Partnerships yet to deliver silver bullet for telecom companies
With the telecoms market facing a raft of challenges in the coming years, many firms are looking to partnership models to make their operations more sustainable and profitable. However, while more than one in ten executives in the sector think revenue growth could top 25% once they have fully executed a partnership ecosystem, the majority are still plagued by technology which cannot facilitate such a business model.
Digital transformation has rapidly become the clarion call for businesses of all sizes and in all sectors in recent years. The need to embrace innovation to stave off the threats of digital, agile new competitors has seen even the most established and dominant market incumbents rushing to adopt new digital mechanisms for doing business. One key illustration of this trend is the booming digital transformation consulting market, which almost doubled to $44 billion over the past year, as clients rush to tap the expertise of consultants for their digital metamorphoses.
Communications Service Providers (CSPs) are no different to businesses in any other sector in this regard, as around the world ‘Telcos’ have joined the clamour to digitise, and it is not hard to see why. One particular study from Arthur D. Little found that companies which made innovation a top three priority enjoyed a CAGR revenue boost of 1.9% over three years, compared to a median revenue loss of 1.8% for companies with innovation in their top five priories or lower. However, while digital transformation does boast clear benefits, Telcos might still not be realising the true potential of the transformation projects.
According to a new report from international consultancy BearingPoint, companies too often view digital transformation as a mechanism for mere short-term cost saving, rather than trying to use it for long-term gains, such as the potential for it to allow the exploitation of new business partnerships. Telco transformations often focus upon using technology to shore-up short term financial performance by delivering greater efficiency, as opposed to working to address an increasingly widely held view that, if CSPs don’t look to new digital business models, they will not survive in their current form, let alone achieve the ‘S-curve’ growth enjoyed by the Over The Top (OTT) – content providers that distribute streaming media as a standalone product bypassing traditional telecommunications mechanisms in the process – along with the digital superpowers like Google.
There are two main types of ecosystem available to CSPs at present. One type is internal, designed to bridge organisational silos, but relies on an organisation to be able to do everything itself. This is particularly risky in comparison to the second model, which is external. This either sees Telcos work with partners (providers of complimentary capabilities, products and services or channel partners) or customers. Focusing on partner ecosystems can have a more transformational impact on a CSP, while spreading risk, and enabling the telecoms industry to avoid placing all its eggs in one basket. As a result, co-innovation and co-funding of more sophisticated and harder to replicate offers to which CSPs add their own service wrapper and experience are viewed with high expectations by Telcos.
BearingPoint’s study saw 85 executives representing tier one and tier two CSPs across Europe, Asia and the US interviewed. Of that sample, 60% of CSPs expected partner ecosystems to drive cost-effective innovation, while 59% said they foresaw the strategy help them remain competitive, and 51% believed partnerships would improve customer experience, a key tenet of modern business success as companies in the UK alone are currently thought to be risking some £107 billion in revenues, should they fail to improve customer experience offerings. Large chunks of BearingPoint’s sample also expected that partnerships could also help to create direct relationships with customers, enhance the internal ecosystem and improve efficiency, suggesting that partner ecosystems are widely seen as a ‘silver bullet’ solution for CSPs in the number of a great many challenges.
Of all the discoveries of the study, however, the most telling is that half of CSPs expect their revenues to grow by more than 16% over the next two years, having successfully built partner ecosystems. A further 12% of CSPs actually anticipate revenue growth could top 25% once they have fully implemented such an ecosystem. However, CSPs have not actually embarked on the execution of many ecosystem strategies, and researchers found that they are frustrated primarily by a series of technological challenges which hamper their partnership potential. In other words, while CSPs realise the strategic importance of partner ecosystems to their future, they are failing to overcome internal barriers preventing successful execution.
More than half of all CSPs labeled having the right technology in place to manage monetisation as the top barrier to managing and enhancing their partner ecosystem. The next most common response was navigating a complex IT environment which lacks the agility to support a minimum viable product or fail fast concept – suggesting that Telcos are impacting their potential to adopt partnership models by failing to look into the full potential of their digital transformation options. This is further exemplified by the third and fourth most common responses, which were the challenges presented by managing partner relations, and having the right technology to manage partner ecosystems.
As a result, when it comes to the sectors that CSPs currently partner with, there are not many surprises. 67% of CSPs work with other telecommunications companies, while 62% partner with IT and technology companies and 54% with utility companies, as these more traditional partnerships are substantially less difficult to manage. While these partners do offer up advantages to Telcos, the inability to branch out in terms of partnership initiatives is hampering firms looking to innovate and offer something truly unique amid an increasingly crowded market. There is significant change on the cards, however.
When probed on which sectors CSPs expected to partner with in the coming two years, manufacturing rose to 42% from its current level of 17%, insurance increased to 42% from 25%, and automotive climbed to 33%from 12%. Once CSPs successfully navigate their digital transformation issues, there is likely to be a greater scope for a variation of partnerships, something which will also see a declining need for partnership with telecommunications (67% falling to 25% in two years), utility (54% to 29%) and transport (25% to 12%) sectors in the next two years.
Commenting on the findings, Angus Ward, CEO Digital Platform Solutions at BearingPoint said, “Revenue, innovation, competitive positioning, customer experience and more. CSP expectations of the step change in business performance from adding partner ecosystems are very high. Our research also shows that companies adopting digital platform-based business models grow at twice the rate of those that don’t, simply because this allows them to generate value from their partner ecosystems. Considering that fact, perhaps partner ecosystems are the closest thing to a ‘silver bullet’ we’ve seen in the telecoms industry in years.”