The myths of transformation

Transformation is a hugely important topic for our industry, but it's bedeviled with myths. While recognizing the myths does not mean you will be able to implement a successful transformation, at least it will help you get your thinking straight and help target your transformation appropriately.

The first myth that we need to dispel is that it only applies to long established incumbent service providers. People tend to associate the word "transformation" with huge network transformation programs such as the BT 21C program that's received great attention over the past five years.

However, transformation is a much more generic term that applies to a series of constant improvement activities that all service providers must continually pursue in order to achieve sustainable profitability. So the principles of transformation apply equally to the small, but rapidly growing new mobile operators as well as the large and stagnant monopoly operators.

The second myth about transformation is that it essentially refers to the challenge of a major network swap-out activity. Undoubtedly, the challenge of moving from a circuit-switched network paradigm that has held sway for the past century to a next-generation all-IP core and access network, supporting a dizzying array of new services, is a non-trivial challenge. But there are many different types of transformation, and only one involves the massive capital expenditure challenge of a network renewal. The other types address system transformation, business process transformation, product portfolio transformation and business model transformation. 

System transformation involves a comprehensive renewal of the systems that support both the network and the processes that underpin the business. The goal of system transformation is to dramatically increase flexibility and the ability to implement new products and services to adapt to rapidly changing industry demands. One key goal of system transformation should be the significant reduction of an integration tax for all future systems.

Process transformation involves a radical streamlining of business processes to enable complete or near-complete automation of the most commonly implemented processes. One key goal of this form of transformation is to streamline the operational cost of the business and to dramatically improve operational effectiveness.

Portfolio transformation involves a significant reinvention of the portfolio of products that the business offers to its customer base. In many cases, it results in a business evolving from offering basic voice and data transportation services to offering a portfolio of value-added services that may well extend significantly beyond traditional communications and entertainment services (e.g. micro-banking services).

Business model transformation is in many ways the most fundamental form of transformation, as it tends to address the core of how the business makes and recognizes revenue. The most common form of business model transformation being considered at present is the shift from generation revenue from the users of a service, to providing the service free to the users and generating revenue from third-party advertisers.

The third myth is that transformation is all about squeezing costs, in particular labor costs, out of current operating models. Without a doubt, this is an attractive first port of call for any organization looking to reinvent itself or embark on a process of continuous improvement.

However, focusing entirely on the topic of cost reduction tends to produce short-term wins and longer-term stagnation. All transformation initiatives must keep their eyes firmly fixed on the three aspects in the eternal business effectiveness triangle that underpins our industry:  cost reduction, new revenue generation and customer experience. By placing too much emphasis on one aspect of this triangle, and ignoring the other aspects, we create an unbalanced business model.

For example, an organization that focuses too much on downsizing tends to create problems with customer service, which then causes customers to churn. Likewise, a company that focuses too strongly on new revenue growth tends to rapidly lose control of its cost base and ability to manage the customer experience.

History has shown us again and again that this sort of one-sided approach to business tends to require an eventual compensating activity, and in the process an organization often loses momentum. Undoubtedly, there are times when a myopic approach to one of the aspects becomes unavoidable, but at the very top of the organization, every on-going transformation effort has to bear in mind the three corners of the triangle and attempt to maintain a balance among them. The fourth myth about transformation is that it is solely an inward focused activity. In a communications world increasingly reliant on complex, multi-player value chains, all the transformation activities of an organization have to be both inwardly and outwardly focused.

While the bulk of the revenue from communications over the past century has derived from voice-related services, it is clear that the bulk of the profitability from the next two decades will come from much more complex services that involve content either generated by the user or delivered to the user in a timely fashion. It will also involve much more complex business models that extract an economic wage via differing mechanisms such as advertising-based models, etc.

Any company that has ambitions of being successful in this new environment has to accept the fact that they will be one of many players involved in the creation and delivery of a given service, and so their transformation activities must make them better capable of building effective, flexible partnerships with both suppliers, customers and competitors.

Martin Creaner is TM Forum president and COO