Case study: Telefónica progresses massive business transformation

Telefónica has embarked on a massive transformation effort aimed at digitalizing its operating businesses in 15 countries. This article, the first in a series, takes an overall look at how the company is using Frameworx to become a fully digital communications service provider.

As one of the largest communications service providers in the world, Telefónica is facing a ‘do-or-die’ dilemma. Pressure from digital-native over-the-top (OTT) providers and other competitors is forcing the company, like many other network operators, to transform its operating companies into nimble platform-based providers capable of delivering what customers want, when and where they want it. This means transforming everything from business processes to support systems and the network itself.

• Who: Telefónica Global
• What: Business transformation targeting operating businesses in 15 countries
• How: Using TM Forum’s Business Process Framework to overhaul business processes and replacing complex, siloed business support systems with out-of-the-box solutions
• Results: Faster time to market, reduction in training time, and elimination of more than 2,000 systems, 20 data centers and 6,500 physical servers

“We have chosen to compete in this aggressive telco market and not become a commodity, but to be able to compete, we need to transform Telefónica into a digital telco that provides the best customer experience,” says Phil Jordan, Global CIO. “To do so, we need to change the way we operate; the products and services and how we offer them; the information and insights of our customers; and finally, the way we interact with them. This necessity is more and more urgent – we cannot afford the risk of being left behind. This is not an option.”

Over the years, the business has grown rapidly to adapt to customers’ demands and new technologies, resulting in myriad ways of delivering services. This fragmentation has been transferred to IT.

A huge undertaking

Telefónica Global’s operating businesses provide service to 341 million subscribers in 17 countries in Europe and North, Central and South America. The group has embarked on a massive business transformation effort that includes overhauling business processes using TM Forum Frameworx. It is also replacing most business support systems (BSS), such as for customer experience, product and order management, with solutions that are pre-integrated, best-of-suite and Frameworx-based. The idea is to adopt out-of-the-box solutions in all the operating businesses and minimize customization. So far transformation efforts across the divisions have eliminated more than 2,000 IT applications (35 percent of all applications), 20 data centers and more than 6,500 physical servers (25 percent of all servers). But this crucial simplification isn’t the end goal.

“Because of the history of Telefónica and the complexity we have, we cannot build capabilities on top of the current processes and systems platform in an efficient way,” says José Manuel Gascón, Director Global IT Strategy & Transformation. “Simplification was a required step before building the new capabilities for the digital world, but it was not enough. We needed to go even further; we needed a structural transformation that sets the foundation. The overall goal is end-to-end digitalization.”

While Telefónica’s operating businesses work on improving processes and systems, many also are embracing network virtualization and replacing some of their operational support systems (OSS), such as service activation and assurance systems. This falls under what Telefónica calls “satellite” projects, because they are orbiting around the structural transformation. For an example, see this article about VIVO’s network transformation.

Business-led transformation

It’s important to point out that the transformation of Telefónica’s operating businesses is being led by business, not IT. While IT is instrumental in the implementation, the projects start with business goals and a vision established by the top brass at Telefónica Global and within the individual operating companies. The company is reviewing customer experience around the entire customer lifecycle, using customer journey methodology to map journeys with business processes. This provides the link between customer experience and IT capabilities and architecture.

“We are changing processes to change the way we work,” says Horacio Goldenberg, Director, Global IT Architecture. “Without business leadership we wouldn’t have the vision and objectives, which are providing capabilities for the business to become omnichannel, real-time and data-centric, and to have a single catalog for unified management of products and services.”

End-to-end digitalization

Becoming fully digital end to end means putting the customer at the center of all processes and operations and then redefining them with a business vision.

"Every aspect, every area of the business needs to be digital, giving utmost importance to digitalization in the whole value chain,” Jordan explains. “Being digital in the front requires being digital in the back.”

Telefónica refers to its transformation approach as “Full Stack”, meaning a best-of-suite solution based on automation and standardization of core processes with initial focus on covering the full customer value chain in the main BSS and OSS domains. To measure progress, the company is developing a new metric called the End-to-end Digitalization KPI (key performance indicator), which measures enablement of digital capabilities in customer-facing processes. The KPI is built upon accomplishments in process transformation and standardization, and tracks processes digitalization in different business lines and channels. The KPI will help Telefónica identify where to focus on redefining the customer’s digital experience.

Implementing Frameworx via Full Stack

IT is the main enabler of the business transformation, but in order for it to be comprehensive Telefónica had to define a series of principles to follow including: Telefónica developed its own Business Process Blueprint Design using the TM Forum Frameworx Business Process Framework (eTOM) as a model. In 2015 TM Forum carried out an independent review of the blueprint and certified it as fully conformant to the Business Process Framework. The Business Process Blueprint, which is key to ensuring customer-oriented transformation and standardization in all the company’s operating business units, covers the whole customer value chain with 11 customer-facing, end-to-end business processes supporting 75 unique Frameworx business processes (see Figure 1 below).

• standards-based and product-based to ensure it is future proof;
• uses out-of-the-box solutions to minimize deviations and development;
• process-driven to ensure transformation;
• uses mature technology (avoiding old architectures); and
• freezes legacy solutions to avoid incremental investment.

Choosing partners

Telefónica has chosen three suppliers, Amdocs, Huawei and Netcracker, as partners for its transformation efforts, in part because of their commitment to TM Forum standards. Amdocs is providing its Customer Experience Solutions (CES) suite, Huawei its Telco OS system and Netcracker its BSS suite. Each company has strengths from Telefónica’s perspective. Amdocs, for example, has a “very robust” governance methodology, according to Goldenberg, while Huawei, a partner willing to grow in the IT business, has a strong track record of delivering on its commitments to the company. And NetCracker’s solution comes out of the box with a broad scope, so it’s a good solution for small countries that need to be up and running quickly with less integration risk. It also simplifies the project and checks scaling capacity before deployment in larger countries. Although Telefónica’s goal is standardization, the company did not want to partner with only one supplier.

“We did not want all countries to use the same vendor to diversify execution risk,” says Gascón. “Having three means healthy competition among them. It also helps to reduce dispersion and ensure enough bandwidth in the region, keeping the right focus on smaller operating businesses, while still allowing us to improve the vendor relationship and shift to a partnership model.”

Other transformation domains

In addition to the core transformation, Telefónica also is consolidating all business lines and segments into a single online charging system that provides a unified experience which includes real-time rating of services and a consolidated business landscape with similar real-time capabilities, data-sharing possibilities and capabilities for supporting new business models, such as charging for OTT services. The structural transformation is completed by initiatives enabling business intelligence and big data, channel digitalization and digital services capabilities. Other areas of focus include improving infrastructure and production services, and standardization of common back-office tools and processes. IT security is also undergoing transformation, with a goal to make it an intrinsic part of all operations. This includes automating identity and access management as well as security monitoring and analysis.

Telefónica Argentina paves the way

Not all Telefónica’s operating businesses are starting transformation projects at the same time, rather each is setting its own schedule, depending on business needs and goals.

“The why and when of the transformation are defined by each operating business, because they understand the priorities both from the customer’s and the local business’ perspective,” Gascón explains. “The what and how is defined by IT at a global level based on a common strategy to guarantee that the goals are achieved at the group level.”

Telefónica Argentina (TA) has been the pioneer and has achieved encouraging results (see this article for more about TA's transformation). By the end of 2014, just two years after the effort began on the wireless side of the business, the company had moved all 23 million of its mobile customers to new systems. It is now in the process of migrating its wireline customers.

“Argentina has already started to see real impact,” says Goldenberg. “They have seen a reduction in the volume of calls in call centers based on online channel activity, and training time for employees has been reduced. These new solutions are easier to use, but at the same time they are more powerful. They can perform the same tasks but in a better way and in less time.”

Mexico and Peru are also well on the way with transformation projects. In September 2015, Mexico migrated its entire prepaid business representing 90 percent of all Mexican customers to new systems, and Perú has started migrating its customers with the first 15,000 already supported by new systems. Overall, Telefónica expects 77 million customers to be served by new systems by the end of the first quarter. In order to manage all the simultaneous transformations, Telefónica Global IT has developed a common governance model to ensure that the principles of transformation are followed and guarantee an end-to-end business process perspective. Steering, coordination and adherence are coordinated at a local and global level in an integrated way with common objectives throughout project execution, standardization and reutilization.

Towards the Fourth Platform vision

All of this is paving the way for Telefónica to adopt a platform approach that will allow customers to interact with the company in the way they prefer and will give them more power over their own services and the data Telefónica collects about them. Telefónica is evangelizing the idea of a “Fourth Platform”, where the first is made up of the company’s physical assets, such as network, data centers and storage; the second consists of OSS/BSS (IT); and the third is all the products and digital services offered to customers (traditional products and services but also video content, security products, IoT, cloud, etc.). The Fourth Platform is the customer’s data and knowledge, over which Telefónica intends to give customers ultimate control.

“The Fourth Platform centralizes all the data about our customers in personal databanks,” Jordan explains. “On top of these personal databanks, Telefónica builds the intelligence and analytics needed to create recommendations to improve the customer relationship, and then gives the customer control of all this data and information. In addition, we are developing cognitive and real-time speech recognition on top to make interactions with our customers really powerful but easy.”

So, for example, customers could choose to allow none of their data to be supplied to a third party like Google for targeted advertising, or they could agree to allow the data to be shared with third parties in exchange for monetary compensation. Another example could be a customer opting to provide location data to a company like Uber in exchange for an update or discount, or without asking anything in return.

Giving the power back

“The whole idea is to give the data power back to the customer,” Jordan says. “We believe that data is owned by the one who generates it. Privacy and data security are a top priority for Telefónica. We want to make the customer aware of every piece of information that is being shared, for what purpose and how it’s being collected. This gives customers the ability to decide if it is a fair deal and gives them the possibility of opting out.”

To make the Fourth Platform a reality, Telefónica must be digital (real-time and automated) in every platform, and it must exploit a standardized data model supported by big data infrastructure with standard integration between each layer, he adds. APIs will be extremely important in this vision, and a rich API framework that enables internal and external integration is required. For this, Telefonica is relying on standard open APIs. The company has contributed to TM Forum’s suite of Open APIs for digital service management and is one of nine global operators to officially adopt them.

Editor’s note: This is the first in a series of articles about Telefónica’s transformation, which we will present here on Inform. During the coming weeks and months we will feature more detailed articles about the company’s Frameworx-based Business Process Blueprint Design, how Telefónica measures end-to-end digitalization, transformation governance, strategic partnership management, IT security, and use of data analytics.