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Telefonica CIO: what legacy telecoms businesses missed

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Daniel Oines

The economic crisis of 2011 saw businesses fall like dominos. For Telefonica, it was the wake up call showing them digital transformation was a necessity.

Few sectors weathered the economic crisis like the telecoms industry.

Reminding those fortunate enough to escape unscathed of the potential pitfalls that come with being unprepared.

Some commentators put the unwavering resilience down to a reduction in prices, which, driven by regulation and competition was already being done before the downturn.

Others suggested it was a result of the innovative nature of the industry, or for European telcos, the fact many took advantage of their existing footprint in mature markets.

Whatever the reason, there’s no escaping that plain sailing it was not.

Businesses fell like dominos and the woes of the broader economy seemed unending. Spain, where Telefónica is based was once the poster boy for European growth. Compare its creation of 1 in 3 Eurozone jobs during its heyday to the staggering 57.7% peak youth unemployment figures released in early 2014 as proof of just how engulfed the country became.

The scale and depth of the macro economic challenge ensured our eyes were opened to the realization that profound and sustainable digital transformation was a necessity.

Not least to ensure it would limit suffering in the case of further economic challenges, but, more importantly to ensure it became future proof in the face of competition from a new generation of digital telecoms businesses threatening to create a new kind of crisis which, this time, would have been harder to overcome.

And so in 2012, well into the digital revolution, we began our journey to digital transformation.

What took the industry so long to commit to digital change?

“The entire industry has seen huge growth and been very successful without trying particularly hard. “

The great thing about the telecoms industry over the last 15 years has been demand.

The unparalleled thirst for data that came with the smartphone revolution and the digitization of businesses meant exceptional demand for core connectivity products.

However, as history has shown with leading technology companies that experienced similar fortunes, there has often been a degree of complacency from the industry service providers.

And why shouldn’t we have been?

Telecom Companies were making a lot of money based on pioneering innovation at the creation of the sector. However, as growth and margins were strong and the industry matured, the innovation slowed and the door was open for disruption.

It revelled in its own success to the point that it missed the foreboding warning of the startup storm knocking at the door.

The failure to act led to titans being out innovated by new, nimble digital players that took advantage of lowered barriers to entry. Viber’s and WhatsApp’s of the industry saw the huge margins being made and thought it was a great industry to disrupt.

They were right, and these digital players turned the industry on its head. Targeting core products that made the giants so successful in the first place.

WhatsApp for example started with messaging, and has since expanded out to voice calls.

It is now closing in on a billion users.

Had we have been more innovative we could have spotted it coming and protected ourselves better than we did.

The question faced now is how to compete? How to protect the rest of value chains? And finally, how do you grow your business out to different areas?

Change, everything.

The answer began with digital transformation, which for Telefónica was impossible to begin without an aggressive simplification process.

This was a result of the sheer complexity of old processes, old business models, products and technologies.

And so we entered a simplification activity covering things like data centre optimization and infrastructure virtualization, as well as switching off a lot of legacy systems that were sapping productivity.

Once that had been completed we were 2,000 systems lighter and ready for truly transformative change.

We kicked off with the re-implementation of business processes, policies and systems, paving the way for a full-stack multi-national digital transformation across 15 countries in parallel, based on a standardized process footprint.

This was a huge investment in digitization and radically different compared to the Telefónica of the past.

Essentially we turned from a business doing very little by way of transformative change, to a business now doing nothing but transformative change.

This cannot be understated, as it paved the way for the ace up our sleeve; customer data, and lots of it, which we know is our number 1 sustainable differentiator and biggest opportunity due to our unique customer relationship and long history of protecting privacy and security

We have billing relationships; geographical data, browsing data and knowledge of what our customers spend their money on. We know how sensitive and powerful this is and what’s more we have full trust from our customers, which can be used to our advantage.

Ensuring this information is digitized in the right way will open up new means of context-sensitive interactions and enriched propositions based on customer data, and will truly transform the way brands interact with individuals for the better.

Compare this to over-the-tops who don’t necessarily see their users in 360 degrees.

These businesses infer data, and use algorithms to build a view of a customer, yet this is actual information that telecoms businesses already have.

Now, we have to be a lot smarter and slicker about how we change to ensure seamless data flows across our business that can be used with ease, but we truly think identity and privacy is set to be a real opportunity for us in the future.

We have the credibility from our history and we’re expecting it to be an important future differentiator too.