Austerity measures impacting innovation at telcos

Research from Ivalua suggests employees at telcos believe a hard-line focus on cost-reduction is impacting the ability to innovate at this crucial time.

The world has entered the digital era though arguably the greatest riches are still looming large on the horizon. Innovation and the introduction of new concepts will be needed to capture these profits, though it remains to be seen which companies will profit the most.

In terms of the spreadsheets, the telcos perhaps need this resurgence more than any others. The emergence of the technology giants severely dented profits as revenues from SMS and voice calling eroding through the adoption of applications such as WhatsApp and Skype. These riches have yet to be recovered, though there is always opportunity as more aspects of life shift into the digital domains.

Despite these trends and pressures, Ivalua is suggesting telcos place too much emphasis on cost-efficiency rather than innovation.

“The pressure is on for businesses to innovate at pace, so collaborating with suppliers to use their industry expertise to develop new products and services has become vital,” said Alex Saric of Ivalua.

“The majority of UK businesses (92%) say they are now highly dependent on their suppliers, so when it comes to innovation, companies must rethink how they approach supplier relationships. The more innovative suppliers are in a position where they can now pick and choose who they work with.

“As a result, UK businesses need to ensure they are appealing partners to work with. This means moving away from supplier relationships that only focus on negotiating lower prices, which can financially stress suppliers and cause them to think twice about working with cost-focused organisations.”

This is not to say cost-efficiency initiatives should be ignored. Even the blue-sky thinkers at the likes of Google and Amazon have financial restraints placed on them. But it does appear the more traditional mindset of telcos is inhibiting the ability to compete in the digital world.

What should be worth noting is that the lines between communications service providers and other segments of the industry are quickly blurring. There might have been a distinction in the past, but no-longer. Telcos have to realise competition is a new beast nowadays.

Take campus networks as an example. Telcos might seem like the perfect partner to build and manage a private network, but if spectrum licences can be purchased from Ofcom directly, why wouldn’t an enterprise organisation work with a specialised service integrator and cut the telcos out of the loop? The same could be same for edge computing, telcos might seem like an obvious partner but then again, the cloud infrastructure giants can offer almost identical services.

Each of these players want to control the ecosystem and then take a larger share of the profits. The telcos will of course want to create a proposition to prevent this but are they currently capable of scaling that mountain?

The smart home is an excellent example of what happens when you are sluggish. With a router already in the home and an existing relationship with the consumer, telcos should have been in the perfect position to take the reigns in the smart home ecosystem. But they were sluggish, offering an opportunity for Google and Amazon to bring products to market and own the smart home ecosystem.

One of the issues will of course be the relationship between the telcos and suppliers. If it remains a transactional relationship, focusing mainly on cost reduction, new ideas will not emerge. One thing you can pretty much guarantee, the internet giants are much more open minded.

“Effective collaboration with suppliers requires UK businesses to take a smarter approach to procurement, so they can understand supplier capabilities and strengths, assess risks and recognise opportunities,” said Saric.

“This allows businesses to collaborate deeply on new products or services, unlocking maximum innovation from their supply base. Procurement must refocus to foster, rather than block, innovation. Not only will this allow UK businesses to innovate at pace, but it also fosters collaborative partnerships that speed up innovation, rather than always asking suppliers to cut costs.”

It might sound repetitive, but telcos need to shift their business model, attitude towards risk and relationships with suppliers. It does appear many of the world’s telcos are operating in the same manner as a decade ago, with a couple of exceptions. The industry is sleep-walking towards commoditization today, but it doesn’t seem to want to change.