...Therefore a way to making a shift in the Competitive Advantage , a good start is to look at fixed costs in the Centre, Fixed costs help to increase output and profitability, however they also create Vulnerability in the business when external factors are adverse and also inherent Fixed Costs are disadvantages as sluggishness in responsiveness to market demands and losses in profitability.
It is common practice for companies to reduce Fixed Costs by leasing either Equipment, Buildings, that is fine; however, what "converting Fixed Costs into Variable costs", known as Back-End Variabilisation, refers to, is to pay for assets per usage, even better to pay by percentage of sales.
As the Centre delivers Solutions, the major Asset is knowledge, the relatively “few” fixed costs are already reduced considerably; though, there is an important part to look at, the Centre delivers Solutions, such a Solutions are paid by the Customers, mobile Operators; if Front-End Variabilisation occurs (converting Solution Delivery costs to ALL Variable Costs) there is an inherent risk on this, as those “sold” solutions will still be the Centre’s asset. In other words The Operator do not own the Solution (Asset) as they will be paying for it as a "percentage of its sales"; The Centre will be the owner of the Solution until fully paid.
There are benefits to having a Variabilisation Solutions that might be worth to analyze as a business model that help to leverage the Centre’s Competitive Advantage:
-There is an opportunity to bundle other services as managed services, up-to Date upgrades, Software Upgrades delivery.
-Own whole Life Cycle Management of the Solution, remember that progressively, as Operators increase sales they will be contributing to pay for the Solution, therefore, The Centre will be owning the Solution as an Asset.
-By creating a portfolio created for all Solutions delivered, economies of scale and more experience is get.
In the case of Variabilisation Solutions model, premium prices can be included and still appeal the Customers.
The new competitive Advantage, would be, then created not on the Level of Business Scale (at it is now) but on the premises of
-By delivering more services bundled in a Variabilisation Solution, The Centre is in the possibility to be more responsive to Customer’s Needs (it would become more agile).
-Synchronization on Cost optimization for the Centre (as Supplier )and Operator will be achieved.A real Business Partnerships will be created which can even create more business for the Company.
-The Centre will be involved directly with Customers in Risk Management, which turns out to be useful for Quality, Efficiency and good Management in Solutions Delivery.
Good Night!
Reference: Variabilisation, Nicolas K.(BCG), 3/09
