CNET también está disponible en español.

Ir a español

Don't show this again

HolidayBuyer's Guide
Tech Industry

Telcos: See you online

Telecom companies must persuade customers to move to far more cost-efficient automated channels--such as the Web.

Telcos: See you online
From the McKinsey Quarterly
Special to CNET News.com
March 7, 2005, 1:00 PM PST

Wireline and wireless companies in the United States, Europe and Asia can no longer afford a business model in which most of their customers pick up the telephone and talk with call center sales and service staffs hobbled by inefficient back-end sales and support systems. Customers dislike the slow, confusing, labor-intensive processes they must negotiate to choose a new product, solve a service problem or request a repair.

Telecommunications companies soon won't have the margins to support the current inefficiencies, in any case. To reduce costs and simultaneously improve service, these companies must persuade their customers to move to far more cost-efficient automated channels--the Web, automated telephone systems or wireless transactions--and streamline their internal sales and support operations. If they don't, they will not be profitable in the years ahead.

"To stay in the game, some telecom companies will need to cut as much as 20 percent or 30 percent of their current operating costs over the next four years."

In 2003, one major airline saved $200 million by selling more than half of its tickets over the Web, which for airlines is 90 percent cheaper than phones. Amazon.com has built a business model based on its customers' willingness to buy goods and to ask--and receive answers to--most service questions online.

Setting up a Web link to customers is only part of the story, however. The full benefits of automation, for them and companies alike, come only if it is also applied to back-end sales and service operations. Otherwise, a customer requesting, say, DSL service from a telecom company's Web site won't receive confirmation of the order, which will be shunted through one internal department after another until, perhaps two weeks later, a DSL modem mysteriously appears in the customer's mailbox.

Furthermore, poor Web service sends consumers back to expensive conventional channels staffed by service personnel, so the telecom company fails to save even the price of a phone call. Telecom companies must automate the full loop, from customer request to response. In other words, the process must be "e-enabled."

To stay in the game, some telecom companies will need to cut as much as 20 percent or 30 percent of their current operating costs over the next four years. They can achieve up to 50 percent of the savings by e-enabling their sales and service functions.

Although that leaves more cuts to be found elsewhere, it is a crucial start. Telecom companies have on the whole been slow to e-enable their sales and service--which is odd, since they play such a key role e-enabling companies in other sectors. Most telecom companies have Web sites but don't leverage them aggressively; only a few have started to streamline and automate their back-office processes.

A number of organizational impediments have slowed down progress in this area. Some telecom executives resist change because they still think that automated sales channels won't generate as much revenue as traditional labor-intensive ones do. Others resist giving a higher priority to e-enablement than to other critical IT initiatives. In addition, difficult organizational changes are needed because the costs and the benefits of e-enablement accrue to different parts of a company.

Despite the problems, a few leading telecom companies have improved their Web sites and persuaded growing numbers of customers to use lower-cost channels. Some telecom companies have begun to overhaul their internal sales and support operations by breaking down departmental silos while streamlining and automating processes so that a Web transaction doesn't deteriorate into a complex manual process during fulfillment.

State of play
Most telecom companies provide some--but not enough--automation to customers. In sales, options for them are limited, and they complain that they can't get full information without phoning a call center or visiting a retail outlet. Automated service too is patchy; one telecom company offers customers looking for online technical support nothing more than a scroll-down list of answers to frequently asked questions. Some software companies, by contrast, walk online customers through a Web-based installation-troubleshooting experience that replicates the one they would have dealing with a technician offline. As for bills, certain telecom companies allow customers to view them online but not to do anything else; if the customer wants to ask about a specific charge, a phone call is necessary.

"Call center managers must be willing to promote the online alternative, even though they will need to downsize their organizations as a result."

The result is that only about 10 percent of this sector's sales and service traffic goes through the Web; by contrast, consumers buy 30 percent of all airline tickets through this channel. Small armies in call centers handle the rest. Telecom executives are hardly blind to the promise of automating sales and service or to the importance of e-enabling the back office. But these companies face a unique challenge. In other sectors, sales and service are, strictly speaking, different things; in the telecom business, they are interrelated and this interrelationship is a fundamental driver of sales.

For many telecom companies, customer calls trigger 85 percent of all incremental revenue. Whether the call is about a bill, service to a new address, a complaint or an inquiry about new services, it becomes a sales opening; the call center employee takes the opportunity to sell additional services such as wireless, DSL and even, in some cases, satellite television. One out of four calls leads to increased revenue for the company.

Telecom executives know what some banks have achieved by automating up to 75 percent of all service transactions and simultaneously raising customer satisfaction. Yet they understandably fear gambling with what they see as their sector's lifeline--the direct call--despite knowing that it is an expensive way to sell. A typical call center transaction costs $8 to $10; the same transaction online costs 15 cents to 80 cents. Printed bills cost four times as much as e-bills, and customers can be served online 24 hours a day without significant additional costs.

Revamping automated sales and service
What does a telecom company need to get right? First, it must do a better job of creating a compelling online experience. Too many Web sites stump consumers, who don't understand what information is being sought and find them hard to navigate. Other sites offer an incomplete experience; it may be possible to book a repair online, for instance, but not to check when the technician is coming, so the customer gives up and picks up the phone.

Telecom companies must also use state-of-the-art sales approaches on their Web sites. Managers who fear that the online channel is a less effective sales tool than a human being who sells to another human being miss the point. Well-performing Web sites are capable of achieving higher sales per interaction than call centers do; it's a matter of execution.

Companies can, for example, deploy sophisticated interactive sales approaches customized for specific kinds of customers and what they are trying to accomplish. Such tailored pitches achieve high close rates; Amazon, for instance, knows who you are and what you've purchased in the past, and it immediately woos you with personalized merchandising. Well-structured sites can segment customers into low-potential prospects (served cheaply online) and good prospects (directed to pick up the phone to complete a service or sales transaction that began online).

Moving the mass of consumers to automated channels takes effort. Both carrots and sticks are required. But if telecom companies succeed in persuading large numbers of customers to use the Web--particularly for frequent transactions such as paying bills--the impact on service costs could be dramatic.

Paying attention to the back room
Creating an automated channel is one thing, making it efficient another. At present, automated sales and service end when the telecom customer clicks a button. The order then comes to the company, where it is printed out, and a grinding manual process begins. The different activities that make up sales and service are fragmented across various functional groups, such as call centers, sales back offices, billing centers, and network operations.

All of these problems add up to low productivity in marketing and sales. Today a typical telecom customer-billing problem involves staff from customer care, network operations, billing, and perhaps even the sales back office. Each function has its own standalone systems optimized for its use. The cost of coordinating a problem across separate functions is therefore high, as is the potential for error (as a result of rekeying information, for instance), so a delayed response to the customer is inevitable.

?Well-structured sites can segment customers into low-potential prospects (served cheaply online) and good prospects (directed to pick up the phone to complete a service or sales transaction that began online).?

Such processes are ripe for improvement, including better automation. Telecom companies that have tackled their back-office problems successfully used IT as the glue to hold cross-functional processes together. Some systems were reconfigured, others added to facilitate the exchange of information between functional groups and to monitor the overall process. Wholesale architectural redesign wasn't necessary.

The key is to focus on changes that can fully automate transactions initiated by customers online, following the trail of the transaction. One telecom company that took this approach started by rethinking its processes all the way from the customer's request to the delivered service. Managers defined the company's value-added services from its customers' point of view, mapped the processes that delivered them through its sales and service operations, identified the minimum resources needed to deliver them, and analyzed ways of cutting waste from end to end.

Relatively modest technology investments are required both to improve the customer interface and to overhaul end-to-end operations. Costs vary, of course, depending on what infrastructure is in place. But we've seen companies with millions of customers implement successful sales and service e-enablement programs for $30 million to $60 million. The core site features needed to create a friendly, reliable customer experience can be created relatively quickly if the project is scoped carefully and designed well.

Finally, telecom companies need to ensure that different functions work together coherently. E-enablement involves a transfer in activity--and, consequently, in importance--from call centers to the online channel. Executive roles change, call centers reduce their head counts, and online groups expand. Making these shifts is challenging, and one telecom company decided to change its governance structures first: as a step toward scaling down its dependence on call centers and streamlining its back-end sales and service processes, it has formed a multifunctional senior business leadership council, chaired by the CIO, to oversee the improvement of the online channel. Another telecom company has developed metrics and incentives to manage this shift of organizational focus.

An opportunity for the CIO
E-enabling sales and service involves comparatively small investments for companies that typically spend $1 billion or so each year on IT. Yet these modest sums can yield astonishing returns--in our experience, 300 percent in certain sectors. Since the bottom-line incentive couldn't be clearer, why aren't telecom companies rushing to embrace e-enablement? The obstacles are both organizational and managerial, and only a committed and able executive can help a company overcome them. But in most telecom companies it is difficult to identify a single person capable of pushing through e-enablement initiatives, given the involvement of different functions: call centers, the network, billing centers, the Web site.

We suggest that e-enablement can be a leadership opportunity for telecom CIOs--if they are willing to seize it. In most companies, they have an overview of all parts of the organization, are not invested in any one functional group, and would have to lead the technical implementation of e-enablement in any case. Why not, then, step up and take responsibility for the whole process?

"Moving the mass of consumers to automated channels takes effort. Both carrots and sticks are required."

The CIO will need to coordinate the work of colleagues throughout the organization. Marketing will have to develop online self-service offers and pricing programs. Call center managers must be willing to promote the online alternative, even though they will need to downsize their organizations as a result. Network managers will have to ensure that manual activities are automated, and senior executives will have to take end-to-end costs out of departments and functions and improve lead times. A compelling case for e-enablement must be made if all of these players are to give 100 percent of their support and effort to the project. Coordinating the design won't be easy.

These tasks are familiar to CIOs who have implemented large IT projects, but the scale of this challenge is much greater. The full e-enablement of sales and service channels and of end-to-end operations is a substantial job that will take several years. Many CIOs may feel that taking on such a project is too great a risk: CIO careers often founder on big projects gone awry. Some CIOs may prefer to partner with another executive--the customer service manager, for instance--or to serve as a strong champion but not as leader of the project. Yet an ambitious CIO who has strong credibility within the organization and the leadership skills to carry off the job may see e-enablement as a valuable opportunity to petition colleagues for a significant leadership role.

For more insight, go to the McKinsey Quarterly Web site.

Copyright © 1992-2005 McKinsey & Company, Inc.

Interested in more research studies like these? If so, free registration at The McKinsey Quarterly will offer you topical alerts, access to selected full-text articles, and more. Premium membership offers full access to the McKinsey Quarterly site, including archives, and the print edition.

To browse additional Quarterly articles, click on one of the following topics:

Information Technology

Computers & Technology

Strategy