麥肯錫－IT in Telecoms

Copyright 2004 Federico Germani (CH), Bernd Kraus (FT), Andr Krause (DU), Friedrich Neumeyer (FT), Stefan Schmitgen (FT), Juergen Stark (CH), Safroadu Yeboah-Amankwah (CH) CONFIDENTIAL Primer Document, Version 1.0 Chicago/Frankfurt, March 2004 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation； it is not a complete record of the discussion. ITelecom 213 CONTENTS Management summary Situation and demands on Telco IT Assessment of existing Telco IT environments Vision of a future Telco IT landscape Outsourcing of Telco IT How to get started Appendix 1: Detailed description of IT-supported functions Appendix 2: Glossary of terms 214 Network management Inventory management Decision support systems/ data warehousing Customer care & billing Service provisioning Network element management Back office applications Maintenance and workforce management Source: McKinsey IT SUPPORT OF TELCO BUSINESS PROCESSES Capacity and traffic planning Design of the physical network Management of the network installation Engineering Inventory management . Customer care and billing Network planning and installation Sales Network operation Service provisioning and delivery Manage/control correct functioning of the physical network Manage the load of network traffic Maintain network Manage interfaces to 3rd party networks . Manage/control sales force Manage sales channels Launch campaigns Manage accounts Manage customer contracts . Manage and control the order processes for telecommuni-cation services Activate/ terminate services for customers . Rate and bill telecommunication services according to price lists, contracts and 3rd party tariffs Rate and bill 3rd party Telco services Maintain customer relationship . Decision on business focus Investment planning Design of products and tariff schemes Design of market penetration approach Enterprise resource management HR management Finance Accounting . IT supports all parts of a Telco operators value chain Telco IT systems Back-office administration Strategy and marketing PROCESS VIEW 215 Back office applications Source: McKinsey OVERVIEW: FUNCTIONALITY OF TELCO IT Network management Inventory management Decision support systems/ data warehousing Customer care & billing Service provisioning Network element management Maintenance and workforce management Network configuration Surveillance of network traffic and performance Fault management Tariff and customer contract management Order handling Billing, invoicing, A/R Complaint management Configuration and surveillance of individual network elements such as switches, multi-plexers, routers, etc.) Inventory management of customer premises equipment network elements (e.g., switches, mutilplexers, etc.) For detailed description of systems and their functionality see Appendix 1 HR management Finance Enterprise resource management Management of maintenance and repair service activities for customer premises equipment, switch network and trunk network components Analysis of customer behavior, churn, etc. Customer segmentation Profitability analysis Service configuration and activation (e.g., selection of phone number, line or SIM card activation, etc.) Call collection 216 Source: McKinsey CHARACTERISTICS OF INCUMBENT TELCO IT SYSTEMS EXAMPLES Patchwork application architecture Heterogeneous architec-tural approaches across different BUs No layered system structures System and data redundancy Incomplete or unsatis-fying support of business processes Performance and reliability driven system operations Reliability driven system design at the expense of high cost Performance optimization on the level of single systems with reduced overall performance Legacy issues Historically grown architecture with-out clear concept Complex system interfaces (if any) Outdated technology Difficult, expensive system maintenance 217 Churn analysis Tariff planner Marketing and decision support Data warehouse/ Datamart Campaign management Profitability analysis Data mining Data clean-up A/R + Billing + Contract + Customer care Billing Cust. Billing Billing + Contract Billing + Contract Cust. Order entry Customer care A/R A/R A/R Customer care & billing Contr. Contr. Source: McKinsey ILLUSTRATION OF REAL TELCO IT ARCHITECTURE Back office applications Maintenance and work force mgmt. Inventory management Service management Customer is served at point-of- sale Contract is assembled based on standard template Service order is entered into the system Service is activated Example of sales and service provisioning: Access to redundant systems within one system domain Network operation Network element management Network management Access to a multitude of systems across different domains 218 FRAMEWORKS TO UNDERSTAND EXISTING IT SYSTEMS Source: McKinsey Which applications exist within the Telco? Issue Importance of understanding Frameworks and tools What kind of support do systems provide? How dynamic are systems? What is the technical diversity of systems? Failure to develop a comprehensive view of the applications and architecture results in an incorrect focus and limited effectiveness While technologists often understand the relationship between systems and technology, it is their relationship with the business that determines value and effectiveness The future viability of systems is often determined by their ability to meet changing business needs. Stable systems ideally are de-coupled from dynamic systems Costs for operation and maintenance of system platforms often could be significantly reduced by shared technologies Application inventory Application mapping Application dy-namics/stability assessment Technology infrastructure analysis 4 3 2 1 219 Source: McKinsey ORGANIZATIONAL DRIVERS OF TELCO IT With increasing age, more and more core functions are supported by outdated systems on numerous different hardware platforms Increasing company age causes complexity costs generated by scale effects, multitude of technology platforms, offered products and services, regulatory obligations, and complexity of historically grown patchwork Increasing size of Telcos slows down speed of decision-making process and flexibility to react to challenges Increasing size of Telcos requires fundamental change of their overall organizational structure with major impact on the IT landscape to maintain operational efficiency Organizational set-up determines split of responsibilities between central and decentral IT units and therefore influences consistency of IT design and granularity of systems (monolithic vs. decentral) Organizational set-up influences make or buy decisions Fragmentation of user demand and system ownership across organizational units determines the degree of stakeholder conflicts Since the IT structure is not aligned to the business processes, IT functions are accessed by a variety of users located all across the value chain Conflicting user expectations and unclear responsibilities in combination with scarce resources cause conflicts Organizational issues influencing Telco IT systems Organiza-tional age and market position of the Telco Organiza-tional set-up of Telco IT Process organization 220 ALIGNMENT OF IT WITH THE BUSINESS align Company objectives/ strategy Objectives/ strategy for IT architecture Not focus of this work align Business unit organization IT organization align align Source: McKinsey IT architecture Application landscape Technology platforms Organizational set-up of company Core process organization Governance model Key challenge: Align IT organization and strategy to companys strategic objectives and organization Targeted markets/ customer segments Targeted market position Product/ service scope etc. What is the right degree of organizational integration or decentralization of IT functions? Central vs. decentral application support Organizational split between network management and business operations functions What is the appropriate IT governance model? Budget responsibility Process for prioritization of requirements What is the best way to allocate the limited resources given the heterogeneous or contradicting system requirements of different user groups? How can 3rd parties like standard software providers or system integrators best be involved? 221 Source: McKinsey DESIGN CRITERIA FOR A VISIONARY ARCHITECTURE Alignment of business strategy and IT architecture to establish a more business-focused rather than technology-driven IT Consolidation of proliferated platforms and applications to re-duce complexity of tech-nology stacks (e.g., hardware, OS, middle-ware, applications, etc.) and achieve economies of scale and scope Flexible, process-oriented rather than functional integration of applications Strict layering between network management and business operations to encapsulate network complexity and free up business operations High performing IT architecture Functional co-verage aligned to new and emerging business needs Low operating cost Low cost of new development/ additional functionality 222 Source: McKinsey ARCHITECTURAL VISION: MAIN BLOCKS OF AN “IDEAL“ TELCO IT Event processor Order entry/ provisioning Workflow management Network element manager Network configuration and monitoring Front office Factory Billing Contract manage- ment Business partner administration Core business operations Support systems Management information systems Back office applications . Wireline network Shared services Network element manager Network configuration and monitoring IP network Product definition Contract manage- ment Product definition Core business Customer account management Maintenance management Business unit 1 Order entry/ provisioning Workflow management Customer account management Maintenance management Business unit n . . Inventory management Network element manager Network configuration and monitoring Wireless network Inventory management . Business partner administration Core business opera- tions Service provisioning Converter and router middleware (message broker, CDR gateway) Opportunity to replicate blocks within each layer: conscious decision between effectiveness and efficiency 223 TRADITIONAL MIGRATION METHODOLOGIES Source: McKinsey “ Patch and swap” approach “ Lifeboat” approach “ Isolate and replace” approach Standard software approach Use standard software to replace existing systems Use middleware to wrap legacy system and add new functionality in small steps Built up new systems from scratch and migrate in a big bang Undirected evolution in highly complicated application architecture tends to increase the chaos Opportunistically replace single systems Incorporates the tendency to start mega-project with a high likelihood of failure Over time increasing amount of functionality built into the middleware creates additional legacy Often available systems are inflexible to match dynamic business requirements and require huge amount of customization Risks/barriers Methodology/technique 224 Source: McKinsey PRINCIPLE OF A RISK-LIMITED MIGRATION APPROACH (Partial) Implemen-tation of architectural vision Radical, revolutionary changes as enabler for further evolutionary steps No IT mega-projects! Evolutionary development within the boundaries of the strategic vision Migration prerequisite: Define long-term IT vision Migration roadmap and implementation plan Right mix of evolutionary and revolutionary moves based on traditional techniques 225 Source: McKinsey RISK LIMITED APPROACH TOWARDS THE TARGET ARCHITECTURE Upfront definition of long-term strategy and IT vision Develop long-term strategic view of future business Develop view on future business system Develop best fit architectural vision of future IT infrastructure Develop long-term master plan for migration into new IT world Opportunistic but directed migration path (Partial) Implementation of architectural vision Evolution of business system and business environment Evolution of business system and business environment Implement new business requirements in small steps Each implementation step needs to be justified by business case (NPV analysis) Make revolutionary move that brings IT closer to architectural vision Move only if economical or structural factor forces you 226 DEVELOPMENT OF A MIGRATION ROADMAP Source: McKinsey Strategic vision Master plan Revolutionary move Revolutionary move Revolutionary change of IT infrastructure Evolutionary implementation of new business requirements Vision of future business system (Partial) Implementation of architectural vision Architectural vision Identification of business requirements Validation and prio-ritization of business require-ments Bundling of requirements into imple-mentation projects Development of technical implemen-tation alternatives Development of project portfolio (timing, resources) Implemen-tation Decision: Go/no go for specific alternative 227 KEY FACTORS OF SUCCESS FOR MIGRATION Source: McKinsey Reduction of business complexity In order to avoid over complexity in future applications reduce as far as possible the complexity of the business system (80:20) Filter out all business requirement that do not clearly foster a competitive advantage and create significant return on investment Quick implementation of basic architectural moves Identify architectural move that can be implemented with manageable risk and that create an maximum amount of freedom for evolutionary steps Especially introduce technologies like middleware that helps to reduce the handling of system interfaces Size of migration steps For each migration step chose a project size that is still manageable in the light of the available skills, experience, source quantity and technical complexity Under those constraint maximise the size of migration steps in order to avoid unnecessary efforts for interfacing legacy systems 228 CONTENTS Management summary Situation and demands on Telco IT Assessment of existing Telco IT environments IT architecture IT organization Vision of a future Telco IT landscape Outsourcing of Telco IT How to get started Appendix 1: Detailed description of IT-supported functions Appendix 2: Glossary of terms 229 Source: McKinsey HOW TO LOOK AT IT ARCHITECTURE - OVERVIEW Situation analysis: Characteristics and pitfalls of current incumbent Telco IT system architecture Drivers of current situation Tools for assessing a specific Telco IT system architecture 230 Source: McKinsey FRAMEWORKS TO UNDERSTAND EXISTING IT SYSTEMS Which applications exist within the Telco? Issue Importance of understanding Frameworks and tools What kind of support do systems provide? How dynamic are systems? What is the technical diversity of systems? Failure to develop a comprehensive view of the applications and architecture results in an incorrect focus and limited effectiveness While technologists often understand the relationship between systems and technology, it is their relationship with the business that determines value and effectiveness The future viability of systems is often determined by their ability to meet changing business needs. Stable systems ideally are de-coupled from dynamic systems Costs for operation and maintenance of system platforms often could be significantly reduced by shared technologies Application inventory Application mapping Application dy-namics/stability assessment Technology infrastructure analysis 4 3 2 1 231 Source: McKinsey APPLICATION INVENTORY 1 WFA/DI WFA/DO CRAS SAM LATIS EMAC CAS SGDS Wireless alert CODE 5 MTAS LMOS Clearview CMI (TASK- MATE) FDM/AT2 TNS/ SARTS OPS/INE NMA MTR Measure- ments DSF SOP TIRKS WFA/C NSDB ACIS Application portfolio/interface complexity causes inflexibility and high cost of support Example: Network OSS Application inventory = map showing each application (represented by a box) and interfaces to all other applications (re- presented by lines between boxes) 232 Source: McKinsey MAPPING OF APPLICATIONS Shows functional redundancies Displays diverging functional cuts Illustrates deficits in application connectivity on a corporate level 2 Application mapping Functional mapping Core process mapping Identifies processes with no or weak application support Looks for instances where multiple systems perform the same task, redun-dancies and unnecessary complexity may exist Identifies “standalone systems” (such systems often do not support re-quired cross-functional information flows) Analysis purpose Analysis procedure Gap Business process Assign applications to individual process steps of core business processes Assign individual applications to predefined functional buckets Analysis purpose Analysis procedure 233 Source: McKinsey FUNCTIONAL MAPPING: MAIN BUILDING BLOCKS OF A TYPICAL TELCO IT LANDSCAPE Network management Physical network Inventory management Decision support systems/ data warehousing Customer care and billing Service provisioning Network element management Back-office applications Maintenance and workforce management Diagnosis tool Real-life situation 2 234 Source: McKinsey FUNCTIONAL MAPPING: MAIN BUILDING BLOCKS OF A TYPICAL TELCO IT LANDSCAPE Network element management Order handling Billing/ invoicing/ A/R Customer care and billing Sales support Complaint manage- ment Traffic/ performance management Network configu- ration Physical network Fault manage- ment Network planning Network inventory management Service provisioning Service configu- ration Call collection Service planning Quality manage- ment Decision support systems/data warehousing HR manage- ment Accoun- ting Control- ling Material manage- ment Treasury Back office Customer premises equip. inventory management Maintenance and workforce management Detailed description of systems given in Appendix 1 Network operation Network element management 2 235 CORE PROCESS MAPPING: IT SYSTEMS ALONG THE TELCO VALUE CHAIN Order handling/ process. Billing/ invoicing/ A/R Sales support Complaint manage- ment Traffic/ performance mgmt. Network configuration Fault manage- ment Network planning Network inventory management Service configu- ration Call collection Service planning Quality manage- ment Decision support systems HR mgmt. Accounting Controlling Material mgmt. Treasury Fraud detection Customer inventory mgmt. Decision support systems Network element configuration Service planning Main- tenance mgmt. Main- tenance mgmt. Customer care and billing Network planning and installation Sales Network operation Service provisioning and delivery Back-office administration Strategy and marketing Source: McKinsey 2 Strategy + back-office activities/systems Core front-office activities/systems 236 Source: McKinsey IT SUPPORT IN THE VALUE CHAIN OF A TELCO OPERATOR (1/3) Customer care and billing Network planning and installation Sales Network operation Service provisioning and delivery Back office administration Strategy and marketing Customer care and billing Service provisioning Sales call scheduling Order handling Credit authorization Service order processing Dealer mgmt. Contract management/ customer record keeping Billing Call rating Invoice gene-ration/dispatch A/R collection Credit verification Complaint management Invoice inquiry handling Service malfunction complaint management Fraud detection Complaint management Craft dispatch Call collection Phone number allocation Quality manage-ment: Analysis of service malfunction data Directory services Quality management End-to-end circuit/line testing Network integrity controlling Service configuration Circuit planning Preparation of routing tables/ switch matrices Service/ product planning/ development Service/ usage planning/ development BACKUP 237 Source: McKinsey IT SUPPORT IN THE VALUE CHAIN OF A TELCO OPERATOR (2/3) Customer care and billing Network planning and installation Sales Network operation Service provisioning and delivery Back office administration Strategy and marketing Network management Network element management Fault/alarm condition mgmt. Identification of error source Alarm message correlation Preparation of emergency circuits Alarm clearance Trouble ticket-ing/craft dispatch Traffic/performance management Aggregation/ visualization of performance data Traffic data analysis Preparation of traffic- dependent network reconfiguration Craft dispatch Operator scheduling Network planning Message collection Alarm surveillance Performance data collection/reporting Device configuration (e.g., downloading of routing tables) Billing data generation Quality management: end-to-end circuit/line testing BACKUP 238 * Also relevant for “Strategy and marketing” Source: McKinsey IT SUPPORT IN THE VALUE CHAIN OF A TELCO OPERATOR (3/3) Customer care and billing Network planning and installation Sales Network operation Service provisioning and delivery Back office administration Strategy and marketing Decision support systems Inventory management Maintenance and workforce management Network infrastructure inventory management Customer premises inventory management Churn analysis/ identification of jeopardy customers* Service/product usage analysis* Customer segmentation* Customer/product profitability analysis* Prospect identification of new products* Tariff planning Product inventory management (i.e., product classes, categories, lines) Supplier management Network infrastructure inventory management Network fault management Service technician and craft dispatch Spare part management Operator scheduling Customer premises equipment fault management Service technician and craft dispatch BACKUP 239 Source: McKinsey APPLICATION FLEXIBILITY/STABILITY ASSESSMENT 3 Category Description Dynamics/stability assessment Systems that are related to business area that are subject to quick and constant change (e.g., market structures, organization) Systems that require a high degree of flexibility to keep pace with organisational change (e.g., front-end systems) Flexible systems Dynamic systems Systems that are related to the more stable business infrastructure (e.g., craft dispatch or claims payment systems) Systems that support business transactions requiring a high level of technical quality and reliability (e.g., call rating engine) Best practice is to separate dynamic and stable systems to avoid unwanted side-effects on stable systems when dynamic systems are frequently change. Vice versa the changing of dynamic systems should not be slowed down by the need to also touch stable systems Overlaps (e.g., “Billing” in displayed example) are potential hazards since changes required in the dynamic components may cause instability in mission critical stable systems Order entry Tariff planning . A/R Fraud detect. . Billing (incl. tariff definition call rating, invoice dispatch Dynamic Stable 240 Source: McKinsey TECHNOLOGY INFRASTRUCTURE ANALYSIS 4 A/R MQ Series Sybase TCP/IP UNIX SUN Billing Crossworlds Oracle TCP/IP Windows NT Tandem Call collection DB2/2 DECNET Open VMS DEC VAX Sybase Intel Server IPX Windows NT MQ Series Order entry . . . . . . Common underlying system platform/OS Common middleware Common underlying hardware/ technical infrastructure Common network A/R Billing Contract mgmt. Call collection Order entry Common database platform Contract mgmt. MS Access IPX Windows NT IBM 486 PC Crossworlds Application Middleware Database Network Operating system Hardware Share the development of common business services to reduce the amount of unique application programming required in order to streamline development of new applications Introduce strict layering in the technology stack to avoid interdependencies and unwanted side-effects when changing parts of the infrastructure Current reality: Multiple stacks of technology Application Middleware Database Network Operating system Hardware Future vision: Layered architecture with common technology standards Deter- mine number of different tech- nologies per stack 241 Source: McKinsey LAYERS OF TECHNOLOGY 4 Protects business investments Hardware (PCs, servers, mainframes, networks, peripherals) Operating systems (Desktop, mid-tier, mainframe, transaction monitors) Network (File sharing, terminal access, DB access) Database (Relational, hierarchical, object oriented, data warehouse) Middleware Services (Security, logging, data access, event management) Office Automation / Workflow (Groupware, word processing, spreadsheets, graphics) Leverages technology Applications (Financial, operational, analytical) Applications are the programs that support the business and processes. The Office Automation Suite / Workflow is a set of integrated programs that are designed to enhance personal productivity and the flow of work in the business The Middleware Services provide a common set of services and interfaces between the applications and the rest of the technology The Database manages and provides access to the data The Network is the hardware and software that connect the computers and allow for the transfer of information Operating Systems are programs that control the most basic resources of the hardware Hardware is the computers and workstations that run the business applications 242 Source: McKinsey Number of different technologies per stack TECHNOLOGY STACK SUMMARY 10201015151050Impact on the organization: Increased complexity of systems Staff required for each component Development teams must integrate with each component Increased cost to the organization: Cost of increased staff Cost of increased integration requirements Cost of products Lost opportunity for volume discounts Applications Office automation/ workflow Middleware services Databases Network protocols Operating systems Hardware platforms 4 243 CONTENTS Management summary Situation and demands on Telco IT Assessment of existing Telco IT environments IT architecture IT organization Vision of a future Telco IT landscape Outsourcing of Telco IT How to get started Appendix 1: Detailed description of IT-supported functions Appendix 2: Glossary of terms 244 CHAPTER SUMMARY In addition to external industry trends Telco IT systems are influenced by internal organizational issues. Three types of organizational issues driving Telco IT can be identified: Organizational age/market position of a Telco, the formal organizational set-up and the organization of core business processes. The organizational age and market position shape the IT focus of Telcos: While attackers have to quickly implement large amount of basic functionality on greenfield without being affected by legacy, incumbents have to overcome limitations of existing legacy systems in order to cope with (external) market trends. The formal organizational set-up of the company drives the issue of the right degree of integration of the application landscape: The organizational paradigm of incumbent Telcos is changing from a purely functional towards a disaggregated business unit organization. In this context the possible set-up of IT departments covers the whole spectrum between fully centralized and completely decentralized. The organizational set-up of the IT department imposes design criteria for the application landscape: Economies of scale can be gained from a shared use of systems, whereas a maximum tailored, flexible support of the individual business units with a conscious acceptance of data and system redundancy can be deduced from separate applications for each business unit. Source: McKinsey 245 CHAPTER SUMMARY (cont.) The core business processes are hindered by gaps between conflicting and quickly changing user expectations and available IT resources. Altogether, the various organizational drivers cause three types of degenerated functional coverage: Functionality not covered Logically related functionality covered by one “mega” system Logically related functionality spread over various separate systems All these types of degenerated functional coverage have huge negative impact on the business performance. Source: McKinsey 246 Source: McKinsey ORGANIZATIONAL DRIVERS OF TELCO IT With increasing age, more and more core functions are supported by outdated systems on numerous different hardware platforms Increasing company age causes complexity costs generated by scale effects, multitude of technology platforms, offered products and services, regulatory obligations, and complexity of historically grown patchwork Increasing size of Telcos slows down speed of decision-making process and flexibility to react to challenges Increasing size of Telcos requires fundamental change of their overall organizational structure with major impact on the IT landscape to maintain operational efficiency Organizational set-up determines split of responsibilities between central and decentral IT units and therefore influences consistency of IT design and granularity of systems (monolithic vs. decentral) Organizational set-up influences make or buy decisions Fragmentation of user demand and system ownership across organizational units determines the degree of stakeholder conflicts Since the IT structure is not aligned to the business processes, IT functions are accessed by a variety of users located all across the value chain Conflicting user expectations and unclear responsibilities in combination with scarce resources cause conflicts Organizational issues influencing Telco IT systems Organiza-tional age and market position of the Telco Organiza-tional set-up of Telco IT Process organization 247 Source: McKinsey IMPACT OF ORGANIZATIONAL AGE ON SYSTEM COMPLEXITY Influence on IT systems: IT systems have to support regulatory requirements in the most cost-efficient way IT systems must support pethora of network connections and 3rd party connections High market penetration causes need to support Large scale IT operations Large scope of IT systems IT support has to exploit benefits of new regulatory obligations of incumbents IT support is focused on a limited number of products and services, system integration is limited Attackers have to quickly implement large amount of basic functionality on greenfield without being affected by legacy Incumbents have to over-come limitations of existing legacy systems in order to cope with market trends Market position Organizational age Greenfield attacker Incumbent ex monopolist Weak Strong Reseller CLEC Mobile full service provider Attacking na-tional full-ser-vice provider (e.g., Telfort) RBOC Incumbent national full service provider High system complexity, many legacies Low system complexity 248 Source: McKinsey ORGANIZATIONAL CHANGE OF INCUMBENT TELCOS Multi- media Inter- national Direc- tories Treasury mgmt. R&D Sate- lites Value- added networks IT Public phones Call centers Other subsidiar. Corporate headquarter Legal counseling IT and organization Purchasing, logistics and real estate HR Corporate finance Strategic planning Controlling and auditing Corporate relations Residential clients Network Wholesale Corporate clients From To Network planning Top mgmt Reg. HR Tax Billing Fleet Cleaning/ security Payables HR Training HR Selection HR Admin. IP Dispatch center Leased lines ADSL/ XDSL ATM Satellite Remote monitoring Provisioning center Wholesale routes Product managemt. Local access planning city A Preventive maintenance crew Customer premise crew city A Trans- mission crew route AB Switch technology center type 1 Switch repair city A Engineering Construction STR Business development Planning Pre-sales support applic. 1 Product mgmt. applic. 1 Market mgmt. Segment A Customer service segment A Market mgmt. Segment B Sales segment B Teleshops chain Tele- marketing Customer service segment B Payphones Paging Smartcards Directories Multimedia applic. 3 International venture A International venture B Multimedia applic. 2 Multimedia applic. 1 Partial externa-lization Fully externalized Internal disaggre-gation Lines of business Shared service units Retail units Infrastructure Salesforce segment A Wholesale access Real estate Receivables ISP Leg. Purchasing Policy IT develop- ment Distribution IT main- tenance Fin For details see also “Perspectives on the next organi- zational paradigm for incumbent Telcos” (Francis Deprez et al., Worldwide Telecom Conference, Toronto, June 1998) 249 Source: McKinsey EFFECTS OF ALTERNATIVE TELCO ORGANIZATIONS ON DESIGN OF APPLICATION ARCHITECTURE ILLUSTRATIVE Business unit organization Incumbent functional organi-zation Top mgmt. Sales Network Provisio- ning IT Customer care and billing Service provisioning Network management Design decision Pitfalls Benefit from maximum integration of systems across technologies, products, and customers Risk of failure Inflexibility Cost of complexity Maximum satisfaction of indivi-dual business requirements Optimized flexibility and speed of implementation System integration difficult Redundancy of systems Cost of double development Right degree of integration ? Organi-zation Appli-cation archi-tecture Network element mgmt. Net mgmt. 1 App. App. App. App. App. App. App. App. Net mgmt. 2 Network element mgmt. IT IT IT IT Corporate center BU 1 BU 2 BU 3 BU 4 250 Source: McKinsey Corporate center IT Sales Custo- mer care/ billing Network mgmt. Case 1: Incumbent functional organization with one central IT department Case 2: Business unit organization with one central IT department General provider of IT services to all organizational units Network infrastructure/ technology often managed by IT personnel of a central infrastructure department General provider of IT services to all businesses Heterogeneous technological network platforms are ma-naged by specialized personnel associated to decentralized infrastructure departments Corporate center IT BU 4 BU 1 BU 5 BU 2 BU 3 IT (OSS) IT IT IT Network mgmt. Provisioning Back office ALTERNATIVE ORGANIZATIONAL LOCATION OF IT DEPARTMENT Role of IT department Organiza-tional structure 251 Source: McKinsey Case 4: BU organization with one central IT function and IT functions within each BU (mix of case 2 and 3) Role of IT department Overarching IT department as system integrator and as infrastructure provider with coordinating role Decentral IT departments for specialized system develop-ment and maintenance Corporate center BU 4 BU 1 BU 5 BU 2 BU 3 IT IT IT IT IT IT IT IT Network managemt. Organiza-tional structure ALTERNATIVE ORGANIZATIONAL LOCATION OF IT DEPARTMENT (cont.) Case 3: Business unit organization with fully decentralized IT functions Decentral IT departments responsible for all aspects of IT supporting the business of the corresponding BU Heterogeneous technological network platforms managed by decentralized infrastructure departments Corporate center BU 4 BU 1 BU 5 BU 2 BU 3 IT IT IT IT IT IT IT IT Network managemt. IT 252 Source: McKinsey QUESTIONS ORIGINATING FROM ORGANIZATIONAL CHANGE Top mgmt. Sales Network Provisio- ning IT From. .To IT IT IT IT Corporate center BU 1 BU 2 BU 3 BU 4 Where is the right split between network management and business operations applications? Should the IT department be managed as cost or as profit center? Which applications should be used/supported centrally, which decentrally (e.g., one central billing system or individual billing systems for every BU)? Which IT functions should be outsourced, which should remain within the organization ? Degree of (de-)centralization: Should there be one IT department or many? 253 Source: McKinsey EFFECTS OF ALTERNATIVE ORGANIZATIONAL LOCATION OF IT DEPARTMENT ON APPLICATION ARCHITECTURE Case 1 Case 2 Emerging conflicts/ problems Effects on IT landscape Tendency to start mega projects to create systems that serve everybodys needs but fail Resource conflicts Lack of business/user focus Lack of accountability (place to hide) Monolithic systems Wild add-ons to systems by organizational units IT back-log Same problems as in case 1 Since IT department has to take into account the interests of all functional responsibles in all business units, the number of individual interests to be satis-fied increases exponentially Same as in case 1 Low user satisfaction Organi-zational structure Corporate center IT Sales Custo- mer care/ billing Network mgmt. Corporate center IT BU 4 BU 1 BU 5 BU 2 BU 3 IT (OSS) IT IT IT Network mgmt. Provisioning Back office 254 Source: McKinsey EFFECTS OF ALTERNATIVE ORGANIZATIONAL LOCATION OF IT DEPARTMENT ON APPLICATION ARCHITECTURE (cont.) Emerging conflicts/ problems Effects on IT landscape Organi-zational structure Redundant systems and databases Complicated system integration Inconsistent design approach Redundant system development Interface problems Lack of access Corporate center BU 4 BU 1 BU 5 BU 2 BU 3 IT IT IT IT IT IT IT IT Network managemt. Corporate center BU 4 BU 1 BU 5 BU 2 BU 3 IT IT IT IT IT IT IT IT Network managemt. IT Case 3 Case 4 Same problems as in case 2 and 3 Unclear IT leadership responsibilities Overlapping competences of central and decentral IT units Communication conflicts Insufficient requirement prioritization Complicated system integration Low user satisfaction 255 DRIVERS FOR IT DEGENERATION High IT intensity of all steps of the value chain create a multitude of (contradicting) requirements from all process owners Market dynamics, technological change, and changes in the legal environment create quickly and asynchronously changing IT needs Despite individualistic user expectations, many requirements on underlying systems are highly interrelated across the value chain Criteria for requirement prioritization differ depending on the responsibility of users in the value chain. Often superior decision criteria are missing Limited availability of skilled resources and budget Limited ability to manage complexity, size, and risk Technical constraints and limitations (e.g., performance, complexity, etc.) Lack of business knowledge Inappropriate governance structure for IT functions (e.g., lack of power, lack of control, etc.) Conflicting user expectations: Limitations of IT resources: Source: McKinsey Gap between user expectations and available IT resources 256 Source: McKinsey ORGANIZATIONAL CAUSES FOR IT PROBLEMS Scarce resources/ prioritization conflicts Lack of overarching concept for application landscape Legacy Joint functionality used by different organizational units in the value chain Attempt to “over” integrate ostensibly similar functionality Split/unclear responsibility for IT strategy Functionality not covered Logically related functionality covered by one “mega” system Logically related functionality spread over various separate systems Insufficient support of business requirements Process flow through IT system interrupted “ Misuse” of systems for purposes they were not designed for Inflexible, suboptimal “mega” systems leaving users unsatisfied with five needs Diverging interests of different user groups in respect to future system development Redundant functionality Increasing interface and handover complexity Diverging functional cuts Increasingly complex system landscape High maintenance costs Issue Effects Impact on covered IT functionality 257 Source: McKinsey ASSESSMENT OF AN IT ORGANIZATION align Company objectives/ strategy Objectives/ strategy for IT architecture align Business unit organization IT organization shapes shapes