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Trash the Rulebook

The new rules of engagement are being written by Communications Service Providers’ customers. Releasing trapped value to make investments in future B2C and B2B growth is urgent in order to survive.

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Trash the Rulebook

  1. 1. TRASHTHE RULEBOOKThe new rules of engagement are being written by CommunicationsService Providers’customers. Releasing trapped value to make investments in future B2Cand B2B growth is urgent in order to survive. #NewAppliedNow 1Copyright © 2019 Accenture. All rights reserved.
  3. 3. The commoditized core business isn’t profitable and there’s ongoing substitution with low cost, digital alternatives. Shareholders are being kept with dividend yields and share buybacks. 3Copyright © 2019 Accenture. All rights reserved. SHIFT& DISRUPTION OFVALUE
  4. 4. 4Copyright © 2019 Accenture. All rights reserved. Barriers to entry & market boundaries are collapsing and traditional approaches to growth are no longer sufficient. Existing asset values and historic positions of strength are eroding. CHANGING RULESOF THEGAME
  5. 5. Ongoing reduction of customer stickiness and loyalty. Incumbency is no longer an advantage – CSPs are not an essential part of the users’ daily digital routine. 5Copyright © 2019 Accenture. All rights reserved. THELIQUID CUSTOMER ISHERE
  6. 6. Infrastructure-bound, with vertical integration and siloed operating models. CSPs have un-scalable legacy operating and technology models and legacy, engineering-based workforces. THETELCO RULEBOOK ISOUTDATED 6Copyright © 2019 Accenture. All rights reserved.
  7. 7. WHILE CSPS HAVE MAINTAINED INVESTMENT LEVELS, THEY ARE FACED WITH DECLINING PROFITABILITY Copyright © 2019 Accenture. All rights reserved.. 7 CSPs have experienced lower return on invested capital and profitability CAPEX SPEND VS. ROIC Percent EBITDA Percent 32.4% 29.7% 31.4% 29.0% 29.5% 30.0% 30.5% 31.0% 31.5% 32.0% 32.5% 33.0% 33.5% 34.0% 34.5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM 15.7% 16.4% 15.5% 12.5% 10.8% 5% 8% 11% 14% 17% 20% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM Capex / Revenue ROIC Notes: 2018 data covers LTM numbers from Capital IQ. All exchange rates have been converted at constant currency rates of 2018. Source: Capital IQ data for 70 companies; Accenture analysis; ROIC from Value Insights Platform
  8. 8. DISRUPTERS ARE BORN DIGITAL, BENEFITTING FROM NEW BUSINESS AND OPERATING MODELS While historic protections disincentivised CSPs to innovate, disrupters upended the market by capitalising on core business model advantages to capture market share Copyright © 2019 Accenture. All rights reserved.. 8 TIME TO GET TO A $1BN DOLLAR VALUATION 20.0 8.1 6.2 5.9 5.1 4.4 4.3 3.4 2.8 2.3 1.7 Avg Unicorns DISRUPTIVE BUSINESS CHARACTERISTICS YEARS Disruptive businesses have demolished the time to become a $1Bn dollar business S&P 500 / DAX Create an ecosystem of partners, customers & developers Own the full digital experience and engagement (cloud, network and devices) Operate as 2-sided platforms vs focusing on products Embed data driven feedback loops to optimise decision making Adopt a different business model: the more you use the more you grow Foster a different tech culture (fail fast and learn) Benefit from lack of legacy and no need to maintain asset baseSource: comScore, Traction metrics, The Economist; oneweb.world; Accenture *$110-120 in cities without Google vs $70 in cities where Google offers its fiber patch. **Google estimate of $5 per served customer up to 120M served customers. ***Comcast Capex FY15, only Cable Business
  9. 9. TELECOM COMPANIES ARE LAGGING IN READINESS FOR DATA-DRIVEN TECH CULTURE Copyright © 2018 Accenture. All rights reserved. 9 Platform companies have invested in the skills required to become data-driven business, while telcos are hampered by legacy and have fallen behind. Source: LinkedIn; Accenture analysis Google Amazon Facebook Netflix AT&T Verizon Telefónica Deutsche Telekom Time Warner Orange Telecom Italia T-Mobile BT Sprint CenturyLink BCE 0% 5% 10% 15% 20% 25% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% % OF WORKFORCE IN ENGINEERING %OFWORKFORCEINANALAYTICS
  10. 10. DISRUPTERS DRIVE EXPERIENCE USING DIGITAL ENGAGEMENT, NOT PHYSICAL PRESENCE Source: Goldman Sachs; Accenture analysis AT&T APPLE VS. 31 KPN Telecom Italia Verizon BT 38 41 64 69 1,181 Retailing Online/Digital Services Technology Hospitality Financial Services Insurance Telecom 50 46 37 28 24 23 11 …BUT STILL TYPICALLY SCORE POORLY IN TERMS OF NET PROMOTER SCORES Net Promoter Score by IndustryUnique subscribers (000s) per store – Domestic operations – 5 large Telcos Vs. Apple TELCOS HAVE A LARGER RETAIL PRESENCE PER CUSTOMER VS. DIGITAL DISRUPTORS…
  11. 11. DISRUPTERS HAVE SEIZED OPPORTUNITIES IN B2B WHILE CSPS HAVE FAILED TO INVEST Copyright © 2019 Accenture. All rights reserved.. 11 ▪ Only few CSPs with a successful B2B play ▪ Digital natives such as Amazon (with AWS) and Google are clearly the B2B revenue growth leaders recording growth rates of 30-50% ▪ They started to transfer the magic loop of ever increasing customer relevance from B2C to B2B Notes: B2B Penetration implies B2B revenues as a % of total revenues Source: Company reports; Accenture analysis The new and continuously evolving ecosystem landscape required a radical change for telcos: learn from cloud companies, or partner for growth.
  12. 12. BUTWHATIFTHIS COULDBEFLIPPEDTO ARACETOTHETOP? Cost savings are now re-invested to fuel future growth WITHOUTINVESTING INAFUTUREGROWTH MODELIT’SARACETO THEBOTTOMFORCSPS CSPs are currently just surviving by optimizing their core business to save costs and pay dividends 12Copyright © 2019 Accenture. All rights reserved.
  13. 13. 1. TRANSFORM THE CORE BUSINESS …by building more competitive cost structures to improve flexibility, increase profits, and drive up investment capacity. 2. GROW THE CORE BUSINESS …by redirecting some of that investment capacity to drive incremental growth in the core business. 3. SCALE NEW BUSINESS …while identifying new sustainable business models which leverage and monetize key control points and scale them (at the risk of core business cannibalization). 4. PIVOT WISELY …by keeping an eye on pace and balance. The “core” and “new” businesses usually need to co-exist for a substantial period of time. 13 SCALINGNEWGROWTHISADELIBERATEAND PERPETUALCHANGEJOURNEY,NOTASINGLEEVENT Copyright © 2019 Accenture. All rights reserved.
  14. 14. Leverage the valuable heritage of telecoms experience – customers, billing relationships, networks, security, and trust - to embrace new competitive advantage and find new growth. 14Copyright © 2019 Accenture. All rights reserved. PLAYTO YOUR STRENGTHS
  15. 15. NETWORK ROLE NETWORK INVESTMENT STRATEGY ▪ Drive the most cost competitive in- country connectivity (all digital, portfolio simplification) ▪ Open to shared or outsourced networks ▪ Software defined and agile control points to build customer intimacy ▪ Foundation capability to provide connectivity services ▪ Provides critical control points: SIM cards, CPEs ▪ Differentiating capabilities ahead of competition (low latency, own IPs, MEC, topology of services) ▪ Provides critical control points: connected objects and ubiquitous policy management ▪ Focus on best quality, features and coverage ▪ Walled garden for distinctive network capabilities and control points ▪ Articulated organization and tech platform for service creation and exposure Multi-sided platform model Connected Industry Orchestrator SUCCESSDEMANDSADEPARTUREFROMTODAY’S MODELSANDCOMPETENCIES–ANDPLAYINGTOONEOF THECSP’SCORESTRENGTHS–THENETWORK Pervasive Network As an Enabler for New Growth 15Copyright © 2019 Accenture. All rights reserved.
  16. 16. INTELLIGENT OPERATIONS Transform the operating model towards customer-centricity and agility while leveraging automation (RPA, AI) into the core culture. PROGRAMMABLE PLATFORMS Transform the cost base and the customer experience by creating software defined, programmable and reusable solutions, driven by insightful data and end to end orchestration. DYNAMIC NETWORK SERVICES Rapid launch of software driven services to keep pace with client desires and expectations (B2B, B2C, 5G) supporting a Multi-sided platform model as well as a Connected Industry Orchestrator model. GROW + TRANSFORM THE CORE MIGRATIONS/DEPLOYMENT Ultra lean management of legacy network, in parallel to accelerated migration towards new stack and deep densification of Fiber & 5G. Needs a two speed approach to migrate and sustain while building the new THE PERVASIVE NETWORK OUTSIDE IN INSIDE OUT THEPERVASIVENETWORKISDRIVENBYINSIDEOUT,AND OUTSIDEIN,TRANSFORMATION 16Copyright © 2019 Accenture. All rights reserved.
  17. 17. WITH SUCH DISRUPTIVE TRENDS, TELCOS MUST ACT FAST TO LEAD OR LOSE IN THE FUTURE VALUE CHAIN Copyright © 2019 Accenture. All rights reserved.. 17 SUMMARY IMPLICATIONS ▪ Global industry growth is anaemic: globally, traditional CSPs revenues have stalled ▪ Value shifts to digital players: tripling in comms industry value driven by platform growth ▪ Strength in North America: NA CSPs have seen some success via diversification strategies while European CSPs have focused on consolidation and have fallen behind • Examine new growth areas carefully, and look for opportunities to make shift along the value chain to occupy other profit pools, or find new ways to monetise existing offerings ▪ Regulatory protections are fading: traditional telco strongholds are being eroded ▪ Digital business models drive platform growth: disrupters leverage new business models built on speed, reach, and scale ▪ Customer lifetime value is key: platforms export customer loyalty across an ecosystem of products & services to optimise customer lifetime value • Launch a digital transformation program to revisit competitive position, business models, investments, and services in B2C and B2B markets • Enforce rotation to a relevant platform play ▪ Customer expectations continue to shift: disrupters raise the bar on customer experience ▪ Capitalising on emerging trends is key for B2C: relevance, brilliant basics, security & trust, and ease of experience are front of mind for B2C ▪ Disrupters have seized opportunity in B2B: telcos have been held back by current business models, but can target specific pools of value • Adopt user-centric, digital first, and data-driven experience design • Learn lessons from leading B2B services providers to target SMB customers with a relevant and balanced service portfolio ▪ Growth of the physical internet: the internet moves from connecting people to people to connecting things to things with autonomous data exchange becoming the norm ▪ Edge enables new applications: security, privacy, and convenience is moving to the edges, giving devices and proximity a new relevance ▪ Future value lies in orchestration of this ecosystem: landscape is already crowded • Enable software defined, reliable, secure data highways with smart connectivity (incl. 5G) • Move early to occupy the orchestrator role, creating multisided cloud based platforms and capitalising on proximity and trust advantage Source: Accenture analysis
  18. 18. 18Copyright © 2019 Accenture. All rights reserved. RIDINGONTHEDISRUPTIVE TRENDS,THECSP CAN REINVENTITSELF
  19. 19. 19Copyright © 2019 Accenture. All rights reserved. Look for new growth opportunities in B2C and B2B Become embedded in the digital routine of consumers, and provide platforms and vertical services for enterprises. 19Copyright © 2019 Accenture. All rights reserved.
  20. 20. 20Copyright © 2019 Accenture. All rights reserved. Launch a digital transformation program Revisit competitive positioning, business models and services in B2C and B2B markets. Enforce the rotation to a relevant platform play. 20Copyright © 2019 Accenture. All rights reserved.
  21. 21. Move to hyper- personalization for customers Adopt user-centric, community oriented, data-driven experience design. Leverage the credibility of telcos around trust, security, privacy and proximity. 21Copyright © 2019 Accenture. All rights reserved.
  22. 22. Update technology and operating models Build software-defined, highly reliable, secure data highways, specialized network clouds and smart connectivity, including 5G. Anchor multi-sided, cloud- based platforms increasingly on edge devices for reliability and security, allowing telcos presence, proximity and trust advantage. 22Copyright © 2019 Accenture. All rights reserved.
  23. 23. 23Copyright © 2019 Accenture. All rights reserved. Success demands a departure from today’s models and competencies if CSPs are to scale new growth models. PICK YOUR PLAY
  24. 24. TOROTATETOTHENEWSUCCESSFULLY,CSPS NEEDTOMODIFYTHEIRDNA • The future of work evolves from “jobs” to “roles” in a liquid model • Workforce development, training and capability building become central tasks • Operating model transformation will blur traditional foundational models and establish agile collaboration • Empowerment is at the center of future performance management OPERATING MODEL • Hyper-individualization and contextualization of services • Future service models manage the tradeoff between Revenue Per Customer and Reach • Investment and capital allocation ruled by platform economics and (for product development and innovation- related processes) - flexibility over efficiency BUSINESS MODEL • Customers expect that services understand them and not the other way around • CSPs need to adopt a more customer-centric, data driven, experience designed approach • Channel specificities and audiences will be managed consistently through a system of engagement • Co-creation and continuous learning to improve the experience CUSTOMER ENGAGEMENT 24Copyright © 2019 Accenture. All rights reserved.
  25. 25. • CSPs will operate software defined and virtualized pervasive network stacks • Key capabilities are centered around providing digital highways, specialized network clouds and smart connectivity • Network transformation follows a smart combination of customer centric and efficiency driven approaches NETWORK • CSPs need to operate a digital multi-speed IT and network stacks to get on with the digital portfolio as soon as possible • Federation of decoupled platforms across IT and Network • IT and networks will be a central part of day-to-day value creation, and the engineering teams will have to become true business partners TECH STACK NEWGROWTHMODELSNEEDANEWAPPROACH TOITANDNETWORKINVESTMENT 25Copyright © 2019 Accenture. All rights reserved.
  26. 26. Unleashing trapped value through cost optimization is just the first step. We help you reinvest smartly and scale new growth in a future business model that stays true to your core. TUNEUP 26Copyright © 2019 Accenture. All rights reserved.
  27. 27. Copyright © 2019 Accenture. All rights reserved. FORMORE INFORMATION