Strategic Insight : Blue Ocean path for Telcos !!

Presentation2
Strategic Insight : Blue Ocean opportunities for converged Telcos !!

Essentially, the future of the convergent industry is in service provision with globalization and personalization spurring consumer demand. The upsurge of convergence has brought not only opportunities, but unparalleled resource advantages to operators. However, whether an operator can go with the flow and thrive in the new environment depends not only on reformulating strategy but also on its timely and effective implementation. Ever since strategic management was introduced to economy field, its main purpose is pursuing competitive advantage in the existence market. Blue Ocean strategy is a totally new strategy compare with old ones.In their landmark book strategy gurus Kim and Mauborgne (2005) divide the market universe into two parts: red oceans and blue oceans.

“Red oceans ” is described as all the industries in existence today which is the known market space. “ Blue oceans ” refers to all the industries not in existence today which is the unknown market space. In red oceans, the market boundaries is clearly identified, the market space gets crowded, prospect for profits and growth are limited, competition in red oceans turns to be bloody. In contrast, blue oceans are defined as a new space in which market boundaries and industry structure are not given and can be reconstructed. In blue oceans, competition is irrelevant since the rules of the game haven ’t been set. Very few incumbent telecom providers has put into place any Blue Ocean Strategies. Yet Blue Ocean Strategies have made the Circus, Wine, Gaming, Airline, etc. industries exciting again, so why not apply it to the telecom market ?

Blue ocean strategy is about creating and capturing uncontested market space, thereby making the competition irrelevant. For example, NTT DoCoMo was the first company to make money out of the mobile internet. In a very competitive industry engaged in a technology race and strong price erosion, NTT DoCoMo was able to achieve superior performance when it launched its novel i-mode services in February 1999. It was an immediate and explosive success in Japan. As with NTT DoCoMo, the goal for a firm’s blue ocean strategic move is the pursuit of value innovation — a leap in value for buyers and company alike. This comes from simultaneous pursuit of differentiation and low cost. NTT DoCoMo pursued the concept of Value innovation : a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. More importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy — the value-cost tradeoff.

In order to achieve its blue ocean strategy, KPN ( the largest Operator in the Netherlands ) has mapped out four concrete objectives: fixed and mobile service convergence; full utilization of current network resources; considerable decline in CAPEX and OPEX; and delivering a variety of new services, which are built on an All-IP network. These services would include: multimedia personal communication services such as, voice, video, photo, data, message, and PTT; IP corporate communication such as, an IP private line, IP PBX, and multimedia service; and multimedia entertainment such as, games, IPTV, the worldwide Web, and Portal.

Operators need to realize that extending connectivity alone cannot keep them afloat. Instead they require software, device and service strategies that can add value and at the same time differentiate them from competition.In the future, the primary operational mode for large players might well be as aggregators of massive services. The key is to open the platform and gain as much partner power as possible. This is the fundamental reason why concepts like Web2.0 and P4P become important.

So what is a blue ocean opportunity in mobile broadband ? Could it be a PPP ?

Based on smartphones a PPP ( Personal Portable Portal ) is generated by integrating frequently used personal applications into a terminal platform for easy and quick access. These applications include vertical portals, professional services, communities, directories, personal information management (PIM), location-based services (LBS), work, entertainment, activities, images, IM, sports, music, reading materials, and Emails.A PPP is distinguished by its inherent freedom, flexibility, and adaptability. Its features include a framework, user data hosting and management, virtual resources, and independence from terminals. Personal portals are easily configured, combined, updated on the web, and loaded onto various terminals.

Many companies, particularly technology firms, do tend to continuously add small features to their products in an attempt to differentiate themselves from the competition through a continual process of “incremental innovation.” Mobile telephone companies are particularly guilty of this, yet each additional “design feature” detracts value from the buyer as the phone becomes increasingly difficult to use.

A study from Eindhoven University found that in the US nearly half of products returned by customers for refunds were in perfect working order, their owners just couldn’t figure out how to use them.Innovation without value tends to be technology-driven, market pioneering or futuristic design that may shoot beyond what buyers are ready to accept and pay for. Value without innovation tends to focus on value creation on an incremental scale that, at best, improves value but is not sufficient to stand out in the market.

For Telcos , most value customers are real-name customers, unlike Google’s anonymous and even nameless customers. Only operators can obtain data on user behavioral patterns, which is a huge advantage over other competitors.Hence, operators are in a position to help their partners promote their products and recommend suitable products to the right customers. They can match massive services to millions of users. This is the service aggregators core competitiveness, yet most operators have been asleep at the wheel and have not collected, collated or utilized the data.

Many applications, such as home security protection, health and medical care, do not merely involve information distribution and interaction, but require hardware deployment and maintenance as well. The OTT providers find it hard to provide delivery or services in a large area and operators with massive service teams can help them and profit as well. The OTT providers lack branding power and a strong credit rating. When users purchase their services, a guarantee is needed.

Operators with long-term operations experience and a good credit and credibility rating can play the role of guarantor. This means that operators must qualify suppliers and control risk. Similarly, when users pay for a service, they usually will not trust an unknown service provider. A third-party, reputable platform is needed for completing settlement and payment actions. This is where operators’ existing mature billing platform can really shine.

Salesforce.com’s strategic moves provide an exemplary demonstration of how a company can effectively create and renew its blue ocean in the B2B field by value innovating its single business on the product, service and delivery platforms alternately. By ‘de-segmenting’ the market and looking at exceptional buyer value across segments and looking for commonalities across non-customers, Salesforce created a new mass of buyers that traversed the traditional segment boundaries. Had they wished to make incremental changes in the industry they would probably have offered a traditional client server model with some element of web-based access as well.

Salesforce however did not go for that route. Instead, they decided to launch a new concept around the mantras of ‘success not software’ and ‘low cost, good enough’, which completely reinvented the way the industry thought about CRM and challenged the traditional value-cost trade-off that buyers were typically used to. In keeping the first principle of Blue Ocean Strategy, Salesforce broke out of the conventional wisdom trap and pioneered to create a new value proposition that forced the market to wake up and listen.

Pureplay broadband access – the mainstay of traditional telcos’ business today – will remain the cornerstone of digital communication in the future for both landlines and mobile communication.But Telcos should build an open digitised platform, utilize their long-term operational resources and experience to integrate more and better services and provide desirable services to end users. By doing so, operators can gradually move their commanding positions from network connections to their own exclusive services or the services with the best user experience.The “right” strategic orientation for each telco depends on five key levers:

1) Personalization of service ecosystem and the customer experience
2) Uncompromising defense of relationships with end customers
3) Cost-efficient broadband network build-ups
4) Realignment and radical streamlining of operating models
5) Financial resources to drive digital transformation and consolidation.

If telcos do their homework with respect to broadband access strategy, customer experience , transform themselves into a cost efficient lean operating model backboned on Omni-digital,they have a real fighting chance to recover the ground lost to the OTT players …instead of complaining they have been relegated to ” dumb pipes “.

YES ..you are dumb if you don’t learn how to swim in the Blue Ocean.Whatever the future holds, all Telcos are called on to refocus and realign – and to do so fast !!

Sadiq Malik ( Telco Strategist )

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