Communication Service Providers (CSP) are painfully aware they’re not innovating fast enough to respond to changing customer expectations, or to the new opportunities being created by big data and software-defined services. They risk being sidelined in the fight for customers and the promised revenues from services exploiting 5G such as IoT. – By Gabriele Di Piazza, VP Products & Solutions, Telco NFV, VMware
Innovation was traditionally the responsibility of the R&D department. Each year the budget for the department was allocated, with the business reporting its investment in innovation as a line item on their annual financial reports. As the innovation ‘cycle’ became established in a given company it could become a challenge to ensure that this was still in line with a current understanding of end-users needs. But there was no question about the overall value of driving an R&D department, which was taken as a given.
Research on the top 1000 innovation companies from PwC’s Strategy division found no correlation between R&D investment and sustained financial performance. R&D is important but not sufficient. For those service providers struggling to adapt quick enough to new realities the solution is not necessarily a case of dialing up the percentage of revenue attributed to their R&D budget each year. They need an alternative approach and they need to fundamentally rethink their approach to innovation.
In today’s software-driven, customer focused world, innovation can have multiple drivers. These include business culture and organization, customer feedback, the need to take costs out of infrastructure and to lower OPEX generally, and the imperative to deliver agile services and high value customer experiences. I’d like to suggest that the traditional approach to Research & Development-driven innovation is inherently broken. There are two overarching reasons for this.
Keeping up with the accelerated pace of change
Traditional R&D focused on the development of technology that solved or improved small aspects, so the benefits could be easily predicted and so measured.
But as the impact of the internet and the connected world has taken hold with the need for a wholesale digital transformation influencing many business strategies, these established methodologies have struggled to adapt in-line with not only the pace of change, but also fundamental shift in how the business needs to perceive and engage with their customers.
With a customer-centric strategy as the guiding light, businesses will drive new models of innovation. For any innovation strategy to succeed today it needs to be closely aligned to the strategy of the business and to deliver customer value, as well value to the shareholders and board members.
The tenacity of silos
It’s a fact that many CSPs are still struggling to define and deliver their digital strategy. Many digital transformation initiatives are still set and measured as standalone projects with no clear vision from senior leadership. According to a 2016 survey, 89% of respondents agreed that a Chief Digital Officer was important to lead and drive their digital transformation, but only 28% said they had one in place.
To move forward, businesses need to break the hold silos have on them, to move away from silos of technology, people, and processes towards dynamic, agile and flexible operations.
Defining a new approach to innovation
CSPs should be looking to drive innovation across their business but to do this successfully they need to move on from the traditional R&D mindset. R&D will of course always have a role, but this will change to one that enables innovation that will be implemented by a wider community within the CSP. R&D will create the capability, and then the broader organization will implement. In this way, the actual implementation of innovation will increasingly be done ‘on the fly’ within the operating teams.
For a business to be able to innovate successfully, on a platform delivered through R&D, they need to develop the right combination of culture and collaboration. Without understanding why customers are loyal to your business and the value they receive from your services, a business cannot set the right goals for driving new thinking. At the same time it’s always worth bearing in mind Henry Ford’s famous saying: “If I had asked people what they wanted, they would have said faster horses.” My point here is not that the value of research is questionable, but that all markets are open for innovation, whether they know it or not.
Collaboration is about breaking down boundaries; breaking down the internal silos, engaging with external partners to bring the right new ideas, technology and services to their customers, and finally, engaging with the customers themselves both directly and through the use of analytics. Whatever the drivers and the specific goals, it’s all about nurturing an ongoing change in mindset that sees departments coming together in new ways and working hand in hand for mutual benefit.
A call to arms
The average revenue per user in the telecom industry is falling year-on-year. In 2006 it was $32 per user in Western Europe; in 2016 it was just $15 (-6% compounded). One step in any strategy to reverse the downward trend is for CTOs and CEOs to start thinking about the inter-dependency between the business strategy and the need for a refresh in their approach to innovation.
Despite the pressure these are hugely exciting times for CSPs, one main reason for this being the adoption of 5G which will bridge physical, virtual and social worlds and herald game-changing new technologies – including Virtual Reality applications. 5G will allow CSPs to monetize the network in radical new ways. For example, 5G’s ability to allocate slices of the network spectrum for specific services will offer innovation for service providers to tailor and attract lucrative customer market segments. Network slices will be used to deliver industry-specific services where each slice delivers a set of specific service characteristics tuned to the vertical market’s needs – examples include low latency, high bandwidth, mass connectivity or enhanced security.
Service providers don’t want to miss out on these opportunities by being late adopters and slow innovators – now is the time to take action and avoid being sidelined. Leadership teams within Telcos need to rethink in order to survive disruption.