I recently sat down with Telefónica Global CIO Phil Jordan to get his perspective on major upheavals in the telecommunications industry, and to find out what he's doing to get ahead of the change. As luck would have it, Phil has come up with a strategy that can be re-used by CIOs in all industries.
Feel free to let us know whether or not you agree with Jordan's blueprint.
Pat Brans: What's keeping telco executives up at night?
Phil Jordan: A lot of our competitive pressure now comes from non-traditional competitors. The ability to replicate our traditional core services in a different way, by bringing together cloud, mobile, and software-as-a-service, and aggregating all that in an over-the-top way, means that our competitive landscape is dramatically changing and the innovation and disruption we see is not coming from traditional sources anymore. The over-the-top businesses like WhatsApp and Viber blindsided us, and set in motion a process that destroys value in our core business. The problem is acute.
We're now running extremely fast in our own transformation to become a digital telco. We're looking for new sources of growth, including all opportunities away from our core business. Connectivity and communication are very core to our DNA, so we want to positively disrupt by bringing connectivity-based innovation to other industries, such as health care, education, media, publishing, and home security, and create areas of growth.
What I'm doing on the internal side is trying to standardise and commoditise as much as possible so we can shift the focus of IT away from traditional telco IT (which is predominantly internally focused) towards the new systems of engagement (which is a data-driven external world of digital interaction). By standardising and commoditising on the internal, we free ourselves to change focus to new capabilities and technology that will differentiate us in the digital economy.
We will always have - and will also need - the majority of the telco OS. After all, until there is something fundamentally different in our core business, we're still going to need strong ordering, billing, provisioning, fulfilment, and strong CRM capabilities. We continue being a major retail and customer service provider with a product that continues to be in huge demand. Historically, IT in the telco business has been heavily focused in these areas; and while it's clear to me that these remain important, it's just as clear to me that they are not the basis of future differentiation for us.
At Telefónica we have 6,000 people in IT globally and we still have a huge percentage working in those core areas of telco OS and infrastructure. If our growth depends on innovation and integration of other people's services, and collecting customer data and performing insight-driven predictive analytics, I need to get those 6,000 people that are currently thinking inside out to start thinking outside in. I need to ensure that we are innovating and exploiting the digital interaction layer and systems of engagement for the digital world.
PB: How have recent trends affected the CIO role in the telco industry?
PJ: The trends of social, mobile, analytics and cloud are completely transforming the CIO role – or at least they should be. In our industry these trends are both business opportunities and drivers of transformation, and are profoundly changing the role of IT - and with it, my own role.
In telco, until the last few years, enterprise IT has been a system of record - something you need to help you automate and run your business, but something that was viewed as a necessary evil. All service providers in our industry need highly capable, robust, and capacity-rich networks. But that traditional differentiation has been reduced with regulation, network sharing, and maturation of the industry.
Our present and future are all about the services you run over the networks - the customer experiences you can create by being the best aggregator of digital services - and very importantly, the way you use your data to gain insight into the customer, and enhance customer experience and create value. This is all about IT - but a new kind of IT. This is the crux of my concept of transforming IT to I3.
This digital transformation agenda has elevated the CIO role, making the CIO one of the key leaders of transformation in all businesses for the future.
PB: So, how is IT transformation received within Telefónica?
PJ: At the beginning of my time here it was a huge challenge to create the vision, strategy, proof points and execution that create momentum for change. There had been a lot of different transformation attempts across the group. There is always reluctance to change and a certain wait-and-see mentality from a section of the leadership population in any company – and we were no different.
As I said earlier, now we have real momentum. The vision is well understood and has been consistent for a few years, the strategy has been tested with enough success to create engagement and buy-in, and our execution success has encouraged our business to be bolder than ever in the transformation we need to be a winner in the digital world.
As we start year three of this journey, we are modernising, virtualising and sharing our infrastructures. We are rapidly moving towards global shared services - and most exciting of all, we now have in parallel 16 out of our 17 countries going through massive simplification, business process transformation, redefinition of our policies on our product, and implementation of a green-field full stack of IT to support the new products and processes. Three years ago, the number of countries going through this type of transformation was zero.
We will continue on this journey for more years as the scale of change is tremendous but our momentum and the transformation mind-set has enabled me to start to look beyond the digital transformation - and with it, the role that IT plays in our future business. This again has led me to the transition that we must make from IT to I3.
PB: Tell me more about what you call IT to I3.
PJ: As I have been saying, we're doing a lot of heavy lifting in our core infrastructure and business applications in making this digital transformation. I only touched on some aspects before. We are moving from on-premise to cloud, from physical to virtual, from hardware-defined to software-defined, from fragmentation to commonality and reuse, from bespoke legacy to standards. Those shifts collectively make up one aspect of our strategy to standardise and commoditise the technology part of our world - or in the context of our strategy, the "T."
As we consolidate and standardise the "T" in IT, we are changing forever the focus of IT from being inside out, and shifting focus to a new layer of technology focussed on digital interaction and on the customer, thus seeking to specialise and differentiate from the outside in. We are not seeing any less importance in the core technology capabilities in our business. But we are acknowledging that this is not a key focus in terms of differentiation for the future.
As we transform the "T", we enable our focus to move from "T" to the explosion of "I" - and particularly, what I believe are the three keys "I"'s for future Digital differentiation.
"I1" is integration - the ability to create and manage an ecosystem of services and players and provide value to Telefónica customers. Our I3 organisation of the future will be expert at integrating services in a far more agile and faster way based on our standardised and commoditised core. This is key to our future opportunities as a platform company in the digital world and a partner of choice.
"I2" is innovation. We will use the outside-in and customer focus to recapture our innovation origins. This was lost a little in the industry a few years ago when other people started innovating in our core product areas. Whatsapp and Viber - and even Apple and Google - came after telcos. We were all in a weak position because of the closed nature of our ecosystem; and these new, infrastructure light and digital native companies could innovate faster than we could in our core.
So now we are rediscovering that innovation DNA. Once again, if you standardise and commoditise the core and move the focus away from the IT function into something that is closer to the customer, you force yourself to not only be more innovative, but to be more innovative in a way that's closer to the customer. In addition, our open platform focus will have the effect of making us far more accessible to fostering innovation in the future. That innovation will come from a broad eco-system, and not from the traditional sources for a telco.
"I3" is Information. The traditional focus of IT and systems of record is moving to I3 and with it a much greater focus on customer engagement, interaction and how customers live their digital lives. We will use our privileged position of standing next to customers as they live their digital lives, and turn it into real value to the customer (and consequently, to ourselves) through a trusted relationship where we always agree on the value and privacy exchange with the customer.
So the old world was all about "T" - we were all about the technology. Now we're doing the heavy lifting that standardises and commoditises and shifts us away from being inside out to being outside in. The destination is an organisation that I call "I3" – one that's really focused on the three "I"'s. That's what being digital is all about and that's what I mean by IT to I3.
PB: What about other CIOs? What are the biggest trends affecting CIOs in other industries?
PJ: The big trends seem to be having broadly the same impact on all businesses - and this is the first time I've seen that. The digital revolution is disrupting the value chain, business models, and competitive landscapes across industries. The social, mobile, analytic, and cloud trends that are simultaneously coming into all business sectors have the same impact – just at a different pace, depending on the industry sector.
No matter where you're sitting, to be successful you have to review and rethink your business model, your value chain, and your ecosystem from two perspectives. First you have to ask yourself who is getting ready to eat your lunch. That is, which companies can now enter into your market by bundling and mashing together these new technologies? The second question you have to ask yourself is, who's lunch might you now eat? In other words, how can you take advantage of these technology trends and combine them with your core competencies to enrich your core product and enter into new markets?
Look at all the new players who are able to come into your space because they are leveraging technology differently. As a telco, this last point is painfully true for us; and as I said, this is what caused me to start thinking about "IT to I-3."
The more I think about it the more this transformation is relevant to all businesses.
PB: But your role is quite different. Whereas most IT directors only deal with internal IT, you have responsibility over both internal and external IT. How does what you're describing affect the typical CIO?
PJ: It doesn't matter what your business is. If these trends are not already making a big impact in your own industry sector and business model, they soon will. That's because cloud gives you a different consumption model, mobility gives you the ability to transact business differently - and with analytics, everybody has the opportunity to enrich customer experiences by owning the customer relationship and having the best insight.
All CIOs - even the ones who traditionally have just an internal focus - should be trying to consolidate and standardise the internal IT to get the headspace and the resources to focus on these new trends and anticipate how their business will be disrupted positively or negatively. All CIOs need to be embracing these new trends quickly. That's my point.
Whether you like it or not, the IT function has gone from back office to front office; and because of the amount of change we have to drive to get there, the CIO has become the leading driver of transformation and differentiation.
PB: That sounds great. But are there alternatives to this IT to I3 pillar? Do you see other ways of responding to the technology and market shifts you described?
PJ: In the same way the digital revolution is irreversible, I don't think there are alternatives. I3 has a very strong resonance with the current trends. If you were building a business now, you would build it as a digital-native business. You would build from the perspective of differentiation within this I3 area. You certainly wouldn't build a business with heavy infrastructure, with your own data centres and bespoke applications, and customised business processes.
Of course different industries evolve with different regulatory pressures. That certainly distinguishes the public sector from the private sector. I think the pace with which you have to move and the extent to which you can consolidate and commoditise your core will differ by industry and by business and risk attitude. But sooner or later, everybody has to make the transition from IT to I3.
PB: What about CIOs who are not paying attention and don't catch up on the forces that bring about the shift in IT strategy that you are talking about? What happens with them?
PJ: A CIO who is paying attention - and who's working within a business that isn't - is probably talking a different language than his or her peers. The business won't survive and those CIOs will be forced to move on. The best thing for them to do is to move on before they find themselves without a solvent company. They should immediately go to a business that gets it.
The other case is when you're in a business that gets it, and you as a CIO aren't paying a huge amount of attention to how you are going to get disrupted with these simultaneously emerging trends of cloud, social, and mobile. In this case, you need to wake up before you get pushed out, or pushed aside, by someone calling themselves a CDO.
Apart from the very heavily protected and regulated industries, everybody's value chain is up for grabs. A really effective digital-natured business can eat anybody's lunch, because it's so easy to replicate other people's products and services and do it better with this new model than with the traditional ones.
I think the best CIOs have always had a big influence in leading the thinking in terms of business transformation. But now they are in a better position than ever before to influence, because the transformation is digital, and the differentiators are technology. If you are already leading change, then the disruption will be positive. However, if you aren't leading, and you wait too long to start leading, the disruption is almost certainly negative.
Are you really going to sit around and watch somebody else eat your lunch?