Tag: agile

Breaking down silos for telco adaptability

Dismantling silos and going agile

Traditionally, telcos have been managed top down and organised around the main functional units of network, IT, marketing, sales, customer care, finance and shared services (e.g., HR, legal, facilities). Each unit (silo) has had its own objectives, budget and systems, which may have come into conflict with those of other units from time to time and/or resulted in overlapping efforts and duplication of work. More recent thinking shows that there are benefits for those that can break away from siloed structures, but telcos have struggled to do so.

This report looks at the ways in which some telcos have approached the task of dismantling silos and going agile. The researcher was not an agile specialist but has experience of such transitions from a strategic perspective. For the purposes of this report, agile working is defined as a system of work where cross-functional teams are formed around critical tasks. Team members work towards a common purpose and are autonomous, allowing for fast decision making. A typical agile organisation structure comprises tribes, chapters and squads. The nuances of different agile models are not discussed in depth. The focus is to identify lessons and recommendations based on real-world telco experiences.

In each of the five case studies we address these questions:

  • Why was the action considered? What was the rationale for the telco to embark on the transformation? What were the key strategic drivers?
  • What was the process of change? Over what timeframe was the transformation implemented, and how was it achieved?
  • What was implemented? Which structures were used, and which parts of the organisation were impacted?
  • What were the outcomes? What were the successes and challenges faced?
  • What lessons were learned? What should other telcos consider when looking to breakdown silos?

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The silo situation

Traditional telcos divide employees into functional silos, grouping them based on their job titles, responsibilities and skills. These groups focus on group goals and tasks which can result in a “silo mentality” where information, resources and skills become trapped as there is limited incentive for communication. Figure 2 shows a typical silo organisation structure.

Typical silo organisation structure seen in telcos

Silos can inhibit organisational productivity and innovation, as many critical activities fall across multiple functional areas. For example, customer proposition development includes the activities of identifying needs and developing products, pricing, advertising, sales strategy, customer experience and care, subscriber acquisition and retention costs (device subsidies) and overall business casing/budgets (see Figure 3). Each activity requires collaboration between different functional teams, who may have different agendas – it also results in confusion as to where responsibility for customer proposition development lies overall.

Cross silo inputs for customer proposition development

Table of Contents

  • Executive Summary
  • Introduction
  • The silo situation
  • Benefits of breaking down silos
  • Why should telcos break silos now?
  • What prevents telcos from breaking silos
  • Case Study 1: Going agile in commercial teams in a medium-sized opco
  • Case Study 2: Going agile in part of a large multinational telco
  • Case Study 3: Deploying agile at scale at Telstra
  • Case Study 4: Deploying agile working in a separate entity (TELUS Digital)
  • Case Study 5: Deploying agile working in stages (Swisscom)
  • Conclusions
  • Recommendations
  • Index

Related research

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The state of telco transformation

There are two possible interpretations of the phrase “the state of transformation”:

  1. How is transformation going at telcos, i.e. where are telcos on the path to transformation
  2. The condition of transformation, i.e. what does it mean to be in the process of transforming.

Over the summer of 2022, STL Partners carried out nine in-depth interviews with telco employees that were involved in influencing, coordinating, or implementing large change projects at their organisations. These change makers came from various disciplines: Strategy, HR, Transformation project management, Networks, Technology, as well as Research. Our first intention was to illuminate the first interpretation (where are telcos on the path to
transformation), but our findings suggest that transformation paths (and indeed end states) are unique to each operator, making it difficult to compare progress between telcos.

No one path – overlapping changes in multiple areas

Source: STL Partners

We have mainly come away with findings on the latter point – identifying the types of change initiatives underway and the challenges that change-makers are encountering on their journeys.

This report brings together insights from our interviews, contextualised with further information from secondary sources and ongoing conversations with operators, to give a sense of what telcos mean when they talk about transformation and what their challenges are in becoming more adaptable as organisations to find growth.

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Why is Transformation important to telcos

Far from being an irrelevant or out-dated concept, telcos continue to transform internally. Transformation is understood as a deep change initiative that might involve a shift in foundational technology or a broad-based change in the way an organisation does things, i.e. the culture, processes and the people required – or both.

Most commonly, transformation involves the integration of digital technologies/tools (e.g. cloud, automation, data analytics) into organisational processes to improve business outcomes – with an impact on ways of working (“digital transformation”).

Some telcos talk about transformation in terms of functional initiatives (e.g. IT modernisation), ostensibly affecting a subset of the business, while others talk about transformation from an organisation-wide perspective (e.g. a change in culture like Lean Six Sigma).

The common feature between telco narratives about transformation is that they are motivated by
trying to improve the organisation’s ability to achieve their future vision. This could involve:

  • Making the business more efficient,
  • Creating new value/finding new revenues,
  • Improving outcomes for customers.

Transformations are also undertaken when the vision changes (e.g. when a new leader takes the helm). STL observes that interview respondents described technology-led transformations as aligned to efficiency benefits in the first instance, while organisation-led change was more aligned to responsiveness, particularly in relation to customer needs (improving outcomes). Respondents tended to describe combined technology- and organisation-led change initiatives when there was an ambition to do new things/create new value for customers.

The meaning of transformation – activities cited in interviews

Source: STL Partners

Respondents also mentioned:

  • Transformation in the context of the industry, particularly the possibility that new technologies may change the shape of an industry (e.g. tech companies may find it easier to enter telecoms with their technology capabilities, while telcos may find it difficult to extend services up the technology value chain).
  • The enterprise opportunity represented by digital transformation services.

These were not topics for further exploration in our interviews. Industry transformation is a topic for STL’s Executive Briefing Service – however the threat of industry disruption can and should be an inspiration for corporate transformation. Digital transformation services are covered in our Enterprise stream.

Table of contents

  • Executive Summary
  • Introduction
  • Why is Transformation important to telcos
    • Different change trajectories
  • The condition of transformation – being in the process of it
    • Where do telcos have transformation efforts underway
    • How are transformation projects approached at telcos?
    • Who is responsible for transformation?
  • Barriers to transformation
    • Change leadership issues
    • People challenges
    • Execution difficulties
  • What is holding telcos back from being future-ready organisations?
    • Out with the old…
    • …In with the new
  • Conclusion
    • Recommendations

Related Research

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Vision stories: Getting the most for transformation

Developing a vision

STL Partners began this investigation with the hypothesis that a vision (some statement of a desired future end state) is imperative to secure stakeholder buy-in for a successful business transformation. As we researched this hypothesis, it became clear that having a vision statement is not enough. Increasingly, transforming telcos do have a vision-like statement of some kind, but they continue to struggle with buy-in and the movement towards new ways of doing things.

A 2021 ETIS study (TeBIT 2021) leveraged BCG’s Digital Acceleration Index (DAI) to evaluate the digital maturity (i.e. extent of transformation) of European telco participants. While typically lagged telco digital maturity levels worldwide, both telcos at a worldwide and European level were rated generally more progressed in terms of their digital purpose, vision and ambition than in any other DAI category (see top line “Purpose and strategy” in figure below): Telcos are putting transformation visions in place. However this does not translate into higher maturity elsewhere (i.e. Technology Enablers or Human Enablers).

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Telcos are putting transformation visions in place

telcos-putting-transformation-visions-in-place-stl-partners

Source: ETIS/BCG TeBIT Benchmarking Report 2021

Further to this, in a survey of 56 telco employees (between March and July 2022), STL Partners found that executive visions could do more to drive transformations (figure below). The sample was limited to telcos from the APAC region, however this message has been echoed across STL Partners’ client interactions.

The quality of an executive vision facilitates transformation

telco-steps-to-better-facilitate-transformation

Source: Survey conducted by STL Partners, n = 56

This begged the question: if telcos potentially have some kind of “vision” in place, why are these visions not driving transformation?

In this report we examine their vision practices to understand how these may be impacting transformation buy-in and action among stakeholders (particularly those most impacted by the change – employees), as determined by progress of transformation to date. We want to identify how telcos can leverage a vision to guide and unite stakeholders to drive the transformation forward.

What is a vision?

For the purposes of this report, a vision is regarded as a picture of a future that outlines where the company is headed in achieving its goals.
Vision can be provided through a transforming entity’s statements of “purpose”, “ambition”, “mission” or indeed “vision”. Nomenclature varies by organisation, and some may describe their desired future through a combination of the above. We believe that what is important in driving transformation is not the designated labels, but the fact that a picture of the future exists, and that the telco is driving towards it.
One of the biggest proponents of vision as essential for driving change is Dr John P. Kotter, who originally published his seminal work “Leading Change” in 1996. He defines a vision as “a picture of the future with some explicit or implicit commentary on why people should strive to create that future”.

Why does a vision matter?

Organisations need a vision to act as a guiding light or beacon for stakeholders to unite behind and strive towards to realise the transformation. The existence of a vision helps to demonstrate the gap between the organisation’s current status and where it wants to be, making the need for change evident.

A vision reveals the need for change

Vision-stories-STL-Partners-need-for-change

Source: STL Partners

Kotter says a good vision serves three important purposes:

  1. It clarifies the direction of change: An effective vision will eliminate confusion or disagreements on direction or doubts on the necessity for change. Asking a simple question – is this in line with the vision? – can eliminate discussion and speed up decision making.
  2. It motivates people to take action in the right direction: Change may be painful for people in the short term and not in their best interest. A vision helps to overcome reluctance to change.
  3. It helps co-ordinate the actions of thousands of different people in a fast and efficient way: The alternative may be endless meetings or detailed directives, which is slower and costlier. A good vision enables people to take action without having to constantly check with their boss.

Table of contents

  • Executive Summary
    • Five recommendations for the “vision story”
    • The scope of transformation and the need for a story
    • Comparison of approaches
    • Next Steps
  • Introduction
  • What is a vision?
    • Why does a vision matter?
  • Spark New Zealand
    • The need for change at Spark
    • The scope of Spark’s transformation
    • How Spark communicated its vision for transformation
    • Leaders invested time in communication
    • Summary of Spark’s practices and results
  • BT Digital, UK
    • The need for change at BT Digital
    • The scope of BT Digital’s transformation
    • How BT Digital communicated its vision for transformation
    • Summary of BT Digital’s practices and results
  • M1, Singapore
    • The need for change at M1
    • The scope of M1’s transformation
    • How M1 communicated its vision for transformation
    • Driving the vision home
    • Summary of M1’s practices and results
  • Conclusions and recommendations
    • What to communicate
    • How to communicate
    • The role of leaders
    • Recommendations

Related Research

Previous STL Partners reports aligned to this topic include:

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Pursuing hyperscale economics

The promise of hyperscale economics

Managing demands and disruption

As telecoms operators move to more advanced, data intensive services enabled by 5G, fibre to the X (FTTX) and other value-added services, they are looking to build the capabilities to support the growing demands on the network. However, in most cases, telco operators are expanding their own capabilities in such a way that results in their costs increasing in line with their capabilities.

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This is becoming an increasingly pressing issue given the commoditisation of traditional connectivity services and changing competitive dynamics from within and outside the telecoms industry. Telcos are facing stagnating or declining ARPUs within the telecoms sector as price becomes the competitive weapon and service differentiation of connectivity services diminishes.A

The competitive landscape within the telecoms industry is also becoming much more dynamic, with differences in progress made by telecoms operators adopting cloud-native technologies from a new ecosystem of vendors. At the same time, the rate of innovation is accelerating and revenue shares are being eroded due to the changes in the competitive landscape and the emergence of new competitors, including:

  • Greenfield operators like DISH and Rakuten;
  • More software-centric digital enterprise service providers that provide advanced innovative applications and services;
  • Content and SaaS players and the hyperscale cloud providers, such as AWS, Microsoft and Google, as well as the likes of Netflix and Disney.

We are in another transition period in the telco space. We’ve made a lot of mess in the past, but now everyone is talking about cloud-native and containers which gives us an opportunity to start over based on the lessons we‘ve learned.

VP Cloudified Production, European converged operator 1

Even for incumbents or established challengers in more closed and stable markets where connectivity revenues are still growing, there is still a risk of complacency for these telcos. Markets with limited historic competition and high barriers to entry can be prone to major systemic shocks or sudden unexpected changes to the market environment such as government policy, new 5G entrants or regulatory changes that mandate for structural separation.

Source:  Company accounts, stock market data; STL Partners analysis

Note: The data for the Telecoms industry covers 165 global telecoms operators

Telecoms industry seeking hyperscaler growth

The telecoms industry’s response to threats has traditionally been to invest in better networks to differentiate but networks have become increasingly commoditised. Telcos can no longer extract value from services that exclusively run on telecoms networks. In other words, the defensive moat has been breached and owning fibre or spectrum is not sufficient to provide an advantage. The value has now shifted from capital expenditure to the network-independent services that run over networks. The capital markets therefore believe it is the service innovators – content and SaaS players and internet giants such as Amazon, Microsoft or Apple – that will capture future revenue and profit growth, rather than telecoms operators. However, with 5G, edge computing and telco cloud, there has been a resurgence in interest in more integration between applications and the networks they run over to leverage greater network intelligence and insight to deliver enhanced outcomes.

Defining telcos’ roles in the Coordination Age

Given that the need for connectivity is not going away but the value is not going to grow, telcos are now faced with the challenge of figuring out what their new role and purpose is within the Coordination Age, and how they can leverage their capabilities to provide unique value in a more ecosystem-centric B2B2X environment.

Success in the Coordination Age requires more from the network than ever before, with a greater need for applications to interface and integrate with the networks they run over and to serve not only customers but also new types of partners. This calls for the need to not only move to more flexible, cost-effective and scalable networks and operations, but also the need to deliver value higher up in the value chain to enable further differentiation and growth.

Telcos can either define themselves as a retail business selling mobile and last mile connectivity, or figure out how to work more closely with demanding partners and customers to provide greater value. It is not just about scale or volume, but about the competitive environment. At the end of the day, telcos need to prepare for the capabilities to do innovative things like dynamic slicing.

Group Executive, Product and Technology, Asia Pacific operator

Responding to the pace of change

The introduction of cloud-native technologies and the promise of software-centric networking has the potential to (again) significantly disrupt the market and change the pace of innovation. For example, the hyperscale cloud providers have already disrupted the IT industry and are seen simultaneously as a threat, potential partners and as a model example for operators to adopt. More significantly, they have been able to achieve significant growth whilst still maintaining their agile operations, culture and mindset.

With the hyperscalers now seeking to play a bigger role in the network, many telco operators are looking to understand how they should respond in light of this change of pace, otherwise run the risk of being relegated to being just the connectivity provider or the ‘dumb pipe’.

Our report seeks to address the following key question:

Can telecoms operators realistically pursue hyperscale economics by adopting some of the hyperscaler technologies and practices, and if so, how?

Our findings in this report are based on an interview programme with 14 key leaders from telecoms operators globally, conducted from June to August 2021. Our participant group spans across different regions, operator types and types of roles within the organisation.

Related research

Why CFOs must drive telecoms business model change

The telecoms operator’s conundrum – how to break the service innovation status quo

Telco CFOs need to upweight telecoms R&D investments to drive differentiating service innovations. If they don’t, telcos will recede further into the category of low yield, low growth commodities.

The relationship between a company’s financial and commercial model is complex:

  • The financial model determines the commercial model of a company – what commercial goals it is able to pursue and how it is able to pursue them
  • But the commercial model also feeds directly back into the financial model of the business and determines how resources are allocated

The interrelatedness of commercial and financial models means that change is sometimes difficult – a ‘chicken and egg’ situation occurs in which each model relies on change in the other before it can change.

This ‘chicken and egg’ situation is apparent within the telecoms industry:

  • Business owners within operators want their organisation to become more agile, more flexible, more innovative which implies having resources that can be (re)deployed quickly, but they find it hard to secure budget owing to the huge and slow capital investment programmes involved in upgrading networks
  • Finance departments at the same organisations want to deploy resources efficiently to maximise returns and capital investment in the existing business model (infrastructure that drives connectivity revenue) has a much stronger ROI than speculative operating expenditure in platforms and services that have (so far) proved unsuccessful

The result is status quo: the same financial model drives the same commercial model at a time when returns for core services are reducing every year.

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We start by mapping out the relationship between financial and commercial models…

In this framework, we use R&D operating expenditure (vertical axis) as a proxy for service innovation. We recognise that this is not perfect as service innovation requires much more than R&D. Nevertheless, it is probably fair to say that service innovation is unlikely to be sustained without material R&D expenditure.

Capital investment (horizontal axis) is a proxy for infrastructure build – developing assets which will generate returns over a long period of time such as buildings, manufacturing plants, telecoms networks.

Telcos are classic ‘Moat builders’, making money from capital investment in infrastructure and putting little into telecoms R&D investments.

The Internet giants and tech players typically start out as ‘service differentiators’, keeping capital investment light and instead focusing on flexible operating expenditure to drive service innovation. Increasingly however, they are investing capital in cloud computing infrastructure, to construct moats to protect their services – giving them cheaper distribution and better customer experience than smaller competitors.

A framework for understanding capex versus R&D spending

Source: STL Partners

…which reveals that telcos are moat builders and are radically out-invested in service innovation by tech players

Historically, for telecoms operators service innovation resulted from network capital investment because voice and messaging services were integrated into there were no alternative sources for communications – a customer had to use the service provider by the telecoms operator:

  • Telcos effectively outsourced innovation to Network Equipment Players (NEPs)
  • There was no need to invest significantly in R&D

Now, services are independent of the network (thanks to the internet) – telco customers can use communication (and other) services provided by dozens of third-parties and value has shifted to companies (such as the internet giants and tech companies) that invest in service innovation.

Telcos still invest only in infrastructure but value is increasingly in network-independent services so they are missing out on value-creation and are instead competing on price on the only commodity service that third-parties cannot substitute: connectivity.

R&D and capex % of revenue, 2020

R&D and capex telcos and hyperscalers

Source: Company accounts, STL Partners analysis

Proof point: Internet players are vastly more valuable than telecoms operators – and now they generate more revenue, too

Revenue and market capitalisation, Telco v Internet, comparing 2017 and 2020/2022

telcos internet players revenue market cap 2017 2020Note: Telecoms industry data represents 165 telecoms operators for 2017, but 78 top operators for 2020. However, operators outside the top 78 are unlikely to have a significant impact on revenues or market capitalisation. Source: Company accounts, stock market data, STL Partners analysis

 

Seven internet giants’ market capitalisation is bigger than the 78 top telecoms operators combined because:

Service innovation + moats  =  Revenue + profit growth  =  Future value creation

In other words, telcos’ current business model (financial and commercial models) are not deemed to be strong value creators.

The result is that capital markets demand that operators hand profits back to investors in the form of high-dividend yields so that they can invest in higher-growth companies.

In the rest of this report, we outline why CFOs need to drive business model change that will enable telcos to compete more effectively as ‘Service differentiators’, and four steps they should take to start this process – fundamentally increasing telecoms R&D investments.

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The Future of Work: How AI can help telcos keep up

What will the Future of Work look like?

The Future of Work is a complex mix of external and internal drivers which will exert pressure on the telco to change – both immediately and into the long-term. Drivers include government policy, general changes in cultural attitudes and new types of technology. For example, intelligent tools will see humans and machines working more closely together. AI and automation will be major drivers of change, but they are also tools to address the impact of this change.

AI and automation both drive and solve Future of Work challenges

Futuore of work AI automation analytics

Source: STL Partners

This report leverages secondary research from a variety of consultancies, research houses and academic institutions. It also builds on STL Partners’ previous research around the use of A3 and future new technologies in telecoms, as well as organisational learning to increase telco ability to absorb change and thrive in dynamic environments:

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The Future of Work

We begin by summarising secondary research around the Future of Work. Key topics we explore are:

Components of the Future of Work

Future of work equation

Source: STL Partners

  1. The term Fourth Industrial Revolution is often used interchangeably with the technologies involved in Industry 4.0. However, this report uses a broader definition (quoted from Salesforce):
    • “The blurring of boundaries between the physical, digital, and biological worlds. It’s a fusion of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies.” 
  2. Societal and cultural change includes changes in government and public attitude, particularly around climate change and issues of equality. It also includes changing attitudes of employees towards work.
  3. Business environment change encompasses a variety of topics around competitive dynamics (e.g. national versus global economies of scale) and changing market conditions, in particular with relation to changing corporate structures (hierarchies, team structures, employees versus contractors).
  4. Pandemic-related change: The move towards homeworking and hastening of some existing/new trends (e.g. automation, ecommerce).

Content

  • Executive Summary
  • Introduction
  • The Future of Work
    1. The Fourth Industrial Revolution
    2. Societal and cultural change
    3. Business environment change
    4. Pandemic-related change
  • How will FoW trends impact telcos in the next 5 to 10 years?
    • Expected market conditions
    • Implications for telcos’ strategic direction
    • Workforce and cultural change
  • Telco responses to FoW trends and how A3 can help
    • Strategic direction
    • Skills development
    • Organisational and cultural change
  • Appendix 1
  • Index

Related Research

 

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VNFs on public cloud: Opportunity, not threat

VNF deployments on the hyperscale cloud are just beginning

Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date

The past three years have seen many major telcos concluding collaboration agreements with the leading hyperscalers. These have involved one or more of five business models for the telco-hyperscaler relationship that we discussed in a previous report, and which are illustrated below:

Five business models for telco-hyperscaler partnerships

Source: STL Partners

In this report, we focus more narrowly on the deployment, delivery and operation by and to telcos of virtualised and cloud-native network functions (VNFs / CNFs) over the hyperscale public cloud. To date, there have been few instances of telcos delivering live, commercial services on the public network via VNFs hosted on the public cloud. STL Partners’ Telco Cloud Deployment Tracker contains eight examples of this, as illustrated below:

Major telcos deploying VNFs in the public cloud

Source: STL Partners

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Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’

The telcos in the above table are all of comparable stature and ambition to the likes of AT&T and DISH in the realm of telco cloud but have a diametrically opposite stance when it comes to VNF deployment on public cloud. They have decided against large-scale public cloud deployments for a variety of reasons, including:

  • They have invested a considerable amount of money, time and human resources on their private clouddeployments, and they want and need to utilise the asset and generate the RoI.
  • Related to this, they have generated a large amount of intellectual property (IP) as a result of their DIY cloud– and VNF-development work. Clearly, they wish to realise the business benefits they sought to achieve through these efforts, such as cost and resource efficiencies, automation gains, enhanced flexibility and agility, and opportunities for both connectivityand edge compute service innovation. Apart from the opportunity cost of not realising these gains, it is demoralising for some CTO departments to contemplate surrendering the fruit of this effort in favour of a hyperscaler’s comparable cloud infrastructure, orchestration and management tools.
  • In addition, telcos have an opportunity to monetise that IP by marketing it to other telcos. The Rakuten Communications Platform (RCP) marketed by Rakuten Symphony is an example of this: effectively, a telco providing a telco cloud platform on an NFaaS basis to third-party operators or enterprises – in competition to similar offerings that might be developed by hyperscalers. Accordingly, RCP will be hosted over private cloud facilities, not public cloud. But in theory, there is no reason why RCP could not in future be delivered over public cloud. In this case, Rakuten would be acting like any other vendor adapting its solutions to the hyperscale cloud.
  • In theory also, telcos could also offer their private telcoclouds as a platform, or wholesale or on-demand service, for third parties to source and run their own network functions (i.e. these would be hosted on the wholesale provider’s facilities, in contrast to the RCP, which is hosted on the client telco’s facilities). This would be a logical fit for telcos such as BT or Deutsche Telekom, which still operate as their respective countries’ communications backbone provider and primary wholesale provider

BT and Deutsche Telekom have also been among the telcos that have been most visibly hostile to the idea of running NFs powering their own public, mass-market services on the public and hyperscale cloud. And for most operators, this is the main concern making them cautious about deploying VNFs on the public cloud, let alone sourcing them from the cloud on an NFaaS basis: that this would be making the ‘core’ telco business and asset – the network – dependent on the technology roadmaps, operational competence and business priorities of the hyperscalers.

Table of contents

  • Executive Summary
  • Introduction: VNF deployments on the hyperscale cloud are just beginning
    • Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date
    • DISH and AT&T: AWS vs Azure; vendor-supported vs DIY; NaaCP vs net compute
  • Other DIY or vendor-supported best-of-breed players are not hosting VNFs on public cloud
    • Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’
    • The reluctance to deploy VNFs on the cloud reflects a persistent, legacy concept of the telco
  • But NaaCP will drive more VNF deployments on public cloud, and opportunities for telcos
    • Multiple models for NaaCP present prospects for greater integration of cloud-native networks and public cloud
  • Conclusion: Convergence of network and cloud is inevitable – but not telcos’ defeat
  • Appendix

Related Research

 

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Building the learning telco

Organisational learning is key to telcos’ success in the Coordination Age

Developments in technology and organisational digital transformations increased the pressure on learning and development (L&D) departments in telcos. L&D departments, many of which were compliance-focused, were tasked with upgrading telcos’ entire skills inventories to ensure that workforces were fit for new ways of working (e.g. AT&T’s “Workforce Reskilling” effort announced in 2016).

What was perhaps under-appreciated initially was that the need for L&D would not go away:

  • Telcos continue to operate in dynamic environments that are inherently unstable (e.g. pandemics, climate crises, new and evolving technologies);
  • Traditional telco revenue streams have remained under pressure, requiring new and innovative thinking to identify opportunities for growth.

The VUCA acronym (first coined in 1987) – standing for volatility, uncertainty, complexity, ambiguity – provides a useful framework to describe the current telco environment.

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The telco’s highly VUCA environment

learning telco

Source: STL Partners

Telcos have made changes to organisation structures in order to accommodate this reality, e.g. “flattening” the organisation and decentralising decision-making to accelerate the pace at which organisations can take action (absorb change and innovate).

Additionally, they are recognising the importance of learning to this process. Workforce skills must remain relevant and collective corporate intelligence must evolve to decide and inform winning strategies.

This type of “organisational learning” requires conscious efforts on the part of both the organisation and individual employees. It is not enough to make L&D the sole responsibility of an L&D team, or an HR department and to task them with identifying appropriate content and courses to push out to employees.

Organisations need to foster an environment where learning is encouraged and enabled in pursuit of organisational improvement, customer satisfaction, innovation and growth. After all, it is impossible to improve/do something new without learning in the first instance. Learning tools, processes and practices are required – and barriers to learning should be removed.

Learning barriers can include:

  • L&D teams creating bottlenecks to learning (e.g. restricted course access)
  • The existence of knowledge silos
  • Beliefs that “knowledge is power”
  • A lack of clear goals around using knowledge/new capabilities for improvement (i.e. learningto create behaviour change)
  • No incentives for individuals or teams to engage in learning
  • Uncertainty about processes for capturing and sharing learning
  • Fear of failure inhibiting trials in order to learn something new.

This report considers the key practices associated with organisational learning and identifies lessons from telcos who are progressing towards becoming a learning organisation.

Table of contents

  • Executive Summary
  • Introduction
  • The value of organisational learning
  • Enabling organisational learning
    • Types of learning in organisations
  • Organisational learning in practice
    • Learning as an organisational priority
    • Identifying learning purpose
    • Content-based learning
    • Person-led learning (knowledge sharing)
    • Process-led learning
    • Trial, reflection and practice
    • Recognition and rewards for learning
  • Towards learning organisations
    • Findings
    • Evaluation
  • Conclusions
  • Index

Related Research

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Elisa: Telco leadership excellence – and how to do it

Elisa stands out among telcos

As digital services are reshaping our world, many different players are creating new and disruptive services, while telcos’ traditional revenue streams are plateauing and, in some cases, in decline. While many telcos have embarked on the journey to diversify their offerings and establish themselves as serious players in the digital services space, many are struggling to make business model adjustments that are critical to success as operators move into adjacent growth segments. Few telcos have figured out how to keep the wheels turning on their core business, while also building new businesses and embedding agile working practices across their organisation.

In our evaluation of new digital services propositions from Finnish telco, Elisa, STL Partners discovered a contender that punches significantly above its weight. (See our earlier case studies on Elisa Automate and Smart Factory.) Elisa’s successes in pioneering new services, maintaining customer relevance and delivering impressive financial results are not an overnight sensation but the product of long-term, systematic transformation and hard-won lessons.

We were curious to find out what combination of attributes make Elisa an exemplar of how to win in the digital revolution, and how other telcos can take a leaf out of the Elisa playbook to create a similarly agile, adaptable environment for innovation within their own organisations.

Through a series of in-depth interviews with key members of Elisa’s senior management, we set out to explore the company’s recent history of evolution and the culture, practices and processes that are positioning Elisa to co-operate as well as compete with digitally-minded telcos worldwide.

For this research we interviewed six members of Elisa’s executive management:

  • Veli-Matti Mattila, CEO
  • Henri Korpi, Executive Vice President, International Digital Services, including Elisa Automate and Elisa Smart Factory
  • Vesa-Pekka Nikula, at the time of the interviews Executive Vice President, Production – the Production team is responsible for networks, IT and software underpinning all of Elisa’s operations in Finland, Estonia and new international digital services. Currently Executive Vice President, Consumer Customers.
  • Merja Ranta-aho, Executive Vice President, HR – Elisa’s HR team plays a key role in developing processes and practices that encourage continuous learning across the organisation.
  • Liisa Puurunen, Vice President, International Digital Services, International Entertainment – this team is tasked with ideation and development of new business propositions built out from Elisa’s core capabilities in the area of entertainment.
  • Tapio Turunen, at the time of the interview, Director, Business Development – this team is responsible for strategy development across Elisa. Currently Vice President, Business Development, Corporate Customers.

The figure below shows a high-level view of Elisa’s operational structure, with additional notes on how those interviewed for this research fit into the organisation.

Elisa operational model and interviewee overview

Elisa operational structure and interviewees

Source: Elisa, with STL Partners notes

Comparing Elisa’s culture with other telcos

In parallel with our research into the Elisa’s critical success factors, STL Partners has been running a survey on culture, leadership and purpose in telecoms operators. The goal of the survey is to understand how important these factors are to telcos’ success, and what types of behaviours contribute to a working environment that motivates and enables people to learn new skills and innovate.

As of November 2019, we received 19 responses from Elisa out of a total of nearly 170 respondents overall, primarily from other European operators, as well as some from North America, Asia Pacific, and the Middle East. The results illustrated in the graphic below show a stark difference between how people in Elisa perceive their culture and leadership compared to their peers.

Elisa’s culture is perceived as significantly more effective than other telcos’

To what extent is Elisa's culture an enabler or barrier to success surveySource: STL Partners

The fact that people within Elisa feel as though the company culture is significantly more supportive to its success than in the average telco validates STL Partners’ view that it has a unique approach that others can learn from.

Elisa similarly stands out against its peers across other areas covered in the survey, such as how the organisation responds to mistakes, leadership and management styles and maturity of digital capabilities.

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Is it just a Finnish thing?

There are elements of Finnish culture and the regulatory environment that have benefitted Elisa:

  • Sisu, a Finnish word which can be translated as the spirit of determination and grit, which is considered by some to be at the heart of Finnish character.
  • Early deregulation of the telecoms industry meant that Finnish operators were further ahead than telcos in many other countries in adapting to commoditisation of telecoms services when global internet players disrupted the market
  • Unlike other European countries, the Finnish regulator never introduced a fourth mobile player, possibly because there was already strong price competition between Elisa, DNA and Telia. This has likely given the market more stability than others in Europe, as the telecoms industry has adapted to growing demand for data.

Although these circumstances have certainly helped Elisa, we believe that the position it is in today is the result of deliberate actions and processes implemented in response to its weak performance in the early 2000s, when falling revenues and curtailed dividends saw its share price plummet by 75% between January 2001 and December 2002.

Sixteen years later, Elisa has started to establish a healthy track record of pioneering digital services built on its core competences, scaling businesses in its domestic market, and expanding its international reach at pace through carefully selected acquisitions, and its share price has returned to previous highs.

Table of contents

  • Executive Summary
    • Key success factors other telcos can emulate
    • Next steps
  • Elisa stands out among telcos
    • Comparing Elisa’s culture with other telcos
    • Is it just a Finnish thing?
  • How Elisa transitioned to a digital operating model
    • A long history of innovation
    • Developing the business case for innovation the Elisa way
    • The shift to a software-defined enterprise
    • A phased approach to turning an idea or opportunity into a business
  • Critical success factors
    • Leadership: Earning shareholders’ trust
    • Vision and strategy: Striving for excellence
    • Culture and practices: Embedding systematic learning
    • An unswerving customer focus
    • Talent strategy: Giving people the autonomy to experiment
    • Partnerships
  • The long-term outlook for Elisa

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Telco 2030: New purpose, strategy and business models for the Coordination Age

New age, new needs, new approaches

As the calendar turns to the second decade of the 21st century we outline a new purpose, strategy and business models for the telecoms industry. We first described ‘The Coordination Age’, our vision of the market context, in our report The Coordination Age: A third age of telecoms in 2018.

The Coordination Age arises from the convergence of:

  • Global and near universal demands from businesses, governments and consumers for greater resource efficiency, availability and conservation, and
  • Technological advances that will allow near their real-time management.

Figure 1: Needs for efficient use of resources are driving economic and digital transformation

Resource availability, Resource efficiency, Resource conservation: Issues for governments, enterprises and consumers. Solutions must come from all constituents.

Source: STL Partners

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A new purpose for a new age

This new report outlines how telcos can succeed in the Coordination Age, including what their new purpose should be, the strategies, business models and investment approaches needed to deliver it.

It argues that faster networks which can connect tens of billions of sensors coupled with advances in analytics and process digitisation and automation means that there are opportunities for telecoms players to offer more than connectivity.

It also shows how a successful telecoms operator in the Coordination Age will profitably contribute to improving society by enabling governments, enterprises and consumers to collaborate in such a way that precious resources – labour, knowledge, energy, power, products, housing, and so forth – are managed and allocated more efficiently and effectively than ever before. This should have major positive economic and social benefits.

Moreover, we believe that the new purpose and strategies will help all stakeholders, including investors and employees, realign to deliver a motivating and rewarding new model. This is a critical role – and challenge – for all leaders in telecoms, on which the CEO and C-suite must align.

To do this, telecoms operators will need to move beyond providing core communications services. If they don’t choose this path, they are likely to be left fighting for a share of a shrinking ‘telecoms pie’.

A little history 2.0

Back in 2006, STL Partners came up with a first bold new vision for the telecoms industry to use its communications, connectivity, and other capabilities (such as billing, identity, authentication, security, analytics) to build a two-sided platform that enables enterprises to interact with each other and consumers more effectively.

We dubbed this Telco 2.0 and the last version of the Telco 2.0 manifesto we published can be found here – we feel it was prescient and that many of the points we made still resonate today. Indeed, many telecoms operators have embraced the Telco 2.0 two-sided business model over the last ten years.

This latest report builds on much of what we have learned in the previous fourteen years. We hope it will help carry the industry forwards into the next decade with renewed energy and success.

Other recent reports on the Coordination Age:

Table of contents

  • Executive Summary
  • Introduction
  • Industry context: End of the last cycle
    • The telecoms industry is seeking growth
    • Society is facing some major social and economic challenges
    • Addressing society’s (and the telecoms industry’s) challenges
  • The Coordination Age
    • Right here, right now
    • How would the Coordination Age work in healthcare, for example?
  • New opportunities for telcos?
    • The telecoms industry’s new role in the Coordination Age
    • Telcos need an updated purpose
    • This will help to realign stakeholders
    • A new purpose can be the foundation of new strategy too
    • Investment priorities need to reflect the purpose
    • New operational models will also follow
  • Conclusions: What will Telco 2030 look like?

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Why CFOs must start to drive telecoms business model change

The telecoms operator’s conundrum – how to break the service innovation status quo

Telco CFOs need to upweight telecoms R&D investments to drive differentiating service innovations. If they don’t, telcos will recede further into the category of low yield, low growth commodities.

The relationship between a company’s financial and commercial model is complex:

  • The financial model determines the commercial model of a company – what commercial goals it is able to pursue and how it is able to pursue them
  • But the commercial model also feeds directly back into the financial model of the business and determines how resources are allocated

The interrelatedness of commercial and financial models means that change is sometimes difficult – a ‘chicken and egg’ situation occurs in which each model relies on change in the other before it can change.

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This ‘chicken and egg’ situation is apparent within the telecoms industry:

  • Business owners within operators want their organisation to become more agile, more flexible, more innovative which implies having resources that can be (re)deployed quickly, but they find it hard to secure budget owing to the huge and slow capital investment programmes involved in upgrading networks
  • Finance departments at the same organisations want to deploy resources efficiently to maximise returns and capital investment in the existing business model (infrastructure that drives connectivity revenue) has a much stronger ROI than speculative operating expenditure in platforms and services that have (so far) proved unsuccessful

The result is status quo: the same financial model drives the same commercial model at a time when returns for core services are reducing every year.

 

We start by mapping out the relationship between financial and commercial models…

In this framework, we use R&D operating expenditure (vertical axis) as a proxy for service innovation. We recognise that this is not perfect as service innovation requires much more than R&D. Nevertheless, it is probably fair to say that service innovation is unlikely to be sustained without material R&D expenditure.

Capital investment (horizontal axis) is a proxy for infrastructure build – developing assets which will generate returns over a long period of time such as buildings, manufacturing plants, telecoms networks.

Telcos are classic ‘Moat builders’, making money from capital investment in infrastructure and putting little into telecoms R&D investments.

The Internet giants and tech players typically start out as ‘service differentiators’, keeping capital investment light and instead focusing on flexible operating expenditure to drive service innovation. Increasingly however, they are investing capital in cloud computing infrastructure, to construct moats to protect their services – giving them cheaper distribution and better customer experience than smaller competitors.

A framework for understanding capex versus R&D spending

Source: STL Partners

…which reveals that telcos are moat builders and are radically out-invested in service innovation by tech players

Historically, for telecoms operators service innovation resulted from network capital investment because voice and messaging services were integrated into there were no alternative sources for communications – a customer had to use the service provider by the telecoms operator:

  • Telcos effectively outsourced innovation to Network Equipment Players (NEPs)
  • There was no need to invest significantly in R&D

Now, services are independent of the network (thanks to the internet) – telco customers can use communication (and other) services provided by dozens of third-parties and value has shifted to companies (such as the internet giants and tech companies) that invest in service innovation.

Telcos still invest only in infrastructure but value is increasingly in network-independent services so they are missing out on value-creation and are instead competing on price on the only commodity service that third-parties cannot substitute: connectivity.

R&D and Capex % of Revenue, 2017

Source: Company accounts, STL Partners analysis

Proof point: Internet players are vastly more valuable than telecoms operators

Revenue and Market Capitalisation 2017. Telco v Internet

Source: Company accounts, stock market data, STL Partners analysis

Seven internet giants’ market capitalisation is bigger than 165 telecoms operators combined because:

Service innovation + moats  =  Revenue + profit growth  =  Future value creation

In other words, telcos’ current business model (financial and commercial models) are not deemed to be strong value creators.

The result is that capital markets demand that operators hand profits back to investors in the form of high-dividend yields so that they can invest in higher-growth companies.

In the rest of this report, we outline why CFOs need to drive business model change that will enable telcos to compete more effectively as ‘Service differentiators’, and four steps they should take to start this process – fundamentally increasing telecoms R&D investments.

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