Why would a telecoms company want to lose 90% of its customers?

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The 7 Clues is a great.

What I like the most in the Seven Clues report is that it clearly explains that accounting is merely a subset of proper financial management and

that only the business owner can practise financial management. The accountant does the accounting, and in doing so supports the business owner's financial management. And the business owner uses the accountant's information, but relying on the accountant to do full-blown financial management is short-sighted.

The report nicely "grounds" an otherwise complex topic which many business owners are afraid of touching, so they often move ahead in blissful ignorance. The water hose and the soggy soil under the leak makes an excellent and easy-to-comprehend example, upon which the financial management concept is nicely built.

Tom "Bald Dog" Varjan, Organisational Provocateur Dynamic Innovations Squad
Personal and Firm-Wide Performance Improvement for Management Consulting Firms

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The perils of profitless cash flow!
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Are you getting value from your pricing?
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Follow the money trail!
Performance also counts!
Get more bang for your buck!
Without measurement there can be no improvement!
Where would your business be without customers?
Using your monthly report to improve your profits
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How to balance the value equation
Tilting the balance in your favour
How to pin the tail on the donkey
Are you groping in the dark with your real cost of labour
Mastering core marketing principles
Building a 5P marketing plan
Profit leaking processes
Should you be trying to increase or decrease cash flow
At times it is folly to hasten
5 steps to create your future
What will be the X-Factor in 2009
Lies, damn lies & statistics
How to use a squad profit leak detectives
Confidence leads to action
Increase sales - so easy to say
So you want to know how to increase sales
Is selling a necessary evil?

Why would a telecoms company want to lose 90% of its customers?

By Alastair Drysburgh, Akenhurst Consultants

Earlier this year telecoms company Cable & Wireless announced that it was to cut off 90% of its corporate customers.

Why ? Because they were unprofitable, and C&W wanted to concentrate on the 10% of customers who did make money.

As part of its bid to regain profitability it also planned to shed 50% of its UK workforce. Did these radical steps convince observers ?

Hardly. One newspaper commented sarcastically "It's amazing that no-one else has thought of targetting profitable customers. No wait, they have. The entire telecoms industry is doing it, and several (such as Thus and Colt) have better networks to do it with."

Let me make it clear here that I have never advised Cable & Wireless, and doubt that I would if they asked. However it is interesting to speculate about how they went so wrong. We can often learn something from other people's mistakes.

Were they chasing after volume, regardless of profit ? This is not unusual. I think of one case I saw in magazine publishing where advertising sales were incentivised on volume rather than profitability, and the end result was space being sold at only 20% of the rate per page obtained by competing publications.

Were they reporting the wrong things ? If you report revenue by country, or by type such as voice/data/internet you can easily miss the fact that many customers lose you money. In one consultancy company I know, developing the right reporting and reporting by customer rather than product line enabled us to raise profitability by 25% over 9 months.

Did they have a pricing model which actually made sense ? Or were people happily closing deals and winning bonuses when in fact those contracts were going to lose money ? In a logistics company I worked with, they had been negotiating deals for years without a proper pricing model. When they developed one and reviewed their portfolio they found some contracts losing up to 20% of revenue.

Cable & Wireless's problems didn't arise from unique bad luck or incompetence. They came about because of an unlucky combination of quite common problems. C&W are in such desperate straits because of what has happened in the telecoms industry in the last 10 years: rapid change, an expectation of rapid growth, and the perceived attractiveness of the industry leading to a flood of new competitors.

It is unlikely that your business will suffer the disaster that C&W suffered, but how sure are you that some of the same problems are not lurking beneath the surface, imperceptibly pulling your profitability down and waiting for the moment circumstances change so that they can do some serious damage ?

If you would like to be sure that your business is not about to hit an iceberg, this is what you could do:

Take a look at our pricing white paper at http://www.akenhurst.com/pricing2.htm , our new white paper on the perils of growth - http://www.akenhurst.com/growth.htm

Alastair Dryburgh is a consultant who helps companies find the great business hidden inside their existing business. http://www.akenhurst.com/