Blue Ocean Strategy in the Networked Society – Asian Operator #2

 In the precedent post, I created the Strategy Canvas for the Red Ocean of the Asian operator. In this post we will see how applying Blue Ocean Strategy within the Networked Society will affect the operator’s business, strategy and marketplace.

The ERRC grid looks like this:



Asian operator ERRC grid

•  Pay As You Go: The consumers want to control their spending and because I am proposing to introduce bundles of buckets. This should be eliminated.
• Different Tariff plans: The high number of different tariff plans should be eliminated and replaced by simpler bundled tariff plans. This will lead to reduced operations in the BSS and hence increased cost savings.

Reduce

• National Roaming charges are still high while in other market consumers only pay a single access charge. The regulator should remove these national roaming charges in order to stimulate voice traffic.
• Some of the services are not really adding value to customers; most of them are standard telecom supplementary or sms-based services.

Raise

• Services portfolio: Increase and diversify the portfolio based on consumers needs, behaviors and spending patterns.
• Network performance: This will improve customer satisfaction, reduce churn with a high quality network.
• Coverage: reach a large number of (sub-) urban and rural populations to increase customer reach, customer satisfaction and sales. This will require additional investments in the radio network. This investment should be easily justified by new customers’ acquisition.
• Consumers Intelligence: understanding the consumer’s needs is key for future growth opportunities. Ericsson ConsumerLab can provide valuable input for strategic decisions, through its extensive research on consumer behavior. According to the recent Personal Information Economy report from Ericsson ConsumerLab, more than 44% of the study respondents would let companies use their information to personalize offers, and 41% would let companies use personal info to improve or develop new products. Hence the increase of Consumers Intelligence.

Create

• Bundled plans: This will provide the ‘segmented’ consumers a targeted offering and at the same time provide the means to sell new data services (3G & 4G network are deployed in every region of the country) and fight the so-called over-the-top internet services providers. At the same time, it provides a suitable solution to the cost control drive of the subscribers in this market.
• Innovation: this is an important opportunity for competitive differentiation in this marketplace. To develop value propositions beyond simple voice and data plans, for the growing enterprise marketplace (companies from different industries are connected in the Networked Society), for the non-served rural population and the growing sub/urban addressable market. Cloud computing is an integral part of the Networked Society. Cloud offerings will improve traffic volumes but also drive higher ARPU by moving up the value chain and selling integrated offerings of connectivity, infrastructure and software-as-a-service. These offerings will create longer-term loyalty with customers and increase customers’ stickiness and create a new marketplace.
• Innovative business models: Explore new revenue streams by testing innovative business models to address customers’ needs. In the Networked Society, telcos have the opportunity to become core ICT providers by creating network-centric business through data centers or service-oriented developments. In the Networked Society, different customers from different industries are connected. This totally new marketplace needs to be addressed, served and supported. Tremendous opportunities for growth ahead indeed that will require innovative business models to cater to this increasing demand.
• Cost control: Mobile traffic demand will continue unabated and the need for continued investments in the radio access network, the backhaul, the core and the OSS/BSS will increase. Operating the legacy platforms and services in parallel with the new network introduces significant costs in the network, OSS, BSS and overall service operations. Cost reduction can be achieved with network outsourcing. Ericsson is the world leader in Managed Services. Ericsson operates large multi-vendor networks and related business processes—such as provisioning, network engineering, applications management, field maintenance, network optimization and spare parts management.

And here is the Blue Ocean Strategy Canvas:

Blue Ocean Strategy applied to Telco’s in the Networked Society

Blue Ocean Strategy applied to Telco’s in the Networked Society

I recently wondered why we shouldn’t apply Blue Ocean Strategy to Telco’s within the Networked Society; it is obviously about transforming, rebuilding and creating new market space. So I have decided to give it a try and I must confess that it is a tedious task; a challenge I should say, to do it outside my working time. In this first post I will set the scene and lay down my assumptions. In the coming posts I will elaborate more in details on the results.

Which operator did I choose? It did not take me too long to make a choice. I thought I should better select interesting Telco’s, operating in dynamic and challenging markets. I have decided to take two mobile operators from different part of the world; because the market requirements are different, the competitive factors are different, the competitive forces are different, the consumers and their behaviors are different. Their strategy should be different too. I have selected one Asian and one European (could very well be North American) mobile operator.

Before I start with setting the stage, I would like to briefly tell something about Blue Ocean Strategy. Professors W. Chan Kim and Renée Mauborgne have written one of the best-selling business strategy book of all time: Blue Ocean Strategy. Both teach business strategy & Management at the Blue Ocean Strategy Institute at INSEAD. Blue Ocean Strategies have been applied to Circus (Cirque du Soleil), Wine (Yellow tail), Gaming (Nintendo Wii), Airline (Southwest) and other industries.

The reader is required to have some basic knowledge of Blue Ocean Strategy.

Let’s set the scene now!

The Networked Society

What are the main characteristics of the Networked Society?
      i.        A highly performing Mobile Broadband network with LTE, heterogeneous network
and Wi-Fi. Radio coverage everywhere you go.
     ii.        A variety of connected devices with a variety of services and products serving a variety of industries.
    iii.        A cloud ecosystem providing a multitude of services easy and ready to use, to manage and to configure.

Blue Ocean Strategy approach

Due to time constraints I will not pursue the full blown Blue Ocean Strategy steps and will not use all of its available tools. I will limit this exercise only to two tools, the Strategy Canvas and the ERRC grid.

Let’s start defining the Red Ocean of the selected Asian operator.

Market background

My Asian operator operates in a very large and saturated telecom market, with highly competing operators; providing telephony services, Internet and broadband services. Operators compete fiercely on price; value-cost tradeoff means a lot in this market. A price war added to a declining ARPU makes the market extremely competitive and my operator situation relatively vulnerable. It is clearly a Red Ocean market.

The Strategy Canvas
Let have a look at the competitive factors in order to create the diagnosis for the as-is market situation and plot them into the Strategy Canvas.

1.    Price: Due to a highly competitive market the price is very low.

2.    Services portfolio:  Voice & Video calls, SMS, MMS and ringtones are the main revenue stream. Video calls are not widely used because of high price and bad QoS.

3.    Network Performance: The Quality of service is not good due to ongoing 3G network deployment.

4.    Coverage:  The mobile infrastructure is still not fully operational, and this affects coverage.

5.    Broadband services: All competitors are offering this service but the quality is still not good enough.

6.    Pay as you go: is offered by all operators.

7.    Roaming: Roaming charges are still relatively high.

8.    Different tariff plans: Many different tariff plans for pre/post paid subscribers

9.    Value added services: different supplementary services are offered in bundles or charged for separately.

10.  Media & Music downloads: low penetration due to high price.

And here is the Red Ocean Strategy Canvas. It provides a weighted snapshot of the competitive factors and a high level diagnostic of the market where my Asian operator is competing in.

In the next post, we will see how the application of Blue Ocean Strategy will define the Blue Ocean Strategy Canvas and create the Eliminate/Reduce/Raise/Create grid within the Networked Society.

Why Telco’s are investing heavily in Cloud Computing?

In my precedent post - where I have analyzed the impact of Cloud computing technology on Telcos - I came to the conclusion that this impact was three fold:  Value chain, Operating Model & the need of strategic alliance.

3fold impact

“…Telecom operators are making a land grab for physical assets in order to sell virtual goods. Acquisitions and investments totaling almost US$8 billion were executed in the first six months of 2011, according to Informa’s Telecom Cloud Monitor 1H11 published on July 29^th 2011…”

Telecom Cloud purchase and build - Informa Telecom Cloud Monitor 1H11

Why are operators investing so heavily in Cloud assets? The answer is simple: they have to! They have no choice. The telecom and IT barriers are broken and in front of them the Over-The-Top players are becoming greedy and are investing the Telecom domain/market; the telcos have to restructure their business models and reorganize in order to avoid the disruption threats in the horizon.

Cloud Partnering - Informa Telecom Cloud Monitor 1H11

In North America, Telecom operators are becoming leading Cloud providers through acquisitions and investments. But are Telecom operators getting their strategy right? Are acquisitions and investments enough?


Or will they substitute dumb pipes with dumb clouds?

To be continued…

Book review: The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business

Book title: The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business

• ISBN-10: 1422172813
• ISBN-13: 978-1422172810

Author: Rita Gunther McGrath
review here 

Read this book description  (excerpt from amazon.com)

Are you at risk of being trapped in an uncompetitive business?
Chances are the strategies that worked well for you even a few years ago no longer deliver the results you need. Dramatic changes in business have unearthed a major gap between traditional approaches to strategy and the way the real world works now.

In short, strategy is stuck. Most leaders are using frameworks that were designed for a different era of business and based on a single dominant idea—that the purpose of strategy is to achieve a sustainable competitive advantage. Once the premise on which all strategies were built, this idea is increasingly irrelevant.

Now, Columbia Business School professor and globally recognized strategy expert Rita Gunther McGrath argues that it’s time to go beyond the very concept of sustainable competitive advantage. Instead, organizations need to forge a new path to winning: capturing opportunities fast, exploiting them decisively, and moving on even before they are exhausted. She shows how to do this with a new set of practices based on the notion of transient competitive advantage...

Disruptively building a better business within the Networked Society; concrete cases

Economists, Strategists, Visionaries are calling for redefining the 21^st century capitalism; capitalism that reinvents societal ties; capitalism that no longer divides, exploits and sheds societal disasters wherever it surges. The open-ended consumption model we have today is no longer sustainable. Fortunately the change has already started; let me introduce you cases from this new-disruptive-better-business-era.

Case 1:
India is the second largest country in the world in terms of population. India has also a large number of villages; more than 600.000 villages with poor transport infrastructure making movement of goods and people extremely difficult.

Retinopathy of Prematurity (ROP) is the leading cause of preventable infant blindness worldwide. India has the largest concentration of blind people in the world, 1 out of 3. Over 8% of 27 million births each year are at risk of this potentially blinding condition. The ratio of inhabitants to ophthalmologist is around 100,000:1. There's no way the number of qualified physicians will grow to match the need anytime soon. The challenge is to screen 250.000 infants a day. This problem requires a fast and efficient solution for screening infants especially in the rural areas where expertise is lacking.

The widespread availability of mobile networks and the steady growth of Mobile broadband are opening unexpected doors for fast, efficient and societal innovations. Mobile broadband technology provides the possibility to transport data securely, conveniently, faster and while traveling.

i2itelesolutions pics

A potential solution has been tested. The Postgraduate Institute of Ophthalmology has partnered with a software company i2i TeleSolutions in Bangalore, and developed the solution. The solution consists of the availability of a portable retinal camera with an image capture design suited for newborns. This camera allows technicians to capture images and upload them via a Mobile broadband dongle data card. The images and data are uploaded to a remote server. Once uploaded the images can be accessed and viewed by an ophthalmologist - who could be thousands miles away - using an Iphone, an Ipad or any other PC.
Feedback and corrective measures can then be provided back to the technician via the secure server.This scale of screening in such large numbers can only be possible using Mobile Broadband networks.

Case 2:

In France since July 1, it is mandatory to have a breathalyzer (Alcohol tester) in his car. Car drivers have the choice between two alternatives: the disposable one of 2 euros or an electronic device priced more than 100 euros now. It will be much cheaper with larger sales volumes.

AndroMC Systems has worked on a solution associated with a smartphone, which is widely used in France. This company has developed a breathalyzer that plugs into a smartphone, and is associated with an application.

The principle is simple: you plug the reusable housing on the charging port and blow in it and the app indicates whether you are fit to drive. If not, the app may even find another means of transportation in the neighborhood, or call a cab for you. When possible the app can even block the car starter!

The combination of smartphone and Mobile broadband connectivity is becoming a driver of new business innovations, that will lead to economic growth, social empowerment and without any doubt to many surprising disruptions.

Do you imagine the social value of these services? Their business case is sustainable and more than positive.

Apple, Facebook, Google common love: the "double Irish with Dutch sandwich"

Do you know what is "double Irish with Dutch sandwich"? No, it's not a special cheeseburger.
Many people don't know what it is. Well. The ones with no accounting & financial knowledge...

It's an accounting technique known as the “double Irish with a Dutch sandwich” which reduces taxes by routing profits through Irish subsidiaries, the Netherlands and to the Caribbean. Today, it is used by hundreds of other corporations. Apple was pioneering in developing this tactic in order to avoid paying tax in high tax rate countries. What do Apple , Amazon , Facebook and Google have in common? The love of the "double Irish sandwich Dutch." Technology giants hide tax using these sophisticated systems, while brewing billions of euros of turnover in these countries.

Corporations that implement this tactic have one thing in mind: maximize profits where taxation is low and have a very low turnover where the tax rate is higher! Check this one, many of these corporations have subsidiaries registered in the Netherlands where the tax rate is 5%, subsidiaries in Ireland where the tax rate is 12.5% and subsidiaries in Bermuda where tax rate is about 5%; compared to the UK tax rate of 24% or France 33%.
These technology giants use the transfer pricing method. This method allows corporations to move sales between subsidiaries. From subsidiaries to parent company that is based in a tax heaven!! Got it?!
As an example, Amazon who is headquartered in Luxembourg, paid in the UK 2.3 million in taxes for a turnover of nearly 260 million euros in 2011. Facebook is accused to have deliberately created a net loss to avoid UK tax. Apple has paid 6.2 million euros in taxes in the UK, only 7.2% of its turnover in the country. Apple paid less than 2% tax on overseas profits last year, just $713 million in overseas corporation tax on profits of $36.87 billion. As a result: the parent company (based in a tax heaven) gets the largest profits while the subsidiary generates virtually nothing. And this is completely legal!
Governments in Europe, particularly in France and the UK where most of the profits are made for these companies, have started investigating and complaining about these practices.

My first question to the Apple, Amazon, facebook & others: Why on earth don't you want to pay tax in the country where you're making the largest profits? I know your answer: It is capitalism. This is business. greedy-sleazy-shabby-cruel business. The simple holy act of profit maximization is the only raison d'etre of these giants.

As I mentioned earlier, this is totally legal, but I put a question mark on whether it is totally ethical as well.
Tax collection is the only revenue source of governments to support healthcare, education, nutrition of their folks. These folks are the ones who are consuming your products, buying your services and making sure that you are generating high profits for your business. Refusing to fairly pay your real tax in Spain, Italy, Greece, France, etc... is a cynical and disgraceful stand, particularly in these uncertain times.

My second question:, remind me: what societal value are these giants really creating? what is their contribution to the society? to healthcare? nutrition? water problems? poverty? oh yes I forgot, Apple is employing Chinese for $2 a day. What a great societal contribution!

I really believe that these business practices must change. Businesses should generate profits for shareholders and must contribute in creating societal value as well. We cannot continue with this open-ended consumption model, where the simple act of profit maximization is good in itself.

The world is changing, and the business practices must change as well!

Welcome to the Disruption Era! 23 BUSD of lost revenues for Telcos in 2012 because of free SMS

Prof. Clayton Christensen Disruption Model

23 BUSD loss
Free messaging on smartphone, like Whatsapp, cost Telcos companies worldwide in 2012, 23 Billions US dollar on missed SMS-revenues, according to Ovum, in a recent report published in October 2012.

In the Ovum report, it is expected that losses could reach 54 BUSD per year by 2016.

What Telecom operators must do now? what are their choices? their options? their strategies? 
First, Telcos should start understanding, much better than they are doing, the influence of social applications on the consumers behavior. Secondly, start offering services that address these new consumers trends and behaviors.
In Ovum report, it is clearly observed that an increasing number of companies are using more and more social messaging services. This does not seem to be a short term trend but a complete shift in communication pattern.
In 2009, SMS provided 57 percent of 'non-voice' revenues to Telcos. In year 2012 this percentage will go down to 47 percent.

Once again the 'Free' business model has prevailed. So what is exactly Whatsapp business model?

From Philanthropy to CSR to Creating Shared Value...

There is an ever growing awareness about social challenges for which governments and NGO's lack sufficient capabilities to fully meet them. At the same time, Companies or Businesses are perceived to be prospering at the expense of the broader communities despite increasing CSR activities.

Harvard Professor Michael E. Porter and Mark Kramer came up, in the 2011 McKinsey award winner HBR article, with the concept of Creating Shared Value. Let's have a close look what this is all about. What is the role of companies in communities and how is it evolving?

Prof. Michael Porter's evolution model

It started with Philanthropy

It's harder and harder to do pro-public business activities because supporting business is viewed as a questionable activity. Business has been trying to address these issues with philanthropy. In fact, the first response to business to these societal issues is philanthropy.

Twenty years ago was the question to corporate/companies of "what percentage of your profit do you give to support society? In India they have even passed a law on this with a strong recommendation that businesses should give 2% of their profit to philanthropy, if they don't, they have to say why.
Philanthropy is good. A place to start but philanthropy is not enough... simply because there is not enough money!

The next step is Corporate Social Responsibility (CSR)
CSR is more than just philanthropy, but it includes philanthropy; compliance, understanding the communities standards, citizenship, being a good corporate citizen, and "sustainability" which means a lot of different things that it's hard to define sometimes. It's clear about environmental sustainability but less clear about a broader sustainability. Many corporates have many CSR activities but they do it to be considered a good corporate citizen only.

The next step is Creating Shared Value (CSV)
The more we learn about poverty, healthcare, water, nutrition, about societal issues, the more we see opportunities to use economics or new business models to address these societal issues. Shared value is about creating new markets, new opportunities for growth, and new ways to improve productivity. With CSV, opportunities for disruptive innovations will proliferate. Capturing  these opportunities will require new thinking about market segmentation, customer segmentation,  supply chain management, human resource management, and other management disciplines. Some companies are already redefining strategic positioning around a shared value mindset.

Aligning strategic positioning with shared value opens up fundamentally new ways of thinking  about the business. Shared value opens up a new and far broader opportunity set for companies. Companies that create shared value will gain competitive advantages and superior performance. Finally, it's important to mention here that Shared Value is not about triple bottom line. 

Ericsson's Networked Society vision, a great opportunity for redefining the 'Economic Value' ?

In recent years business has been viewed as a major cause of social, environmental, and economic problems. The simple act of profit maximization was good in itself; what was good for business was good for society. We have seen the effect of business practices on healthcare, environment, the mortgage crisis; example after example where a whole society has been dramatically hit and left traumatized.
Profit is not inconsistent with society needs, but there is an increasing belief that this profit is made at the expense of the society.

In 2010, The World Health Organization has spent 5BUSD to deliver healthcare solutions to the world. The same year, a global corporation has spent 25BUSD to deliver potato chips to the world. Corporations are incredibly powerful at delivering solutions to problems but they make absolutely no value judgment about which problems they’re going to solve.

Ericsson picture

The Ericsson's Networked Society, through its wider and broader impact on the business landscape, leading to business transformation, industry shift and disruptive innovations, could be a tremendous opportunity for a new business practice that creates simultaneously economic and societal value.

It only takes 5USD to help a woman in a small village to start her own business, begin the process of learning to read and receive basic healthcare services.

It has never been so easy and so ‘cheap’ to startup a new business. Through the increasing number of connected devices, combined with a performing mobile broadband infrastructure and cloud technology, a large number of data and information is available for processing. To prevent disasters, fight poverty, empower women in poor countries. The sky really is the limit for sustainable business innovations that definitely generate profits for shareholders and at the same time create thick societal value.

I truly believe that this Networked Society vision can be a driver of economic growth and societal development in this all communicating world…

Smartphones & Mobile Broadband: a powerful combination for Business Innovations

Control your blood alcohol BREATHALYzER with YOUR SMARTPHONE!

photos: AndroMC

Technology - The solution consists of a small reusable box to connect to an iPhone or an Android smartphone with an app.

In France since July 1, it is mandatory to have a breathalyzer (Alcohol tester) in his car. Car drivers have the choice between two alternatives: the disposable one of 2 euros or an electronic device priced more than 100 euros now. It will be much cheaper with larger sales volumes.

AndroMC Systems has worked on a solution associated with a smartphone, which is widely used in France. This company has developed the B-test, a breathalyzer that plugs into an IOS or Android smartphone, and it is associated with an application.

The principle is simple: you plug the reusable housing on the charging port and blow in it and the app indicates whether you are fit to drive. If not, the app may even find another means of transportation in the neighborhood, or call a cab for you. This product has been awarded prevention label by a big insurance company. But to be legal, it must receive approval from the state. If this happens, it will be launched at the end of the year.

The combination of smartphone and Mobile broadband connectivity is becoming a driver of new business innovations, that will lead to economic growth, social empowerment and without any doubt to many surprising disruptions.

If you don't disrupt yourself, you will be disrupted!!