WIRELESS
CARRIERS
INNOVATE
WIRELESS CARRIERS
INNOVATE – OR MOVE TO
THE SIDELINES
By Sangit Rawlley, inCode Telecom
The wireless industry has been confronted
with a period of dramatic change, driven
by a number of new influences including
technologies, business models and players
entering the wireless arena. The consequence
of these changes is a requirement for carriers
to reinvent themselves or risk marginalization.
Carriers have started moving in this direction.
However, history has shown that the process
of re-invention especially for entrenched
players, is not easy.
A strategy consulting unit of Ericsson
REINVENTION
MINDSET
The change for incumbent wireless carriers will require a new mindset, shifting culture,
unfamiliar processes and a new approach to innovation. It’s time for Constructive
Destruction!
So how do carriers compete in this changed world? To answer this question,
it is important to understand how wireless carriers stack up against the emerging
competition. One of the most glaring differences is in the level of innovation. Emerging
competition such as Google and Apple are consistently ranked among the top
innovative companies globally.
Thus, it is imperative for carriers to develop sustainable innovation capabilities in order
to continually succeed in today’s changing industry landscape. Let’s evaluate some
of the critical changes that carriers will need to make.
EMBRACE A TRULY OPEN INNOVATION MODEL
Traditionally, wireless carriers have relied more on others in their value chain for
innovation. A carrier’s primary focus has been more operational in nature, with
emphasis on expanding their subscriber and coverage base through acquisitions,
upgrading networks and locking in exclusive handset deals. As opposed to most “hightech” oriented firms, wireless carriers don’t even report R&D spend as part of their
financials. This lack of specifically fostered innovation and the general dependence
on other players is hurting carriers, as non-traditional companies are encroaching into
their space. In a world of widely distributed knowledge, carriers need to adopt a truly
open approach to innovation.
TOP INNOVATIVE COMPANIES
World
World
World
Source: Business Week, 2010
Source: Fortune, 2011
Source: Fast Company, 2011
WIRELESS CARRIERS INNOVATE – OR MOVE TO THE SIDELINES
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Wireless carriers appear to have begun to recognize this need and have announced
initiatives which indicate a move in this direction.
•
•
•
Verizon has opened the Verizon Wireless LTE Innovation Center, and AT&T
recently opened the first of its three planned innovation centers. As part
of these initiatives, the carriers will open up their platform and network to
equipment and device makers and application developers.
All major U.S. carriers have announced partnerships with various M2M
platform providers. Verizon and Qualcomm created a JV called nPhase. AT&T
has joined forces with Jasper, and recently announced partnerships with
Sierra Wireless, Axeda and other M2M providers.
The Wholesale Applications Community, a consortium of global carriers
including Verizon and AT&T, recently launched a platform with the goal of
allowing developers to use one platform to develop and distribute Web-based
mobile applications.
These are steps in the right direction. The key to success is to tie them together under a
holistic innovation strategy. Proctor & Gamble (P&G) is one company that successfully
transformed its traditional in-house R&D process into an innovation strategy it calls
“Connect and Develop (C&D).” There are key lessons that the wireless carriers can take
from the P&G experience.
The C&D framework has four key attributes:
1. FOCUS: WHAT TO PLAY
Before searching the world for ideas, it is important to clarify what you’re looking
for. Set clearly defined targets and criteria for types of applications, products,
and services you are looking for. These criteria should be aligned with the overall
company vision, strategy, customer needs and take into account the organizational
and network limitations. For wireless carriers, the move into mobile data services
has opened a whole new world of choices and opportunities, which is a benefit in
breadth but can lead to a swirl of activity which is not equally productive or profitable.
Carriers have to carefully evaluate where in the value chain they want to operate
so that the focus can be applied to those activities that best support long term
value creation. In general, carriers have struggled as more of a generic “content” or
“solutions” provider, but have tended to succeed much better in areas that combine
applications with key capabilities available to them as network providers such as
location-based services.
2. NETWORK: WHERE TO PLAY
Innovation networks by themselves don’t provide competitive advantage any
more than wireless networks do. It’s how you build and use them that matters.
The key is to cultivate both proprietary and open networks whose members have
promising ideas and their goals are aligned. Today there are over 30 open application
storefronts globally. The survivors will be the ones that create the maximum value
for all stakeholders. In addition to wireless applications where most of the focus is
today, some other areas where carriers can partner with the open community to
innovate are in-building coverage and services (Femtocells and distributed antenna
systems), network, service and device convergence (wireless, wireline, IPTV) and
industry focused M2M solutions (health care and smart grid).
WIRELESS CARRIERS INNOVATE – OR MOVE TO THE SIDELINES
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3. SCREEN AND DISTRIBUTE: WHEN TO PLAY, WHO SHOULD PLAY
Once an idea captures attention then its alignment with the goals of the business
as a whole must be assessed and it should be screened against several practical
criteria. The key here is to have an effective tool that allows organization wide
access to the idea. All relevant business units should have access to the ideas, and
an idea’s applicability should be tested for each possible scenario. Both AT&T and
Verizon have announced multiple innovation initiatives. It is important that these
initiatives are interlinked at the backend and there is a robust internal process that
allows sharing of ideas across these initiatives.
4. ENGAGE: HOW TO PLAY
Given that the transformation to an innovation organization represents something
of a culture shift for carriers, there may be value in segregating some of the early
parts of the discovery and development process for new innovations, to ensure
speed and risk taking. That is, innovation needs to happen without the process
overhead normally associated with large, mission-critical, network evolution
activities at carriers. However, even when a carrier decides to create a completely
separate innovation organization, there is still the need to leverage the “mother
ship” to ensure that the vast resources of the overall organization can be brought to
bear when needed (especially during commercialization). Further, the engagement
process with the other parts of the carrier must be defined because innovation needs
broad-based support. Walking the fine balance between limiting process overhead
on the innovation process while ensuring a connection to the overall organization is
difficult, getting it right is crucial.
SELECTIVELY REDUCE QUALITY ACCEPTANCE LEVELS
Damned if you do and damned if you don’t. That’s the dilemma wireless carriers
find themselves in when it comes to the quality of new products and services. All
innovations have traditionally had to meet rigorous “carrier grade” thresholds before
commercial deployment. Each handset and service has had to go through extensive
testing before it was released to the market. The historically closed structure of carrier
networks where carriers have control of all elements in the service delivery channel
facilitated this process.
However, this process is not suitable in the future open model. In an environment
where competition from internet players is increasing, the carrier-centric model will be
a disadvantage. Most internet companies release their products to consumers while
they are in the beta stage of development. In fact, changes are made to the product/
service based on the feedback received from the consumers using the beta versions.
This is important for establishing an end-to-end open model where both original
ideas and enhancements come from the open community. In the past, carriers were
comfortable with development cycles that could last months or even years, but the dot
com era has created the new paradigm of development cycles counted in days and
weeks, or even hours.
Making this transition will not be easy. Carriers will have to realign their quality
acceptance levels on certain applications/services and establish an alternate approach
for testing while maintaining high standards in other areas and managing consumer
perceptions. A tough task indeed!
WIRELESS CARRIERS INNOVATE – OR MOVE TO THE SIDELINES
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RAISE THE RISK APPETITE
This is a corollary to the point on reducing the quality acceptance levels. Wireless
carriers have a heavy reliance on business cases for prioritizing innovations. Innovation
tends to be a numbers game and many innovations, especially disruptive ones, do not
have a clear business case. P&G sets a target success rate for innovations at 50% to
60%. If higher, not enough risks are being taken. Google has invested billions of dollars
acquiring/investing in various wireless ventures with little return to date.
Wireless operators need a venture capital- like approach to succeed in this changing
environment. Many carriers have announced initiatives in this direction. Verizon
announced the 4G Venture Forum (4GVG) in collaboration with other venture funds, and
Sprint has Sprint Ventures. The key is to tightly align the goal of these venture arms with
the overall company vision. Additionally, carriers have to tolerate failure as a necessary
and healthy consequence of effective innovation processes. The primary element is
that innovation processes must allow for experimentation and “killing” projects early in
evolution before they become too costly and too engrained to effectively terminate.
MEASURE AND REPORT NEW METRICS
From Pearson’s law: “That which is measured improves. That which is measured and
reported improves exponentially.”
Wireless carriers report on many metrics beyond basic financials including ARPU,
Churn, CCPU, MOU, and Net Adds, but there are no measures of innovation. A wise
use of metrics can improve a carriers’ innovation “hit rate,” and help them make the
right choices, faster, with less risk of failure.
There are many innovation metrics that carriers can chose from such as Kill Rate,
Innovation Return on Investment, Number of Patents, R&D as Percent of Sales, Number
of Ideas in the Pipeline, and Percent Revenue Growth Generated from New Products.
It is important for the Carrier to select a handful of truly predictive metrics upon which
to report (no more than three) and align those metrics with internal organizational
processes. Remember to focus on what counts and not just what can be easily
counted. Metrics madness can lead to confusion, dysfunction, and less innovation,
not more.
To summarize, wireless carriers have started down the path toward an open innovation
model with a number of different initiatives and programs. To be successful, a carrier’s
innovation story must contain the following chapters:
•
•
•
Embrace the open model company-wide using several key elements to create
change:
–– Clarify and communicate focus areas
–– Create an open environment for identifying ideas
–– Quickly evaluate opportunities against priorities
–– Balance the desire to segregate innovation activities to limit the
impact of heavy legacy processes with the need to connect with the
“mother ship,” especially for commercialization
Selectively reduce quality acceptance levels and increase the risk appetite
Measure and report select innovation metrics
Making these changes is a monumental task, but not impossible. This effort in change
management cannot succeed without the will and commitment of top management.
Carriers have taken initial steps in this direction, but they still have a long way to go.
WIRELESS CARRIERS INNOVATE – OR MOVE TO THE SIDELINES
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About the Author
Sangit Rawlley is a Director with inCode Telecom, an Ericsson Strategy Consulting
unit (www.incodetel.com) focused on providing strategy, business planning,
strategic sourcing, engineering and integration services to companies across the
communications and media value chain.
WIRELESS CARRIERS INNOVATE – OR MOVE TO THE SIDELINES
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