How can telcos capture the SMB digitisation opportunity?
Daniele Pe - Senior Principal
Anthony Dornan - Senior Consultant
Joshua NG - Senior Business Analyst
How can telcos capture the SMB digitisation opportunity?
Telecoms operators (telcos) are increasingly offering digital services to SMBs1, such as cloud, cybersecurity or payment systems, in addition to the traditional mobile and fixed line facilities. However, efforts and results amongst small businesses are still somewhat limited, especially compared to those in the enterprise and consumer segments.
Yet the potential in SMB digitisation is significant. In the coming years these businesses are expected to adopt more and more digital services, spending over $600 bn/year in this transformation - over 1/3 of total business IT spending2.
So, will telcos be able to find their own way into this market?
Understanding SMB digitisation
Like any other business, SMBs are undergoing a digital transformation. From restaurants using online booking tools to contractors leveraging order management software, SMBs are adopting digital services as a way to simultaneously increase their agility and improve their cost profile. Several factors are driving this digital transformation, including:
- Changing workforce expectations: Digital natives, making up around 50% of the workforce today, have different technology and work-life expectations, relying more on mobile devices and using simple, intuitive apps to collaborate and manage work-related activities.
- Changing preferences of end-consumers: The same ‘digitally native’ generation also have different expectations on how to interact with businesses, with an increasing preference to do so via digital channels.
- Focus on cost efficiencies and opex-first models: Most digital services operate on a license-based monthly fee model, which provides greater flexibility for SMBs, as they can scale-up (and down) based on needs, and better manage costs and cashflow.
- Focus on increasing agility: In this era of global digitalisation, where there is constant innovation and disruption, agility is key for SMBs to remain competitive. Digital services optimise intra/inter-company communications, enabling better information tracking and extending business reach.
EXHIBIT 1: SMB adoption of ‘digital' is driven by several factors
SMB digitisation market potential
This trend towards SMB digitisation will lead to significant growth in the SMB segment. Whilst large enterprises currently lead IT spending ($1.1 trillion globally in 2016), SMB spend is expected to grow at 1.5-2X enterprise CAGR. This growth is driven largely by software services, expected to surpass hardware spending in 2018 as SMBs move away from capex-intensive models to SaaS/opex models.
EXHIBIT 2: Forecast of SMB IT Spending
How can telcos succeed in the SMB sector?
Despite arriving late in the game, telcos are well-positioned to support the digitisation of SMBs - they have a large customer base subscribed to basic connectivity, a number of key SMB accounts that have expressed their digital needs and a sales force with basic knowledge of enterprise digital products. To capture this potential, however, they will need to transform how they operate, keeping pace with the market and providing the experience (at scale) that SMBs expect. This involves redesigning the:
- Experience to buy, use and manage services: moving to a digital-first model
- Product proposition: creating segmented offerings based on SMBs needs
- Enabling capabilities: leveraging analytics and AI to continuously improve
- Organisational culture: embracing agile and digital principles
1. Digital customer experience:
Today, the digital experience provided by telcos to SMBs is lacking or non-existent, leveraging resellers to sell and relying heavily on traditional support channels (i.e. call centres). These sales and support channels are underequipped to provide the desired digital experience.
To become credible providers of digital services, telcos must emulate their digital counterparts and provide a similar customer experience via digital channels. This digital experience should be compelling across all phases of an SMB customer journey, from buying and using services to receiving support when there is a problem.
EXHIBIT 3: Telstra leads the way in providing a digital experience for SMBs
2. Product Proposition:
Telcos should follow a 3-phased approach to build out their product portfolio and proposition.
- Identify ‘anchor’ digital services that are relevant to the customer base. Telcos should collaborate with well-established partners capable in delivering against SMBs’ expectations. A competitive offer has to go beyond simply reselling digital services. Telcos must differentiate their proposition, potentially through customised bundles with core services, providing the required technical support and unified billing.
- Over time, they should expand the proposition. A natural evolution is to develop segmented offers. Telcos should leverage analytics to refine their understanding of the base, developing segments that reflect their market and leveraging partner products to craft propositions that are segment-specific.
- As the SMB market becomes more dependent on them as digital service providers, telcos can expand their offering and become a digital marketplace. To be successful, they must provide a simple and intuitive platform for SMBs to buy services and develop compelling bundles of digital and core services.
EXHIBIT 4: Singtel offers segmented propositions to meet the needs of SMBs
3. Enabling Capabilities:
To emulate digital service providers, telcos must develop new enabling capabilities. The biggest shift will come from analytics/AI solutions, to improve across the entire value chain.
- Experience: Analytics will enable the continuous optimisation and personalisation of the digital experience to meet the needs of the SMB
- Sales: When offering products to customers, analytics/AI will recommend the best product to the customer at any given moment, anticipating their needs based on insight into customer purchase habits
- Product development: Ongoing analysis of purchased products and how they are used will allow telcos to refine their product portfolio and create more compelling segmented/bundled offerings
- Support: AI/chatbots will provide Level 0/1 support for customers whenever they have a query or issue
EXHIBIT 5: Verizon leverages analytics and AI to better support the customer
4. Organisational culture:
Perhaps both the hardest and most important area of transformation is organisational culture. Telcos have historically struggled to adapt to the fast-changing pace of the digital world as they are hindered by their legacy cultural and structural barriers. To be successful in supporting the SMB digitisation process telcos must begin to transform themselves and embrace the interlinked maxims of a digital organisation, including:
- Placing the customer first: Telcos must move from an ‘isolated’, product-first mentality, towards understanding the entire customer journey and E2E experience for the SMB. This change in mindset will provide more integrated-thinking, improving processes (including enabling better upsell-and cross approaches), fostering innovation and ultimately better serving the needs of the SMB.
- Empowering small, flexible teams: To compete in the fast-changing SMB environment, telcos must empower small, cross-functional teams to innovate and make quick decisions. The cross-functional nature will ensure that the needs of the SMB are at the heart of decisions, whilst delegating authority to the teams will allow the organisation to move faster and become more agile.
- Continued innovation: Focusing on the SMB’s needs and enabling flexible teams will naturally foster innovation. To further promote and enable innovation telcos must adopt agile development methodologies. This involves continued refinement of products and experience through customer testing and analysis of behaviour.
Supporting the digitisation of SMBs represents a significant opportunity and one that telcos should be well-positioned to capture. However, their success in the SMB sector depends on how willingly and quickly they can transform. Telcos must themselves embrace digital transformation to provide the services and experiences that SMBs expect.
© 2020 Delta Partners.