Hospitality company Carlson, whichowns such familiar brands as Radisson Hotels, T.G.I. Friday's andthe Carlson Wagonlit business travel service, is reaping vastsavings with its new telecom expense management (TEM) provider,whose services go beyond the standard approach of identifyingcarrier overbilling.

According to a recently published Gartner research note,companies that outsource TEM for their fixed lines could save from16% to 32% of overall fixed-line spending in the first two years,and from 5% to 11% in subsequent years, by avoiding costs,recapturing overpayments and staff reductions. If a company wouldrather implement TEM as a managed service, those returns drop to a4% to 15% savings in the first two years, followed by annualsavings of between 4% and 8%.

“Identifying overbilling is the raison d'être for TEM,” saysPhil McDonald, director of sourcing operations at Carlson, whichhad $5.4 billion in 2011 revenue. “Carriers are notorious [for]invoicing incorrectly.”

But such savings are just “the tip of the iceberg,” saysMcDonald, who's pictured above. One of the largest savings Carlsonhas witnessed with its new TEM provider, which McDonald declines toidentify, comes from optimizing the inventory of fixed-linetelecommunication circuits the company uses in the U.S.

The new TEM provider found a significant number of unusedcircuits, which Carlson's previous, also unnamed, provider had not.The new provider also identified telecommunication contracts thathad expired, allowing the carriers to charge Carlson higher“casual” rates for not being on a contract.

In addition to identifying those billing situations, Carlson'sTEM provider constantly offers suggestions on optimizing thecompany's telecom spending by providing data on which carriersoffer cheaper rates so that Carlson can take advantage of thosesavings.

Minnesota-based Carlson is a private company, and McDonald isvery cagey about sharing data on telecom spending and savings. Buthe says the company has reduced its spending on mobile phones andaccessories to 10% of its overall wireless spending, from theindustry average of 30%, by allowing employees to order from aselection of pre-approved devices via a Web portal managed by itsTEM provider.

And at the same time the Web portal has resulted in “a dramaticreduction” in costs for Carlson, “the provider maintains aninventory, provides help desk services and provides VIP supportservices to Carlson executives traveling globally,” McDonaldsays.

All of these new services are in addition to the typical TEMtasks of managing telecom carrier invoices, resolving billingdisputes, tagging invoices with Carlson's general ledger codes andimporting them into Carlson's accounts payable system.

This automated process also eliminated thousands of pages ofmonthly invoices, which in turn won the TEM provider an award forits green initiative.

Selecting a Vendor

When Carlson's McDonald set aboutfinding a new TEM company, he did it in a very systematic fashion.After reviewing a vendor survey on the Association of the TelecomExpense Management Providers' Web site (www.aotmp.com), he investigated 20providers before winnowing the pool to Carlson's currentprovider.

According to Eric Goodness, a research vice president atGartner, there are more than 400 providers in the $1 billion TEMmarket, and the intense competition has created powerful downwardpressure on prices. “Over the past five years, TEM prices have gonedown 75%,” says Goodness, who's pictured at right.

Because profit margins remain tight, providers are spending lesson research and development, which has limited the growth of newfeatures on TEM platforms. Many TEM pure-play providers insteadseek to differentiate themselves as business intelligence and “bigdata” platforms.

“We are seeing some companies trying to be software applicationproviders that let clients go from data to decision making, ratherthan being a process outsourcer,” Goodness says.

The pricing pressure also means TEM providers are chasingsmaller companies.

Goodness sees few megadeals these days. Providers are pursuingcompanies that spend from $5 million to $20 million a year ontelecommunications, rather than the large multinationals that spend$100 million to $500 million. “They are going after firms that evenhave $1 million in spending,” he adds.

From his experience with TEM providers, McDonald suggestscompanies focus on the provider's passion to provide its servicerather than its size. “With the large ones, you may feel lost inthe mix.”

Companies always should check the customer references ofprospective providers.

“I have seen companies with $500 million in telecom spend thatnever spoke to another client of the vendor they chose,” saysGoodness. “Because of that, the company bought a TEM platform, andfive years later it is still not integrated and its value is notbeing leveraged.”

McDonald contacted three client references before signing withhis current provider.

Look Before You Leap

When a finance department goes down the TEM path, it needs toknow that TEM platforms are not just an add-on application.

“This isn't a simple lightweight piece of software that you useas a tool,” Gartner's Goodness explains. “It is basically anenterprise resource planning (ERP) system.”

Typical TEM platforms have “punch outs” to a company's ERPsystems, general ledger, human resources and other enterpriseapplications. Integrating such a platform could take as little asweeks, if the provider has access to client contracts and fewcarriers are involved, to over a year if the client is amultinational that spends more than $20 million ontelecommunications annually and has a decentralized decision-makingprocess, Goodness says.

Companies should take great care during the TEM deployment andintegration, since this is the industry's Achilles' heel, Goodnesssays. “The truth of the matter is that you are not dealing with anintegration organization. You are dealing with small softwaredevelopers that have become outsourcers over a span of time.” Headds that understanding a TEM provider's integration capabilitiesbefore finalizing the deal is critical.

It took Carlson only 90 days to move from its legacy TEMprovider to its current one, and it didn't need any assistance fromthird-party consultants or integrators.

“The process went extremely smoothly,” McDonald says.