STEM newsletter

Integrated service planning and network economics

31 July 2008

In a complex service-provider business, service planning typically involves different tools and processes in different departments, each with its own focus and operational imperatives which may diverge from the priorities of a coordinated planning process.  Revenue opportunities may slip through a web of non-meshed plans.

Spreadsheet models are often developed on an ad-hoc basis, and may only consider a single service or technology. Interaction with colleagues then requires extensive explanation of the detailed cell-wise logic created by the original modeller. In contrast, STEM’s visual medium and common business-modelling language is widely accepted and can facilitate a joined-up planning process which properly informs the business of the strategic impact of new service offerings.

STEM brings together disciplines across the enterprise

An incumbent operator’s planning process for new services typically constitutes a long chain of discussion and analysis between numerous distinct team functions across several different departments, as illustrated below. New business plans arise from separate models of market opportunity, network costs and service profitability.

Service planning process

The revenue potential of new services are compared with the cost of rolling out the required network infrastructure. This economic analysis is of central importance for the operator’s overall business development strategy. However, inter-departmental interaction is quite focused around separate model interfaces, so structural revisions to a service definition may take many months to iterate through this process.

From initial assessment of the business case through to detailed profitability analysis, STEM is a highly effective medium for visualising the service and network structure, and for creating an end-to-end model (market/customer/service/network/support) which can evaluate the financial performance of a given service structure and associated growth assumptions. By providing a common language for network economics, STEM facilitates a much better common understanding of cost dynamics, faster iteration through service profile refinements and more agile response to market opportunity.

Department Topic
Marketing Demand forecast
Churn and substitution effects
Service tariffs
Product Package composition
Service revenues
Network Technical solution
Network design
Roll-out and operating costs
Finance Overhead costs
Service profitability

Business modelling topics by department

As an example of this process in action, one incumbent operator used STEM to analyse an IP satellite offering for consumers and businesses in rural areas. As soon as the market opportunity was identified and the initial technical proposal was floated, an outline model was quickly created to capture the costs of the principal network elements and evaluate the business case according to the proposed tariffs and likely service uptake. This activity created a picture of the proposed business structure which could be understood by all interested departments and enabled a rapid financial analysis of various options for the transponders and terminals.

Based on the initial positive findings, the service description was further developed towards final, market-facing product packaging, the STEM model being refined at all steps to calculate forecast payback and service profitability, to influence the final go/no-go decision. In this case the conclusion was positive and the service is now operating successfully.

Helping the organisation work together

A conventional STEM licence authorises use of the software just on a user’s desktop. A premium distributable STEM (D-STEM) licence option grants the right to distribute working ‘run-time’ models to third parties. Such a run-time model has a fixed structure and may be run on an unlimited basis with varying input assumptions. This D-STEM concept addresses a growing demand for model deliverables, and allows marketing, pricing and technical teams to run their own sensitivities through a common business model.

An alternative approach to this distribution of software is to provide Web-browser access to models, avoiding the need for end-users to install or learn new software. A link in an email can click directly to a customised presentation of key input parameters (‘levers’) and any combination of dynamically-updated results in a single Web screen, based on ‘eSTEM’ component technology. This approach can be exploited as an internal distribution mechanism (via the company’s intranet), as well as a platform for equipment vendors’ Web-based marketing via the Internet.

Enterprise STEM configuration based on eSTEM component technology

Eliminating road blocks in the feedback process may enable a response now rather than the next time someone perceives that they have time. Increased group participation will lead to more comprehensive, suitably informed refinement of product definitions.

These D-STEM and eSTEM technologies enable a joined-up process with wider awareness of business model structure and underlying assumptions. The immediate peer and management review of input sensitivities and business model dynamics will increase buy-in to the modelling process, greater confidence in its results and subsequent acceptance of its conclusions.

The planner’s dilemma

With the reduced headcount and hectic schedules of today’s cost-conscious operators, it is hard to gain organisation-wide attention for the kind of initiative outlined above. A type of planner’s dilemma exists: the benefits that could come from a coordinated strategy are rarely achieved because it has always been easier to build isolated, bespoke models in small teams, than to risk the initiative being de-railed by unmatched effort or commitment from other departments.

However, with the right executive stewardship, there is a real opportunity to get internal departments working together on a common economic vision for the company, an approach that is patently better for overall performance and rewards than each department working just to optimise its own scorecard. STEM offers a framework which can be understood and accepted by all those involved in the planning process.

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