I was recently at an Innovation Roundtable kindly organised by Deutche Telekom in Berlin.  A very varied and interesting group of people met in the Olympiastadion used to host the 1936 Olympics and the 2006 Wold Cup final where famously, Zidane was sent off for headbutting Materazzi. So quite a venue for thinking about innovation!

There was a lot of talk about how telecom service providers need to seize the initiative, get more innovative about launching new products and services faster and to generally learn from their more fleet afoot web and media nephews and nieces.

All of which is true but from my 27 years in BT and nearly 40 in the telecom industry, I’m not sure the problem is a lack of innovative people at the grass roots level - what I think telecom service providers lack is a system that allows innovations to flourish and prosper. Technologically, our industry is a marvel, well able to invent a better mousetrap for sending more bits over a bit of copper, coax, fibre or air. But from a new innovative service perspective, the phrase that leaps into the mind is…. we suck! 

Why is that? Well, for a long, long time, the telecom industry didn’t really need to invent anything at the service level. Even mobile services and SMS are just by-products of the underlying technology rather than any breakthrough in new service ideas. In fact, SMS happened despite the best efforts of a number of operators because, early on, you could only text other people on the same network (just like early e-mail services).  The sheer size and profitability of line rentals and calls made innovation unnecessary – technology advances ensured rising profits from lower costs and when call revenues started to fall because of competition, market elasticity meant that volumes increased to compensate.

 So the need to innovate is really only a relatively new requirement – prices of traditional services are now at a point in many markets where many service providers are seriously concerned about future profitability and the markets are reflecting this in their stock prices.

But as I said, I don’t think that service providers lack innovative ideas – I think they lack the corporate culture and systems to help foster those ideas and bring them to market. When I joined the British Post Office back in 1969, I was given a piece of advice which, happily I never stuck to. It was “keep your head down, keep out of trouble and by the time you’re 60 you’ll have a good pension waiting for you”. Nearly 40 years ago but that kind of risk averse, “don’t stick your neck out” kind of culture still pervades our industry. As in government and politics, people get promoted because they are a safe pair of hands rather because they push the limits, sometimes failing. When learning to ski, I was told “if you’re not falling over much, it’s because you’re not trying hard enough”. But in the telecom industry, failure is seen as a weakness, not as a way of battle hardening people to want to try new, risky things.

Individuals in the telecom industry are quite capable of designing an iPhone or a Facebook, but the ‘system’ filters them out. The old Japanese saying “the nail that sticks up is soon hammered flat” is a good metaphor. Telecom, like other long established industries, has a viral defense mechanism – “white cells” if you like, that kill off invading ideas.

“Who else is doing it” is usually the first question any budding innovator gets when asking for investment funding. “Nobody – we’re the first” is not a good answer – it’s much more risky to be a pioneer than a follower. “How much money will we make” – a good question but hard to impress even if the idea has fantastic revenue growth because telecom companies have product lines that measure revenue in billions. “I can make more money in an evening on one phone quiz than you can make in a year” says the guy who manages call revenue. So new ideas, if they get funded at all, tend to get low priority as they barely show on the management radar screen. Low priority means that in the scramble to launch a service, all of the resources you need – engineering, IT, customer care, marketing etc are all too busy doing ‘important stuff’. New ideas try to get off the ground on a shoestring, as a skunk-works or hoping nobody will notice rather than with the encouragement and enthusiasm of top management.

Another barrier to innovation in the telecom industry, not shared by the web fraternity, is a blinkered sense of ‘place’ and existing business models. Telecom companies tend to identify themselves with providing services in specific country - not globally, so their market ideas and projections tend to be governed by their existing customer base. But most new service innovations have evolved a ‘little bit from a lot of people’ model – i.e. tiny revenues from a very large number of people globally. And often not using the “I provide you a service and you pay me money” model. Many web services use the model of building a large customer base, free at the point of use and then monetizing that to ‘upstream’ customers like advertisers to build revenue.

Then there is the regulator. Oh how life would be easier if there was an early retirement plan for the world’s regulators! “Great idea but the regulator would never allow it” has killed many an innovation. Maybe they would but many service providers have become gloomy masters at predicting what the regulator would and would not allow. Who are these internal proxies for regulators? – usually either in-house lawyers or pen pushers who wouldn’t know an innovation if they fell over one – success in their job is measured by minimising the number of calls from the regulator, not maximising the bottom line.

And just to make sure nobody goes without an insult, there’s the CFO. Very few operators know how profitable their different lines of business actually are because so much cost is shared between them. So CFO’s allocate costs to various product lines on some arcane basis known only to one or two people who share a special handshake. Any new and innovative product, not understanding how the game gets played, may well get slapped with a huge amount of internal cost meaning that its unprofitable from day one and soon gets canned “because it has never made money”.

Many new ideas fail. But some of them become Google or You Tube. But if you never try, because your white cells systematically kill off those “2 kids in a bedroom” type of ideas they never will become big. Instead, service providers wander the planet from conference to conference hoping to spot a brilliant idea that someone, somewhere has made work and has proven it makes money. Pre-paid mobile was one of these – another accidental product – it was popularized globally by a follower approach.

If telecom companies truly want to become more innovative, they have to do some serious surgery to the way that innovative ideas are fostered; their inventors get rewarded and promoted; the way that costs and resources get allocated to innovative ideas and the way that success gets measured. Some people do this by setting up incubators or product nurseries to provide a way of letting fledgling services get a toe hold. Some of these succeed, some don’t – it all depends on the climate that senior management create to incentivize good people to come in and risk their careers. Some smart companies would look at the incubator being at arm’s length from the parent, even allowing the people working in that area to have stock in the subsidiary meaning that they really get some reward if their idea takes off.

One thing is for sure; just dreaming of being an innovator won’t get you there if you manage your company in the way you always used to. What you’ll get is what you always have had – and that’s losing revenue in many cases, rather fast.