Enterprise services: It's business time

The scale and complexity of enterprise services is mind-boggling. Operators find themselves targeting a vast range of organisations, everything from a 'man with a van' removals business right up to blue chip multinational conglomerates with installed employee user bases of tens of thousands and communications budgets of tens - sometimes hundreds - of millions of dollars. There is no such thing as one size fits all and so segmentation plays a vital role.


May 27, 2008

14 Min Read
Enterprise services: It's business time
Almost four in ten enterprises will expect to stop providing devices to workers by 2016, according to research firm Gartner.

The scale and complexity of enterprise services is mind-boggling. Operators find themselves targeting a vast range of organisations, everything from a ‘man with a van’ removals business right up to blue chip multinational conglomerates with installed employee user bases of tens of thousands and communications budgets of tens – sometimes hundreds – of millions of dollars. There is no such thing as one size fits all and so segmentation plays a vital role.

The enterprise space can be broken down very roughly into three categories: the multinationals, the large nationals and the SME/Soho (small medium enterprises/small office home office) market. Though the needs and budgets of companies falling into those categories alter massively on a case by case basis.

Peter Glock, head of solution development and marketing at Orange Business Services suggests multinationals and nationals, also – generally – fall into one of three categories. “We’ve got transactional customers and they are buying on price, so we try to reduce our cost of selling (though not necessarily the cost of sale) by having a fairly slimmed down account structure,” he says.

For transactional customers, Orange will generally only bid for contracts that it feels it has a strong chance of winning rather than pitching for every tender that is issued. According to Glock, it boils down to having an efficient channel for the cost of selling. That sector tends to be the finance sector or government – organisations that have a large number of IT staff, so they do not suffer operational technology problems. This group of customers view communications as a commodity.

“We then have a slightly different market, which are the ones who would love to buy sophisticated communications technologies, but don’t have the ability to integrate it into their own infrastructure,” says Glock.

This second group tend to be the small multinationals. According to Glock they’re looking for ‘productised’ (off the shelf) offers that include a business application. These firms may look for a managed collaboration solution or a managed call centre solution, where they get both the communications network and the application delivered in a fairly standardised way because they don’t have a team that can operate it and integrate it themselves.

Then there is a third batch, typically in the fairly distributed industrial sector, where the design and creative function is located in the West and in certain places in Asia, but the manufacturing is very much Eastern Europe and Asia Pacific. “They are spread out all over the place and there is a certain cost in communications and organisation to running that,” says Glock. “What they are looking for is a partner to help them in a more sophisticated way. They’re not buying transactionally and they’re not buying products, they’re the top tier who want someone to come in and help them do stuff.”

Traditionally, it is in this third segment that Orange is most successful – the sector in which price, while still important, is not necessarily the overriding factor. There are only a handful of operators who can realistically serve this market and they are targeting an ever-dwindling number of corporations. This problem is exacerbated by the fact that these customers are pushing harder and harder on margins. There may come a time soon when the high cost of selling, coupled with margin erosion, renders the mega-deals more trouble than they’re worth.

Speaking with MCI, the head of IT services for one large UK-headquartered multinational encapsulated the problem operators now face: “I would be willing to pay a premium for a better quality of service. But realistically, from talking with Orange, T-Mobile and Vodafone, the quality is all comparable, so it does come down to cost.”

This head of IT took six months to finalise negotiations that saw the firm go to market and then ultimately renew its contract with its current supplier. “I’d like to say that was unusual, but it’s not,” he said. The upside was a greatly improved 24-month deal, including the option to renegotiate tariffs within that time and an instant £180,000 credit in back-payments on the next bill.

If the account had been managed proactively there is a chance that the IT head would not have gone to market with a full RFP, wishing as he did for a shorter negotiation period. But the incumbent supplier had incorrectly assumed that the company would simply renew the current deal without question. Good accounts need a full time manager but, ultimately, a canny buyer knows he or she is in a position of power. This is very definitely a buyers’ market.

Part of a wider problem in dealing with global enterprises comes about as a result of the way in which both tier one operators and corporations have created their multinational footprints: Expansion by acquisition. This creates challenges technologically and culturally, though common consensus suggests large multinationals will want to deal with global communications providers.

“We want our service providers to reflect our organisations as businesses,” says John Hicklin, principal analyst, Logica. “One of the big areas is the whole international thing, you can see this move taking place. A large company wants to deal with an operator at a global level. So in each country you have your own operator. In a sense, there is a way that you can change your company colour or brand, but actually the underlying service needs to be delivered to that promise. So if I’m going from country to country I want to feel that I am being handled in the same way.”

“It is inevitable that it will go the way of global deals, it is already moving in that direction fairly certainly,” says Charles Pangrazi, senior partner at management consultancy Morse. “You’re starting to get other organisations like MVNOs that are knitting together a global service package and a global billing package.”

But, is a global approach necessarily better? “I don’t think it is automatically better. It is better if you’re a big company that has a vision of what they want to do with that communications appliance and see it as an extension of the IT and information to get to the knowledge workers. If it is all bundled up as a part of that then I do think it is a better thing,” says Pangrazi.

Another strategy that large corporations employ is known as ‘smartsourcing’. “I prefer the term divide and conquer,” says Orange’s Glock. “They will divide up the contracts into desktop, data centre and network. They may also do that regionally. So quite often we’ll find ourselves bidding with someone who is doing the desktop, someone who is doing the data centre and someone who is doing the network. Typically, the data centre outsourcer gets the application maintenance as well, although it might go to a fourth party.”

According to Glock some organisations will look to break down their communications needs regionally. “That way they do try and pitch one against the other. We will always try and go for the full global deal. But sometimes it is difficult to compete in say the US and Asia against the local regional player,” he says.

Traditionally, operators have targeted the major corporations – the margins may be coming down, but the revenue pot is still substantial. However, they’re almost certainly missing out on a large tranche of the business market. Most commentators seem to agree that the SME/Soho market is currently underserved. APRU in this segment can be high, and there are many more SMEs in the world than there are large corporates. Employing Wired magazine’s fabled e-commerce terminology, SMEs represent a substantial long-tail business opportunity for operators.

If it were that easy, of course, someone would already be doing it. Indeed the operators would argue that they already are. However, the SME market is incredibly fragmented, and the cost of selling can start to look dauntingly high, which has led to the carriers delivering off-the-shelf deals that end up resembling souped-up consumer packages.

Laurent Gervais, a partner with Atos Consulting, certainly thinks the SME market is worthy of greater attention, though he warns that it does come with its own set of unique challenges: “There is a clear trend here at the moment to enlarge the scope and focus on the smaller companies. However, you have to reengineer your process because the process and way to sell to a multinational is costly, and if your processes are not automated it can be very labour intensive.”

It’s all fairly obvious stuff, when an operator has the luxury of one person focused on one account, everything operates like clockwork, but as the number of small accounts grows, sales teams have to split the time of the staff over several accounts and it starts to become a management headache allocating account managers, particularly as contacts and relationships within the customers themselves move around.

“I think the problem over the years has been that global operators have tended to look at Soho and SME customers as basically small corporates,” says Logica’s Hicklin. “The business requirements that these people have are probably as complex as the large corporates, but they want to deliver it in a consumer package. I think there is a real hunger for the kind of services that operators can provide. The problem is how do you then package up the business processes, have a route to market and approach the customers that they can usually relate to and feel confident with?”

One carrier hoping to shake things up in the SME space is 3UK. Historically, the 3G operator has focused its efforts solely on the consumer market. The business plans have been available online for some time, but on May 1st the firm officially launched its business play in retail outlets nationwide.

Perhaps unsurprisingly the carrier’s USP is price. “The SME market is served by all our competitors in the marketplace, but I think that customers are essentially paying a premium for their business service,” says Renato Bottini, product development manager, Business 3UK, adding: “Our value proposition is targeted at the trade and the Soho market, so it is really about giving people value for money. Which is where I feel the competitors have been making hay for too long. We’re coming in as a challenger,” says Bottini, who claims 3’s rates are up to 25 per cent lower than its rivals.

The carrier already generates impressive ARPU in the consumer space – according to Informa Telecoms&Media its $88 per month, per subscriber, stands head and shoulders above nearest rival O2’s $49. With an excellent track record for innovation there’s no reason to suggest 3 can’t have an impact in the B2B space.

There are four tariffs available to 3’s business customers. The first is a flat rate plan, where users pay a monthly access charge of £11 and then pay fairly competitive per minute rates for usage. Then there are two bundled offers known as the Business 600 and Business 900 plans. And finally, there is a sharer tariff, which offers the customer the option of buying a bundle of voice, text and internet usage that can then be used by a pre-determined group of handsets.

Of course, there’s more to launching an SME service than releasing some cut price tariffs. Logica’s Hicklin says: “You need to turn your products with technology into clearly understood propositions that have some real business benefits. It is easy to be hard on operators and technology providers by saying ‘you’re not being business driven enough’, but actually trying to package up some of this technology into things that are easy to set up, use and support with a minimal complexity, isn’t always that straight forward.”

As Charles Pangrazi pointed out, it seems like the SME market is ripe for a business focused MVNO. “We’ve been looking at a number of partner organisations that are considering that type of approach,” says Hicklin. “I do think the business MVNO space will be an interesting one for operators to bring things to market. The analysis has been doing the rounds for years now, in terms of what is required, and an MVNO model would enable someone to bring it to market in a more focused way.”

According to Hicklin, business focused MVNO candidates could well originate in the IP space. “I think everyone is looking at it from different perspectives. I’ve been looking at this area and we are talking to our traditional telco partners, but also firms in the IP space in terms of what people are trying to do there and see what sort of offers can be shaped,” he says.

Ultimately, whether operators are targeting the large multinationals or the small to medium sized enterprises, there needs to be a fundamental rethink in the way communications are handled by a lot of enterprises, and operators should be helping to drive that change, so thinks Pangrazi.

He reckons companies need to “grow up on the phone thing,” and that mobile phones need to be managed as part of a company’s IT estate in much the same way that laptops now are, “because phones are no longer simply communication appliances, they are information appliances.”

“IT departments and CIOs need to start to get their arms around managing these devices properly from a security standpoint and from a productivity standpoint,” says Pangrazi. “IT directors tend to think of things in terms of exposure and downtime, and so they don’t really think of upsides and in fact mobile phones are a great productivity tool once we start to extend the applications out to where people need them.”

So how can the carriers engineer this mind shift? “The operator needs to act like a grown up SI [systems integrator] or a consulting company and start to offer IT-like services to the enterprise,” says Pangrazi. Of course, the tier-one suppliers like Orange and Vodafone will argue that they already do this. “They do, but if you compare how Morse, Accenture or Atos would do an IT project with how the average mobile operator would do a project, there is still quite a big gap,” he says.

Pangrazi suggests operators need to rethink their sales teams. “Take a look at the cross section of the types of people on the sales staff and ask ‘are they the consultant-types that an SI might employ, or are they people who have grown up selling voice?’ And that gives you an indication of who they can talk to and what kind of deals that can do,” he says.

Laurent Gervais of Atos says operators need to pay particular attention to who they’re dealing with, particularly with the larger accounts, it could range from group CIOs to facilities managers. “The operator needs to synchronise his approach among all the countries and identify in advance the structure of the accounts – the way that decisions are taken, the key countries or areas in terms of influence and decision making – and to be able to propose something that covers the needs of those accounts in all the countries that they have to cover,” he says.

Pangrazi agrees: “In a lot of cases the IT director isn’t involved in the procurement of mobile phones and the whole voice estate, it is still stuck in a lot of companies in the facilities department, so the same people who buy desks and contract for cleaning services will also do the contracts on mobile phones. So what kind of decision do you think they will make on procuring mobile phones? Well, it is going to be price-based.”

The enterprise service sector is clearly something of a minefield, but with the correct preparation the rewards are great. The biggest challenge of all would appear to be understanding the customers’ needs. Orange’s Glock warns: “If he thinks he’s buying product and you’re trying to do a customised bid, he won’t recognise the value of what you’re bringing to him. But if you are the other way around and he thinks he wants you to customise something for him and you try and push product, he is going to get very frustrated with the fact that you are inflexible.”

Flexibility is key. Building an enterprise service proposition is a careful balancing act. On one side sit a few demanding but lucrative multinationals, on the other sit thousands of smaller slightly less demanding, but when added up no less lucrative SMEs. Are the operators getting it right? Laurent Gervais laughs, “I’m not sure, from what I have seen they can do it far better.”

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