It would be natural to assume that contingency-based fee models offer the most cost effective and the fairest way to charge customers for services. After all, who wants to pay for something they’re not 100% sure they are going to receive? If someone is offering you a solution that you only need to pay for if it’s successful, who would say no? Contingency fee structures are intended to be win-win: if you don’t get what you want, you don’t pay. In many circumstances, this model is successful, but when dealing with Telecom expense management companies, be weary if something sounds a little too good to be true.
Telecom expense management (TEM) firms provide a very necessary and valuable service, but most of them only address the expense management aspect of the telecom ecosystem. Getting a handle on expenses and how to manage them can unequivocally produce cost savings throughout the organization. TEM, however, only cleans up the messy bits that bubble to the surface, leaving the emanating source of the problem untouched. Because, however, contingency-based TEM does produce perceived cost savings, its existence is financially justified and encouraged to continue. It does not dig into the root cause of the problem; it doesn’t lead to viable optimization strategy through complete telecom management. TEM companies that offer only expense management provide a valuable service on the front end, but fail to optimize the source creating out of control telecom expense management. TEM companies find that their entire purpose revolves around relying on these problems that continue to produce disarray on the backend that justify their existence. This unfortunate merry-go-round of telecom management can become a nightmare when the perceived solution exists only because a conflict of interest drives behaviors that are not in the customer’s best interest.
Let’s break this down with a generic example.
A large Retail Chain hires Vendor A for agency and implementation of broadband network connections into various store locations, but not to perform TEM work. Vendor B, also brought into the same organization, is hired to ensure optimized plans and to perform basic TEM. Vendor B charges client via contingency, as they are incented to find and correct errors made by Vendor A, thereby making more and more money. Vendor A’s less than accurate work resulted in approximately 30% of the orders having the wrong billing rates. Although Vendor B caught the errors and fixed them, they of course then billed the client a 40% fee, resulting in large payments for correcting errors that should not have existed in the first place. The two vendors are disjointed and in their own silos, creating a persistent problem for the Retail Chain.
In the above example, both Vendor A and B could likely enjoy a very lengthy relationship with the client, based solely on the reality that Vendor A is going to continue making errors on the order entry side. While it may very well be unintentional, this type of situation, while all too common, cannot expose the fundamental problems preventing ecosystem optimization. The only real solution is to inject control and accountability into each step of the value chain, eliminate any conflict of interest, and focus on a holistic goal, such as lowering an organization’s total cost of telecom (TCT™). Additionally, modeling each fee structure with fixed fees is the only way to ensure conflicts of interest are completely expunged from the process, and that each vendor is held accountable for results. Expense management, even while producing attractive cost savings, absolutely cannot bring an organization any closer to overall optimized telecom management.
When a TEM provider promises a ‘risk-free’ solution by only charging a percentage of the actual savings, break down exactly how they intend to achieve this. The impression of ‘all gain, no risk’ is an illusion that bases its purpose in the collapse of other areas within a telecom environment. However, in a large percentage of cases, savings are created or captured in ways that do not look out for the best interest of your organization. Eliminate the need for multiple solution providers that, in the end, lead you back to where you started: a sub-optimized telecom environment. By taking a more holistic approach to telecom management, you can achieve overall cost control and process integration, leading to a lower TCT™ per employee. If your organization would like to better understand TCT™ in relation to TEM, contact Renodis for a Telecom Assessment.