We all know that if any organisation is reluctant to change (OR) change slowly, they are destined toward failure. And as organisations grow bigger, the change gets tougher. The same processes and methodologies that were built to sustain the capabilities earlier has become a hindrance for any change in the same capabilities.

Let’s talks about insurance today in light on a big change necessary in large Insurance companies. One of the top UK insurance firms is Aviva Insurance. As per their website, Aviva’s strategy is to build their own core capabilities ie, strengthen their pricing & underwriting competence, capitalise on the best-in-class multi-channel distribution capabilities and have increased operational effectiveness.

The challenging part will be in the implementation of this strategy. At a tactical level, attracting new customers and retaining the existing ones through constant engagement with the customers and incorporating simplified way of providing services is a mammoth task for monster firm like Aviva.

The reason it is a mammoth task for Aviva is, because customers are looking for a low-cost products rather than premium quality products. Due to Financial crunch, there has been a decrease in the disposable income and an uncertainty during this time leads to security. So there is a high market share if Aviva can tap into the middle-class market through low-cost model.

Few of the hurdles that Aviva has in front are the financial market instability, Euro crisis, diverse economies with low interest rates and increased EU regulation and solvency II adoption.

Aviva has a huge task ahead in not only being effective in their operations but also embrace multi-channel retailing. Internet being one of the multi-channel retail, Aviva has to join hands with the aggregators (price-comparison websites) and develop low cost insurance products in order to attract new customers. Why?

The Insurance Aggregators 2010 report from DataMonitor reveals that Home Insurance purchase instigated via Aggregators has increased through 2010 and is predicted to reach 20% in 2011 (15% 2010).  The report says that 66% of customers use Aggregators to compare/purchase insurance products – 17% of customers have bought at least one product via an Aggregator.

The July 2011 Mintel Report on ‘Web Aggregators in Financial Services’ uncovers the fact that Aggregators are now the primary source of financial information – 60% of customers say they are their primary source and most of these customers look for insurance with cheap price.

So, it’s high time that Aviva logs into the Aggregator websites, in order to attract the B & C social economic groups. Aviva has to be really efficient and agile in their web ecommerce operations, in order to match up with the changes that happen in the Aggregators websites.

Furthermore, they have to develop new policies and services specific for these B & C type customers, due to the customer’s constant behavioural change. So, eventually, Aviva has to incorporate change more than what is currently prevalent in Aviva group. The blogger feels that they have to develop this new low cost delivery model that will get the help from Aviva group but has to drive itself to become self-sustaining (in its businesses) over a period of time.

When telecom firms enter in to new market territories and diversify their product portfolio, through innovation in technology, potential market scenarios can be envisaged. Few possible scenarios can be like Telecom firms focusing on media services to provide extended voice and video services, or Telecom firms focusing on IT services to become core ICT (Information and communication technology) providers, or building a network-centric nature of their business through data centre, service-oriented developments. So, the Telecom firms can get into new industries like Media or IT by embracing cloud computing technology.

Hence, the innovation in “Cloud Computing” technology can affect the value chain of the telecom operations in a substantial way through the various services that cloud computing can render to the customers.

The operational support services like “order fulfilment”, “service configuration”, “resources provisioning” and “Invoice Billing” are becoming increasingly complex with millions of subscribers involved with variety of products. Hence the operational cost to handle them is high. Further to that, the infrastructure needed to cater to the increasing customer base, can lead to increased financial overhead.

The implementation of Cloud computing incurs minimal capital expenditure as this infrastructure is owned by the cloud providers. This can enable firms to reduce the capital expenditure, as these are converted into operational expenditure thereby saving costs in the balance sheets, resulting in lower operating profit taxes.

The paradigm shift from a capital expenditure (capex) to an operational expenditure (opex) among organizations is leading to development of new business models and new methods of doing business. With these potential benefits, the telecom operating model has to be restructured in order to incorporate technological innovation for a customer centric organisation.

Hence, the adoption of cloud computing can have a significant effect in the “strategy, infrastructure and operation” section in the above telecom operating framework by improving the cost structure through operational excellence and economies of scale.

Further to that, the high investment in network infrastructure has also become a driving factor with UK moving towards faster broadband with announcements like fibre-based Next-Generation Access (NGA) networks offering speeds in excess of 30 Mbit/s by both Virgin & BT

 The Impact of Technology

Technology is one of the major factor driving the Telecom market with an increase in the number of broadband internet users, with the statistical evidence of 18.3 million UK households in the UK (70 per cent) having Internet access in 2009. The rise in broadband connections has also driven the dramatic growth in ecommerce over recent months, and has led to the greater popularity of package deals that include video, games and telephony.

The Office of Communications (Ofcom) 2008 report declares that there were over 500,000 new connections in the first five months from February 2008, with 133,000 new connections added only in June 2008. The more recent entry of MVNO (Mobile Virtual Network Operators) has helped to promote competition at service level in UK and the Netherlands thereby driving the telecom market to a certain extent. The future of Telecom through the technological impact will be more exciting than it has been in the past.

Mergers and Acquisitions

Mergers and Acquisitions (M&A) can also be treated as a factor in the growth of the telecom industry. As telecom industry deals with various forms of communication services (like mobile, fixed line, as well as Internet and broadband services), mergers and acquisitions help to attain competitive benefits in the telecommunications industry. The NTL merger with Telewest, BSkyB merger with Easynet and few other M&A’s has reshaped the UK telecoms sector and created increased opportunities for the ‘bundling’ of services .

The blogger thinks that the M&A in Telecom Sector are regarded as horizontal integration simply because, the entities going for merger or acquisition are operating in the same telecommunications industry

Telecom Regulatory body

The UK Regulatory body is another factor affecting the UK telecommunication industry. The UK Telecommunication market is regulated by OfCom, an independent regulator and competition authority for the communication industries in the United Kingdom.

The work of OfCom’s is to regulate the commercial behaviour of dominant telecommunications operators who may have a potentially harmful influence on competition and consumers. Further to this, another telecom regulatory body called “Telecommunications Ombudsman” (Otelo) deals with the provision of lawful and trustworthy telephone and Internet services. Otelo offers services between telecommunications service providers and their customers in cases of disagreements.

The strength of these regulatory bodies is to enable neutral rulings over the telecom sector, aid in rapid development of fixed, and mobile sectors and as a result facilitate the telecom firms to provide better services at low prices. On the other side, the weaknesses are the lack of alternative fixed infrastructures in the local loop and the lack of fining power by Oftel.

The blogger believes that Technology, UK regulation, M&A’s has brought significant benefits like lowering of national and international call prices, introducing bundled packages including ‘free’ local call services, “Flat Rate” Internet access without ISP subscriptions, range of choice of fixed & mobile network carriers and finally the modernization of telecommunication networks.

The Telecom companies operate in a highly competitive environment and are under overwhelming pressure to increase / retain their profit margins. So, Investing in technological innovation and knowledge is even more vital in times of crisis, not less so, and could enable the global economy to navigate its way out of this crisis. It is these recessions that drives the Telecom Industry to adopt innovative strategies and technologies to remain competitive and generate revenues.

 The “Global Recession” with the “Liquidity Crisis” has a heavy toll on the UK telecom Industry. The change in the household disposable income, with the increase in unemployment rate, due to current economic climate and rising operational cost puts pressure on profits margins more than market growth and as a result made operators to cut costs by internal efficiency measures such as reductions in headcount and infrastructure-sharing .

 This is evident with BT cutting the head count in 2008 and in March 2009 announced a pay freeze for its 100,000 employees due to the recessionary impact . In February 2009, mobile operator Vodafone said that 500 UK jobs would be cut. With millions of subscribers added every year, keeping pace with the overall data growth and the storage cost associated with it, has become the number one challenge faced by the Telecom firms today.

 The Industrial growth has been stagnating due to the distinct lag in the diffusions in the technological innovation.

So in this tough climate, the telecom companies are traded off with 3 options.

1. Do the telecom industries have to focus on cost reduction and be efficient in handling their operations (OR)
2. Do the telecom industries have to focus on differentiation in their products and services to the customers? (OR)
3. Can the Telecom firms achieve low cost and differentiation at the same time by implementing innovative technologies that can lead to efficient business operations?

It is hard to think of a day-2-day life without the dependence on Information and Communication Technologies (ICT) like internet or mobile phones, in a fast changing world. The Telecommunication era began with the invention of Alexander Graham Bell’s invention of Telephone and Marconi’s invention of radiograph. The Telecom Industry Association (TIA) 2008 report reveals that the global telecom market will hit $3 trillion by 2010 and can become an important factor for the growth in the world economy.

The telecom industry has evolved from being a simple set of wire that connected locations with a switchboard to mobile devices in a period of 3 decades, with “punch cards” in the initial days to semiconductors and silicon based chips. The evolution of semiconductors enabled new devices to connect to the network in parallel to the revolution in information technology (IT). This Telecom Industry in conjunction with the IT industry, developed new products that are taking the telecom industry to the next level of invention.

The UK telecommunications industry provides communication and information services, i.e. delivery of voice, data and media over different networks like mobile, telephone networks and television networks. The Telecommunication in the UK was a state monopoly since reorganization in 1969 as post office telecommunications, which later split into Post Office and British Telecommunications corporations (BT) in 1981. BT had a duopoly competition with Mercury Communications until 1991, after which the UK government set to free its telecommunications network and services policy to new competitors gradually. Today, the growth in the Economy and technological developments in the telecom industry is clearly evident from the Office for National Statistics (ONS) survey, estimating that total UK telecoms turnover was £62.2bn in 2008, a 22% increase from £50.8bn reported in 2003. 

The 2009 IHS Global Insight report reveals that the UK Mobile Industry had tremendous growth in the last 15 years and reached a maturity stage with the UK Mobile Market penetration rate of 121% in 2008. A UK Research groupdeclares that Telecommunications is a key input factor for the UK economic growth, a facilitator of socio-economic advancement and a critical utility for economic development, much like water and energy. This statement is inline with the telecom’s growing share of world output and household spending. The World Bank estimates global telecommunications spending as a share of global gross domestic product was 2.5 percent in 1990. Analysts at Insight Research estimate that in 2006 telecom spending had grown to 4.8 percent. The Insight Research further estimates telecom spending will grow to 5.9 percent of global GDP by 2013, despite the current recession and credit crunch.

With this numeric evidence, it is clearly evident that there is a great potential in the global and UK telecom industry. But on a still more closer look, we find significant challenges that the industry is currently facing that makes more of the telecom firms to rethink their strategic decisions, both on a short term as well as on a long term.

What are the current challenges that the Telecom Industry is facing?

Watch the next blog on this as we discuss more on this!!!!

 Today, the Business World is hollering in these challenging times with major projects and products getting scrapped or deferred due to financial crisis and liquidity crunch. Many knew that the world is in the worst ever recession since the great economic depression in 1929. Almost all Industries (Manufacturing, Services, and Products) are phasing out through a state of cost reduction initiatives but at the same time being productive and efficient in their operations.

 In Management Consulting Business, companies like Accenture, BCG, and McKinsey have lost significant number of clients due to the ‘Not-So-Favourable’ economic conditions. These companies provide services to their clients by offering a high degree of customisation and differentiation. In these times, Customer Retention is one of the challenges that they face. In my opinion, “Having a committed relationship with the customers by creating values and sharing the benefits over a lifetime with the customers” is the key for surviving in recession. The MBA world calls it as ‘Relationship Marketing’.

 The CEO of one of the leading IT Company says that “during economic downturns, clients turn to us as a trusted advisor to help them through this difficult time”. These relationships can give better insight and understanding on the other issues that the clients are facing and match the offerings accordingly that adds value to the clients. We must understand that losing an existing client is more costly than gaining a new client.

 As clients face hidden costs like ‘inspection costs’ (i.e. the effort of assessing the quality of different consulting firms), and ‘sampling costs’ (i.e. the risk of engaging the services of a new consulting firm) to find a new service/ solution provider, an aggressive relationship marketing strategies by consulting companies can not only retain the existing customers but also acquire new customers through the word of mouth referral from the existing customers.

 During my chat with the Mr Savio Kwan (former COO of Alibaba.com) on Chinese marketing, he said that ‘Today value added service will be tomorrow’s necessity’. This is absolutely true in these recession times where the ‘value added services’ to the existing clients is utmost important to win the Trust and Confidence of these clients. From the finance point of view, I think Relationship Marketing can change the marketing plan with the fact that it actually cost less to serve long-term customers and these customers may be willing to pay a premium for the quality services offered.

I believe that the Customer-Satisfaction Index will be at the all-time-high during this recession.

The rise of China to the world has become a reality. The china’s transformation today is similar to the transformation that Japan had, in 1980’s. It has become a domain manufacturer in industries ranging from labour-intensive to the technology driven. Automobile companies like Volkswagen and Aviation companies like Boeing have great market share in China. The Asian Tigers (South Korea, Taiwan, Hong Kong and Taiwan) are working together closely on building a portfolio of quality products to be exported to the whole world. Their eleventh five year plan (2006-2010) is to urbanise the population and provide better infrastructure in the rural areas in addition to provide better health care.

It’s good to see china awakening and growing year after year. But I still see a large difference prevailing between eastern and western china. The Western china is still rural china where greater reforms have to be incorporated. The Eastern China seems to be urbanized with provinces like Shanghai, Beijing, Tianjin and Shenzen to name a few.  Any first time visitor to shanghai is taken aback with the start-of-the-art airport infrastructure and Shanghai Pudong economic zone.  But a few miles away from these economic zones are the under-developed rural area regions that are unaware of the country’s economic progress and growth. I think still there is a disparity between the rich and the poor and china have to make efforts to bridge the gap between them. As china had tackled the Asian Financial Crisis in the past and has overcome the current economic crisis effectively, I can strongly say that substantial growth will continue perhaps for another decade after the current recession.