customer e-enablement to drive lean...

CBL-262307206-20041012-20B110/19/2004 5:04 AM

CONFIDENTIAL

October 12, 2004

Customer E-Enablement to Drive Lean Operations

MCKINSEY & CO.

This report contains information that is confidential and proprietary to McKinsey & Company and is solely for the use of McKinsey & Company personnel. No part of it may be used, circulated, quoted, or reproduced for distribution outside McKinsey & Company. If you are not the intended recipient of this report, you are hereby notified that the use, circulation, quoting, or reproducing of this report is strictly prohibited and may be unlawful.

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E-ENABLING THE CONSUMER TELCO

•• The telecom industry is under pressure and needs a new The telecom industry is under pressure and needs a new business modelbusiness model

•• Other industries have more aggressively used automated Other industries have more aggressively used automated channels (Web and IVR) and endchannels (Web and IVR) and end--toto--end enablement to end enablement to transform their businessestransform their businesses

•• Telcos must overcome their traditional siloed view of the Telcos must overcome their traditional siloed view of the company and seek to redefine their customers interactions company and seek to redefine their customers interactions

•• Telcos should pursue 5 initiatives to accelerate the adoption Telcos should pursue 5 initiatives to accelerate the adoption of eof e--enablement and redefine their business modelenablement and redefine their business model

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•• The telecom industry is under pressure and needs a The telecom industry is under pressure and needs a new business modelnew business model



•• Telcos should pursue 5 initiatives to accelerate the adoption ofTelcos should pursue 5 initiatives to accelerate the adoption ofee--enablement and redefine their business modelenablement and redefine their business model

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FALLING REVENUES SQUEEZE CASH FLOW

Source: McKinsey analysis

0 2 12 26 42 57Percent cost reduction to maintain FY03 operating margin

DISGUISED ILEC

DiscontinuitiesDiscontinuities•• LD price collapseLD price collapse•• Cable broadbandCable broadband•• Cable VOIPCable VOIP•• Triple play Triple play

competitorscompetitors•• IXC bankruptcyIXC bankruptcy•• Business voice/data Business voice/data

price declineprice decline•• IP migrationIP migration•• Wireless broadband?Wireless broadband?

5,700 5,600 5,3004,800

4,3003,800

2003 2004 2005 2006 2007

Revenue$ Millions

2008

NC –(3,300)

NC + Capex (4,900)

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SOURCES OF VALUE FROM E-ENABLEMENT

• Facilitate selling through all channels– Decrease churn by leveraging multi-channel experience online– Reduce sales cost by capturing inbound online sales – Increase sales through outbound permission marketing

campaigns– Improve effectiveness of other channels by leveraging – online information– Avoid revenue loss by optimizing E-selling algorithm

EE--salessales

EE--enable enable the the consumer consumer telcotelco

• Decrease the cost to serve customers– Target the “right” customer calls to E-enable– Develop functional capabilities customers “require”– Create a migration program to move a cadre of customers

online– Use E-channel capabilities to increase customer satisfaction – Entice customers to use E-bill and E-payment to lower costs

SelfSelf--serviceservice

EE--leanlean• Execute end-to-end customer back design and apply e-lean

– Add IT overlay (workflow), to facilitate the exchange of information between groups, and to monitor the overall process

– Establish full re-usability of processes and components– Develop plug and play capability – proactively build network

and then provision in real-time

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E-ENABLEMENT CAN ADD REAL VALUE – COST FOCUSED EXAMPLE

Source: McKinsey telecom model

E-enabling a 10 million customer telco can be worth $300-$500 million annually

Impacted by E-enablement

Cash opex per subscriberDollars per year

74

48

55

24

24

15

20

260COGS

G&A

IT expense

Billing

Sales andmarketing

Care

Network costs

Value from E-enablement couldalternately be taken as revenue increase

Revenue uplift

Cost savings

Potential annual contribution Dollars per customer

Flow-through of order processing and order fulfillment

Based on making ~20% more orders flow-through

10-20

E-bill presentment and payment

Online/IVR customer service

Based on migrating ~30% calls to e-channel and ~30% of bills to e-bill

Total annual contribution

30-50

3-6

Online revenue and improved customer retention

Based on increasing revenue 1-2%

Based on migrating ~10% of sales online

2-43-6

15-20

27-44

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AIRLINE AND BANKING INDUSTRIES HAVE BEEN MORE SUCCESSFUL THAN TELCOM IN MIGRATING USERS ONLINE . . .

* Includes both airline websites and online travel servicesSource: Online banking report; Gartner; General Accounting Office

In 2002 only 6In 2002 only 6--9% of households paid their telecom bill 9% of households paid their telecom bill online vs. 28% of U.S. households using online banking online vs. 28% of U.S. households using online banking

and 30% of airline tickets being purchased online and 30% of airline tickets being purchased online

U.S. airline ticket bookings by channelPercent

6730

26

24

30

1999 2002

Online*

Travel agent

Airline call center

7

U.S. households using online bankingMillions

22 28 33 37

2001 2002 2003 2004E

Percent of HH

21 26 30 33

U.S. households paying their wireless bill onlineMillions

917

2002 2003

6 11

U.S. households paying their LD and local bill onlineMillions

2002 2003

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. . . THIS IS TRUE EVEN ON A RELATIVE BASIS

Source: US benchmarks; McKinsey

54

2

27

17

0Kiosk

Counter/ agent

IVR

WebCall center

Airline – example

Retail Banking – example

ATM

Branch

IVR

Web

Call center

16

18

31

6

29

Transactions (sales and services) by channelAttendedAutomated

Telco – example

10

743

15

25

OTM

Other

IVR

Web

In-bound Call center

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•• Telcos must overcome their traditional siloed view of the Telcos must overcome their traditional siloed view of the company and seek to redefine their customers company and seek to redefine their customers interactions interactions


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TELCO E-ENABLEMENT CHALLENGES

1. Wrong aspiration and vision – being too cost-centric

2. Fractured initiatives across multiple silos (BU and functions) leading to – Poor customer experience– Duplication and high cost– Inflexible environment

3. Difficult business case– Benefits and investments are in different organizations– Layering additional cost ($ and transactions)

4. Unable to aligning multiple channels – Poor E-sales performance vs. call center– Few incentives to achieve desired customer behavior

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1. BANKING INDUSTRY HAS RECONGNIZED MULTIPLE SOURCES OF VALUE CREATION

* 10-year NPV used to approximate lifetime value; conservative estimate includes only 1 year of incremental cross sell and balance increases

Source: McKinsey experience

Incremental customer value from migration*Dollars

Not online

Inactive online

Active online browser

Active online transactor

Active online bill-payer

Active online purchaser 1,100

800

600

300

100

0

Higher bank retention . . .

Annual attrition rate (percent)

567

91112

Active online bill-payerActive online transactorActive online browserInactive onlineNot online

Active online purchaser

. . . greater revenue due to higher balances and propensity to cross sell . . .

Incremental annual revenue (dollars)

7550

2510

50



. . . and lower cost to serve

Incremental annual transaction cost savings (dollars)

251515

500



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ONLINE BILL PAYERS ARE MORE PROFITABLE DUE TO THE CREATION OF A STRONGER CUSTOMER RELATIONSHIP BANKING EXAMPLE

Source: McKinsey Analysis

Profitability growth for online bill pay group vs. offline control groupPercent

3 3 3

5

2227

After 9 months

After 19 months

After 31 months

Retention increaseReduced cost-to-serve

Deepening relationship

1 1 1

1023

45

Change for online bill payers vs. control groups Percent increase

Loan balances Number of loans

8 9 11

2431

38

9 916

Deposit balances Deposit accounts

After 19 monthsAfter 31 months

After 9 months

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• Typically 5–6 different units involved, which represent most of telcos’ personnel

• Most of them with their own (and independent) systems

• No real ownership and control of process end-to-end

Organizational unit

% of total workers (FTEs)

Activity flow

2. CUSTOMER SERVICE PROCESSES ARE FRAGMENTED AND LABOR INTENSIVE

Functions/ organizational blocks

Sales and service

Network

Marketing/ Billing

Network engineering and management

Contact center/ sales front-office

Sales order processing

5

5

Network operations

Billing

Contact center/ customer care

20

40

2

Customer

Source: McKinsey

ORDER-TO-CASH EXAMPLE

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1.10

1.01

0.96

Costs per transaction have fallen . . .

Costs per transactionDollars

1985 1993 1998

. . . but number of transactions has increased

Number of transactions per householdNumber per year

75

128

167

1985 1993 1998

. . . resulting in higher costs to serve

Total cost to serve per householdDollars per year

83

136

160

1985 1993 1998

Source: McKinsey analysis

3. IF NOT MANAGED CAREFULLY, CAN BE SEEN AS A FAILURE

EARLY RETAIL BANKING EXAMPLE

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4. ALIGNING CHANNELS CAN BE CHALLENGING DISGUISED CLIENT EXAMPLE

New

Move

Optimized program to shift new and move orders to the E-channel

12,000

10,000 3.15

0.50

3.50

0.60

Call center Web

Products cross-sold per orderWeb orders

in period

New

Move 14,000

11,000 3.15

0.50

2.00

0.15

Call center Web

Products cross-sold per orderWeb orders

in period

Initial program to shift new and move ordersto the E-channel

Negative EBITDA Positive EBITDA

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•• Telcos should pursue 5 initiatives to accelerate the Telcos should pursue 5 initiatives to accelerate the adoption of eadoption of e--enablement and redefine their business enablement and redefine their business modelmodel

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ACCELERATING E-ENABLEMENT TRANSFORMATION OF CONSUMER TELCO

Traditional challenges

• Wrong aspiration and vision – being too costcentric

• Fractured initiatives across multiple silos(BU and functions) leading to – Poor customer experience– Duplication and high cost– Inflexible environment

• Difficult business case– Benefits and investments are in different

organizations– Layering additional cost ($ and transactions)

• Unable to aligning multiple channels – Poor E-sales performance vs. call center– Few incentives to achieve desired customer

behavior

Element of solutions

1. New governance model that cuts across silos

2. Rearchitect automated channels

3. Tight performance management of automated channels – e-selling algorithm

4. Multi-channel strategy

5. Apply end-to-end e-lean

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• Develop ability to rapidly deploy in/out-bound campaigns• Sharpen CRM capabilities--value management, experience

management, & information management

Capabilities

Structure/staff

• Obtain senior management mandate• Establish multi-functional leadership council• Design mix of dedicated and matrix roles• Create accountability to the top

Metrics • Define value created by E-enablement at an actionable level• Track customer satisfaction at an actionable level• Agree on metrics for tracking bottom-line value• Evolve from simple channel P&Ls to shadow P&L(s) based on

customer segments

Linking processes

• Develop multi-channel planning/budget process• Create clear interlinked targets across silos• Define and track customer experience for key segments• Establish independent performance verification process

1. ADDRESS FOUR MAIN ORGANIZATIONAL ISSUES

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19*See following pages.

Source: Websites of SBC, BellSouth, Verizon, BellCanada, Qwest, Sprint, and Alltel

Automatic (recurring) paymentDoes not allow for partial payment of current bill. (All surveyed)Manual (One-Time) PaymentDelayed posting from online entry, varying from 48 hours to 5 days (SBC, BellSouth, Verizon)Customers must take monthly action to pay bill and risk late payments. (All surveyed)

• Matrix of available online services is confusing; similar names (e-bill and e-payment), nuanced offerings, and combinability add to confusion. (SBC)*

• Payment options are highly restricted –limited to bank account debiting or third party e-bill payment only. (Verizon, BellCanada)

• Dialog boxes are not available on front page*:– Link to sign-in is

obscurely displayed. (Alltel)

• Accessing the sign-in dialog box requires multiple clicks. (Alltel)*

• The bill payment is not integrated across various products; customer must use separate portals for wireless and residential service, for example. (Verizon, Sprint)

Set-up billing methodSign-in

Customer steps to view and pay bills online

Register online Make payment

• Must establish a unique User ID; user cannot use their phone number. (All surveyed)

• Requires special pass code or PIN available only on paper bill. (Verizon, Sprint, Alltel)

• Delayed activation of online account, up to 35 days. (Alltel)

Key inhibitors customers experience

2. REARCHITECT THE AUTOMATED CHANNELS

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3. CREATE CLEAR PERFORMANCE MANAGEMENT

Is E-channel performing at best practice levels?

Service

Sales

• Measure customer perception of: – Coverage of service needs– Ease of use of online service experience– Speed of addressing service issues– Completeness/accuracy of progress tracking

• Measure cross-sell effectiveness during the service experience

Functionality

Relative effectiveness

• Compare relative cost of servicing a customer in the E-channel/call center• Agree and measure the displacement of calls by online service• Track relative customer satisfaction/retention by channel• Compare relative cross-sell effectiveness by channel

• Measure customer perception of: – Product description clarity, accuracy, and completeness– Ease of use of shopping cart/registration process– Reliability of purchase/registration process

• Capture sales metrics on product placement effectiveness

Functionality

• Capture information at each stage of the sales funnel: msg sent; msg received; msg opened; offer read; order opened; order started; customer qualified; and sales completed

• Capture conversion rates, customer sat., and economics at each stage

Sales funnel

• Record and analyze campaign sales funnels consistently • Track cost and benefits of each campaign• Consistently feed information back to improve the design process

Campaigns

• Capture comparative information for E-channel/call center channel• Create clear comparisons of revenue per contact• Track relative customer satisfaction/retention by channel• Clearly quantify selling cost by channel

Relative effectiveness

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21* Averages from McKinsey e-performance scorecard for transaction aggregators

Source: McKinsey e-performance research

LEVERAGE EXISTING TRAFFIC TO ONLINE SITE

Attract visitors Engage visitors Convert visitors Retain customers

Unique visitors per month Unit sales

Telecomconversion rate

Industry average conversion rate*

3.5%0.5-2.5%

Retained unit sales

Telecomretention

85%

Industry average percent of repeat customers*

33%

• Service visits• Information

visits• Purchase

visits

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ChannelsSegments Stores Phone Mail Online

High value A

High value B

Moderate value C

Low value D

20 30 10 40

40 30 10 20

70 10 10 10

80 10 10 0

Average: 53 20 10 18

From•Channel silo decision making•Bottom-up resource allocation based on channel usage and cost

Implied action• Continued investment in dominant store channel

From

To• Customer-driven cross-channel

decision making• Resource allocation based on

high value segments usage and preferences

Implied action• Invest in phone/web channels

for appropriate stages of shop/buy process

To

4. MULTI-CHANNEL STRATEGY CHANNELS SHOULD BE MANAGED AS A CUSTOMER-CENTRIC NETWORK

ILLUSTRATIVE

Channel usage map, percent

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Customer segment

Contact type/reasonNew connect (10% calls)

Transfer(5% calls)

Change order(20% calls)

Billing inquiry(50% calls)

Collection (15% calls)

Platinum

Gold

Bronze

40% rev. 15% rev. 30% rev. 15% rev. 0% rev.

Example 3Cross-selling to this segment during this interaction is generally NPV negative. Customers should be migrated, if can do it without disturbing gold and platinum segments

Example 2Cross-selling to this segment during this interaction is generally NPV positive. Customers should generally be supported by the call center and only very selectively migrated

Example 1Few customer cross-sell offers succeed. Majority of interactions can be migrated to e-channel, but cross-sell revenue is still too important to be lost. Web must be designed to at least replicate few successful offers, (e.g., line insurance for $3.95 per month is NPV positive cross-sell)

MIGRATE SELECTED CUSTOMER AND CONTACTS

Which cells have the highest potential value to migrate to the web?• By contact type?• Relative to alternatives?• Based on full system achievable economics?

Percentage of calls; percentage of up-sell/cross-sell revenue

WIRELINE TELCO EXAMPLE

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Levers typically used Description

E-enabled customers

• Customers commit to a program with only E-service

• Price discounts (e.g., 3 months free, lower fee plan)• Added functionality (e.g. next DSL speed tier, call

feature package)

COMPELLING MIGRATION STRATEGY

E-enabled products

• Products only available on-line must be ordered there

• Some product bundles only on-line• On-line only prices/promotions

Reward behavior

• Incentives to perform functions on-line

• Bonus miles every time you buy a product on-line• Free products for being a consistent E-bill payer

(e.g., TurboTax offers free MP3 download along with Tax software, in a targeted offer to Young Adults )

Discourage calls

• Charge for any manual service

• Charge fee for call center use of E-service function –typically done with several initial free warnings

• Reduce call center service hours

Sell E-service

• Incent call center reps to sell E-service products

• Incent reps for E-bill sign-up, or E-customer sign-up

Blanket marketing

• Broad marketing communication of E-sales and E-service

• Launch ad campaigns – print, TV, web• Push message through existing channels

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Average process lead timeIndexed (100 = before lean)

Service levels*

75

100

100

70

40

5-35

Before leanWith lean

5. E-LEAN INTRODUCES A QUANTUM LEAP IN THE CUSTOMER EXPERIENCE

* Based on recent experiences and estimates for different products** Excludes collection component

Source: McKinsey

ESTIMATE

E-lean levers

With E-lean

Sample end-to-end processes

Order-to-cash**

Problem-to-solution

"Right first time”Percent of cases requiring only one customer call

85

50

65

70

95

95• Elimination of dead times

in hand-offs• Real-time activation of

network elements

• Elimination of dead times in hand-offs• Real-time monitoring of networks/

products

• Elimination of reentry of information and significant decrease in number of errors

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E-LEAN IS DELIVERED BY FOUR KEY COMPONENTS

* Next-Generation NetworksSource: McKinsey

Workflow management

• Implement a workflow management system as an overlay on IT systems to facilitate the exchange of information between groups, and to monitor the overall process

22• Streamline information flow between customer service systems

• Evolve toward maximum re-usability of processes and IT platforms

Rearchitect customer service domain

11

ResourceManagementSystem

• Implement of fine-tuned, cross-domain supply and demand management procedures to speed up process flow 33 44

• Develop plug and play capability – proactively build network and then provision in real-time

Real-time access to network elements

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E-ENABLING THE CONSUMER TELCO – SUMMARY

• The telecom industry is under pressure and needs a new business model

• Other industries have more aggressively used automated channels (Web and IVR) and end-to-end enablement to transform their businesses

• Telcos must overcome their traditional siloed view of the company and seek to redefine their customers interactions

• Telcos should pursue 5 initiatives to accelerate the adoption of e-enablement and redefine their business model

customer e-enablement to drive lean...

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