Outdated procurement processes cost telecoms industry $1 billion per year
May 14, 2019
- New industry research by TM Forum shows 30-year-old procurement practices increase costs, decrease innovation and slow down business agility.
- Most of the 300 CSPs and vendor participants agree that current RFP processes are not fit for the coming decade of digital transformation.
- Recommendations include leveraging proof-of-concepts, embracing agile methodology, and decentralization and digitization of the procurement process.
Digital Transformation World, Nice, France, and Parsippany, NJ – May 14, 2019 – Outdated and inefficient procurement processes for IT products and services are costing the global telecoms industry more than US$1 billion every year, according to new research from TM Forum, the industry association driving digital transformation through collaboration. The research found widespread dissatisfaction with the RFP process which has not evolved with the needs of the industry and is slowing the transition to more efficient and agile ways of working.
The Forum revealed the research in a new report entitled “Time to kill the RFP? Reinventing IT procurement for the 2020s”. In preparing the report, TM Forum’s Chief Analyst, Mark Newman, surveyed the opinions and views of over 300 service providers and vendors. He also conducted in-depth briefings with 35 companies, including CSPs from five continents with a combined user base of 2.5 billion mobile and one billion fixed subscribers, plus major IT vendors and system integrators and a range of consultants and legal advisors.
Key findings from his research include:
- Two thirds of CSPs and three quarters of vendors agreed that the RFP process is no longer fit for purpose.
- Procurement processes make it extremely difficult for CSPs to partner with smaller, innovative software and cloud vendors.
- CSPs need to leverage proof-of-concepts to test new technologies and solutions, and transition to as-a-service payment models.
- CSPs should embrace agile methodology by breaking down projects into smaller components and eliminating waterfall practices with suppliers.
- The procurement process needs to be decentralized and digitized.
“There has always been criticism of the use of the RFP for IT procurement because it glorifies the process rather than the outcome,” said Newman. “But what has now changed is the desire to transition to agile IT development and the need for a more flexible, iterative procurement process. This poses real challenges for the procurement function. First, it’s likely to shift the balance between capex and opex budgets. Second, CSPs expect to get more bang for their buck if vendors partner with them on agile development. However, CSPs don’t necessarily know how much a project or solution created with a vendor partner will actually cost in a year’s time.”
TM Forum identified a combination of factors that together drive up procurement costs for CSPs and vendors alike. They include:
- Widespread delays and frequent failures of IT transformation projects;
- Delays in time-to-market for new services and new lines of business;
- Unsustainable total-cost-of-ownership and levels of technical debt;
- Policies that discourage close collaboration and experimentation between CSPs and vendors;
- Processes that block new innovative start-ups and scale-ups from selling to CSPs.
The combined US$1 billion cost of these challenges also excludes the additional financial impact on the industry in terms of reduced competitiveness, an excessively large cost base, and its inability to experiment and innovate with new technologies.
Currently, a CSP’s procurement process typically takes between 12 and 18 months from start to finish. This linear, step-by-step process can be appropriate for major capex investments in commodity technologies such as mobile networks or enterprise software. However, for IT services and applications where the onus needs to be on leveraging cloud-based capabilities to respond quickly to new market opportunities, procurement needs to be more dynamic.
The agile IT approach, recommended by TM Forum, could cut the procurement process to just two to three months. This approach encourages purchasers and vendors to collaborate as partners to, firstly, set standards and capabilities for the desired product or solution, and then create, design, test and re-test different versions of it.
Newman will lead a discussion and workshop about the latest procurement research and how to move forward at Digital Transformation World in Nice on Tuesday, May 14 from 11:00-12:00.
Research partners for this report, produced by TM Forum, include Amdocs, China Mobile, Huawei, Mycom OSI, Reliance Jio and SAP.