Telco 2.0™ Research

The Future Of Telecoms And How To Get There

Strategy 2.0: From infrastructure to innovation and customer intimacy


In this preview from Part 2 of ‘A Practical Guide to Implementing Telco 2.0’, we outline the structural, cultural and strategic challenges of building new competences, and a service development process designed to overcome classic industry weaknesses in infrastructure businesses such as telcos and broadcasters. (October 2012, Executive Briefing Service, Transformation Stream).

Telco 2.0: From infrastructure to customer intimacy and innovation Oct 2012


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Introduction

Telco 2.0’s Chief Strategist, Chris Barraclough, will be exploring these issues further in the highly interactive Executive Brainstorm sessions at Digital Arabia in Dubai, 6-7 November, and Digital Asia in Singapore, 3-5 December. Please email us (including full contact details) if you’d like to register for these senior, invitation only brainstorms, or to pre-order your copy of the report of which this is an edited extract.

Historically telecommunications has been about infrastructure

Back in 1999, John Hagel and Marc Singer wrote an article in the Harvard Business Review called Unbundling the Corporation, in which they argued that companies tended to be formed of three fundamentally different businesses – an infrastructure business, a product innovation business and a customer relationship business.  Each of these businesses has different roles, economics, culture and competition.  This is summarised in Figure 48.

Figure 48: Hagel and Singer’s Core Business types

Core Business

Infrastructure Management

Product Innovation

Customer Intimacy

Role

Build and manage facilities for high volume, repetitive operational tasks

Conceive of attractive new products and services and commercialise them

Identify, attract and build relationship with customers

Economics

High fixed costs make large volumes essential to achieve low unit costs; economies of SCALE is key

Early market entry allows for a premium price and large market share; SPEED is key

High costs of customer acquisition makes it imperative to gain large shares of wallet; economies of SCOPE is key

Culture

Cost focused; Stress on standardisation, predictability and efficiency

Employee-centred; Coddling the creative stars

Highly service-oriented; Customers come first

Competition

Battle for SCALE; rapid consolidation; a few big players dominate

Battle for talent; Low barriers to entry; Many small players thrive

Battle for SCOPE; rapid consolidation; a few big players dominate

Example industries1.

Oil and gas; Water; Electricity

Management consulting;  Law, FMCG

Retailing, Financial services

Source: Hagel and Singer, Harvard Business Review, 1999; 1. Added by STL Partners

Although Hagel and Singer argued that most companies have all three businesses in them, STL Partners would argue that most companies and, indeed, industries have a clear skew towards one of the three business types.  We have shown where example industries fit in Figure 48.

CSPs have historically been heavily skewed towards being Infrastructure Management:

  • Role: the build and operator networks (they are even called network operators although most managers don’t like this name).
  • Economics: They are highly capital intensive and require large scale and high volumes to make a return.
  • Culture:  They focus on standardisation of technology and processes to drive costs down and quality up (minimum faults).
  • Competition: Market share and subscriber numbers has been the mantra in fixed and mobile telecommunications for the last 20+ years.

Although CSPs have aspired to product innovation and customer intimacy, this has not been borne out in their behaviour:

  • There has been very little product innovation in voice or messaging from CSPs in the last 10+ years.  In fact R&D in innovation at CSPs is typically below 1% of revenue.
  • Many CSPs barely interact with their customers beyond sending them a bill each month and at upgrade/renewal.  There has been little material effort made by CSPs to grow their share of wallet beyond telephony services.

Infrastructure management is unlikely to be enough for many CSPS in future

The irony for CSPs has been that while they have been Infrastructure Managers, historically they have derived most of their revenue from on-going services – voice and messaging – which would usually imply strong Customer Intimacy.  The advent of data services has changed things dramatically.  For while it has opened up a new revenue source – broadband connectivity – it has also opened the door to new competitors who themselves are providing voice, messaging and other services.

CSPs, therefore, find themselves less able to monetise their network investments via voice and messaging and, at the same time, find that data is not filling the resulting ‘revenue gap’ (see our recent report on the outlook in Europe for core mobile services).  Some CSPs may ‘hunker down’ and accept that it makes sense to remain an infrastructure manager (a Happy Piper) although even this will require fundamental changes as revenues decline.  Even these CSPS will need to dramatically enhance their neglected Customer Intimacy businesses if they are to protect their existing voice and messaging revenue stream.  More ambitious CSPs – the Telco 2.0 Service Providers – need to also develop a Product Innovation business to grow new revenues. Alex Osterwalder and Yvres Pigneur outline this ‘unbundling’ of CSPs in their book, Business Model Generation (Wiley, 2010), although STL Partners would argue this is less about the unbundling of the three discrete businesses and more about the development of two new ones.

The Telco 2.0 Business Model Framework’s role

The development of new businesses within CSPs implies fundamental changes to the entire company because, as Hagel and Singer observed and we have already pointed out relating to different Telco 2.0 services in Part 1, each business has different skill requirements and processes, partners, culture and economics.  

The Telco 2.0 Business Model Framework (outlined previously here) provides a simple, structured and complete view of a company’s business model and so enables us to cover the main implications of specific Telco 2.0 innovations.  For example, if a CSP wishes to change its value proposition or its revenue model, the Telco 2.0 Business Model Framework is very useful in ensuring that all the implications of such a change within the organisation and outside it (with partners/stakeholders and customers) are considered in a systematic manner.

Service offerings: Bringing Telco 2.0 propositions to market

Introduction

Let’s assume as a starting point that a new Telco 2.0 innovation concept has been identified as potentially interesting to your organisation – either via taking something that has already been done by others or by following the Customer Goal-Led Innovation Process (both outlined in Part 1 of the report).  

Furthermore, let’s assume that the concept has not been fully evaluated.  You may have tested the concept with some customers (if you have followed the Customer Goal-Led Innovation Process in full), but have not undertaken the detailed use case and business case development outlined in the STL Partners scouting service in Part 1.  

Essentially, you have an attractive idea and want to either get it to market or reject it.  

So let’s also assume that:

  • Speed is of the essence.  You need to innovate quickly and aim for a concept-to-launch cycle of 3-6 months (rather than the traditional 6-12 months).  
    • Estimated timings are given throughout the development process outlined below.
  • Quality is critical.  The launched service needs to be compelling to customers and generate traction fast.  
    • Delivering a solution that meets customers’ goals sits at the heart of the following development process.
  • Cost is key.  There is not unlimited budget to burn on new propositions and perceptions of success and failure can often be driven by the degree of investment involved.  
    • The development process focuses on deploying resource in the right places – where it will make the biggest difference to either quality or speed.  The process outlines estimated expenditures (based on transparent assumptions) wherever possible.

An end-to-end process for Telco 2.0 service development

Overview

There are four phases to the Telco 2.0 Service Development Process:

  1. Solution definition. Conversion of the initial Telco 2.0 concept (the output from work done in Part 1), into a tangible compelling proposition for customers and determining the role played by your organisation and others.
  2. Solution validation. Establishing that the innovation meets the commercial needs of the business, conforms to regulatory requirements and is competitive relative to services provided by others.
  3. Solution build.  Assembling and testing the technology required to build the solution and the processes for its delivery.
  4. Solution launch and evaluation.  Bringing the solution to market and evaluating its success so that refinements can be made on an on-going basis.

We summarise the four phases in Figure 49 together with an outline of the twelve steps within the phases.  There are a few important things to note about the process: 

    • It is not a linear process, rather a cycle with evaluation in Phase 4 leading to a refinement of the solution (a return to Phase 1).
    • The boundaries between each phase are somewhat blurred.  For example, assessing the capabilities required for a solution and the roles of your organisation and that of partners (Step 3) is both important for defining the solution (Phase 1) and for evaluating revenues and costs accruing to it (Phase 2).
    • Fast iteration is important – for example the results of the Proof of Concept work in Step 8 could result in (at least) three outcomes:
      • Redefining the value proposition and use case (Step 2)
      • Reassessing the required capabilities and role of your organisation or other players (Step 3)
      • Progression to Sales and Marketing planning (Step 9).

    Clearly, a return to Step 2 or 3 may require further solution validation (Phase 2) but this has to be managed so that the refined solution progresses fast or is rejected.
  • Rejection is feasible after any step but, as shown in the STL Partner Scouting Service, it makes sense to have a few formal gateways where the ‘investment committee’ makes a decision on whether the solution should continue.

The process is most detailed in areas in which CSPs are generally weakest: the Solution definition and Solution validation phases.  These two phases are critical to successful solutions as they provide the foundations for the build, test, marketing and sales phases that follow.  We have not covered each step in these latter stages in the same detail but have, instead, sought to provide some guiding principles or ‘things to watch out for’. 

Figure 49: The Telco 2.0 Service Development Process

Overview of Phases:

Overview of Phases

 

Detailed process steps:

Telco 2.0 Service Innovation - Detailed process steps

Source: STL Partners/Telco 2.0

We'll be exploring these issues further in the highly interactive Executive Brainstorm sessions at Digital Arabia in Dubai, 6-7 November, and Digital Asia in Singapore, 3-5 December. Please email us (including full contact details) if you’d like to register for these senior, invitation only brainstorms, or to pre-order your copy of the report.