Learning from innovation leaders: Winning practices of the most successful Technology, Media, and Telecom innovators
What qualities and practices set the leading innovators within the Technology, Media and Telecom (TMT) industries apart from their peers? What practical steps do these companies take to embed innovation throughout their business? In which areas do they focus their innovation effort: products and services, customer experience, business model? In this report we distil the lessons that can be learned from a cohort of leading TMT companies, and identify how to apply these lessons to enhance any TMT company’s innovation capability.
In Seizing the Innovation Edge, the first in our series exploring innovation within TMT, we identified the steps companies take to develop a coherent innovation strategy, and h0w this focus on innovation, coupled with intelligent innovation spending, generates faster revenue growth.
This paper digs deeper into the strategic and operational decisions that leading innovators make about innovation, and how these choices translate into more favourable returns. The final paper of the series will address the obstacles to implementing more sophisticated innovation practices, and explore how leading innovators successfully overcome these challenges.
The typical innovation portfolio of the most innovative TMT companies has a greater proportion of breakthrough and radical innovation.
Since its inception almost two decades ago, Amazon has continually embraced innovations focused on delivering an enhanced customer experience and a more streamlined supply chain. The results have been significant: revenue has grown at 35% CAGR and the latest annual online sales are more than $200 billion. Amazon’s stock price is now 18 times higher than it was in 2001. It is estimated that more than one in three product searches now start on Amazon.
What has contributed to Amazon’s innovation success? In short, Amazon’s rapid, multi-pronged approach to innovation, coupled with sustained investment in innovation, has enabled it to consistently provide more value to customers than its competitors. Innovations such as 1-Click ordering, Amazon Marketplace, Amazon Prime membership, and its Kindle tablet have all offered new ways for customers to interact with Amazon content and make purchases online.
Taken together, these innovations equip Amazon with valuable data analytics about customer behaviour and preferences which in turn have offered customers greater personalisation of content and enabled Amazon to introduce dynamic pricing and be world leaders in customer segmentation.
Together with technology and customer experience, the business model has been another key focus of Amazon’s continued innovation efforts. For example, Amazon Web Services, a cloud-based storage service, represents an innovative offering for Amazon and is a key component of Amazon’s continued profitability. The rapid expansion of this part of Amazon’s business provides scale and funding for Amazon’s content and media streaming services, itself an innovative addition to Amazon’s core retail business model.
Where does Amazon go from here? It is likely that Amazon will continue to innovate business model, operations, and customer experience: expanding into the groceries market, better leveraging search and recommendation functionality, and growing Amazon Web Services and its original entertainment content are all key priorities. Jeff Bezos, founder and CEO of Amazon, has described the company’s philosophy as “Put the customer first. Invent. And be patient.”
Netflix launched its first website in 1998 with only 925 titles available to rent. Now it is a global service with a turnover of more than $3.5 billion. Revenue grew by 47% CAGR between 2000 and 2012 and its share price has increased by more than 4000% since its IPO over a decade ago.
Much of this success can be attributed to Netflix’s ability to spot emerging trends and innovate its business model accordingly. In 2002 DVD overtook VHS by number of units sold and consumers were becoming frustrated with the limited choice available at high street rental stores. In response Netflix launched its DVD rental by mail service, innovating the operating model to match available titles with customers’ priorities, and investing in the necessary infrastructure to bring this breakthrough business model direct to consumers.
In 2007 when broadband penetration in the US grew from almost nothing to over 70%, Netflix launched its online streaming service It took advantage of the more favourable fixed cost model that streaming offered compared to DVD rentals. This allowed Netflix to raise prices but retain customers by offering better value flat-fee subscription models.
The most recent wave of Netflix’s innovation has been its creation of original content, an initiative driven by research that suggests customers are less likely to cancel subscriptions after watching exclusive content. Netflix was the first company to adopt a backward-integration model, buying and streaming content before subsequently creating its own. This approach has been well-received by customers and recognised by the wider industry through Emmy Award nominations for Netflix original content in 2013.
What’s next for Netflix? To maintain its competitive edge, the company will have to focus innovation efforts on continually increasing customer value. Netflix is likely to increase the amount of original content that it produces and adapt its business model for leasing content to reflect this. Further innovations may focus on the home entertainment hardware market with Netflix developing a hardware offering to complement its rental and streaming services, perhaps in collaboration with existing hardware providers.
Spanish telecom provider Telefónica made a decision to radically innovate its innovation practices, creating a separate corporate entity, Telefónica Digital.
Telefónica Digital is more than an incubator. It sets a new level of commitment by creating a “business unit” around innovation. Lead by one of the parent company’s senior executives, Telefonica Digital has become the vehicle to channel significant resources and the forefront of the company’s product and service innovation. It has been given ambitious targets to pay back the original investment quickly and begin creating significant new revenue streams. Its set-up as a separate unit provides no place to hide behind legacy revenues.
Importantly, it has also been given the freedom to take a long-term view about innovation. Telefónica Digital has been set-up with significant autonomy from the main corporate body allowing for increased agility. At the same time, there are important collaboration channels woven into both organizations to ensure that Telefonica Digital drives innovation for the whole group rather than just being an isolated “OTT player” which happens to have the Telefónica brand.
“Many of Telefónica Digital’s innovations have focused on changing the company’s role within the telecom value chain,” says Nicolas Borges, PwC Spain Telecom Industry Advisory Partner. “They are interested in understanding what role Telefónica’s products and services play in consumers’ lives, in order to find new ways of interacting with customers.” For this reason, many of Telefónica Digital’s approaches have focused on creating new alliances and collaborations, both internal and external, to find opportunities for the business to compete in new areas of the market.
“It is still early days,” says Borges, “and we won’t know the true impact of Telefónica Digital for years to come.” However, it has already generated innovative offerings, such as TuGo, a service that allows customers to use their mobile number on other Wi-Fi enabled devices to make and receive calls. This innovation both aims to add value to customers in new ways, and more efficiently manage spectral resources, fully leveraging the core skills and assets of a telecom service provider.
Now in its 42nd year of operation, Dallas-based Southwest Airlines carries more domestically-originated passengers than any other airline in the US. From its first flights in June 1971, the company has made air travel more affordable than ever before, driving fares downwards and passenger traffic upwards on every route it serves. In late 2010, Southwest announced its commitment to “spreading low fares farther”, and said it would start building its gateway to the future by acquiring and integrating AirTran Airways.
This deal was a huge undertaking for Southwest. At a stroke it would increase its reach from 72 to 97 destinations and its fleet size by 25%, while also seeing it officially enter international markets – an absolute game changer for a carrier that historically provided domestic-only services. Executing the deal would be complex, time consuming, and require unwavering focus from all areas of Southwest’s business. The effort would also face headwinds ranging from widely differing business processes to ageing technologies.
“PwC adds real value. They genuinely care about the success of your business and will see you through to success.”
- Kathleen Wayton, Vice President Technology, Business Transformation Solutions — Commercial, Southwest Airlines
Overall, the proposed merger highlighted the need for the help and support of a strategic partner Southwest had come to trust: someone that understood Southwest’s culture, a proven champion of Southwest’s strategic initiatives, and a seasoned advisor with deep understanding of the airline’s business. Southwest turned to PwC US.
The US firm hit the ground running, pulling together several high-performing teams committed to helping Southwest achieve its goals. First, the team built an IT integration planning team to draw up a technology roadmap spanning corporate, commercial, operations, and infrastructure. Next, it formed an integration programme management team to support technical integration across applications including reservation systems, agent applications, loyalty and web, supported by dedicated project management and solution development teams for high-risk applications. Finally, it established a technology deployment management function to ensure all the necessary technical changes were executed as planned.
On 28 January 2013, through the combined efforts of the Southwest and PwC teams, the integration efforts were completed with the successful sale of flights spanning the combined Southwest and AirTran flight network.
The Global Fund is a US$23 billion financing institution based in Geneva, which funds programmes to prevent, treat and care for people with HIV/AIDS, tuberculosis (TB) and malaria in the world’s poorest countries. PwC has been working with the Fund since its creation in 2002.
The Global Fund is the main multilateral funder in global health, with 750 programmes currently in 151 countries. The success of the Global Fund’s activity can be gauged not only by its funding levels but more importantly by the results it has achieved. Over the past 10 years, more than 300 million insecticide-treated bed nets were distributed to prevent malaria, 9.7 million cases of TB were detected and treated, and 4.2 million people received life-saving treatment for HIV/AIDS.
As a provider of finance, the Global Fund does not directly implement any programmes. Instead, it funds mostly national institutions, like ministries of health or NGOs to deliver programmes that will have the greatest impact on the three diseases. In order for the financing to be used as effectively as possible, the Global Fund uses a number of Local Fund Agents (LFA) on the ground. Their role is to help to assess the capacities of key implementers in-country and provide ongoing monitoring of the use of funds and the progress of programme implementation.
PwC firms currently act as LFAs in 72 countries, with more than 350 people working to assist the Global Fund in making effective programme funding decisions. According to Gill Sivyer, the PwC Switzerland partner who leads the work with the Global Fund, two of PwC’s major strengths in particular make us the ideal fit for this work: “The global strength and reach of our network means that we have the right people, with the right skills and capabilities on the ground. Thanks to this network, we’re truly local both to the programmes and to the Global Fund’s base in Geneva. In addition, one of PwC’s core strengths – our independence – enables us to offer the Global Fund completely impartial assessment and recommendations. This gives the Global Fund the transparency and confidence they need for effective decision-making.”
PwC’s work with the Global Fund has grown considerably over the past decade. Our team in Geneva works closely with the Global Fund to deliver high-quality LFA services that meet the Global Fund’s information and risk management requirements. We also host an annual training conference for PwC staff to make sure they’re up to speed on the latest developments.
PwC Brazil has been awarded a five-year contract to establish and run a new organisation (the EAQ – Entidade Aferidora de Qualidade) that will monitor the quality of broadband services in Brazil. PwC Brazil was the only major consulting firm that was asked to compete for the contract by the Brazilian telecoms regulator Anatel.
Ensuring the quality of both fixed and mobile broadband across the whole of Brazil is a priority for Anatel. Accordingly, it has created a unique regulatory framework that includes the power to fine service providers who fail to meet required standards and quality benchmarks. The importance of high-quality monitoring, assessment and reporting of that performance is therefore critical.
PwC Brazil and PwC UK worked together with a UK-based broadband technology provider to win this five-year project, awarded in 2012. The combination of PwC’s telecommunications’ expertise and its partner´s credentials on similar projects in Europe, the US, the UK and Singapore, created a powerful proposition.
Additionally, PwC’s leading reputation in the telecoms industry in Brazil was a key success factor as the body awarding the contract included representatives from more than 20 Brazilian broadband service operators as well as Anatel’s management. “PwC’s track-record for independence and integrity helped us win the contract and run this very challenging and exciting project”, says Luiz Viotti, PwC Brazil TICE Advisory and Engagement Leader.
From winning the contract, PwC Brazil has built a new organisation from scratch, and now has 30 full-time people working in the EAQ office in Brasilia. Ensuring that testing is as rigorous and representative as possible has required recruiting more than 200,000 broadband customers as volunteers across Brazil to agree to have a monitoring device connected to their computer. In addition, 5,000 public schools across the country were selected to receive and install equipment that will measure the quality of the mobile broadband connections. At any one time, up to 10,000 of those households and schools, on a rolling basis every 24 months, are subject to constant field-testing and their data is already being used to create reports for both the regulator and the Brazilian public.
Building and running the new organisation required PwC Brazil to enter into contracts with a wide variety of suppliers, including logistics, manufacturing and network infrastructure so that the EAQ fulfils its brief to help all Brazil’s broadband customers to get the best possible service from their service providers.
José Alexandre Bicalho, Anatel´s Planning and Regulation Superintendent, describes the introduction of the new quality indicators for internet broadband as “a milestone in the evolution of telecommunications in Brazil.” He adds: “Continued growth in the availability and quality of broadband services is essential to meet the needs and expectations of Brazilian society. Creating the EAQ with PwC is a major innovation – one that both enhances transparency for users and also reinforces Anatel’s regulatory model."
Photo by Ross Becker, photographer
In February 2011, a devastating earthquake struck New Zealand’s second-largest city of Christchurch, located in the country’s Canterbury region. Tragically, the earthquake killed 181 people, while also causing severe damage to buildings and infrastructure already weakened by a previous quake in 2010. The cost of the damage from the earthquake and aftershocks has been estimated at around NZ$40 billion, making it New Zealand’s costliest natural disaster ever.
In the immediate aftermath, PwC New Zealand was engaged by the newly-formed Canterbury Earthquake Recovery Authority (CERA) to lead and coordinate the recovery efforts. This role has seen us undertake a wide variety of work for many organisations across Canterbury, with our Christchurch office receiving active and enthusiastic support from most of our other offices throughout New Zealand.
We began by seconding two directors to CERA itself to help set the organisation up – a move that helped us gain insights into the challenges ahead. This work included advising on a financial blueprint, investor engagement and the business cases for anchor projects, one of which is a new Convention Centre in Christchurch.
We also acted as financial advisors on land acquisitions, developed joint risk management frameworks, and helped with a proposal to the Commerce Commission for an increase in electricity line charges to cover repairs to the power network.
Restoring public transport was a key priority after the earthquake, and this was another area in which we were involved, providing a due diligence report on the landscape of Christchurch including public transport planning. We developed a dedicated Christchurch Rebuild page on the PwC website, focusing on the risks for companies associated with the reconstruction efforts. We also engaged with construction firms involved in the work, as well as providing ongoing support to businesses dealing with business interruption claims. Insurance assessments were a further focus, and we developed proposals to reduce the risks of fraud.
“The rebuild is clearly an emotional and sensitive time for the people of Christchurch – and we’ve done our best to make the project run as smoothly as possible, by providing resources from across our offices and sharing our expertise with a wide array of businesses”, says Wayne Munn, PwC New Zealand partner responsible for the Christchurch office.
“We’ve also helped with the governance of the anchor projects. Most of these are currently underway, but we’ve recently been awarded roles as advisors to the Transport Interchange design-build contract (DBC) and Stage 2 of the Convention Centre DBC.”
The Japan International Cooperation Agency (JICA) is a government agency that executes Japan’s Official Development Assistance programmes in developing/emerging markets. With more than 90 overseas offices, JICA’s role includes helping Japanese companies establish businesses that serve the ‘base of the pyramid’ (BoP) – commonly defined as the four billion people in developing countries who live on less than US$2.50 a day – thus fostering local social and economic development.
To support these goals, PwC Japan has helped JICA to promote BoP businesses to Japanese companies, including operating the Feasibility Study (F/S) programme. This enables Japanese companies to apply for and gain financial support to conduct feasibility studies, structure financing mechanisms such as the IMPACT fund, establish monitoring and evaluation schemes, and raise awareness of BoP businesses.
The project, recently won by a PwC team from the Japanese and the UK firms with support from PwC firms in Norway and the US, involved a benchmarking study to prepare the way for JICA to form new financial mechanisms to improve access to finance of BoP businesses. The PwC team reviewed the success factors for BoP businesses in emerging markets and existing impact fund mechanisms, and prepare a road map that JICA could take to establish its financial support for them. The PwC team then created a framework for measuring and monitoring the social returns of BoP businesses together with Japan’s leading social investment company.
In parallel to the benchmarking study, PwC Japan then won a three-year contract to help administer the BoP F/S programme of JICA. With private BoP companies setting up in developing countries able to apply for the programme, PwC Japan won the mandate to advise JICA on the selection process, and to help monitor and evaluate the programme – including reviewing lessons learned and recommending improvements to the company’s business propositions.
As part of this engagement, PwC Japan is also providing a ground-breaking one-stop shop for the BoP businesses supported by the programme, including supplying them with technical assistance in-market.
In evaluating the bids for this work, JICA was very impressed with PwC's global credentials, especially the UK-led ‘Business Innovation Facility’, which is aimed at pioneering new ways of working that will improve the lives of the poor. And the Sweden-led ‘Innovations Against Poverty’, which works to stimulate and support sustainable business ventures that might not otherwise be pursued because of perceived commercial risks and market uncertainties.
Masataka Mitsuhashi, engagement partner and International Development Leader for PwC Japan, comments: “In our work for JICA we’ve been able to draw on PwC’s unique blend of capabilities across the world, including our deep knowledge of BoP business, our presence in emerging markets, and our expertise in both business consulting and international development.”
Oerlikon is a highly innovative industrial group specialising in machine and plant engineering. With over 12,700 people in more than 34 countries, the Group is active in five businesses: textile machines for manufacturing manmade fibers, drive and transmission systems and components, vacuum systems, thin-film coatings and nanotechnology.
In its drive to double revenue growth in India in the next five years, Oerlikon Group needed to identify opportunities for leveraging its business in the country. Operating in a diverse set of industries and product categories, the Swiss group recognised that a holistic and cohesive approach would be essential. To drive a successful long-term outcome, and combat increased competition from mid-market players, it set out to promote India, at group-level, as a vital growth engine in a growing market.
To help achieve its ambitious targets, Oerlikon turned to PwC’s Emerging Markets Centre of Excellence, which partners with clients to help navigate challenges and deliver on their business ambitions in India, a key emerging market. The centre is a strategic investment made by PwC India and is closely connected with other PwC firms in emerging and developed economies.
Leveraging the Centre’s integrated and comprehensive suite of solutions, PwC India’s Mumbai-based team set about helping Oerlikon to extend its understanding of the Indian business environment, develop new value propositions and put in place a tailored operating model that would deliver on its objectives. The team helped Oerlikon define which products and services would be best suited to the Indian market as well as focus on deepening existing customer relationships. A business case was developed promoting India as a growth market which set an accelerated target for growth till 2020 and a national operating model was created that would facilitate common functions related to brand and national policies.
Oerlikon’s India Country head Khurshed Thanawalla said: “Our work with PwC resulted in a strategy that recognised the nuances and complexities of the Indian market for each of our four key segments. The process facilitated growth ideas from each team member. This has led to clarity for our long term goals and has created ownership for this profitable growth agenda.”
Along with enabling and accelerating strategy development, the team proposed on making the new strategy work ‘on the ground’. For Oerlikon, the results of this engagement enabled it to rapidly prioritise opportunities from a large and complex range of options. With an initial capability assessment backed by a financial plan, Oerlikon’s management was able to build internal consensus for the strategy and drive the transformation that is now underway in the India business.