Business Management Articles, Research Papers

Turning challenges into opportunities

Financial crisis

Telecoms operators and vendors doing business across Africa are entering unchartered terrain with this conjuncture of profound crises – the fallout from the financial crisis will be severe. People are being faced with a deep sense of insecurity; misery and hardship will increase for many poorer people everywhere. The movements will grow further as recession starts to bite and economies start sinking into depression.

We need principles of transformation, perhaps more than at any other time in our history, to produce good news. These principles must now come to the forefront of our thinking. Mobile operators, vendors not to exclude government bodies must evaluate the requirement for change, be innovative, talk about them, work together and exchange results, network, pass them on to others, and so forth. Only principles of transformation will produce the good news that we long to hear.

The global financial crisis becomes “a human crisis.” Nowhere is this truer than in Africa. Although spared the first-round effects of banking failures, Africa is already facing the second-round impacts of declining capital flows, slowing remittances, stagnating foreign aid, falling commodity prices and export revenues, African currencies are and will be bound to devaluation . The continent will almost surely experience a deceleration in growth, and if history is a guide, this deceleration will have an adverse impact on commercial growth and people development.

Telecoms in Africa

Mobile communications has grown at a phenomenal rate across the African continent. The impact of mobile services on the economy of Africa, as everywhere, is potentially far-reaching. A high-quality communications infrastructure is widely held to allow human capital to be deployed more effectively and more productively. For these benefits to be realized in Africa and distributed evenly throughout society, it is crucial to have a mobile telephony service affordable, widely available and of high quality. Mobile communication has proven to be a delivery and transactional vehicle that fosters direct and indirect job creation in emerging economies transforming other industries such as health, banking or education. There is a direct and unquestioned correlation between increased mobile phone penetration and increased macro- and micro-economic development; a Deloitte study found that where mobile penetration increased by 10%, GDP is uplifted by 1.2% (2007).

Mobile Operators has invested significantly in network roll out for the most part funded by foreign currency debt. The need for change reflecting upon an increasing competitive environment, more sophisticated services, pressures on reducing operating costs while improving customer services now also must address the need for drastic business transformation that reflect the current economical crisis.

One of the fastest growing markets in Africa, Nigeria, provides an excellent example of the need to rethink and transform. Operators have in recent years collectively invested in excess of seven billion US dollars in building out their networks across the country. The Nigerian competitive environment is getting increasingly fiercer, Etisalat being the latest entrant in addition to CDMA operators like Visafone, Multilink’s and Starcoms grabbing an ever increasing share of the market. The financial crisis and the falling oil price, provides even more pressure on the Nigerian economy, government recently increased taxation on telecom equipment and handsets. This raises the price of mobile services, slows its development and harms the industry, its customers, employees and all the sectors that depend on it. Paradoxically, these taxes prevent the very people who need them most from gaining access to services. Since December 2008 the local currency has devalued against the US $ of about 30%, leaving scarred shareholders to accept a significant adjustment to their earnings expectation from what is the fastest growing but also one of most the most complex markets on the continent.

Transformation

Crisis management requires well thought through transformation and a fundamental re-thinking on how operators, local governments and vendors work together. Turning the effects of the global financial crisis into a positive might seem farfetched however if businesses take the actions required fast with a very structured approach and not treating the current crisis as yet another firefighting project or business as usual, ending up with fixes normally just scratching the surface. Organizations and Governments must now use the current crisis as an ideal opportunity to drastically transform their way of doing business, enabling survival and ultimately be stronger for what happened.

Leadership teams traditional role is not conducive to meeting the current challenges, time is now up, the continued talk of transforming the way operators and vendors alike do business in Africa, is now simply is not enough, drastic actions for survival and continued positive progression is now required.

Business process outsourcing

The continued discussion on infrastructure sharing will certainly now be at the forefront of most discussions in the board room of operators and vendors, strategies for sharing among telecommunications and information and communication technology (ICT) providers are needed to offset an investment drought stemming from the deepening global financial crisis. Sharing strategies are increasingly necessary to ensure that operators can deploy their networks at low cost while guaranteeing that consumers have access to affordable services.

Now, more than ever, sharing strategies make sense as operators are forced to reduce the costs of network deployment as they compete for scarce investment funds. This is a forward-looking perspective in light of the current financial and economic uncertainty.

Such strategies include sharing civil engineering costs in deploying networks, promoting open access to network support infrastructure (poles, ducts, conduits), essential facilities (submarine cable landing stations and international gateways), and access to radio-frequency spectrum and end-user devices.

Other steps are: adopting rules to provide for infrastructure sharing, particularly “passive” sharing of towers, ducts, rights-of-way and other support facilities; overhauling and streamlining cross-agency processes to create a ‘one-stop shop’ for various network-related activities , such as land management, site maintenance, pooling fuel delivery, environmental and safety permits; and adding innovative spectrum management mechanisms that promote increased sharing and efficient use of spectrum.

In developing countries sharing provides a significant opportunity to make the expansion of their networks more affordable to rural and under-served areas. Many developed countries are looking at sharing to reduce the cost of rolling out ultra high-speed broadband networks that reach customers’ homes and apartment buildings. Penetration into rural areas certainly represents a great opportunity for operators; in 2006 the GSM Association issued a research study that estimated the potential annual revenues from the rural population of all developing countries at around US$ 95 billion by year 2012. A key critical success factor for success is to select a route to market that enables affordability, availability, acceptability and awareness. FutureAfrica promotes and supports a best practice distribution model known as RAI (Rural Acquisition Initiative); this model developed by Lars Stork and Global Praxis was granted the 2008 Global innovation award in emerging markets expansion innovation, bringing telecom services to the rural poor population.

Other opportunities for transforming the way of doing business relates to outsourcing or the move to vendor managed services in areas such as networks, call centers, supply chain, distribution, financial accounting and procurement, not to mention the opportunity to simplify in-country operations for African or regional shared competence and or service centers. These options need to be scrutinized and the business model re-evaluated accordingly.

Vendors such as Ericsson, Huawei, Nokia Siemens, ZTE, Motorola and others now need to work much closer with operators through back- and front end integration, the boundaries is changing, and each component in the value chain needs re-evaluation.

FutureAfrica’s view is that in long term passive infrastructure becomes part of a completely different utility business, and not part of the telecoms industry at all. Rather than build duplicative competing access networks, capital has to be freed up to invest in network edge assets. Operators should aggressively pursue network sharing and outsourcing initiatives.

Government’s responsibility

Local African governments certainly also must review and transform their regulatory framework and work in closer partnership with the industry for affordability, and low cost solutions to network extension, in particular into remote areas; both are needed to ensure the poor can access mobile phones and benefit from services; The Economic crises must be a catalyst for change – Government and mobile operators must work together in transforming their partnership for reduction of current inefficiencies securing a continued increase in productivity.

Governments must react very quickly by lowering or eliminating tariffs on the import of equipment such as handsets and base stations and taxes generally. If you want to encourage something you don’t tax it. The best strategy for expanding government resources is to expand the economy, and this can best be accomplished by lowering the current barriers – legal, tax and regulatory – allowing the market and the private sector to grow.

New business model

To remain competitive in the global economy, you need to concentrate on what made you successful in the first place – your core business. You can't afford to expend valuable time and energy managing transactions and noncore process that could be handled by other specialists. Operators are all seeking to survive and become low cost providers of high quality services to its customer base, the winners in today’s difficult operating environment are operators who takes some of the immediate actions required including but not limited to:

Design and Investment in new business model
Leaner organization however with increased flexibility
Elimination of duplication between vendors and operators
Business process outsourcing
Undivided commitment to people development
Develop operational excellence in execution
Build stronger partnership relations with the government

Some of the key next steps for operators and vendors are to complete a shared end to end diagnostic of the transformation goals and development of the transformed business model.

The industry must use the current crisis as an ideal opportunity for dramatic change, become even stronger by leapfrogging into the future of Africa with a continued improvement of the quality of life for all people.

Do operators and vendors truly understand the complexity of change required, are management structure inefficient, are senior management overworked and lack the time to organize large scale change whilst concurrently allocating enough time and focus on managing the ongoing business?

People development

Above all operators and vendors must evaluate the organizational readiness and capability for delivery of the transformation objectives. Transformation is not to be just about downsizing but development of a smarter way of working. The success rate of any implementation of the transformation strategy rests with the capability of execution. Historically transformation projects fail to deliver the expected benefits at the rate of 70-80%, the overriding reason being the gap in operational execution capability. Businesses tends to contract with high level executive consultant firms who take a helicopter view, this often in isolation from the operational functions, this approach granted will deliver some immediate benefits yet again fail to deliver drastic and sustainable performance improvement.