In challenging economic times, many telecommunications companies — and their leaders — may be tempted to stem sliding profit margins by slashing innovation and product-development budgets. This strategy might provide short-term benefits, but could ultimately prove disastrous.
Innovation is the lifeblood of the industry. Research indicates that companies focused on fine-tuning and enhancing their capabilities and accelerating innovation will emerge as stronger entities, well-positioned for sustainable growth.
Granted, the most pressing challenge for telecommunications management is rapid, sustained cost management. Keeping costs low to preserve margins is paramount, but it shouldn’t be done at the expense of future growth. A short-term plan for strategically addressing costs must be designed while simultaneously setting the stage for out-competing in the medium term and outperforming in the long term.
Simplification and innovation are the keys to successfully navigating the next few years. In commodity markets, unnecessary costs must be eliminated and less-efficient assets must become leaner, more streamlined and more focused. Focus on new markets, including home and business IT, advertising, gaming, the health care and financial markets and evolving business models using strategic partnerships and new delivery models that will drive future profits. The money saved from “trimming the fat” from less productive assets can be reinvested in growth areas.
Eighteenth-century author Samuel Johnson summarized the concept of investing when he wrote, “The future is purchased by the present.” For example, during the 2000-01 economic downturn, Apple addressed a new market segment by launching its first iPod at the downturn’s height.
A leading mobile-device maker, on the other hand, cut innovation spending by over 10%, ultimately losing ground in providing attractive products alongside its legacy cell phones. Apple continued to grow.
While price is still important, a growing percentage of customers make their purchase decisions based on the total experience surrounding the product, including technical assistance. Telecommunications companies must move up the value chain in order to be able to attract customers and tap into new revenue streams. And with the emergence of the global digital supply chain, strategic partnerships are crucial in order to leverage global investments in equipment as well as in development resources that reduce time to market and enhances margins.
Executives who enable their companies to “slim down,” enhance efficiency, continue strong investment in research and development and ensure a positive and personal customer experience will navigate their firms through this turbulent market and position them to emerge as industry champions.
Competitors that sit back and wait for the market to get better may simply be left behind.