Description
Customers are reluctant to spend, infrastructure and service costs are rising, and new competition is putting more and more pressure on prices these factors all contribute to the bleak situation managers are currently facing in their daily work. How to deal with these challenges is not always clear.
Detecon Executive Briefing
Getting an operator’s
turnaround right
Customers are reluctant to spend, infrastructure and service
costs are rising, and new competition is putting more and
more pressure on prices – these factors all contribute to the
bleak situation managers are currently facing in their daily
work. How to deal with these challenges is not always clear.
But it’s not all bad news. The current challenges also
provide the opportunity to fundamentally revise outdated
business practices. Our experience has shown time and
time again that following five simple rules will increase the
chances of a successful turnaround significantly.
We make ICT strategies work
Detecon Executive Briefing
Detecon International GmbH 03/2010 2 www.detecon.com
The nature of turnaround
Turnaround follows crisis. Crisis manifests itself in adverse trend and adverse behavioral
signals. Adverse trend signals include declining margins, declining market share, rapidly
increasing debt, a high employee turnover rate and - worst case - a liquidity shortage.
Adverse behavioral signals are typically poor communication and low employee morale,
often accompanied by severe interdepartmental or business unit fighting.
To master the crisis with a sustainable turnaround requires a clear understanding of at least
four points right from the start of any turnaround activity:
1. Adverse trend and behavioral signals are only symptoms. A sustainable turnaround
needs a full, transparent, and honest analysis of the true root causes of the crisis.
2. A crisis is not always or, as our experience shows, not even predominantly driven by
external factors like the current global financial crisis. Instead the root causes for crisis
situations are often internal in nature and range from an outdated go-to-market approach
over a wrong assessment of the company’s own capabilities to deficiencies in
operational management skills.
3. These shortcomings can only be mastered by a holistic turnaround approach with a
medium to long term business development perspective. This doesn’t neglect the need
for quick wins through cost cutting, but emphasizes the need for balancing mid term
revenue stimulation with short term efficiency measures.
4. A crisis is almost always the opportunity to revitalize business and at best completely
reinvent the business.
Turnaround strategies
A concerted business excellence strategy supporting the turnaround on both the revenue
and the cost sides can ensure long-term success. It is crucial, however, not to waste scarce
resources in a trial-and-error approach as you will probably only get one chance to get the
turnaround right. An effective economic turnaround covers strategies including an audit and
adaptation of the company’s service and product portfolio, tight control over economies of
scale and an intense focus on the development of the right value propositions and market
niches. Sustaining the business in these types of turnarounds is usually considered to be a
difficult task and hence requires a leadership style of entrepreneurial drive and commitment.
Detecon Executive Briefing
Detecon International GmbH 03/2010 3 www.detecon.com
Imperatives for successful turnaround management in telco industries
Considering today’s financial restrictions, in most turnaround settings a merger or an
acquisition are not growth options. Organic growth and increasing operational efficiency are
often the only alternatives open. In an ever-more competitive and cost-driven telecoms world
business realignment and cost cutting measures will most likely become necessary. But
simple across-the-line cost cutting alone cannot ensure an operator’s long-term success.
Experience shows that – depending on the initial position – standalone cost cutting
measures and incremental operational improvements affect the bottom line by only 5 to 15%.
This is frequently not enough for the operator to escape an agonizing long-term decline.
Industry best practice shows that only a bold move can produce real and lasting results.
Get the full picture!
In a turnaround situation it is essential to correctly assess the company’s medium and long-
term threats and opportunities and the market’s lifecycle stage in order to arrive at the
appropriate positioning for the company. The legal and regulatory framework must also be
understood.
Think out of the box!
For the turnaround manager it is imperative that the true current value contribution of each of
the company’s business elements is questioned and, consequently, the potential of
transforming or reducing superfluous activities and/or processes is understood. Field
experience shows that a good way to develop innovative “defend and attack” strategies is to
act as a competitor and to attack one’s own operator by using all insight gained about it. This
frees the mind from the psychologically confining “inside view” which is all too widespread in
the corporate world. Once identified, potential threats can be classified according to impact
and risk. It is vital to be creative in this phase. Once the turnaround scope is fully
understood, it becomes possible to develop future-proof solutions.
Follow proven managerial rules and avoid common pitfalls!
Rule 1: Get rid of “ sacred cows” which doom the turnaround, and acknowledge the
company’s true strengths and weaknesses.
All too often operator transformation programs are driven by myths about the importance of
“sacred cows” rather than by facts. Sometimes it’s painful and unpopular to raise daring
questions about long-established business practices, e.g. the traditional stove pipe setup.
But not raising them will diminish the chances of getting the turnaround right.
A recent example in a cut-throat South East Asian telecom market illustrates the challenge:
Rather than stopping the expansion of its loss-making, but historically important voice
telephony business, the company preferred to continue with the provision of additional
capacity.
Detecon Executive Briefing
Detecon International GmbH 03/2010 4 www.detecon.com
Its real strength, however, lies in its modern network infrastructure and its cable television
licenses. By focusing on its traditional business rather than embracing new markets the
company jeopardized its future. Only by refocusing on its areas of competitive advantage did
the company manage to initiate a turnaround.
Rule 2: Avoid a turnaround cacophony. Focus on the long-term direction and
orchestrate your journey.
A well-conceived vision has two major components: the core principles (which are
permanent) and the envisioned future (what your operator wants to become). The vision
serves as the centerpiece of the turnaround and as a foundation for the next steps, i.e. the
development of top-level strategic alternatives and their evaluation in terms of long-term
potential, complexity, ease of implementation, financial feasibility and risk.
An often-cited example of a successful turnaround is Spain’s Telefónica, which turned itself
from a dull national incumbent into one of the world’s leading telecommunications operators
by a consequently executed internationalization strategy.
Rule 3: Minimize resistance and secure commitment early. Communicate extensively!
Another reason for many disappointments in company turnarounds lies in extreme
communication failures between the turnaround management and other stakeholders.
Managers and employees often wrongly fear that the transformation will impact them
negatively. Best practice shows that effective communication is based on repeating the
turnaround’s goal like a mantra, communicating quick wins and major milestones as well as
achieved objectives.
Rule 4: Don’t change horses in midstream – Stick to your decision.
Taking a directional decision is not easy. Once a decision has been made it is very important
for the leadership to stick to it! Visible wavering of the leading team’s resolution will ultimately
result in failure as the line organization will withdraw its support. The momentum needed for
the turnaround effort will diminish and eventually disappear to make room for destructive
fatalism or infighting.
A recent example of a North African operator impressively underlines the consequences of
repeatedly calling off a necessary turnaround. Growing infighting between the various
business units led to massive market share losses and to an EBITDA margin decrease of
almost 12% in two years. The success of turnaround management here relies on the fact
that its decisions are made tangible through the creation of a formal and visible turning point,
and by communicating progress consistently to keep up momentum.
Rule 5: Institutionalize change and secure implementation stamina.
A further major stumbling block in many turnarounds is the premature victory cry.
Management must keep its targets and key indicators firmly in view and must monitor their
development in order to ensure progress is being made as planned. In this context of
implementation, strict and comprehensive transformation monitoring ensures that all
transformation activities are on track and are being delivered and implemented according to
plan. Once the transformation has been completed successfully, it is time to communicate.
Detecon Executive Briefing
Detecon International GmbH 03/2010 5 www.detecon.com
Recommendations for getting started
Experience shows that following the few rules outlined above can lead to the success of a
telecom operator’s transformation effort. Although these rules are conceptually straight-
forward, it is not always easy to stay on top of things in the complex and heavy pressure
turnaround environment.
In addition it is essential
for the top management not only to set up a future-proof, comprehensive, and concerted
business excellence strategy, but that they then entrust it to a professional and
experienced team.
for turnaround executives to learn from the failures of other operators in order to avoid
common pitfalls. This will spare them costly mistakes and will dramatically increase their
chances of completing a positive turnaround.
that everyone is taken on board once a decision has been taken. It is vital to communi-
cate extensively to ensure continued support for the transformation journey, and
management should not be shy to communicate successes once these are certain.
The authors
Jochen Dinger
J [email protected]
Thomas Pittschieler
[email protected]
doc_280936286.pdf
Customers are reluctant to spend, infrastructure and service costs are rising, and new competition is putting more and more pressure on prices these factors all contribute to the bleak situation managers are currently facing in their daily work. How to deal with these challenges is not always clear.
Detecon Executive Briefing
Getting an operator’s
turnaround right
Customers are reluctant to spend, infrastructure and service
costs are rising, and new competition is putting more and
more pressure on prices – these factors all contribute to the
bleak situation managers are currently facing in their daily
work. How to deal with these challenges is not always clear.
But it’s not all bad news. The current challenges also
provide the opportunity to fundamentally revise outdated
business practices. Our experience has shown time and
time again that following five simple rules will increase the
chances of a successful turnaround significantly.
We make ICT strategies work
Detecon Executive Briefing
Detecon International GmbH 03/2010 2 www.detecon.com
The nature of turnaround
Turnaround follows crisis. Crisis manifests itself in adverse trend and adverse behavioral
signals. Adverse trend signals include declining margins, declining market share, rapidly
increasing debt, a high employee turnover rate and - worst case - a liquidity shortage.
Adverse behavioral signals are typically poor communication and low employee morale,
often accompanied by severe interdepartmental or business unit fighting.
To master the crisis with a sustainable turnaround requires a clear understanding of at least
four points right from the start of any turnaround activity:
1. Adverse trend and behavioral signals are only symptoms. A sustainable turnaround
needs a full, transparent, and honest analysis of the true root causes of the crisis.
2. A crisis is not always or, as our experience shows, not even predominantly driven by
external factors like the current global financial crisis. Instead the root causes for crisis
situations are often internal in nature and range from an outdated go-to-market approach
over a wrong assessment of the company’s own capabilities to deficiencies in
operational management skills.
3. These shortcomings can only be mastered by a holistic turnaround approach with a
medium to long term business development perspective. This doesn’t neglect the need
for quick wins through cost cutting, but emphasizes the need for balancing mid term
revenue stimulation with short term efficiency measures.
4. A crisis is almost always the opportunity to revitalize business and at best completely
reinvent the business.
Turnaround strategies
A concerted business excellence strategy supporting the turnaround on both the revenue
and the cost sides can ensure long-term success. It is crucial, however, not to waste scarce
resources in a trial-and-error approach as you will probably only get one chance to get the
turnaround right. An effective economic turnaround covers strategies including an audit and
adaptation of the company’s service and product portfolio, tight control over economies of
scale and an intense focus on the development of the right value propositions and market
niches. Sustaining the business in these types of turnarounds is usually considered to be a
difficult task and hence requires a leadership style of entrepreneurial drive and commitment.
Detecon Executive Briefing
Detecon International GmbH 03/2010 3 www.detecon.com
Imperatives for successful turnaround management in telco industries
Considering today’s financial restrictions, in most turnaround settings a merger or an
acquisition are not growth options. Organic growth and increasing operational efficiency are
often the only alternatives open. In an ever-more competitive and cost-driven telecoms world
business realignment and cost cutting measures will most likely become necessary. But
simple across-the-line cost cutting alone cannot ensure an operator’s long-term success.
Experience shows that – depending on the initial position – standalone cost cutting
measures and incremental operational improvements affect the bottom line by only 5 to 15%.
This is frequently not enough for the operator to escape an agonizing long-term decline.
Industry best practice shows that only a bold move can produce real and lasting results.
Get the full picture!
In a turnaround situation it is essential to correctly assess the company’s medium and long-
term threats and opportunities and the market’s lifecycle stage in order to arrive at the
appropriate positioning for the company. The legal and regulatory framework must also be
understood.
Think out of the box!
For the turnaround manager it is imperative that the true current value contribution of each of
the company’s business elements is questioned and, consequently, the potential of
transforming or reducing superfluous activities and/or processes is understood. Field
experience shows that a good way to develop innovative “defend and attack” strategies is to
act as a competitor and to attack one’s own operator by using all insight gained about it. This
frees the mind from the psychologically confining “inside view” which is all too widespread in
the corporate world. Once identified, potential threats can be classified according to impact
and risk. It is vital to be creative in this phase. Once the turnaround scope is fully
understood, it becomes possible to develop future-proof solutions.
Follow proven managerial rules and avoid common pitfalls!
Rule 1: Get rid of “ sacred cows” which doom the turnaround, and acknowledge the
company’s true strengths and weaknesses.
All too often operator transformation programs are driven by myths about the importance of
“sacred cows” rather than by facts. Sometimes it’s painful and unpopular to raise daring
questions about long-established business practices, e.g. the traditional stove pipe setup.
But not raising them will diminish the chances of getting the turnaround right.
A recent example in a cut-throat South East Asian telecom market illustrates the challenge:
Rather than stopping the expansion of its loss-making, but historically important voice
telephony business, the company preferred to continue with the provision of additional
capacity.
Detecon Executive Briefing
Detecon International GmbH 03/2010 4 www.detecon.com
Its real strength, however, lies in its modern network infrastructure and its cable television
licenses. By focusing on its traditional business rather than embracing new markets the
company jeopardized its future. Only by refocusing on its areas of competitive advantage did
the company manage to initiate a turnaround.
Rule 2: Avoid a turnaround cacophony. Focus on the long-term direction and
orchestrate your journey.
A well-conceived vision has two major components: the core principles (which are
permanent) and the envisioned future (what your operator wants to become). The vision
serves as the centerpiece of the turnaround and as a foundation for the next steps, i.e. the
development of top-level strategic alternatives and their evaluation in terms of long-term
potential, complexity, ease of implementation, financial feasibility and risk.
An often-cited example of a successful turnaround is Spain’s Telefónica, which turned itself
from a dull national incumbent into one of the world’s leading telecommunications operators
by a consequently executed internationalization strategy.
Rule 3: Minimize resistance and secure commitment early. Communicate extensively!
Another reason for many disappointments in company turnarounds lies in extreme
communication failures between the turnaround management and other stakeholders.
Managers and employees often wrongly fear that the transformation will impact them
negatively. Best practice shows that effective communication is based on repeating the
turnaround’s goal like a mantra, communicating quick wins and major milestones as well as
achieved objectives.
Rule 4: Don’t change horses in midstream – Stick to your decision.
Taking a directional decision is not easy. Once a decision has been made it is very important
for the leadership to stick to it! Visible wavering of the leading team’s resolution will ultimately
result in failure as the line organization will withdraw its support. The momentum needed for
the turnaround effort will diminish and eventually disappear to make room for destructive
fatalism or infighting.
A recent example of a North African operator impressively underlines the consequences of
repeatedly calling off a necessary turnaround. Growing infighting between the various
business units led to massive market share losses and to an EBITDA margin decrease of
almost 12% in two years. The success of turnaround management here relies on the fact
that its decisions are made tangible through the creation of a formal and visible turning point,
and by communicating progress consistently to keep up momentum.
Rule 5: Institutionalize change and secure implementation stamina.
A further major stumbling block in many turnarounds is the premature victory cry.
Management must keep its targets and key indicators firmly in view and must monitor their
development in order to ensure progress is being made as planned. In this context of
implementation, strict and comprehensive transformation monitoring ensures that all
transformation activities are on track and are being delivered and implemented according to
plan. Once the transformation has been completed successfully, it is time to communicate.
Detecon Executive Briefing
Detecon International GmbH 03/2010 5 www.detecon.com
Recommendations for getting started
Experience shows that following the few rules outlined above can lead to the success of a
telecom operator’s transformation effort. Although these rules are conceptually straight-
forward, it is not always easy to stay on top of things in the complex and heavy pressure
turnaround environment.
In addition it is essential
for the top management not only to set up a future-proof, comprehensive, and concerted
business excellence strategy, but that they then entrust it to a professional and
experienced team.
for turnaround executives to learn from the failures of other operators in order to avoid
common pitfalls. This will spare them costly mistakes and will dramatically increase their
chances of completing a positive turnaround.
that everyone is taken on board once a decision has been taken. It is vital to communi-
cate extensively to ensure continued support for the transformation journey, and
management should not be shy to communicate successes once these are certain.
The authors
Jochen Dinger
J [email protected]
Thomas Pittschieler
[email protected]
doc_280936286.pdf