1 Commercial Value of International Benchmarking by Patrick Xavier School of Business Swinburne University of Technology Melbourne ITUWorkshop(4)

2 Value of International Benchmarking This presentation examines the commercial value of international benchmarking more broadly (beyond its application to international benchmarking of prices).

3 Learning from International Benchmarking of “best practice” International benchmarking can assist an organisation to focus performance improvement efforts in regard to: competitiveness, revenue/profit/ quality of service, productivity, customer satisfaction, etc., on areas where these efforts yield the best return.

4 Learning from International Benchmarking of “best practice” International benchmarking can identify international “best practice” and this is very important in a rapidly globalising world. Establishing best practice will identify areas where TOT is performing relatively poorly, and therefore where the potential for improvement is substantial. Studying “best practice” can also indicate ways of improving TOT’s own practice.

5 International Benchmarking can help in target setting for performance improvement International benchmarking can also help in setting a range of appropriate targets to assist strategic planning and performance monitoring & improvement in the short, medium & long term.

6 Setting appropriate targets A general guideline as to “appropriate targets” is that they should be neither too easy or nor too hard to achieve (that is, they can be achieved with reasonable effort).

7 Dimensions of international benchmarking Commercially important targets can relate to: profits (rate-of-return on assets or rate-of- return on equity) prices (level and structure) quality of service

8 Dimensions of international benchmarking productivity network expansion & modernisation subscribership growth (where fixed costs are significant “growing the market” is very important and international benchmarking can help indicate high growth areas and services)

9 Financial performance indicators In competitive circumstances, the overall indicator of performance becomes the rate of profit or rate-of-return on assets (or equity). Various other indicators may also be used such as: debt to equity ratio; % of assets internally financed; ratio of operational margin/revenue; etc.

10 Financial performance indicators International comparisons of financial performance have to be made with care and qualification, with many adjustments for differing conditions in various countries

11 Quality of service Quality of service is an important part of competitive strategy. Note that, quality of service is, in fact, part of the price ‘package’. That is, a low quality of service is the equivalent of a higher price.

12 Quality of service indicators 1. Installation time for new services (including new connections) 2. Fault clearance rates (not fault incidence) 3. Response on operator services (first attempt) 4. Call failure rates 5. Number of complaints received

13 Quality of service 6. Percentage of payphones in operating condition at any time 7. Billing accuracy 8. Number of customers with access to itemized billing 9. Operator services 10. Customer satisfaction 11. Speed of exchange modernisation.

14 Productivity Comparisons (i) Costs per line. With modern digital technology, network costs tend to be associated with the number of customers served, rather than the number of calls made, so this measure may be reasonably close to a reflection of cost causation. It will tend, however, to disadvantage operators that achieve low unit costs through high call volumes.

15 Productivity Comparisons (ii) Lines per employee. This tends to benefit operators that focus on providing basic telephony services, and disadvantages those that provide a broad range of CPE (customer premise equipment) and more advanced services.

16 Productivity Comparisons (iii) Revenue per employee. This is a broader measure than lines per employee, but should also take account of differing tariff levels in each country.

17 Productivity Comparisons (iv) Output per employee. This can be derived from revenue per employee by allowing for differing levels of prices in each country.

18 Productivity Comparisons (v) Total factor productivity. This approach can be the least biased of those considered here but reliability of results will depend critically on the availability of good quality data.

19 Some concluding considerations about pricing In principle, costs set the floor for the company’s price. The price must cover all the costs of making and selling the product, plus a fair rate of return. The price ceiling is set by demand and customer value perceptions (and competitors’ prices). But regulation may force prices to be cost- oriented.

20 Some concluding considerations about pricing Price is also an important element in giving effect to the company’s marketing mix and strategic objectives Common pricing objectives include profit maximisation, market share leadership and product quality leadership.

21 Some concluding considerations about pricing Pricing strategy is also determined by a company’s target market and positioning objectives, including positioning for competition in the future.

22 Competing in the future Telecommunications service providers need to be particularly aware of the dramatic changes in technology and convergence that will impact on their ability to compete in the future. Some questions to bear in mind follow.

Competing in the future Which customers do you serve today? Which customers will you serve in the future?

Competing in the future Through what channels do you reach customers today? Through what channels will you reach customers in the future?

Competing in the future Who are your competitors today? Who will be your competitors in the future?

Competing for the future What is the basis for your competitive advantage today? What will be the basis of your competitive advantage in the future?

Competing for the future Where do your margins come from today? Where will your margins come from in the future?

Competing for the future What skills or capabilities make you unique today? What skills or capabilities will make you unique in the future?

29 International Benchmarking: concluding remarks To conclude: International benchmarking can help identify areas of high potential in regard to performance improvement International benchmarking can help in setting a range of appropriate targets for performance improving and for setting business strategies.