Why CSPs must take immediate action on their investment priorities, innovation, partner ecosystems and more
We’re currently witnessing an explosion in enterprise spending on ICT. Analyst firm Gartner estimates the enterprise ICT market will increase its spend and is expected to be worth USD$3.6 trillion by 2022.
We see three key drivers behind this growth.
First: enterprise CIOs are today choosing cloud-based solutions for their ICT needs ahead of traditional on-premise
Second: enterprise CXOs are under huge pressure to digitalize their operating models using new technologies like IoT, automation and AI to optimise costs and improves responsiveness.
Third: the arrival of standalone 5G opens up opportunities for new business models, use cases and applications that make use of high-speed, low latency, always-on mobile connectivity. Operators predict two thirds of all use cases for 5G will be business- or industry-focused rather than for consumers.
5G enterprise services are a challenge and an opportunity
Creating these 5G solutions presents a considerable challenge for CSPs. They need in-depth knowledge and understanding of their enterprise customers and the particular sectors in which they operate. As such, they must work closely with their customers and to adopt a new platform-based business model that favors working with ecosystem of partners.
With consumer markets becoming increasingly saturated and commoditized, enterprise represents one of the few remaining growing markets for CSPs. And the stakes are high: if CSPs can’t make a success of their enterprise service offerings, they risk their long-term commercial viability.
A recent study by BearingPoint//Beyond of 250 Enterprise buyers of ICT services and 100 telecom executives in Europe, Asia and the USA supports this view. It identifies enterprise ICT as a huge opportunity for CSPs. But for them to do well, they must make bold changes to their business model and give enterprise customers exactly what they need.
The five gaps that CSPs must fill
The study revealed five “gaps” that CSPs must close to win over enterprise customers. The prize is real. 47 percent of enterprise customers say they would buy up to 16 percent more from their CSP if they made these changes.
The five critical areas of improvement for CSPs to address are as follows:
Gap #1: Disparity between investment priorities and revenue drivers
47 percent of telecom executives expect the enterprise market to be their organization’s main revenue source in two years compared to 28 per cent who believe it will be consumers. However, only 31 percent expect Enterprise will be the main focus for investment vs. consumer who still believed to be the main focus of the investment. CSPs must better align their investments with where they’ll earn the lion’ share of revenue.
Gap #2: The legacy mindset is strangling CSPs’ efforts to accelerate speed, innovation and experimentation
For 55 percent of enterprises, the driver for investing in new technologies is to modernize, but the most frequently cited reason (39 percent) for not working with CSPs is insufficient innovation, differentiation and industry tailoring.
At the moment, how CSPs come up with ideas for new products and services too often focuses merely on keeping up with competitors: versus coming up with genuinely original, breakthrough offerings that appeal to early adopters and which are also flexible enough to add to if they’re successful.
CSPs’ current R&D and launch processes are intended to control cost and risk, but actually inhibit experimentation. They add time and cost to development cycles, and in so doing cancel out the “fail fast” mantra of OTTs and other digital providers.
Unsurprisingly, just 26 percent of enterprises see CSPs as a key partner for new and innovative ICT services. CSPs’ outdated processes mean they lose valuable enterprise business to more agile digital players who can trail, experiment and respond faster to customer needs.
Gap #3: Failure to develop and harness a growing partner ecosystem
So how can CSPs jump to the front of the queue to become enterprises’ preferred partners for new IT investments?
The most popular enterprise response was for CSPs to collaborate more closely with other vendors to provide complete, “joined up” solutions
The majority of CSPs – 86 percent – recognize that third-party collaboration is important. But when asked how advanced they are in building out their partner ecosystem for B2B, just 12 percent of CSPs have them in place today and only 33 percent are “fully engaged” in developing their ecosystem.
28 percent of CSPs are in planning and 27 percent are either in early stage analysis or considering whether or not to build one – some CSPs had not thought about the subject at all.
Gap #4: CSPs’ current IT systems cannot support innovation, partnerships
In contrast, more than half (54 percent) of CSPs admitted that whilst ecosystems were crucial to future success, their current IT system does not support seamless monetization, orchestration and settlement between them and their partners.
49 percent of CSPs also felt their current IT set-up does not give them the flexibility to launch offerings quickly. In comparison, tech giants like AWS accelerate the pace of innovation with 1,800 products launched in 2018(and 1400 in 2017).
Gap #5: Choosing the wrong partners
CSPs must re-examine who they partner with to match the expectations of enterprise customers. CSPs focus on start-ups and large technology providers like Cisco and HP – however, these are not the organizations with whom enterprises most want to work with.
In reality, 51 percent of enterprises regard digital disruptors such as Google and AWS as key sources of products and services: however, only 32 percent of CSPs currently partner with these disruptors, and only 37 percent expect to do so in two years. CSPs at the moment seem reluctant to collaborate with potential rivals like Google and AWS. This will hurt them in the eyes of enterprise buyers.
It’s decision time
CSPs face some tough decisions. CSPs themselves already predict that two thirds of all 5G use cases will be business- or industry-focused, therefore they need to have a strong enterprise business in place ready for 5G’s arrival next year. This in turn means a shift in resource allocation now to drive growth – even at the expense of their consumer businesses.
According to global research and advisory firm Gartner, the traditional enterprise connectivity business (e.g. MPLS) will shrink by 0.8 per cent CAGR over the next 5 years: in contrast, the USD$3.6 billion market for enterprise ICT will grow by 3.6 per cent CAGR.
If CSPs delay making the changes necessary to capture this growth market, they’ll lose out to more agile digital players and tie themselves into following the connectivity market downwards. This means bold leadership and abandoning their traditional, restrictive product development processes and replacing them with leaner, more agile operations that prioritize experimentation, innovation, and more rapid time to market.
CSPs must also significantly improve their understanding of enterprise customers’ needs and the industries in which they operate. They must work more collaboratively with them to co-innovate, and also to build legitimacy and trust.
The goal for CSPs must be to become the “destination” for their customers, in terms of orchestrating the diverse set of new technologies and third-party solutions that fulfil their varying technology needs.
Finally, ecosystem partners are crucial if CSPs want to plug their knowledge, technology and solutions gaps. In so doing, they’ll also be open to actively encourage the fresh ideas and new ways of thinking that will deliver sustained success and returns with enterprise customers.
Find out more about the five critical gaps in CSPs’ enterprise strategy by downloading a free copy of the BearingPoint//Beyond study, “Mind the gaps: why CSPs could miss out on the multi-trillion-dollar enterprise IT opportunity”.