Open Innovation for Telecom Companies in the Middle East

Dr. Shaikha Al-Jabir

October 2010

What is Innovation?

• Innovation is the implementation of a new or significantly improved product (good or service), process, business models and organizations

• It becomes “strategic” when it is an intentional, repeatable process that creates a significant difference in the value delivered to consumers, customers, partners and the corporation.

• It becomes “open” when adopting a more collaborative approach to developing ideas and bringing them to market. And when bridging internal and external resources to make innovation happen.

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Innovation in the Middle East

• Innovation is a key growth driver and a high priority for executives worldwide.

• Leading technology companies have thrived through innovation

• In the Middle East, most of the telecom companies have not yet developed a robust infrastructure encompassing the tools and culture needed to successfully innovate and are, therefore, at risk in the new global innovation race.

• Even during the financial crisis, we haven’t seen companies embracing innovation.

• Yet some organizations have started to see innovation as a strategic choice to ensure sustainable growth and profitability!

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Why Telecom Need Innovation

• Erosion of core revenues due to

– Slowdown in growth: Wireless markets are approaching 100% penetration rate

– Increased competition

– VoIP impact

• Innovation is the key to grow as there will be a need to compete against very innovative companies coming from different industries

• The purpose is to identify new revenue streams, and to create

breakthrough growth strategies.• Telecom operators need to redefining their roles along the value chain and

to embrace different business models

• This can be accomplished by adopting open innovation values

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The telecom growth is slowing down globallyNote: 1includes north and south AmericaSource: InFinancials; Bloomberg; McKinsey analysis

16.812.1

3.6

14.411.0

2.4

Europeantelecom

1990–2002 2002–09 2010–12E

Historic revenue growthAnalyst

forecasts

American1

telecom

Asian & Pacifictelecom

13.29.2

0.8

Median revenue growth of top 30 telecom companies by region (CAGR %)

Erosion of Core Revenues-Slowdown of Growth

Growth slows down and increased competition is gradually eroding profitability margins of telcos

Source: Merrill Lynch Wireless Matrix, A.T. Kearney Analysis

30

35

40

45

50

55

60

65

2006 2007 2008 2009

India

Singapore

Egypt

Malaysia

Indonesia

Pakistan

-6.1%

-1.4%

-3.3%

-4.7%

-4.5%

-2.3%

CAGR (%)

8

3

4

4

6

13

Average EBITDA Margins Evolution for Mobile Telcos in Selected Markets (2006–2009)

Country # MNOs

%

Erosion of Core Revenues –Increased Competition

720/20 Strategy Refresh | April 2010D R A F T

VoIP is impacting Operators’ Revenues

In the last three years, VoIP's growth overtook TDM traffic growth.

VoIP Traffic Growth (1988-2008)

49.445

4036

32.530 28 27 26.2

0.3

2

4

4.5

44.5

6 6 6

0.3

13.5

4.5

56 9 10 13

2005 2006 2007 2008 2009 2010 2011 2012 2013

Switched Revenues

VoIP Revenues

Lost Revenues due to Presence of VoIP

CAG

R

-

6.8%

CAGR 1999-2008 : +46.3%

Revenues from Switch & VoIP Services

Switched and VoIP Traffic Growth

TDM AND VoIP (Bn of Mins)

TeleGeography, VoIP in Europe: Its bite is worse than its bark, 2009 (need original data), ITU, Skype’s share of the international long-distance pie on the increase, 2009

Innovation Issues in the Middle East

• Innovation is a complex subject , of all the core functions of most companies, innovation seems to be managed with the least consistency and discipline

• Main challenges are stemming from organizational prospective like culture, mindset

• Lack of internal information sharing and cross-functional collaboration

• Intranets used for disseminating information not for promoting collaboration

• Dominance of vertical structure, innovators look up for approval before they look across for alliances and support.

• Innovation is driven by technology trends only not by customer insight

• In many organizations IP laws and IP protection are not well-defined

• Degree to which firms will open their walls to engage external partners to advance innovation is not identified.

• There is need to build skills in managing partnerships.

• Traditional education systems which focus on building the ability of absorbing content and recalling it on exams without considering skills for research, analysis, critical thinking, collaboration.

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Open Innovation

• Open innovation could be a major trigger to spur growth in ME telecom market

• Adopt open innovation model based on

• internal resources capabilities

• collaborating with customers, businesses, academic institutions and industry leaders; and

• establishing presence at technology clusters

• Historically, telecom innovation happened inside labs, and telecom firms rarely resorted to sharing innovative results as a means to generate competitive advantage.

• Benefits from adopting open innovation are:

– Faster development and of new products and services

– Accelerate marketing new products and services

– Reduce direct spending on R&D

– Improve the success rate of new products and services

– Increase in revenue and market share ( growth)

Recently, initiatives are emerging uniting telecom operators and manufacturers to collaborate with application developers to generate valuable innovations (the Wholesale Applications Community or WAC). 10/28/2010 9

What is needed to adopt innovation?

• Create the basis for cultural change to support the development of innovation as a corporate trait not as a serendipitous activity.

• Cross-functional teamwork and collaboration is a necessary tool for strategic open innovation.

• Build on local capacity and talent by tapping into the education systems to keep these talent here (to avoid brain drain)

• Encourage establishment of local VCs and create funding mechanisms for start-ups

• Work with the education system (public and private, k-12 to universities) to cultivate a culture of innovation and collaboration at an early age and develop lifelong learners

• Open innovations are only possible with the right IP laws and IP protection in place like Creative Commons

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How it can be achieved

• Innovation should start at the top, with leaders/ CEOs who provide strong direction for innovation and establish organizational cultures and climates that are conducive to innovative activity

• Define a managed innovation process that coordinates the relationship between external and internal resources

• Information sharing can be done through forums, fairs, workshops and conferences with industry and academic guests.

• Internet technology can help in collaboration and access to information.

• Better understanding of customer needs to derive innovation• Collaborate with local industries and academia (QU, Education City,

QSTP) to develop and nurture open innovation• Measure quantitative and qualitative innovation outcomes to track

results towards defined objectives. • Culturally, we need to be willing to accept failure

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Thank You!

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