Counteracting complexity in the Telecommunication industry

Counteracting complexity in the Telecommunication industry Motivation and outlook for a management approach for coping with complexity 24th June Oliver Budde Changing Playing Fields result into … Incumbents in high wage countries are facing an increasing level of complexity. Coping with this complexity requires new management approaches. External Complexity Drivers are changing the game Supply Side Demand Side Organisation Technical Device Individualization of Quality Demand Convergence Convergence Convergence Needs New player, Fixed-Mobile Multiple Use Communication becomes High Product Quality is a new types of Convergence supporting new a Lifestyle-Product, must, excellent customer cooperation on the network business consisting of intertwined facing processes layer opportunities components become essential Increasing product variety Increasing momentum Rising Complexity (=Increase of Mass and Dynamics) Seite 1 … consequences for incumbents. The increase of external complexity has proven to be a major influence on the business model of Communication Service Providers. Implications from an increased level of external complexity Customer Migration Number of Competitors (Global Markets) Approx +50% Approx +150% Quality Revenue ? Pressure ? Pressure 1990 2000 2015 1990 2000 2015 Source: Mercer Management Group Source: RegTP, 2004 Duration of the Product Lifecycle Achievable Market Prices Approx -50% Approx -50% Innovation Cost Pressure Pressure ? ? 1990 2000 2015 1990 2000 2015 Source: Christensen, The Innovator’s Dilemma, 2003 Source: Federal Communications Commission, 2004 Seite 2 The Past Right after the monopoly, only a limited number of product variants did exist. Therefore the complexity level was easy to cope with and good margins have been generated. In the good old times the product variance was limited Quantity – Price - Cost • An increasing level of product individualitation, does not go along with a proportional increase of the price Price • Complexity costs are often hidden, Cost which therefore leads to cross- subsidisation of the standard Profit products Outlier Standard Outlier Seite 3 But the Changing Grounds lead to .. CSPs react on the increase of external complexity with an expansion of product variants. Complexity drivers come into play and change the game Quantity – Price - Cost Complexity Driver Demand Side Cost Price Organisation Convergence Technical Convergence Device Convergence Outlier Standard Outlier Seite 4 #1: Complex Product Bundles and Tariffs structures The introduction of complex product bundles and tariffs structures increase the coordination effort and leads to higher costs. Complexity drivers come into play and change the game • Higher Quantity – Price - Cost development cost through less scaling effects Complexity Driver Demand Side Cost Loss Price • Increasing costs for Organisation Convergence ensuring product Technical Convergence quality Device Convergence Outlier Standard Outlier Seite 5 #2: Increasing Process Complexity The cost for the provision of customer facing processes (FAB) increases with the number of product offerings. Complexity drivers come into play and change the game • Higher Quantity – Price - Cost training efforts for Cost customer care agents Complexity Driver Demand Side Loss Price • Increased coordination Organisation Convergence effort with external Technical Convergence parties Device Convergence Outlier Standard Outlier Seite 6 #3: Increasing IT-Complexity Highly complex software infrastructure supporting the automatization of the process execution inhibits an adaptive process management. Complexity drivers come into play and change the game • Configuration Quantity – Price - Cost Cost of already highly customized software Complexity Driver Demand Side Loss Price • Integration cost with external parties Organisation Convergence through non standardized Technical Convergence interfaces Device Convergence Outlier Standard Outlier Seite 7 Summary of current challenges The consequence of an increased level of internal complexity can be further broken down into four dimensions to motivate the need for action.