telecommunications are telcos ready for the 5g future?

Telecommunications

Are telcos ready for the 5G future?The coming foundational challenge —and opportunity—for telcos

February 2019

In many respects, telco leaders are ending the second decade of the 21st century with an unprecedented moment of opportunity: demand for mobile services has never been higher, forecasts are that data usage will only continue to grow, and next-generation technology carries the promise of life-altering new applications and use cases. Yet even as these conditions fuel rising expectations for the industry, the telcos are grappling with persistent challenges to their long-term dominance, and even stability.

For the better part of a decade, telecom companies have suffered through declining revenues, cash flow, and return on investment while tech companies such as Google, Facebook, Amazon, and others have mushroomed by building their businesses on connectivity infrastructure. Increasingly incumbent operators find themselves competing with these same tech giants, not just for revenue, but for ownership of the customer relationship itself. What’s more, these tech companies operate globally and benefit from the corresponding economies of scale, while the communications industry is fragmented by national borders and varying regulation.

Against this backdrop, telcos are on the cusp of making massive capital investments to build out 5G networks. But unless they make fundamental changes to their approach, they risk repeating mistakes of the past and ceding the benefits of this investment to others, as well as missing the opportunity to regain their position as more than just connectivity providers.

We believe telcos have an enormous opportunity to rewire themselves to compete with tech disruptors and keep up with customers’ increasing demands for simple digital experiences. Digital and analytics tools are essential to achieve this, but they are insufficient alone. Telcos must also embrace a fundamentally different way of working—an agile one that organizes around teams.

We know companies that go agile are 50 percent likelier to outperform their competitors financially. We also know that agile directly helps operators win four of their core battles: faster time to market, higher customer satisfaction, significant productivity improvements, and a transformed employee experience that improves talent attraction and retention. While more than 70 percent of companies report that agile transformation is a top priority, we haven’t seen the extent of agile adoption among operators that this level of interest would suggest, and believe there remains confusion about what “agility” actually means.

Telcos can’t afford to resist this degree of fundamental change. The shift to being an agile organization isn’t just about being nimble enough to satisfy customers. It’s also key to attracting the talent to build the digital capabilities, analytics tools, and software solutions needed to turn 5G into a source of innovation and differentiation, and not just a drain on capital.

The coming foundational challenge—and opportunity—for telcos

Telcos are on the cusp of making massive capital investments to build out 5G networks. But unless they make fundamental changes to their approach, they risk repeating mistakes of the past and ceding the benefits of this investment to others.

Are telcos ready for the 5G future? 1Are telcos ready for the 5G future?

The potential impact of 5G is considerable—it is expected to create a communications foundation to enable smart cities, connected factories, and a host of new innovations and consumer experiences. The cost and complexity of building out 5G, however, are also significant. And despite the sometimes breathless pronouncements of the 5G future, the actual return on the investment required is not yet clear.

To move past the mix of hype and skepticism surrounding 5G, we surveyed 46 chief technology officers directly engaged in 5G development plans around the world. Free from the necessity of public posturing, these leaders portray a more nuanced view of 5G, resisting the sentiments of both the true believers and the skeptics. Globally, they expect the roll-out will take until 2022, and that it will likely increase the capital-expense-to-sales ratio, but not as massively as many naysayers claim.

The biggest uncertainty lies around the strength of the business cases and the underlying economics, as well as other emerging commercial considerations. Confidence in the technology is high, but less clear is whether and how soon it can fuel new products and services that customers are willing to pay for. The survey results also show, somewhat surprisingly, that the uncertain economics of 5G are spurring telcos to consider some alternative business models. Fully 93 percent of the respondents said they expect network sharing to increase with efforts to bring 5G to areas where it doesn’t make sense to have multiple networks. And approximately 90 percent expect third-party neutral hosts to supply a part of the network for several operators.

We also found that many have made progress developing their technology and pilot strategies, yet few have moved beyond the early stages of developing their business cases and commercial plans. No matter the stage at which operators find themselves, there are five key principles that will help guide the formulation of their strategies and better prepare them for what might lie ahead. Most importantly, 5G strategy must be managed hands-on by the CEO and not simply delegated to the CTO, yet in most companies it appears the latter is still the case, according to our survey.

In this compendium we lay out the essential elements of a digital and analytics organizational makeover; explore the key considerations and most promising opportunities for 5G; and show what agility looks like in practice by examining how two operators, Denmark’s TDC and New Zealand’s Spark, undertook very different agile transformations. We also speak with former Vodafone CEO Vittorio Colao about the challenges and opportunities for the industry.

It is a pivotal moment for telcos. The stakes are high, and the challenges daunting. But if operators take the necessary steps to transform themselves for the advent of 5G, they’ll be in a position to seize this powerful opportunity to lay the organizational and technological foundations for the next era of mobility.

Wajih Abou-Zahr Senior Partner, Dubai

Kim Baroudy Senior Partner, Copenhagen

Marina Cigarini Senior Partner, São Paulo

Axel Karlsson Senior Partner, Hong Kong

Ferry Grijpink Senior Partner, Amsterdam

Pallav Jain Senior Partner, Atlanta

Vladimir Kulagin Senior Partner, Moscow

Eric Kutcher Senior Partner, Silicon Valley

Philipp Nattermann Senior Partner, London

2Are telcos ready for the 5G future?

Table of contents

The building blocks telcos need to create their digital-and-analytics DNA

Cutting through the 5G hype: Survey shows telcos’ nuanced view

A 5G manifesto for the CEO

A tale of two agile paths: How a pair of operators set up their organizational transformations

Ten years at the top of a telco: An interview with Vittorio Colao

Authors and contributors

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11

20

27

36

45


The building blocks telcos need to create their digital-and-analytics DNATelcos need to rewire themselves to work in agile ways and make data-driven decisions to keep up with customers’ increasing demands for simple digital experiences, among other challenges.

AuthorsMohsin ImtiazPallav JainVeit KmentRuben Schaubroeck


Imagine the journey a family might take to get their son his first phone: the teenager has been using his dad’s mobile phone to play games and watch videos.

Would it be possible for a telco’s systems to automatically detect the fact that their customer is ready to add his son to his account? And to complete that transaction within an hour or two?

Now imagine a similar journey in a developing market, where two-thirds of new users are young digital natives with limited access to payment options, such as online banking and credit cards, but sophisticated expectations of highly personalized and digital interactions with their mobile providers. Can a telco quickly identify and meet these customers’ demands, too?

We believe operators not only can detect and meet these demands, but also that they must meet them to keep up with increasing competitive pressure. Our research shows that operators that get this right both get ahead of customer requirements and drive a 30 to 50 percent cash-flow improvement through revenue acceleration and cost optimization. And these companies are digitizing and using analytics across their organizations to get there.

One European telecom provider, for example, recently saved 25 percent of operating and capital expenditures over its three-year digital-and-analytics transformation, along with a reduction in customer-service calls of more than

50 percent. In doing so, the company reduced its product portfolio costs by 80 percent and its IT expenditures by 25 percent. These dramatic savings were accompanied by a tangible impact on sales, with approximately 40 percent of new wire-line and internet service sold online, as well as 25 percent of new mobile subscriptions.

Such a transformation encompasses both the digitizing of core customer journeys and internal processes, as well as using data to drive real insights. We often see companies investing in one or the other, but it’s the two together that enable a real transformation. This requires rewriting the genetic makeup of today’s telco to create a new, digital-and-analytics DNA. In our work with telcos around the world, we have sought to decode the core components that operators need to achieve this transformation—the building blocks of this DNA.

Achieving this new digital-and-analytics ambition won’t take place overnight (see sidebar, “Dialing up the telco of the future”). Telcos can only start by understanding how to structure a transformation in a way that makes sense for each individual operator. These five building blocks are common to all, though, and should inform a company’s approach (Exhibit 1).


Ambition and visionThese inform not only the organization but also support the underlying elements of each of the other building blocks.

To develop their own ambition and vision, companies need to take a brutally honest look at themselves and the industry. They need to assess where they stand versus the competition, as well as how they are perceived by their customers. This is essential to setting the right ambition, strategic priorities, business case, and road map for the digital-and-analytics transformation.

For example, one Western European telco conducted market research to benchmark itself and made the unpleasant discovery that it had the lowest customer-satisfaction scores in the industry. This was tough to hear but ultimately helped catapult the company into a completely new mind-set. It set its aspiration to becoming the best in class for customer service, which then determined how it focuses its digital-and-analytics transformation efforts, investments, and other priorities.

Domains and use casesThese should make up the future digital native telco, on both the front and back ends.

In identifying use cases, operators should think both expansively and practically. An expansive view across domains (for example, across sales, marketing, operations, and back office) is required to identify the full catalog of digital-and-analytics use cases. However, although the eventual goal is organization-wide transformation, operators also need to be practical and focus first on quick wins to build steady momentum and eventual scale.

With marketing and sales, for example, an incumbent Western European telco’s objective was to monetize its existing base further while responding to competitive threats. It developed an automated and targeted customer-life-cycle-management campaign that led to a 5 percent revenue increase. Customers received offers within 30 minutes of a trigger event, such as using large amounts of data to stream a live video or visiting a store to get a problem with a handset solved.

The network can also be fertile ground for targeted use cases. A Middle Eastern operator reviewed its capital-expenditure allocation to identify potential areas of optimization and built a tool to automate prioritization of funds; it generated a three-percentage-point improvement in its capital-expenditure-to-revenue ratio.

Exhibit 1The recipe for successful digital-and-analytics transformation has five key building blocks

AmbitionVision and strategic prioritiesValue at stakeRoad map

Journeys and use casesFront end

— Omnichannel/ e-commerce

— Digital marketing and personalization

Back end — Network and operations — Back office and service/support functions

New Business building

EngineIT systems and architectureTechnical enablers

— Data backbone — Cloud — APIs and microservices

Product and process simplification

Operating modelDigital organization and way of working

— Agile — DevOps

Partner and vendor ecosystemProgram management, governance, funding, and impact monitoring

Capabilities, talent, and cultureCapabilities

— Product management — Design thinking — Personalization — Analytics — Employee capabilites

Talent strategyCulture and leadership


The following three questions can help operators identify and prioritize use cases that can best yield impact and scale quickly:

— How can data be leveraged best across the organization in an integrated way? Here, ambitious operators are creating a rich, real-time view of their customers, including not just traditional customer profiles but also real-time customer behaviors (the specific TV shows and videos a consumer is watching, for example, or potential declines in data usage)

— How can operators extract actionable insights from data that create real value? Leading operators start from the value created for customers and shareholders and are relentless in pursuing and managing that value. For example, several operators are moving from traditional “propensity” models (predictions of propensity for churn, for example) to machine-learning techniques that help identify potential root causes for churn and indicate possible actions that can be taken to reduce it

— How can technology be used to reduce the time between insights and actions? Forward-thinking operators are not just satisfied with identifying the best course of action, they are looking to accelerate the pace at which they can take and scale these actions.

Dialing up the telco of the futureThe telco of the future will have five primary characteristics that represent a fundamental shift from a slow-footed organization made up of siloed business units to an agile, fully integrated entity in which digital-and-analytics DNA infuses everything the company does.

Distinctive, low-touch, self-service experienceCustomers increasingly expect simple, intuitive, and mobile-first experiences, and they want to be able to have their requests handled digitally. While many operators are lagging, we already see 70 to 80 percent end-to-end automation in the top-performing telcos today. A target of 80 to 90 percent of service requests fulfilled digitally is realistic.

Completely personalized services, marketing, and experiencesMarketing to segments should be obsolete, now that new advanced-analytics tools, such as machine learning, allow telcos to target individuals based on user preferences and behaviors to create personalized experiences across all touchpoints.

Software-defined, self-healing networksNetwork planning, building, operation, and maintenance will become largely analytics driven, through self-learning artificial intelligence, and automated, through predictive and preventive interventions steered with little or no human intervention.

Zero-touch, digital service deliveryThe prior goals are only possible with an overhaul of a telco’s technology backbone—from product development to revenue and cost attribution. Many operators are only just beginning to discover the potential behind robotics and process automation at scale across back-office functions, setting ambitions between 40 and 60 percent of cost savings for core areas.

Data core and insights engineThe business should move from a siloed and fragmented data landscape to an increasingly integrated view of customers that focuses on providing real-time analytics and insights that drive action.


Digital operating modelThis includes a new way of working, culture, talent strategy, and vendor ecosystem.

Whether deploying smaller analytics use cases, building out adjacencies in new digital businesses that monetize operators’ data, or undertaking company-wide transformation, generating success necessitates a fundamentally different way of working—an agile one with a time to market of weeks or even days rather than months.

This requires that telcos install multidisciplinary, co-located teams and ensure that they follow new agile development practices to rapidly and continuously create prototypes for new functionalities. Company leaders—from the executive team all the way down the line—should become coaches for these independent teams, which will have end-to-end accountability for their results. In addition, the teams should introduce new roles, such as “product owner” and “scrum master,” to track product development, which will take place in iterative cycles.

One Northern European telecom provider used such squads to improve its customer experience, as measured by customer-satisfaction scores, by 19 points. It did so by using agile, independent teams to digitize its core customer journey, going live with a minimum viable product in just six weeks. There was a substantial overall impact as well: a reduction of more than 50 percent in customer calls. (For a more in-depth look at agile, see

“Putting customer experience at the heart of next-generation operating models,” on McKinsey.com.)

Critically, this agile way of working must be adopted not just for the company’s digital transformation but also as it builds and scales a true data-and-insights factory that enables data-driven decision making for each of the cross-functional teams. To take just one example, a leading integrated operator developed a cross-functional customer-retention team that brought together marketing, channel, finance,

product, and other disciplines. This group worked in a test-and-learn fashion to quickly deploy new offers and experiences, observe customer responses to specific offers using A/B testing, and make rapid tweaks based on those learnings.

These changes go beyond a new way of working and amount to a fundamental cultural shift, based on employee empowerment and customer focus. This also extends into working with partners and vendors in a different fashion, as they also need to adopt the new way of working.

Digital-and-analytics capabilitiesThese consist of such disciplines as design thinking and advanced analytics that will help telcos profit from new state-of-the-art technologies.

Creating new digital-and-analytics DNA requires roles and skill sets that most telcos don’t currently have, which means recruiting and retaining top talent to be able to build a full range of positions and capabilities across business, management, data science, engineering, and IT (Exhibit 2).

Operators have traditionally outsourced IT and network functions, including development. Reversing this is difficult, but continuing with the status quo is as well, so operators need to strike a balance and go through a strategic reassessment on what subfunctions to outsource and roles they need to play. For example, one Asian telco had until recently outsourced all network functions but is now bringing back some network development around software-defined networking (SDN) and network functions virtualization (NFV) in-house.

25%One European telecom provider recently saved 25 percent of operating and capital expenditures over its three-year digital-and-analytics transformation.


A good example of how these capabilities and roles form the digital DNA of a transformed telco is the way marketing in a developed region is changing. The highly targeted sales campaigns of today’s tech and retail giants have set a standard that no longer allows telcos to simply create four or even 100 different campaigns to spread out over their entire customer base. Instead, operators will need to change their mind-set from segment-based marketing to one that assumes no two customers are the same, with granular pricing and personalization for everyone, driven by user preferences and behaviors. Comprehensive data lakes feeding into machine-learning algorithms will become the standard

source of intelligence when contacting or interacting with customers. In addition, personalized content marketing—creating and sharing online material that stimulates interest in products and services, rather than explicitly promoting them—across all customer offerings must become the standard.

Extending that model of data-driven decision making across business functions takes radical change and broad shifts in roles and talent. This imperative is even more stark in emerging markets, where capabilities are often weaker and digital talent even scarcer.

Exhibit 2New capabilities are required in digital-and-analytics transformation

Critical capabilities for digital-and-analytics transformation

Product development Product owner — Creates product vision and road map — Creates product backlog of user stories and epics

Software development — Develops across the technology stack for web and native applications

Architectural solution design — Defines target architecture of product/functional area and ensures integrity and compliance with architecture standards

Development of robotic process automation (RPA)

— Designs and develops RPA solution

Agile facilitation — Makes sure product team adheres to all principles of agile and facilitates scrum ceremonies

Design thinking User-centric problem solving — Develops user research strategies to identify customer need — Creates engaging end-to-end user experience

Digital marketing Paid/organic media management — Manages and implements paid media campaigns in different channels (search-engine optimization, search-engine marketing, display, social)

Marketing creatives — Creates effective content that inspires customers to engage with test pages

Analytics Data engineering — Handles interfaces to large amount of data and created data structure suitable for analysis

Data modeling — Applies strong expertise in machine learning, data mining, and information retrieval to design, prototype, and build next-generation analytics engines and services

Analytics translation — Understands business problem and translates into technical language and vice versa


A digital and advanced-analytics ‘technology engine’This essential feature comprises business processes, at-scale data infrastructure, IT systems and architecture, and other technical enablers. These elements together form the backbone that is critical for a successful transformation.

Forward-thinking telcos that are already undertaking the process aim for a target architecture comprising three layers: a front end delivering a best-in-class, mobile-first customer experience; an agility layer based on a microservice platform to enable flexible and scalable development of services that move business logic away from legacy back-end applications; and a back end with a module-based product catalog that allows easy and quick extension of the standard telco product stack to accommodate new business units or partners.

In much the same way, telcos must create a data-and-analytics architecture leveraging an integrated 360-degree view of the customer, and models and engines that fuel real-time predictive insights. This architecture must be consistent with and inform the operator’s future digital-and-analytics operating model. For example, leading operators don’t design a data architecture in isolation; they ensure the architecture is consistent with their overall vision for data governance—that is the only way to ensure the new model will be adopted across the business units.

Telecom operators face enormous pressure, and they realize that digital and analytics will be a core driver of their performance for years to come. Nearly every telecom operator today has begun some kind of digital transformation. However, over time these transformation efforts have often revealed themselves to be more costly

or complex than originally envisioned. As a result, we find that most telcos have not gone far enough or been bold enough in their approach. Operators that use these five building blocks to engineer their new DNA will have the best chance to emerge as the winners.

Mohsin Imtiaz is a partner in McKinsey’s Houston office, Pallav Jain is a senior partner in the Atlanta office, Veit Kment is an associate partner in the Zurich office, and Ruben Schaubroeck is a partner in the Antwerp office. The authors wish to thank Stephen Creasy, Klemens Hjartar, and Kushan Surana for their contributions to this article.


Cutting through the 5G hype: Survey shows telcos’ nuanced views Operators see a marginally positive business case, expect rollout at scale to take until 2022, and don’t think the increase in capital-expense-to-sales ratio will be as big as skeptics claim.

AuthorsFerry GrijpinkTobias HärlinHarrison LungAlexandre Ménard


For a technology that gets as much attention as 5G, we know precious little about what telco operators truly think about how it will play out for the industry and what they truly plan to do.

Optimists tout the great benefits of low latency and high capacity that will eventually enable new value-added use cases, while pessimists focus on the lack of actual new use cases to emerge so far and what they see as a wobbly commercial rationale, not to mention the huge capital expense required.

To get a sense of what momentum there actually is toward building out 5G and realizing its potential, we recently conducted a proprietary survey of 46 chief technology officers (CTOs) directly engaged in 5G-development plans around the world. The results, combined with our own experience in helping companies develop 5G strategies, execute pilots, and move toward rolling out the technology, paint a much clearer picture of 5G in the coming months and years.

Free from the necessity of public posturing, the industry experts in the survey portray a more nuanced view of 5G, resisting the sentiments of both the true believers and the skeptics alike. Globally, they expect that the rollout will take until 2022 and that it will likely increase the capital-expense-to-sales ratio, but not as massively as many naysayers have claimed.

Finding the business caseThe biggest uncertainties for industry professionals lie around the strength of the business cases and the underlying economics, as well as other emerging commercial considerations. Confidence in the technology is high, but less clear is whether and how soon it can fuel new products and services that customers are willing to pay for. Consequently, at least at the outset, the majority see enhanced mobile broadband and the Internet of Things (IoT), rather than fixed wireless access or mission-critical applications, as the most prevalent applications. These are not the revolutionary use cases lauded by 5G proponents, but they provide advancements that are still meaningful.

The survey results also show, somewhat surprisingly, that the uncertain economics of 5G are spurring telcos to consider some alternative business models. So far, at least in public, most operators have been reluctant to take a stand on whether they expect to work even more with other providers to share network infrastructure or if they intend to use third-party “neutral hosts” that have their own, or shared, 5G infrastructure and will run it for the operators in certain regions or buildings. Yet in the survey, fully 93 percent of the respondents said they

93%Fully 93 percent of the respondents said they expect network sharing to increase with efforts to bring 5G to areas where it doesn’t make sense to have multiple networks.


https://www.mckinsey.com/featured-insights/internet-of-things/our-insights

https://www.mckinsey.com/featured-insights/internet-of-things/our-insights

https://www.mckinsey.com/industries/telecommunications/our-insights/the-road-to-5g-the-inevitable-growth-of-infrastructure-cost

expect network sharing to increase with efforts to bring 5G to areas where it doesn’t make sense to have multiple networks. And approximately 90 percent expect third-party neutral hosts to supply a part of the network to run for several operators. While these results align with what we see in our own proprietary models, the large industry consensus is remarkable.

Equally surprising is that operators also envision a relatively limited investment in operational support systems (OSS) and business support systems (BSS)—the very systems needed to be able to market, price, sell, provision, and operate the new uses cases so many of them have been talking about, such as enablement of connected cars and mission-critical solutions.

Overall, this survey paints a picture of 5G as a powerful new technology just waiting to be tapped for innovative new uses cases—one that even, many countries believe, has the potential to create and advance entire economies. However, until those cases emerge, most operators will tread cautiously, leveraging 5G for near-term objectives and waiting for a clearer view on the use cases’ economics to accelerate. Yet given the expense required to prove those significant use cases, it could be an uncomfortably long wait. And for operators in countries that don’t see 5G as a matter of strategic and economic importance, there is a greater risk of falling behind.

The conditions are similar to that of the rollout of 3G in the early 2000s, when adoption was initially slow, with fixed wireless access one of the only real early use cases and handsets still expensive and relatively scarce. Only when BlackBerry and especially iPhone came several years after 3G launched was the full network capability used, including for the beginnings of mobile broadband.

From a global perspective, the survey suggests some new trends in regional leadership. Although North America is in the lead, with the two top operators already launching 5G commercially, Asia is keeping pace. In Europe, however, there exists more doubts about 5G, which is a sharp departure from some earlier rollouts, such as 2G and 3G, when the continent led the technology’s introduction.

Europe’s relatively slow start with 5G is driven by a complex set of factors. For one, it has had slower economic growth than the United States and China since 2008. Also, its markets are smaller and more fragmented, hampering the ability to find quick returns on large investments. Relatively low prices in fixed wireless access also play a role, lowering opportunities for its expansion. Meanwhile, for the United States and China, technologies such as 5G and artificial intelligence are key battlegrounds, so the large operators in each of these countries are making advanced bets.

The surveyMcKinsey surveyed 46 chief technology officers of large telcos around the globe, by phone and online, and conducted targeted interviews. The sample includes mostly incumbents and players that have both fixed and mobile capability; 20 percent of respondents are attacker operators, and 22 percent are mobile players only. Geographically, the respondents are varied: 25 percent are multiregion operators, 25 percent are in Europe, 20 percent are in North America, 20 percent are in Asia, and the rest are in the Middle East, Latin America, and Africa. The following is a selection of the results from our survey.

2020Although commercially in its infancy, 5G technology is ready, and in most markets its presence will be felt from 2020 on.


https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/setting-the-framework-for-car-connectivity-and-user-experience

https://www.mckinsey.com/featured-insights/artificial-intelligence

Top three reasons for 5G rollout,1 % of respondents

1 100% = 46 operators. Original question: What are your top 3 reasons for 5G rollout?Source: McKinsey 5G Survey 2018

Networkleadership

Top 1 reason

Top 2 reason

Top 3 reason

Customerexperience

Capacityexpansion

Internetof Things

Fixed wirelessaccess

New digitaladjacencies

Other

76

13 17

24

13

13

30

3

9

24

13

13 11

922

11 92

15

4854

46 46

33 33

11

Exhibit 1Top 3 reasons for 5G roll-out are network leadership, customer experience and capacity expansion

5G viewed as path to network leadership Although many operators say publicly that they see IoT as a 5G priority, our survey shows that they really see this latest wireless advance primarily as an opportunity to cement, gain, or regain network leadership (Exhibit 1). Around half view such competitive positioning as the number-one priority for 5G. The second priority is customer experience, and the third is capacity, with about a third of operators citing this as their second objective for 5G. By contrast, operators don’t see IoT as a core objective for 5G, confirming our hypothesis that for now, the existing IoT capability is sufficient for most use cases. While we hear a lot of talk about the use of 5G for fixed wireless access, only 22 percent of operators identify this as their first or second priority for 5G, the same as IoT.

Who’s driving it and where The momentum toward 5G still sits with CTOs. Around a third of the operators surveyed have 5G-pilot strategies in place and are done shaping their technology strategies. However, few have gotten the business case approved, and commercial planning is still in its very early stages (Exhibit 2).

The fact that the data seem to indicate that the technology team is leading the business team is notable, since it is usually the other way around, with a business case or financial return dictating the launch of any particular new service or technology. The reasoning behind this could be either that 5G is viewed as so important that it just has to move forward or that the “working” commercial teams—those below the CEO level—haven’t pushed for it yet.

Expected return on investmentThe business case and economics of 5G remain unclear, with about two-thirds of the operators stating they still have questions around the financing of it, and roughly 60 percent of respondents indicating they struggle with the business case (Exhibit 3). This element alone could possibly delay real full-scale deployments. The apparent bullishness of North American operators aligns with their push to launch now and their stronger market structure, while Europe remains skeptical on new use cases.

Increased costs The business case is made more complex by the belief among most respondents that 5G will usher in rising

costs. More than two-thirds of them said the capital-expense-to-sales ratio will go up. Given the densification needed in many of the networks to leverage the higher frequencies, as well as new spectrum acquisition and other potential spectrum-related costs (such as “refarming”), it is not a surprise that only 11 percent see 5G reducing industry capital expense. On the operating side of the ledger, industry figures worry about site costs (65 percent) and maintenance costs (50 percent). Many expect IT costs to increase (40 percent), while 22 percent see an opportunity to reduce them. Overall, the people surveyed see an increase in operating expenses.

RegulationNearly a quarter of operators surveyed see uncertainty in regulation as a key stumbling block. Design of frequency auctions and rollout obligations are often top of mind, as are regulations that influence new business models (such as those regarding privacy, security, and indemnity). 5G also introduces the prospect of additional regulatory hurdles, such as having to deal with cities and other local governments on small-cell rollouts.


Current status of 5G strategy development,1 %

Biggest challenge of 5G strategy,1 % Biggest challenge is business case, %

1 100% = 46 operators. Figures may not sum to 100%, because of rounding. Source: McKinsey 5G Survey 2018

1 100% = 46 operators. Original question: What has been the biggest challenge, if any, in your 5G strategy?2 Multicountry-operator responses re�ect perspective of group chief technology o�cer.Source: McKinsey 5G Survey 2018

5G pilotstrategy

Technologystrategy

Businesscase

Operations-and-maintenance strategy

Commercialstrategy

22 22

24

54

37

39

24

30

43

2617

39

43

22

57

Europe

Businesscase

Other

Rest ofworld

Multicountryoperators2

Asia NorthAmerica

All operators 60

100100

40

60

75

67 67

11

Exhibit 2The technology strategy is mature for most operators, while commercial strategy and business case remains immature for most

Exhibit 3The business case has been the largest challenge in 5G strategy forover 60 percent of respondents, excepting North American operators

Complete and approved strategy

First-draft strategy

No strategy/early thoughts


5G large-scale deployment timeline,1 % of respondents

Average operator, overall 5G development,1 score (1–5)

1 100% = 46 operators. 2 Multi-country operator responses re�ect perspective of group chief technology ocer.

Source: McKinsey 5G Survey 2018

1 100% = 46 operators. 5G pilot, technology strategy, business case, operations-and-maintenance strategy, and commercial strategy2 Multi-country operator responses re�ect perspective of group chief technology ocer.

Source: McKinsey 5G Survey 2018

NorthAmerica

Asia Multicountryoperators2

EuropeAlloperators

8

20

40

40

25

67

8

78

11

11

56

44

61

31

MiddleEast

LatinAmerica

Complete andapproved strategy

First draftstrategy

Early thoughts

Multicountryoperators2

Asia EuropeNorthAmerica

1

3

5

Exhibit 4Large-scale deployment of 5G is around the corner, with approximately 92 percent of respondents planning deployment by 2022

Exhibit 5Large regional di�erences in maturity: US and multicountry operators lead on 5G maturity, while European operators lag behind

Before 2020

2020 to 2022

2022 to 2025


Rollout at scale likely won’t come for another year or two, with regional variationThis year will mainly be spent on preparing and planning for 5G, with 61 percent of operators responding that they expect peak rollout during the period between 2020 and 2022 (Exhibit 4). While only around 30 percent of operators plan to roll out 5G on a large scale in 2020, about half are already engaged in or have completed 5G pilots (working with one or more technology provider). Of those who have yet to take the plunge at all, nearly two-thirds expect to launch a pilot within a year.

The regional variations apparent in the deployment timelines reflect the different regions’ operators’ varying levels of 5G maturity (Exhibit 5).

Operating models likely to include less millimeter wave but more sharing and neutral hosts5G is such a significant technological transition that it has the potential to bring with it some equally significant shifts in the operating model, as reflected in the survey responses.

Millimeter wave Less than 35 percent of operators expect deployment in the millimeter-wave spectrum in the short term, which many in the industry still hope will eventually help enable 5G’s full potential. More than 80 percent of the respondents expect higher cost of density for millimeter wave, nearly half see deployment as the biggest bottleneck, and nearly half mention operating cost.

Network sharingJust about everyone surveyed expects increased network sharing. This is in line with the widely held assumption that 5G will push up costs for operators. Network sharing can be an attractive option to lower costs, especially in areas with either little opportunity to differentiate quality, or in areas with high rollout costs, such as rural regions.1

Neutral hostsBeyond network sharing, 90 percent of operators surveyed say they expect to adopt new business models like neutral hosts, though there is no alignment yet on where such third parties will be involved (Exhibit 6). This indicates a significantly greater role for neutral hosts than operators let on publicly, but it makes sense for three reasons. The first is financing. Neutral hosts offer a lever to balance out the increased investment 5G demands, similar to network and other infrastructure sharing. The second reason is operations. Crowded venues that experience high demand for connectivity often have limited space, or they face limitations due to physical appearance, both of which can make it impossible for multiple mobile-network operators to deploy equipment in the same location. The third reason is customer experience, including improved connectivity. The use of neutral hosts is more prevalent in crowded places where people use a lot of data (an event in a stadium where people want to stream a lot of live video, for example). Shared infrastructure can ensure sufficient coverage and capacity to serve these high-volume, high-traffic areas.

Role neutral hosts/networks will play,1 % of respondents

Note: Figures may not sum to 100, because of rounding.

Exhibit 6Neutral hosts or networks are expected to play a role in 5G

1 Excludes 6 respondents answering “do not know”. For the remaining 40, 36 answered “yes” and 4 answered “no”.

~90%

Speci�c regions 51%

Indoor commercial properties 24%

Industrial sites 13%

No role 10%

1 See Ferry Grijpink, Alexandre Menard, Halldor Sigurdsson, and Nemanja Vucevic, “Network sharing and 5G: A turning point for lone riders,” February 2018, McKinsey.com.


https://www.mckinsey.com/industries/telecommunications/our-insights/network-sharing-and-5g-a-turning-point-for-lone-riders

https://www.mckinsey.com/industries/telecommunications/our-insights/network-sharing-and-5g-a-turning-point-for-lone-riders

Where the investment will happenWhile there has been a lot of talk about new network capabilities, from leveraging latency to enabling more quality guarantees, most operators still see investment happening in the network, rather than the enabling layers like OSS and BSS. Our experience suggests that many operators are underestimating the challenge if they want to leverage 5G for new business models. At the same time, if pilots and enhanced mobile broadband (E-MBB) are the core focal points for pure 5G in the next few years, along with (to a lesser degree) fixed wireless access and enhancing IoT with 5G capability, investment in IT enablement of new business models can be delayed without much downside.

Industry leaders seem to predict significant implications for the core network, which would need to be upgraded to allow operators to offer 5G services (for example, network slicing and quality guarantees) to customers. Adding millimeter wave to the frequency portfolio will also have substantial impact—both in network architecture (for example, densification by adding small cell sites and overlay design through software virtualization to create additional layers of network abstraction) as well as from an operational process. However, there are differing views on millimeter wave, with Europe far behind other regions’ bullish stances. This is driven by Europe’s slower pace of

millimeter-wave-spectrum auctions, smaller opportunity in fixed wireless access due to unbundled-local-loop regulations, and less overall faith in the 5G business case.

Although commercially in its infancy, 5G technology is ready, and in most markets its presence will be felt from 2020 on. Yet the fact that commercial models are not ready cannot be minimized; the business case is marginal, and the investments to enable new business models are not currently planned. Therefore, though we expect 5G to bring real benefits to the markets when it comes to speed and capacity, until real “new” use cases and corresponding business models emerge, 5G will feel closer to “more of the same.” That reality is reflected in the survey results, which show the respondents’ pragmatic acceptance that, at least at this early stage, 5G is not as revolutionary as its 4G predecessor. But this does not mean that telcos are willing to buy into the most pessimistic view that 5G will be a major, costly bust. Instead, the industry will keep patiently waiting for the innovators that leverage all 5G can bring into exciting applications for both consumers and businesses.

Ferry Grijpink is a senior partner in McKinsey’s Amsterdam office, Tobias Härlin is an associate partner in the Stockholm office, Harrison Lung is a partner in the New Jersey office, and Alexandre Ménard is a senior partner in the Paris office. The authors wish to thank Lorraine Salazar, Arvind Samudrala, and Halldor Sigurdsson for their contributions to this article.


https://www.mckinsey.com/our-people/ferry-grijpink

https://www.mckinsey.com/our-people/harrison-lung

https://www.mckinsey.com/our-people/alexandre-menard

https://www.mckinsey.com/our-people/alexandre-menard

This survey paints a picture of 5G as a powerful new technology just waiting to be tapped for innovative new uses cases. However, until those cases emerge, most operators will tread cautiously.


A 5G manifesto for the CEOThe transition to a 5G world is far more complex and uncertain than the shifts to previous generations of wireless technology. Five key principles will help telco CEOs better prepare for the challenges that lie ahead.

AuthorsFerry GrijpinkHarrison Lung


Current status of 5G strategy development,1 %

1 100% = 46 operators.Source: McKinsey 5G Survey 2018

5G pilotstrategy

Technologystrategy

Businesscase

Operation andmaintenance strategy

Commercialstrategy

22 22

24

54

37

39

24

30

43

26

17

39

43

22

57

Exhibit 1The technology strategy is mature for most operators, while commercial strategy and business case remains immature for most

Complete and approved strategy

First draft strategy

No strategy/early thoughts

Most operators today are priming for the rollout of 5G wireless technology. The majority are doing trials, some are busy acquiring spectrum, and a minority are deploying 5G in focused areas.

But all still face uncertainty about what the future might hold given untested use cases, regulatory issues, and unproven economics. As a result, most are proceeding cautiously. While many have made progress developing their technology and pilot strategies, few have moved beyond the early stages of developing their business cases and commercial plans, according to a new McKinsey 5G survey (Exhibit 1).1

Our view is that no matter which stage operators find themselves at, five key principles will help guide the formulation of their strategies and help them better prepare for what might lie ahead.

1 See previous article, “Cutting through the 5G hype: Survey shows telcos’ nuanced views.”


1. 5G strategy must be led by the CEOThe journey from second generation wireless technology, when voice was still king, to the data-focused fourth generation has been evolutionary, with legacy mobile networks gradually repurposed and improved over the course of two to three decades. Fifth generation networks are altogether different. 5G promises a step change in service—lightning-fast speed, incredibly low latency, and the capacity to carry massive numbers of connections simultaneously—ushering in all sorts of new communications possibilities for work, play and in between.

Yet the stakes for operators are high, as 5G requires big upfront commitments at a time when future rewards are still far from clear. For example, one way or another, operators need to commit to building costly new infrastructure. Yet strong returns on those investments are unlikely to lie in a mass market offering, as was the case with previous generation technologies. Instead, they’re more likely to reside in specific new use cases, from the Internet of Things (IoT) to fixed wireless access (FWA) to ones not even dreamed up yet. But when those will start bringing in significant new revenues, and customers, is uncertain.

In addition, regulators are releasing a few different bands of 5G spectrum simultaneously. This adds further complexity, since bands used for different mobile technologies require different network upgrades, pushing upfront capital expenditure to unprecedented levels. Important too is the fact that it looks like network sharing will play a significant role, which could reduce the cost of 5G. But the long-term strategic implications of a commitment to network sharing—perhaps even with a competitor—are difficult to predict. In our survey, 93 percent of respondents said they expect network sharing to increase with 5G.

Because the stakes are so high, an operator’s 5G strategy needs to be not just guided, but truly owned by the CEO. He or she cannot view (and treat) 5G as just another G, when the business case for network upgrades and expansion were clear and the CTO could, in large measure, be left to get on with the job. Yet according to our survey, in most companies it is the CTO who is still leading the way, with strategies that fall under his or her sphere of influence the most developed.

A CEO’s top priority must be to decide the company’s strategic stance. Some operators will choose to be network leaders, committing to fast, national or regional rollout to secure first mover advantage. Others may opt to focus more narrowly, perhaps on certain regions or cities, use cases, sectors, segments, or clients. Operators who serve stadiums, shopping malls, or private hotspots could focus on these areas first, for example, while those with a manufacturing client base could lock in these clients by helping facilitate smart, autonomous systems. The choice will depend on each operator’s existing customer base, appetite to invest, and ambitions.


2. Don’t focus on RAN alone. Understand the investments required across the entire 5G architecture. Radio access network (RAN) decisions are important, and rightly get a lot of attention. That’s because RAN accounts for the lion’s share of mobile operators’ costs given the large number of sites in a network. These will need to be upgraded, and most operators worldwide have plans to do so by 2025. In addition, many small-cell sites will be needed to extend the coverage of mobile networks to indoor areas where outdoor signals do not penetrate well, or to add outdoor capacity in areas with very dense data usage. This will trigger a whole new set of considerations besides cost. The network design, access to adequate cheap infrastructure, and deployment timelines are all key to profitability.

Yet 5G will require investments in all network domains, not just RAN. These are rarely discussed. Here are some of the most significant:

— Core network: Equipment manufacturers are still developing the technology for core 5G networks. That presents some tricky decisions for operators, balancing the desire to be fast to market with the need for solutions that will be future-proof. Initially the choice shouldn’t be that difficult. Since many elements of current 5G technology build on 4G networks, mobile operators can take an evolutionary approach to infrastructure investments, upgrading existing 4G core networks to support 5G ones and adding new 5G functionalities as needed. This incremental approach also makes sense from a financial perspective, given that investments can be kept down when revenue remains uncertain.

— But there will come a time when network upgrades are no longer sufficient to support the new use cases, and new build-out will be required. When should that shift—with the accompanying costs—be made? Indeed, some argue that it makes sense to build a greenfield core network, deploying stand-alone architecture and advanced 5G capabilities from the very start. The advantage is that the operating model can then be entirely cloud-based, and much of it automated. However, that may be a risky option until equipment makers have finalized the technology road map. And even once that is settled, the network would need backward compatibility with 4G to allow for handovers of the use cases that will run on both

— Transport network: Many operators’ transport networks still aren’t ready for 5G. Fiber-only will become essential, because fiber can best support 5G capacity as well as latency requirements and small-cell deployment in urban areas. This will take time and money

— OSS/BSS: There has been no shortage of talk about new network capabilities ushered in by 5G, from leveraging latency to enabling more quality guarantees. Yet according to the McKinsey 5G survey, most operators still see investment happening in the network, rather than the enabling layers like operational support systems (OSS) and business support systems (BSS). These are the very systems needed to be able to market, sell, price, provision, and operate the oft-touted new use cases, such as connected cars and mission-critical solutions. Our experience suggests that many operators underestimate their role in enabling a 5G strategy.

2025Most operators worldwide plan to have their RAN sites upgraded by 2025.


3. Pinpoint the cost-saving opportunities Most operators believe the shift to 5G will be expensive.1 They have a point. When network upgrades are no longer sufficient to support the increased traffic, operators will need to build new macro sites or small cells, which will be the primary driver behind network cost increases.

However, what many overlook are the opportunities to keep costs in check. First, many operators assume they will have to fund nationwide coverage like the first generation of mobile networks. Not so. As discussed above, they need to pick their geographic, client, and use-case focus with care. Indeed, blanket coverage should be avoided without a clear idea of how to monetize deployment.

1 Seventy two percent of respondents in the McKinsey 5G 2018 survey foresaw higher capital expenditure relative to sales.2 See Ferry Grijpink, Alexandre Ménard, Halldor Sigurdsson, and Nemanja Vucevic, “Network sharing and 5G: A turning point for lone riders,”

February 2018, McKinsey.com.

In addition, whatever the extent of coverage, there are ways to temper investment costs. For example:

— Where possible, upgrade and retrofit existing macro sites

— To densify networks, build new, small cells instead of macro ones, installing them on lampposts, traffic lights, etc. The best locations for this infrastructure will vary by city and operator. Some operators may choose lampposts if they can strike a good deal with the local utility. An integrated incumbent may rely on the street cabinets it already uses to house its own equipment

— Optimize the network rollout with the help of analytics to know exactly who is using what level of data. A number of operators have done exactly this to maximize returns on investments at the same time as improving the customer experience, with some reducing 4G capital expenditures by up to 30 percent

— Consider network infrastructure partnership options. There may be cities and municipalities keen to push ahead with 5G development that will agree to the use of their infrastructure if it helps deliver certain public services—such as emergency service communications. And operators should not dismiss sharing with other operators, particularly if they are considering deployment in an entirely new location. The cost of small-cell deployment can be reduced by up to 50 percent if three players share the same network, for example.2 However, the rationale for sharing extends beyond cost. Sharing could address other roadblocks to the deployment of 5G in urban areas, such as disruption to roads and traffic during installation, and concerns about “visual pollution” caused by so much equipment.


4 . Embrace cooperation. Your future depends upon itFar too often, we see companies plowing ahead with their technology strategies without sufficient regard for other stakeholders with whom they will need to cooperate.

Take vendors. Operators have always had to cultivate relationships with them, of course. But with 5G, much more depends on how they work together. That’s because in the past, it was relatively simple to move in lock-step with vendors as technology options were limited and spectrum released were aligned to a specific technology. Today, with so many technology choices and different bandwidths, operators could find their decisions leaving them out in the cold if vendors settle upon other technologies that then become industry standards, or that are compatible only with certain spectrum bands.

This aspect of the business will be further complicated by the fact that operators will have to work with a much broader range of vendors. This is largely due to the growth of software-based networking, which has removed many of the high barriers to entry and prohibitive costs that kept newcomers at bay when hardware dominated the sector. In our survey, 57 percent of respondents said start-up vendors would win RAN market share because of 5G.

Relationships with business customers could also prove particularly important in the 5G era, as locking in the right ones early could turn out to be more important than fast deployment. These “anchor” B2B customers may be willing to partner with telcos, as well as other ecosystem players, to experiment with use cases. But that will only be the case if operators can develop much closer relationships with customers than ever before, given how deeply they will be involved with their operations.

3 Releasing 700 Mhz first allows for low cost rollout as it can be infilled by 3-4GHz4 and millimeter wave.

Then there are relationships with competitors to consider. In a world of network sharing, they could prove pivotal to success, as players frozen out of strong partnerships could suffer higher 5G costs and a slower rollout.

Finally, much will depend on relationships with government agencies and regulatory bodies, given their power to influence the industry’s economics. Their decisions on which and how much spectrum to release first—low bands (700 MHz), mid to high bands (3-4GHz range), or mmWave—will be a key component of network costs. Early release of higher bands forces operators to build out new capacity earlier, thus raising costs.3 How the spectrum is auctioned will also determine costs: auctioning off, say, two small chunks and one large piece in a market with three or more bidders could push bids for the large, more desirable chunk, very high. In addition, some governments extract coverage and network sharing commitments from operators in return for spectrum—commitments that could determine whether rollout will end up being profitable.

In some cases, local government authorities also determine infrastructure access rules, such as whether to allow more than one network access to street furniture or to public hotspots.

All this makes clear why your 5G strategy cannot be built in a vacuum.

~50%The cost of small-cell deployment can be reduced by up to 50 percent if three players share the same network.


5. Prepare now for 5G’s operational challenges Uncertainty about how quickly demand for 5G services will grow, and their profitability given the investments required, tends to focus minds on how best to build the network. What gets overlooked are the operational challenges that will ensue, of which there are many. For example:

— Networks will be significantly more complex. There will be more frequency bands. A recent auction of 5G spectrum in Italy offered three different frequency bands, on top of the six bands currently used for 2G, 3G, and 4G, making a total of nine bands for use by operators. As a result, network load will need to be balanced between 3G, 4G and 5G across many frequency layers, and handovers managed not only between the different technologies but between different vendors too

— Network slicing promises great advances in customer experience and delivery, as well as new business models. But its true potential, whereby operators provide dedicated virtual networks with functionality specific to the service or customer over a common network infrastructure, will only be achieved when end-to-end reconfiguration is possible in real time. That degree of sophistication will require high levels of network intelligence and automation4

4 See Kim Baroudy, Sunil Kishore, Nitin Mahajan, Sumesh Nair, Halldor Sigurdsson, and Kabil Sukumar, “Reinventing telco networks: Five elements of a successful transformation,” January 2019, McKinsey.com. 5 See previous article, “The building blocks telcos need to create their digital-and-analytics DNA,”

January 2019, McKinsey.com.

— 5G networks will be highly automated and IT and networks will converge. That means new tools will be needed for network resource management and new talent. Operators will need engineers with native cloud programming and engineering skills, for example—skills that are currently in short supply in the industry. To lure that new talent, they will have to compete with the high-tech giants and small start-ups whose reputations as fast-moving companies with more flexible work cultures—and in many cases better compensation—could seem more attractive.

In sum, the operating model requires reinvention.5 Unless operators address these challenges, their deployment ambitions might not be realized.

The transition to a 5G world is far more complex than the transitions to previous generations of wireless technology, and it is not for the fainthearted. Big commitments are needed even though the best path ahead, and the financial return, is not entirely clear. To help make the transition profitable, CEOs should take a firm lead in determining the company’s 5G strategy, and be prepared to invest across the entire network, not just RAN. Simultaneously, they should home in on cost-savings, while looking outwards to build partnerships and strong relationships with vendors, eco-system partners, regulators and even competitors. Finally, they need to start tackling 5G’s operational challenges. That’s a heavy agenda. But being clear about what is required to succeed in the new 5G era can be half the battle won.

Ferry Grijpink is a senior partner in McKinsey’s Amsterdam office. Harrison Lung is a partner in the New Jersey office. The authors wish to thank Lorraine Salazar and Nemanja Vucevic for their contributions to this article.

5G networks will be highly automated and IT networks will converge. That means new tools will be needed for network resource management and new talent.


A tale of two agile paths: How a pair of operators set up their organizational transformationsDifferent approaches illustrate the company and market conditions that guide the organization of teams around work, and the rapid benefits that follow

AuthorsBo Krag EsbensenKlemens HjartarDavid PralongOlli Salo


Although more than 70 percent of companies report that agile transformation is a top priority, we haven’t seen the extent of agile adoption among operators that this level of interest would suggest.

It’s puzzling. We know companies that go agile are 50 percent likelier to outperform their competitors financially. We also know that agile directly helps operators win four of their core battles: faster time to market, higher customer satisfaction, significant productivity improvements, and a transformed employee experience that improves talent attraction and retention.

So, what is holding operators back?

We believe part of the answer is a lack of clarity about what “agility” actually means and how it plays out in practice within a specific company. The term is often used to connote a vague notion of being flexible. One executive explained his chronic lateness by saying he was just “being agile with time.” Others associate the term with a type of software development or bean-bag chairs and flexible seating arrangements.

None of these definitions is accurate. What, then, is agility?

Think back to a crisis you were involved in or a time of urgent and decisive challenge. Maybe you were responding to an emergency in your community, serving in the military, or facing an impossible deadline at work. You assembled people from different backgrounds who were selected for their complementary skills, operated largely without hierarchy, and focused on a well-defined objective. These extraordinary achievements are often remembered as “peak experiences.”

Agile, in a nutshell, is about assembling the elements of that peak experience for every employee, every day, without the need for a crisis. Agility at scale embeds these elements in the very fabric of how things are done by providing the following:

1. A very clear purpose, anchored in positive meaning

2. A sharp definition of what success looks like

3. Teams assembled with the skills required to succeed without reliance on others

4. A cadence that fosters short bursts of tangible output and regular celebration of outcomes

This is the core of agility—building organizations with hundreds of those great teams (Exhibit 1). However, great teams alone would result in chaos and lack of scale. The other critical piece is a strong backbone that supports these teams by providing a common purpose, cohesive culture, functional excellence, and standards, which in turn enable the processes and platforms that hold the company together.

50%Companies that go agile are 50 percent likelier to outperform their competitors financially.


Two approaches to agileIn our work with multiple operators around the globe, we have seen two successful approaches to agile emerge: agile accelerators and enterprise-wide agile (Exhibit 2). We’ll use examples of agile in action at two different operators—Denmark’s TDC and New Zealand’s Spark—to demonstrate two emerging success patterns for how to organize teams around work. Both operators have reaped significant benefits through their transformation, including the four key benefits mentioned above, and attracted global attention in doing so. Telco executives from all over the world now visit both companies to learn how they changed long-held practices in favor of customer and operational excellence.

The choice between the two approaches to agile is driven by how agility can best unlock value in a particular company, the maturity of the organization, and the top management team’s convictions about starting small versus undertaking quick and comprehensive change. Common to both is the necessity for a company to be “all in” about agility—only the scope of initial change is different.

Next, we’ll see how these two approaches played out at the geographical antipodes, TDC and Spark.

Top-down hierarchy

Bureaucracy

Silos Detailed instruction

Boxes and lines less important, with more focus on action

Organizations as inflexible machines

Organizations as organic systems

Teams built around end-to-end accountability

Quick changes, flexible resources

Leadership shows direction and enables action

– Organizations as “machines” with hard-coded instructions and a rigid blueprint

– Leaders as masterminds who delegate tasks and instructions– Protecting most people in the organizations from stressors

and complexity– Optimizing for set outcomes and plans

– Organizations as organic systems, in which people collaborate quickly and effectively around tasks and projects

– Leaders as catalysts who show direction and set up the system for people to do their jobs effectively

– Exposing all employees to a certain amount of uncertainty and stressors to help them grow and stay flexible

– Optimizing exposure to unexpected events

Exhibit 1Agility is a shift in the model of what an organization is, and how it operates.


Exhibit 2Two approaches to going agile have emerged.

What it is The company profile The approach Telco example

Agile accelerators Establishes a number of agile units (tribes) to achieve immediate business benefit (eg, in digital).

A need for rapid impact Improve customer experience across core journeys

TDC

Units that can be taken agile quickly, are taken agile (most have)

Reduce channel costs and go digital

Appetite to test the waters and learn what a wider agile transition requires

Innovate core products

Enterprise-wide agile Rebuilds the full organization around a radically delayered agile operating model.

Sound underlying performance and operational discipline

Accelerate end-to-end product and customer-journey development

Spark

Strong core technology Increase employee engagement

Good adaptability and full top-team commitment to rapid and deep change

Boost productivity across the business


TDC: ‘Digital first’ first

The summer of 2016 was challenging for TDC, the leading Danish telco (see sidebar “About TDC ”). The recent merger of its two main consumer brands had consolidated its B2C strategy and the newly appointed head of its B2C unit, Jaap Postma, had a long list of improvements to make in the new organization. TDC’s digital capabilities were at the top of it—market research and Postma’s own observations strongly suggested that the company was not meeting consumers’ rising expectations of online service.

Having witnessed the power of digital in his previous positions, Postma set it as a top priority and tasked Rune Keldsen, one of his trusted leaders with broad, relevant experience, to get this right. Postma and Keldsen quickly concluded that doing things the old way would not produce results fast enough. TDC had invested significant funds in digital for years, but these efforts always tended to take longer than anticipated, and by the time they were ready to hit the market, consumer needs had often shifted already.

To speed things up, TDC decided to inject agility into its digital transformation. It first launched one, then 12 cross-functional agile teams (or squads) consisting of product owners, commercial specialists, frontline experts, customer-experience designers, architects, and developers—all the competencies required to design, build, test, and improve digital customer journeys at speed. Each squad was brought under the organizational

construct of a “digital tribe” led by Keldsen. The squads were given end-to-end accountability to do whatever it took to create seamless and engaging customer journeys in online sales and service, while gradually establishing a flexible IT architecture.

Postma and Keldsen knew that to succeed with the digital transformation of TDC, they needed to establish a new culture and attract top talent. A casual walk-through of their Digital Warehouse shows they achieved this. At the facility, which is a rebuilt warehouse next to TDC headquarters, there is no more talking about business and IT, no more “facilitating” middle managers, and no more long steering-committee meetings. In their place are just cross-functional squads empowered to make change.

Eighteen months later, TDC sees the benefits of the new way of working. Its customer onboarding journey, for example, had been one of the main headaches for customers and a key reason for low satisfaction ratings. Post-transformation, TDC’s onboarding experience is now endorsed with five stars by 80 percent of customers. Call volume, one of the large cost drivers for TDC, is down by more than 40 percent now that customers can easily manage their interactions and solve their problems online.

About TDCTDC is Denmark’s incumbent telco, serving both B2B and B2C customers

1990Founded in Copenhagen

~8000 employees

~€2.8 billion annual revenue (2017)


Online sales provide another striking example. Six months before the transformation began, TDC formed a traditional project team tasked with designing and implementing a new digital sales journey for the main products. But with team members located in disparate parts of the organization and working in a traditional waterfall approach, the project team hadn’t managed to release anything by the time it was rolled into the digital tribe. Once they were co-located and equipped with agile techniques like minimum-viable-product thinking, the group had not only built a new sales journey but already generated its first online sales within a few weeks. The first minimum viable product was limited in scope, yet generated

momentum, secured sponsorship, and bought the team time to deal with the technical complexity of an automated solution that came a few months later. Conversion rates soared. The agile approach had worked.

After the groundbreaking success of the digital tribe in B2C, TDC immediately launched a similar digital tribe in B2B. This tribe is reinventing the sales and service experience for business customers and launching solutions that have not yet been seen elsewhere in the B2B space. Over the last six months TDC has continued to scale its new agile ways of working with three new tribes around digital marketing and product development (a TV tribe and a cloud tribe), all of which kicked off with success.


Spark New Zealand: ‘Be agile to go agile’

Spark, New Zealand’s incumbent operator, had been on a transformation journey since 2012, following the carving out of its fixed-access network to a separately listed new entity (see sidebar “About Spark ”). Having completed a successful turnaround, rebranding, and IT reengineering, Spark was in good shape and shareholders enjoyed one of the sector’s best total returns.

But the executive team was setting its sights higher. In their view, the game was no longer about outperforming other operators, but being match-fit for a market increasingly made of disruptive digital-native companies such as Amazon, Netflix, and Spotify. Competing or partnering with these companies requires a step-change in mind-set, speed of execution, and time to market, which the old functional organization model struggles to provide.

Armed with renewed urgency, Spark’s top team and board of directors visited more than a dozen companies around the world to understand how agile worked for them and what it could do for Spark. They visited both born-agile companies and companies in different stages of their agile journey. These included, among others, TDC and ING in the Netherlands.

Spark leaders returned home with a simple conclusion: when it comes to agility, they needed to jump in boots and all, and trust the agile process

to get them through—“be agile to go agile.” They wanted to avoid a prolonged period in which part of the company had adopted agile ways of working and the rest was still operating in a traditional hierarchy. Companies that fully embraced agility across the organization were thriving. Those that just did it half-way often faced some difficulties. Spark likened this to a person on a dock standing with one foot on the ground and one foot on a boat.

Managing Director Simon Moutter and Group HR Director Joe McCollum called for a three-day off-site in October 2017 for the leadership team to decide if Spark would be in or out. The collective team pledged to adopt agile throughout the entire business, fast and at scale.

The team laid out an ambitious timeline to keep the transition phase to a minimum. In November 2017 Spark launched a company-wide communication about the upcoming journey and appointed leads to the first three tribes it launched as frontrunners: broadband, managed data, and digital experience. Over the following months, the leads of these three tribes built their own organization of about ten cross-functional teams each. In parallel, the rest of the organization prepared the changes needed to tip the whole company into an agile setup by mid-2018.

About SparkSpark is New Zealand’s incumbent telco, serving consumers, businesses, and enterprise customers

1987Founded in Auckland

~5500 employees

~€2.0 billion annual revenue (2017)


Along the way, Spark dedicated significant effort to change management and capability building. During the first half of 2018, well before any structural change occurred, hundreds of people engaged in defining and then putting into action a new purpose for the company: “Helping all of New Zealand win big in a Digital World.” This new purpose brought about an adjustment in the company’s values, target behaviors, and capabilities. They also emphasized diversity and inclusion so employees felt comfortable bringing their whole selves to work and working together, to ensure high performance in teams.

Operating in a small, remote market where talent with agile experience was hard to find, Spark selected 40 high-performing employees and trained them as agile coaches in a newly created academy. It also had all employees go through a two-day boot camp designed to build great teams familiar with the basics of agile.

In July 2018, Spark did a “big bang” launch of 18 tribes and moved approximately 40 percent of its employees into cross-functional teams comprised of IT, networks, products, marketing, and digital people. The agile transformation for the rest of the business—channels, corporate support functions, and other units—began immediately after.

Spark’s agile model was built based on a view of where and how value is created in each part of the business. Given the

nature of New Zealand’s telco sector, Spark decided to place significant focus on “product tribes.” These tribes own the customer journey, product management, and related systems for specific products like mobile or IT services, to allow full differentiation and rapid improvement. “Segment tribes” take care of attracting new customers and growing existing ones. Finally, “enabling tribes” provide services and capabilities for other tribes. Channels (such as retail, billing operations, and B2B sales and service) and support functions (such as HR and finance), use a mix of squads, self-managing teams, and other team configurations suited for the nature of the work.

Contrary to what the Spark leadership had been braced to expect from overseas companies that had made the leap to agile, Spark’s operating metrics remained rock solid during the transition. Now positive results are flowing in. The new work model with just three “layers” of hierarchy has allowed efficiency through greater focus on productive work. The new 90-day governance cycle—the quarterly business review—allows for more effective and regular steering, higher transparency, and faster decision making across the whole business. Employees are thrilled to work in a setting where they can have direct customer impact, and customers, especially in the B2B space, are starting to notice the difference. In the words of many employees, Spark would “not go back for anything in the world.”

The new 90-day governance cycle—the quarterly business review—allows for more effective and regular steering, higher transparency, and faster decision making across the whole business.


Agile implications: ‘Open heart surgery while running a marathon’ Each of the operating-model transformations TDC and Spark undertook demonstrates a certain boldness. It’s been described as “open-heart surgery while running a marathon”—being prepared to dramatically change a company’s core operating model without missing a beat in performance.

Surgeons inform patients of the risks of an operation before performing it, and we want to conclude this article by doing something similar, so you are aware of the implications of embracing agility.

— The impact on your people is profound. An agile structure is built around teams of doers with little management overhead. Spark asked about 200 of its top managers to become agile team members, openly acknowledging that agile isn’t for everyone. Some chose to leave instead. Also, you need to invest in new skills, such as agile coaching, that previously didn’t exist at scale

— You must overhaul your core finance and governance processes. Agile teams need regular direction and prioritization, for which traditional large business

cases and multiyear plans that bring comfort to management won’t work. TDC leadership needed to get comfortable dealing with 90-day objectives and funding tribes instead of individual projects. This puts more responsibility on leadership to stay on top of details and to work transparently, which can require a mind-set change

— The people model and culture need to change. Valuing and paying people based on hierarchical position won’t work in a flat, high-speed organization. Extrinsic motivators like bonuses and job titles need to be reconsidered to enable intrinsic motivation in teams. Culture is so critical to success that nurturing and evolving it will likely take up most of the effort you put into your transformation

— The role of the top team is very different. Agile companies require strongly united leaders to sense the market and shape priorities, but then let the teams figure out how to meet them. At Spark, the top team led the change by becoming a leadership squad and adopting a rhythm of standups, retrospectives, and demos similar to those used by the rest of the business. They centered their deliverables around building a great organization that enables other teams to succeed.

If these realities don’t scare you, the best way to start the journey is to build strong alignment and a joint aspiration in your top team. We have found visiting agile companies an enriching and sobering way to start a journey toward agile—hearing the experiences of fellow management teams bypasses theoretical discussion to create a joint understanding of what agile can do for your company. Learn what you want and don’t want from an agile model. Then set explicit targets and design principles to keep you honest on what you are trying to achieve. Taking a decisive approach and basing it on the learnings from companies like TDC and Spark will give you the best chance at success.

Bo Krag Esbensen is a partner based in McKinsey’s Copenhagen office, where Klemens Hjartar is a senior partner; David Pralong is a senior partner in the Auckland office, and Olli Salo is an associate partner in the Helsinki office. The authors wish to thank Kirill Prokhorov for his contributions to this article.


Ten years at the top of a telco: An interview with Vittorio ColaoThe former CEO of Vodafone, who stepped down from the top job last September, reflects on the industry’s challenges and what he learned as a successful global dealmaker.


Not many CEOs stay in their post for ten years, especially in a demanding and fast-changing sector like telecommunications. But Vittorio Colao did more than guide this European multinational for a decade.


He transformed it into a global player with a coherent set of mobile and broadband assets. And he pulled off two of the most ambitious deals in the industry’s recent history—Vodafone’s $130 billion sale of its 45 percent stake in Verizon, in 2013, and last year’s €18.4 billion acquisition of Liberty Global’s German and Eastern European cable-TV operations. He recently sat down with McKinsey’s Guido Frisiani and Tim Dickson to reflect on the state of the industry, what he looks for in people, and some lessons from his M&A playbook.

The Quarterly: What do you see as the main challenges facing the global telecom industry?

Vittorio Colao: I see three. The first two are self-inflicted—the lack of a genuine customer orientation, which, if you have it, makes customers truly love your services and thereby drives value, and the prevailing short-term focus of management incentives. The third is endogenous, namely regulation.

Steve Jobs was right when he told me, in 2007, that “people hate their phones.” At the time, I thought he was mad, but I was wrong. By and large, as an industry we have failed to create enough trust in our brands and a sufficient sense of loyalty and appreciation for our products and services, despite the fact that they are essential for people’s lives. Because of this lack of trust, the telco industry has not fully monetized its large investments. Be it because of roaming charges, hidden price increases, sloppy customer care, overpromising of connection speeds, or whatever else, I don’t know a telco in the world that has really been able to create an outstanding level of personal relationship and affection.

Sometimes it is small things. Take a recent experience I had cycling in the Italian Alps. I never actually crossed the border with Switzerland but was close enough that my phone repeatedly connected to the Swiss network. As a consequence of the extra charges, I ran

out of credit, and my exercise-tracking app ceased to operate. When I called to complain, I was, obviously, offered a refund, but it was in the spirit of a gracious gift to a good customer. The operator did not even entertain the possibility that the system was wrong in reporting me as being in Switzerland. I am sure she genuinely thought she was offering a good service, but it was not the supreme customer experience of an Apple or an Amazon.

Several European and Asian operators, including Vodafone, are now investing to improve their customer experience. But this has to be a long and sustained effort. There is also a significant new opportunity with 5G and IoT.1 I hope the industry has learned the lesson and moves consistently to achieve both value creation and customer appreciation, to support the innovation and development opportunities of the next five years.

The Quarterly: You mentioned the way the industry structures its management remuneration. What is wrong here?

Vittorio Colao: Many industry executives—especially at incumbents—have bonuses based on single-year financial metrics, but with no link to value creation. Inevitably, this encourages them to chase short-term economics and creates a collective pressure in the industry to adopt marginal pricing. The first player to do so gets a temporary advantage, the second neutralizes that advantage, and the third destroys everyone’s return on capital. That makes it harder to justify new capital investment.

I think the only way to change behavior and focus attention on the balance sheet is to pay executive-board members in shares, which they should not be allowed to sell for ten years. At Vodafone, for years we’ve given all senior executives—not just the ones sitting on the board—a bigger proportion of their remuneration in shares than in fixed salary.


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The Quarterly: Don’t investors and stock-market analysts bear some of the blame for short-termism?

Vittorio Colao: I don’t agree with those who say that all investors are short-termist. The good ones do think long term. The problem, in my view, is the role split and the disconnect between the corporate-governance people and the investment managers. I cannot remember any fund voting against a remuneration package on the grounds that it was too short-term focused. Nor has an institutional investor ever challenged me on diversity policies, on the share of women in top positions, or on environmental-sustainability concerns. Yet if these are important topics, as I believe they are, then they should be part of the dialogue with investors, just as much as returns on capital. This split between investment teams and governance teams is simply unhealthy.

The Quarterly: Let’s turn to the issue of regulation and what companies can do to influence it.

Vittorio Colao: If I were a policy maker—and, in particular, in these times of transition to a digital society —I would like to have the best networks, the best mobile coverage, and the most extensive fiber footprint. I would want to use technology, in particular the Internet of Things, to help manage the environment, to improve health—better monitoring of patients at home, connected ambulances—and to increase safety and security. All this requires investing more, not less.

I am afraid many regulators don’t draw this conclusion when they focus on introducing new competition, which is intended to produce consumer benefits but has the inevitable effect of reducing the returns and therefore the appetite for investment. As an industry, we have not been good at explaining that profit is not really profit unless you have

taken into account future investment demands and the necessary returns to make investments sustainable and stable over time. We also need to emphasize what we can do to improve people’s lives. In Milan, for example, everyone takes it for granted that you can make calls and have data services from trains, including when they are in tunnels. But except for Wi-Fi-connected stations, that’s not the case with the Tube in London.

There are some physical constraints, to be sure, but having ubiquitous access would be of high value for society. Think of the increased security for women traveling at night, for example, or the reduced stress for commuters trying to rearrange an appointment. With hyperconnectivity and IoT potentially set to reshape the way we live—transforming health, our security, and our mobility—telcos can be the best partners to any government, city, or local administration over the next ten years. Together, we can not only solve problems but reduce the cost of delivering public services.

The Quarterly: Do you think industry consolidation is one of the answers?

Vittorio Colao: Well, this is a slightly hyped concept. I’ve seen consolidation leading to good industry outcomes and also to bad. Much depends on the intentions of consolidating companies. If you get a new operator springing up every time you consolidate, I’m not so sure it’s an advantage. If instead it leads to better conditions for investment, it is good. Take Italy, for example. It was already a very cheap market, but the third and fourth operators merged, and a new one came in and took prices even lower. If we acknowledge the need to balance short-term consumer benefits with the requirements for long-term infrastructure, is the country better off today?

“If I were a policy maker—and, in particular, in these times of transition to a digital society— I would like to have the best networks, the best mobile coverage, and the most extensive fiber footprint.”

McKinsey Quarterly

The Quarterly: Is it sustainable to have three to four operators in each European country?

Vittorio Colao: From a competition perspective, I think you probably need three mobile and two fixed-infrastructure operators per country. With one fixed or two mobile, the consumer may suffer. But three fixed and four mobile players can be a waste. That said, we must never sacrifice competition. The incumbent telco industry’s allergic reaction to the very word “competition” is what has taken away the industry’s credibility. My exhortation is “always talk about investment and competition in the same sentence.” I am convinced they can and should coexist for the benefit of users.

The Quarterly: Let’s shift from the industry at large to your experience at the helm and talk about team building and what you’ve learned about people. How did you build up the executive muscle at Vodafone?

Vittorio Colao: I don’t think you can be a good CEO unless you are both an optimist about human beings and their potential, on the one hand, and paranoid about the potentially negative consequences of what could happen externally, on the other. I always hire people more on their potential than on their past experience and on what’s now called “authenticity”—though I only knew the word “genuine.” I don’t like it when someone starts bragging in an interview or they try to spin two stories.

One of Vodafone’s top executives is a Turkish lady who got hired because she took out a newspaper article from her purse during our interview and told me, quite bluntly, that she didn’t understand our advertising. That led to a discussion on strategy, customers, perceptions, and other things and made me realize her great potential. Conversely, I didn’t hire another candidate with a wonderful résumé when she told me, with great pride, she had won tens of advertising awards and prizes . . . but then couldn’t locate a single sample of her work on YouTube!

Rapid reflectionsVittorio Colao

What is the best piece of wisdom about life that you’ve received from a creative work, such as a book, play, movie, or opera?

The section “Get in shape for the race” in James Citrin’s book about CEO life, You’re in Charge—Now What? Physical stamina and exercise are essential for me.

If you had the power to order up a consumer tech product not yet invented, what would it do?

Something that could massage and manipulate my back, just as my osteopath does, while still talking to me knowledgably about cycling and windsurfing!

If you could have chosen to play one sport professionally, which one would it have been?

Judo, basketball, soccer, French boxing, skiing, windsurfing, cycling—any of these or the others I have been always mediocre at . . .

If you hadn’t been a business executive, what other full-time job would you like to have held?

Officer of the Italian Carabinieri (something in between working for the US Federal Bureau of Investigation and the police)

What is the worst bit of management advice you’ve ever heard?

“Self-cannibalize your revenues!” If the company has time, it is much better to eat them politely and slowly, with silverware, and pausing between courses.


McKinsey Quarterly

The Quarterly: Did you encourage the whole company to adopt this approach?

Vittorio Colao: At every monthly executive-committee meeting, I introduced a full discussion of every hire, every fire, and every lateral move or promotion for the top 250 managers. So the “owner” of a specific area would say, “Oh, my marketing director in Hungary needs to move. Who is available?” Many thought that this was a way for me to exercise power and control, and to some extent it was. But the real intention was to have an open debate in front of everybody about what makes a manager effective and what doesn’t.

At first, many would challenge the value of partaking in discussions about individuals and geographies they knew nothing about. And my answer was always, “Because it’s not the person per se that is important; it’s the discussion.” You hear that someone is starting to become a really good coach and mentor or another person is giving too many interviews to the press. In this way, my colleagues learned—as did I—about what constitutes good and bad behavior.

The Quarterly: What about younger talent? How do you face competition from exciting and inspiring employer brands such as global internet and tech giants?

Vittorio Colao: I’m not pretending that we have cracked this nut, but I do know that older companies need to change the way they recruit: there has to be less process, more substance, and more personal engagement.

Traditional career-path incentives and motivational tools are no good. The classic example at Vodafone was that we used to discourage our people from going to conferences unless they were speaking, and required multiple authorizations. But young people don’t accept this anymore. They want to share information with their peers; they want to be able to get out and about. The real challenge, as it happens, is not so much how you change that for new recruits—that’s relatively easy—but how you avoid giving certain freedoms to a section of the company and not to the rest, thereby causing resentment.

It’s clear to me that the classic organizational model, based on functions, highly centralized architectures, and waterfall-type development of products and services, is gone. It’s also clear to me that the complete adoption of a nonstructured, delegated, uncontrolled model, especially at scale, is impossible in a large company.

The challenge is to find the right balance. I think it’s a waste of time to try to define the boundaries too precisely. Eventually, you will feel the limit, but it’s worth going there and experimenting. Some people worry that giving too much freedom is a recipe for messing up, but I’ve never seen big disasters made by people taking actions in good faith. I go back to my point about the good nature of people, combined with paranoia about the consequences of negative events.

The Quarterly: What other sorts of organizational actions have you taken to encourage greater agility?

Vittorio Colao: We started breaking down the barriers through the creation of agile teams; when I left, there were about 100 such teams involving perhaps 1,500 people. Now, Vodafone probably has close to 2,500. There are always practical challenges in establishing new ways of working, one being how to reconcile the agile approach with long budget or approval cycles. If you don’t change finance processes, after all, people will feel frustrated and decisions get blocked. And then there’s what do you do with more flexible working to accommodate parents with small children when agile teams have daily meetings at, say, 8 o’clock? If you shorten development cycles and decision-making cycles in the pursuit of greater agility, missing half a day becomes much more important. I am a pragmatist, and I’d allow people to organize themselves and try to work out their own problems rather than trying to resolve everything from the top.

McKinsey Quarterly


The Quarterly: When people look at your M&A track record, your timing looks impeccable. Was that luck or good judgment?

Vittorio Colao: Luck plays a part in whether you are in the right economic cycle. But there are three things that you and the company can control. Firstly, as a leader you need to have very clear ideas of what you really want to do but resist the temptation to talk about them. Secondly, you need a good board because the problem with M&A is that it’s fun, and everybody wants to stick their fingers in. Boards should be informed but not become involved: the moment the other side in a negotiation detects that there is more than one actor, you immediately lose your leverage. Finally, you need to be patient. A good deal may take one year, two years, or even three. We started talking about some of the Liberty assets in 2013, but there were many complexities and we proceeded first with the Dutch joint venture and then the other European acquisitions.

Many executives underestimate the psychological and personal elements and believe M&A is a matter of money and a good investment bank. It’s not. It’s about motives, incentives, whether you’re liked, or whether somebody else is more liked. The personal relationship is important. With Verizon, we needed to work out whether a merger or a partial merger made sense. It did not, and we ended up getting a much higher price than everybody thought we would get.

I also dedicated a huge amount of time to investor relations, doing every single announcement and road show myself and never just delegating to the CFO. As a public company, you always have to face the intrinsic difficulty of balancing what you say publicly—“I’m not selling France” or “I’m not selling Verizon”—with what you can say privately to trusted counterparts—“I don’t want to be a minority shareholder forever”—to respect the law and to be genuine at the same time. For example, I realized back in 2009—10 that Vodafone would not be just a mobile operator in the future,

but if I had said so bluntly, then investors would have asked me what we were going to buy and how much it would cost. They would have worried that we would spend on the wrong things. Or take Idea Cellular, in India. We only just closed the merger, but when I left, last September, I found internal presentations talking about Idea dating back seven years.

The Quarterly: Besides M&A, you also have a reputation as a “details man.” What’s the secret here?

Vittorio Colao: I remember one of my first jobs as a McKinsey business analyst was visiting scrap-metal dealers in Italy. It was quite an experience that helped me understand the importance of getting to the bottom of how business really works! I also like looking inside shops, something that probably goes back to my days as an officer in the Carabinieri, when I learned to inspect barracks at 10 p.m. and not at 10 a.m., when they have cleaned everything up and are expecting you. When I visited our operations around the world, I always popped unexpectedly into a competitor’s store, together with the country CEO, to see things first hand. This attention to detail comes pretty easily to me . . . and it is also fun.

I think it also helps that I like gadgets and I like testing new things myself. I’ve always been impressed by how much Silicon Valley and West Coast CEOs know about their products, and how little some telco leaders know. By understanding what data or apps you can download to a phone and what that looks like, you can see problems from the customer’s perspective. It’s also a reason why I never accepted a CEO job in a sector whose products I don’t relate to—it’s much better to do something that you are passionate about.

In addition, I always tried to get others’ input. I’m lucky: I communicate easily with every level in the company, and that’s superimportant because you get feedback about how things are or at least helpful hints for you to interpret. It’s too easy to start working in your office, spend your time in meetings, and forget to go out.

“Many executives underestimate the psychological and personal elements and believe M&A is a matter of money and a good investment bank. It’s not.”

McKinsey Quarterly


The Quarterly: How much of your time did you spend networking?

Vittorio Colao: In the first six or seven years of my tenure, I was called the media-shy Colao, the guy who doesn’t want to go to social events. That was partly driven by family needs, but it was also the result of some great advice I got from Ivan Seidenberg, former CEO of Verizon. When I became CEO of Vodafone, he advised me, “Don’t go to business dinners, don’t go to charity dinners, keep a low profile, don’t give interviews about yourself, and you will put all of them into their graves!” As you approach the end of your tenure, of course, that changes a bit.

As a CEO, it’s really important to remain self-aware and listen to what I call “quality connectors.” These are the people who give you real feedback and good advice. As a leader of a company like Vodafone, you can meet anyone, and it’s easy, if you want, to build up thousands of contacts. It’s a mistake; all you get is lots of noise. I always tell younger executives to find, say, one journalist or editor, one magistrate or judge, one regulator—people in the outside world you respect—and listen to them about what’s going on. They don’t have to be friends. But a small number of quality connectors is much better than a huge network.

The Quarterly: Looking back over your ten-year tenure, how do you think you changed?

Vittorio Colao: I think that, as with everything in life, you become wiser over time. In the first period, I don’t think I took prisoners. I changed the organization and changed the team. Somebody told me recently, “At some point, you became softer and more of a people leader, less of a decision-making leader.” Still, at my farewell dinner, I was defined as “a benevolent dictator”! By definition, a CEO is an autocrat but being benevolent is a good thing.

The Quarterly: Do you think each CEO is best in a particular situation? In other words, can someone be both a turnaround expert and a growth leader?

Vittorio Colao: People change over time—look at Kasper Rorsted, who did a great job at Henkel and is now doing a similarly great but very different one at Adidas. Some CEOs go from running big companies to helping small ones turn themselves around or maybe they try to help young people to grow. It’s always about motivation, interest, and ambition. What is the motivation for doing certain things? What is a person interested in? And at the end of the day, what’s her ambition or his ambition for that phase of life? And it could be different in different phases of life. If you’re an intelligent person with the right motivation, you can have six lives.

The Quarterly: What do you look back on with the most pride?

Vittorio Colao: Being a truly international and diverse company in technology is very difficult. So the human environment—the values, the adherence to a set of common principles on how to work together, and the relationships among colleagues—has been remarkable at Vodafone. Fostering and preserving that spirit is the best way to guarantee the longevity of a business. It has allowed us to be clean, respectful, professional, to have fun, and to do a lot of amazing things. And if I have to mention one specific thing, I am really proud that the senior female representation of the group rose from 20 percent to 31 percent and that we were recognized as a very inclusive organization. This was one of our key international values, across geographies and cultures, which we always celebrated along with our local roots.

Vittorio Colao is the former CEO of Vodafone. This interview was conducted by Guido Frisiani, a senior partner in McKinsey’s Milan office, and Tim Dickson, a member of McKinsey Publishing who is based in the London office.

31%“ I am really proud that the senior female representation of the group rose from 20 percent to 31 percent and that we were recognized as a very inclusive organization.”

McKinsey Quarterly


Authors and contributors

Stephen Creasy Partner, Copenhagen

Bo Krag Esbensen Partner, Copenhagen

Guido Frisiani Senior Partner, Milan

Ferry Grijpink Senior Partner, Amsterdam

Tobias Härlin Associate Partner, Stockholm

Klemens Hjartar Senior Partner, Copenhagen

Mohsin Imtiaz Partner, Houston

Pallav Jain Senior Partner, Atlanta

Veit Kment Associate Partner, Zurich

Harrison Lung Partner, New Jersey

Alexandre Ménard Senior Partner, Paris

Kirill Prokhorov Consultant, Copenhagen

David Pralong Senior Partner, Auckland

Lorraine Salazar Knowledge Expert, Singapore

Olli Salo Associate Partner, Helsinki

Arvind Samudrala Knowledge Expert, Waltham

Ruben Schaubroeck Partner, Antwerp

Halldor Sigurdsson Partner, Copenhagen

Kushan Surana Partner, New York

Nemanja Vucevic Associate Partner, Madrid


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