BT Group plc
Cost Transformation Teach-in
9 December 2014
Agenda
15:30
Tony Chanmugam
BT Group Finance Director
15:40
Shahzad Saleem
Cost Transformation Managing Director
15:55
Case Study 1:
Programme Compete
Arthur Yu, Cost Transformation Director
Becky Warburton, Head of Cost Transformation
16:10
Case Study 2:
Customer Management & Contact Centre Programme
Andy Wells, Cost Transformation Director
Charlie Archer, Lead Consultant
16:25
Case Study 3:
IT delivery model
Rikkya Okker, Head of Cost Transformation
Tim Lancaster, Lead Consultant
16:40
Q&A
17:00
Drinks and nibbles
17:30
Close
© British Telecommunications plc
Tony Chanmugam
BT Group Finance Director
Our purpose, goal, strategy and culture
Our purpose
Our goal
To use the power of communications to make a better world
A growing BT: to deliver sustainable profitable revenue growth
Broaden and deepen our customer relationships
Our strategy
Deliver superior
customer service
Fibre
Our culture
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TV and
content
Transform
our costs
Mobility
and
future voice
Invest for
growth
UK business
markets
A healthy organisation
Leading
global
companies
Cost Transformation progress
5 year cost base1 reduction
Still more than
£1bn of gross
cost saving
opportunities
Capex
Labour costs incl. contractors
Consultancy
Supplier renegotiation
Overhead Value Analysis
Process re-engineering
Right First Time
BT-centric
Insourcing
Output-based pricing
Continuous Improvement
Quick wins
Forensic
Pan – BT
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1
opex is before specific items, depreciation & amortisation. Capex is before purchase of telecommunications licences. 2008/9 opex estimated for
impact of historic Other Operating Income restatement
It’s needed to offset the headwinds in our business
Cost reduction
Cost pressures
Natural attrition/retirement
Inflation
Cost Transformation programmes
Margin mix
Improving revenue performance
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Shahzad Saleem
Cost Transformation Managing Director
Cost Transformation – team evolution
2014
2011
2005
BT Retail-centric
cost transformation through
forensic analysis by 10
internal consultants
Initial phase:
• Build the capability and the
toolsets
• Overhead Value Analysis
• Seven of original team
achieved BT senior
positions including LoB
chief finance officer,
finance director, managing
director & transformation
director
2004
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2006
Pan-BT in scope for proven cost
transformation method by 30
internal consultants
Pan-BT phase:
• Launched E2E programmes
• Activity in all LoBs of more
complex activities
2008
2010
Pan-BT complete transformation system focused on
cost and service improvement by 130 internal
consultants
Pan-BT top-down & bottom-up change:
• Discovery and implementation of all E2E &
complex CT programmes
• Continuous Improvement designed as the single
approach to bottom-up change in BT
• Lean Six Sigma Academy
• Capability assessment and development across
BT, leading to external certification designed to
upskill all change people
• Sharing best practice with industry
• 2-3 year assignments; projects ~3-6 months
• Most successful team in BT at developing
leadership talent:
• MBA
• Six Sigma and Lean accreditation in-house
• Behavioural Change
2012
2014
2016
Change hierarchy in BT
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Ownership
Change initiatives
Cost Transformation team with
involvement of the line
organisation
Multi-LoB
end-to-end
transformation
Line of Business transformation
teams with involvement of the
line organisation
Line of Business change
initiatives
Line organisation supported by
Continuous Improvement coaches
Operationally-led Continuous
Improvement (CI)
Teams at different levels of the
organisation focus on change initiatives of
different scale and complexity
Change initiatives driven at all levels
of the organisation, depending on the
scale of change
What’s in our stack right now and going forward?
 Pan-BT process improvement – repair and lead-to-cash
 Group-wide shared services
 Sales effectiveness
 Compete Phase II
 Customer Management & Contact Centre (CMCC) programme
 Networks, platforms and products rationalisation & standardisation
 IT delivery model
 Field force and support review
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Three case studies in cost transformation
Case Study 1
Case Study 2
Case Study 3
Programme Compete
Customer Management &
Contact Centre Programme
IT delivery model
Arthur Yu
Andy Wells
Rikkya Okker
Cost Transformation Director
Cost Transformation Director
Head of Cost Transformation
Becky Warburton
Charlie Archer
Tim Lancaster
Head of Cost Transformation
Lead Consultant
Lead Consultant
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Programme Compete
Arthur Yu
Becky Warburton
Programme Compete – Transforming cost base outside UK
Programme Objective:
Drive cost transformation outside UK by applying the tried-and-tested methods we've used elsewhere across the Group, focus on:
•
•
•
•
Review regional operating model and size our operations based on financial returns and growth ambitions
Reduce cost of failure in our processes to improve operational efficiency and effectiveness
Optimise BT’s access and core network
Improve our third-party supplier value for money
GS UK cost base = >£2.5bn
(Various reviews on-going)
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GS non-UK cost base = >£3.5bn (in 170 countries)
(‘Compete’ reviews introduced in each country)
Our methodology – Forensic analysis with strong execution
Telco
Non-Telco
TLR/TLC
Opportunities
Description
Access & Voice
Rationalise circuit inventory & cease unused circuits
Network transformation opportunities
Migration & optimisation of network structure; satellite rationalisation
Revenue and Cost Assurance
Reduce revenue leakage and stop unnecessary costs
Supplier Rationalisation
Review value for money from each supplier and consolidate tail vendors
Insourcing
Identify third-party spend / services that can be insourced
Property & Facilities Management
Property rationalisation, reduction in facilities management, energy cost review
Travel and Discretionary Spend
Introduce standard global policy and tighten the control
Fair Reward
Identify and reduce cases where remuneration is misaligned to performance / role complexity
Subcontractor resource review
Minimise subcontracted services and insource where financially prudent
Shared Service Centre review
Identify activities that could sit in a shared services environment in lower cost economies
Organisational structure reviews
Right-size operations and optimise spans & layers to drive operational efficiency
Service Lines
Review field services, network maintenance & other delivery costs
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Example 1: Reduction in cease lead-times on leased lines
Problem Statement
• Our internal process failures sometimes lead to BT paying for third-party access circuits for longer than we need to
OLD process
90 day Customer Notice Period
Income
1
1
Unnecessary cost due to
mismatch between
customer bill stop date
and supplier cease date
2
Pass the order to the
cease factory to complete
initial validation prior to
issuing cease acceptance
to the customer as this is
when the “clock” begins
for the 90 day Customer
Notice Period
Unnecessary costs
Cease Order Processing
Validation Time
90 day Supplier Notice Period
NEW process
90 day Customer Notice Period
Income
Validation Time
2
3
Savings
Cease Order Processing
90 day Supplier Notice Period
Results
•
£21m of savings through reducing third-party access spend
•
Improved customer service due to shorter customer cease lead-times and backlog reduction
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3
Customer and supplier
notice periods align so
there are no unrecovered
cost days
Example 2: Utilising professional services resources
Problem Statement
•
BT Global Services’ professional services people spend time on work that is not chargeable to the customer
•
More people than necessary are doing back office roles which are non-chargeable
2
Three key areas of focus
1
Increase time spent on chargeable work
2
Improve gross margin per billable employee
3
Reduce number of employees on non-billable work
1
3
Results
•
•
•
Chargeable time and gross margin by individual improved by 10% and 17% points respectively
Non-chargeable headcount reduced by 62%
Still further opportunities to go after in this space
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Example 3: Rationalise operating model in Europe
Problem Statement
•
Complex organisational structure in Switzerland, Central and Eastern Europe leading to high cost and slow
reaction to customer issues
Results
•
£5m annualised TLC savings achieved to date
•
Sales and customer service also improved because of quicker decision making and removing cost of failure
•
We have proposed and are currently implementing similar consolidation in Asia and LatAm
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Achievement to date and next steps
Financial outcomes
Next steps
 Benefits delivered so far = £180m
 Strong execution to ensure successful
completion
 Identified opportunities to be delivered =
c.£120m (c.£300m benefit in total once
existing initiatives are fully implemented)
 Further opportunities of c.£100m to be
unlocked from Compete
Breakdown of benefits delivered to date from Compete (£180m)
29%
50%
21%
Telco
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Non-Telco
TLC/TLR
 Driving further process standardisation
across countries
 Benchmarking and sharing best practice
 A competitive cost base to support
profitable growth outside of UK
 Some best practice outside of the UK is
applicable back in the UK, unlocking the next
phase of savings
CMCC Programme
Andy Wells
Charlie Archer
Customer Management & Contact Centre Programme
BT’s Contact Centres
 Major area of cost, >£1bn p.a.
 Multiple programmes had been run around the same space; independent,
LoB-focused... not strategic
 Frequently a customer experience that does not meet expectations
 Variable performance – no consistent efficiency or effectiveness across BT
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BT has Contact Centre operations in all LoBs…
over 30k people including outsourced suppliers
End users
Billing
TSO
Consumer
Business
Wholesale
Openreach
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GS
Other CPs
Our programme aims…
People
Commercial
Customer
Structure &
Organisation
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Sourcing &
location
Front-line efficiency & effectiveness – Focus areas
Volume reduction
Effectiveness
• Improve ‘one contact resolution’, reducing the number of transfers
and repeat calls
Productivity
• Reduce the duration of each call / processing time without
negatively impacting effectiveness and customer experience
Utilisation
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• Address the causes of avoidable contact and promote the use of
self-serve channels where possible
• Maximise available capacity by better managing the time when our
people are taken away from their front-line activities
Example 1: Transfers in Consumer
Problem Statement
•
19% of all calls in Consumer (75k calls per week) were transferred from one agent to another… each transfer
increases the cost to serve and harms our customers’ experience
Results
We have identified enablers to cut transfers by
more than half to 8%:
•
rationalisation of teams (operating model
review)
•
IVR2 / call routing improvements
•
multi-skilling and improved tools
•
agent training and cultural change
1
1
2
‘retention’
Interactive Voice Response
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Example 2: Reducing call handling time in Billing
Problem Statement
•
The duration of a call into our Group Billing team was highly variable and often very extended; this resulted in a
high cost to serve and meant that customers were being held on the phone for too long
Results
Through extensive call listening, we have
established how the UK volume enquiries
team can reduce call duration by 34% from
773 seconds to 510 seconds
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•
define standard structure (not script!)
•
cut the validation
•
upskill to avoid referrals / consultations
•
retraining to ensure all agents utilise
systems / tools effectively
Example 3: Pan-BT ‘shrinkage’ standards
Problem Statement
•
Typically 30-40% of all paid hours are not available for productive ‘front-line’ work; there was significant
variation across the Group and no standard against which teams could be measured
Paid hours
Results
Leave (annual + other)
• We benchmarked all CMCC teams against
standard ‘shrinkage’ categories and built a
model describing the ideal amount of
shrinkage – 29.5% for ‘Business As Usual’
Sick (short + long-term)
Breaks
Training
Internal meetings
• Mechanisms put in place to enable teams to
get better visibility of shrinkage so that it
can be better managed
Other
• Model now adapted for non-CMCC teams
Coaching + performance mgt
Available hours
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Benchmark:
29.5% shrinkage
Other workstreams
Mgt and support
No standardisation;
a wide range of
management spans
Problem
Statement No shared learning /
best practice in
support functions
Solution
Internal and external
benchmarking to
establish best in class
Forensic analysis to
quantify and drive
standardisation
Building Group-wide
shared services
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UK site strategy
Right-shoring
Pay and grading
Disparate workforce
across many sites,
ranging from large
modern centres to
smaller clusters in
local exchanges
No coordinated
Group strategy
Variable quality and
cost from suppliers
Pay and conditions
not aligned to market
rates
Optimise site size,
bringing together
teams to enable
better management
Simplify estate and
provide a better
working environment
Establish Group-wide Market-aligned pay
principles that govern
and conditions
the most appropriate
negotiated with the
location and sourcing
unions
model for all activities All new joiners for
Implementation plan
CMCC activities
in place and
brought in on the
transition underway
new contracts
Conclusion
 Our programme has started to transform the cost and quality of BT’s Contact Centres
 Benefits generated from the programme will result in
– Significantly better customer service
• 250,000 more calls answered on-shore in Q1
• improvements in repeats and transfers in all Lines of Business
• enhanced self-serve capability
• more multi-skilled agents
– Large financial benefits (over £150m p.a. identified to date) … but there is a lot more to be
done (similar opportunity again)
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IT delivery model
Rikkya Okker
Tim Lancaster
IT delivery model – Strategic sourcing
We forensically reviewed the cost of failure across the entire IT lifecycle (IT cost base >£0.5bn)
Process for delivering new internal IT systems
Causes of cost of failure
Quality
issues
Churn of
designers
Requirement
definition
Quality
issues
Design
Code
quality
Development
Wasted effort
Rework
Test
Support
Defects
Incidents
Effects of cost of failure
Findings
• Issues in front-end of process cause cost of failure in back-end of process
• Majority of cost sits in the back-end, >80% of cost incurred post design phase
• We need to improve quality of early phases to reduce overall cost
• We need to optimise the later phases for cost efficiency
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IT delivery model – Strategic sourcing
We analysed cost of failure to determine which services are best done on-shore vs. off-shore, and
in-house vs. out-source
Requirement
definition
Design
Development
Outsourced
In-house
On-shore
Quality a high priority
No change in
resourcing levels
In-source all UK based work
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Support
Off-shore
Quality a high priority
Requirements & design
• Business facing
• High complexity
Test
Development
• Non business facing
• Strategic
• Complex
Insourced
850
roles
Insourced
850
roles
across
India
&&
Malaysia
across
India
Malaysia
3:2
replacement
ratioratio
1:1.5 replacement
Optimise as-is
Only c.250
contractual roles
still in the UK
Test & support
• Non business facing
• Legacy
• Low complexity
Consolidated
Consolidated
vendors,
>£50M
vendors,
>£50M
annualised
savings
annualised
savings
IT delivery model – Support cost
We conducted a deep dive into our IT support cost to improve operational efficiency
Support process - Before
Incidents & repairs
4
Alarms
BT call
centre
(1st line)
IT support
(2nd line)
6
Code change & fix
Pro-active checks
1
2
IT support
(3rd line)
£13m
3
Key issues
1 High level of non-value add activities
2 Heavy management layer
3 Fixed price contracts, high unit cost
BT
business
units
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4 High volume of queries
5 Low level of automation
Manual interventions
5
£85m
6 Lack of end-to-end cost view
IT delivery model – Example 1: Reduce non-value add
We used top-down techniques, but also rolled out Continuous Improvement to our vendors
Problem Statement
•
>50% of effort in 2nd line IT support is overhead and technical management
1
High level of non-value add activities
Incident fix
• Bottom-up (Continuous Improvement) tools
combined with top-down tools
Code changes
• Vendor contracts with agreements to share
the cost savings above threshold
Manual
interventions
Overhead &
technical mgt
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Methodology
• Forensic process reviews and volume
tracking
• Joint BT & vendor workshops to agree
improvements
IT delivery model – Example 2: Volume review
We forensically combined various data sources to uncover root causes of high volumes
Problem Statement
•
Nearly 20% of incoming incidents just a query, 10% have a known root cause in the code
4
High volume of queries
Methodology
• Forensic review of multiple data sources
Queries
No
Fault (no
inc.actual
HTB fault)
• Pan-BT engagement to address queries
Problem records
• Detailed development review to fix root
causes
Reactive
Proactive
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IT delivery model – Deep dive on support cost
We are on track to deliver £21m efficiency from combining IT development & support
Support process - After
Incidents & repairs
Key changes
Combined
development &
IT support
4
Alarms
BT call
centre
(1st line)
BT
business
units
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Pro-active checks
1
Manual interventions
4
2
3
IT support: £77m
1 Reduced non-value add
2 Consolidated management
3 Variable, output-based contracts
4 Address root causes of volumes
(hard turn-back, fixes, automation)
Conclusion
 We are optimising IT cost efficiency on an end-to-end basis
– we understand the cost drivers across the lifecycle
– forensic reviews, using cost transformation and Continuous Improvement
– delivered over £50m in benefits, while significantly reducing our incident and
defect levels
 We have more to go after
– expand our in-house IT capability in India and Malaysia
– contracts across development and support
– rationalise system estate
 Potential to deliver a further 2x the benefits already delivered
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Summary
 Cost transformation continues at pace
 Plenty more opportunities identified
 A key part of our strategy, supporting customer service and
investing for growth
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Questions please