Best Practices in Telecom Spend Management

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Aberdeen Group Success Strategies for Optimizing Telecom Utilization, Performance, and Expense Best Practices in Telecom Spend Management March 2005 Sponsored by Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " i Executive Summary Key Business Value Findings The economy may be improving, but global competition and rising energy prices are keeping companies focused on controlling costs and streamlining internal processes. Telecommunications is a large and poorly controlled expense for many companies.

With a proliferation of options and increased competition among device and service providers, enterprises are putting telecommunications budgets under tougher scrutiny. The challenge: few enterprises have a detailed understanding of how much they 9re spending on telecom equipment and services or with whom they are spending these dol- lars. The reason?

Telecommunications services purchase decisions are widely decentral- ized and poorly controlled at most companies. In fact, a June 2004 Aberdeen benchmark study of telecommunications spend practices of 115 enterprises uncovered the following: " 7% to 12% of telecom service charges are in error. For large enterprises, such er- rors are costing more than $8 million a year in lost profits.

" Up to 85% of a typical enterprise 9s telecom ... more. less.

bills are not audited and are simply paid in full. For bills that are validated, billing analysts most often examine just a subset of invoices associated with the largest spending. " There is a lack of insight into telecom spending. Forty-five percent of companies are actively managing <50% of overall telecom spending. To better understand the strategies required for total telecommunications cost manage- ment (TTCM) success, Aberdeen conducted a detailed examination of the most mature TTCM initiatives at more than 30 companies. Our research found that effective control of telecom assets, services, and operations requires enterprises to: " Reengineer telecommunications purchasing and controls " Enhance visibility into telecom spending and asset and service utilization " Improve accuracy of telecom service billing and rebate capture. Recommendations for Action This report examines best practices approaches enterprises are using to improve their to- tal telecommunications cost management initiatives. Aberdeen 9s Best Practices research project identified these eight strategies that enterprises with the most successful total telecom cost management programs have undertaken: 1. Take inventory of existing telecommunications assets and contractual commit- ments. 2. Consolidate service providers to improve contract terms, options, and service levels. 3. Develop or outsource billing validation and recovery capabilities. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. ii " Aberdeen Group 4. Employ spec and demand management procedures. 5. Centralize contract and vendor management, and leave it to specialists. 6. Strategically deploy third-party software and/or automated tools. 7. Re-source more frequently. 8. Extend real-time processes and integration to technology platform. These practices serve to aid other enterprises in building a business case for action to support their own improvement initiatives. This report examines these practices in more detail and profiles enterprises that demonstrate best practices in total telecommunications spend management. Table 1 lists in alphabetical order the enterprises demonstrating best practices in TTCM and the supporting solutions they used to achieve results. Table 1: Best Practices Winners and Their Solution Providers Enterprise Winners Solution Providers Used Agere Systems Rivermine Software BNSF Railway Vercuity, Inc. HCA MGB, Inc. Universal Data Solutions Large CPG Company Profit Enhancement Services Major Wall Street Investment Firm TnT Partners, LLC Tufts-NEMC Symphony Services Mohawk Industries Cass Information Systems Regions Financial Asentinel Large Retailer Invoice Insight Source: Aberdeen Group, March 2005 Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group Table of Contents Executive Summary..............................................................................................i Key Business Value Findings.......................................................................... i Recommendations for Action.......................................................................... i Chapter One: Issue at Hand.................................................................................1 What is TTCM?..............................................................................................2 Why Should You Embrace TTCM?................................................................3 Challenges to Effective TTCM.......................................................................5 Chapter Two: Key Business Value Findings.........................................................6 Validation.................................................................................................6 Optimization............................................................................................6 Outsourcing.............................................................................................7 Chapter Three: Implications & Analysis...............................................................8 Best-in-Class Firms Rely on Centralization, Outsourcing, Software..............8 Take inventory of existing telecommunications assets and contractual commitments......................................................9 Consolidate service providers to improve contract terms, options, and service levels. ..........................................10 Develop or outsource billing validation and recovery capabilities..........10 Employ spec and demand management procedures............................10 Centralize contract and vendor management, and leave it to specialists......................................................................10 Strategically deploy third-party software and/or automated tools.......... 11 Re-source more frequently.................................................................... 11 Extend real-time processes and integration to technology platform...... 11 Chapter Four : Recommendations for Action ......................................................12 Agere Systems Places Chips on Asset Management to Win With TTCM....13 All Aboard for TTCM Savings at BNSF........................................................16 HCA Employs Preventative Medicine for Telecom Cost Control..................19 Visibility and Control Are Benefits of TTCM for Leading Consumer Goods Company ....................................................................................................................22 Major Wall Street Investment Firm Reaps TTCM Dividends........................25 Business Challenge.....................................................................................25 Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group Table of Contents Telecom Strategy.........................................................................................25 Telecom Selection and Deployment.............................................................25 Results.........................................................................................................26 Lessons Learned.........................................................................................27 Future Outlook.............................................................................................27 Tufts-NEMC Prescribes BPO for Healthier Telecommunications Management ..............................................................28 Business Challenge.....................................................................................28 Telecom Strategy.........................................................................................28 Telecom Selection and Deployment.............................................................29 Results.........................................................................................................29 Lessons Learned.........................................................................................29 Future Outlook.............................................................................................30 Mohawk Industries Gets in on the Ground Floor With TTCM......................31 Regions Financial Takes TTCM Savings to the Bank ..................................34 Business Challenge.....................................................................................34 Telecom Strategy.........................................................................................34 Telecom Selection and Deployment.............................................................34 Results.........................................................................................................35 Lessons Learned.........................................................................................35 Future Outlook.............................................................................................35 Retailer Racks Up TTCM Savings in Style...................................................36 Business Challenge.....................................................................................36 Telecom Strategy.........................................................................................36 Telecom Selection and Deployment.............................................................37 Results.........................................................................................................37 Lessons Learned.........................................................................................37 Future Outlook.............................................................................................38 Featured Sponsors.............................................................................................39 Sponsor Directory ..............................................................................................42 Author Profile .....................................................................................................43 Appendix A: Research Methodology ..................................................................45 Appendix B: Related Aberdeen Research & Tools .............................................48 Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group Table of Contents About Aberdeen Group ......................................................................................49 Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group Figures Figure 1: TTCM Framework.................................................................................3 Tables Table 1: Best Practices Winners and Their Solution Providers............................. ii Table 2: Telecom Spending and Volumes by Company Size................................4 Table 3: Benefits of TTCM....................................................................................7 Table 4: Field Service Competitive Framework....................................................9 Table 5: PACE Framework.................................................................................46 Table 6: PACE and Competitive Framework Interaction.....................................47 Table 7: Competitive Framework........................................................................47 Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 1 Chapter One: Issue at Hand Key Takeaways " Telecom is one of the largest and poorly managed spend categories at most companies. " Effective TTCM requires a holistic process and systems approach to controlling telecom spending and utilization across the complete purchase and asset lifecycle. " Pressures to reduce costs and improve performance and increased complexities in tele- com equipment and service choices and market dynamics will make TTCM a major im- provement initiative for corporate executives. n r ass pro ommod esponse to increased pressures to reduce supply and operating costs and improve et utilization, leading companies are applying category spend management ap- aches to manage the total costs of a wide range of non-production ( cindirect d) c ities, including information technology (IT), contingent labor, printing, and maintenance services. Category management combines standard sourcing and compliance procedures with process automation and improved data management and spend ana- lytics to holistically manage the total cost of a good or ser- vice and its associated supplier relationships. Enterprises employing such holistic procedures have reported improved abilities to identify, negotiate, and maintain price and cost reductions for their target spend categories. More impor- tantly, category management provides a platform for con- tinuous improvements in supply costs and performance. Telecommunications is one spend area that is ripe for cate- gory management improvements. However, for many enter- prises, telecommunications spend management practices are wrought with process inefficiencies, ineffective oversight, and considerable savings leakage. In fact, most enterprises don't know how much they spend on telecom services, never mind how they can best manage those budgets. I Competitive Framework Key The Aberdeen Competitive Framework defines enter- prises as falling into one of the three following levels of practices and performance: Laggards (30%) 4practices that are significantly behind the average of the industry Industry norm (50%) 4 practices that represent the average or norm Best in class (20%) 4 practices that are the best currently being employed and significantly superior to the industry norm Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 2 " Aberdeen Group What is TTCM? PACE Key 4 For more detailed descrip- tion see Appendix A Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures 4 external forces that impact an organization 9s market position, competitive- ness, or business operations Actions 4 the strategic approaches that an organization takes in response to industry pressures Capabilities 4 the business process competencies required to execute corporate strategy Enablers 4 the key functionality of technology solutions re- quired to support the organiza- tion 9s enabling business prac- tices As the global economy moves toward a slow recovery, smart companies are looking at telecom as a large opportunity to cut costs. Because of these trends, total telecom cost management (TTCM) is an area of business process automation drawing increased atten- tion. TTCM yields value by eliminating un- necessary costs in enterprise telecommunica- tions processes, and reducing total costs through systematic, strategic sourcing. TTCM technologies reduce the unnecessary costs and inefficiencies that enterprises en- counter in the process of sourcing, monitor- ing, and paying for their telecommunications services. Solutions and services in this space help ensure that companies gain clear insight into telecom spending and asset utilization, leverage buying power and exploit market dynamics, and ensure contract compliance and billing and rebate accuracy. Aberdeen views a holistic approach to TTCM entailing five key process steps: 1. Monitor 3 which encompasses invoice processing, validation, and reconciliation and recovery. 2. Buy 3 which includes telecom cost disbursement and accounting. 3. Analyze 3 which includes repeatable and accurate telecom spending analysis and reporting. 4. Plan 3 which includes telecom asset and service inventory, vendor, and contract management, as well as user controls and management. 5. Source 3 which encompasses pricing and market benchmarks, vendor selection and negotiation, and ongoing procurement execution and compliance manage- ment. Figure 1 illustrates the TCM spectrum of tasks and the specific activities associated with each TTCM business process area, starting with the invoice reconciliation stage, which is the entry point for most companies 9 telecom cost management initiatives. Our TTCM framework enables companies to better plan telecommunications spend, source optimum contracts, ensure employees buy services against those contracts, moni- tor user and vendor compliance, and analyze overall spend for on-going supplier and network improvements. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 3 Figure 1: TTCM Framework Source: Aberdeen Group , March 2005 Why Should You Embrace TTCM? Telecom services are an easy target for improvement at most companies because these expenses are poorly understood and managed due to decentralized procurement and man- agement procedures, poor asset and usage tracking, limited sourcing category expertise, and insufficient automation and controls for telecom spend. These issues are further ex- acerbated by the rapid rate of both innovation and price depreciation of telecom products and services. As telecom usage grows, companies must understand these expenses, cut costs and ensure high-quality service to their employees. The following trends indicate the growing importance of total telecom cost management in the enterprise: " Continued pressure to cut costs and improve operational performance. Nearly two-thirds (65%) of the 115 companies Aberdeen Group surveyed said their companies 9 emphasis on telecom cost management had increased within the previous two years. At the same time, 26% said reining in telecommunications costs was a higher priority than other cost-cutting initiatives. " Telecommunications services purchases are widely decentralized and poorly controlled at most companies. Companies just cannot keep up with the volume of bills they receive, let alone manually perform detailed scrutiny for errors. (See Table 2.) Aberdeen research indicates that the typical enterprise fails to audit up to 85% of its telecom bills and simply pays them in full. For bills that are vali- dated, billing analysts most often examine only a subset of invoices linked to the largest spending. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 4 " Aberdeen Group " Increasing complexity in the telecommunications industry. The complexities of the telecommunications market 3 through bankruptcies, mergers-and- acquisition activity, and additions to service offerings -- require detailed insight into spend to adequately manage it on an ongoing basis. The telecom industry remains fraught with uncertainty; there are simply far too many providers and too little demand. As a result, telcos are doing everything possible to drive reve- nues and attract subscribers. In fact, some providers employ deceptive and ma- nipulative tactics to boost revenue streams. It is an industry that has ushered in its own vocabulary 4 slamming , splashing , and cramming (the practice of placing unauthorized, misleading, or deceptive charges on your phone bill, according to the FCC) 4 to drive profits at the expense of its customers. " The changing face of telephony . The character of enterprise communications technologies is rapidly changing. The most obvious is the wireless revolution, with penetration among U.S professionals topping 75%. In addition, underlying Table 2: Telecom Spending and Volumes by Company Size Company Size Fortune 500 Mid-market Annual Revenues >$3.2 billion $50 million to $500 million Avg. Annual Telecom Spend $116 million $26 million Invoices per year >15,000 About 3,000 Source: Aberdeen Group, March 2005 technologies, such as Voice over IP (VoIP) are forcing an architectural shift in the workplace. As a result, telecom costs are more difficult to capture and man- age with new traffic and usage patterns, fewer end-user controls, and a shift from measuring minutes to megabytes. Some of these new services may improve the enterprise's total telecom costs and can improve service quality. However, in a semi-regulated industry, some incumbent telcos are slow to keep their customers' best interests in mind. " Bills from telecom providers are rife with errors. Aberdeen research indicates that 7% to 12% of telecom service charges are in error, which can be a drain on profits. Why the high error rate? The bills are complex, largely a function of the tangled web of carrier billing systems. It 9s common for a large telco to rely on 10 to 15 unique billing systems and databases. Separate call centers are often staffed just to handle customer account inquiries. Inventory is a perpetual moving target and rate table updates are often neglected. With the carrier back office a mess, one is not surprised that telcos generate billing errors so often. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 5 Challenges to Effective TTCM To understand what may be keeping companies from realizing success in their telecom- munications cost management strategies, Aberdeen Group asked what key challenges they are facing in improving telecommunications cost management. " Limited access to timely and comprehensive telecom expense data (i.e., poor spend visibility). Most companies examined by Aberdeen cite accurate and timely visibility into telecom spending as their leading challenge. One problem is that most enterprises rely on vendors 9 paper-based system reports to gain insight into spending. This is the business equivalent of allowing the fox to guard the henhouse. Furthermore, in today 9s computer-intensive business environment, a paper approach just does not cut it anymore. Improved spend visibility drives cost reduction opportunities and enables cost savings goals through contract compliance and usage optimization. " Understanding what you 9re using and what you 9re paying for. Because of the complexity of the category, poor carrier billing systems, and limited controls at companies, telecommunications suffers from a lot of off-contract orders and charges. In addition to invoices for existing services often not complying with contracts, new orders are often not placed against existing suppliers and con- tracts; and new vendor selection suffers from a lack of spending analysis and in- sight. In addition, our research shows that less than half of companies typically do any proactive strategic sourcing of telecommunications by weighing service, cost and risk of eligible vendors. " Managing increased costs for mobile and remote employees. Nearly half of companies report higher support costs for mobile and remote employees as a growing challenge. At the same time, most companies are planning to enforce stronger policy communications, establish standards for remote access (PDAs, wireless, DSL), and seek alternative delivery strategies, such as Voice Over Internet Protocol (VOIP), well into this year. " Meeting employee expectations in service and efficiency. It is important to note that TTCM does not mean cost reductions above performance. In fact, more than three-quarters of enterprises interviewed by Aberdeen have made telecom service availability and quality improvements a key initiative for 2005. " Controlling the cost of telecommunications administration operations. En- terprises struggle with to improve telecom cost and performance management without increasing administration costs for managing such improvements. Out- dated manual sourcing, compliance, and payment processes coupled with frag- mented management infrastructures have made driving TTCM improvements with internal resources alone cost-prohibitive for most. In response, many enter- prises are adopting automation and outsourced services to accelerate and TTCM improvement initiatives 3 without increasing admin costs. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 6 " Aberdeen Group Chapter Two: Key Business Value Findings Key Takeaways " Telecom billing and invoice validation is a vital first step to controlling telecom costs. " Improved telecom spend visibility and billing accuracy can enable enterprises to opti- mize spending, asset utilization, and negotiation leverage and frequency. " Enterprises are accelerating and improving benefits of TTCM by outsourcing tasks to third-parties that can offer better domain expertise and infrastructure, and greater economies of scale. " Enterprises employing the above TTCM approaches have recognized dramatic im- provements in telecom costs, performance, and utilization. he implementation of TTCM strategies saves money, but enterprises must realize that TTCM benefits are more than receiving credits for billing errors. (Table 3 indicates the benefits enterprises have achieved through improved telecom spend management strategies, including use of TTCM automation and services.) Aberdeen's acronym for TTCM is intentional. We believe the opportunity for savings involves cap- turing all costs associated with processing telecommunications expense, as well as opti- mizing the spend itself. T With that in mind, Aberdeen identifies three areas within the lifecycle of the telecom ser- vice procurement process that can deliver savings: validation, optimization, and outsourc- ing. Validation The most obvious benefits are the monetary refunds and credits associated with billing error corrections caught through billing validation. An enterprise may find these savings during one-time, baseline audits or through ongoing, dynamic audits. Furthermore, an enterprise can save through both credits applied to immediate bills, as well as future costs that can be avoided. Examples of these savings include refunds on bill entry typos, cred- its for non-applied discounts, fraud control, duplicate payment avoidance, and refunds on taxes. Optimization Aberdeen research shows that, after realizing savings at the basic validation level, com- panies move to the next stage, optimization. Because TTCM solutions provide better en- terprise insight into telecom spending and usage information, companies can then apply that knowledge toward more efficient management of its users and suppliers. With TTCM, enterprises can realize strategic benefits by fine-tuning the management of ser- vices, vendors, technology, and pricing plans. Examples of these savings include: " Making better planning decisions with a solid understanding of total telecom us- age and spend " Leveraging peer benchmark information to improve contract terms Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 7 " Leveraging corporate buying power with vendors for improved pricing " Optimizing rate plans based on known usage patterns " Changing carriers based on better contract terms " Enabling user accountability through accounting and chargeback mechanisms. However, these optimization strategies come with their own price tag. Strategic sourcing requires more expensive expertise than simple validation activities and requires consider- able market intelligence. Outsourcing Aberdeen research shows that more enterprises are turning to outsourced service provid- ers to avoid the burden of maintaining these telecom experts internally. The internal op- eration costs of managing the billing process, the vendor relationships, and even the em- ployee users are mostly measured in head-count resources, which are expensive indirect costs. A TTCM outsourcing service offers an enterprise a third-party source to tap into these resources, which often provide a higher quality outcome on a lower cost model. Exam- ples of enterprise savings from outsourcing include: " Allowing companies to focus on core competencies " Relief from challenge of maintaining a competitive staff, methodology, and tools " Faster invoice processing time and refund cycles " Organizational flexibility for industry growth or downsizing. Table 3: Benefits of TTCM Area of Financial Impact Measurement of Improvement Overall Measurement of Improvement without Technology Measurement of Improvement with Technology Reduced average telecom service price 20.4% 18.8% 23.4% Reduced overall telecom budget 21.5% 18.6% 26.1% Average cost to proc- ess a telecommunica- tions invoice $30 $35.30 $15.00 Average time to proc- ess a telecommunica- tions invoice 10 days 12 days 6 days Source: Aberdeen Group, March 2005 Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 8 " Aberdeen Group Chapter Three: Implications & Analysis Key Takeaways " Best in class TTCM performers have centralized telecom spending and controls, and rely heavily on automation and outsourcing partners to holistically manage telecom costs and performance. " Aberdeen has identified eight key practices that are common among those enterprises getting the best return from their TTCM initiatives and investments. s shown in Table 4, survey respondents fell into one of three categories 3 Lag- gard, Industry Average, or Best in Class 4 based on their characteristics in four key categories: (1) process (standardization and efficiency of TTCM processes across the enterprise); (2) organization (alignment of TTCM purchase decisions across the enterprise; (3) knowledge (visibility and accuracy of telecom spending, utiliza- tion, and billing); and (4) technology (use and integration of TTCM automation and out- sourced services). A In each of these categories, survey results show that the firms exhibiting best-in-class field service characteristics also enjoy best-in-class customer service and financial per- formance (Table 2). To better understand the strategies that can make total telecom cost management an effi- cient, accurate, and repeatable process, Aberdeen conducted a detailed examination of the most mature TTCM initiatives at more than 30 companies. The common best practice strategies employed by the top performers included: Best-in-Class Firms Rely on Centralization, Outsourcing, Software Table 4 summarizes the differentiating attributes of best-in-class total telecom cost man- agement. Key defining attributes are: consolidation of procurement and vendor informa- tion into one repository, outsourcing, and the use of automated tools or third-party soft- ware to get a handle on costs. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 9 Table 4: Field Service Competitive Framework Industry Average Best in Class Process Custom telecom service plans are negotiated; regular validation and audits identify billing discrepancies. Service providers are changed to improve con- tract terms; expert validation is in place. Proc- essing and negotiation capabilities are devel- oped or outsourced. Organization Departments that are organized by division purchase telecom services. Professionals with experienced staff perform procurement; billing spe- cialists manage the invoice valida- tion process. Procurement of telecom services is enterprise- wide in scope and performed by specialists. Executive leaders acknowledge core compe- tency requirements; business relationships with platform providers are established. Knowledge Division level aggregation and pur- chasing policies provide access to volume discounts. Third-party software, automated tools, and/or outsourced services are strategically deployed. Technology An internally integrated ERP sys- tem is in place; telecom invoices are received electronically. Real-time processes and integration have been extended to platform vendors; a consolidated database houses telecom data. Performance metrics Between 30% and 70% of tele- communications cost is under man- agement. More than 70% of telecommunications cost is under management. Source: Aberdeen Group , June 2005 Aberdeen 9s Best Practice research project identified eight strategies common among en- terprises with the most successful total telecom cost management programs: Take inventory of existing telecommunications assets and contractual commitments. Because most companies have no real insight into their telecommunications spending and usage, this initial inventory can quickly identify opportunities for vendor consolidation, spending leverage, and improved asset utilization. Such an inventory can also help an enterprise prioritize its TTCM strategy and solution investment plans. For instance, Re- gions Financial, a $3.6 billion bank holding company in Birmingham, Ala., started its TTCM process with an extensive manual audit of its telecom equipment to create an ac- curate inventory. The result? Annual telecom spend savings of 5%. The initial inventory can also be used to identify areas of operational inefficiencies and non-compliant spending. This information can be used to build a fact-based business case to secure support and budget for TTCM resources and solutions. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 10 " Aberdeen Group Consolidate service providers to improve contract terms, options, and ser- vice levels. Are there areas in which service providers overlap? With the consolidation that has taken place in the industry over the last few years, most likely. But are all divisions or regions paying the same prices? Probably not. At one time, Major Retailer was managing 78 accounts in 42 states with one carrier. Since then, it has consolidated to a single account per state, saving $9 to $15 in labor costs per bill processed. Develop or outsource billing validation and recovery capabilities. The quickest way to reduce telecom costs is to pay the right price for services used. Due to the high recurrence of billing errors, enterprises can uncover a wealth of savings merely by auditing and validating telecom services invoices against actual usage levels. Enterprises have either developed or outsourced the billing validation, discrepancy reso- lution, and fee/rebate recovery activities to third-party service providers that have solu- tions and domain expertise in these areas. Major Wall Street Investment Firm saved $34 million in bill processing costs alone after it outsourced its voice and data telecom bill processing. Meanwhile, Regions Financial used software to yield a significant one-time savings of 10-12% off its estimated $68 mil- lion annual telcom budget by uncovering invoice inaccuracies and overcharges. Employ spec and demand management procedures. To transition to telecommunications cost management optimization, enterprises must employ specification and demand management policies to control telecom spending and usage. This includes limiting user choices on telecom equipment and services to only approved configurations and providers; using peer benchmark information to improve contract terms with service providers; leveraging corporate buying power with vendors for improved pricing; optimizing rate plans based on known usage patterns; pooling equipment and services purchases for maximum leverage; changing carriers based on better contract terms; and ensuring user accountability through accounting and charge- back mechanisms. One large food manufacturer outsourced its TCM and received expert help on issuing RFPs for long distance, WAN and wireless contracts. cWe collaborate on managing the vendor relationship, d says the company 9s IT director. Centralize contract and vendor management, and leave it to specialists. The most effective strategy impacting how well an enterprise executes its TTCM strategy is getting the most spend possible under management. Our survey found that enterprises with at least 70% of their telecommunications spend under management achieved bene- fits that far outpaced those with less spend under management. BNSF Railway, based in Fort Worth, Texas, saves $1 million a year in telecom expenses. Much of that is linked to greater visibility and control over spending since the company outsourced the TCM tasks. The outsourcer, Vercuity Inc., also helps BNSF with carrier Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 11 contract negotiations, where Vercuity 9s ability to accurately reflect BNSF 9s inventory, spending, and usage patterns provides significantly more negotiating leverage. Strategically deploy third-party software and/or automated tools. Investigate dedicated solutions for specific services if your firm has not invested in ge- neric spend management technologies or does not have the bandwidth (or interest) in tweaking or customizing applications. Aberdeen research shows that telecom cost man- agement solutions routinely provide a return on investment in the first year. One option is to use online sourcing (i.e., e-RFx and reverse auction) and online procurement tools where possible. Online sourcing tools streamline sourcing cycles and create highly com- petitive bidding markets. E-sourcing users have reported the ability to negotiate average cost savings of about 15%. Automating procurement streamlines operations and costs, and drives compliance and spend visibility. Mohawk Industries, a maker and distributor of flooring based in Calhoun, Ga., automated all its telecom invoice processing through an outsourcer, Cass Information Systems. This transformed a process that had been mired in paper into one that has become 100% pa- perless, and sends automated feeds to Mohawk 9s general ledger and accounts payable departments. As a result, carriers 9 invoices are much more accurate. Re-source more frequently. Due to poor spend and utilization visibility and labor-intensive and fragmented buying processes, most enterprises re-source telecom contracts infrequently. Best practice per- formers are leveraging e-sourcing tools, improved usage visibility, and enhanced market knowledge to increase the frequency and effectiveness of their telecom equipment and service sourcing events in order to exploit fluctuations in market pricing and supply. Major Wall Street Investment Firm saved more than $17 million through contract renego- tiation in 2000, the year it launched its TTCM program. And telecom vendors are so well aware of the company 9s focus on controlling its telecom spend that they pay extra atten- tion to the investment firm 9s needs. Extend real-time processes and integration to technology platform. Gaining more than 70% of spend under management is most effectively supported by a systematic technology platform to gather detailed usage, contract, and invoice informa- tion together for reconciliation and payment. In addition, telecom data should reside in a consolidated database. Aberdeen 9s research found that companies that leveraged technol- ogy to manage telecom costs realized average savings of 26.1%, whereas those compa- nies that did not reported only 18.6%. Aberdeen estimates that not leveraging technology to support telecom cost management is causing the typical large organization to leave $8.7 million on the table; for midsize companies, $1.95 million. Since it now has a consolidated view into telecomm costs, Mohawk Industries finds it ceasier to bill out new services d and get more competitive pricing as a result. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 12 " Aberdeen Group Chapter Four : Recommendations for Action Key Takeaways Aberdeen research of more than 30 spending analysis programs and system deployments has identified the following enterprises as demonstrating best practices TTCM: " Agere Systems " BNSF " HCA " A Large CPG Company " Major Wall Street Investment Firm " Tufts-NEMC " Mohawk Industries " Regions Financial " Large Retailer C ase studies of nine of these enterprises follow in this chapter. Remaining case studies will be published on an on-going series during the Spring with the final report complete by April 29, 2005. Please check www.aberdeen.com after that date. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 13 Agere Systems Places Chips on Asset Management to Win With TTCM Business Challenge When it comes to tracking and managing Telecom costs through a series of mergers and acquisitions, Agere Systems can attest to the fact that cbreaking up is hard to do. d Agere, a global leader in semiconductors for storage, wireless data, and public and private networks, was first created as a spin-off from Lucent 9s microelectronics division in 2000, itself a spin-off from AT&T during earlier de-regulation. The legacy Agere inherited was a hodgepodge of systems with no easy way to track down assets scattered across multiple divisions and various global locations, making it vir- tually impossible to get an accurate inven- tory of assets. Besides needing to get a bet- ter handle on clegacy d assets, Agere was still relying on the former parent for order- ing and provisioning new assets and found that the process lacked transparency, did not suit their business requirements, and was rife with errors. Clearly the offspring would have to establish independence from the parent by developing its own internal infrastructure and processes, the question was how to go about it. Telecom Strategy Initially, Agere sought to gain some meas- ure of control over Total Telecommunica- tions Cost Management, which initially amounted to almost $19 million per year, by outsourcing TTCM to a third-party pro- vider for a small fixed fee and a contingent fee for recovery of overcharges from the car- riers. They soon found that this solution did not address the underlying issue of insuffi- cient and inaccurate inventory visibility, according to Bill Trussell, Agere 9s Sr. Manager of Network Operations. cThe outsourcing provider was keeping a separate inventory which could not be synchronized with our own database, d said Trussell. Recognizing that they would still need to establish their own independent infrastructure, Agere devel- oped a set of requirements for an installed software solution after completing an exhaus- tive internal needs analysis in 2001. C A ompany Name gere Systems S Ri olution Provider vermine Software B E ac or in pr di usiness Challenge stablish systems and infrastructure to gain curate inventory visibility, streamline asset dering and provisioning, and automate voice audit, reconciliation and payment ocesses to gain control of telecom expen- tures initially totaling $19 million. Strategy Transitioned from non-integrated outsourc- ing approach to installed/hosted hybrid soft- ware solution tailored to Agere 9s unique business needs. Value Achieved Best Practices in Telecom Total Cost Management " Realized 10-12% telecomm cost savings " Cut support staff by 50% " Resolved carrier disputes within one bill- ing cycle instead of waiting a year or more to receive credits Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 14 " Aberdeen Group Telecom Selection and Deployment Agere chose to work with Rivermine Software because of their deep telecom industry background and because they were willing to tailor the solution and roll-out approach to meet Agere 9s needs. The strategy was to phase-in the roll-out by first addressing the fun- damental issue of inventory visibility. Agere initially licensed and implemented the Riv- ermine Inventory Engine during the first six months of the project. In the subsequent phase, Agere implemented Rivermine 9s ordering and provisioning tool and within one year, had automated ordering, tracking and logging of all telecomm orders. After cstabi- lizing d the billing process, Agere deployed Rivermine 9s Finance Manager module as an early adopter in 2004, to streamline the invoice audit, reconciliation and recovery proc- ess. While the other modules were licensed and installed con premise, d Agere opted to utilize the Finance Manager solution as a monthly service managed by Rivermine, al- though the software was installed on Agere-owned hardware and was directly connected to their database and the other modules. Results Originally created through a series of divestitures, Agere has continued to cmorph d through its own process of acquiring and divesting according to Trussell, who says the process is very demanding but having control over its inventory makes it much easier. cWe can tell the acquirer company what the billing is and make a clean transfer of as- sets. d For its own part, Agere has reduced its telecom costs, now closer to $7 million per year as a result of divestitures, on the order of 10-20% per annum because, cWe now catch the sum total of all billing errors and get them resolved more quickly. Disputes that once took a year or more to resolve with the vendors, are now corrected in the next bill- ing cycle. d Agere has recovered its up-front license purchase cmany times over d and sees similar ROI from its monthly service fees for the Finance Manager module. In addi- tion, process efficiencies have allowed Agere to reduce internal staff allocated to TTCM by about half, a recurring savings of $400-600K per year. Lessons Learned Agere Systems found that they needed to cown d their system and process. Their out- sourcing experience did not satisfy their needs because they were still not able to get a direct view into their inventory, a critical first step in the process according to Trussell. Moreover, cCarriers did not take the third-party outsourcing providers as seriously. d They also learned that while they needed their own system and process, they didn 9t nec- essarily need to cown d the software. In deploying the Finance Manager tool to automate invoice audit, reconciliation and processing, a tool which Trussell suggests new adopters start with cearly on, d they saw several benefits of the csoftware as a service d model. Not only did it lower their up-front costs, it also was implemented faster and helped drive user adoption. Trussell also conjectured that buyers may have more leverage in obtain- ing new enhancements when they are subscribers rather than having already purchased software. If starting over today, Trussell said he would lean toward the software as a ser- vice model. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 15 Future Outlook With much better visibility of its telecom assets and control over spending, Agere Sys- tems envisions doing more in-depth analysis of telecom usage and will focus more on allocating actual costs to departments through the internal charge back capability in the system, thus making costs more controllable by business managers. They will also con- tinue to utilize spending data to negotiate better agreements with carriers up-front. Aberdeen Conclusions True in all areas of category management, but none more so than TTCM, effective cost control must start with an accurate asset inventory and visibility to spending analysis. Whether deploying installed software, hosted or csoftware as a service, d or outsourced solutions, companies need to cown d the data around TTCM spending in order to gain control over a major expense category. Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 16 " Aberdeen Group All Aboard for TTCM Savings at BNSF Business Challenge BNSF Railway could have filled a boxcar with the paper phone bills they had to proc- ess each month. The cbill d arrived in about 20 boxes and four FTEs (full-time equiva- lents) were required to manually sift through and reconcile the charges that alto- gether amounted to about $24 million in spend for voice and private line circuits. The highly manual process afforded BNSF little ability to verify the accuracy of the charges, especially since they received a csummary d bill that made it hard to distin- guish when they were getting billed for dis- continued circuits or if the proper contrac- tual discounts had been applied by the car- riers. Telecom Strategy With leased circuit/ telephone telecom ex- penses accounting for approximately 12% of its total IT budget, BNSF needed to gain greater visibility and control over a major expense category. Although a large com- pany with revenues of $11 billion and 38,000 employees, BNSF decided to out- source the painstaking job of invoice proc- essing, audit, reconciliation and tracking of credits and discounts, to a third-party pro- vider. The decision to outsource Total Telecommunications Cost Management (TTCM) was driven by BNSF 9s desire to focus on core competencies. cWe 9d rather focus our internal staffing effort on people with rail- road industry domain expertise and partner with someone whose core business is TTCM d said John Hicks, BNSF 9s Director of Technology Services. C BN ompany Name SF Railway S Ve olution Provider rcuity B G co 12 usiness Challenge ain greater visibility and control over tele- m expenses accounting for approximately % of IT spend. S O M trategy utsource Total Telecommunications Cost anagement (TTCM) invoice processing, audit and reconciliation tasks while re- deploying internal staff to focus on more strategic activities. Value Achieved Best Practices in Telecom Total Cost Management Streamlined process yields $1M in annual, ongoing savings and allows BNSF to re- deploy 4 FTEs to higher-value tasks. Telecom Selection and Deployment After completing an RFP process to identify potential TTCM outsourcers, BNSF selected Vercuity based on the total value offered by their expertise, process, customer service and price. The implementation was launched in February 2001 and all invoice process- ing activities were transitioned to Vercuity cwithin 60 days. d Over the course of the rela- tionship, Vercuity has assumed responsibility for all wired and wireless processing ac- tivities and has automated the back-end payment through an EDI feed directly to Ac- counts Payable at BNSF. Vercuity also assists BNSF with carrier contract negotiations Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 17 on the front-end, where their ability to accurately reflect BNSF 9s inventory, spending, and usage patterns provides significantly more negotiating leverage than was available previously. Results By outsourcing telecom invoice audit and invoice processing management, BNSF has been able to re-deploy the four FTEs previously assigned the task, to higher value-added activities internally. The biggest benefit, according to Hicks, is that cwe now have much better data than ever before, d which provides greater visibility and control of the spend. Inaccuracies and inefficiencies that were not clear from the high-level summary paper invoices can be isolated through a focused ability to drill down to individual Billed Tele- phone Numbers (BTNs) to track and investigate any changes up or down at the most granular level each month. Visibility has enabled BNSF to find inaccuracies in billing such as voice mailboxes on individual circuits or unnecessary expenses such as wiring maintenance for remote circuits 3 feature charges that were set-up initially but which couldn 9t be tracked effectively for accuracy on an ongoing basis. Although Hicks says that a portion of the savings ctaper off over time, once the low hanging fruit has been picked, d more savings are captured every month as there are al- ways errors in carrier invoices, and the addition of new products/services adds more complexity 3 and more inaccuracies 3 to the invoices BNSF receives. On an ongoing basis, the outsourcing program and the BNSF network optimization effort yield over $1 million in annual savings. Lessons Learned Despite its size, BNSF could not justify the costs to institutionalize its own systems and personnel to manage the invoice audit and reconciliation process, when they could lever- age the domain expertise, systems and scale economies of an outside provider for whom TTCM is the core business. As a result, BNSF has more cbandwidth d to think about the future of its own bandwidth 3 planning for their network needs over a three- to-five year horizon. Hicks says he feels cgood about working with a partner who is so focused on this space and keeps us apprised of the latest developments in a very dynamic market. d Future Outlook BNSF has recently created a Bandwidth Management Organization, comprised of the people who order and lease circuits, to optimize not only external telecommunications infrastructure, but also an internal network of fiber-optic cable that runs along the rail- road 9s right-of-way. One of the goals of this team is to make sure they don 9t overlap ex- ternal coverage with BNSF 9s internal network. Vercuity participates in this effort as an extension of the team whose goal is to keep turning off external circuits, and keep saving money. BNSF will also be exploring new and better ways to control the corporate spend for mo- bile devices, especially with a strategic plan to synchronize rail operations through col- laborative management of a mobile workforce. Also, with expected mergers and acquisi- tions within the Common Carrier space complicating the landscape, BNSF will be rely- Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 18 " Aberdeen Group ing even more on accurate reporting and tight budget controls gained through their out- sourcing initiative. Aberdeen Conclusions Total Telecommunications Cost Management has always been a cdirty job, d 3 but some- body 9s got to do it. The question to ask yourself, is should you do it? With the availabil- ity of process outsourcing services whose core competence is scrubbing complex phone charges to find billing inaccuracies or inefficiencies and tenaciously pursuing carriers to resolve claims, the business case for outsourcing is compelling. Alternatively, imple- menting systems and allocating resources to tackle the job internally requires a long-term commitment, not just to handle the operational aspects of the job, but to internalize the domain expertise and market intelligence necessary to keep pace with an industry where new product introductions (wireless, Voice Over IP) and new business combinations from pending mergers and acquisitions will mean more, not less, complexity. Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 19 HCA Employs Preventative Medicine for Telecom Cost Control Business Challenge As an organization grows, its telecommuni- cations requirements and inventory of voice and data services become more complex and difficult to manage. For enterprises with multiple locations and fragmented telecommunications management practices, managing telecom inventory and control- ling monthly telecom spend become expo- nentially more difficult. This was the situation faced by HCA Inc., one of the nation 9s first hospital manage- ment companies. The Nashville, Tenn.- headquartered corporation controls a net- work of locally managed facilities, includ- ing 190 hospitals and 90 freestanding sur- gery centers in 23 U.S. states, England, and Switzerland. Although, HCA 9s telecom management team has always controlled the corpora- tion 9s data services through provisioning and contracting, each individual facility was able to contract for its own voice ser- vices. This autonomy made it difficult for HCA to gain accurate visibility into the voice services each hospital was using and limited HCA 9s overall buying power with carriers. It also led to high incidences of unconventional spending at many of the units, resulting in excessive or unapproved local transport calls, directory assistance calls, international calls, or carrier line charges. Fur- thermore, telecom spend at individual facilities was managed by operations staff that had little knowledge of national telecom services, or how to negotiate and manage such carri- ers if they did contract with one on their own. C H ompany Name CA Inc. S M olution Provider BG, Inc.; Universal Data Solutions B C di usiness Challenge ontrolling telecom assets and costs in a stributed and fragmented business. S Le go D trategy verage telecom spend and standard ne- tiation and management procedures. eploy systems to improve visibility, analysis, and control of telecom spending Value Achieved Best Practices in Telecom Total Cost Management Cut telecom costs by 19%. Improved spend visibility and invoicing accuracy. Telecom Selection and Deployment To improve visibility and control of telecom spending, HCA 9s assistant vice president for data and voice services, David Adams, turned to an electronic TTCM solution that could analyze HCA 9s telecom spending, audit usage billing and rate compliance and improve dispute reconciliation and rebate and overpay recovery. HCA 9s long distance carrier recommended that Adams contact MBG Inc., an ASP spe- cializing in ctelemanagement d solutions. In 2001, MBG launched a pilot program to im- Best Practices in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. 20 " Aberdeen Group plement its Invoice Presentation System, which allows users to examine corporate in- voices and drill down to identify and reconcile discrepancies. Information on spend for voice and data services from HCA 9s IXC carrier, AT&T, was loaded into the system for preliminary review. Two months later, once the pilot confirmed that MBG could consis- tently load the IXC 9s billing data with a level of detail that allowed HCA to analyze its spend, the HCA team decided to move forward on deployment. To deploy the system, MBG assisted HCA 9s telecom vendors to establish automated ex- traction and reporting routines to feed their invoices into its system via EDI, magnetic tape or text files, depending on the vendor. This data was classified into a structured da- tabase. The MBG solution provides an intuitive, Web-based reporting engine that allows HCA 9s telecom managers to examine online any invoice or service. Users can drill down into the charges to see fixed monthly, one-time and partial usage charges; view, validate and analyze invoice costs, discounts, taxes and costs-per-minute; and track contract terms. Users can also generate reports comparing previous to current month in all ex- pense categories, helping them find new, deleted and changed inventory items, including those not documented by the vendor. The bottom line: HCA reports improved identifica- tion of any telecom billing errors and improved recovery of overcharges. Once HCA 9s telecom team began to gain control over its data and voice IXC invoices, in 2003, it started looking for a tool to help manage the inventory, electronic provisioning and budgeting of data services. After doing an informal RFI, the company selected the Enterprise Circuit Information System (ECIS) from solution provider Universal Data So- lutions. ECIS offers an inventory and provisioning procurement tool that lets users place requisitions and track progress of order approval and execution. The solution also creates summaries of pending and completed orders. HCA selected ECIS because, in addition to offering required functions, cit provided a particularly robust budgeting and financial allocation module, d according to Brenda Adkisson, director of enterprise voice services for HCA. The system documents HCA 9s data services provisioning activity and recon- ciles it with billing inventory on a regular basis. In March, 2004, HCA further leveraged the use of ECIS and the MBG Invoice Presenta- tion, Inventory, and Charge back systems to begin a year-long inventory of the local ser- vice spend in all its U.S. facilities. These services accounted for nearly 40% of its total telecom spend. HCA audited its hospitals voice services to create an inventory of each location, ensuring that the most efficient services were being used. cWith the tools we 9re using now, we have the ability to audit by exception, and identify any facilities paying more than the contracted rates, d says Adkisson. Results HCA deployed the MBG Invoice Presentation system in 2001. In its first 12 months of using the system, HCA discovered $1 million in data networking billing errors. The Invoice Presentation system from MBG has been fully deployed on HCA 9s voice and data IXC billing since 2002. HCA 9s original goal was to reduce telecommunications costs by 20 to 30 percent and provide long-term management of telecommunications ex- penses for the entire organization. As of December, 2004, HCA had reduced telecommu- nications expenses by 19%. With the system in place for more than three years, cwe won 9t be finding $1 million in errors anymore, d says Adkisson. She notes HCA is now achieving savings through cost avoidance. cErrors used to sit out there for 6 to 12 Best Pracitces in TTCM All print and electronic rights are the property of Aberdeen Group © 2005. Aberdeen Group " 21 months, and when they were finally caught, we had to renegotiate a credit with the ven- dor, d she says. cNow we view the billing data the month we get it and we catch any er- rors immediately. d In March, 2005, 100% of the corporation 9s local exchange carrier (LEC) billing data be- came accessible through the Invoice Presentation system. The system is now deployed throughout HCA and handles approximately 75% of HCA 9s telecom spend.. The goal is to reach 90%, says Adkisson, noting that some vendors 9 billings are too small to justify the cost of putting their electronic invoices into the system. The inventory of HCA hospitals is scheduled for completion in March 2005. Once com- pleted, the sites will be able to better manage their telecom activities, time requires to assemble budgets will be reduced, and HCA will gain leverage in contract negotiations with local telecom vendors. Lessons Learned Analyzing invoices is a critical task, one that requires the proper resources. HCA saves 15 to 30 percent of its monthly telecom costs just by managing the telecommunications expenses for all its facilities, according to Adams. Determining what each facility was paying for similar services from different vendors required the expertise of a solution provider (MBG) that knew how to normalize the data from every carrier, so it could be presented in a manner consistent across every vendor. Substantially more savings opportunities will be realized once HCA is able to centrally manage the telecom services of its individual facilities. Future Outlook Having started with a billing tool for voice and data services, HCA now has as a goal a complete solution that includes inventory, provisioning, budgeting, and a more robust chargeback solution (for data and voice services). Once this system is fully deployed, HCA will have: " the ability to

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