Posted: May 25th, 2022
Information Technology to Transform a Company
Before going into the factors that are holding back Teltron from growth, it is worthwhile to have a brief introduction in the realm of Telecom Expense Management –TEM on which this Case Study is based. Spiraling growth in telecom services, features, and vendors along with the deregulation in the telecom industry have made contract documents complicated, pricing programs, processes and billing. This apart, financial constrains have resulted in customer service getting compromised, lack of accuracy in billing, and reporting from telecom service providers. In this backdrop, inaccuracies as also opportunities for optimizing services happen frequently. Presently, font ranking companies are adopting TEM solutions as best practices. Major opportunities are in store to lower costs, enhance service levels and allay risks. The general benefits of TEM include (i) lowering invoice processing and payment costs (ii) make late fees a thing of the past, supplicate payments and excess payments (iii) locate unauthorized, pointless, and unused services (iv) assure contract compliance and recovery of errors in billing (v) achieve control, visibility and responsibility on all expenses (vi) strike and maintain precise telecom inventory (vii) optimize asset and usage utilization (viii) control buying power and bargain for the best rates (ix) raise the capacity of staff and realign to strategic goals. (Cass Information Systems Inc., 2007)
1. What factors are holding Teletron back from growth? Where are Teletrona’s growth opportunities?
Tim Lybrook’s role as the consultant to the resort industry was reviewing the cost structure of his clients spotted gross inaccuracies in their telephone bills which went up to 30%. Tim found that the factors responsible for the errors are complexity of bills, organizational size, service diversity levels and most importantly errors on the part of service providers. Teletron started targeting customers in the U.S. between $10,000 & $5, 00,000 monthly on telecom services. In the initial stages, Teltron was performing exceedingly well finding out inaccuracies in bills, compiling the savings thereof and invoicing the customers accordingly for the fee. However, the major factor which was holding Teletron back from growth was that the company was unable to garner repeat business from the same client which is very important for profitability. In an effort the workforce tried to solicit a longer-term relationship with the client, auditing their bills regularly, but the clients were not keen to accept this extra service. (DeHayes, 2003)
Majority of the client relationship with the company endured within 6 months to a year and the company was required to hunt for new client regularly which made a dent in its profitability. It was at this juncture that Teletron had doubts if the company could continue to grow under the present business model. There was a 90% customer shake up, needing costly customer acquisition process. When the carriers rectified the mistakes, majority of Teletron customers had a feeling that they no more required the services of the company. Besides, several other companies engaged the services of other persons to locate billing errors in order to keep the entire savings instead of sharing the savings with Teletron. Apart from that, Tim discovered that the entire process of auditing was time consuming one. The growth opportunities of the company lay in its ability to interpret telecom bills, locate errors, make a comparison of the contracts and tariffs with the present invoices and deal with telecom providers. Tim regarded this proficiency to be made applicable equally well to the local, long distance, wireless, Internet and data markets also. (DeHayes, 2003)
2. Evaluate the Virtual Analyzer software vs. The needs heard in the market.
Broadly Teletron’s Virtual Analyser has six major modules matching with the market requirements. These are Client Information Mgt., Move, Add & Change (MAC) processing, Vendor Invoice Processing & Vendor Invoice Payment; Invoice Analyser, Rate Optimizer and Industry Information Mgt. As against this, the exacting needs of the market are (i) customers require better access to provider plans and contracts and they do not have enough knowledge regarding the products they are buying. They use a lot of provider plans or contracts each different in their own way. (ii) Customers require assistance in vendor invoice processing and payment and they require collecting all the bills for analysis in the first stage. A lot of customers need an interface for the company’s account payable system. (iii) Customer needs a central contact point for making changes and providing attention of the daily duties to make data up-to-date such as move, add of change in the most cost effective manner. Customers will be happy if the change were subsequently updated in the total inventory list of telecom services. (DeHayes, 2003) iv) Customers need data on expense management which is Teletron’s bread and butter. Skill is required to completely analyze the data leading to realization of savings in costs. Some companies engage the services of other people to undertake the auditing or use Teletron’s services. (v) Inventory Mgt: Almost all the customers have huge problems in tracking the equipment and features deployed in every part of their telecom environment. They are required to have information on every telecom services used at each site. These services consist of the features, the service provider extending the service, the accounts which the service provider charges for the service, and the devices made use of for providing the service. (vi) Finally customers have a real need for some sort of analytical potential. Some of the reports which they need are usage studies, service assessment and recommendations, market comparisons with other companies to determine whether they are getting a good rate, vendor analysis to find out if they are having the ideal vendors, and also risk assessment. (DeHayes, 2003)
Concurrently, it is also important for companies to give exposure to Telecom Expense Management Training which will equip the workforce in control of telecom expenses of their companies. Through analysis of long distance bill with contract one can learn more than cost per minute. Learning auditing frame relay bills, comparing them to contracts, learning the components of frame and the manner in which these costs must be billed, analyze data and check for accuracy levels. Besides auditing Internet invoices and basic wireless bills to recover savings and maintenance contracts and review of fundamental problem solving techniques will also help in the long-term. (Auditel Inc., 2003)
It is a fact that wireless voice communications averaging $75 per use monthly in U.S. companies and up to twice than that for data services such as wireless e-mail and Internet access. A lot of these companies are turning to these packages to assist them to put a check on their telecom costs, according to VP, Forrester Research. Capital One, Best Buy and Ikon Office Solutions are some of the few business that apply telecom expense management software to look after their wireless program, in the opinion of software vendors and media coverage. For example, the result of an audit found that Sodexho — the catering and facilities management giant had nearly 500 idle or sparingly used telephones and no official policy for procurement and managing wireless devices. (Bennett, 2006)
3. What additional information would be useful to Tim in order to make a final decision?
Comprehending all the aspects of the proposed usefulness of the Virtual Analyzer covered in the six modules, it would be useful for Tim to be aware if the customer will be willing to buy the commercial software to help them manage their problems. Customers might refrain from buying Virtual Analyzer and otherwise employ their internal system development departments to design an in-house system. They might even prefer to continue doing such manually or hire the services of an outside operator. It would also be useful in gathering information if Teletron is the first company to hit upon the idea of using Information Technology to transform a company in the realm of Telecom Expense Mgt. so that he might enjoy being the first mover advantage. The details of competitors of Teletron and the services they extend are required to be known at the minutest level so that Teletron can be different in service delivery mechanism. (DeHayes, 2003)
4. Financially evaluate the proposed change in the business model
It is seen that the market is very gigantic. The uncovered telecom cost management market is poised to rise from less than $2 billion to more than 45 billion by 2005 which is a 25% compound annual growth rate — CARG. The market is marked by the absence of any major player and hence in case the company is able to corner a mere 5% of that market which is achievable, then that is going to translate into a huge sales scope. The company will able to witness massive growth and meet the $100 million revenue earnings objective in 7 years. Looking at the size of the market, it is just a fraction of the $5 billion market that is needed to come to the 2006 target revenue. However, it going to be difficult in attaining that magic figure since in attaining that changeover in business model, the company has to spend more than $9 million. And this money is required to be raised from the market as the company does not generate this amount of revenue either from profits or from internal accruals. (DeHayes, 2003)
5. What should Tim do now?
After taking into account all the known and understood pros and cons, there are some points on which Tim has to take action. These are (i) the manner in which to raise capital needed either through fresh issue of shares or depend on Venture Capital — VC funding. In case his project is a runaway success, he will definitely get more doses of VC funding, however any failure will ruin him. He has to use a number of channel partners like sales forces, territory wise, and websites to sell the software to various customers. (DeHayes, 2003)
6. Prepare the presentation Tim should make to the board.
A i) Ladies and Gentlemen, I take this opportunity to present before you our breakthrough product the Virtual Analyzer that consists of six major modules-each serving a unique area of problem faced by customer in realm of TEM. Slides containing the brief features of the modules are shown. As you are aware, the market size is huge. According to Gartner-Dataquest estimates, the addressable telecom cost management is poised to rise from a little under $2 billion presently to more than $5 billion by the year 2005 which translates to a CAGR of 26%. The market is fragmented with virtually no dominant player and hence there is tremendous scope for growth. In case our company is able to corner just 5% of that market, it will translate into a massive sales opportunity. We can grow to the revenue target of $100 million which I have fixed to reach in a timeframe of 7 years. Besides, cost management is just one aspect of the functions which Virtual Analyzer — VA will provide our clients. (DeHayes, 2003) ii) a continuous income stream as an Application Service Provider — ASP is assured because of the annuity value. While we wish the client to use the VA modules as a single package, customers can pick and choose among various services but he must at least subscribe to the Client Information Management and Vendor Invoice Processing and Vendor Invoice Payment modules so that he is able to enjoy the important benefits of the VA system. To be more specific, Ladies and Gentlemen, the price will be based on the size of the company and the quantity of modules they select to use. Bigger companies making use of modules would be billed about 2% of their monthly telecom cost whereas smaller companies using all the modules would be levied close to 6% of their monthly telecom cost. (DeHayes, 2003)
Hence it is my expectation that our average customer revenue to be nearly $25.000 monthly which approximately 4% of their average monthly telecom bill. At this juncture, it will be realistic to disclose that our project will take the remaining part of this year, the entire next year and will be ready for alpha and beta testing by initial part of the year 2001. Therefore we will be able to earn any revenue from VA after 2002 onwards. Therefore any revenue till that period will come from maintaining our old business model. It is my anticipation that the net investment to achieve this change is going to cost us more than $9 million spread out over 1999 through 2001. Moreover, we have to take into account extra costs for improvements between $1 million and $3 million every year onwards. But I consider that we will be able to record revenue target coming from this new business model. It is my hunch that generating $100 million revenue with almost $50 million in EBITDA is practicable achievable. Looking at the size of the market, we require a miniscule proportion of the $5 billion market to hit the 2006 target revenue. It will really be demanding for a $7 million company to spend more than million. Hence we will have to raise that much of money as we at Teletron do not generate that amount of money. Thank you all. (DeHayes, 2003)
Auditel Inc. (2003) “Telecom Expense Management Training -Phase III” Retrieved 4 May, 2007 at http://www.auditelinc.com/Telecommunications_Training_Phase_III.aspx
Bennett, Elizabeth. (2006, Aug) “Taming the Wireless Beast.” Baseline. Retrieved 4 May, 2007 at http://www.rivermine.com/articles/Baseline_Sodexho_article.pdf
Cass Information Systems Inc. (2007) “Telecom Expense Mgt” Retrieved 4 May, 2007 at http://www.cassinfo.com/casstelecom/expensemgmt.html
DeHayes, Daniel W. (2003) “Teletron, Inc.: Using Information Technology to transform a company” Case Study.
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