture and report on the single projects and services that have been completed. Confirming the successful operation of a service and showing that the business case for the single service realizes the projected cost advantage is a much more important message than whether the overall picture of the business case is still on the same level as it was two or three years ago.

Still, while managing your most important stakeholders on the management level, do not forget to involve constantly your employees and staff levels in the communication as well. Make them proud to be part of this revolution of telco history and show them that their hard work is rewarded by promises that are kept.

7. Build on the change: 

Once quick wins have been found and delivered and the first obstacles have been overcome, there is effective change. While achieving change in the first place is difficult enough in itself, preserving it is even harder.

This is why it is important to build on the change that has already been achieved: not forgetting past achievements and recalling them when times are challenging, and – even more important – learning from past experiences. Having regular lessons learned sessions after crucial milestones have been met will save a lot of headaches in the future. If the appropriate time is spent on identifying past challenges and the same mistakes are not made again in similar situations, the most suitable solution to a problem will be found more quickly.When done right, this generates powerful momentum, and teams that have mastered past challenges are highly motivated and confident about their achievement of future goals as well, even if the targets appear to be much harder to reach than previous ones.

Conclusion

Transforming service production in the telco industry is an immense task that must be accompanied by a suitable approach to change management. It is important to have an easily understandable reason for the necessity of this transformation, an appealing vision that is clear and lucid, and a powerful as well as credible group of management levels that are committed to its realization. Understanding that many conflicts might pop up during implementation and should be resolved quickly is critical. Ideally, such conflicts can be anticipated and will not come as a surprise, so it should not be all that challenging to solve them. Dissension between group management and local management must be resolved early on through strong leadership and the right incentives for everyone involved.

Communication with all involved parties and levels affected by the project is key and must tell a consistent, powerful story that appears comprehensible and logically consistent to people in various positions. The business case should be convincing, providing the necessary transparency to all involved stakeholders, but must be limited to justifying the project itself, and only the most important crucial assumptions should be updated on a regular basis (e.g., yearly) so that it can serve as a monitoring tool for the conduct of strategy checks.

Delivering the initial promise must be the top priority once the decision to carry out the project has been made. Quick wins must be identified and delivered early on so that trust in the new production model is proven to be justified and can be established throughout the group.

Any obstacles along the way, be they technical, legal, or internal, must be removed by emphasizing strong stakeholder management, especially in the early stage of the project. Achieving this requires the willingness of top management to pay continuous attention and provide support whenever and wherever problems arise.