For all the financial, operational, and market challenges incumbent telecom operators have faced over the past decade-plus, they still retain real competitive advantages in their efforts to spur renewed growth. Global brand recognition, a large customer base, a rich data set, and a broad array of sales channels are all vital assets they can leverage for success. But telcos won’t likely be able to realize these advantages unless they are willing to undertake a fundamental, multifaceted transformation from product- and volume-oriented legacy businesses into value-focused, customer-centric tech companies.
It’s not that telcos haven’t been trying new things to grow flagging returns and keep pace with digital upstarts, disruptive technologies, and shifting customer expectations. They’ve experimented with agile ways of working, new services or businesses driven by 5G technology,1 and advanced network technologies; launched pilots to tap into the power of personalization2 or AI3; made incremental gains in productivity and efficiency; and even gone as far as separating their network operations from their customer-facing operations to expose the value of their network assets and adopt a service company (ServCo) mindset. While ambitious, most of these efforts have proven incapable of renewing growth sustainably and comprehensively. To achieve that critical objective, our experience and research suggest that telcos should make bigger shifts across three separate dimensions of their organization: mindset, capabilities, and operating model.
The mindset shift involves committing to the customer-centric goal. The new capabilities provide the tools necessary to achieve that goal. Finally, the new operating model serves as a structure for effectively using those tools to get there. Taken together and done successfully, these three fundamental shifts enable a telco to build a “machine” capable of personalizing 100 percent of customer interactions across all outbound and inbound channels to maximize both value for the company and satisfaction for the customer.
The rewards of such a comprehensive transformation can be sizable. Our experience has shown that a customer-centric model can unlock significant value in terms of incremental revenue (up to an 8 percent uplift every year, driven by higher average revenue per user [ARPU] and lower churn), lower cost to serve (10 to 15 percent), and higher customer satisfaction scores (up by 20 to 40 points). But while the potential for capturing new value is high, achieving it involves answering a central question: What does it take, in practical terms, for a telco to pull off an organizational reset of such scope and scale? Even before that, though, it’s crucial to consider what customer centricity really means for telcos.
Understanding customer centricity for telcos
Like any other business, telcos follow five golden rules of customer centricity. These relate to customer understanding and personalization, consistent and seamless experience, proactive and relevant communications, innovation and continuous improvement, and employee engagement and empowerment (table).
Five ‘golden rules’ of customer centricity
| 1 | 2 | 3 | 4 | 5 |
| Customer understanding and personalization | Consistent and seamless experience | Proactive and relevant communications | Innovation and continuous improvement | Employee engagement and empowerment |
| Develop a deep and tech-enabled understanding of customer needs, preferences, and pain points. Utilize data and feedback to inform decision-making processes. Implement automated personalization strategies to tailor offerings and communications to individual customer needs. | Maintain a consistent experience across all customer touchpoints. Ensure seamless transitions between different channels (eg, online and offline). Dynamically tailor interactions and experiences to each customer’s needs and preferences (eg, dynamic user experience). | Establish open lines of communication with customers. Anticipate inquiries by proactively understanding each customer’s context. Foresee and resolve issues before they become major problems. | Regularly assess and improve customer processes based on feedback and market changes. Innovate tech enablers to enhance customer engagement (eg, generative AI, contextual marketing). Expand the value proposition beyond the boundaries of the industry to serve the customer holistically. Partner with tech platforms for faster innovation on customer experience. | Ensure employees understand the importance of customer satisfaction (eg, KPIs such as loyalty, satisfaction, and marginality should be as relevant as new revenues and volumes in company culture). Empower employees to provide excellent customer service (eg, training and tools). Make sure employees have the systems and flexibility to modify recommended offers and content based on the customer or context. |
When it comes to following and applying those five golden rules of customer centricity, telcos have a mixed record. They have made some real progress in the past decade but still have a way to go.
- Customer understanding and personalization. Telco companies are good at collecting extensive data on customer usage patterns, call records, and service preferences—all the raw material needed to develop a deep understanding of their customers. The challenge comes with translating that information into meaningful insights that can drive personalized customer experiences.
- Consistent and seamless experience. Telcos have made efforts to ensure a seamless transition between online and offline touchpoints. Nonetheless, most still provide compartmentalized experiences per channel and product rather than an all-encompassing, 360-degree engagement. For example, mobile and broadband services generally involve separate experiences on the customer end.
- Proactive and relevant communications. Companies are starting to launch selected proactive use cases aimed primarily at selling, such as data add-ons. However, there is work to do when it comes to providing relevant, contextual communications (for example, anticipating network issues), as well as using AI tools to differentiate and prioritize sales versus service communications.
- Innovation and continuous improvement. Investment in certain innovations is strong, including advancements in network infrastructure, new plans and services, and adoption of emerging technologies such as 5G and the Internet of Things. However, the pace of innovation remains a challenge, as does time to market. Telcos need to accelerate the introduction of innovative, customer-centric services beyond their core offerings.
- Employee engagement and empowerment. Telcos typically invest in employee training to ensure customer service reps can address customer queries effectively. However, there is room for growth when it comes to providing employees with tech enablers that can enhance their interactions, such as AI-powered decision models and “next best action” recommendations.
Laying the groundwork for the operating-model shift
If telcos are going to overcome their persistent challenges in reaching the goal of true customer centricity, they can’t take any shortcuts. While a transformed operating model can enable true advantage, it hinges on other factors. A company can achieve customer centricity only in combination with a shift in mindset first, along with the development of new capabilities. That’s why the mindset shift marks a critical moment: this is when company leaders define the goal, coalesce around it, and articulate precisely why it matters.
The mindset shift
This mindset shift involves five important changes, each representing a different way of thinking and a change in priorities that can help telcos follow the golden rules of customer centricity.
- The first is a transition from being product focused to customer focused, which in practice means being product agnostic. The overriding goal should be optimizing customer lifetime value, a standard metric for evaluating which action will generate the most value over the long term, regardless of which telco’s offerings further that mission. Shifting the business toward the broader benefits of connectivity and going beyond the core communication offerings (voice, text, data) to potentially have a more prominent presence in customers’ lives requires that telcos emphasize outcomes, solutions, and experiences over particular products and services. Only by making this change can they serve the customer holistically based on constant feedback, which is key to fostering a culture of innovation and continuous improvement.
- The aspect of the mindset shift that is essential for offering a consistent, seamless experience involves transitioning from being built around distinct, separate channels to omnichannel. Just as the first shift required product agnosticism, this shift requires channel agnosticism. To tap the competitive advantage of a multichannel presence, telcos can ensure that all channels offer consistent value propositions. No matter how a customer interacts with a provider or how often they move back and forth across different channels (even during a single transaction), all channels should deliver the same satisfying, seamless experience.
- Customers generally do not distinguish between commercial and service interactions, and it is time for telcos to follow suit. They should strongly consider turning away from their siloed traditions and shifting from being commercial focused to relationship focused. Every customer interaction should be part of an end-to-end service mindset, from welcome offers to explanations of a plan upgrade. This change in perspective is key to providing the kind of proactive and relevant communications that customer centricity requires.
- Telcos also need to change how they think about financial metrics and performance, changing their priority from volume to incremental value. The value of personalization lies in the incremental “contribution margin” (revenues minus direct cost minus cost to serve). This goes beyond traditional KPIs such as customer base, gross adds, churn, and ARPU. A telco could improve its ability to convert and extract value for every microsegment through a robust personalization model, which depends on employees being sufficiently trained and empowered for every customer interaction. To monitor this progress, chief marketing officers should be attentive to more than market share—they should track other KPIs, such as service margin uplift per customer segment.
- Finally, to gain an optimal level of customer understanding, it’s vital that telcos go from being management driven to data driven. Truly personalizing 100 percent of customer interactions requires making millions of business decisions daily (for example, which action? To whom? Through which channel?), a task that is only possible with data-driven, always-on, AI-empowered decision models.
The capabilities shift
Once a telco has engaged in the mindset shifts necessary for further transformation, the next step is to build and develop capabilities that will enable it. Telcos should focus on seven key moves to do so, which will set the stage for a new operating model.
- Effective personalization depends on a portfolio of actions catering to various customers or role types. This approach, built around persona-based customer segmentation, includes a detailed, granular understanding of customers and their needs during any interaction to develop the most targeted, relevant value propositions or experiences.
- Telcos that build a configurable, parametric product portfolio can offer modular products that the marketing team can customize (within specific parameters). Such options can include varied price points of the same product to cater to different customers or distinct product combinations or groupings to create alternative value propositions.
- Telcos would be wise to create, define, and map out customer journeys covering the entire life cycle (for instance, join, use, care, help). This means developing a portfolio of actions to push to customers at appropriate junctures, depending on specific objectives—from acquisition, onboarding, and up- and cross-selling, to churn prevention, retention, and service-focused use cases. These include commercial communications (such as offers) and service communications (for example, informing customers about an outstanding invoice).
- An AI-powered next-best-action engine works with a set of propensity models for each use case, product, and action (such as churn likelihood, propensity to buy a given product, or frequency of call center use). This engine chooses from a configurable product portfolio to select the right action for the right customer at the right moment, always relying on a customer lifetime value model to maximize long-term value for the company.
- Telcos aiming to succeed in this transformation need to be capable of acting on real-time triggers to contextualize customer interactions. With behavioral data such as geolocation available in (near) real time, they can contextualize outreach so that, for example, a traveler’s arrival at an airport triggers a prompt to purchase a travel data package. (This depends on customers’ consent to use service-based data for commercial actions.)
- A true omnichannel customer experience relies on a single orchestrator coordinating all interactions. This platform or system integrates with the central data platform and is the central brain that manages customer journeys and real-time triggers. This includes pushing actions to all inbound and outbound channels tailored to customers’ preferences and tendencies (for instance, push notification versus SMS).
- An incremental-impact measurement tool is essential for continually optimizing the customer-centric machine. This requires defining, creating, and implementing a new measurement model that includes different KPIs consistent with the mindset shift toward customer centricity (for example, volume focused to incremental-value focused). It also includes new calculation models, tools, and dashboards. Also, the company can use a universal control group (a small share of customers excluded from any customization or personalization efforts) to ascertain the effectiveness of personalized actions—both overall and by use case.
The operating-model evolution
Along with the altered mindset and upgraded capabilities, the crux of telco transformation lies in an evolved operating model. This type of change leads to a faster, more laser-focused organization able to personalize customer interactions at the omnichannel level. Based on McKinsey’s experience with telcos, we’ve identified five central elements that comprise a true operating-model evolution.
Clarify the roles of marketing versus channel teams
Consider the potential problems when a telco has numerous products or strategies being developed and implemented by various siloed parts of the organization. If point of sale (POS) or web, for example, is building a separate approach to customer engagement, there’s the potential for a stratified operating model. That’s why it’s essential to consolidate the design of value propositions and customer engagement strategies within the single marketing function—and transform the channels into highly effective vectors. In this way, the roles and responsibilities of the two teams are differentiated. Marketing develops the plans; the channel teams execute them. The solution is to separate the strategy, which should be centralized, from the execution, which should be left to the channel teams.
One European telco learned the importance of this move. Although the company was focused on offering consistent value and seamless experiences across all channels, its operating model didn’t reflect this. As a result, the company was rolling out different offers based on the channel rather than personalizing them by segment. This created confusion for customers and led to conflicts among competing channels. To achieve consistency and control over customer service across channels, the telco transformed its operating model, centralizing the marketing strategy (that is, value proposition and customer engagement) while providing the channel teams (for example, POS, customer care, digital, teleselling) with the levers they needed to execute the strategy in the most effective way (for instance, commissioning and targets).
Embrace product and channel agnosticism
The mindset shift toward product and channel agnosticism lays the groundwork for a reconfiguration of marketing teams that can help drive customer-centric transformation. Under this new approach, marketing operations focus on segments, personae, and use cases. This is a significant change from the current setup, where marketing teams are usually organized by product and separated into acquisition and management of the customer base. This product-based structure hampers strategic vision on the specific customer or customer segment. On the other hand, an optimized configuration would include two categories of teams, each of whose work is coordinated by a central orchestration hub of people responsible for guaranteeing a consistent customer engagement strategy. Here are the two categories of teams they oversee:
- Segment- or persona-focused teams define 360-degree value propositions by customer segment (for example, younger versus older customers) and include both core and beyond-the-core products for new and existing customers.
- Use case–focused teams design elements of the overall customer journey (for example, acquisition, upselling, credit collection) along the entire life cycle, integrating sales and service strategies to deliver the value proposition.
Embed data scientists into business teams
To achieve the ideal of an entirely data-driven approach, telcos can work to eliminate the long-standing divide between business teams and data scientists. Data scientists tend to be siloed and only involved on demand. The most effective model would have a single agile, multiskilled team, with marketing and data scientists codesigning and working together, piloting, and testing. This is particularly important for context-based personalization, which depends heavily on agility, to reduce the time to market as much as possible. Consider the earlier example about a customer’s arrival at the airport triggering a push-notification offer for an international data package. When the marketing team comes up with the idea for a relevant trigger like this, they must work closely with data scientists to create an AI-based model to implement, pilot, and test the solution. By embedding data scientists directly within these teams, a new level of AI and advanced-analytics capabilities can have an impact.
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Without the active participation of data scientists, business teams can have difficulty leveraging advanced tools and technology. One European telco understood this when planning to roll out a new operating model and redesign the B2C commercial business unit. Much of the transformation was designed around adopting a new marketing tech stack that integrated an AI-powered engine to decide the next best actions based on real-time context and propensity models. While this new solution had great potential, it was primarily based on sophisticated prediction models that required individuals with specialized tech skills to optimize. Since the marketing team alone could not train the engine, test models, and extract the most value, the company coupled the upgrade of its tech capabilities with a new internal setup that organized its customer engagement team into seven agile squads. Each included skilled data scientists who could quickly adapt the AI prediction models to improve the test-and-learn functionality. The new approach led to a 30 percent jump in customer value management margins through improved personalization and contextualization in recommended offers.
Build cross-functional, agile factories
Along the same lines, strengthening the collaboration between technology and business teams can also prove advantageous. This is particularly true in those areas where the pace of change and speed of delivery are key to providing excellent customer experiences and generating value, such as channel platforms (that is, the technical solutions developed by IT, such as app, website, and POS platforms) and product development (including developing parametric portfolios that enable modular, highly customized offers). IT departments are still largely separated from marketing, sales, and customer care. Consequently, every time marketing designs a new product offering (which should become more frequent with personalization), it must write the requirements and send them to IT for analysis, creating a slow, inefficient process. The ideal model would be cross-functional, multiskilled agile teams co-led by the relevant business function and IT. In our experience, a shift to this setup can cause a four-to-six times increase in tech delivery velocity.
Develop an agile working mode
An agile working mode can mean many things. Still, our findings with telcos suggest the priority lies with defining clear accountability and impact KPIs for each team, with named product owners (in other words, heads of agile teams), clearly defined competence (or capability) chapters, and cross-functional team members. With this established, the organization should foster a test-and-learn, rapid-iteration approach. It should also set up regular ceremonies for progress monitoring and enable rapid reprioritization.
How generative AI could revitalize profitability for telcos
A leading New Zealand telco embraced an agile working model to achieve two breakthrough goals: becoming truly customer-centric and improving the time to market of new products and capabilities, primarily by enhancing employee engagement.
The company successfully became 100 percent agile across all functions in six months. Limiting the organizational setup to just three layers (leadership, tribes, squads) and using three front-runner “tribes” to jump-start the changes were critical to this rapid pace of change. The transformation included a move toward flexible jobs, with permanently embedded agile coaches providing more than 100 distinct agile trainings; governance shifts such as a quarterly business review and a 90-day overall company prioritization cycle; and new cross-functional squads (business, customer experience, IT, etcetera) working side by side.
Impacts included a 20 percent operating-expenditure savings in labor costs, ten times faster time to market, and 30-point improvements in both customer and employee satisfaction ratings.
Telcos have many advantages they can bring to bear as they seek to compete in the new industry landscape. Their names alone afford them valuable brand recognition among a large customer base eager for digital services. By definition, they’re endowed with a rich data set and a wide range of sales channels. But these assets alone aren’t enough for them to overcome their current challenges and chart a renewed path for growth and long-term success. To reach that lofty goal, telcos must engage in a fundamental transformation of mindset, capabilities, and operating model. Only by making such expansive changes can a legacy telco hope to become a solutions- and service-oriented techco built around true customer centricity.
