Communications giant rings up big savings with shared services.
by Tara Swords, August 2010
In the telecom industry, many of the major players have corporate roots that reach back to Alexander Graham Bell’s invention of the telephone and his founding of what is now AT&T. Companies have been forming, breaking apart, and merging together for more than 100 years. That rich legacy makes for a compelling corporate history page on the Website. But on the operations side, it makes for a whole lot of complexity.
Consider Verizon. The company burst onto the telecom scene after the massive Year 2000 merger of Bell Atlantic and GTE. Both its legacy and its recent history are filled with mergers and acquisitions—mostly with, and of, substantial corporations with their own way of operating.
In addition, Verizon has never been confined to a single line of business. The company has the largest market share of any wireless service provider in the U.S, where it also offers wire-line service—focusing on cutting-edge broadband services, as well as backbone network services to business and government customers worldwide.
Until recently, all of those facts added up to a massive, highly distributed company that was sometimes forced to operate like separate entities.
The company was filled with overlapping functions. For example, Verizon had multiple payroll systems for wireless, wire-line, and corporate employees. Verizon added additional systems after the acquisition of MCI and Alltel, and soon was paying almost 250,000 employees through four separate systems. The redundancy became an even bigger problem and waste of resources when it was time to apply tax changes to payroll. Similar duplication of effort occurred every day across multiple financial, real estate, and supply chain processes.
“When you bring new companies into the picture, you have new processes, new models, new systems,” says Fari Ebrahimi, senior vice president and CIO of Verizon Services Operations (VSO). “Some of the functions are common functions and there’s no differentiation or uniqueness to them.” Payroll, for example, runs the same way no matter which part of the company the person being paid works in.
Maintaining separate systems where no separation was necessary was eating up precious dollars that could be better spent elsewhere. Verizon’s decision-makers weren’t willing to continue operating the same way.
“There were advantages [to changing], and we saw that it could free up capital dollars as well as reduce operating expenses,” Ebrahimi says. “We could convert that money into more innovation, more customer service, more products and services instead of paying for redundant operations that aren’t that different from each other.”
The company’s leaders have made a commitment to eliminate redundant operations head on. Functions such as wire-line network, payroll, accounts payable, purchasing, customer credit and collections, supply chain and logistics, real estate, and many others would each collapse into their own unified process. “We looked at things end to end and saw major benefits of creating one Verizon experience,” Ebrahimi says. “We are changing processes and support models inside the company to be able to do that.”
Shared Services, Big Savings To streamline operations, Verizon leadership decided to launch a shared-services organization. The shared-services model entails the creation of a centralized business unit that performs common services and functions for the rest of the company. This allows other operating units to focus on their core business. Essentially a shared-services organization is a business within a business, and it operates that way: it sells services, maintains service-level agreements (SLAs), and in some cases may even compete with third-party providers for its own company’s business.
“What we provide is really [internal] cloud services,” says Ebrahimi, comparing Verizon’s modern operational model to the latest trend in distributed computing resourcing. “I can create a business capability to serve 1,000 people who can access it anytime, anywhere, through any device—and IT doesn’t have to build it again and again. Users leverage the services when desired.”
This model for operations has the potential to dramatically cut costs. It also gives companies an opportunity to redesign processes and make them function better than their previous iterations functioned, says Stan Lepeak, head of global research at EquaTerra.
“Quite often, through the introduction of best practices, standardization of how the work is done, and being able to pull your best people together into one place, you can achieve things that the groups that were previously responsible have been trying to do for many years and have not had great success at,” Lepeak says.
The larger and more distributed an organization, the bigger the potential savings. And Verizon was a massive, distributed organization that stood to gain tremendous savings. But the big payoff would require a huge amount of work first. Because as it turns out, eliminating redundant operations isn’t quite as straightforward a process as it might sound.
Verizon had more than 1,000 applications and thousands of servers that would come under the purview of its new shared-services organization. Availability of some components hovered around 90 percent. When Ebrahimi examined the equipment VSO would inherit, it was “like visiting a museum where I had all kinds of makes and models of hardware from any vendor you can think of in the past 30 years of computing,” he says. An Oracle database could have been Oracle8i Database, Oracle9i Database, or Oracle Database 10g. An operating system could have been version 3, 4, 5, 6, or 7. Patch levels varied across machines.
That’s when the full scope of the mission became clear.
“You look at the systems and say, ‘Oh, I have two of these, I can go to one,’” Ebrahimi says. “But many of the changes are really hard to implement because you’ve got to train thousands of people. In most cases, you have to change the whole infrastructure to maximize the savings. There’s a lot of work to be done.”
The Single-Stack Advantage The team heading up VSO took a step back and considered the best way to build their new organization. Whatever it looked like, it had to deliver high reliability and be scalable enough to support future growth while being low-cost to maintain and easy to modify. None of those goals was achievable with the mishmash of equipment the company had at the time.
Ebrahimi’s personal preference was for a common technology stack built on standards. In fact, he felt it was the only solution that would achieve the company’s stated goals. But the funny thing, he says, is that when people talk about standards—such a simple-sounding concept—they don’t realize how much work it takes to implement them.
Verizon has many thousands of external vendors that account for more than US$30 billion of Verizon’s spending every year. Verizon works with thousands of diverse entities including hundreds of banks. Each of these companies had separate interfaces to Verizon, and each of those interfaces had to be standardized. Applications had to be migrated. Servers and storage needed to be consolidated. Operating systems, versions, patch levels—everything needed to be updated and standardized. And it all had to be done in short order.
“Just thinking about moving hundreds of applications over a span of two years into one structure is quite significant,” Ebrahimi says. “But we wanted to re-engineer the processes and the entire technology stack from the ground up—the hardware, the software, the applications, everything. That’s what made it an even bigger effort from a technology perspective.”
Ebrahimi had a clear vision of the end result but no ready-made blueprint that detailed the steps to get there. So the first thing Verizon required was vendors that could provide components for this single stack.
Verizon had used Oracle databases for years and considered Oracle to be a leader in that area. But at the same time that Verizon was growing and changing, so was Oracle. The company’s acquisition of PeopleSoft bolstered its applications offerings. The acquisition of BEA Systems positioned Oracle to become a leader in middleware. Acquisitions of Hyperion, Agile, and a host of other companies rounded out Oracle’s offerings and made it an attractive single-stack provider to Verizon. The latest acquisition of Sun would complete the picture, with server and storage hardware, operating systems, and virtualization technology.
“We were looking for a vendor who could help minimize the pain of integration and adhere to standards,” Ebrahimi says. “At the time, probably the only vendor that was moving in that direction and providing that type of technology at an enterprise level was Oracle. That worked well for us, since as long as Oracle adhered to standards and integrated with multiple vendors, we could buy different components from whomever we wanted and it would all fit together.”
Ebrahimi also wanted a common hardware infrastructure and a common operating system so that he could put anything on top and know that it would work. Oracle would be able to help Verizon design a single infrastructure that could be assembled and rearranged “like Lego pieces,” Ebrahimi said.
These technology building blocks had to support Verizon’s existing diverse investments in enterprise software. Before the VSO infrastructure was built, Verizon operated in a heterogeneous applications environment with a mix of custom and legacy software based on a variety of vendor technologies. The VSO infrastructure had to be designed with this in mind, to preserve unique business processes or operations that were sufficiently efficient. The openness of the technology stack puts Ebrahimi in a position to make the best IT decisions for his organization, regardless of the source of the software and/or hardware. “The key here was that we could put any vendor’s products on top of the VSO infrastructure, as well as our own developed applications,” he says. “We can bring in any vendor’s product and mix it in—as long as that vendor adheres to standards.”
This is consistent with the kinds of IT environments Oracle experts find in modern business. “Traditionally, the customers we interact with have systems in place that they would like to modernize,” says Amit Zavery, vice president of product management in Oracle’s Server Technologies division. “They have expertise in some technologies from other vendors and they have a dependency on some of those things that they can’t completely turn off instantly. So with that kind of environment, it’s very, very important that Oracle provides the ability to interoperate and work with the existing systems customers have in place.”
Oracle’s ability to integrate with any best-of-breed technology gave Ebrahimi confidence to move forward. But the real secret to the success of the project wasn’t technical; it was human.
Movers and Shakers Perhaps the most ambitious aspect of Verizon’s initiative was not its broad scope but its accelerated timeline. Ebrahimi wanted the entire project completed in less than two years. To make it happen, he needed the best technology and the best people.
“One can do anything in a large enterprise, but if you take 10 to 20 years to do it, it’s not as interesting as doing it in, say, 2 years,” he says. “And it’s much more difficult because of that execution speed. All the agreements you’ve got to reach with business users, the trust you’ve got to build, the components from various vendors that have to integrate well together, and the performance that has to be significantly better that legacy environments—you’ve got to have flawless execution at every step.”
That meant having a team of experts at the ready to anticipate any issues and immediately solve problems that popped up later. Oracle put all the necessary resources on the team, including product development experts and vice presidents from across the organization. When Verizon needed consulting, Oracle sent in consultants. At every turn, the team made sure that Verizon was not alone. And that, says Ebrahimi, is what made the relationship and project work.
“Being a very large enterprise with very complex scenarios, what we run into is usually unique,” he says. “So we find a lot of things that need unique support, advanced technology teams, and solution architects. Oracle has been there with us, and I can say they have been one of the keys to our success.”
Today, VSO has moved Verizon from thousands of physical servers to hundreds of virtual servers in VSO’s cloud and from 1,000 applications to fewer than 200 applications. The organization maintains SLAs with the business units it serves, and those units pay for what they use. Ebrahimi has achieved his goal of building IT systems that deliver 99.999 percent availability along with tremendous functionality.
And in a way, the company is now one of its own best vendors. “As we implemented best practices and brought common systems to the processes, service naturally and dramatically improved,” says Virginia Ruesterholz, president of VSO. “We became more self-service and automated, which drives better service. And in many instances, we are signing SLAs with the business units, and we ensure we are living up to their expectations.”
Beyond Expectations When VSO began in 2006, the goal was to save the company US$90 million in the first year. But actual first-year savings blew away projections: the company saved US$562 million and earned the 2007 Best New Shared Services Organization award from the Shared Services and Outsourcing Network. That, Ebrahimi says, “put the unit on fire.” By the end of 2009, VSO had saved Verizon more than US$1.6 billion across every area it touches.
“That comes from being able to get common technologies, so sourcing savings are there. We have process savings, people savings, and technology savings. It’s labor, hardware, software, middleware—all of the things we buy,” he says.
The company achieved its stated goals of unifying financial, real estate, and supply chain processes. Another benefit: because business units don’t need to worry about functions outside of their core mission, they can now direct their attention to customers.
“We took these functions and put them in a centralized organization where subject-matter experts reside,” Ruesterholz says. “For example, in VSO we have expertise in real estate. By applying that expertise across a portfolio of 130 million square feet, VSO has been able to change the operational model to eliminate millions of square feet, reduce energy and maintenance costs, and increase employee satisfaction with facilities. But the real power of the model is the transformation that has occurred across Verizon. The new structure has enabled the business units to sharpen their focus on serving their customers, which in turn has contributed to winning greater market share.”
The new VSO systems and business model have delivered many unanticipated benefits in a variety of functional areas across Verizon. For example, VSO decided to leverage its technology infrastructure to make call center improvements. Previously, some customers calling for service had to be transferred to reach the right representative, a very inefficient process and a poor customer experience. Ebrahimi wanted to send them to the right agent on the first attempt.
Today, the applications that handle calls run in VSO’s cloud—transferring callers to a specific service representative trained to address each particular customer’s need. The system routes calls to agents based on their skills, so customers get faster resolution. Less-busy call centers can process more calls, so customers don’t have to wait. Once fully deployed, Ebrahimi expects this initiative alone will save hundreds of millions of dollars as well as improve customer service.
“This is our blueprint now of how we go about looking at a problem: innovatively, completely out of the box,” he says. “And I think one of the things we’ve learned, more than anything else, is how quickly we can get very complex projects done if we leverage our common technology stack, processes, and people to deliver customer-focused services and solutions.”