Organizational Implications for Telecommunications Companies
Tommy and the Telco Factory
OT
T
s
OTTs
eTom
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How can telecommunications companies respond in terms of organization to the
massive threat to their core business from OTTs? Tommy – eTom – is a valuable
signpost for their orientation.
hatsApp, Skype, and the other over-the-top (OTT) proviW
ders of this kind have become a genuine threat to the core business
of traditional telecommunications providers. Why would anyone
pay to send a text message or make a phone call using purchased
services from a traditional provider when equivalent services are
available “free” from other providers? Telecommunications users
find themselves in a situation comparable to that of a child in a
candy store: they can choose and consume whatever they want, as
much as they want – without having to pay.
But when all of the candy is free for the taking, the chocolate
factory no longer makes any money, even though demand is
actually rising. What a paradox: the telecommunications industry and its infrastructure made many services possible in the first
place as technology advanced – and now its members are unable
to reap the profits of their accomplishments. This is especially
the case on saturated markets where flat rates are the dominant
price model. Moreover, the OTT threat is forcing the traditional
telecommunications added-value chain to accept changes because
the services it performs are no longer in demand (or demand has
shrunk to a trickle) owing to the lower-priced substitutes. Some
of the added value originally going to the telcos has been captured
by the OTT players.1
What action should traditional telecommunications companies
now take to adapt to these changes? They need orientation help
as they look for starting points in their organizations.
The telecommunications industry can make use of the so-called
enhanced Telecom Operations Map (eTOM)2 for this purpose.
Even though the TM Forum describes eTOM as a “business process framework”, our take is that this is an overview map of the
various tasks or task bundles (“clusters”) typifying a telecommunications company. It does not do any process mapping, does not
describe sequences of tasks and processes. eTOM can, however,
offer a certain basic orientation in the search for organizational
and structural starting points because the full range of tasks is
charted. So Tommy can be of service in the search for solutions!
Structure follows strategy – but which one?
One thought first: the organizational structure cannot be
“the” means for mastering the OTT challenge, so the search
for a solution cannot be conducted as an isolated review of
structure. Chandler’s “Structure Follows Strategy” paradigm3
is consequently taken as a working hypothesis. The organizational structure serves as an “enabler” for the necessary transformation or, as necessary, of the entire business model of traditional
telecommunications companies.
There are three generic strategies that can be used as strategic
patterns:
•
•
•
a defensive approach
an aggressive approach
a cooperative approach.
Orientation is needed – can Tommy help?
Essentially, the organization handles the assignment of tasks to
the various organizational units. In this sense, the organizational
structure provides the framework for the concrete realization of
company activities – the added-value chain. So before trying to
answer the question about what support organizational structures
can provide in meeting the OTT challenges – and what they cannot do – it is a good idea to obtain clarity about the traditional
added-value chain of a telecommunications company.
1 Cf. Future Telco Reloaded: Strategies for Successful Positioning in the Competitive
Environment, Detecon Publication, 2015.
The defensive strategy seeks to reduce utilization above a certain
data volume by throttling the speed or to compensate for the
revenues lost to the substituted services by charging for additional
volume. There is virtually no need to make any significant organizational modifications to pursue this approach as technical means
are adequate for realization.
2 www.tmforum.org.
3 Chandler, A.D. Jr.: Strategy and Structure: Chapters in the History of the
American Industrial Enterprise, Cambridge/MA, 1962.
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The aggressive strategy can choose between two sub-strategies: the blocking of OTT services or the imitation of services
offered by OTT players. While blocking is again a matter more
of employing technological means to implement the strategy, a
strategy of imitation requires thought about the extent to which
the organization can be modified to act as an enabler so that the
strategic imperative “imitate” is anchored firmly enough in its
structure to achieve the desired results.
From a structural perspective, the cooperative approach appears
to be the most interesting because the delimitation mentioned
above, thinking in the category “ecosystem”, is the fundamental
core of this strategy. The individual elements of an ecosystem are
dependent on one another. Modern system theory also notes the
necessity of drawing borderlines while at the same time mapping
the relevant system environments in the system itself. Drawing
on theoretical constructions of this type, cooperative patterns
of action in dealing with the relevant environment (the OTT
players in this case) appear logical.
The strategy of cooperation with OTT players can be imagined in
various manifestations. One manifestation could be for the OTT
players who generate substantial data traffic to sponsor this traffic
for their users; this would make the use of the services more
attractive for end customers because the increase in data volume
is paid for by the service providers and not by the users themselves. This represents more or less an economic alliance between
OTT player and network operator. Another approach is that of
acquisition: the traditional telecommunications provider buys
the OTT provider and slips into the role of the original service
provider instead of “merely” making the network infrastructure
available. While this approach tends more in the direction of “aggressive”, a “more subdued” partner approach can also serve as a
strategy. In this case, OTT services are integrated into the telecommunications company’s service portfolio (e.g., as attractive
data rate bundles) that also offers access to certain contents like
television programs or films.
Where do we find the “Golden Tickets”?
When we now face the question of what can be done in an organizational sense to realize the strategic patterns briefly sketched
above, we turn to the orientation aid offered by eTOM.
A look at the map reveals the obvious starting points relatively
quickly – in the layer “Supplier/Partner”. This concerns the
strategic planning part (SIP = strategy, infrastructure, and
product) as well as the day-to-day operations (especially, in this
case, the task groups “Manage Supplier/Partner Management”
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Detecon Management Report dmr • 2 / 2015
and “Supplier/Partner Relationship Management”). The matter
evidently appears to be straightforward. This is not enough
from the operator-customer perspective, however. This is why
it is questionable whether a simple “supplier-related” task layer
alone can be utilized as the relevant part of the map for the problem situation. The briefly described issues, after all, are that the
traditional telecommunications products are no longer able to
keep pace with the “free of charge” OTT services within the framework of their long-standing business models. So what activities can and must be taken into account as relevant from the
customer-related layer “Market, Product, and Customer”? In
every case, the marketing function – especially the product management – must be addressed. eTOM offers on the one hand
the related task groups “Market Strategy and Policy”, “Product
and Offer Portfolio Planning”, and “Product Management”.
Operating at a deeper level is the cluster “Service”, especially for
our purposes “Service Strategy and Planning” and “Service Development and Retirement”.
A major finding from this observation is that the focus must
shift from the challenges of operational efficiency in production
and customer relationship management to management of the
relationships to other players in the delimited telecommunications world if a company wants to counter the risk of substitution
and not let itself be marginalized as an infrastructure provider.
Limits to inward organizational orientation
If we take a traditional organizational approach, we can reduce
the structural topic to the short formula: partners and marketing
management must be interconnected organizationally in such a
way that efficient management of the modified added-value chain
is assured. The core change is the inter-organizational inclusion
of the services or the integration of acquired OTT players in the
added value of the telecommunications company. This is true, at
any rate, if activities are restricted to the cooperation strategies.
The imitation strategy can evidently be ignored because it
is questionable whether imitation can be completed quickly
enough and whether imitations such as “joyn” will be able to
gain adequate acceptance on the market. Assuming this could be
a successful strategy, the question arises in organizational terms
as to how the right OTT radar can be set up in the company
so that the appearance of interesting and threatening OTT services can be recognized and the required imitation activities can
be driven forward. Moreover, these imitation services must be
bundled attractively and marketed along with other services. Service and product management on the commercial and technical
side and the traditional R&D department experience virtually
eT
om
no organizational changes, but instead a strategic reorientation
in the direction of imitation rather than own innovations. The
scanning of the external service landscape for services worthy of
imitation is then the task that must be at the focal point of special
attention.
Transformation of the added-value chain –
patterns of “delimitation”
When it comes to the reorientation of the organizational structure due to the change in character of the added-value chain
resulting from the interaction with actors foreign to the system, a
look at similarly structured topics can be profitable as a means of
avoiding the re-invention of the wheel. The telecommunications
industry has had substantial experience in interacting with external players of this type, especially in the areas of network rollout
and maintenance. While rollout activities are essentially always
handled as (temporary) projects by the appropriate project management organizations in the CTO department, maintenance
tasks must be regarded as ongoing obligations. This is an example
of classic outsourcing. The primary focus is on cost advantages
for the outsourcing party. From the organizational perspective,
the focus is on the so-called “retained organization” that monitors
and steers the service performance by the outsourcing partner
– a permanent core organization that assures the effective and
efficient delivery of the outsourced services – as well as on the
contract drafting.
The OTT challenge, however, differs in every respect from the
outsourcing issue. It is not concerned with performance at lower
cost, but with the same services. Telecommunications providers
require access to the OTT providers because these players perform services that are difficult to imitate, and they already have
a loyal clientele that is in part identical with the former’s own
customer base, but substitutes the OTT services for the traditional telecommunications services.
The situation is similar when strategic alliances are concluded, but
the primary issue here is often one of economies of scale resulting
from the greater size of the overall alliance in comparison with its
individual members. In view of the OTT challenge, however, it
can hardly be a question of compensating the losses to the OTT
players by becoming bigger and bigger. On the contrary, the
cooperative approaches hone in on economies of scale that are
supposed to make it possible to balance out these losses. Furthermore, the availability of additional material assets is of declining
concern; instead, the access to third-party intangible assets is the
primary thrust of the action.
Partnering – options of organizational anchoring
What structural options are now available for organizational
structuring? Because of the threatening situation of “substitution
of OTT services for own services”, it is expedient to locate a
partnering approach structurally in the commercial division of a
Figure 1: Overview of eTOM
Customer
Strategy, Infrastructure & Product = SIP
Operations
Market, Product and Customer
Service
Resource (Application, Computing and Network)
Supplier/Partner
Suppliers/Partners
Enterprise Management
Shareholder
Employees
Other Stakeholders
Source: Detecon
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Detecon Management Report dmr • 2 / 2015
telecommunications provider. The purchasing or production organization that plays the decisive role for outsourcing can hardly
be considered as the primary anchoring point in this case.
cooperation offers. The de facto result would be a re-alignment
of the traditional function of marketing strategy in the sense of a
focus on external partners.
Such a point can be fixed as a part of the marketing function
within the framework of product management or even as a
separate unit – an extension of traditional marketing or product
management, so to speak. The proximity to the management of
the company’s own service portfolio speaks in favor of an organizational integration of the partnering function in the marketing
department. The product managers of the relevant services act as
“substitute procurers”. It appears questionable, however, whether
a product management that acts more in the direction of operations has the capabilities required for strategically oriented activities outside of the company’s own borders and can build up these
capabilities fast and effectively enough.
The question as to whether approaching the appropriate external
players from a function which is organizationally not located at
the C level is adequate for strategic partnerships remains open.
This opens up the second possible option: organizing partnering as a separate function alongside product management. The
separation from operational product management allows a focus
on strategic issues related to the entire product portfolio. One
might also imagine, in the sense of strategic product portfolio
management, coupling market observation with the shaping of
This concern prompts consideration about an appropriately high
organizational location of the partnering function. We see three
possible options. For one, capacity for partner management can
be created by expanding the organizational unit responsible for
corporate strategy to the necessary degree. This can be set up as
a staff function reporting directly to the chief executive officer
(CEO). This type of configuration would have the advantage that
the “docking point” for potential strategic partners from the OTT
world is set at the highest point of the hierarchy. Negotiations
with the OTT player are conducted at peer level.
The disadvantage, however, might be that the corresponding operational handling of the partnership would ultimately have to be
delegated to a lower level of the standard organization because
it is not possible to secure enough capacity at the summit of the
Figure 2: Starting Points of the Structural Organization
Partnering Under CCO
Partnering as Staff Function of CEO
CEO
CEO
Partnering
CCO
CTO
CxO
CCO
CTO
CxO
Partnering
Marketing
Partnering Function Under Marketing
Partnering Function as Essential Part of Strategy Function
under CSO/CPO
CEO
CEO
CCO
CTO
Partnering
Partnering &
Produktmgmt.
Source: Detecon
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Detecon Management Report dmr • 2 / 2015
CxO
CCO
CTO
CSO/CPO
hierarchy for day-to-day activities of this type. Organizationally
speaking, the strategic and operational activities of the partner
management would have to be coordinated within the scope of
the traditional hierarchical relationships to marketing or product
management. The same idea, but with the potential for greater
capacity, can be implemented by locating the partnering function
with the chief strategy officer (CSO) within the sense of a chief
strategy and partnering officer (CSPO) and not with the CEO.
The advantage here is also the adequately high positioning of the
organizational charting of this function, especially with respect to
the topic of “peer level” with the OTT players. The coordination
work to the operational units, however, remains the same.
Partnering and its organizational anchoring will remain a top
subject for telecommunications companies because we can
hardly expect the flood of service innovations washing over the
traditional providers from the outside to come to a sudden stop.
Deutsche Telekom, for instance, had good reason for dedicating
one of its four strategy blocks to exactly this topic pursuant to the
slogan, “Winning with Partners”. The organizational integration
of acquired OTT players will also be a critical subject for success
as can be seen in the current discussions about a possible acquisition of Netflix by AT&T or Verizon.
Conclusion: strategy requires organizational refocusing
Dr. Stephan Wygoda is Managing Consultant and an expert for organization. His consulting work focuses above all on the topics of restructuring
and transformation, organizational analysis, organizational design, and process
re-engineering in Europe, the Middle East, and Africa. Dr. Stephan Wygoda
is the author of numerous publications on these topics.
Our remarks clearly show that the changes in the telecommunications added-value chain cannot always be mastered without
any organizational modifications. The repeated initiation of new
efficiency programs will not provide adequate answers.
Heiko Trost is Managing Consultant and an expert for commercial strategy
and organization. A comprehensive project portfolio as well as interim
management at the C level in marketing and sales in Europe, the Middle
East, and Africa are prominent elements of his consulting activities.
Buket Bastürk is Consultant for organization and processes. Her consulting
work has taken her to projects related to the topics of restructuring and transformation, especially in combination with her expertise in the field of finances
and controlling, in Africa, the Middle East and Europe.
Figure 3: Partnering a Functional Field of Tension
Corporate Strategic Core
CEO
Strategic/operative
allocation?
Regulatory
Affairs
Partner Management
Sourcing
F&E
Marketing
Product Development
Procurement
Functional allocation?
CTO
Technical Core
CCO
Commercial
Core
CFO&CHRO
Enterprise
Management
Core
eTom
Source: Detecon
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