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.
Posted by Martin Geddes at 01:00 PMTrackBack URL for this entry:
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The phone system’s value needs to be enhanced by integration with social software. from Roland Tanglao's Weblog
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"We do a terrible job of protecting the user from unwanted communications"
Depending on who "We" are, and assuming you mean the operator of the network, that's because it is not the network operator's job to.
In both your phone call and spam examples, (and if you know what spam is in some absolute "agreed by all sense," you're doing much better than most), it is only the end user who can decide.
Thus it is the job of the network to deliver as cheaply and easily as possible, leaving money in the recipients hands to purchase services/products to do what protection they decide they need.
I'm sorry, but this notion of the network protecting the end user is patronising.
Certainly, if protection is desired it should be available, and given the diversity of the users, from as wide a range of suppliers as possible.
Remember, "End to End" Not "End to some protection provided by the network to End."
Hamish.
I disagree Hamish. If you want to view the Network Operators as carriers only, then you are correct. But that argument is only true for ISPs. Things are different for Telcos.
I don't know of a single Telco that acts as if being a Network Operator is their only job. Telcos sell loads of services, and make most of their money doing it. Consider voice-mail, call-waiting, conferencing, etc. All of these are things that I cannot purchase myself after that fact: they are fundamental to the network itself (at least, in its current incarnation).
Because of this, it is the job of the network (and its associated services) to provide me with protection. Or at least, they should provide me with the ability to purchase it as yet another of their many services.
The day my Telco lets me buy connectivity from them, but my voice-mail from someone else, and my call-waiting from a third-party, is the day I think your analysis would be correct.
I disagree Hamish. If you want to view the Network Operators as carriers only, then you are correct. But that argument is only true for ISPs. Things are different for Telcos.
I don't know of a single Telco that acts as if being a Network Operator is their only job. Telcos sell loads of services, and make most of their money doing it. Consider voice-mail, call-waiting, conferencing, etc. All of these are things that I cannot purchase myself after that fact: they are fundamental to the network itself (at least, in its current incarnation).
Because of this, it is the job of the network (and its associated services) to provide me with protection. Or at least, they should provide me with the ability to purchase it as yet another of their many services.
The day my Telco lets me buy connectivity from them, but my voice-mail from someone else, and my call-waiting from a third-party, is the day I think your analysis would be correct.
I also disagree for much the same reasons. It's precisely these reasons that Martin has been arguing that access and service must be separated, or if not then the carriers must get better at selling services which matter e.g. spam filtering. Or as he puts it more generically, "protecting the user from unwanted communications".
That unwanted material is bad for the user/subscriber but also bad for the carrier as it eats bandwith which could be better applied elsewhere. I've seen estimates both privately and publicly that spam email accounts for 50%-90% of all email traffic. The economic cost of this is truly unacceptable.
Imagine you lived in an area with a lot of toll roads like Chicago or Washington DC and 9 out of every 10 cars on your sluggish commute was a "spam" car using bandwidth and not paying the toll. How would you place your vote for your next senator?
Martin's point here is that when carriers start to focus on their true goals and make investments congruent with those goals, we'll start towards a much more user friendly telecommunications service. A service aligned with subscribers goals will surely survive attack from insurgents - and hence the "telepocalypse" might be avoided.
For those who haven't got it yet - this website is about saving the telecom industry - dumb ass as it is - from itself by finding solutions to the problems of unregulated IP insurgents - not as the name suggest, about destroying it.
David
Posted by: at November 27, 2003 11:53 PMListen, I think Telepocalypse is generally going in the right direction, and at first glance, I like David J Andedrson's insights into management, but let's be really careful when we talk about messing with the middle of the network. The Internet became the success that it is today because it is an end-to-end network. Let's err on the side of keeping it that way!
I'm with Hamish MacEwan; there's only one "we" in "we do a terrible job of protecting the user," that I'd be happy with, and that's the "we" at the ends of the network. It is NOT the connectivity provider's network to protect the user from unwanted anything. In an any-service-over-any-network world, where the network is general purpose and carries everything, the provider of connectivity has no advantage whatsoever in the sale of services, and no mandate to sell 'em.
If you think that telcos will always sell services just because they used to be good at it when the network was a special-purpose voice (or broadcast) network, fuggedaboudit. The Internet breaks the connection between service and substrate, it destroys the link between poetry and pipe (I think Martin said that).
Cliff writes, "The day my Telco lets me buy connectivity from them, but my voice-mail from someone else, and my call-waiting from a third-party, is the day I think your analysis [separating content from connex] would be correct." Well, that day has arrived -- see www.callwave.com. Connectivity from your ILEC, call waiting, voice mail, and lots of other value from CallWave.
David Anderson writes: "Imagine you lived in an area with a lot of toll roads like Chicago or Washington DC and 9 out of every 10 cars on your sluggish commute was a "spam" car using bandwidth and not paying the toll."
David can be forgiven the inappropriate road congestion analogy because he is not a networking geek. Let's consider why it is inappropriate: if a DS-0 (a normal voice circuit) were one lane wide, a 40-lambda by 40 Gbit fiber would make a highway that was 67,000 miles wide. How wide is that? Make a lengthwise tube out of the highway, and it'd be a straw about twice as big around as our planet. In other words, the analogy is totally bogus because highways are real-estate-limited and bit rates are not.
Did I say 40 lambdas? We can do hundreds of lambdas. Did I say 40 Gbits? We have hundred Gbit technology sitting in the lab waiting for demand. Did I say a single fiber? We have cables with 2000 fibers. So don't give me no Chicago-at-rush-hour. If we had a fraction of the connectivity that technology makes possible, we would not notice spam traffic, because we'd be too busy USING THE NETWORK.
We should deal with spam the way we deal with all the other features (and problems) of the Internet -- such asdifferent media, different error and delay constraints, QoS, viruses, etc. -- at the edges. Else we risk putting the bathwater to bed with the baby.
The ILECs do enough looking backwards for all of us. Let's look forwards, at how the new network works. If we cede the middle to meddling we risk a malevolent muddle.
Posted by: at November 30, 2003 08:07 PMWow.
Oh, the road analogy and QoS is done very well at http://www.bricklin.com/qos.htm and David Isenberg has some even more pungent observations about "Quality of Somebody elses service" at http://www.darwinmag.com/read/swiftkick/column.html?ArticleID=622
Cliff, I think you are absolutely correct, "I don't know of a single Telco that acts as if being a Network Operator is their only job." But in fact that is what their job is, which is why they enjoy both privelege and protection, and bear obligation and responsibility as a "carrier." Monopolies are not granted lightly.
Once voice escaped from being a voltage in a copper wire and became an transport independant packet, the game was over for "Telcos." They do now what they did before, because they like it.
Much in the same way as Microsoft likes making proprietary software, the returns are... extraordinary, but we may not need them to do it any more...
Hamish.
PS. I agree with Cliff in another way, since the "Telcos" have emasculated your ability to control or choose the services you get from the "Network" they are now liable to protect you.
PPS. I won't decide for Martin what "Telepocalypse" means, or intends, but check this out for a clear eyed view of the likely outcome http://www.telecomasia.net/telecomasia/article/articleDetail.jsp?id=77591
("Choose or lose: Rethinking the service equation
")
"Customers buy communications events (“messages”). These may be sold individually, or as a bundle."
What if I want to buy _the ability_ to send/get messages at any amount, without being charged per message or bundle ? Is that impossible ? Will no one sell me that service ?
Posted by: at December 2, 2003 08:16 AM