How Gain Sharing Is Ringing Up Incentives for AT&T and Accenture | Article

customer callingWith competition growing among long distance and local service providers, AT&T, the communications services corporation, was examining creative ways to leapfrog its competitors and link its customers with the most appropriate calling plans quickly and efficiently. The answer was to use sophisticated tools and technology to get to know each of its customers and then link them to the right plan. In part, this meant understanding individual consumer call volumes and payment habits. The company didn’t want to strap small users with expensive plans that would burden them come month’s end.

“We have a comprehensive offer portfolio,” says Chet Oldakowski, operations vice president for AT&T consumer services, “but we recognized that linking the right offer to the right customer in real time could put us a step ahead of the competition.” Currently AT&T has 40 million residential customers and 4 million business users.

What’s more, the right package sold to the right customer would help AT&T better manage its collections and bad debt. By tracking customer payment histories, propensities, and calling patterns, managers can learn which calling plans and programs best suit a given type of customer. This information helps match customer to program and increases usage and payment ability.

In 2001, Accenture, a global outsourcing service provider based in New York City, approached long-time client AT&T with a proposal: Accenture would use its own understanding of AT&T’s customers to transform AT&T’s relationships with Accenture to create “new thinking in technology, workforce management, and cost savings,” says Andrew Blanchard, a partner with Accenture’s Communications & High Tech group. This project, called Kaleidoscope, was a five-year, $2.6 billion co-sourcing deal designed to transform the phone company’s front office service and sales operations with back office systems management. “We were suggesting a pretty comprehensive change to the customer experience,” Blanchard recalls.

It was followed in March 2003 by another program, this time a five-year, $500 million program to position AT&T’s product development to proactively align its products based on consumer needs, habits, and propensity to pay. The initiative sought to transform AT&T’s residential credit and accounts receivable management functions to support AT&T’s expansion into the local services market.

Previously, AT&T might have overlooked certain customer segments because credit and payment information suggested certain customer groups might not have had the ability to pay, “which might not have been the case,” says Oldakowski.

The motivation for the initiative is clear: Placing the right customer in the right calling plan would encourage more timely customer payment, thereby easing collections and enhancing the company’s revenue stream, Oldakowski says. Accenture could help by better identifying best-case scenarios for tagging customers with programs. Ultimately AT&T would stay closer to its customers by providing a product more closely created to customers’ needs.

Through their combined efforts, the companies project cutting costs in half through deploying new technology and improving process and performance management techniques.

A New Business Model

The AT&T/Accenture co-sourcing arrangement represents a new business model for managing outsourcing relationships, notes Carrie Lewis, senior analyst with the Technology Management Strategies group at Yankee Group in Boston, Massachusetts. Where “mega outsourcing deals” often were maligned as potentially being slow and unresponsive in the face of fast-paced technology changes, the March 2003 program could become the model for strategically and more effectively managing outsourcing relationships, Lewis says. Done right, it will improve programs, grow the relationship between buyer and supplier, keep AT&T close with its customers, and ensure the majority of those working the initiative are with AT&T – as opposed to wholly outsourcing the program, Lewis says.

Moreover, a gain-sharing agreement based on hitting certain project milestones adds strength to the relationship, she adds. This “mega-deal” could define how sellers and buyers work together in the future, “promising efficiencies and costs savings not possible any other way,” she notes. Accenture brings thinking and insights clients don’t typically exercise with their initiatives. Additionally, this deal is narrower, more focused, and shorter in duration than some previous outsourcing deals – and provides Accenture a piece of any gains it produces. It might be the wave of the future.

“This progressive growth versus mega-deal model gives AT&T and Accenture increased overall flexibility, allowing AT&T the freedom to move in different directions and expand into new markets as needed and Accenture the ability to provision AT&T with expanded capabilities and service portfolios as needed,” Lewis writes in a review of the deal.

Further benefits include using predictable consumer habits to create better product offers at the right time for the right market. Direct mail and telemarketing initiatives will be more focused with improved product offerings. As Oldakowski says, this will provide the company with “predictability to do better targeting.”

Buyer, Supplier Both Win

What did Accenture know that AT&T didn’t in order to make this initiative work? It’s more a question of what Accenture stood to gain and where incentives and benefits aligned. Simply put, Accenture was incented to perform. The arrangement was negotiated to ensure either mutual benefit or pitfalls. In these arrangements, suppliers are motivated by the potential to share profits or other financial gain. Similarly, AT&T has an “out clause” in the contract allowing it to withdraw at any time and enjoys a guaranteed benefit stream anticipated from the program. For its part, Accenture receives a share of the additional revenues derived from the initiative.

Additionally, flexibility and a philosophy of “cohesion” between parties make the program more amenable to each. Accenture can bring additional initiatives to the program – with the goal of delivering success for both organizations. To wit, there were 50 such initiatives in the first wave that debuted this spring. This leads to greater mutual incentives. And with an “evergreen” approach to creating new initiatives, the program remains flexible to expand in the future. “This is a revolutionary concept,” says Oldakowski. “We were able to mitigate risk, guarantee financials, and provide incentives for both parties to win by having aligned goals,” he says.

The new model has strong possibilities for the future, Oldakowski continues. AT&T can design better calling plans. Customer care centers and sales channels can work to reach out to certain customer groups. While Accenture created much of the modeling and initiatives, the two work together on planning, and customer service representatives from AT&T still handle outreach.

“It’s not about one expense line, it’s about how it benefits the business,” Oldakowski says.

Lessons from the Outsourcing Journal:

  • Align incentives and benefits. The supplier must be motivated by potential sharing of profits or other financial gain to make the program work. Similarly, the buyer should contractually be allowed to withdraw at any time.
  • Both parties must be focused on one goal: those mutual incentives.
  • Select an evergreen operating model. Depending on the size and needs of the buyer, such a BTO arrangement should be broad enough to encompass future initiatives.
  • Be flexible. Buyer or supplier should be able to bring initiatives to the table.

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