Telecom Expense Management: Developing a TEM Strategy

Late last year, a new client called me for assistance in identifying a large TEM (Telecom Expense Management) solution. He elaborately described his vision, which went something like this: "We need software that will automatically identify every type of error on each phone bill. I want it to match up against our list of circuits and services and reject any and all discrepancies. It needs to track all third party charges, any variation in monthly rates and all deviations from contract rates for both recurring service charges and usage. It needs to automatically create error disputes, communicate these disputes to predefined telephone company contacts, then generate automatic escalation memos if the issue is not resolved after 30 days. It needs to..."

The rest is kind of a blur, but I remember it was even more elaborate! This level of expectation is not as rare as you might think. Five years ago, most C-level folks were skeptical about TEM services. TEM was perceived as a new spin on utility audits. Now there is this overoptimistic expectation that TEM software and solutions, still a niche industry in its early years, has become a cure-all for the IT department’s budget crisis. The level of artificial intelligence expected from a TEM solution would surpass the most sophisticated automated business processes on the market today.

In reality, TEM is suddenly hot, primarily because most enterprises are currently so focused on cost savings. This is where a lot of the hype comes from. With enterprises cutting staff while trying to audit and consolidate services, a TEM solution seller is tempted to present their product as a telecom-spend fix all, requiring no client hours (or expertise) and doing everything better, cheaper and faster. Add to the mix analysts and consultants that are rightfully excited about the potential of these new solutions, and it leads to misguided expectations and disappointing project implementations.

Missed Expectations
Over the last couple of years I have participated in several TEM conferences. Two years ago, during a break, I heard a lot of stories from enterprise customers about failed TEM implementation attempts; many were already shopping for a new solution provider. Last year, a few of these stories became presentations with stories of second and even third attempts to implement a solution that met the customer’s requirements.

Don't get me wrong; despite all of these challenges, enterprises really are saving money with TEM systems and processes. Recently I made reference calls for multiple TEM vendors and the responses I encountered illustrate the paradoxical state of the TEM industry right now. As expected there was negative feedback about delays and missed expectations, but there was one encouraging consistency: in every case (regardless of the vendor) the client was saving real money since implementing the solution.

So what is going on? Is TEM a good idea yet or not? More importantly, how can your business be one of the success stories without risking your reputation (or your career) with a disappointing implementation?

Defining TEM
A good place to start is by being very clear about what is meant by a TEM solution. Personally I find it ironic that in the early VoIP/convergence days (long ago in about 2001), everyone avoided the term "telecom" like a plague. It was considered such an archaic term, and consequently it was extremely rare to find a reference to "Telecom Expense Management." Now every solution associated with telecom spend latches on to the term and claims they have been "doing TEM" since 1985 (all the while with a disclaimer that "TEM" is a misnomer and understatement for all the things their product really does). No wonder we are all so confused!

So, subject to the criticism of a few vendors that do not fit into my definition, TEM is a solution that tracks telecom (voice and data) assets and their related expenses. Currently there are three main delivery options for a TEM solution; Business Process Outsourcing, SaaS/Hosted Solutions, and Licensed software products managed on customer hardware.

Business Process Outsourcing (BPO) companies will manage the entire process of ordering services and auditing expenses. Many BPOs now offer enhanced visibility into telecom spend via online reporting and ordering tools where in the past a BPO could only offer scheduled batch reporting.

Software as a Service (SaaS) and hosted solutions offer customers a web-based TEM tool to manage all or part of the telecom lifecycle process. The software itself is not owned or managed by the customer. Some SaaS services interface with external HR and A/P systems and also directly accept and process electronic invoice data from carriers.

Many of the same features available from a SaaS solution can also be purchased via a licensed software product. This solution may require more capital upfront, but in some cases may be a better fit due to the integration and security requirements of a customer’s enterprise.

Regarding the vision of TEM that was described at the start of this article, the closest a customer can expect to get to that level of automation would require a BPO solution, probably with the BPO using their own TEM platform. Without human intervention, there is no software platform that has the level of intuitiveness required to capture every potential telecom related error. Unless you have a single type of spend from only one carrier, someone will need to fulfill the role of Telecom Analyst, either within your organization or as part of a BPO service.

With BPOs, the monthly cost is obviously higher than a customer managed process. This does not mean that for the customer there is no internal resource requirement even if the BPO is doing all of your auditing and even service orders. Resources are still required at a minimum to manage the relationship with the BPO, and to familiarize the BPO with the enterprise’s specific idiosyncrasies. In a worst case example, one financial analyst working at a health insurance company stated, "We need as many people to manage our managed services as we used to have to manage the phone bills."

Not So Artificial Intelligence
Also, an interesting trend has developed in the BPO space. BPOs have developed their own bill management platforms and given clients more visibility into the inner workings of their own telecom inventory and spend. This is good, but BPO providers sometimes represent many of their manual back-office processes as automated software functionality--human intelligence disguised as artificial intelligence. What do they gain by doing this? If a prospective customer perceives that the error tracking and dispute management is software functionality, they are less likely to scrutinize the staffing level and skill sets of the personnel performing this role.

Since many of the major TEM providers offer both SaaS and BPO models, this potentially adds to the confusion in evaluating a customer-managed SaaS offer. I recently read a proposal that described an extremely comprehensive software platform, with a level of functionality that met all the expectations of a near-perfect solution. Embedded in the proposal was a statement that it was “assumed that the client would be using our managed services offering”. Factoring in that assumption left a lot of open questions. What is the software going to do, and what will we have to do ourselves if we don’t want your managed services?

SaaS Advantages
If an enterprise is going to commit to most of the analytical work internally, there is a choice between SaaS and an on premise solution. Traditionally, the justification for an SaaS solution has been easier for smaller enterprises that lack the development and support staff to accommodate multiple customer managed server applications. However, with a few exceptions, the TEM application vendors have positioned their products to provide value at $10 million and higher annual enterprise telecom spending. Obviously this spend level is found in a larger enterprise with a larger CAPEX budget, but does this mean that the customer must be the one to own and support the application? For TEM applications there are other factors that might still make a hosted solution more attractive.

One previously mentioned factor is that the products have not reached maturity (which to be fair could be said about many other enterprise apps moving to a web-based client interface). Many TEM solutions are migrating to AJAX based platforms, integrating a recently acquired third party product or simply improving their Telco carrier electronic interfaces. An enterprise that does not want to be stuck with a "work in progress" may mitigate risk by choosing a SaaS platform.

Another previously mentioned factor is that these "works in progress" are saving customers real money right now. An enterprise wanting to reduce costs might want to consider their TEM platform as a three or four year cost reduction strategy rather than a permanent component of their enterprise architecture. Potentially, this could be a throwaway solution that saves money right now. If a hosted solution can mean a faster implementation and can lead to a year one ROI, this may be a good reason to choose SaaS delivery.

It is important to note that while SaaS solutions may require less internal technical or application support from the customer, this can still be a significant factor both during implementation and with ongoing back-end processes. There is a good chance that a TEM platform user will need to develop interfaces into some sort of accounts payable system for both payment instructions and remittance updates. There may also be a requirement to integrate personnel information for the purpose of reconciling certain types of telecom expenses. These processes will require enterprise application support to test and develop the interface and to manage the recurring update process. Large changes to customer's assets, a carrier change or relocation for example, may require batch updates to the telecom database. Since the SaaS platform exists outside the enterprise domain, data security requirements from company policies to specific firewall settings will also need to be addressed. The bottom line is that a technical resource within the customer enterprise will still own a significant part of the process.

Impact to the Enterprise
When you choose a TEM solution, you are selecting more than a software platform or outsource strategy. Think about it: Whether it is a BPO or a platform, your entire telecom asset inventory and all of your invoicing will be redirected to the vendor or solution. Unless you continue to receive and review paper invoices in parallel with the electronic data, all of your visibility to potential saving and refunds is committed to the TEM solution.

I have heard so many TEM vendor complaints about responding to RFPs with so few resulting contracts, but considering what is at stake some kind of an RFP is a no-brainer. Actually, to identify the best solution, an RFP or even an RFI should not be the first step. There is a lot of work to be done prior to soliciting information and bids from TEM vendors.

Mapping out a TEM Strategy
It is important to understand your objectives in implementing a TEM solution. Start by cataloging what you are doing and what you are paying for right now. This includes your current TEM workflow, the skill sets and resources within your enterprise and types of services you use.

To be looking at your normal telecom bill processing, are you rubber stamping the invoices without a second look? Are invoices being paid on time, or are you paying excessive late charges? Perhaps you are reviewing invoices thoroughly, but the process is labor intensive and involves many staff hours. It is important to determine if you are trying to find savings opportunities using TEM as a tool for knowledgeable telecom analysts, or automate the process in lieu of (or replacing) staff members.

I find it useful to create a diagram of the TEM lifecycle (Contracts, Ordering, Inventory, Invoices) and detail the current process at an enterprise. This makes it easy to indentify gaps in the process and to determine the support staffing involved in a planned TEM solution.

Internal Resources
Next, take an honest assessment of your organization’s skill sets and resources. Put simply: Do you have the time and knowledge to completely manage a TEM solution or is some level of BPO assistance going to be necessary? First, you’ll need subject matter experts (SMEs) who can indentify Telco errors and seek refunds. It is worth repeating that automation of invoice exceptions is not artificial intelligence. Someone must be able to properly interpret the exceptions and take appropriate actions. Deploying a system to be managed by administrative staff that has no telecom experience, and foregoing any assistance from your TEM solution provider, is an ineffective TEM strategy.

Second, there is a less obvious requirement for a self-managed solution’s application administration requirements. Even if it is a hosted solution, there is management of integration into enterprise accounting systems, customized and ad-hoc reporting, batch updates using SQL queries and access permission management--all are separate duties from analyzing and processing invoices. Even if your telecom invoice folks have proficiency in these areas, do they have the time?

When reviewing the workflow and resources, be sure to include the steps that happen after the invoice leaves the IT department, including organizational data that is required to validate charges. For example, you may need personnel data for individual charges such as conference accounts or wireless services. Today’s Excel spreadsheets may be an application interface with your new TEM solution. Understanding Accounts Payable requirements is essential; not just the technical specifications required for interfacing with a company A/P system, but also the payment data required by A/P's business process. Don't let yourself be surprised by some quirky general ledger requirements that a TEM provider does not normally support.

Add these back-end support roles as adjuncts on your TEM life cycle diagram, and you will have a complete picture of what will be required to support a TEM solution. This will help you to determine what the TEM vendor will provide and what responsibilities your enterprise will keep.

Service Types and Their Savings Opportunities
Looking at workflow and resources will primarily help you to determine the best type of solution--BPO, hosted or internally managed. Reviewing the types of services that represent your telecom spending will help you to evaluate specific TEM solutions. Even if there were one perfect product that was the better than any other at "all things TEM," this would still be a necessary part of determining the goals of your TEM strategy and targeting cost savings.

There are savings opportunities and common errors that are specific to certain types of telecom services. There are also limitations on the electronic billing formats that are available for each type of service. Here is an example of how you might put together a list of your telecom services, where errors might occur (and the consequent savings opportunities) and the resulting solution requirements:

Calling cards/conference services/wireless services: Not all telecom services stay in one place. Individually assigned services such as air cards or conference accounts are as dynamic as the employee churn in an organization. Large organizations have a difficult time keeping up on inventory changes and consequently end up paying for services that are no longer used. TEM solutions can mitigate this issue by linking service information to regularly provided HR data. When an employee is terminated or changes departments, the information about their services is updated automatically.

WAN services: MPLS services have added a layer of complexity to WAN billing because there are now not just access and port charges, but also cost complexities associated with variable SLAs. It is easier to lose track of logical charges associated with physical ports. This can result in overspending for unnecessary services. This along with the fact that a single missed disconnect can result in thousands of dollars in overpayments make inventory management the most important factor in preventing WAN service errors.

Local Telco services: ILEC invoicing is still heavily regulated by state utility commissions, and also may be subject to various fees for innumerable municipalities. This makes it the most complex type of billing around. However, since there are a finite number of Universal Service Order Codes (USOCs) with a predictable (although often changing) monthly cost, local Telco services require a solution (application or BPO) that is telecom savvy. Local Telco is also where unauthorized long-distance (slamming) and third party charges (cramming) appear.

Discounted IXC services: With deregulation, interexchange carriers have chosen different ways to structure the same cost under a customer contract. Some contracts will have a charge that is, say, $180 as agreed upon in a contract. Another carrier will take the same type of service, assign a higher charge to it, and then discount it as much as 90% (resulting in a comparable charge). If you're using a carrier that relies on heavy discounts, the error margin for any variation in the discount is much higher than if the service is charged a flat rate. In other words, if 2% of your services are not receiving the discount, there is much more risk if the discount is 90% than if the discount is 20% of a less expensive service. In this scenario, the TEM solution requires a tight relationship between contract information and the billing data.

There are too many specific examples to list here, which proves the point that with such a large variation in types of services and how they are supported in an enterprise, there is no such thing as a boilerplate RFP or boilerplate TEM solution. Earlier, I mentioned that TEM solution providers are frustrated by the number of RFPs, along with the number of projects that never occur. An enterprise can protect themselves from picking the wrong solution by understanding their TEM strategy in advance. The RFP that is generated from carefully defined requirements will result in better quality proposals. For those solution providers, this level of preliminary effort should be taken seriously. The result will be a contract that is more likely to be signed, expectations that are possible to be met and a solution that is a good fit for both parties.

Robert Lee Harris is president of Communications Advantage, Inc., a telecommunications consulting firm. He specializes in strategic technology acquisition and implementation. He is a member of the Society of Telecommunications Consultants and can be reached at 800-765-9497 or www.communicationsadvantage.com.