The pace of change
The key to staying at the top of the market, says Ericsson CEO Hans Vestberg, is to correctly manage your rate of change. Sitting still for too long without adjusting a business model can be disastrous—but so can moving too quickly into new areas, where existing customers and core expertise cannot be leveraged. “When you’re a leader in whatever you’re doing, everyone wants to beat you,” he says. “The important thing is to transform at the right pace.”
He offers an example: Ten years ago services accounted for 15 per cent of Ericsson’s revenue, Vestberg tells Telecoms.com. Today services makes up 42 per cent of the company’s turnover, growth which has helped offset a decline on the infrastructure supply side. “We came out of 2011 with a very strong newtorks business. That went down [during 2012] but services went up,” he says.
Ten years is a long time in what Vestberg describes as the world’s fastest moving industry and the landscape has changed a great deal. A decade ago Ericsson had the same competitors across all areas of its business, he says. Now it has different competitors for each segment of its operation, and for different geographies.
The extent of change over the last decade makes it difficult to predict how the supply side will evolve over the next, he says. “Of the people we thought of as our competitors ten years ago, none are still in the market in the same shape as they were then,” he says. “But what we see now is more of the vendor community narrowing down their portfolios and going for greater differentiation than they used to, rather than looking to major mergers again.”
Ericsson has not been narrowing its focus. Indeed it has been interesting to see how much of its recent messaging has centred on acquired and integrated businesses like BelAir Networks and Telcordia. The networks side of the business is well dimensioned, Vestberg says, but there are still areas of interest for acquisition in the BSS/OSS space which remains “fragmented”. He also says that Ericsson always has an eye out for SIs and smaller acquisitions that can help speed growth in its services business. For the most part, though, he would prefer to channel his available funds into R&D and service development.
The pace of change is also a challenge for Ericsson’s operator customer base, something that has helped drive the growth of its services business. “15 years ago [operators] had a new technology to deploy every five years and they had time to train their employees. Some operators have the scale to still do that but there are many that don’t .”
So Ericsson’s approach to managed services is shifting. Earlier this year the firm announced that it would be integrating end user experience into its managed services contracts, supplementing traditional KPIs like individiual base station uptime with data on churn or customer loyalty. “We want to mirror the challenges that our customers have so that we get the same feeling as them,” Vestberg says.
Ericsson could hardly avoid empathy with operators, even if it wanted to. The firm has in-sourced 20,000 operator employees as part of its managed services contracts over the last five years, Vestberg says, almost one fifth of the entire headcount. The experience of these employees is getting “more and more relevant every year,” he says. “The people who have been at operators are a very important part of our transformation.”
But you might reasonably question just how much Ericsson would want to feel like a lot of its operator customers, squeezed as they are by OTT innovators at the front end and by their own moves to relinquish much of their core network activity to their suppliers at the back. In part the operator predicament stems from the time when they were desperately keen to be content and media brands—and ill-thought out moves in this direction were widespread.
This goes back to Vestberg’s point about trying to force evolution at too quick a pace. So are operators paying the price for such a mistake, and have they closed off more evolutionary paths than they have cleared? Part of every vendor’s skill set must be the ability to paint a rosy picture of its customers’ future and Vestberg says there are huge opportunities for operators.
“The operator market used to be a lot of voice customers and now it’s a lot of data. There is M2M, healthcare verticals, enterprise, connected cars and so on. All of it has opened up. It’s not a demand problem on the network, it’s more about how to monetise it. Operators have to think about how to monetise it and about how they need the network to function behind them,” Vestberg says.