Don’t InnoWaste
In April 2011, on a glorious spring day, I joined Swisscom’s Strategy and Innovation unit. I was thrilled to be part of the new team tasked to create the next wave of revenue growth.
Swisscom’s core market had been slowly declining for years and the leadership team needed to find, build and monetise new revenue lines. At the time, telcos used to charge for voice minutes, which was very lucrative. But with digitisation and the explosion in data usage, the unit of value changed from the voice minute to the byte of data. Moreover, with digitisation came the decoupling of infrastructure and services, opening the door to Over-The-Top (OTT) providers with software applications that could serve our clients directly.
The leadership team realised that Swisscom had to evolve its business model. But we quickly learnt that telling people that ‘we need to disrupt ourselves or someone else will’ was not sufficient when all financial incentives and operational procedures were optimised for the current setup. Secondly, that protecting the share price was as important as transitioning to the new business model.
We implemented a dual strategy that simultaneously repositioned our core business whilst trying to create a new growth engine for the future. We were successful in doing the former and failed to do the latter.
We decided that our core business would compete on network speed and best customer service. Thus, we evolved from charging for minutes, to charging for bundles of minutes to, finally, charging for different data speeds.
To overcome the initial organisation’s scepticism, we took the following steps:
Quantified the expected revenue loss to OTTs over five years, which surfaced the cost of inaction, and demonstrating that the status quo had a very real and growing downside.
Provided a limited set of business model options to the leadership team. This shifted their attention to thinking about which of the options was best for them.
Broke down the transition into two phases, reducing the impact and risk. Early on, we knew that charging for speed was the end state; however, we took an intermediary step to allow the organisation, our clients and the market to process this change.
The transition was a success. Despite an initial drop in average revenue per user, bundling increased user retention. Within six months the average revenue per user had not only recovered but also increased.
In contrast, we did not achieve our second goal to create and scale a new revenue engine. The ambition was to catch a new wave of innovation, growing at 15 to 20 percent in the foreseeable future, generating 10% (CHF 1 billion) in revenue in 5 years.
And while we had identified and incubated several promising high-growth companies in cloud computing, digital identity and data analytics, we failed to scale either of these ventures.
The fundamental reason was our inability to choose one and commit the necessary resources. It was confusing to receive continuous requests to grow beyond the core and, at the same time, to have these ventures blocked to avoid diverting resources.
This disenchantment led me to ask three questions:
How can in-house innovation create new, significant revenue growth without being strangled by the Core?
How can the Core reposition itself to minimise disruption and continue to be the company’s cash engine in the mid-term?
How can CEOs build an innovation portfolio to better monetise innovation and achieve greater return on their investment?
At the heart of these reflections is a desire to use innovation – man’s creativity to solve meaningful problems - to improve our lives.
I hope this is the start of a worthwhile conversation.
