A Balanced Approach to Transformation with NFV and SDN Will Help Carriers Chart Their Course
Jan 30, 2015
NFV and SDN are transforming the telecommunications industry. New business models such as cloud and web-based services, cloud-brokering services, and enhanced network services are emerging that can generate profitable top-line growth and create customer relevance. Automation and better leverage of network assets and resources deliver productivity improvements and operational savings that flow directly to the bottom line, greatly improving customer agility. These are the promises of NFV and SDN.
Technologies in and of themselves, however, are not enough to transform an industry, as Michael Porter noted in 2008. Instead, it’s how technology impacts the competitive forces of the industry that defines its influence (see The Five Competitive Forces that Shape Strategy for details). For telecom, these new technologies—particularly for web and cloud providers—reduce traditional barriers to entry for telecom services. Now that consumers have moved beyond merely accepting cloud services to demanding new and innovative cloud-based apps, they open up the telecom industry to new and powerful competitors.
This represents a radical change for incumbent operators. In many ways, the shift in the competitive forces of the industry threatens their core assets and the business processes that deliver value to their customers.
How will carriers compete in this new environment?
To compete and succeed in this new market landscape, carriers must fundamentally transform their core assets and develop new levels of customer relationships. We know that SDN and NFV can help carriers compete, and that major structural changes in the telecommunications industry are coming. The key question now is, how do carriers chart the right course?
First, it helps to recognize how profoundly NFV and SDN impact the underlying business economics of the telecom industry. That realization is the first step toward thinking more broadly about all aspects of the business that need to be transformed.
Transform the organization to harness new agility
For carriers, the excitement of SDN and NFV is that they create an agile, software-like network platform that improves competitiveness and cost structure. Such a platform makes it easier to develop new value-added services that create customer relevance and stickiness.
In order to capitalize on the benefits that these new software technologies bring, carriers need to transform their organizations’ skill sets and establish a culture of collaboration that drives behaviors associated more with software companies than traditional service providers.
For fans of Robert Kaplan’s and David Norton’s approach to strategic planning and execution, here’s a simplified adaptation of their framework that represents the primary objectives in this transformation from four perspectives.
Since the goal of any business is to grow and create shareholder value, the first step of a corporate strategy should be to understand the long-term financial objectives. This represents the financial perspective of the transformation. As we know, financial measures such as revenue growth, profit margins, and cash flows are lagging indicators of success or failure. So while they can give you the destination, they do not chart the path.
At Juniper, we believe that for telecoms to achieve their financial objectives, they must combine agility (via their IP network) with customer relevance (via new business models and services). Those new services, delivered through an ecosystem of partners, create customer relevance, which represents the customer perspective shown on the right side of the diagram.
Service agility, shown on the left side, represents the internal business process perspective. This perspective defines what is needed to create a competitive infrastructure capable of delivering the services from both network architecture and business process viewpoints.
Underlying both the customer and business process perspectives is a fourth, which empowers the organization to plan and execute. Norton and Kaplan call this the “learning and growth” perspective, and it’s where you need to build a strong foundation.
By definition, a foundation is the basis upon which something is grounded. While success over the long term ultimately depends on many factors, your strategic plan must be grounded in the right skills and culture to endure the inevitable twists and turns that are part of this journey, combined with a clear roadmap for getting there. For a closer look, please read our whitepaper, SDN and NFV: Transforming the Service Provider Organization.