The diagram below shows what is known as The Whale Curve. It shows a graph of the relative profitability of each product in your product mix.
From the book, “Waging War on Complexity Costs,” by Steven A Wilson and Andrei Perumal, which I’m currently reading.
You might be wondering how a profitability graph could ever peak at over 100%. After all, a company can only ever have a profitability of 100% of whatever its profits are, regardless of whether they’re large or small. But what this graph shows is that 20-30% of the products (or customers or assets, etc) are generating up to 300% of an organisation’s profits, whilst the remainder are actually destroying roughly 200% of profits.
The title of the book appealed to me greatly because two of OSS biggest pitfalls are complexity and cost. Not only that. They’re also usually closely related, as described in “The Triple Constraint of OSS.”
Many of the complexity factors hitting an OSS are beyond our control. We’re downstream of many of the complexity decisions made within our customers’ organisations. When you look at the CAPEX allocation graph below, which end of the scale do you think implies more complexity?
I’d suggest the right-hand side bears more complexity. It shows an estimate of global CAPEX allocated by telcos over a 30 year period. The right-side represents CAPEX being allocated to networks of all shapes, sizes and topologies with an even broader array of services and service configurations running on them. The left-hand side probably represents a predominantly voice-network spend at a time when most revenue tended to be generated by voice calls and ISDN services.
I don’t have a graph that represents profitability of the Telco industry over the corresponding 30 year period, but you can roughly guess that profitability is trending inversely to CAPEX allocations.
The whale curve hints at some provocative statements for our industry:
- Many products in a telco’s product mix are going to be delivering disproportionately more costs than revenues
- Many of the costs have arisen from the increasing bloat of complexity from more network types, more product lines, more configuration options, more pricing bundles, etc
- That complexity funnels into their OSS, which drives up complexity costs
- Most OSS are run as cost centres, generating negligible direct revenues, placing them on the endangered side of the whale curve
- If we want budgets to continue to be allocated to OSS projects, we collectively have to find a multitude of ways of dragging our OSS over to the left-hand side of the whale curve
Just one last thought – network virtualisation is touted as being the upcoming saviour of the telco industry, the great cost reducer. But do you also feel that complexity costs are only going to go up when virtualised networks are installed alongside existing/legacy network platforms? Perhaps once legacy kit is progressively removed then complexity costs “might” finally start to come down… although the march of CAPEX allocations tends to indicate that the Telco industry hasn’t been great at subtraction projects in the last 30 years – not on their networks, products or OSS.Read the Passionate About OSS Blog for more or Subscribe to the Passionate About OSS Blog by Email