So little time, so much to read. I've already got too many books sat around the house that have done nothing but enrich Jeff Bezos. So it was good to read this concise summary of Good to Great. The book is a seemingly excellent guide to success based on rigorous analysis of what separates mediocre from exceptional business performance.
One particular part stuck in my mind:
I learned a lot from Collin's discussion about the second circle of influence, your economic engine denominator. For some companies the focus is profit per employee. For others it is per geographic region, per brand, per local population, per ton of finished good, or per customer visit. What is your economic engine denominator? Dr. Deming preached that a manufacturing company should focus on producing the next unit of profit at the lowest possible cost.
What does this mean for you? If you are an employee or a consultant it may be how much money you can possibly earn in a 40-50 hour workweek. For a company like mine, that licenses information, it could be profit per partner.
Now, the problem that faces telcos runs something like this. The business model is delaminating into three strands. The denominator depends on which strands you follow.
The first is connectivity. It's hard to differentiate yourself at this layer, but not impossible. Higher speeds through new technology, greater coverage, more roaming, etc. can help you capture supernormal profits. But most telcos don't have a cost structure remotely appropriate to such a world. Maybe a few long-haul operators like Level 3 or Williams that have always focused on the pipe business can do it. The usual strategy to turn a dime is to hoover up bit-pipe capacity for a few cents on the dollar -- the previous two owners (the constructor and the rescuer) will have given their investors a cold bath. The pipe business is capacity-driven. Until you've filled the pipe, your whole business strategy should be focused on driving utilization.
The second strand is the application platform. This is a real mess today. The whole thing is just too fragmented for any application developer to be able to rely on a telco to provide an application platform. OMA, J2ME, Parlay, JAIN, 3GPP, SPDE etc. -- the list of API definers is endless. Until Microsoft or IBM come along and clean it up properly, telcos aren't going anywhere in this space. Which is sad, because they could be participating in slices of other people's value chains a lot more (identity management, billing, retail distribution, etc.). I've no idea what the denominator is for a platform business. Maybe adoption among developers, driving a network effect.
Now for the interesting one. The services layer. Telcos have a lingering desire to remain in this space. But what's the driver? Transactions. If you aren't engaging in metered transactions, then you're the pipe provider -- and give up on trying to extract the true application value from the customer. It's transactions that count. Transactions. Transactions. I'll say that again. Transactions. Get it?
Of course, absolutely no telcos are currently using transactions as a key operating metric. Which is why you're probably best keeping your retirement dollars out of the retail voice calling sector of telecom, unless you've some really juicy insider information. Telcos are slowly being forced out of the transaction business.
Unfortunately, transactions alone aren't good enough. We've already got cheap all-you-can-eat on wireline and VoIP. As we head ever nearer to unmetered usage for wireless voice calling, the number of transactions (i.e. calls) rocket upwards. But that alone isn't a measure of success. The moment you flip on a cheap all-you-can-eat minute bucket, your transactions go up but your ability to segment and price discriminate goes down. Usage just drives cost.
So instead the key metric is profit per transaction. All those ringtones and games sold at dollar-per-transaction levels are a Good Thing. Premium instant messaging services. Voice recognition dialling usage. Whatever makes the customer buzz.
A profit-per-transaction metric might even work for a platform-based business. You spend billions issuing phone nubers, network logons and passwords. The ability to federate those identities you created at great expense with third parties (for a fee) helps. What can't you log on to your eBay account with your phone number? Mobile wallet transactions are part of an application platform business. Premium 3rd party content billing is an application platform service.
Lots of big transactions equals success. Lots and lots of extremely low-profit transactions equals danger, because extremely small can vanish into zero. And even a big number multiplied by zero is still zero. People do often pay over the odds for a predictable all-you-can-eat plan. But that's not the recipe for telecom success, where you aim to bundle haulage with user product. It doesn't drive you to seek new value, but rather towards reducing cost. If you want to stay in the services layer, there's much unfulfilled possibility in the communications business. There isn't a rest stop on the route to service innovation called "low cost".
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