ADDRESSING THE EN- TERPRISE ICT OPPOR- TUNITY WITH THE CON-

Transcription

1 PERSPECTIVE JULY 2012 ADDRESSING THE EN- TERPRISE ICT OPPOR- TUNITY WITH THE CON- Roland da Silva, Faizal Patel, Marco Labianca VERGENCE OF IT AND TELECOMS BECOMING A REALITY, AND TECH- NOLOGY INCREASINGLY ENABLING COMPANIES TO CAPITALISE ON

2 2 ADDRESSING THE ENTERPRISE ICT OPPORTUNITY WITH THE CONVERGENCE OF IT AND TELECOMS BECOMING A REALITY, AND TECHNOLOGY INCREASINGLY ENABLING COMPANIES TO CAPITALISE ON ADVANCED ICT SERVICES, ENTERPRISE ICT IS BECOMING AN EVER MORE ATTRACTIVE MARKET AND THE SUBJECT OF GROWING ATTENTION FROM A RANGE OF DIFFERENT TYPES OF SERVICE PROVIDER. HOWEVER IT IS A COMPLEX MARKET WITH A NUMBER OF DIFFERENT TYPES OF PROVIDERS, INCLUDING NEW AND EMERGING ENTRANTS, VYING FOR TERRITORY; THOSE ADDRESSING THIS OPPORTUNITY NEED TO CAREFULLY DEFINE THEIR STRATEGY, UNDERSTANDING THEIR CORE COMPETENCIES, THE OPTIMAL APPROACH FOR FILLING CAPABILITY GAPS AND ADDRESSING KEY ORGANISATIONAL BARRIERS. THIS PAPER DISCUSSES THE OPPORTUNITY FOR SERVICE PROVIDERS IN THIS SPACE, AND THE KEY FACTORS AND CHALLENGES THAT SHOULD BE CONSIDERED TO ENSURE SUCCESS IN THIS COMPETITIVE AND EVOLVING MARKET.

3 3 IT AND TELECOM CONVERGENCE IS DISRUPTING THE ROLE OF ENTERPRISE SERVICE PROVIDERS 1 First used in a report by Dennis Stevenson to the UK government. The convergence of IT and telecoms is not a new concept: the term ICT was first used in However the growing penetration of high-bandwidth connectivity and next generation networks are increasingly blurring the traditional line between telecoms and IT for enterprises on a wide scale. The convergence of IT and telecoms is becoming a reality, disrupting the traditional roles of enterprise service providers Enterprise service providers are reacting to this change. Telecoms operators are increasingly diversifying into IT, driven by a combination of competitive pressures in core telecoms markets and an appreciation for customer demand for converged ICT services. For example, a number of operators internationally have acquired IT companies in order to drive growth from ICT, such as Deutsche Telekom s acquisition of Debis to create T-systems and BT s acquisition of Control Data Systems. At the same time, IT providers are increasingly moving into telecoms and network-based services, having recognised that many modern ICT services (e.g. cloud computing) require connectivity as an integral component. In addition, new non-traditional providers (web-based companies, MNOs, ) are moving into the enterprise market, attracted by the opportunities afforded by advanced ICT provision, and enabled by the decoupling of access and service from the transition to IP. These changes have disrupted the traditional telecoms and IT value chains, creating a combined ICT ecosystem. This new ecosystem is characterised by intense competition and vying for territory, amongst a range of traditional and new types of service providers, including vendors, telecoms operators, IT-centric providers, and web-based companies.

4 4 FIVE KEY ENABLERS ARE IMPACTING THE ICT SERVICES MARKET Technology is evolving in a number of key areas, which have significant implications on the types of services that providers are able to offer and that enterprises are consuming. Specifically, there are five key technology enablers that are having an increasing impact on the ICT services market: _Mobility: Improved mobile devices, mobile data speeds and innovative applications _Unified communications: Seamless integration of communication applications across fixed and mobile devices Convergence of IT and telco and value chain disruption _Social networking and collaboration: Emerging web-based technologies such as social media used for improving internal communication and collaboration _Cloud computing: World of new opportunities enabled by cloud computing, including new operating models, customer services and revenue growth opportunities _IP-based services: New services enabled by ubiquitous IP-connectivity e.g. managed IP systems and VoIP. Enterprise ICT providers are taking advantage of these changes to offer a range of advanced ICT services and solutions including virtualisation, unified communications and collaboration, and Software-as-a-Service. Disruptive changes to traditional value chains New players provide services over the telco-provided access (enabled by the decoupling of access and service from the transition to IP) Traditional telco value chain Equipment e.g. PBX Equipment / infrastructure vendor Telco access and service Installation and maintenance Telco operator Network engineer Enterprise Diversification of telcos into IT products / services Diversification of IT players into telco / networkbased services Convergence of IT and telco decisionmaking under the remit of the CIO Traditional IT value chain Developers IT vendors System integrators Enterprise Source: Value Partners analysis Software IT products IT services

5 5 GROWTH WILL BE DRIVEN BY UPTAKE OF ADVANCED SERVICES Value Partners estimates the enterprise ICT market to be growing at a CAGR of ~8% in the UK, largely driven by increasing enterprise spend on advanced ICT services. Enterprises are increasingly taking advantage of the productivity improvements and cost savings enabled by evolving technology and service provider propositions. As a result, market growth is being driven by enterprises taking advantage of the opportunities afforded by these advanced ICT services In particular, enterprises are increasingly consuming advanced ICT services beyond pure connectivity, such as managed network services, hosting and datacentre services and applications. Enterprise spend on ICT is expected to continue to grow, with the take-up of cloud computing and associated services likely to continue to increase. As enterprise ICT needs evolve over time, the number of services consumed, as well as the complexity of these services, is increasing, driving market growth and opportunities for providers. The provision of enterprise ICT services Telephony Internet Managed network services Hosting & data-centre services Unified communications Other applications ICT support Professional services Network/connectivity Infrastructure-based services Applications People-based services Converged providers Network centric providers Systems integrators / IT specialists Source: Value Partners analysis

6 6 DIFFERENTIATION IS CRITICAL TO SUCCESSFULLY ADDRESS ENTERPRISES The evolution of enterprise ICT needs The key challenge for enterprise providers in addressing the opportunity will be to evolve their strategic positioning in this dynamic and competitive market, vis-à-vis the needs of enterprises. Providers need to understand both enterprise needs, as well as their own strengths and capabilities with regards to these needs, in order to establish their strategic positioning and competitive advantage. Specifically, providers need to understand where their capabilities align with the ICT demands of enterprises (both in terms of product and service capabilities and key purchase criteria), and where there are gaps in their capabilities. high Evolving demand low Value / Differentiation Messaging Unlimited broadband access Voice Source: Value Partners analysis SIP Broadband Messaging Voice Integration Colocation Multi-accessibility IP VPN VoIP Metro ethernet Broadband Messaging Voice Time Current market Unified comms. Security Apps Colocation Web design Consulting Product integration Storage IP VPN VoIP Metro ethernet Broadband Messaging Voice Integrated comms. Virtualisation Personalisation PaaS Hosting IaaS SaaS Cloud service integration Unified comms. Colocation Web design Consulting Product integration Storage IP VPN VoIP Metro ethernet Broadband Messaging Voice Differentiators Services

7 7 LEVERAGING CORE COMPETENCE IS THE STARTING POINT Service providers need to play to their strengths by understanding the overlap between their core capabilities and enterprise needs, and ensuring that these strengths are well-leveraged in their strategic positioning, in terms of product range and development, proposition, go-to-market strategy and sales channels. This approach is particularly important because many enterprises express scepticism over the credibility of service providers who extend their proposition too far from the capabilities they are best known for. Different types of providers each have their own assets and capabilities that they can leverage. For example, telecoms operators typically have largescale contract management prime experience, their own multi-platform network infrastructure, and strong and trusted brands. IT vendors and systems integrators have experience and credibility in IT and professional services/ outsourcing. Web-based companies are able to provide user-friendly anywhere, anytime access to end users. Different types of providers need to be aware of these respective strengths and ensure that these are well leveraged. Assessing provider capabilities against enterprise ICT needs Play to strengths: overlap between provider capabilities, enterprise needs and emerging technology Provider capabilities Enterprise ICT needs Understand capability gaps Emerging technology Source: Value Partners analysis

8 8 DEVELOPING STRATEGIES TO LEVERAGE COMPETENCIES Service providers need to understand where there are gaps in their capabilities, in relation to enterprise ICT needs, and decide how best to attempt to fill these capability gaps, if at all. Providers could react to capability gaps by tailoring their positioning to specific enterprise segments (for whom their capability gaps are less of a concern), whether that be size of enterprise or sector vertical. Providers need to understand the needs and adapt their organisations to address specific enterprise segments. Key capabilities of different types of enterprise provider System integrators IT / professional services expertise Credible brand and reputation in IT services Experience of large-scale, solution-based projects IT specialists IT / professional services expertise Credible brand and reputation in IT services Innovation pipeline Fixed telecoms operators MNOs Own network infrastructure Large-scale contract management prime experience Strong and trusted brand Access to capital expenditure Hybrid (mobile + fixed) networks Own high-speed mobile network infrastructure Customer care expertise Equipment vendors Value and features Innovation pipeline Web companies Able to provide user-friendly, anywhere anytime access to end-users Open standards Innovation pipeline Brand and reputation for innovative IT services Source: Ovum, Value Partners analysis

9 9 Understanding capability gaps: decision tree Don t fill gaps Target specific types of enterprise Target specific product / service segments Understand capability gaps Acquire Fill gaps Partner Organically develop Source: Value Partners analysis Alternatively, providers could target specific product / service segments (where they do have capabilities). Providers could focus on service areas in which they have the necessary critical capabilities to appeal to enterprises; for example, mobile operators are wellpositioned to cater for the M2M market, where the critical capability is reliable mobile connectivity, but less wellpositioned to provide ethernet services, where the critical capability is a highbandwidth fixed network. Alternatively, providers can attempt to fill capability gaps, using a combination of three broad approaches: acquisition, partnership or organic development. Each of these has its relative benefits and drawbacks. Several providers who have attempted to extend capabilities via acquisition have encountered significant problems in successfully integrating their acquisition. This is often a particular issue in the enterprise ICT industry, where significant differences in company culture between acquirer and target (e.g. telecoms operators and IT players), can make integration particularly challenging. The organic development of new capabilities is also an approach that many companies have found difficult to implement in the enterprise ICT industry. Firstly, given the constant evolution of enterprise ICT needs, companies need to be able to react to demand by rapidly accelerating product development cycles in order to remain competitive: this is not an approach that is straight-forward for a company organically developing new expertise. Secondly, many providers have found it challenging to change company cultures, particularly if extending capabilities requires a fundamental change of approach (e.g. moving from a networkcentric approach to a customer or solution-centric approach). Thirdly, this approach does not overcome the barrier of brand recognition in the ICT services space (for example, one of the major challenges for telecoms operators entering this market is a perceived lack of brand recognition for ICT services).

10 10 Approaches for extending capabilities + BENEFITS - DRAWBACKS Acquisition Quick-to-market Immediate product expansion Significant investment (acquisition costs) Challenge of integration (customer and service) Service-level partnership Quickly expands product portfolio offering without significant investment Lower margin Less control over customer proposition (e.g. products, service) Organic development Complete control over service offering Products / services developed internally and tailored to customers / market vision Investment flexibility Probability of internal skills gap / challenge of assembling the required team Slower time-to-market Source: Value Partners analysis As such, the emerging approach that appears most likely to gain traction amongst service providers, is the partnership model. While this approach is lower margin and gives companies less control, it is the quickest way for providers to expand capabilities and requires limited investment. In addition, given the complementary capabilities of different types of service providers in adjacent areas, there are clear benefits to be gained from providers partnering and cooperating to provide a full-service proposition to enterprises: _Enterprises benefit from a full-service proposition while minimising procurement costs (single-supplier / contract relationship) The key challenge for service providers will be managing a complex relationship of co-opetition with other enterprise service providers, whereby there is co-operation in some market segments, and competition in others. In addition, service providers will need to negotiate their respective roles and responsibilities, most notably with regards to who owns the prime contractor relationship. Even so, in the future, the enterprise ICT market is likely to see increasing cooperation between different types of service provider and a complex competitive landscape is likely to emerge, with different types of providers both competing and cooperating simultaneously across different market segments and product areas. _Providers can offer a full-service proposition to customers quicker, and more cost-effectively, than would otherwise be the case _Providers can gain credibility from leveraging another company s brand in adjacent market segments.

11 11 EMERGING PLAYERS ARE FACED WITH A COMMON SET OF CHALLENGES FACES Service providers entering or making headway into the ICT services market need to ensure that they address a common set of challenges that are facing emerging players in this space. There are a number of key challenges that need to be addressed in order to ensure success in this market: _Staffing and HR: Providers entering the ICT services market need to set up the required recruitment and HR procedures necessary to attract, hire, train and retain ICT professionals. This often requires significant organisational change for service providers entering the market from a non-traditional angle (e.g. telecoms operators) Once service providers have established their strategy for expanding into the enterprise ICT services market, providers need to address a common a set of challenges around project profitability, sales, staffing, channels and solution development _Sales channels: Providers need to ensure that sales channels are fit-forpurpose for the enterprise ICT services market. Enterprise customers typically buy high value ICT services from field sales agents / personal account managers, rather than via telesales or online; service providers need to ensure that they have the necessary sales channels in place to appropriately serve these needs _Sales processes: Providers need to ensure that their sales teams are well set up to be able to sell large-scale, solution-based projects, which for many providers, requires a different skillset to that of existing sales teams. In addition, providers need to ensure that there is strong path of communication between sales teams, and the ICT specialists who will be responsible for implementing the solutions sold, to ensure that sales teams are well-informed and do not over-sell _Account management: Providers need to ensure that they have the necessary post-sales processes in place to service enterprises purchasing highvalue professional services. In particular, enterprises in this space typically expect to receive high quality account management, often with named, dedicated account managers. Offering this level of service may require a change in organisation structure for many types of provider

12 12 _Project profitability: Providers need to learn how to manage the risk / reward of large-scale, long-term contracts. Besides system integrators, many players in this market do not necessarily have experience in selling long-term, large-scale solutions, so are at risk of underestimating costs and undermining profitability. This is a problem that has been encountered by some telecoms operators when moving into the ICT services market. For example, many telecoms operators have struggled to achieve value from the provision of professional services, and have effectively bundled professional services in for free as part of wider ICT solutions. The evolving enterprise ICT services market is a source of attractive opportunities for service providers. However it is a complex market with a number of different types of providers, including new and emerging entrants, vying for territory, and therefore providers addressing this opportunity need to carefully define their strategy. To capture value and build long-term positioning, new models and areas of focus need to be considered; providers need to consider both their core capabilities, as well as the evolving needs of enterprises in this space. Providers also need to address other challenges centred around operating models and organisation structures. For this to happen, service providers need to not only develop a comprehensive go-to-market strategy but also need to ensure organisational alignment in its execution.

13 13 AUTHORS Roland da Silva Partner Faizal Patel Associate Marco Labianca Business analyst Roland da Silva is a Partner based in Value Partners London office. roland.dasilva@valuepartners.com Faizal Patel is an Associate based in Value Partners London office faizal.patel@valuepartners.com Marco Labianca is a Business analyst based in Value Partners London office marco.labianca@valuepartners.com For more information on the issues raised in this note please contact the authors. Find all the contact details on valuepartners.com Milan Rome London Istanbul São Paulo Buenos Aires Beijing Shanghai Hong Kong Singapore

14 14 ABOUT VALUE PARTNERS With over 100 professionals worldwide, Value Partners telecommunications practice is a global leader in advisory services. We assist the main incumbents and challengers, as well as start-ups, in mature and emerging markets, on local and global issues. We have worked with 15 of the 20 leading investment banks, with most private equity companies holding stakes in this sector, and with regulatory institutions and TLC ministries in Europe, Asia and Latin America. Our services reach beyond corporate strategy to span all critical business areas. We focus on strengthening sales channels commercial effectiveness, customer service excellence as a competitive advantage in mature markets, for both fixed and mobile telcos, and operational effectiveness aimed at maintaining margins. We assist our clients in devising and delivering leadingedge innovation, in identifying new revenue sources and in innovating management and operating practices. Founded in Milan in 1993, Value Partners is a global management consulting firm that works with multinational corporations and high-potential entrepreneurial businesses to identify and pursue value enhancement initiatives across innovation, international expansion, and operational effectiveness. Value Partners rapid growth testifies to the value it has created for clients over time. Today it draws on 25 partners and over 275 professionals from 23 nations, working out of 10 offices in Milan, Rome, London, Istanbul, São Paulo, Buenos Aires, Beijing, Shanghai, Hong Kong and Singapore. Value Partners has built a portfolio of more than 350 international clients from the original 10 in 1993 with a worldwide revenue mix, as over 60 percent of the management consulting revenues are generated outside Europe. Value Partners combines methodological approaches and analytical frameworks with hands-on attitude and practical industry experience developed in an executive capacity within each sector: telecommunications, new media, financial services, energy, manufacturing and hi-tech. In 2007 Value Partners acquired Spectrum Strategy Consultants a leading UK company specialized in publishing, broadcasting, entertainment, IPTV and mobile thus further strengthening its international presence. Today Value Partners is a leading advisor in the telecom, media and technology sectors worldwide. At the beginning of the 2000s, Value Partners decided to expand its service offerings beyond management consulting to include complex, innovative and businesscritical IT services: Value Team was created and, in less than 10 years, reached on 3,000 professionals active out of offices in 4 countries. In April 2011 NTT DATA one of the main players in the IT sector in Japan acquired Value Team for an enterprise value of over 270 million Euros, to make its platform for growth in the key European and Latin American markets. Value Partners and Value Team will continue to cooperate on complementary projects for individual customers.