Roping Telecom Chaos

Most companies mismanage telecom expenses and planning—and are now asking the CIO to fix the problem. Here's how to take stock and clean up the mess.

When Craig Haught signed on as VP and CIO for lithographic equipment manufacturer Cymer in June 2006, he learned the nasty truth about telecom: No one was really in charge. There was no strategy in place to ensure that costs were controlled, that inventory was managed and—perhaps most critically for the CIO—no way that IT could develop and deploy effective strategies involving telecommunications.

It's a huge issue, yet nearly two-thirds of companies—65 percent—don't have a handle on their telecom expenses or inventory. And almost half have no way to automate the management of telecom assets, according to Aberdeen Group research.

"Enterprises have a very disjointed process for managing telecom, often with an inadequate understanding of their processes and goals," says Joe Basili, a research director at Aberdeen Group.

To corral this telecom chaos, enterprises have been shifting responsibility for telecom to the CIO. In fact, Aberdeen's surveys show that 64 percent of enterprises have moved telecom into IT's purview in recent years. (The finance department handles telecom expenses at 20 percent of companies, operations handle them at 11 percent and other groups handle them at the rest.)

What do you need to know as CIO as telecom moves onto your plate? For starters, you'll want to think bigger than budget. Certainly, you can realize cost savings by managing telecom adroitly: Telecoms typically overcharge companies by 5 percent to 10 percent, analysts say.

"But I don't want to just count beans," says Cymer's Haught. "I want to develop a catalog of services and provision better services," he says.

Joel Wiens likewise took on a fragmented telecom environment at his company, hair salon franchisor Regis, where he is VP of IT. "No one had the whole picture," he says. "But I saw telecom as an extension of what we're doing in IT, such as managing point-of-sales data."

Among the hurdles, effective telecom management requires an understanding of the contracts, bills and service-level agreements; the resources to manage the inventory of devices and lines internally; and the expertise to manage support and billing issues with the carriers. "It's an administration-intensive job," says Haught.

That's why most enterprises look to hire an outside firm to help manage telecom services. And before they can do so, they have to get their internal house in order, Basili warns. Haught faced this dilemma: As with poorly designed, or "spaghetti," code, Haught couldn't tell where one thing began and another ended in his company's telecom, or understand the logic.

Unravel Your Internal Mess

Telecom management processes are fragmented at most companies for historical reasons. Voice and data used to be entirely separate, both at the carriers and within enterprises, says Aberdeen's Basili. It used to be common to have a telecom department that handled phones, while IT handled the network. And billing was typically scattered regionally, because local phone service came from a local telco, while long distance was usually handled by a separate national company. That began to change with the rise of remote access connectivity, the Internet and VoIP, all of which disregard any difference between voice and data lines.

But to get a handle on telecom expenses—and ultimately on telecom strategy—an organization needs to assemble six areas (sourcing, procurement, invoice reconciliation, inventory management, analysis and reporting, and payment) and manage them together, Basili says.

"Everything in the telecom lifecycle is interrelated. If you focus on just one or two areas, you'll have leakage in the other areas that will more than eat up any savings," he says.

Without overall operational control and insight, functions within an organization can work at cross-purposes, notes Charlotte Yates, CEO of the telecom expense management consultancy Telwares. She recalls one client that renegotiated its telecom contracts and changed its supplier mix to reduce costs, unaware that IT was set-ting up a data center in another region. The contracts didn't account for the high-availability lines needed for that data center, which happened to be located in a region that the chosen carriers didn't serve. The result: The company lost all its negotiated savings by having to pay for expensive lines from another provider.

Any attempt at telecom expense management also needs to be in the context of telecom strategy, Basili notes. For example, if an organization expects to migrate significantly to VoIP, its carrier contracts need to avoid penalties for reducing the number of phone lines used in the future.

Most organizations negotiate based on their current mix, seeking economies through pooled minutes and volume discounts for maintaining a certain number of lines—and miss the fact that when those conditions change later, the carrier contracts impose penalties, like higher costs for excess usage, Basili says. "You really want strategic advice on how to structure your contracts to anticipate changes," says Ron Rose, CIO of Priceline.com, who uses TnT Expense Management to manage his telecom services and advise on contracts.

Bringing all these pieces together requires that a CIO navigate the various fiefdoms and start to orchestrate them, Basili says. Once CIOs can coordinate the various activities, they can begin to understand the actual needs, usage patterns and processes involved with telecom, he says. At that point, the CIO can bring in the tools or services needed to both manage telecom expenses and plan a strategy for telecom directions.

At Cymer, for example, says CIO Haught, "we're still trying to work out some of the basic strategies, and we need to get down to data for that. Once we have a sustainable operation, we can push further into managed services."

To help figure out his current telecom landscape, Haught hired telecom expense management firm Avotus as a consultant. Regis's Wiens did the same, hiring American Business Communication to figure out what was already in place.

Choosing Outside Help

With their internal telecom house in order, CIOs can face the next challenge: finding the right technology and services to manage telecom expenses and assets. That's not simple. You can currently choose from more than 120 vendors and as an industry, these companies are as fragmented as the enterprises. The industry started with billing management, helping accounting payables groups manage invoices, and in some cases, supporting contract negotiation. But that billing focus is misplaced today, says Elisabeth Rainge, a director at IDC (a sister company to CIO's publisher). She recommends that CIOs look at telecom expense vendors that also offer management and analysis services. "A focus on management pays off more for IT since it aligns [telecom approaches] with business goals," Rainge says.

Today, only about 30 of the telecom expense management providers handle that full range of telecom services, covering at least the first five parts of Aberdeen's six-stage telecom lifecycle, Basili says.

Before diving into the pool of vendors, CIOs should figure out which of three deployment models best fits their enterprise's culture and resources, says Kathleen Adams, a research director at Gartner. Those models are do-it-yourself, joint management with a vendor, and complete outsourcing. Complete outsourcing is most popular, followed by joint management. Least popular is the self-service approach, in which the enterprise installs telecom management software and relies on a vendor only for delivering regularized bill feeds from the carriers, Basili says, because this requires the most in-house resources. (In all models, you have access to billing data and analysis, and sign-off on payments.)

Regis's Wiens uses the complete-outsourcing model for his voice lines, because it would be too costly to develop the internal resources to manage them. (He has very few data or cellular lines, so his group manages those internally.) Thus he used American Business Communication to inventory the telecom equipment in place, figure out what services were necessary and unnecessary, recommend a consolidated set of providers, and negotiate the contracts, saving approximately $5 million during the past five years. "We didn't know how to negotiate all the contracts with each of the telecoms. Their contracts are the most complex we've ever seen," he says.

Al Etterman, CIO of optical technology manufacturer JDS Uniphase, takes the joint management approach. "My carrier relationships are with sales; theirs are with operations," he notes. He relies on his vendor, Telwares, to analyze and propose telecom service mixes, contractual terms, service-level agreements, financial terms and billing management when it's time to negotiate new contracts. "I manage [telecom] at the service level, not at the tactical level," he says.

Bonus Tips: Finish Smart

Do not assume that the consolidation of carriers will make expense management easier. "The carrier billing systems are just a mess, and it has only gotten worse with consolidation," says Gartner's Adams. Contracts also remain complex, because carriers' internal divisions remain largely uncoordinated, she notes.

The complexity of telecom management is often daunting. "I often get calls from CIOs saying, 'I don't want to be doing this anymore,'" Adams says. But until you untangle your telecom "spaghetti," you won't be able to hire a telecom expense management vendor to take it off your plate—and keep it off.

Galen Gruman is a regular contributor to CIO magazine. You can reach him at ggruman@zangogroup.com.

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