I've recently been reading The Goal, a classic business book in novel format (love story included, no extra charge). It explains how traditional cost accounting leads to irrational decision making.
Many of the metrics and decisions of enterprises are creating local optimizations that have the overall effect of moving the organization further away from its one true goal (hence "The Goal"). The goal of a commercial enterprise is to make money for its owners. (My apologies to continental European readers hoping for social solidarity and employee satisfaction -- we don't do that here.) The goal can be expressed in different ways. Traditionally, ROI, cash flow and net profit are the financial measures. But this is not the only way.
The book (and a whole mini-industry of follow-ups and corollaries like this) proposes an alternative approach to cost accounting, namely "throughput accounting". The core fallacy of cost accounting is to try to assign costs and revenue (value added) to individual steps of a process. This attempts to locally optimize the system, but globally is almost certain to lead to the opposite of what is desired. For example, inventory appears on the balance sheet of a corporation as an asset. But in colloqial terms it is a liability -- you want less of it, not more, because it ties up working capital and makes you less lean and agile.
Throughput accounting focuses on value delivered to customers ("throughput"), not cost. Secondary to throughput is inventory, which includes anything you've bought in anticipation of turning it into throughput. Raw materials are one such thing. Inventory could include intangibles like consultancy for product development; it could also include the undepreciated value of machinery as well as product materials. Both of these are deviations from cost accounting. Finally comes operational expense, which is the outlay of turning inventory into throughput.
The goal of throughput accounting is to increase throughput whilst simultaneously reducing inventory and operational expense.
The twin brother of throughput accounting is the Theory of Constraints (TOC). In a nutshell, the throughput of a system is always limited by a system constraint somewhere in the delivery chain. This could be a physical constraint of a machine, but could equally be a policy constraint ("you can't do that because we don't work that way here"), or simply market demand pulling inventory through the system. Whatever the constraint may be, you need to subordinate decision making to optimize the throughput of that constraint. The throughput of the system is determined by the rhoughput of the constraint.
OK, that's enough theory. You can go and read the literature yourself. So on to telecom.
I've been having an email discussion with David Anderson, who runs a blog on agile software development and the theory of constraints. Some pretty spectacular improvments in productivity and predictability have been shown using TOC for software development. He's got an article on throughput accounting principles applied to telecom, which I recommend you read right now.
What is the goal of a telco? As I said earlier, this can be expressed in different ways. In product terms, I believe the purpose of a telco is to maximize the number and value of user communications events, whilst simultaneously protecting the user's attention from unwanted interruption. This only applies for a telco that has ambitions to supply anything more than raw transport.
What are the implications? Well, the purpose of a telco isn't to build networks. Networks aren't thoughput. Customers don't buy networks. Networks are inventory and operational expense (caused by depreciation). Customers buy communications events ("messages"). These may be sold individually, or as a bundle.
In David's words:
The inventory is the data to be communicated (including voice calls). The raw material is the "inspiration to communicate". You generate more inventory by stimulating demand to "talk more" or use higher bandwidth services.
The constraint is the network capacity, or in the case of wireless, the available spectrum. Any telco that is proud of being nowhere near using up its spectrum resources is misguided: it is probably carrying unnecessary inventory, because network constraints are easily elevated by adding more routers and switches.
Telcos do a lousy job of managing "inspiration to communicate". American Express send me an endless stream of offers with inspiration to spend. My nameless telco suppliers never suggest now is a great time to call to my mum or message my boss. So this suggests a change of emphasis. For instance, social software is clearly targeted at inspiring communications events. The phone system's value needs to be enhanced by integration with social software. I'll go into this in more depth another day. Funnily enough, BT used to have an advertising campaign based on "It's Good to Talk", essentially trying to promote phone calling as a passtime and stimulate demand. I think we can do better!
Users need ongoing inspiration to communicate until the pipes are completely full.
There are some things that make it hard to model telecom using TOC. The inventory is extremely perishable -- every moment the fiber isn't lit or the airwaves excited is a moment lost forever. Furthermore, not every user communication is welcomed.
In normal TOC parlance, a faulty product delivered to a customer simply counts as zero throughput. But a piece of spam, or a misdialled number at 3am cause a qualtifiable loss of utility to the customer. It seems to require a concept of negative throughput. This probably implies more theory is required. Perhaps the inspiration to spam counts as negative raw material.
We do a terrible job of protecting the user from unwanted communications. A smart phone service would intercept the 3am call from a first-time caller, and pass them straight to voicemail with a special greeting: "You have called Martin Geddes on 913-484-6903. The local time is 3am. If your message is urgent and you wish to ring the number you dialled, press 1 now, otherwise please leave a message after the tone." And I hardly need discuss email spam as a collective failure of the ISP industry to achieve its goals.
Our virtual communications services are certainly well outside the bounds of a management accounting system conceived for manufacturing physical goods. But without a solid idea of what the goal of a telco should be, or a theoretical model for knowing whether you're getting closer to it, you will never escape the cycle of network overbuilds, capacity glut and service provider disintermediation.
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Telecom theory. from bLOGical
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The phone system’s value needs to be enhanced by integration with social software. from Roland Tanglao's Weblog
(SOURCE: Telepocalypse: Telecom theory via E Land )- Amen! Bring it on! Integrate Skype , audio blogging, etc.
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