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What is wrong with the telecom operators’ Fixed Price / Fixed Scope engagements?

Author

Gergo Toth
April 25, 2023

Fixed Price / Fixed Scope in the telecommunications industry is never a win-win situation for the operator and the vendor. Telecom operators are constantly facing challenges and changes in the market, customer needs, and technology. As a result, it is essential for telecom operators to have flexibility in their engagements with vendors to ensure that they can respond effectively to changes and maintain their competitive edge. Fixed Price / Fixed Scope engagements, however, can be limiting and can create several challenges for both telecom operators and vendors:

1.) The challenge of the unknown: One of the key challenges with Fixed Price / Fixed Scope engagements is the lack of context and insufficient content in RFPs (request for proposal). RFPs are typically used to solicit proposals from vendors for services that the telecom operator requires. However, if the RFP content is insufficient, it can lead to vague proposals and misunderstandings between the telecom operator and the vendor. As a result, the telecom operator may not receive the services that they require, leading to project delays and cost overruns.

2.) Inflated price: Another challenge with Fixed Price / Fixed Scope engagements is that the bidder's price includes a high contingency for risks and unknowns. This can result in the vendor overcharging the telecom operator, as the vendor will account for any potential risks or additional scope that may arise during the project. Moreover, the vendor may be incentivized to compromise the quality in order to stay within the fixed price, leading to dissatisfied customers, less robust solutions, and potential legal issues.

How to do it better?

- Running conversations with vendors before issuing the RFP can gain a better understanding of the telecom operator's context, architecture landscape, organization, systems, and processes. This can help vendors provide a more accurate assessment of the project's scope and requirements, leading to better estimation and less contingency for unknowns and risks.

- Vendors can provide valuable insights and share the latest trends and best practices with the telecom operator, which can help the operator write a better RFP.

3.) Flexibility: Fixed Price / Fixed Scope engagements also limit the flexibility of telecom operators to respond to market changes, strategy changes, and requirement changes. With Fixed Price / Fixed Scope engagements, however, any changes to the project scope can lead to additional costs and delays.

Should Fixed Price / Fixed Scope engagements be avoided in the telecommunications industry?

- Above mentioned challenges can make it difficult to achieve a win-win situation, where both parties benefit from the engagement. The vendor may lose from its margin or generate a loss with the engagement, while the telecom operator may be overcharged for the engagement or receive services of poor quality.

- Engaging in a Fixed Price / Fixed Scope engagement can be a good choice for telecom operators and vendors that have a long-standing partnership and know each other well. In such cases, the scope is usually well-defined, and there are minimal risks and unknowns, making the engagement more predictable and easier to manage.

If the telecom operator is undergoing a digital transformation, there is an option better than Fixed Price / Fixed Scope: Time & Material with a Product Mindset

Let’s compare.

Fixed Price with Project Mindset:

Focus: On completing the project according to the plan

Approach: Sequential, rigid, and structured

Timeline: Fixed and predetermined

Vendor’s ownership: delivering predefined requirements on time and within budget

Time & Material with Product Mindset:

Focus: On delivering a product that meets customer needs

Approach: Iterative, flexible, and adaptive

Timeline: Evolving and continuous

Vendor’s ownership: delivering a high-quality product that meets customer needs and generates revenue

Story Time

How a telecom operator created its first self-care mobile app:

1. Telecom floated an RFP.

2. Telecom awarded a capable Vendor.

3. Vendor started the project.

4. Vendor found out that key enablers are missing from Telecom’s architecture landscape.

5. Vendor delivered a suboptimal solution from a customer experience perspective, due to the lack of enablers. Of course, the Vendor was not incentivized for the business outcome.

6. The mobile app went live and initially earned good ratings.

7. The mobile app rating became worse and worse over time because the RFP did not include Application Development Managed Service post go-live: there were no app updates for keeping up with device compatibility, incorporating customer feedback, and leveraging new architecture capabilities.

How to apply a Product Mindset for digital transformation in the telecommunications industry?

  1. Engage the right vendor with Product Mindset for a Time & Material contract.

  2. Come up with a commercial hypothesis based on assumptions and factual data. This hypothesis should be aligned with the telecom operator's overall strategy and business goals.

  3. Perform discovery to understand what products might delight the customers and how the legacy architecture can be transformed with smaller evolutionary steps into modern digital architecture.

  4. Set up product teams that can focus on developing features and functionality that will drive:

    1. Incremental revenue

    2. Growth in ARPU

    3. Churn reduction

    4. Cost reduction

      or other KPIs/OKRs

  5. Gain management backing to get the product teams supported by existing teams throughout the legacy architecture transformation.

  6. Monitor the product's performance and adjust the strategy based on customer feedback, market trends, and changes in the competitive landscape to ensure that the product remains relevant and valuable to customers over time. The vendor shall be evaluated based on the achieved business outcome and OKRs.

Join me to explore how digital transformation initiatives can perform better in the telecommunications industry.

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This is a personal post. The views and opinions expressed here are only those of the author and do not represent those of any organization or any individual with whom the author may be associated, professionally or personally.