GDS International - Next - Generation - Telecommunications - Summit - Europe - 2


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Product Rationalisation

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GDS International - Next - Generation - Telecommunications - Summit - Europe - 2

  1. 1. Product  Rationalisation  1.1 IntroductionProduct rationalisation is an essential element of the product lifecycle. It is well-established inindustries such as the automotive and pharmaceutical sectors that execute productrationalisation with the vigour they apply to product development. However, in the telecomssector it tends to be overlooked because of the drive to launch new products and theassumption that once a product has been launched it can be left to generate revenue forrelatively little cost. But a continued refusal to trim a growing catalogue of legacy products canlead to serious difficulties. Take a moment to reflect on how many new products yourorganisation has launched recently and contrast it with the number that have been retired overthat period. In the telecoms sector launches will almost always outnumber retirements. Youmay feel this isn’t a problem and that your organisation has the expertise, systems andresources to manage an ever-increasing product portfolio. If you believe this you’re either verygood or deluded. I believe this problem is going to grow as operators face demands to launchmore and more products and to increase their focus on business to business products.I’ll examine the problems that arise when product volumes grow unchecked and approachesyou can adopt when deciding how and when to rationalise your product portfolio.1.2 Why should you rationalise your product line?You have a product that’s been delivering revenue for a few years. Why should you think aboutkilling it off? There are a number of below the line costs incurred by every product – althoughthey are not immediately apparent they are real and can hobble your ability to respond tomarket pressure. Product Rationalisation Drivers  V1.0 28th Feb 2012 1 Copyright 2012 Alclarus Limited
  2. 2. Management  Time    A large number of products can be difficult to manage. A product manager’s ability toadminister her portfolio will be defined by the management information she has and the easewith which she can make changes to products. Management information needs to be accurateand timely. There is often a delay of days between a customer using a service and thatinformation appearing on management reports. Many telecoms business and operationalsupport systems were designed to cater for a world of monthly contracts and don’t offer theflexibility to easily adjust products and prices. Valuable product management time can beabsorbed in collecting management information and then shepherding changes through out-dated systems.Revenue  If you analyse your products and the revenue generated it’s very likely that 80% of revenue isgenerated by only 20% of products. If this is true for your portfolio you have an opportunity tofocus on the “good” 20% of products and to reduce some of the 80% that are less viable.Undertaking a product clean up will free your product managers to spend more timeunderstanding what your customers want and to improve the most viable products in yourportfolio.Legislative  And  Regulatory  Changes  These are changes that are required by law and thus cannot be avoided. Examples are changesto tax rates or competition commission rulings. The change may impact some or all of yourproducts and the way in which you implement them will be governed by your productarchitecture. If you’re lucky you’ll have a consolidated product catalogue that enables changesto be made once and applied across your product range. However, if your products are basedon older and more diverse technologies you will have to make changes on a case by case basisincreasing both time spent and the likelihood of making mistakes.Obsolete  Platform  Maintenance  As products age the platforms on which they sit are likely to be retired by suppliers. Keepingalive a product that is sitting on an obsolete platform can be expensive as vendors incentivisetheir customers to move away from ageing platforms with costlier end-of-life plans. You mayalso find you need to hire expensive subject matter experts to keep the platform functioning.Sales  Focus:    Your sales team may be happy selling products they know well but this familiarity may be abarrier to selling newer, more efficient products. Taking the easy option of a familiar sell mayimpede take up of new products – removing the obsolete product from your portfolio will drivesales staff towards selling the new product.Another tool for ensuring your sales teams have the right focus is their incentives package.What products are they being incentivised to sell and what measures are being used to drivethem? Do you want to reward your sales teams on the number of sales, the revenues achievedor the profitability of those sales? Lack of alignment between products, incentives and thestrategic key performance indicators of the business can be another reason for retiringproducts that don’t fit with your strategy.V1.0 28th Feb 2012 2 Copyright 2012 Alclarus Limited
  3. 3. Technical  Efficiencies  When a company upgrades or replaces the systems (such as billing and ordering) it uses tosupport existing products, migrating those products to the new system is expensive and time-consuming as older products are often built as customised solutions that do not easily move toa more standardised system. The product may not be fully documented and the people whobuilt it may have moved on. You may find yourself having to choose between supporting alegacy product with a mixture of out-dated hardware and unsupported software or retiringthat product from the market.Customer  Satisfaction  As the market evolves it becomes harder to keep older products in step with customerdemands for more responsive and cheaper services. Older products may not perform as well asnewer ones, they might be inconsistently priced or not available as quickly. Customers willnotice these inconsistencies which will undermine their trust in the operator’s ability to delivertheir promises – all of which contribute to brand damage.The  Future  Think about the rate of innovation within your organisation; how many products have beenlaunched in the last 2 years and how many have been withdrawn? If these levels continue howmany products will need to be managed and how complicated will it be to manage them? Doyou have the systems and processes capable of managing these volumes? The number andvariety of service providers is increasing rapidly. Many of them are free from the standards-based approach to development adopted by telecom providers and so can create and adaptproducts very rapidly. The service landscape can change significantly in a few months and thetypical 9 to 12 month product development process adopted by telecom providers means aproduct can be out of date before it hits the market. Users move freely between services,dropping those that are out of favour. The rate of innovation will increase and telco serviceproviders will need a product retirement policy that matches your strategic objectives.1.3 ApproachFirst, assess the desire in your organisation to undertake product rationalisation. It requirescommitment from across the business, particularly in the marketing, product development,finance, operational and technical domains. Is this a one-off activity or will it be appliedcontinuously and so need integrating with existing working practices?Identify your stakeholders and tell them what you’re doing so you know who needs to bepersuaded of the benefits and who will promote them. Key stakeholders are the people withinyour company who own the revenue and costs of products. Be honest and open with themabout the true cost of implementing rationalisation, win their support and ensure you keepthem informed of progress and obstacles.Leadership  Product rationalisation is a complex task because it affects so many parts of your business. Tobe successful it’s essential to have an owner for the process who will manage the activity fromend to end and be accountable for delivering the benefits of rationalisation.V1.0 28th Feb 2012 3 Copyright 2012 Alclarus Limited
  4. 4. Scoping  Decide whether you’re going to assess all the products in your company portfolio or a limitedselection. Try and answer some basic questions about your chosen products – how manyproducts are in your company portfolio, how many have been introduced and retired recently,what revenue does each product generate, how old are your products? The answers to thesequestions will help you scope the size of the challenge.Commercial  Context  Start by assessing the current and potential commercial performance of the products. Yourstrategy or marketing team may already be doing this but this sort of information oftendoesn’t cross departmental boundaries. If they’re not doing it you can use tools such as theBoston Matrix to objectively analyse your products market share and potential for marketgrowth and categorise them as Stars (high growth, high investment), Cash Cows (high marketshare, low growth), Question Marks (low market share but high growth potential) and Dogs (alow share in a low growth market). The Dogs are the most likely candidates for retirement. Itmay not be possible to retire all Dogs – there may be regulatory requirements that prevent youfrom retiring these or they serve a particularly important customer.It is important that you apply the criteria as objectively as possible. You should haveinformation about the performance of your own products. Market data is widely available – ifyou can’t find what you need work with your team to agree a set of market information thatyou can use to assess the growth potential of all your products. BCG Matrix for Assessing Product Commercial ValueV1.0 28th Feb 2012 4 Copyright 2012 Alclarus Limited
  5. 5. You should also assess which customers are using which types of products. A product mayinitially appear to be low value but mapping the value of customers to the products they buyfrom you can also provide valuable insight. A customer may be using a low value productalongside higher value ones, so you’ll need to communicate your plans to retire the productvery clearly and provide the customer with alternatives or incentives.When you have a commercial view you can move to the next stage which is to understand thecosts involved in supporting these lower value products. The level of detail to which youanalyse these costs will depend on your organisational culture. Some businesses will require afull breakdown of estimated savings before embarking on a rationalisation project; others willbe want to push ahead on the basis of growth and revenue analysis.Analysing  Costs  of  Supporting  Products  The actual costs entailed in supporting a product will differ by sector and company. However,from an IT/Telecoms perspective these are the headline cost areas you should assess:Operational  Customer support – what volume of support requests are being generated by the product?How much does it cost to handle each call and how much employee time is taken on issueresolution? Are there any dedicated support systems required for this product? Can theproduct be supported using standard business processes?Hardware  What hardware is this product running on? Is the hardware dedicated to one product – if sowhat are the associated power and cooling costs? What hardware licence fees are you paying?Software  Does the product depend on customised software? Does the software integrate with yourother systems? Does it require specialist knowledge or skills to keep it performing. To whatdegree is it future proof? Customised software can be expensive and difficult to maintain.What are the associated software license costs?Suppliers/Third  Parties  If the product relies on third party components what are the plans for support of thesecomponents? Will there be an upgrade or replacement cycle that will drive product costs orsavings? How long will the current version continue to be supported?Skills  Does the product need someone with specialist skills to support it? How much time arespecialists spending on supporting the product? You may be paying extra for resources thatspend 5 or 6 days a year actually using their specialist skills. You may also find you’recompletely dependent on the knowledge of one or two individuals to keep the productrunning.Future  Proofing  Finally, project how the costs will evolve over the next couple of years. Will third party supportor supply of product components be withdrawn? Are there any significant programmesplanned which will require you to migrate products from legacy to new systems? Replacing orV1.0 28th Feb 2012 5 Copyright 2012 Alclarus Limited
  6. 6. upgrading elements of your Business or Operational Support systems can be a catalyst for athorough review of your product portfolio and can deliver immediate cost benefits.1.4 PlanningYou have identified the products to be retired and have a business case to support this, so youcan move to the implementation phase. It is essential to plan this phase carefully – get itwrong and you risk alienating your customers. There are a number of key factors to successfulproduct rationalisation: Key Factors for Successful Product RationalisationYour retirement plan should include:Products  • Products to be retired• Alternative product options to be offered to customersCustomers  • Which customers are using products to be retiredFinancial  • Customer incentives to swap productsLegal  • Updated customer contracts• Confirmation of company rights to withdraw productsV1.0 28th Feb 2012 6 Copyright 2012 Alclarus Limited
  7. 7. Stakeholders  • Map the stakeholders in your company within Marketing, Finance, Legal, Operations, Technology• Include impacted third parties – suppliers, partners, regulatorsCommunication    • Define your communication strategy, write your key customer messages and communication schedule• Employee and stakeholder communicationsTechnology  • Map of systems impacted• Customer/product migration schedule• Plans for retirement/closure of redundant systemsBusiness  Change  • Changes to processes/work instructions• Staff training (support and operational)• Escalation procedures for customer complaints related to retirement• HR – staff redeploymentSupplier  Management  • Re-negotiation with partners following product retirement or migrationsMessage  Testing  • Test your key messages with a sample of real customers. How do they respond to the message? Do your messages address the range of objections customer might have, is the emotional tone right? Are your customers attracted to the alternatives on offer?• Retest and refine your messages with customers until you’re sure they’re right.V1.0 28th Feb 2012 7 Copyright 2012 Alclarus Limited
  8. 8. 1.5 ImplementationWhen testing is complete you should be ready to implement. Remember this is a process youwill probably need to use again and again so use your experience to refine subsequentimplementations. The major steps in the process are: Product Rationalisation Implementation CycleInform  Customers  Tell your customers what’s going to happen, when the product will be retired, why you’redoing it and what their alternatives are. Provide them with a call to action that they can followso you can assess how many customers are going to respond positively. Collect and retaincustomer responses which you may need to support customer queries and for audit purposes.Migrate  What you do at this stage depends on your country or sector legal requirements situation andon your company’s attitude to handling customer migrations. You may be able to migrate allcustomers to an alternative product or you may be constrained to moving only those whohave agreed to a move. Data migration must be carried out in a well-structured and managedway and you may need expert assistance to manage this phase of retirement.Manage  Down  Support  If your product is still in the market but no longer being sold you can consider withdrawing orreducing the level of support for retiring products. You must inform your customers ahead ofimplementing this. You can manage down levels of support by reducing support hours, nolonger updating the product, introducing charges for support or withdrawing specific supportchannels such as a live agents. It’s critical that you keep your customers constantly informed ofthe reasons for these changes and of their alternatives.V1.0 28th Feb 2012 8 Copyright 2012 Alclarus Limited
  9. 9. Retirement  There may be a substantial delay between the announcement of a product retirement and theactual switch off. But a failure to take this last step will prevent your business from fullrealisation of the benefits that drove your decision to retire products. Before the final productswitch off issue reminders so customers still using the products are fully aware of what’s goingto happen.You should have analysed your product to ensure there are no cross product dependencies inplace before embarking on rationalisation. However, it’s essential to have a roll back plan inplace before executing final shutdown. Once the product has been closed down you shouldcontinue to monitor systems and customer support requests for a period to ensure that anyunexpected consequences are assessed and resolved. You will receive calls complaining that aproduct has been withdrawn and that the customer wasn’t informed. Not all messages will getthrough or be digested so you’ll need the ability to respond to complaints and take customersthrough the migration or retirement process.1.6 Realise the BenefitsIt’s now time to deliver the efficiencies that drove the decision to embark on productrationalisation. Retire systems, redeploy resources, implement changes to business processesand make commercial changes. Assess whether the benefits are what you expected and ensurethat the benefits are accurately reflected in company accounting systems so the programmestakeholders see real benefits for their participation. Review the programme and ensure youunderstand what worked well and what went wrong.Review the results with your stakeholders – if this was successful they’ll probably want you todo it again! Product rationalisation should be something your organisation does regularly –without it you will almost certainly end up with an unsupportable, unfocussed product setsthat consume your resources and distract you from staying focussed on your customers.V1.0 28th Feb 2012 9 Copyright 2012 Alclarus Limited