After three years of savage cost-cutting and balance-sheet restructuring, top-line growth and innovation are now the new buzzwords on the executive agenda of the European incumbent telcos. However, Forrester has seen little evidence so far that telcos are undertaking sustainable innovation. Unless telcos fundamentally restructure their operations and innovate, they risk losing billions in long-term revenue and will die a slow and painful death as revenues and profits fall.
Lars Godell, Senior Analyst at Forrester, says: ¿We are worried that some telcos, like many other big firms, only pay lip service to the innovation challenge: 90% of companies that talk about innovation actually do very little about it. And innovation is hard,¿ Godell continues. ¿Only one in 10 companies succeeds in sustaining growth. Long-term innovation success requires more than just paying attention to current innovation best practices.¿
This week, Forrester publishes two reports that address the innovation challenge faced by telcos. The first report assesses the state of innovation ¿ evaluating organizational structure, processes, and culture, as well as the output of innovation activities, on the basis of eight criteria. The second report describes how telcos can achieve sustainable innovation progress ¿ using VoIP, telcos¿ biggest capital expenditure in the coming 10 years, as the practical example.
¿There are lessons to be learned from several telcos. BT sets the standard for the most comprehensive and open approach to innovation,¿ says Godell, author of both reports. ¿France Télécom has probably made the most progress over the past year. Other incumbents, such as Telenor, Telefó nica, and Telecom Italia, also show progress. However, Deutsche Telekom remains the big innovation laggard, despite its huge R&D machine.¿
Improving innovation processes and delivering sustained innovation requires years of relentless adjustment. However, Forrester¿s benchmarking study shows that most telcos still cling to traditional innovation concepts ¿ like using the number of patents generated by R&D to indicate innovation success ¿ and allocate relatively few R&D resources to address essential IT and telecom paradigm shifts, such as the X Internet and the move to all-IP networks.
To achieve top-line growth and innovation success, telcos must partner extensively with the outside world, learn to work with non-legacy vendors, and learn from low-cost and virtual telcos. ¿The old ways of telco innovation no longer work. Carriers are losing millions as smarter, quicker competitors come in and grab market and mind share,¿ says Godell. ¿Networks of employees constantly exchanging ideas with peers, partners, suppliers, and competitors are the best idea incubators¿ not telco R&D labs.¿
To meet the pressures from customers, competitors, and regulators, telcos must adopt a more dynamic market structure that matches global demand for innovation with worldwide supply ¿ something Forrester calls ¿Innovation Networks.¿ In these networks, firms seamlessly weave internally and externally available invention, transformation, financing, and brokering capabilities to optimize the profitability of their own products, services, and business models.
Forrester also believes successful incumbents will restructure away from vertically integrated technology ¿stovepipes¿ into horizontally integrated, customer-focused organizations ¿ ¿Layered Telecom¿ ¿ that are more conducive to innovation. Telcos also need to further engage their consumers: let them innovate ¿ feed their need to communicate more ¿ and then charge them for distributing their content. This will unlock potential revenues of more than ¿100 billion through 2007.
Godell concludes: ¿Only telcos that grasp the horizontal and deconstructed future of the telecom industry will be able to address the complex innovation challenge. Why? Most telcos still pretend they are only in one business, but they are fundamentally in three different businesses ¿ network, retail, and innovation ¿ with very different success factors.¿