Weekly Reflections W6: Customer X’s Situation looks bad, no surprise
Chinese New Year (CNY) is a bit like Brazilian Carnival, the year doesn’t really start before it. Before CNY here I was trying to get engagement going with the project, but the account was busy with an offer, the support teams had their minds in the details of the offer. Now, this week, everybody gets back from CNY holidays and I have engaged with more than 40 people in 2 days. Expectations are high, including mine, and that’s where they should be.
We’ve received the first deliverable from our external partner. It paints, as it always does, a negative picture of our customer. Underperforming stocks for just too long, a trace of dislike among the investor community (as an analyst said “This is not our favourite operator”), broker’s ratings not looking good year over year, EPS forecasts do not look promising, too much cash on their balance sheet, and no clear growth story communicated by top management. Data ARPU for the whole market not expected to see substantial growth for the next 4 years when it stands at a staggering 15% of ARPU level.
Tough, huh? This will be a nice engagement. Great people, great environment, feels good!
PS: as a side note, looking very much forward to Nokia’s strategy and Financial Briefing. That was really good PR, agree? :-)
Weekly Reflections W3: Openness defining Leadership 2.0
I had a week in Stockholm, full days, a lot done.
I realized I haven’t been able to share my latest weekly reflections (they have been posted in my company’s internal blog), as they wouldn’t add much value here in the outside world.
Among a few other meetings and workshops, I took part in a leadership training course and this post is about the course’s Aha! moment.
Training off-site, a bit outside Stockholm for three days. Tools, methods, how to lead yourself, how to lead others…and so on..…Now, the biggest highlight of these days was to hear our invited speaker, this really made most impression on me in that off-site. And I was not alone. In the course closing session, we all had the chance to share our thoughts and 90-95% of us mentioned his talk.
So what did our speaker talk about? Leadership!
The talk made me remember of the straight talk tone, I once read about, set by Jamie Dimon at JP Morgan. The Economist wrote an article on Why some banks did much better than others and in short this is what Jamie did/does:
- Discouraged PowerPoint presentations
- Encouraged informal discussions of what is wrong, or could go wrong
Our guest talked about openness and how he is substantially changing the way they work in his unit. He went on talking about the need for us all to challenge each other. And ultimately he mentioned the importance to hire based on professional values as opposed to competence (Yes, Jack Welch), since smart people will always be able to learn the job at hand but they won’t be changing their values.
Have a great week!
How many blog posts are titled New Year Resolutions every January?
- Make time for blogging,
- Make time for tweeting,
- Make time for my company-internal (how should I call it???) micro-blogging site.
- Make time for writing weekly reflections
- I started a new job;
- met new colleagues;
- learnt the dynamics of a parallel (non-telecom) value chain;
- joined a cool career development program at work;
- evangelized about customer value management;
- worked with innovation;
- discussed heavily the future of management/leadership;
- developed a passion for innovation;
- evangelized again about customer value management;
- deepened my passion and saw the benefits for corporate openness (down with silos, out with collaboration);
- thought of disrupting even more the collaboration/innovation platform space by opening a company of my own;
- decided I will continue to evangelize about customer value management;
- gave up (for good) the idea of opening a company of my own.
- I moved to Asia
- I am out there, close to our customers. Yay!
- Sell a lot!
- Improve this poor Mandarin of mine….
A case of Product Leadership or Customer Intimacy?
The case I will discuss here was presented by James Anderson in the Kellogg’s program that several marketers in my company attended in November last year.
To put all this into context, in short, we were lectured on the Customer Value Management (CVM) discipline and the importance of that in a Business to Business marketplace. You may rightfully ask yourself, what is Customer Value Management? Well, that means to run your business with the one objective of creating value (and yes, we are talking $$$ here) for the customer. In other words, develop, tailor and market your products/solutions with basis on the value they add to the customer’s business operations.
THE CASE
“Tata Steel supplied steel tubes to a boiler manufacturer. The tubes were oiled to avoid rusting en route to the customer’s plant. Bizarre as it may seem, the customer first cleaned the oiled surfaces and then let it pick up rust before using it!
Result: $30 to $40 of savings per metric ton for the customer while lowering Tata’s cost by eliminating the oiling step “
MY VIEW ON THE CASE
The CVM theory classifies the above as a typical Value Drain (offerings that cost more to provide than they are worth to customers and that have no strategic significance). For me though, in order to make it simple, that’s no more than a case of tailoring, customization and customer intimacy. A lot has to be in place to make that happen, including resources (to understand that opportunity), flexibility (to adapt products) and sales strategy (you can’t customize everything for all. So, who are your prioritized customers?)
YOUR OPINION
I would appreciate to hear your comments. So, what do you think about customer intimacy as a strategy for high-tech B2B companies? How to manage that strategy without compromising a technology leadership culture?
Related links:
- Insights after the Business Marketing Strategy Executive Program from Kellogg School of Management
- The delta value formula: Price premium ≤ (value of your product) – (value of your competitor’s product)
The Long Tail for Business Development in Telecom
We have roughly 900 customers. That’s quite a number you may agree with me… Now, as interesting as it may be, Vilfredo Pareto (the Italian economist) would tell us that for any chosen time window, 
all those existing accounts generate only 80% of our revenues, while the remaining 20% comes from the 1-2 new accounts added every year (the 80/20 principle). Profitable new business, huh? Yeah, this makes truly sense to me. Why so? Well, if “a well prepared” account team goes after a specific new player (let’s say a Telecom Greenfielder) in the marketplace, they will possibly sell, and sell well since…
- The customer is in need of all our treats (they have all possible problems just waiting to be solved)
- The customer is in need of a business partner in order to mitigate their business risk
- We face nearly no competition since our competitors possibly won’t have an organized channel to sell to this customer
And why did I say “a well prepared” account team? That’s because this team should be extremely well armed with customer understanding, as well as experienced enough to be able to pull the right pieces (out of our portfolio) together in order to send the customer a proposal. As you might guess…This sales strategy costs and it isn’t small money. Selling to new customers is said to cost five-ten times more than selling to existing customers.
Ok, so that was one approach to business development: Search for sales outside the scope of today’s businesses, while still pushing out the same pieces of products we have been selling to all other customers (the Market Development quadrant of an Ansoff matrix )
The second approach to business development (I am painting the world with a very wide and rough brush here) has to do with those 899 customers. Pareto’s teachings tell us that, as a matter of fact, 80% of our current accounts’ revenues is generated by only 20% of our customers (Only 180 customers out of our 899 customers are actual “spenders”). The rest of the customer base is either not buying at all; buying very little (accounting in total for 20% of our current accounts’ revenues) or buying solely from our competitors. Now, where does business development fit in? Well, since those 180 customers have chosen to spend with us, why not try as hard as we can to sell them things they didn’t even thought they needed.
I am sure you see where I am heading…right, customer segmentation! A common argument with regard to customer segmentation is that customers that aren’t “good” today (not part of the 180-customers “spender group”) may turn out to be “good” customers tomorrow. Agreed, but that’s why we create strategies (product, marketing and sales ones) for, isn’t it? And strategies aren’t written in stone, they expire and should of course be re-evaluated (after a pre-defined timeframe of e.g. 3 years).
Some sanity check notes:
- Important: Those 180 customers are possibly good ones but that shouldn’t stop us from asking ourselves some further questions, e.g., what are these clients’ potential for growth; their debtor days; their own commercial risk, etc.
- In addition, there are many ways to interpret the Pareto principle. We could say for instance that possibly 80% of our profitability is generated by just 20% of our products. Should we then think about rationalizing the portfolio as well? Raised hands by now would say: “No, that’s how we differentiate ourselves. We solve all possible customer issues”. Point taken, but I believe it is never wrong to ask ourselves these tough questions.
- Now, does it matter if we hold to the 80/20 relation (Pareto Principle), a 70/20 or even a 50/20? I don’t think so, the long tail behavior still holds true. Meaning that in order to boost profitability we need to continue to focus our resources and guide them with thought-through strategies.
I am sure you will have an opinion to share here. So please, be my guest.
Further reading: Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales
The Printer, the Ink and Amazon’s Kindle
Business week called the last decade, the lost decade. Now, I beg to disagree here…the Telco world saw Amazon’s Kindle, so how can 1999-2009 possibly be a lost decade?
Jokes apart, I am far from being the first one to praise Kindle’s “doing good” to the industry, and you may have already heard about it several times before, but allow me to throw a paragraph about Kindle here. Amazon’s Kindle is an e-book reader. Once the consumer purchases the device (from Amazon) and turns it on, it connects to Sprint’s network automatically (the Kindle is connected to the network for life, no fees are ever paid by the user to Sprint). The user then may purchase books from Amazon, having them downloaded directly to the device.
Kindle represents exactly the kind of deal service providers would like to be signing with over-the-top players. Even so, you may be asking yourself: What kind of money is Sprint making here? Well, Sprint makes $2 per Kindle per month (a low ARPU segment managed inside the very same $56 post-paid ARPU company). And since Amazon handles all the billing, support, SAC, and activation, the cost per subscriber for Sprint is minimal, i.e. that income goes almost directly to the carrier’s bottom-line.
Seeing things from Amazon’s perspective, customers bought more e-books than physical books for the first time ever on Christmas Day, 2009. Just like in HP’s famous case (the printers are used to build the market and the ink is used to make the money), Amazon just proved to have found new printers (Kindles) and new ink (e-books) to refresh its business.
Great, I see there is money to be made in the service provisioning business. Well, so what is in it for me, being in the telecom infrastructure business? I attended a Telco 2.0 executive brainstorm session a couple of years ago and remember clearly what a competitor, presenting at the event, had to say back then about two-sided business models: “Network Sharing” (Yes, that’s what they covered in their slot). What I mean is: 300 executives were discussing the difficulties to evolve a business model that has been successful for nearly three decades and what they get to hear from the only supplier presenting in the event is that they should share their networks. Disappointing? Yes, that was also my take on it.
As of now, the competitor seems to have moved on and is being considered a proponent of two-sided business models. Well, yeah they are struggling to reach profitability after a not so recent merger and I hardly believe tackling this “industry problem” will help them sell more infrastructure equipment. In spite of that, the problem they attempt to attack holds water and is central to all of us working in this industry.
This subject has been of interest to me for quite some time, so you can expect me to come back with more. In the meantime, you are more than welcome to share your feelings. Happy to receive comments!
The delta value formula: Price premium ≤ (value of your product) – (value of your competitor’s product)
As time goes by and the picture gets clearer, I take one important learning from the Kellogg course with me. The good thing is: This learning can be summarized in one equation. Well, good thing for me since I have to admit liking mathematical 
rigor (No, please don’t take me as a boring/picky!).
Well, this is the equation:
Δ price ≤ Δ value
So, why do I like this equation? Let me explore it further.. in other words that equation equals:
Price(your price) – Price(your competitor’s price) ≤ Value(your offering) – Value(your competitor’s offering)
So, what does the left hand side of that inequality represent? That’s your price premium. What about the right hand side? That’s the additional monetary value your offering provides, the extra value that only your offering can provide (and that competition can’t match).
Thus, what if there is no Δ value? Or what if you “don’t know”/”can’t prove” the differential value your offering has in comparison to competition?
Well, this is what our equation gives us:
Δ price ≤ 0, that is to say:
Price(your price) – Price(your competitor’s price) ≤ 0, which finally means:
Price(your price) ≤ Price(your competitor’s price)
Yes, you got it all right. In case you cannot prove the value side of that equation in monetary terms, your offering/product might be, and as a matter of fact should be, perceived as a commodity. And how do you think procurement managers buy commodities? They buy the cheapest!
Then you might think: Great, that’s a matter of having my marketing people creating some smart business cases. Well, I wouldn’t simplify things to that extreme. Please have a look at the value creation arrow below: 
Marketing should rightfully be held accountable for “Communicating the value, educating the market”. However, the value creation process should start much earlier. In fact, it should start as early as when you decide what to take to market.
Very well then. So, what is the monetary value proposition for the product/service you plan to offer? And how is it better than competition or the second best alternative (that solves the customer’s problem)? In case you can’t answer that, you better get prepared for a price war!
Links:
- Customer Value Management – I found some interesting info on customer value management in that link
Insights after the Business Marketing Strategy Executive Program from Kellogg School of Management
I know, that was too long a title…but fair enough, that’s my way to recognize the quality of the lectures/discussions I’ve had in the company of James Anderson and Dipak Jain (professors at Kellogg School of Management) the last few days.
I can’t say it has been long since I’ve last been lectured. In fact, six months ago, I was still taking my Mandarin lessons at Stockholm University (Gosh, how much I miss that…). What felt different this time though, in the Kellogg course case, was that we were not being lectured, we were discussing our own business issues with very knowledgeable people.
Background:
Some selected professionals in my company were offered the opportunity to participate in a specific Kellogg executive program. The program is called Business Marketing Strategy.
The program covered mainly the following: 
-
Customer Value Management
-
Building Customer Value Models
-
New Product Marketing Strategy
-
Customer Value Propositions
-
Managing Market Offerings
-
Value-Based Pricing
Insights
You, my readers (whoever you may be), may already know what I do for a living. I work with a business development engagement model called Value Creation. In other words, I try to sell using what you may call consultative selling (in our case, that’s more of a provocation based selling). Therefore, in a way, I could possibly say I know a thing or two about managing customer value. Anyhow, I learned quite a few new things these last days and since there is always room for improvement in whatever you do, I also brought a couple of easy wins home with me.
The professors incited us to discuss our pain points in a special nonchalant manner. Thus, to discuss is what we did for coffee break, lunch and evening mingle. And what did we learn from all that talk? Well, it is high time to start acting! And we have a hell lot to do.
You may then ask yourself why we may have so much to improve. Well, take a short look at the topics for the executive program (bullets above). My question for you then is: Where (in which part of an organization) do you think the responsibility for managing customer value should sit? TIP: Don’t be mislead by knowing this was a Marketing Program.
Long Answer: Taking customer value management seriously isn’t about simply marketing yourself as the “Value Creator” and it isn’t a task for Marketing only. I prefer to see it as accepting a new company philosophy, articulating a new competitive strategy and dealing with the implications of that across several units. I.e., to take it seriously you have to dig its roots deep into the organization.
Short Answer: Implementing customer value management is about changing the corporate culture!
So, how does changing the corporate culture sound as “a hell lot to do”?
PS: I received Jame’s Value Merchants book and as I read it, I may come back with more posts on the subject.
Take Care!
Telco market in need of a Broker, part 2
I have been blogging in my company’s internal blog a lot more often than at my external blog. That’s a pity, since I started to blog out here.
In my Telco market in need of a broker post, I promised to come back with more on the alternative solution I was proposing and in this post I tell the rest of the story.
What was the issue then?
A2P SMS contract handling is traditionally managed locally, each operators sets up its own cross-operator contracts (as per example in the old post, Operator A may send A2P SMSs to other 100-150 countries, while operator B may send SMSs to other 80-120 countries). Consequently, their clients (the applications) will be limited to sending SMSs to only those countries. As I said before, by not growing the number of contracts with other operators, operators A and B are crippling the market by not creating the right conditions for it to grow. In other words, new applications would possibly either choose alternative operators offering greater reach or go with alternative technical solutions for their messaging problem.
So, in simple words, the proposed solution was: Implement an A2P SMS hub at the company group level (serving all Telco subsidiaries), i.e. put in place a simple piece of equipment with least-cost routing capability and get one single team to handle all your cross-operator contracts (I tried to depict the solution in the picture below). With the aid of centralized operations, you will be able to grow from having only 80-150 cross-operator-contracts to reaching between 500 and 600 operators.
By showing the market you are serious about the A2P business you will surely give it a kick. When it comes to the returns, by looking at the impact this could bring to just one Western European subsidiary, I could find approximately 271 million Euros in cash flow advantage (cumulative over a 5-year period). Now, what do I mean with cash flow advantage? Those 271 million Euros reflect the advantage that an A2P SMS hub brings to your business. In other words, without hubbing you would be missing all that cash.
PS 1: I have consciously neglected all the great cost savings upside that least-cost routing brings to the business case
PS 2: This is just too much money to be neglected and the basis for it is quite straightforward:
- Allow the market to grow
- Accept being just the enabler
- Leverage group efficiencies
- Good to be back out here!
Telco market in need of a broker
I haven’t made it clear before, but I am strong believer that we (in the Telco industry) will one day sell and buy bits from an exchange. An exchange is a natural solution for a not so complex optimization problem: How can trade happen in a market with too many buyers and too many sellers?
However, I can’t dismiss the fact that to institute an exchange is no easy task and that to use a broker is usually a very good short term solution to the problem mentioned above.
Issue on my desk
To the issue I have on my desk then… I would love to solve my issue by saying to the operator in question: “Go ahead and pick us as your broker”. Sadly, that’s not what I will do.
The whole thing is about A2P (application to person) SMSs. A2P SMSs are SMS messages generated by an application (not a person) and sent to any normal mobile subscriber just like you and me. For instance, a bank could be sending on-request passwords to its customers via SMS. Another very common use of A2P messages is advertising: Automatic server messages buzzing your phone with “Today 50% discount over the discount price” type of message.
Business Case
You may say that numbers in this business are still tiny, but here is what some others are saying:
- About 4 trillion SMSs were sent globally in 2008 according to the World Cellular Data Metrics (these include also P2P (person to person) messages).
- British telecom expects to see more than 30% of all text messages by 2014 coming from business or interest group related A2P messaging rather than from P2P.
Interesting…a very rough back-of-the-envelope calculation tells me this is good business:
A2P messaging in the UK alone = 30% x ~80 billion SMS messages (UK 2008) = 24 billion SMS messages
Assuming 10p charges for each A2P SMS, this business gives 24 million Euros in revenues in one year.
To make the case for it even better, from the growth rates I’ve seen for A2P traffic, UK A2P SMS traffic could grow to some 71 billion messages by 2014, taking SMS revenues in this market to the level of some 71 million Euros.
Obstacles to success
Since businesses rely on these messages, network operators are pressured to offer better service level agreements. P2P SMSs are liable to a “Send it again” response. In the case of A2P messages that’s unacceptable and could lead to serious operational consequences.
In the P2P messaging world, SMSs are sent and received freely. In other words, in case two network operators haven’t signed interconnect agreements, gentlemen’s agreements will rule and an SMS sent through Operator1’s network will be passed onto Operator2’s network with no hurdles (at least in theory).
Back to the case of A2P, the gentlemen’s agreements unfortunately do not hold true. Operator1 in CountryA will provide the applications (bank/advertising company in my example above) with a list of countries Operator1 could possibly send A2P messages to. For instance, Operator1 in CountryA communicates with countries C, D, E, F and G. “Want your application to send a message to CountryB ?” “Sorry we don’t do that, CountryB is not in the list”. My drawing below may clarify things further.
What if Operator1 had an agreement with Operator2? Firstly, the picture would look a lot happier. :-)
Metcalfe’s law
Metcalfe’s law states that the usefulness of a network is equal to the square of the users. Right…that’s the story behind SMS, you need interoperability between network operators; you need end user interest. Have those in place? You won’t need to wait long for traffic volumes to rise.
So what is Operator1’s behavior (of saying “sorry we don’t reach CountryB”) doing to the market? It is crippling it!
The role of a broker
What value could a broker bring to this case then? As I mentioned before, in case you have too many buyers and too many sellers in the marketplace, you need someone to intermediate all those transactions. The optimal would of course be to leave it to someone that can do that efficiently, i.e. a broker.
The alternative solution
As I mentioned before, a broker won’t be the proposed solution for this problem. I propose something different…Watch this space, I will come back with more soon.
