Back to Business Unusual with EY’s Greg Cudahy
Podcast episode 30
Business as usual will have to take a back seat for some time. But how does the move to remote working and 5G present an opportunity for the telecommunications industry?
EY’s Global Leader for Technology, Media, and Telecommunications, Greg Cudahy, says the future isn’t predictable but it will be brighter.
Below is a transcript of our conversation. Some parts have been edited for clarity.
Michael Hainsworth: Consulting firm EY says it's a mistake to assume we can get back to business as usual. As COVID-19 drives up demand for mobile broadband, telecom providers, which were never built to address the needs of enterprise, are finding religion in the need to abandon the traditional business model. EY's global leader for tech media and telco Greg Cudahy tells me the future is unpredictable. And it's just one of the biggest challenges facing the industry today. But if the telecom sector can adopt a ‘Sense, Respond and Adapt’ approach to leveraging 5G, the future may not be predictable, but it will be brighter.
Greg Cudahy: Yeah there's just no question that business as usual is kind of business beyond usual out of this pandemic. But honestly, these were issues before the pandemic. And frankly, the pandemic has just accelerated the level of change around these issues. So the digital changes have always been coming. It's just that the pandemic has really emphasized them heavily across the globe.
MH: So in order to become more than just a connectivity provider, telecom companies need to rethink their approach to enterprises?
GC: That's right. And in fact, it's sort of a perfect storm. You've got this level of volatility that is not just around things like the pandemic, but it's also economic geopolitical uncertainty. We've always had these things. But the advent of technology means the speed at which these things happen is unprecedented. And so when you get down to things, you take the volatility, you take the shifting digital workforce, you take the economic impacts of not being a technology leader in terms of the application technology in your business, you become a laggard. So if you take all these together, business as usual is gone. And it's really business unusual at this point.
MH: It's fascinating to me to see the evolution of thinking within the telecommunications industry. What role does 5G play in helping move an entire industry that was never built for anything other than being a dumb pipe into a new era?
GC: Yeah, I liked the way you say that in terms of not being built to provide these other things that are definitely part of the future. In fact, one could say that being a dumb pipe provider is going to be an existential issue for companies in the telco industry. In fact, it's why you see some of the major tech companies investing in telcos because the notion of intelligent connectivity is the merger of tech and telco.
And maybe I should say communications more broadly because it's not just traditional telcos. It’s cable companies as well and other providers of communication services. And really what's happened is most people don't realize today that the cloud is where your voice is going. The difference between voice and data is minimal, if any. And what you've got right now is this notion that that data that is in that pipe has a tremendous ability to be monetized on the positive side.
Most of these companies are not set up to figure out how they monetize the data that's flowing through all their different pipes. But the flip side of it is if you're not adding value to that data, if you're not, for example, doing what we call cloud edge, and finding out where decisions should be made, because there's an optimal place to make some decisions. Operational decisions need to be made closer to the point of contact, whereas large strategic decisions need to be made more at the center. Right now, there's no one really determining where the optimal place to do those is. The telcos are in a great position having that pipe. But until they add in things like IoT, RPA, AI in there and actually become a participant in generating that value, they're actually in a bit of trouble. Because just scale alone and cost minimization are not going to be the winner at the end of the day.
It's a mathematical certainty that as the volatility increases, predictability decreases.
MH: So then what are the biggest challenges as 5G opens up these new doors? Is it the siloed nature of the industry, or is it more of a culture that was never built for this in the first place?
GC: That's a really good question as well. I think if I look at the three that you kicked things off with, I’ll resequence them a little bit. I think the first one is the fact that so many companies are still relying on traditional forecasting and planning to save the day. Well, nobody forecast this pandemic, you know, far enough out to really see what the impact would be on business. Although something like it was quite predictable, the specifics weren't. So looking at traditional forecasting and planning and thinking that there's gotta be some magic improvement in forecasting that suddenly these problems go away, it's not going to happen. And I mentioned those volatility factors earlier. The fact is the change in business, the change in economies, all those things are faster than they ever have. And right now they're not going to be this slow in the future. So it's going to be faster and faster and faster. This is purely mathematical. It's a mathematical certainty that as the volatility increases, predictability decreases. Therefore it's gotta be first focused on adaptiveness.
The second thing is that when we talk about traditional business models, a lot of companies we see today are really working hard. I mean, look how successful some have moved in the market in terms of shifting to this environment. But in many cases, they're putting what I would call a digital veneer on top of a traditional model, as opposed to really saying, “How can I fundamentally redesign my business with the use of digital?” And I do think that's a cultural thing. So there's just no question. When we look at our clients, of those that are really moving ahead fast, the limitations are not the technology. They're not the business processes. They're not management science. It's actually the culture and willingness to go outside of their comfort zone and to take these risks because they may seem risky now, but honestly, five years down the road, if you can't have what we call an adaptive digital enterprise, there'll be an existential moment again.
And the third piece that I focused on is what you also talked about as the silos piece. We are not in an era where vertical integration can work anymore. There may be a few companies that are big enough that can stay vertically integrated for a while, but even those underneath the surface are becoming what I would call an ecosystem orchestrator.
As opposed to somebody who's managing an entire value chain that they can control. Then your point on culture is spot on. All of those are addressable, but it's a tone at the top, as well as the right people at the bottom and middle to work together with partners and ecosystem-type thinking to really change how the industry works.
MH: As someone whose day job it is to think about the future and where we may be going, I'm fascinated by your statement that businesses are trying to predict the future in an unpredictable market. And you registered that as either a mistake or a challenge, which is it? I can't imagine a business analyst walking into the boss's office at a telco saying, listen, I know it's my job to figure out where we're going and what's next, but trust me, we can't do it.
GC: Yeah, first time I've heard that, right? Let me try and dimensionalize this and really bring it to life. You know, many people, even a few months out from the pandemic forecast things like healthcare needs. They did strategic planning, et cetera.
But if you were doing a plan two years ago, even if you forecast a pandemic and you had a heavy warehousing network, manufacturing network. The design for your network at $60 to $100 oil is a very different network than $20 to $40 oil. And what happens now is a lot of people did not think about how there's going to be an absolute crush on transport, or how oil prices were going to, at some point futures were negative, if you recall that. So it's really hard to forecast that specific price of oil.
What is important in adaptive enterprise is for the analyst to go ahead and do sort of these clouds of prediction and say, where is our operating model capable of, what bandwidth (in this example of oil price) can I continue to flex my model? But then you have to have contingency planning outside of that, and the operations to support, to move quickly around those contingencies and say, if oil drops to $20 what can I take advantage of? If oil goes to $120, what can I actually do to mitigate the impact? So my bottom line. And I use oil as an example, it's not necessarily a high tech example. But that's one of the most studied commodities in the world. There's teams all over the world predicting the price of that. If they can't get one commodity right, how can you possibly expect to get everything from gold prices to geopolitical issues predicted? You've got to create a planning and forecasting organization that's not looking for a better algorithm, but it's looking to work with the rest of the organization and say, how do we go ahead and make our operations more flexible to what our business is sensitive to?
MH: And ultimately the intent here is to ensure that you have either incremental revenue streams coming in the door at a telecommunications company, or opening up whole new doors to revenue that you never thought was possible before. So EY is describing this as an adaptive digital enterprise.
GC: That's right. And in fact, if we continue on from your previous question, if you think about what network equipment providers like Nokia are supporting, is the telcos themselves. But they're also going with the enterprises themselves. I think some of the advanced thinking telcos are looking at this notion of adaptiveness. We actually troche these sort of into those who are really looking at adaptiveness and designing the future with their base. I'm talking about telcos now. Designing the future with their whole extended value chain.
There's those who are the scale players who are trying to drive down costs, drive down cost, drive down costs. And then there's sort of the smaller scrappy companies that are looking, how do they go ahead and partner to achieve scale? And if you look at those who are working with their value chain to become more of an ecosystem partner, this is a real opportunity for telcos. Because they actually control that pipe. Without the telcos you can argue there's some substitutes, but they're not of significance right now. But without the telcos, that information that feeds AI, I mean, where's it going to come from? That information goes to the cloud. Where's it going to come from? It's ultimately the telcos that are in the middle here. And if you're an adaptive telco, you don't only look at it to say, how do I minimize my costs in an unpredictable environment? You look at it and say okay, there may be some happy accidents out there that we can actually see, if my company can move fast enough, I can capitalize, like you said, on new revenue stream opportunities.
The pandemic is a perfect example of this. It’s this whole notion of a distributed workforce. Yes there was theory around that over the last 10 years. Yes people have had programs in place. But honestly until the pandemic came and you were forced to figure out how do you take, especially, you know, the knowledge workers, if they can't meet in the office anymore, if they've got to work from their home or somewhere else, how do I actually make this ability for the workforce to be distributed without predicting where they're going to be? And we got to see a lot of that in the last six months of tremendous changes in operating models really fast. But a lot of it was bandaids.
I think that the telcos and the network equipment operators have a super opportunity here, especially with 5G, which can be used many more places, which is going to add millions, if not billions of new consumers into the network. You have a real opportunity here to figure out how they become part and parcel of a new ecosystem. And I think, how do they become an orchestrator of certain ecosystems? And you've got to do that business by business. You gotta look at the outcomes. Not just thinking, where am I moving data to and from? What is the outcome I'm producing?
MH: If culture is the big challenge because it's an industry that built vertical silos that were independent of each other for so long and never really thought beyond the conductivity of ones and zeros over the air, how does a CSP become part and parcel and orchestrator of ecosystems if the internal culture was never built for it? Does this require a CSP to turn to outside knowledge? If there is no institutional knowledge within the organization?
GC: Yeah, that's an awesome question. And frankly, if you go back to what I was saying about the technology itself not being a limitation, I think you've hit the nail on the head here. Particularly, organizations that are engineering-led (and I'm an engineer myself by training) tend to look at, how do I maximize the performance of the technology? And then you've got the sales community who's looking for, how do I convert the next sale? And where they can meet together is understanding. This is where industry specificity is really important inside of telcos and related providers. So if I'm just moving data, okay I care about bits and bytes, all that engineering optimization, et cetera. That is not going to actually let me get into new revenue streams. Most times. They may get a new product, but what customers and clients are looking for is solutions. Outcomes. The technology is necessary, but not sufficient. And how you apply that to use cases in tech is really important.
We see a number of our clients who were completely engineering-led now restructuring themselves to be industry led, especially on the enterprise side. And what you get there is a very different understanding of what the outcomes are and therefore, how you apply the technology. For example with decision making, if I'm using a 5G application within a manufacturing location, and I've got to go ahead and make line-level real-time decisions, that intelligence, in many cases artificial intelligence, has to be placed right at the edge. Whereas if I'm doing things like navigating ships, based on threats throughout the globe, that moves at a slower pace. You can have that done through the cloud with the decision being remote. But this is where there's a culture change, where the shift to thinking about outcomes, instead of just outright pure technology performance, or even, you know, cost per transaction type of things.
My home is now my workplace. And it actually interferes with my ability to do my job if my service isn't reliable.
MH: So you write that the industry needs to adopt a sense, respond, and adapt approach. And if I break those three elements down, it strikes me that sense would largely be the responsibility of those engineers of which you speak. Respond would most likely be that sales team and that strategy team. But what about the adapt element? That strikes me as a corner office issue.
GC: That's exactly right. Now, I think we talk about Sense, Respond, Adapt in two ways. The strategic way that you're talking about, which I'll address in a second, but also operationally or tactically really live within your operations. You have to do both. And that comes back to the corner office point you made. All the clients that we work with have exceptional engineers. It's not a challenge there. And the sales forces are increasingly being shifted away from licensing or hardware sales to actually long term relationship metrics, which kind of reinforced this. But you're right.
That adaptiveness you have to actually look at the entire company, but also your trading partners that you work with, suppliers and customers, and figure out what is your business most sensitive to? And that takes a lot of work. It's a different kind of planning. It's not even strategic planning. What it is, is it's continuous testing and simulation of scenarios.
Scenario planning, which is a “corner office activity” as you mentioned, becomes mission critical. And if you have the proper portfolio of scenarios, then you start looking at where these unexpected events might occur, but you don't know when they're going to happen. What am I doing? Which parts of my operation need to be a little bit more expensive, but more flexible? It could be manufacturing, it could be sales. It could be things like software development. Do I have teams that are going to be paid or do I use outside resources to develop changes to my software quickly for something that I hadn't anticipated?
In many of our clients, their traditional internal software development capability works to a regular clock speed. It has releases and things like that. But in an adaptive enterprise, what you've really got is the ability to say, hey wait a minute. I know this was on the plan, but here's either the opportunity or threat that really reschedules our release cycle, reschedules the focus for our resources. All of that comes from culture as you've mentioned, but also what I'd call as the different kind of planning organization that really converts that need for adaptiveness into operational decisions. Long term and near term.
MH: We've spoken so much about the enterprise side of this equation and reasonably so too, because unlike 2G and 3G and 4G, which were, I believe, largely consumer based consumption of vehicles, 5G is going to be very much an enterprise driven technology. They will be the biggest consumers of this technology.
But what of the consumer side? One in four American households say they're considering a 5G connection. Your EY digital home study found that one-third of American households have concerns about their current home internet service. How is this an opportunity for a 5G provider when we typically got our internet service through a cable or a telephone line?
GC: There's a lot to unpack in that question, both sides of it. There's definitely going to be a huge benefit on the enterprise side. I think that the telcos themselves and the network equipment providers understand that. But I think the broader populace just thinks 5G is getting movies on my mobile phone faster.
What I think is happening and what you just mentioned, the study that we did on the consumer end is, a lot of consumers thought, okay yeah, I'm going to get my Netflix or whatever faster. But what they didn't think about was, my home is now my workplace. And it actually interferes with my ability to do my job if my service isn't reliable. I think this is a really good point about the potential ubiquity of 5G. But one of the things that I've heard from some of my colleagues is when they're working at home, the reliability of their network connection is critical as they still have high bandwidth usage of video games at the same time because other family members are at home.
I think what you have now with 5G is the potential to be much more flexible to the needs. And that you can continue that consumer experience on any device in any location. I think that's an upside. Now, many of the telcos are still just figuring out how to get more bandwidth and how to drive the price point down because it's very much a price war in many markets. Not all, but in almost the majority of markets it's really a price war. If you start looking at some of the players who are now adding value, adding services onto that, where the margins are exceptionally high, even though the price point to a user is modest. I think that layering on is a real challenge for the telcos to be part of that. The cable companies have done that for a time. I think it's still the telcos that are emerging to find out what value add services they can give to the consumer that allow them to provide a portfolio of offerings that are much more profitable.
MH: As I look through your study, one in four American households say they're considering a 5G connection. What does that 24 percent figure tell you about education and awareness of such a foundational and transformational technology?
GC: Yeah, I think it's interesting. 24 percent is good. I think it's going to get much, much bigger. It used to be early adopters where it’s two to 10 percent of any consumer base and still the 24 percent would be considered something like early adopters. So it's a big number from that perspective. But think about where the enterprise side meets the consumer side. Take things like in-home healthcare, and an explosion of video platforms that are now being used at home for work. Well, if you look at surveys a year ago people were very uncomfortable with telehealth. The idea of seeing your doctor over the phone a year ago was anathema to most people. Now there's been almost a forced trial and people are actually excited that they don't have to go to the doctor's office, that they do not have to worry about the parking garage. They don't have to worry about the commute. They don't have to worry about sitting and waiting in a room with others.
So I think what you're going to find is that 24 percent grows as the consumer, public service and enterprise all become closer and closer and closer. This is a real opportunity for telcos. We mentioned the work environment. You're going to find other things that come into the home. And I still think that's a huge opportunity for 5G because when you add 5G you're not tethered to your house, so you can start a particular experience at home, you can go drive off in the backseat of someone's car and continue that experience. Video games are an obvious example here. You can't do that with a landline. You can't do that with cable. So I do think it's this connection, this intersection, this convergence of business, public, and consumer, all that to one, that's a real opportunity for the telco ecosystem.
MH: So let's come full circle then with EY recommending businesses judge every investment through the lens of how it can drive and leverage a digital ecosystem. As a long time business reporter, it blows my mind that you feel the need to say those words in that order.
GC: You know, it's funny because I think you're really close to it. But the fact is most of us are caught up in our day-to-day. In fact, I was involved in a study many years ago that looked at the willingness to spend. By that time CIOs and even CTOs were less about the health of their business or the known opportunities than the performance of their personal stock portfolio. And I think that psychology plays out into what you just asked. It's obvious to those who are reasonably close to this. Maybe not the consumer side, but the business side. That these things are somewhat truisms that everybody knows you have to go to. Converting that into action is a whole different thing. You have to convince a bunch of players to get these things done. You have to create that ubiquitous burning platform notion to get people to actually move.
It comes back to your culture points. And until you get hit with what we've been hit now in the last six months, it doesn't become clear that now is the time you've got to move. Everybody knows you have to move, but until something that's all encompassing as the impact of the pandemic on almost every part of life, you didn't get a burning platform that everyone felt. Parts of organizations felt it. There's a lot of people who talked about, you know, the pandemic's moved digital forward more than any corporate program in the last 10 years ever has. And I think that's true.
Then what you have is the other extreme. Everybody wants to do something, but they're not exactly sure what to do sustainably. And that's why we come back with this notion of adaptive digital enterprise. Everybody knows you need to be more flexible, but how do you actually do that in a way that is measured and creates a sustainable long term organization that can move, can change partners and can change customer bases relatively quickly, and actually turning that into action is quite difficult, but it's necessary. It's an existential decision that you've got to do those kinds of things.