Beware of These 2 Telecom Expense Management (TEM) Partner Landmines

Beware Telecom Expense Management Partner Landmines

If you are reading this article, you are likely considering hiring a Telecom/Technology Expense Management (TEM) firm. You realize that you need help, that your internal expense management team alone will not suffice, and that expanding that team organically from within won’t work either.

If you have had a prior poor experience with a TEM partner, then the commentary included here will likely resonate with you. If not, please be aware that that these problem areas are highly common within our modern-era TEM landscape.

Partnering with a TEM is a good idea. However, there are hidden landmines that can result in a painful relationship. We explore several of these landmines in this article so you can understand your options with eyes wide open, increasing your chances for a happy and mutually beneficial relationship with your TEM partner.

TEM Partner Landmine #1: Private Equity Ownership

Beware of High Inorganic, Private Equity Driven Growth: If you are considering multiple TEM firms, you are likely looking at a few higher profile firms. And these larger and more highly visible vendors are often owned by private equity.

Unlike public equity companies that are valuated on: (1) supply, (2) demand, and (3) earnings data, private equity companies are judged on: (1) the present value of a company and (2) the profits it takes. And these two factors will drive the price the company can sell for, which is the top focus for PE management.

And this is essentially the game that PE firms play. They work to make a company attractive with the primary goal being to sell at a profit, usually within a short period of time, usually no more than 5-years.

What’s wrong with this you say? Well, nothing is wrong if you are a PE investor or member of the executive team that will fair extremely well if the PE management team executes its moves according to plan and without unfortunate or unforeseen market complications.

They will sell at a high margin and the key stakeholders will all be happy. A new company will be formed, re-branded and the process will begin anew, all with a fresh injection of cash.

But what is good for PE investors and the PE executive team is not necessarily so for company employees and customers.

Beware of Multiple TEM Technology Platforms via the PE Model

The crux of the issue here is that PE firms are primarily motivated to flip companies at a high profit margin and over a short time horizon (e.g., 4 to 5 years). This singular focus necessitates high inorganic growth in the form of buying many smaller companies quickly, which means absorbing their customer bases and the technology platforms used to service these bases.

For anyone who has worked within the TEM industry for some time and has worked under such management, it’s generally not a pretty scene. In fact, it’s usually very ugly. There is a myriad of problems to contend with that arise from forcibly marrying multiple corporate entities together in an awkward and piecemeal fashion.

And one of the biggest challenges – beyond cultural and personnel conflicts – involves the migration of customer data over to the primary TEM technology platform of the acquiring firm. This is a huge technical challenge that many of these higher profile firms never genuinely get around to truly solving.

Yes, they will have a plan and act as if things are in control but most often, things go awry because the challenge is overwhelming. Not all customer data makes it into the primary technology platform and ad hoc and reactive measures are put in place to simply “get by,” rather than truly provide a high level of quality support to customers. (We will do a future article on this topic alone; please just be aware of this reality for the time being.)

Always investigate the ownership background of a TEM firm you are considering. And if PE owned, inquire extensively about how they manage multiple technology platforms under their umbrella.

Moreover, inquire about how they will hold themselves accountable to you via key performance metrics and service level agreements.

Beware of Inorganic Growth & Inheriting Other Companies’ Problem

Another issue that seems obvious but is often overlooked is the inheritance challenge. When companies merge, there is often a great deal of “happy talk” regarding synergies and “positioning for the future,” etc.

Reality, however, is usually more sobering. Aside from all the typical challenges involving technology (as noted above), personnel overlap, and cultural challenges, the acquiring company usually inherits a plethora of problems that the acquired company brings with them.

There is no need to run through every potential scenario, but the point is clear. Beyond the huge challenge of multiple technology platforms, excessive inorganic growth brings with it many other forced-marriage challenges that make service delivery to customers far more difficult.

Do not be afraid to inquire with your prospective TEM about their recent growth and growth plans over the time frame that you plan to potentially be a customer with them. This is important because if their plans are too aggressive, you will pay the price, not their investors.

Beware of the PE Bottom Line

At the end of the day, many of these larger, highly visible PE-owned TEM firms will do whatever takes to make their numbers work. They have sharp pencils and they us them to ensure profit margins are to their liking.

Unfortunately for employees, it often translates to burnout and high turnover due to overwork caused by inadequate staffing within the United States (e.g., merger layoffs and outsourcing).

And for customers, it most often translates to support being transferred oversees, resulting in less effective results for the customer. The firm will benefit from these labor-cost savings, but they are usually passed on to the investors, not their customers.

TEM Partner Landmine #2: Inventory Built from Billing Records Alone

We have discussed this in prior blog articles such as 4 Key Benefits of an Accurate Expense Management Inventory. But the key thing to remember here is that you will want to inquire with your prospective TEM partner to see how they build their expense management inventory.

Most TEM firms default to building their customer inventories from billing records alone. They do it this way because it is easier and cheaper than leveraging more detailed information such as customer service records (CSRs) etc. This method can lead to missed savings opportunities, especially over the long term.

We believe it’s important to build a comprehensive and highly detailed inventory that is as granular as possible. In another prior inventory management blog, we elaborate on the importance of verification of details as relates to building a useful and clean enterprise services inventory.

Beware of a Weak Inventory for Audit & Optimization

To perform the most effective audit and optimization work, enterprises need highly accurate and detailed service inventories. This is the foundation upon which strong audit savings results are generated. And this is especially critical for performing network optimization analysis.

For example, if you don’t have enough detail within your vendor invoicing, performing audits may be difficult because you lack specific service details to make clear comparisons to governing contract directives (e.g., circuit type, speed, associated features). And this can be especially problematic for optimization analyses because you need total command of all pertinent details to make sound decisions relative to other comparable services.

Beware of Lack of Details for Digital Transformation

We presently live in the era of big data and digital transformation. To make sound decisions regarding network services and potential changes, service data related to circuits and other services must be detailed and accurate.

According to the Enterprisers Project, “digital transformation is the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers.”

To do this right, you need all pertinent carrier services detail. It’s that simple.

Beware of Lack of Details for Order Purposes

An enterprise needs to know all details when placing an order and a detailed and clean inventory facilitates this process and prevents ordering mistakes.

You want your current order placed correctly. And you want the right data in your system to make smart changes in the future. Having incorrect or limited data in your inventory will cost your organization time and money eventually.

Conclusion

Both areas covered in this article are common issues that we see within the TEM industry today. Please be mindful of both areas when evaluating either your first or next TEM partner.

In the end, you want a partner that is committed to your long-term success – beyond their next merger – and one that is also capable of building and maintaining a comprehensive, accurate, and highly detailed inventory.

If you’d like to consider Tellennium in your TEM vendor comparisons, contact us to schedule a brief demo of our solution.

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