So here we are in a
brand new year where we are now firmly entrenched in the worst
financial situation the world has seen since the Great Depression of
the 1930s.
And like most of the pundits
making predictions, I also believe we are only at the edge of the
abyss. There’s no doubt we are heading into very difficult times for
the next 12 months. At the tail end of 2008 we were observing a
recession rather than actually living it out. In 2009, we’re going to
be smack in the middle of the firestorm.
It’s
as if an oil tanker has crashed outside your home, and you can see it
smoldering but it hasn’t exploded yet. You know something awful is
going to happen pretty soon, and you’d better react quickly or else be
consumed in the flames. But as of this moment, it is a potential
disaster, not an actual disaster. That’s how I visualize the situation
we’re in today. Of course a number of industries – automotive,
financial and retail – have already started living with the
consequences of recession, but for the communications industry it’s
still a looming threat that’s only beginning to become real.
Telecom: Recession-proof?
We hear a lot of talk about this company or that industry being
recession-proof, but I think that’s largely a myth. I will say that
telecom may experience different challenges than other industries and
could largely come away unscathed, but only if providers make good
decisions today.
One
of the key reasons why telecom will do better than many other
industries is that communications services over the past few decades
have become as important to most consumers as electricity and even
food. This is certainly true in the consumer market with flat-rate,
all-you-can-eat voice and data plans dominating the scene. And while
the business market will suffer more, I still believe that overall
communications service revenues will hold up pretty well during 2009.
But
communications services providers can’t just rest on their laurels and
wait for the cash to flow into their coffers. They have to remain in a
proactive mindset and keep their focus on a handful of key areas in
2009 to come out of this recession in one piece.
Top Priorities for Telecom
As with any year – not just one where global markets are in a downward
turn – there are 3 top areas that are always top of mind for me. I call
each segment part of an “eternal triangle” that service providers
should always have an eye on.
The
first is to reduce the overall cost of running your business, generally
through some level of automation. This automation and eliminating
unnecessary steps in your overall business process should cut straight
across the entire company.
Second is to
look for new business opportunities. This leg of the triangle really
only appeared about 20 years ago. Prior to that, most providers didn’t
really care much about new lines of business. There was dial tone, and
maybe one or two other business products, and that was it. Today, we
have this constant search for new business revenue because the core
products that underpin the whole industry, are either shrinking, or if
not shrinking, are certainly not growing at the rate that providers
would like in terms of ROI.
The third,
and probably most important, leg is to improve customer experience to
such a level where customer churn stabilizes and drops.
I
would expect the CEO of any service provider to think about all three
of these priorities each and every day, and which one you place a
greater emphasis on, on any given day, depends on the general market
environment.
In the early days of a
recession, reducing the cost of running the business takes up a lot of
time and effort and generally dominates thinking, sometimes to the
extent of putting the chief financial officer in charge of the whole
ship. In this kind of situation, the new leader’s natural reaction – no
matter how strategic they might think they are – will be that they
really understand the first leg of the triangle, while the other two
legs are a bit too abstract.
If they cut
costs, they instantly can relate that to their bottom line, whereas if
they invest in new service development or improving customer
experience, they can make the intellectual leap that it will translate
itself to the top line, but they might not be entirely convinced of the
value since they may not reap the benefits for 12 months or longer.
The
golden rule is that all three legs of the eternal triangle are always
important. It is understandable to want to increase focus on one leg
over the other two depending on whether you are in a recession, a
growing market or a deregulating market, but you must always keep
investing in all three.
Stand Your Ground
Underpinning this eternal triangle is the notion of transformation,
which impacts all three legs. Most major service providers have rolled
out significant business transformation projects in the past few years,
and while they may have a tiger by the tail, they have to keep
investing in these projects even in lean financial times.
So
I would go so far as to add a fourth item to our list of priorities:
stand your ground and keep your nerve on your transformation projects.
This is the wrong time to abort major transformation projects, as the
logic that drove the original business case is still valid. Quite
frankly, I don’t see any providers initiating major new projects in
2009, but the ones that lose their nerve mid-stream will have caused
significant damage to their business. They’ll have undermined their
ability to deliver things the old way, and they won’t have created a
new way of delivering things. In other words, they’ll be stuck in limbo.
Overall,
telcos are in pretty good shape. They generate good amounts of cash,
and cash will be king in 2009. Looking to the year ahead, I don’t see a
great deal of promise facing us. It’s going to be a grind-it-out year
that will cause a ripple effect across the industry and throughout the
value chain. But as long as providers keep their eye on the eternal
triangle, paying due attention to each leg, and stay the course with
transformation projects, they’ll be in the best possible shape to ride
out the recession.