DESIGN-TO-VALUE FOR TELCOS

Jean-Philippe Romieu

Jun 2013

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• In a challenging environment, Design-to-Value (DtV) appears as a critical element of a telco strategy as it allows to optimize investments and costs while preserving the top-line

• As most of the costs are embedded in the design phase, DtV is a powerful weapon to optimize costs and value at the same time

• In comparison with a traditional way, DtV brings a holistic view on costs , leverages all possible sources of innovation and know-how and systematically uses a wide range of tools

• DtV approach can be codified along 5 phases: starting with baselining the current economics and understanding the market situation , the DtV team set the targets before working in a cross-functional set-up to generate new ideas, that once prioritized and consolidated will be measured against the initial targets.

• DtV requires a combination of several factors to make it successful

- A cross-functional set up involving empowered internal teams and suppliers early in the process

- The right skills and mindset of the people to build up capabilties and roll out DtV more systematically

- An aggressive target setting to create a field of stress and recoup the effort required by applying DtV

- The systematic use of optimization tools

- Clear governance rules to integrate DtV into the corporate key processes and ensure top management attention

- A rigorous execution with emphasis on the controlling loop to measure savings against target

• DtV implementation in telcos should start with pilots that will help refine and adapt the concept to the organization before a roll-out on selected projects

Design-to-Value For Telcos – Executive summary

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Agenda

• DtV principles

• DtV building blocks

• DtV implementation

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Most of the cost embedded in the design phase…

DtV is an approach to optimize costs and customervalue early in the design phase

… thus making DtV critical for optimization

• Upfront time and effort required to offer greatest payoff cascading from production to lifecycle costs while generating significant value

• Lifecycle cost optimization

• Simplification, standardization, cost-effective substitution to reduce production/ implementation costs without impacting quality/value

• Optimization of post-production lifecycle cost including operating costs, maintenance, modernization and disposal costs

• Value generation

• Increase of customer value through pricing optimization

• Increase of customer stickiness

• Lead time reduction due to design changes

% cost defined

100%

80%

60%

40%

20%

0%

Lifecycle costs

Cost optimization

opportunities

PlanningDetailed

design

Production/

implementation

Operations/

maintenance

time

Concept

design

Design Use

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Traditional approach DtV key benefits

DtV brings specific benefits vs. traditional approach

Holistic view

Extended know-how

Systematic use of tools &

industrialization

• Understanding of customer and competition requirements

• Holistic view on lifecycle costs (product, service, operations, maintenance, disposal)

• Leverage of all possible sourcesof know-how and innovation , internally and with suppliers

• Stimulation of creativity in empowered teams

• Systematic use of optimization tools from an early stage (e.g. expert workshops, equipment teardowns, value analysis)

• Industrialized processes

Restricted perspective

Functional silos

Lack of tools and robust processes

• Market considerations not part of cost optimization

• Costs not known or acted upon late in the development cycle

• Each functional team making decisions from their own perspective/targets

• Suppliers involved after design phase

• Tools/information lacking to systematically consider cost implications of various designs

• Established processes not robust (e.g. low ownership)

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There are 5 main phases in a DtV approach

• Understand current economics with detailed base lining of costs, incl. major cost blocks and market (revenues, usage

• Build driver-based cost/value model

• Understand customer perceived value and sensitivity to costs

• Analyze competition positioning (features, pricing) through detailed benchmarks

• Generate new ideas, creative alternatives with cross-functional set-up (teardown workshops, supplier workshops)

• With end-to-end focus , prioritize applicable ideas (economic impact, ease of implementation)

• Establish top-level target costing based on market view and allocate it to lower levels, subsystems or modules

• Establish measurable objectives

• Evaluate total cost impact of final design and compare to initial target cost (reiterate and adjust target if necessary)

• Prepare implementation plan and timeline for new design

Baselining & cost/value

model

Market view & Value focus

Target costingIdea generation

& cross-functional view

Synthesis & implementation

0 1 2 3 4

Business Case – End to End / Integrated Overview

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Agenda

• DtV principles

• DtV building blocks

• DtV implementation

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A high-impact DtV program is based on key building blocks

Cross-functionalteam

1

Right skills and mindset

Radical target setting

3

Systematic use of optimization tools

4

Clear governance rules

5

Rigorous execution and and controlling

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DtV Program

• Cross-functional working teams (e.g. technology, marketing, procurement, finance, operations, DtV champions)

• Early involvement of vendors and full leverage of external know-how

• Implementation of DtV mindset through systematic training

• Scale building through training of cross-functional teams by a pool of internal experts

• Implementation planning closely monitored

• Controlling loop to track savings vs. target

• Integration of DtV processes into technology roadmap, budget planning

• Top-management involvement (steering committees)

• Systematic use of optimization methodologies (e.g. benchmarks, expert workshops, equipment teardowns)

• Application of robust analytical tools (e.g. cost analysis, revenue model)

2

• Aggressive target setting based on best possible boundary conditions

• Creation of field of stress to prompt spaces for new solutions• Broad commitment of all

relevant functions

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A cross-functional set-up to generate ideas and decide for implementation

PreparationTrade-off and prioritization

• Collect expert input (cost drivers, engineering, manufacturing, suppliers) and results of teardowns

• Get results from market analysis and customer value

• Select key suppliers and prepare supplier briefing

• Analyze cost impact vs. perceived value impact for each idea

• Analyze interdependencies between proposed measures

• Prioritize ideas against impact and ease of implementation. Decide on Go/No-go for each initiative

Idea generation in expert workshops

• Set-up cross-functional teams (marketing, engineering, service, quality, logistics, procurement, regulatory)

• Conduct workshops with internal teams and key suppliers

• Generate long list of potential cost reduction ideas for each area using technical and functional levers

Decision for implementation

DtV building blocks

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A DtV school to build up sustainable capability

DtV School Curriculum

• Focused training on DtV foundation and use case for a hands-on experience , provided by DtV experts

• Combination of dedicated DtV modules with DtV-related trainings (e.g. project management, procurement engineering)

• Main focus on on-the-job training and in cases where short real-life application is planned

• DtV champions to follow the entire curriculum to be able to coach the cross-functional team (“train-the-trainer concept)

DtV building blocks

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Target costing as a foundation

Customers Competition

• Understanding of perceived value, willingness-to-pay

• Awareness of competition requirements

Target costing

• Determination of must-have features valued by all parties

• Definition of top-level target costing and allocation to lower levels

• Commitment of development teams on target objectives

Internal users

• Analysis of needs and value of specific features (e.g. technical service, maintenance)

Principle

Tools • Price elasticity

• Survey tools

• Customer decision journey

• Feature prioritization

• Feature and functionality benchmarks

• Competitor pricing strategy

• Management interviews

• Focus groups

• Cost-driver analysis

DtV building blocks

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A whole range of tools to tackle costs from an end-to-end view

EXAMPLES

DtV building blocks

Optimisation toolbox

Equipment Teardown

Supplier cost structure

Design for manufac-

turing

Value stream mapping

Value analysis

Bench-marking

• Disassembly and analysis down to bill of material level (should cost)

• Calculation of fair sales price based on BoM and associated indirect costs• Comparison of features,

technical specifications, actual performance of products

• Bridge to comparable configurations for local specifics

• Analysis of the flow of materials and information to bring a product or service to a consumer

• Reduction of lead time by identifying sources/causes of waste

• Analysis of essential product functions

• Identification of functions with a high cost to function ratio for further cost reduction

• Estimate of fabrication or assembly labor time and machine cycle time

• Evaluation to reduce cycletime and resources

• Transparency on cost structure incl. R&D, SG&A costs

• Ground for fact-based negotiation

Tool categories Customers Total cost Manufacturing/ supply chain

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A clearly defined governance to make DtVresults sustainable

Governance

• Anchor DtV principles into key governance processes (e.g. technology roadmap, product development, procurement process)

• Establish regular performance management reviews to share info and tools, adapt systems to DtVand coordinate with key processes

• Set-up cross-functional teams with all relevant functions and when possible co-locate them (campus mode)

• Define clear roles and responsibilities in the x-functional team (e.g. with RACI method) and ensure decisions involve all relevant functions

• Set-up steering committees made up of leaders of x-functional teams

• Prescribe frequency for reviews and update of key elements of design decision and for steering next steps

• Align incentives of x-functional team

DtV building blocks

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A close monitoring during execution to reconcile against initial target costing

Implementation plan

• Define implementation options based on prioritized measures

• Develop detailed implementation plan of selected measures

• Assess constraints (e.g. resource availability, know-how) and additional cost related to implementation

• Define accountabilities to conduct implementation

Measure implementation

Savings validation

Decision for implementation

• Schedule change

• Conduct manufacturing or process change trial

• Implement change

• Measure financial impact of each implemented measure

• Compare with planned savings and validate impact

• Consolidate savings and compare with initial overall target costing

Measure implemented

Savings validated

Typical KPIs • Number of measures decided for implementation (vs. idea generated

• Planned impact incl. implementation cost

• Lead time to implement measure

• Actual cost of change/implementation

• Actual impact (e.g. EBIT)

• Gap with planned impact

• Gap with target costing

Tasks

DtV building blocks

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Based on project experience, a complete DtVapproach usually yields a higher savings ratio

Strong correlation between the DtV maturity level and the relative savings potential

DtV maturity grade

DtV building blocks

X-functional MindsetTarget setting

Toolbox Governance Execution

DtV maturity grade of a project

0 6

= number of DtV building blocks realized during a given project

Project portfolio

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Agenda

• DtV principles

• DtV building blocks

• DtV implementation

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DtV roll-out in a TelCo follows 3 steps

Y1

Q1 Q2 Q3 Q4

High-impact pilots1

DtV blueprint & prioritization2

Roll-out3

Y2

Q1

• Select projects by focusing on a small country or on a large country with tight cost control and significant spend

• Leverage past experience for quick-wins (replicability)

• Establish the appropriate cross-functional team involving key areas

• Use DtV best practices

• Use results of pilots to define working cooperation model, governance and top management involvement

• Refine tools/methodologies and develop missing elements

• Integrate DtV approach into technology roadmap, product development and budget planning

• Prioritize projects (effort, return on investment)

• Start implementation of prioritized projects in lead countries

• Build up capabilities to scale (DtVschool leveraging pool of experts –train-the-trainer)

• Roll-out support tools and systems

• Strictly monitor financial results and adjust accordingly

Test-and-learn approach

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DtV project set-up based on focused cost areas and deep central/country cooperation

Project sponsor

• HQ Board member• Country Board member

Steering committee

• HQ Board member or N-1• Country Board member or N-1• Technology/Marketing/Finance leader

(HQ/Country)• Others (e.g. operations) (HQ/Country)• Value Engineering team

Project lead

• Country Technology/Marketing leader

Focus area 1e.g. Technology platform

• Country/HQ Technology team• Country Procurement/Finance• Central Procurement

Focus area 2e.g. Marketing

• Country/HQ Marketing team• Country Procurement/Finance• Central Procurement

Other focus areas….

• TBD

• Value engineering• Finance

• Technology• Marketing

Integration teamend-to-end view, interdependencies & business case

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DtV project plan usually spans over 3 months

Month 1 Month 2 Month 309 10 11 12 13 14 15 16 17 18 19 20 21 22

• Phase optimization initiatives

• Prepare steering & tracking of measures

Prepare implementation

• Run expert workshop in focus areas

• Evaluate and prioritize optimization ideas

• Iterate processus and align with global target

• Finalize business case

Project set-up & baselining• Compile existing initiatives & quantification

• Analyze in DtV context & identify opportunities

• Develop holistic cost view

• Define scope of project & working teams

• Define market view and derive ambition level

Project development

1

2

3

High-level workplan

Launch implementation

Example

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A few requirements prior to kicking off a DtV project

• Align targets between DtV central team and Country

• Name an executive sponsorship for the project in the Country

• Involve DtV teams in the early stage of the process

• Set up project team with min. one representative of each relevant function

• Provide visibility on business needs and financials of the Country

• Coordinate actions towards suppliers

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Back-up

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To implement DtV, a dedicated Value Engineering team provide a unique skillset

Value Engineering

Team

Independent

Methods

Experts and project leaders

Cross-functional

Experience

Sustainable solutions

• Independent center of competence in the group and from the suppliers

• Systematic application of proven tools and methodologies

• Top-qualified cost engineers able to train Telco teams and build internal future competencies

• Extensive experience in international project management

• Support the cross-functional team with internal and external stakeholders (vendors)

• Relevant experiences from a range of related technology projects

• Delivery of practical and sustainable solutions, resulting in quick and tangible changes