Since the breakup of Ma Bell two decades ago, the
telecommunication industry has undergone significant changes. Regulators
around the world may be responsible for opening the doors to the changing
environment, but the catalyst for change has undoubtedly been the
emergence of new telecommunication services and solutions. That trend is
likely to be sustained in the foreseeable future.
But while change often leads to significant long-term
growth opportunities, for many companies in the telecommunication sector,
this also means uncertainty and risk in the short run. Assuming large
infrastructure and R&D commitments and bearing hefty marketing and
sales expenses, telecom companies are also subject to severe pricing
pressure due to intensified competition -- the combination of which has
brought their margins and cash flow to historical lows. As a result of
this, their capital requirements have become more difficult and expensive
to fulfill as the financial markets still recover from whiplash.
The uncertainty surrounding the sector�s future and
the current market conditions have left telecom firms little leverage to
wager their growth and profitability prospects. Given this, what is the
alternative for telecom companies to effectively compete and regain the
upper hand? The answer lies in the value chain for those companies
determined to meet their objectives with reference to:
Functional and operational performance
Core competency and focus
Strategic relationship management
Network and collaborative management systems
CASE FOR FOCUS AND COMPETENCY
In the two previous articles of this series on value chain management,
we looked at customer value
to establish the fundamental drivers of competitive behavior. When
performing the appropriate customer and functional value analyses,
competitive firms get a grip on the comprehensive needs of their
respective customer segments and understand the fundamental capability
requirements needed to meet those needs. They investigate the value chain
in search of opportunities to optimize their business model, addressing
both: Capability gaps and market growth opportunities.
The value chain, and it alone, encompasses all the
elements of the customer solution. Competitive firms understand that and
develop relationships upwards, downwards and laterally to maximize the
value for their customers. To manage that process most effectively, it is
They understand their role and manage their position within the
They dispose of effective relationship management models; and
They move towards a collaborative management system.
In this column, we broach the subject of the firm�s
strategic intent, which couples its capabilities with the needs of its
markets. How a firm defines its core competencies determines its focus and
impacts its relation vis-�-vis others in the value chain. We will touch
upon some of the strategic and competitive implications this has on a
firm�s organization. The next two articles in this series will deal with
relationship models and collaborative management objectives respectively.
Telecommunication companies are capital intensive and, to recoup their
outlays, are required to reach a large customer base. Their products,
operations and processes are standardized in order to achieve efficiency
and productivity. Their sales channels are given incentives to push the
product and achieve market share growth. Their marketing, services and
business development folks continuously seek new opportunities to push
outward the fringes of their firms� markets. These activities bring
about the establishment of new outlets and value propositions in order to
grow revenues and expedite the payback on the firm�s investments.
It sounds fairly simple and innocuous; yet it�s not
good enough judging from the sector�s performance lately. The fact that
this approach has pretty much become the prototype for business models in
the industry should not provide any solace either. So what�s the problem
with it? The problem is that there is no real lasting value in the model.
Here are a few of the challenges that companies encounter when relying on
technology changes and infrastructure cost reductions render the asset
(and the value proposition) rapidly obsolete and worthless;
Lowered entry barriers allow for an increase in
number of competitors;
Capacity and supply increase faster than demand
and deflate pricing;
Despite differentiation efforts, the markets view
products or services increasingly as commodities;
Intensified sales, marketing and business
development efforts (adding distribution costs but little customer
value) further squeeze margins;
More and more, customers are demanding customized
Beyond the fringes of the markets loom other
�players� moving on a convergent course, which has the potential
to upset the balance of things.
On the upside, there is still significant growth
potential in the market, and the demand for value-rich offerings has not
been exhausted -- far from it. However, as we mentioned before, the
industry has changed and with it, so have the customers� needs and
expectations. The fragmentation of the telecommunication industry,
motivated by the new technologies and the emergence of new competitors,
has caused a shift in the roles of its players. Total customer solutions
are no longer in the hands of a single company, as once was the case with
the old vertically integrated operators. Instead, they depend on multiple
vendors of specialized network, software and hardware components. As
breakthroughs in the various sectors lead to new products and services,
the complexities of the customers� solutions mount.
It�s at this juncture, where the need to address
the ever-increasing complexities of customer solutions emerges, that firms
make deliberate strategic choices regarding their core competencies and
�CUSTOMER FOCUS� has
been the operative phrase for quite some time. Yet it keeps resurfacing as
the leitmotif for each restructuring announcement. Would it mean
�they� got it wrong the previous times? In how many ways can you
define this concept? Is it:
Having friendly call attendants?
Keeping your commitments?
Standing behind your product?
Effective service and support?
More frequent �consultative� sales calls?
Finding new ways in which your products can help
If you are doing all of the above, you are doing a
lot of things right. But there is more than that to being
customer-focused. In fact, it may take an entirely new competency to
succeed at being customer-focused: A different mindset, a new philosophy.
With the exception of a few consumer offerings,
telecommunication products and services are part of a value chain and
integrate into total customer solutions. Competitive firms seek no longer
to push their products onto unwitting (misinformed) customers; they look
for opportunities to fill gaps and alleviate the hassles and headaches
that customers experience when they are trying to fix their problems.
Customers buy from these firms because they have a reputation for
delivering value and producing results that matter.
Don�t get me wrong, supplying quality products at
fair prices in a courteous manner and providing good service remains very
important. Yet, the focus shifts from seeking to satisfy customers with a
good product and friendly service to aiming at consistently delighting
customers with solutions that fix their problems. The strategic value
objective has evolved from �best product� to �best problem
The competitive firm espouses this approach because
it understands that customers perceive the value of products or services
only in terms of their contribution to the solution. Furthermore, this
value objective is consistent with the trend in demand, which puts the
customer in the driver seat as illustrated below, and strategies in
support of it provide that firm with greater competitive advantages in the
The challenge of managing customer
solutions, when in fact the object of the firm is to sell products or
services, requires that the firm�s core competency now assumes the
responsibility to deliver upon that objective, yet without compromising
its capabilities to produce and deliver competitive products and services.
The opportunity to accomplish that exists with value
chain management, which allows companies to draw on various sources of
expert knowledge and specialized resources within the value chain that are
needed to support its customers� solutions. The customer value and
optimization objectives inherent to this approach allows firms to free up
the resources necessary to manage that process successfully while also
improving their ability to effectively adapt their products and services
to the needs of their customers.
In essence, to achieve the goal of meeting the higher
level of customer needs, the strategy of the firm is to develop and manage
strategic relationships with suppliers, outsourcing vendors, providers of
peripheral systems and services, channel partners, etc., that dispose of
resources and/or provide other components necessary to the implementation
of the customer solution. It establishes a collaborative approach that
affords it greater effectiveness and flexibility in the customization of
its customer solutions. The strategy is also key in accomplishing greater
efficiency, which finds its source in economies of scale, synergy and
leveraging opportunities that materialize as the participants within the
value chain pursue improvements through greater specialization.
Some of the competitive implications of adopting a
customer-focused strategy using the value chain management approach are:
Customers respond better to offers that address
their needs for customized solutions, integration complexities and
The broader environment of the value chain offers
more maneuvering room for firms to uncover growth and cost containment
The value proposition of the firms is less
vulnerable to changes in technology, or emergence of
alternative/substitute products in the market;
Offers are more resilient to pricing pressures
and the tendency to mass produce the products or services; and
Barriers to entry are higher as the value
proposition and strategic relationships are much harder to emulate.
In conclusion, customer focus, beyond providing
quality products and friendly services, can thus be accomplished by firms
willing to shift the paradigm to encompass the dynamics of the value
chain. Clear benefits emerge both from a strategic management and a
competitive positioning perspective.
Other benefits of value chain management will be
discussed in a subsequent article on collaborative management. For the
next column in this series, we will discuss strategic relationship models,
why they are important in the emerging environment, and what it takes to
make them work.
Xavier Van de Lanotte
is the president of VXTConsulting, Inc. Xavier advises telecommunication
services and equipment firms on Competitive Strategy, Customer Value,
Alliance Management, and Distribution and has worked in this industry in
various parts of the world for 15 years. For more information on value
chain management, please visit us at www.vxtconsulting.com, or contact
us at email@example.com.
We welcome your questions and thoughts about this article.