Why cutting 10% of present actuals risks your business

The road to hell is paved with good intentions


Don’t get us wrong, cost management is important. Our point is that you should not base your improvement targets on your present actuals.

With targets such as “All functions cut 10% off the costs”, you risk cutting down on the activities that are key to your success. Too. Because you don’t know for sure that they are actually key to your success. Since you haven’t measured it against relevant peers. This year. It risks your business: The negative impact of 10% cost reduction in an activity that is key to your success could easily outweigh the positive impact of a equally large cost reduction in an activity which actually needed to be trimmed.

COVID-19 has raised the bar. In the midst of a global health crisis, telcos are delivering. For many operators, Q3 2020 represents their best EBITDA margin quarter ever. But we need to be honest about why. Many cost reductions have – so far – come almost automatically:

  • Customer churn dropped to very healthy levels when electronic communication proved so valuable (and brick-and-mortar based competitors no longer could address prospective customers)
  • Sales moved to much more cost efficient online channels when shops were closed or customers didn’t want to go out shopping
  • The sales focus changed from devices to subscriptions which had a negative impact on revenue but a positive impact on margin
  • Demand for entertainment services spiralled
  • Internal travel and meeting costs vanished when WFH prevailed
  • Organisational productivity rose and telcos could get rid of consultants and temps populating the offices

Although operators have lost the – often very profitable – roaming income, Q3 2020 reports have, thanks to the positives listed above (plus some good hard work!), generally demonstrated a margin increase in the midst of a quite moderate revenue decrease.

The notion that a company should be congratulated if it kept its margin during COVID-19 might be right for other industries, but not for telco. The telco benchmark is that it should increase. So if you want to be the best, it’s time to step up.

It’s time to set your improvement targets relative to relevant peers and not relative to your present actuals.

When we early 2021 run our Nordic operator benchmark for the ninth consecutive year it will be tougher than ever to excel in it. All the cost positives mentioned will be factored in and you will be compared to others that actually are fitter than they ever been.

You can no longer use a pre-COVID benchmark to assess yourself and as basis for target setting.

We invite fourteen Nordic operators to participate in the benchmark of 2021. Without revealing too much, not everyone participates every year. We ask: If not now, when?

Here’s a flowchart to help you decide.