Vinayak Shandilya Don Baribeau

Leveraging Performance Management to Meet the Changing MSO Industry

Large cable companies or Multiple System Operators (MSOs) need to have the tools to support a robust strategic planning process.

by Vinayak Shandilya and Don Baribeau, May 2011

Over the last few years, cable companies in the U.S. have faced increasing pressures on margins due to a change in the U.S. economy and heightened competition with the communication industry. The dynamics are changing rapidly, as the services offered by cable companies and telecom companies are no longer distinctive. Most companies in the cable industry are finding it challenging to handle this rapid change. Large cable companies or Multiple System Operators (MSOs) such as Comcast and Time Warner are offering triple- or quad-play services, and providing telecom services to business customers, to increase revenue. The explosion of data services and growing number of high-definition channels are forcing MSOs to consistently reconfigure their networks to meet the growing bandwidth demands.

Furthermore, MSOs are experiencing a shortfall in meeting customer satisfaction levels per J.D. Power and Associates’ 2009 television service satisfaction survey. As a result, cable MSOs are developing capabilities to track industry specific operational and service key performance indicators (KPIs) through dashboards, and to generate detailed, real-time reports to proactively manage capacity and service levels.

The need to manage dynamic sources and the impact of change on profitability is in turn increasing pressure to improve planning and forecast accuracy. Having a robust strategic planning process has become a driving imperative for MSOs. But according to a recent research conducted by Accenture, many organizations are far from satisfied with their own strategic planning processes. Only 11 percent of companies described themselves as “fully satisfied” with their planning capabilities, while more than 80 percent of respondents said that the importance of accurate planning has increased. 50 percent of MSOs surveyed by Oracle have reported having disparate planning processes within each business function. In the same survey, 60 percent of MSOs have either a manual budgeting process or an automated financial planning system that is separate from other operations planning systems.

The disconnect between finance and operational systems leads to a process breakdown that requires significant manual effort to correct. MSOs need a fast and efficient budget cycle with a single planning system that automates the business process integration with other systems and synchronizes financial and operational planning through to the strategic plan. Improving performance requires a centralized planning, budgeting and forecasting solution to improve business predictability.

While most MSOs have recognized the need to measure revenue, cost and operational drivers, measurement was a challenge. Gradually, IT or finance developed multiple point systems to measure their key performance drivers in their quest to enhance operational and service performance levels. Most MSOs have been slow in making investments to understand their cost and profitability by product line, service area, and customer segment. In a recent Oracle survey, 50 percent of MSOs indicated they have limited integration and tools for measuring high-level cost and profitability drivers. Further, measuring other drivers requires an analytical specialist and ad-hoc use of Microsoft Excel. Profitability and cost management are of increasing importance in today’s difficult and rapidly changing and competitive market. Summary-level profitability reporting no longer suffices. To gain competitive advantage, organizations must understand profitability beyond the usual lines of business. MSOs need to understand the true cost and profitability drivers within their business, and empower users with the visibility and flexibility to improve resource alignment, increase margins, and ensure profitability.

Even though there is a pressing need to improve risk identification and management due to the fast changing business and economic environment, most MSOs are taking a simple, quantitative approach in identifying and tracking risks. Those surveyed indicated that only some risk identification activities happen on regular intervals. MSOs need better processes to identify different risk areas, and a robust mechanism to monitor and quantify risk in real time with automated alerts for all defined risks.

In order to effectively compete with satellite and telecom operators, cable MSOs constantly have to bring out newer service and enhance service levels to entice subscribers. This dynamic has added a lot of complexity to their infrastructure. Against this back drop, most MSOs’ systems, business processes and tools have not kept pace with the change. For most MSOs, planning, budgeting and forecasting processes take too long, and are heavily dependent on the use of standalone spreadsheets. This extends to a lack of maturity in cost and profitability management, which is essential to balance revenue growth and profitability. MSOs must embark on a journey of investing in people, process and technology to achieve centralized planning, budgeting and forecasting that integrates financial and operational planning processes and improves business predictability. MSOs must also ensure that their cost and profitability drivers are integrated with other performance management processes.

For the planning life cycle process to be effective as well as efficient, a company must be capable of:

  • Real-time alignment of the strategic plan through to the actual results
  • Integrating the operating plan (business drivers) to the financial plan
  • Planning and managing the cost and profitability of discrete business drivers
Achieving this best-practice planning life cycle is a multi-year journey requiring process redesign and investment in people and technology.

  


Vinayak Shandilya is a specialist with the Oracle Insight team.
Don Baribeau is senior director of Industry Strategy and Insight at Oracle.