The Right KPIs Lay the Path for Success
Podcast episode 66
As CSPs transform their business for the 21st century, they will be challenged to pivot quickly and reorient for growth. KPIs have been a long-standing measurement of success. However, as Nokia’s Senior Partner, Bell Labs Consulting, Stephen Rose explains, adjusting your approach to success can make all the difference.
Below is a transcript of this podcast. Some parts have been edited for clarity
Michael Hainsworth: The Key Performance Indicator has been the key indicator of performance for everyone in almost every organization ever. But according to Bell Labs consulting Executive Partner Stephen Rose, if the telecommunications industry continues to measure based on 20th century KPIs, it will never succeed in the 21st century. He tells me all you need to do is look at the relative success within two parts of the industry: the telecom companies and the FAANGs – Facebook, Apple, Amazon, Netflix and Google – the hyperscalers that built their businesses on top of the telecom industry.
Stephen Rose: Yes, I think we need to take a look back at the evolution of the industry, since let's say, the 3G era and see what was going on up to now and then have a look forward. So, the first thing is, the industry structure has driven a commoditization of connectivity services and that's problem, number one. Very, very simple economic issue. We can see that if we look at the difference between the valuations of FAANG players and CSPs, orders of magnitude difference between those two parts of the industry, even though they are in the same industry structure.
The other problem is, and of course we've seen a certain obsession over TCO (total cost of ownership) as a KPI. So, because of that, CSPs have obviously then moved to try to protect margins and to optimize their KPIs, like cost per bit, for example. So that obviously then drives a certain type of behavior in their organizations.
The other problem is even as we move into 5G, we can see that we're getting a few dollars more for higher speeds and feeds, but we are not actually able to make a long-term monetization strategy of that. Like Shannon's Law, there is a limit to that. So, we have to actually decide how to orientate ourselves going forward. And going forward, the rules of the game completely change. B2B services will shift to outcome based services, and there'll be guaranteed SLAs around those, which means that the operational KPIs completely change to an always on always available service.
The second thing is because the economic imperative will still remain, then the CSPs will need to drive organizations to invent services that require different ways of inventing and measuring the return on invested capital of those inventions, or the return on assets. The other third issue really is the inventions will need to address the real complex fourth industrial revolution, but also within a very strong hyperlocal context. It's a very, very different way of going to market. So, a lot of things change in order to be successful in the 21st century.
MH: So, if we're to focus on forward looking KPIs, we need to change our mindsets. You've been quoted as saying that you're in an industry that seriously needs to reorient for growth. How do we break the mindset to capitalize on 5G and other next gen network experiences?
SR: Yes, absolutely. I think mindset development is a classic leadership problem and it really starts with first off preparing leaders to come to terms with a number of new notions, that we've been scored in different ways in the past. If we think about just where ideas or where opportunities come from, they really come from the top nowadays. Leaders are not all-knowing, omnipotent, amazing things anymore, in fact quite the opposite in many respects, and leaders are often the most distant from the emergent use of technology as well, and then often fail to recognize where the market is going. So first off, getting leaders out of the way, and actually giving others space to be able to come to terms with where the opportunities are and actually act on them.
I think the second thing is if you want new behaviors to come out around organization, we need to think about how do we align the organization's objectives and key results to the entire organization. Often again, where we've seen innovation working, and the willingness let's say, in the opportunity to capitalize in 5G, we've seen it coming from smaller parts of the organization or from dedicated parts of the organization, but those ideas can come from anywhere. We have to actually change everybody's behavior to becoming much more of a hive mentality and that's very, very difficult thing to do. There's a great book from Herminia Ibarra that really looks at from her studies on leadership and organization. She actually says humans are narcissistic and lazy and if we fail to set invention and innovation targets across the organization, guess what, they'll do what they always did.
I think the third issue really is that again, much in the same way that the external rules change, the internal rules have to change. People need to work within a context where learning comes from failure, that they'll not be penalized for making mistakes when it comes to capitalizing on 5G and innovating around 5G, but also they need the space and the resources to work on that, as well. So, a number of things need to be in place for us to be able to do that.
MH: I could imagine the structure of the industry is problematic for changing that mindset as well?
SR: It is, and CSPs particularly have got it hard. Telco services providers have got it hard. For networks to inter-operate, if you think about it, they need to work to common standards. Those common standards are absolutely universal across the industry and they must evolve in concert. So, if we think about it, you're trying to work to 3GPP standards, or IEEE standards, or whatever they are and as you move together in concert, you are launching services together, but in many respects, that makes it hard to differentiate and find uniqueness.
I think the other issues that CSPs and telco providers are under that, let's say other players in the value chain are not under, is enormous regulatory oversight and not withstanding the fact that they're a wireless operator, they've got spectrum scarcity issues to deal with, which are often very expensive. Then there's a couple of other issues that they've had to contend with.
One is that because of the way they generally buy from the value chain, CSPs tend to buy in massive and infrequent job lots, which pits vendors against each other very aggressively, and in turn that suppresses profits and therefore R&D. So, there is a sort of a vicious circle that comes along with that.
Then the last issue that they're really dealing with, content ownership is often prohibitively expensive. If we look at BT, although they're doing actually quite well off the back of this, but they're paying $1.5 million or there and there abouts per premiership football game, to be able to actually release that content with their service. Vodafone Spain actually said that it was cheaper to actually completely move out of the industry and lose all your customers than it would be to actually have that kind of licensing arrangement and we've seen other companies like AT&T decide that actually, the core and context needs to change, and that they're moving their media assets out of the business to be monetized in other ways. So, very, very difficult structural issues to deal with and as a result of that, that's where some of the issues need to be overcome.
MH: You've been quoted as saying, and this is quite a pretty sentence, I don't know if I know what it means, but you advise CSPs to quote, "Construct value constellations to discover hyperlocal emergent opportunities." Help me understand that.
SR: We can take some inspiration from the ways in which the insect community actually works when they want to find new opportunities and nesting sights, and that's a thing called quorum sensing. So, the way that bees and ants work is that the one bee goes out or one ant goes out, it looks to find a particular nesting site. It comes back, it convinces other ants or other bees that that's a good idea and so they go back and they actually get a few more. Then slowly but surely, they incrementally move the organization towards what is a good idea. Then they get the quorum actually formed and then they go and find the next nesting site.
I think there is a wonderful opportunity for CSPs to actually build not only constellations of their own organization because they've got lots of smart, wonderful people, and they've got of course, brilliant sets of assets in there, but they can then go to the broader ecosystem. The broader ecosystem also has lots of different resources and lots of different insight. So they can actually then assemble those in certain ways and bring not only just their own organization, like I said, but expert organizations with rare and inimitable assets to be compiled for new ways of value.
The other great thing about that, if you see a lot of firms that are becoming more expert at that, and there are a couple in the industry already, it's a great way to evaluate M&A opportunities. So, if we look at somebody like Telus, Telus have made something like 30 acquisitions in the last few years, just to be able to address different vertical sectors. Of course, if they've been quorum sensing with those organizations, they can actually then have wonderful network effects around it. Rakuten also, they own a lot of their own portfolios. So if they're quorum sensing, they can actually then identify opportunities. Especially within the 5G era, because we're also learning where the value proposition stands, it's an emergent understanding that we gain, that quorum sensing capability is even more important.
MH: So then, let's extend your ant metaphor. How do we get people to think about where the opportunities lie? What does that look like in an industry that's accustomed to protecting corporate silos? If you had a sales guy walking into the R&D department with an idea, I would suspect that it would not be as welcomed as if it came from within the R&D department itself.
SR: Yes, the first challenges is setting targets that everybody understands that they can and they should be contributing to ideas about where the emergent strategy can go. That's a notion of strategy from the bottom up. There have been some fantastic organizations outside of our industry that have been doing that. Valve is a software development company, they do that, but actually we are now seeing examples of that from within our own industry. There's a good example of that would be the 5G Open Innovation Lab based in Seattle, they're working with T-Mobile and the way the Open Innovation Lab works is they set themselves up as the participatory architecture.
So, that is that they set up the conditions for third party organizations to come in, share their ideas, bring in their assets, bring in their ideas and bring in their resources. They're doing that hand in glove with T-Mobile US. And so because of that, two things happen. One again, like I said, they act as the participatory architecture, they draw people in through membership. But the other thing that they do is it's got to be in such a way that it's, non-prescriptive. If I'm holding a particular perspective on where 5G monetization might happen, it doesn't mean that you will necessarily on the opposite side of the table, agree with me. So how do you then have those discussions, share ideas, investigate opportunities, and then come back and share some more?
So those, those organizations, like the Open Innovation Lab, are going to be key to unlocking ideas and yet not being over prescriptive. Again, we see other firms, KPN in Holland have done a wonderful job of that to address certain verticals and others are doing similarly.
MH: Business 101 will teach a student about the economies of scale and the value that comes from taking one thing and applying it universally. You on the other hand, are saying that CSPs need to think hyperlocal. What does that mean? How does that look? And how do we convince a CSP that instead of being about one idea that can work across an entire country, that you need to look at individual communities and individual industries, and try to come up with solutions for a very hyperlocal environment?
SR: Yes, you said the right thing, which is the entire telco sector has been around building a universally applicable service for anybody that wants to use it, whether it be B2C or B2B. That also then drives a certain one dimensional SLA (service level agreement). But if you think about it, in the future 5G networks, 5GA particularly, where we will see the completion of the 5G architecture, we will see that we will move into URLLC, ultra-reliable low-latency communication services. We will also see the big shift to edge cloud.
Now, those two capabilities combined, can enable us to then go to firms that, let's say production companies, or whether it be a manufacturing firm, or whatever it happens to be, and we will then see the network capabilities and the operational technology in that business start to connect. Now, unless you have a hyperlocal understanding of the systems of activities within that particular customer, or whether you actually understand what kind of industrial KPIs that they're working to, it's going to be very difficult for you to be able to then bring those two technology sets together. So, that's the first problem. Actually, the use cases are becoming hyperlocal and the SLAs that you will support and the systems of activities associated.
The other thing is, of course, there's an opportunity. We talked about ecosystems before, ecosystems can actually be used to galvanize insight and foresight, and they've got their own networks. So, of course they have relationships and they have trusted ecosystems around them, and so because of that, if you bring that hyperlocal constellation together, you get new relationships, you get trusted relationships, and you also get things like the willingness to share data, insight, other resources, inimitable resources. So, there's a lot of benefit to actually starting to think hyperlocal.
MH: When I think about hyperlocal, I think about hyperscalers and the webscalers, and particularly in the world of cloud, if there was one industry that would've been primed to provide the near edge cloud computing that we have today, you would think it would be the telecommunications industry, but those aren't the ones who managed to stake that ground first. What has been the impact on the mindset of CSPs realizing that in 3G and 4G, they missed the boat and they can't do that again in 5G?
SR: Yes. I think the hyperscalers have brought in a couple of, let's say perspectives, and perspectives, they're very, very strong perspectives on how do you actually develop a core theory of value? If you look at the top performing organizations in the world, they have that, they are very, very true to what it is that they do and how they actually do it, and how do they create value in the marketplace? If we look to external other firms, I mean, the hyperscalers have done that through developing these core assets, these core capabilities, whether it be management platforms, or service development platforms, or whether it be the data centers. That is their core capability and they leverage all of their value off the back of them, it's clear to everybody how they make value.
But also, you can look to other firms, Disney and Marvel are great examples of firms that actually were right on the edge of bankruptcy, bankruptcy on the horizon, and they manage to come back and becoming hugely successful. They did that, both firms did that in fact, by going back to a core organization theory, and that was to leverage their assets in unique ways. They identified what their core asset was, and in their case, of course it was their characters.
So, I think CSPs have to take a good look at who they are, how do they add value in the business and start to really understand what is the structural setup for that? What are the organizational theory that they want to have inside of their organization? And how does that relate to the external factors that are going on in the world? So big, big changes and the webscalers are a great example of that.
MH: So, that's the big picture on the webscalers and things that CSPs should look at, but it's the inimitability of Webscale and the FAANGS, your Facebook, Apple, Amazon, Netflix, Google that are the secret to their success. So, what KPIs should CSPs focus on to provide the services that can't be replicated elsewhere, or at least not easily?
SR: I think the operational KPIs clearly change to always on, always available. So, you've got to get away from the classical TCO obsessive KPIs around cost per bid, and start to actually look at whether your SLA is actually going to be two nines, three nines, four nines, five nines, whatever it happens to be, even all the way up and beyond that, because you'll be running operation technology on the customer side that is completely different. But I think if we think on the ability to innovate and develop new services and grow the organization, then we've got to think about actually innovation-based KPIs. Of course, what you don't want to do is you don't want to then set people off into the ether, and then say, "Go ahead, go forth and multiply on your innovation," without actually then having some level of accountability.
So, I think things like a consciousness around business case adherence, if you have developed a business case, and you've developed a good idea, and you've taken that to market, to what extent were the things that you said were going to be true, actually true. If you aren't measuring that, then naturally you're not either going to be able to see whether you're making money or not, or if you're miles off, you can't course correct your organization to say, "Well, your assumptions were wildly off." So, business case adherence is going to be key.
I think the other thing is being highly conscious of metrics that relate to whether you're renewing portfolio or whether you're de-maturing portfolio. Renewing portfolios, obviously you're finding the second S curve as they say, but de-maturing of a portfolio, a lot of organizations are actually pumping a lot of energy into adding value, by de-maturing the existing office. And de-maturing is effectively if you're going up the S curve and then you bring the value backwards, you get a renaissance of value on the same portfolio item. The problem is that if you continuously only do that, you don't really look for renewal. So yes, we've got to be very conscious of how we're actually innovating, what we're innovating and whether we're going for something new or not.
MH: So, then how do you convince a hyperlocal organization to incorporate a CSP into their business model once that CSP is found something that provides them that unique standout against the competition?
SR: Sorry, was this B2B or B2C? Sorry, I just want to be correct.
MH: Well, I can imagine any hyperlocal organization would most likely be a B2B relationship, but I suppose too, a business to consumer type of relationship as well, has some unique components to it as well. Let's talk about it from that B2B perspective, because I figure that 5G is going to be primarily an enterprise-oriented next generation. Sure, we're going to give the kids super high speed, low latency for their games, but the real growth is going to be on the enterprise side.
SR: I think you're absolutely right. Initially, especially with 5GA, I think we will see that's where the opportunity lies and really what does that look like? It looks like interconnected systems of activities, both procedural and technological. Here, you are going to be a CSP on one hand, you're going to be offering a service to the B2B customer and you've got to ensure that the services that you are operating are actually embedded deeply within their operating model.
The second element of that really looks like shared outcomes and shared resources as well. So you are actually then building those, as I said, you're building those constellations, you're building a construct, a commercial construct, taking that through, and then there'll be a defined outcome at the end of that. So, I think B2B relationships look very differently and they are very much where CSPs are on the hook for the operational performance in some instances, but certainly at a minimum for the SLA.
But I think to the point that you just made, I think the hyperlocal and B2C does look actually quite different if we imagine a little bit further forward from 5G and as we're go into 6G, we'll see a hybrid world of next generation internet, we're going to see disaggregated devices and IoT ecosystems, that's B2C, IoT ecosystems and it's where we really see that symbiosis between human, machine and software systems.
So, I think again for CSPs, it means completely differently densified networks. It means always on, always available, high dynamic network systems. That really means that actually all of your predictive analytics enabled by AI and ML won't be a nice to have, they'll be basic table stakes, as will the KPIs associated with that.
MH: I'm fascinated that you said that we'd be waiting for 6G, which isn't something that we're really expecting until around 2030 or so. I can imagine a B2C hyperlocal environment would benefit tremendously from 5G, particularly when we talk about next generation smartphone that aren't phones anymore, they're AR glasses, or they're all cloudified. The metaverse has been getting a lot of attention lately, and it is a bit of a buzzword right now, but I can imagine 5G would be tremendously helpful in that world on a B2C environment.
SR: It is. I mean, I think again, when we move into URLLC and when we have hybrid experiences, and particularly when we have disaggregated devices, then the whole way in which humans interact between the physical and the digital world will completely change and we will be able to actually navigate through the world, whether it be a shopping mall, or whether it happens to be just where we're going on the street. We won't be looking down at a hand-based device that is actually stood in front of us, of course, we'll be able to actually command through audibility, or we'll be able to command through some sort of spectacles-based device, where we'll be able to see something as simple as the bus timetable on command. But of course, we're going to experience video and all sorts of other things differently. So, it is going to be a completely different world.
Again, if we think back to the problem of how do we measure the performance of that on the network side and within the ecosystem, everybody has a bigger role to play in that. And CSPs, of course, then have an opportunity to monetize off the back of that.