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Tuesday, December 10, 2013

Many telcos' service innovation & partnering strategies are held back by internal processes

This year I've spent a lot of time with operators around the world. Some of this has been at public workshops such as those I co-run with Martin Geddes, while other engagements have been private strategy sessions about the future of voice, WebRTC or Telco-OTT/service innovation, either solo or with a range of other partners. In addition, I've also sold many operators my research reports and other services, and attended numerous exec-level telecom events like ITU World and ICIN.

Unlike a lot of larger consulting businesses, or major analyst houses, this exposes me directly to an important factor for future success:

How easy is it to do business with a telco, especially as a small company?

As I run most of Disruptive Analysis' administration myself, I am acutely aware of some of the practical issues that others don't see. Top of my list is how easy it is to get paid by a company - how procurement, invoicing and remittance of funds works. More on that below. I also get to see:

  • How companies act in terms of internal silos and fiefdoms, with different groups either not communicating, or actively competing and undermining each other.
  • How hard it is getting meetings set up - and whether they are useful, productive meetings or an exercise in politics
  • Whether "not invented here" syndrome still exists, inhibiting new services and ideas
  • The relative power of "conservative" groups vs. the innovators. (Try suggesting the phrase "open source" and watch what happens)
  • The lack of willingness to take shots at "sacred cows" and question assumptions - the need for, and value of, QoS is a good one here.
  • How few people are focused on the real needs and wants of consumers. Forget all the fancy stuff about having behavioural psychologists and UX specialists - many operators don't even have have product managers for voice telephony.
  • Inability to think critically about vendor marketing and hype. I regularly get pitches regurgitated straight back at me.
  • Institutionalised need for adding unnecessary process steps. I've recently been asked to write a short 2-page article on a topic I know well. No, it doesn't need a 5-stage effort submitting a draft of the "flow", having conference calls & iterating repeatedly.
  • Omni-present shadow of (very slow) legal processes. Yes, telcos are big regulated companies and need to be aware of the fine print. But that doesn't mean that every tiny detail & contract needs to be re-written - often at an internal cost greater than the amount I'm actually getting paid. Be pragmatic, already.
  • Technology-related issues such as vendor selection processes.
Often, operators want to talk to me about partnering, or developing new applications and services. Frequently, the conversation turns to attracting web or mobile developers, creating and marketing own-brand Telco-OTT apps, or partnering with existing Internet/OTT players.

But while all this is very worthy, it is often critically dependent on those operators interacting with small firms, often acting as suppliers. They might be individual web developers, small consultancies helping with user-interface design, startups with a cool product that could be added to a telco's bundle for certain segments and so forth.

Companies that telcos might want to do business with are getting smaller. Whatsapp - with 300m+ users - has about 50 employees. Many "established" WebRTC players have fewer than 10 staff. Tsahi Levent-Levi had a great post on this a couple of months ago - it needs about 4 developers to make a decent WebRTC service. That, for example, a telco might scout and decide was a really neat differentiator and cool to resell as an innovative option for their "enthusiast" users, perhaps. 

Same deal for various new forms of infrastructure equipment or software - NFV/SDN startups perhaps, or firms with a clever idea for a value-added voice app. Maybe a next-gen billing system suitable for digital services, based on users rather than subscribers.

You get the idea. While a lot of innovation does come out of big players like Ericsson & Huawei & NSN & Oracle & IBM and their peers, increasingly telcos need to go back to be able to deal with small companies too. Especially developers, both telco-centric specialists and "long tail" software houses for web and mobile.

Yet for most telcos, doing business with small companies is beneath their radar, because the COO and CFO don't really think about these issues - they are struggling with minimising internal costs, maximising internal process efficiency, and perhaps outsourcing "non-core" functions. The knock-on impacts of this on areas such as innovation capability, or business agility, or flexible partnering, don't see much influence.

A specific example is top-of-mind for me. For many operators, procurement is fundamentally broken. It is bureaucratic, slow, and based on the assumption that telcos have a few long-standing vendor partnerships, with companies with teams of lawyers and form-fillers.

I've now faced the following "process" several times:

a) Inquiry from an operator asking about Disruptive Analysis products/services
b) Have a conference call, write a proposal, negotiate, agree the work
c) Have a call/email about logistics & practicalities - travel, location & format, and whether I need to get started on any paperwork upfront. 
d) "Oh no, just send me the invoice, I'll make sure it gets paid promptly"
e) A month or so later, do the workshop or seminar or present the project's conclusions
f) Submit invoice/expenses
g) A week later get an email from purchasing/finance "You need to fill in this form to apply to be on the supplier database". Something that could have occurred a month earlier.
h) Look at form. It asks for every conceivable piece of information, from certificates of incorporation, to bank statements, to shareholder names & details. I've got one in front of me that wants to know full details of any overdraft or loan facilities offered by my bank to my company. And the square footage of my factories and offices. Oh, and it needs an official company stamp (What?) & to be submitted by mail/courier.
i) Read the covering email. I missed the other form asking for a registration fee. Yes, that's right - they want me to pay them money, so they can pay me. Somewhere between a joke and an insult. This has now happened several times.
j) I go back to my client and raise hell. Luckily, as a reasonably-visible analyst I can wield a little influence when necessary, even without having to descend to threats of naming-and-shaming
k) Maybe there's a back door somewhere. A way to expedite invoicing and payment for "exceptions" that just need to get sorted. Go up high enough in the organisation and you can pull some strings. This may still need a shorter form, and a still-onerous purchase-order registration process though.
l) Chase up for actual payment, or suffer 60/90/120-day payment cycles.

This nonsense needs to stop. In the words of one of my colleagues/partners, "Someone in procurement needs to be fired".

Not just because it's a pain for me, but because it's even more of a pain for the companies that operators NEED to work with, if they're going to innovate and partner/develop new services. Honestly - the process tends to be worse for those telcos that don't have in-house resources like software development, and that critically need to work with small and flexible external shops to get things done.

The sad thing is that I'm seeing telcos who are doing the right things - setting up innovation teams, building digital or OTT services, going out and meeting Internet players or content firms to cut deals. But all that risks being window-dressing, if those same "partners" get as far as the internal business processes, take one look and walk away. Or worse, do work, fail to get paid easily and promptly, and suffer cashflow problems as a result. They won't be working with that operator ever again.

(Incidentally, I'd say that some vendors are almost as bad as the operators. But they often do have multiple systems because they're more used to dealing with local contractors, software specialists and so forth).

So if you're a CFO/COO/strategy head - put yourself in the shoes of a small company trying to do business with your organisation, and see how bad or easy it is. Then try the same, signing up to become an Amazon Affiliate, or eBay Seller, or using Google Adsense. Getting paid by Internet companies (or indeed, paying them) is easy. This is why I now prefer to sell reports by credit-card online. I mentally wince whenever someone says "you need to be on the supplier system" just to buy a report.

It's not just the procurement aspects either - it's the long list above.

This is why telcos seriously need to consider setting up fully autonomous new business units to deal with digital and Internet services. And executives need to empower them to ignore all the stupid forms and rules that the mothership clings to. Just as right-thinking "vanguard" telco units are disintermediating their own core network platforms, they need to bin as many of the useless, innovation-inhibiting processes too and start from the ground-up, with agility and flexibility in mind. 

Never mind a decade of MBA-addled nonsense from big-name so-called "strategy consultants"  about how telcos should reducing their number of suppliers. That might be true if you're building huge radio networks (& even then I'd argue it's flawed). It's certainly not applicable to service creation, developer engagement and true innovation in a fragmented, fast-paced Internet world. There, having more and smaller partners and suppliers is essential to survival. Make sure you're not putting them off.


Anonymous said...

If you want to put it into a few words: Telco business culture is simply fucked up after having a 20 year long lasting party on cost of their subscribers. It's going yo be difficult to change this.

Jose said...

We suffer this pain, even increased, as I guess you don't have to provide your wares for several quarters for a pittance, or even with no commitment to be paid. Very few operators are willing to cross the chasm, we have been found only one so far, an outlier.

I respectfully disagree about the big vendors being innovation engines. They are for sure in radio, optical networks, etc. but not in the fields you mention. Most of the points you make for operators are also valid for big vendors.

GSMA and similar bodies, sharing the same genes, are also heavily inclined towards big companies. The result is that big vendor's vaporware is all over the place, and real innovations, coming from small companies, have a hard time, not only being paid, but even being known.

So, in addition to your points, the long-term impact is also that telco startups are nowhere to be founded nowadays and investment has all but disappeared from this space.

The result is brain drain, innovation is now happening out of telco, bright people find better opportunities in other businesses.

John Slater said...

As you have asked that "How easy is it to do business with a telco, especially as a small company?"
Here my answer would be that for a small company, its not that difficult to do business with telco, because there are some aspects which can help them for a longer run of the business, for example toll free numbers such as 1800 numbers in Australia are helping companies for their branding.