Phil McDonald of Carlson Hospitality company Carlson, which owns such familiar brands as Radisson Hotels, T.G.I. Friday's and the Carlson Wagonlit business travel service, is reaping vast savings with its new telecom expense management (TEM) provider, whose services go beyond the standard approach of identifying carrier overbilling.

According to a recently published Gartner research note, companies that outsource TEM for their fixed lines could save from 16% 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 would rather implement TEM as a managed service, those returns drop to a 4% to 15% savings in the first two years, followed by annual savings of between 4% and 8%.

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

But such savings are just “the tip of the iceberg,” says McDonald, who's pictured above. One of the largest savings Carlson has witnessed with its new TEM provider, which McDonald declines to identify, comes from optimizing the inventory of fixed-line telecommunication circuits the company uses in the U.S.

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

In addition to identifying those billing situations, Carlson's TEM provider constantly offers suggestions on optimizing the company's telecom spending by providing data on which carriers offer cheaper rates so that Carlson can take advantage of those savings.

Minnesota-based Carlson is a private company, and McDonald is very cagey about sharing data on telecom spending and savings. But he says the company has reduced its spending on mobile phones and accessories to 10% of its overall wireless spending, from the industry average of 30%, by allowing employees to order from a selection of pre-approved devices via a Web portal managed by its TEM provider.

And at the same time the Web portal has resulted in “a dramatic reduction” in costs for Carlson, “the provider maintains an inventory, provides help desk services and provides VIP support services to Carlson executives traveling globally,” McDonald says.

All of these new services are in addition to the typical TEM tasks of managing telecom carrier invoices, resolving billing disputes, tagging invoices with Carlson's general ledger codes and importing them into Carlson's accounts payable system.

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

Selecting a Vendor

Eric Goodness of Gartner When Carlson's McDonald set about finding a new TEM company, he did it in a very systematic fashion. After reviewing a vendor survey on the Association of the Telecom Expense Management Providers' Web site (www.aotmp.com), he investigated 20 providers before winnowing the pool to Carlson's current provider.

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

Because profit margins remain tight, providers are spending less on research and development, which has limited the growth of new features on TEM platforms. Many TEM pure-play providers instead seek to differentiate themselves as business intelligence and “big data” platforms.

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

The pricing pressure also means TEM providers are chasing smaller companies.

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

From his experience with TEM providers, McDonald suggests companies focus on the provider's passion to provide its service rather than its size. “With the large ones, you may feel lost in the mix.”

Companies always should check the customer references of prospective providers.

“I have seen companies with $500 million in telecom spend that never spoke to another client of the vendor they chose,” says Goodness. “Because of that, the company bought a TEM platform, and five years later it is still not integrated and its value is not being leveraged.”

McDonald contacted three client references before signing with his current provider.

Look Before You Leap

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

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

Typical TEM platforms have “punch outs” to a company's ERP systems, general ledger, human resources and other enterprise applications. Integrating such a platform could take as little as weeks, if the provider has access to client contracts and few carriers are involved, to over a year if the client is a multinational that spends more than $20 million on telecommunications annually and has a decentralized decision-making process, Goodness says.

Companies should take great care during the TEM deployment and integration, since this is the industry's Achilles' heel, Goodness says. “The truth of the matter is that you are not dealing with an integration organization. You are dealing with small software developers that have become outsourcers over a span of time.” He adds that understanding a TEM provider's integration capabilities before finalizing the deal is critical.

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

“The process went extremely smoothly,” McDonald says.

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