BuddeBlog

Manufacturers need to refocus their business

In a converging world of applications and technologies, there is an unlimited number of new business opportunities. Furthermore, increased competition from within and outside the industry are forcing the existing players to rethink their position, refocus their strategy and realign their businesses and business relationships.

How are the players faring?

By 2000 several companies had made significant changes and were well and truly on the way up again.

Nortel has been leading the pack. Ericsson tried but failed and is still struggling to find its future position. Lucent also made good changes and while there are still major international problems, the local arm, Down Under, is doing very well. Siemens still have to turn that corner, but I expect this to happen before the end of 2000. Alcatel recently has recorded some good wins and seems to be ahead of Siemens in this process. Outstanding performers are, of course, companies such as Nokia and Cisco. Coming from behind, they have proved to be the true leaders of the new world. Motorola and NEC both remain question marks – no real future vision has been displayed in Australia, but they are nevertheless strong forces in the market. Philips, who played a key role in the mid-1990s as the builders of the Telstra broadband network, has disappeared from the radar. However, international indications are that they will re-emerge. We expect this to be mainly on the consumer electronic side.

Siemens took an interesting initiative in mid-2000. They now offer a regulatory consultancy service for their customers. They make sure that they understand the regulatory regime and based on their knowledge they advise their customers on relevant technology solutions that can be implemented by taking the regulatory environment into account. The company also takes responsibility for interconnect negotiations, access arrangements, etc.

Two key problem areas

However, the industry will have to change even further. We predict that within the next 5 to 10 years several manufactures and network operators will have merged some of their operations. These new combined companies will become the major global network operators, to which smaller operators will either outsource or link their own network subset.

There are several problems facing the telecommunications manufacturers, the important one being that most of them are losing their decades-long relationships with carriers. This is a painful process as it prevents the manufacturers from making more dramatic changes to their own business, since these operators remain their major customers – in many cases a single national operator can account for well over 50% of the manufacturer’s business in a particular country.

The second most important problem facing the manufacturers is that in the past they have never been very much involved in the services side of the market. They may be excellent engineers, but most of them don’t have a clue about what is involved in delivering the services that end-users want. This has always been left to their customers – the carriers – who, as is becoming more and more clear, also don’t have a clue.

Manufacturers are going through a period of dramatic strategic change; with increased competition between manufacturers; and with the arrival of a new breed of carriers and service providers who are not impressed simply by engineering expertise.

Arrival of new business models

My vision for this part of the industry is based on a two-tiered development:

- manufacturers will have to become involved, in particular, in the developments and operation of new infrastructure;

- they will have to unbundle and re-engineer their products to facilitate the new trend towards niche market developments by service providers. SPs will tell the suppliers what they want, rather than suppliers dictating what SPs can get.

If the manufacturers are able to implement the cultural changes needed within their organisations they will open themselves up to tremendous opportunities. Under the pressure of competition carriers can no longer continue to throw their money at large-scale infrastructure projects. In the past there was no need to be effective or efficient, as the profit margins were so high that they covered the many fiascos in the market. However this period is drawing to a close and a far more targeted approach is needed – this at a time when demands for network capacity and intelligent management of the services on this network are increasing at astronomical rates.

It takes two to tango

To profit from this trend two important decisions will have to be taken:

- carriers will have to understand their critical role in the networking market and have to focus on their position in this market

- manufacturers will have to become active participants in the development and operation of this market.

So far we have seen mergers between telecommunications carriers, cable TV operators and entertainment companies. Most of them failed even before they were consummated. A far more natural partnership is between telecommunication network operators and telecommunications manufacturers. They will have to merge and form joint ventures and operational partnerships.

High on my shopping list for a combined manufacturers and carriers business would be:

- develop plans for the development and deployment of all fibre FSNs;

- work out a solution for the many problems with OSS. After all these years they are still not delivering the urgently needed and promised management goodies;

- work out solutions for the many problems that have arisen from lack of interoperability of systems and services from different manufacturers.

It’s one thing for me to say that the Australian regulatory system doesn’t work, but it’s something else again when the head of the Australian regulatory body makes statements along the same lines. And this is exactly what happened a few weeks ago.

It was very encouraging to hear Professor Allan Fels, chairman of the ACCC, publicly state that the current regulatory regime must be changed if it is to be effective. He stated that there are insufficient incentives for the industry (read ‘Telstra’) to negotiate an equitable outcome. At the time of the announcement the ACCC had 21 active matters to deal with on issues like access, interconnect, provisioning, etc. The following day another case was added to the list.

Back in 1995 and 1996 I was involved in many discussions on the newly emerging telecommunications industry. Everyone involved, other than Telstra, informed Minister Richard Alston and his Department of Communications that the self-regulatory environment proposed by the government could not work – due to the fact that the incumbent was 90% larger than the dozen other players combined. It was argued that self-regulation would be impossible in such an environment. But the government ignored this advice – no doubt influenced by the fact that they were the owners of Telstra and, as such, had a vested interest in keeping the company as robust as possible during the following years in order to maximise the profits from its sale. At no point did the government pay anything but lip service to the welfare of the Australian public.

Only a week before Allan Fels’ announcement I stated in my submission to the Telecommunications Inquiry:

‘The government should empower the ACCC to put a stop to further delays in implementing a more pro-competitive environment. Lip service alone is clearly not enough and the additional powers provided in late 1999 are obviously not working. Why can issues such as interconnect and access be implemented in Europe within 3 months when it takes 3 years to do so in Australia. The self-regulatory nature of the industry is used by the incumbent to delay viable competition for as long as possible. Upcoming determinations on ADSL, pay TV, cable TV, etc. should be implemented immediately rather than allowing the incumbents to delay this again for 3 years or so.’

Some extraordinary developments followed Mr Fels’ announcement.

First of all, to my surprise, the Minister intervened by publicly communicating his dismay at Telstra’s frustrating ongoing delaying practices. This was followed by an announcement by Telstra that the ACCC should make a determination on the local loop pricing. Of course, Telstra is well aware that the ACCC doesn’t have the power to do this under our notorious self-regulatory regime, so they can well afford to make comments like these.

Telstra also said that the ACCC could have made determinations a long time ago. Again untrue – Telstra very well knows that the ACCC can only respond to complaints from others – and these other players can only complain after Telstra releases its terms, conditions and pricing, and after these players first negotiate with Telstra, and Telstra, of course, only made these terms available a few weeks ago.

Despite this, the ACCC, provoked by Telstra, decided to issue pricing principles. While still very different from international benchmarks, they come much closer to market realities. A few of the ACCC’s proposed prices: for CBD connections $21 (Telstra’s charge $38) and Rural/Remote $50 (Telstra: $89). On average the ACCC prices are just above half what Telstra will charge.

The only person in Australia who could actually produce quick action is the Minister, as it is highly unlikely that Telstra is suddenly going to slash its prices voluntarily.

In the submission mentioned above I also wrote that ‘we need to have a stronger commitment from the government that they will act upon the recommendations of the specialists they employ. These organisations request submissions from a broad representation of the industry and the community at large. They put a lot of effort into their submissions and then see them ignored by the government.’

So, Minister, the ball is in your court – we will be watching with interest.

Paul Budde

I received some terrific feedback to my comments that the concept of democracy has been discarded by politicians. This was one of them.

Eminent American historians (among many others including Galbraith and Friedman) have observed after studying a thousand years of history: "For the politician or minister under modern conditions, a limiting factor is too many subjects and problems in too many areas of government to allow solid understanding of any of them, and too little time to think between fifteen minute appointments and thirty page briefs. This leaves the field open to protective stupidity. Meanwhile bureaucracy, (the public and private kind) safely repeating today what it did yesterday, rolls on as ineluctably as some vast computer, which, once penetrated by error, duplicates it forever."

"Elected representatives are elaborately briefed on matters which they do not fully understand. This is not meant to allow them to decide, but is rather to create the impression, and allow them to give others the impression, that the decisions are theirs. As the complexities of government have increased the people’s representatives have become increasingly dependent on this vast network of public and private bureaucracy. It has now become a systemic flaw and its growth over the past 20 years coincides with the nations’ increasing array of problems. They have prospered accordingly. Described over 20 years ago (the trend was clearly evident even then) as the ‘new class’."

"Government bureaucrats, academics whose research is supported by government funds or who are employed in government financed ‘think tanks’ (or an array of equivalents depending on the circumstances), staffs of the many so-called ‘general interest’ or ‘public policy’ groups, journalists and a range others in the communications and advertising industry are amongst the most ardent preachers of the doctrine of equality..but of course, as history shows, only in the most narrow sense where it benefits them as a priority and no one else’

" vast federal bureaucracy spread throughout the many government departments and independent agencies is literally out of control of the elected representatives of the public. Elected Presidents (Prime Ministers), senators and representatives come and go but the bureaucracy remains. They know where the bodies are buried. Higher level bureaucrats are past masters at the art of using red tape to delay and defeat proposals they do not favor; of issuing rules and regulations as ‘interpretations’ of laws that in fact subtly, or sometimes crudely, alter their thrust; of dragging their feet in administering those parts of laws of which they disapprove, while pressing on with those they favor."

The words ‘customer service’ are misused by most leading marketers of consumer products. From airlines to banks and telcos we see glossy advertisements, with smiling girls opening doors and giving the appearance of looking after the customer. It seems to me that the greater the emphasis on customer service in these ads, the worse the service actually is. These companies appear to be resorting to large advertising budgets in an effort to create the feel-good environment that they are unable to deliver to their customers in real life.

Ombudsmen, industry groups, parliamentarians and newspapers are besieged by stories about appalling customer service.

What the offending companies have to learn is that customer service has nothing to do with flashy ads or brushing up some of their products and services through packaging, etc.

Customer service means doing what customers want you to do. Only then can corporations (big and small) succeed in today’s increasingly customer-focussed marketplace.

Too many companies hide behind shareholders value, regulatory issues and other excuses – not that these aren’t important, but they should not be the dominant issues.

In our industry giving good service means allowing the customers to choose what they want.

For example:

In pay TV:-choice of channels

In broadband:-split portals from access

In fixed services:-free access linked to permissive marketing

In data/Internet:-customer services in the home

In e-commerce:-total business care packages offered by suppliers

And don’t think that people won’t pay for service. They are prepared to pay, as long as they feel that they are in charge, and as long as they perceive the service as being important to them personally.

Also, don’t assume that customers view cost as the final arbiter – in the event, for example, of unbundling of products. If you have built up a relationship of trust with your customers there is a very good chance that they will remain loyal. However, they will make that choice – not you. If you provide good service they will stick with you – they will even tolerate a few mistakes. You should allow them to guide you – they are the best judges of what the public wants. And, because they know that good suppliers are hard to find, if you give them what they want they’ll stick by you.

True, the necessary business models are not easy to develop, but the rewards are great for the companies who succeed in finding the right approach.

A new research report from callcentres.net, shows Customer Relationship Management (CRM) is now considered one of the most important business initiatives in corporate Australasia.

Statistics coming out of Dow Jones suggest that companies lose 50% of their customer-base every five years.

Australian companies that responded to the survey averaged more than $2.14 million spending on CRM strategies in the last financial year, with a 36% increase expected for 2000/01. 46% of the larger businesses in Australasia already have a CRM strategy under way.

The financial commitment to CRM is being allocated to three key investment areas, namely IT Hardware & Application Software, Business Strategy Consulting Services and Systems Integration.

CRM is not just about buying the latest technology, it’s about a refocus of business goals to become an outward looking customer centric organisation rather than a traditional inward looking sales company.

The research report identifies e-commerce and call centres as the key channels of importance, with respondents expecting a 42% increase in the importance of e-commerce within the next two years, while identifying call centres as the prime vehicle to manage offline transactions and maintain effective e-commerce servicing.

90% of organisations operating call centres are experiencing or anticipate an impact or change to their call centre as a result of implementing their CRM strategy with 35% expecting an increase in size and 68% upgrading technology.

Although organisations are embracing the CRM philosophy, many noted that they are facing several key impediments to effective implementation, including resource availability, poorly integrated IT systems, interdepartmental conflicts, skill shortages and cost.