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GCC telcos ‘need to cut waste, save on costs’

Dubai, September 1, 2010

GCC telecom operators can achieve their full potential through cutting waste and achieving cost saving of up to 30 per cent, said a new study.

As the telecom markets in the GCC are on the verge of saturation, GCC telecom operators are now seeing their profits under very high pressure, according to a study titled ‘Lean Advantage in Telcos: Reducing Complexity and Transforming Culture’ by the Boston Consulting Group (BCG), a global management consulting firm.

This is demonstrated by the results for the first half of 2010 where several GCC incumbent telecom operators stated profit reduction between 15 to 30 percent, according to the study.

“Telecommunications is still one of the most inefficient industries, with as much as 30 percent of its cost basis eaten up by waste. This waste is difficult to see because it is embedded in telecom processes,” said Joerg Hildebrandt, partner and managing director at BCG Middle East.

While some companies have set up rigorous cost reduction programs to protect profit margins, one-off cost reduction measures like cutting marketing spend, travel, advisory, and renegotiation of major vendor/supplier contracts are the usual suspects for immediate scrutiny.

However, these traditional cost-cutting approaches will not be able to capture the enormous potential savings according to the BCG analysis.

Very often the measures are not bold enough to meet current challenges because they exempt sacred cows and most importantly, they aim to cure the symptoms rather than address the root causes of waste. And still other approaches lack end-to-end focus.

Waste cannot be compartmentalized; inefficiency in any one process tends to spill over into others, BCG said.

GCC telecom operators need to continue searching for growth, but equally important, they must find ways to secure or improve earnings by optimizing their operations. Most providers are far from achieving operational excellence, the study said.

BCG has found tremendous waste: as much as 30 percent of costs are incurred because of rework (correcting process or product defects), overproduction (producing items before they are required), inventory (storing products), and over-processing (using more resources than necessary).

“This is true not only for incumbents in saturated markets, but also for companies in developing markets. We believe the telecom industry could save 20 to 30 per cent of total operating expenses by eliminating waste that still resides in its processes,” said Hildebrandt.

Perhaps most importantly, few cost-cutting programmes produce lasting cultural change. They target specific kinds of waste on a short-term or one-off basis and don’t achieve the larger goal of enabling organizations to improve continuously in terms of operational excellence.

“Therefore, traditional cost-reduction efforts don’t deliver significant and sustainable competitive advantage,” Hildebrandt concluded. – TradeArabia News Service




Tags: Dubai | Boston Consulting Group | BCG | Cost savings | Telecom operators |

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