You Still Can't Outsource Ownership of Your Telecommunications SpendYou Still Can't Outsource Ownership of Your Telecommunications Spend

As the telecom expense management market evolves, enterprises need to weigh which external options best meet their needs while maintaining internal expertise.

A few years back, we published a No Jitter article titled "You Can't Outsource Ownership of Your Telecommunications Spend." Based on the volume of questions we get from our clients, it is time to dust off the message and provide some updates.

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Telecom expense management (TEM) is how a company manages one of its largest Selling, General and Administrative Expenses, or SG&A, line items. It encompasses the people, processes, technology, and, often times, externally provided specialty TEM services required to achieve the company's goals.

If you utilize services from a specialty TEM firm, it is critical that you competitively procure these services on a periodic basis even if you are happy with your incumbent provider. It is also important to understand the growth of telecom expenses within your environment -- including traditional network, voice and local spend, wireless, managed services, cloud-based services, hosting services, network maintenance and services, and UC-based communications services. This list is growing and evolving as what companies buy under the banner of "network services" grows and evolves. TEM firms support a critical part of the TEM lifecycle for your company. The TEM process is key to the overall management of your telecom spend internally, and you must utilize best-in-class vendor management practices with respect to your TEM partner.

The list of TEM firms has changed significantly in the past 10 years and more change is inevitable. Tangoe's recent purchase of Rivermine, IBM's TEM unit, plus the fact that TC2 is currently involved in several TEM-related transactions with our clients, make this a good time to take a fresh look at the ever-changing landscape of TEM services for large enterprises. While there are dozens, if not hundreds, of TEMs or TEM-like outfits for small to medium-sized businesses, we tend to focus on TEMs that support large multinational or global enterprises.

As mentioned, the industry seems to stay in a constant state of change with frequent mergers, acquisitions, and divestitures. Here are the major players, and a brief list of notable events of the past several years:

Note that a few of TEMs listed above are subsidiaries or part of a telecom service provider (Vodafone Telecom Management Practice, or VTMP, and Dimension Data). Some argue that this creates a classic "fox guarding the henhouse" scenario. That's certainly a consideration, and requires proper due diligence, when selecting a TEM. Critical to understand is that the competition in this space is fierce, and players are simultaneously appearing and consolidating.

In order to achieve value, you need to decide up front what you want from your TEM provider. The basic services are the receipt, audit, and processing of your company's telecommunications invoices. Related to this is cataloging, and pursuing recoveries for, billing errors. Rounding out the basic service are metrics and reporting for the services handled by the TEM. Every enterprise needs these services and the large TEMs do at least an adequate job of delivering them.

You may consider other services, including: ordering and provisioning management, wireline inventory and usage management, mobile device and usage management/optimization, more enhanced reporting/business intelligence, and even contract management for the services that are managed/processed by the TEM service provider. In these optional areas performance frequently fails to measure up to marketing hype -- if you want these services, due diligence (notably thorough reference checks) is essential.

Once you've decided on the scope of services, you need to consider the delivery model. You can obtain TEM services on a software-as-a-service (SaaS) basis wherein your enterprise resources use the TEM supplier's proprietary software and tools (typically via a Web portal). Alternately, you can outsource the entire process and function to the TEM provider, which will create a turnkey solution for your enterprise. This is a form of business process outsourcing (BPO), so is more expensive than SaaS delivery. However, it frees up your own resources, so it's potentially more valuable. If you don't like the SaaS and BPO options, you can license TEM software for installation on your own server, although we rarely see that model anymore.

There's no "right answer" in terms of the delivery model because customers have different approaches and needs. The key is to study and evaluate the options, decide what will work best for your organization, and then negotiate a good deal for the appropriate model.

Click to the next page for tips on how to get the best TEM deal

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So, how does one structure and achieve the best TEM deal? Here are some key steps:

1. Agree on the scope with your key stakeholders before you go to market.

2. Gather and organize the data parameters that will be required by potential suppliers to provide a detailed proposal with firm pricing. This includes:

3. Develop a detailed RFP document.

4. Include your required service level agreements (SLAs).

5. Require each bidder to submit a detailed implementation plan with milestones.

6. Require specific account team support, roles, and your rights to approve, or at least be consulted on, changes to the team.

Once you receive the bids back from potential TEM suppliers, evaluate the RFP responses on a like-for-like basis, taking a total cost of ownership approach. This can be challenging given the variety of fee structures and arrangements. Bidder conferences and presentations can be helpful during this stage of the evaluation process. Negotiate improvements with at least two finalists (to maintain leverage) before selecting a winner.

The final step in the procurement process is to memorialize the negotiated terms and conditions. A complete and robust contract will provide the foundation for a successful relationship.

Lastly, companies must maintain internal expertise around TEM both to allow for effective management of their TEM providers and to enable optimization of the overall telecom spend. The most frequent issue we encounter is that companies don't fully leverage and use all of the information available through their TEM providers and by shedding expertise have lost the internal knowledge needed to understand and analyze what the data means. Another key mistake is that companies fail to effectively manage their TEM partners, from not meeting with them regularly to not providing them with copies of contracts and amendments to the in-scope spend. TEM relationships frequently go south in environments that are not well managed.

TEM firms are now a key part the telecom lifecycle process. Recognize their role in this process, manage them well, and maintain internal expertise so that you can manage your cost exposure in this rapidly changing spend category.

Keith Cook and Theresa Knutson are project directors at TC2), where they specialize in negotiating TEM deals and providing operational advisory services to improve TEM management for their clients. They can be reached at [email protected] and [email protected].