Where Will the Innovation Come From in the Telco Digital Transformation Journey?
Innovation is a key element in the digital transformation journey, and Telcos, like many other firms, continue to try and find the right balance of innovation methods. These tend to fall into a number of categories:
- Outsource your innovation: Telcos build partnering relationships with specialist third parties to help turn the Telco’s ‘concepts’ into reality. This enables the Telco to tap into the energy, agility and free-thinking of the smaller innovative players. The trouble here is that the Telcos often try to specify too rigidly what the innovative player is required to invent. For this relationship to work properly, there needs to be a true partnership between the Telco and the outsourced innovator and this has to involve a relationship of trust where the Telco sets out its requirements in broad strategic and benefit terms, rather than attempt to fully define more formal requirements.
- Set up external innovation labs: Orange, Vodafone, AT&T, Singtel and many other Telcos have all at one stage or other gone down the road of setting up “Innovation Incubators” that are physically and culturally removed from the parent company, similar in some ways to the “Skunk Works” strategy that has worked well in the aviation sector. Many of these are set up in Silicon Valley or in Israel, and look to tap into the clusters of innovative companies, and depth of talent, that already exist there.For these to succeed they must use a very light-touch management approach for fear of crushing the life out of their nascent innovation hubs. As with the out-sourced innovation, the Telco has to resist the temptation of putting too strict boundaries around the scope of its innovation lab. But there are risks here too. I’ve seen one Telco lab “go native” and lose sight of their parent company’s strategic imperatives.Success in this area needs an almost infinitely flexible strong-weak bond with the parent, where the leaders of the innovation lab are sufficiently senior in the parent organization to have direct access to the CEO or executive team and understand the parent’s strategic plans intimately, but also don’t feel bound to have to constantly deliver business-focused benefits on a day-to-day basis.
- In-source innovation: This involves bringing innovative companies inside the parent Telco and trying to develop a symbiotic relationship between the fast-moving innovative companies and the wealthy and experienced parent. Telefónica’s Wayra program and Open Futures Group, is an example of this approach. The company provides financing, mentoring and access to technology expertise within Telefónica, and uses purpose-built Academies and events to nurture technology start-ups. Time will tell whether these types of approach can survive in the over-powering environment of a Telco constantly striving to hit increasingly more difficult short-term targets, but it certainly appears to be a good balanced approach between the first two strategies listed above.
- Continue to do it in-house: Of course this is the default option and in any cold analysis of how Telcos approach innovation, this is undoubtedly a common approach and the one that absorbs significant resources from the Telco. This in-house innovation probably works best in delivering incremental innovation, rather than on delivering truly disruptive new digital services. The biggest problem the Telco faces in trying to adopt this approach is the level of deskilling the Telco has gone through over the past decade. I have never seen the results of any definitive study on the “deskilling” of the Telco, but in my experience, it has become a real problem. In their efforts to maintain the required bottom line performance, the Telco has been forced to downsize. In the process, they have lost a lot of the technical experts that may have been the ones to drive this in-house innovation. Even when the Telco has been able to hold on to the majority of their technical and innovation experts, they have struggled to refresh this resource pool with young innovative digital natives.
- Rely on your major suppliers for innovation: This is an increasingly common approach. Most of the newer Telcos don’t have the history of innovation in terms of R&D labs, and are generally content to pick up bits of appropriate innovation from their major vendors rather than invest internally. While the older Telcos, who still have a culture of innovation and the infrastructure of R&D labs find themselves leaning more and more heavily on their major suppliers to resource innovation projects.This is certainly cost effective, lowers the implementation risk, and enables the Telco to progress digital service innovation more rapidly than if it was attempting to carry the majority of the load. But it can result in the further deskilling of the Telco, and drive them towards the provision of lowest-common-denominator services, rather than creating something that is truly innovative.The big opportunity in this sort of innovation strategy, lies in the potential to operate new digital services at scale. In other blogs, I explore the concept of multiple Telcos, in partnership with trusted suppliers, developing federated platform business model offerings that address important digital services. This strategy could prove to be a hugely important stepping stone in helping the Telco become relevant in the new digital services world. However, it is contingent on the suppliers continued ability to invest, and indeed, survive.
- Rely on OTT players for innovation: This is rapidly becoming a viable option for a wide range of Telcos. The OTT players have opened up such a lead in the most exciting digital markets that the only realistic option for the Telco to play in this space is to partner with the existing market leaders. Many observers believe that these sorts of deals are completely one-sided and offer very little brand or innovation benefit to the Telco. But as the Telco moves towards other digital service opportunities in connected car, drones, smart city, and so on, there is a greater opportunity to use the partnering approach in a way that adds genuine brand value to the Telco.
- Open the platform: Amazon grew rapidly in part by just leveraging the ideas of others – ideas it never would have had on its own, for requirements which in some cases it did not know existed. It achieved this by providing a developer platform, and a channel to market for products they might produce. The question is what to do when a developer produces something that is really useful? If the product has the potential to significantly enhance the platform, or to threaten the platform, the platform owner can acquire the company, or re-engineer a similar solution. Apple and Facebook have followed this strategy where functionality first appears as an app and then is later incorporated into the platform itself. This risk in this approach is the damage it can do to trust. SAP addresses this by publishing its roadmap to the developer community so they know in advance where they may be exposed to being replaced. The key to success in this approach is owning the interfaces, ensuring friction free access to the market and an effective governance model.
Choosing one or more of the above innovation approaches is a key starting point on the Telco digital services journey. But the real trick for the Telco is identifying which opportunities are likely to be the best fit with the Telco core competencies.
Explore this concept in detail in my latest book Transforming the Telco, and click here to find out more about Huawei’s Openlabs.