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Harness Disruption with Analytical Value Mapping

HARNESS DISRUPTION WITH ANALYTICAL VALUE MAPPING

Table of Contents

Executive Summary ............................................................................ 1Corporate Strategy In The Age Of Disruption .......................................... 2

Industry-dominant economic features - do they still exist? .................... 3The Five Forces model of competition................................................. 4Revolution of the industry value chains ............................................... 5Who owns corporate strategy these days? ......................................... 6

Value Maps: Operationalization of Corporate Strategy ............................. 6Internal battle – which current value will still be valuable tomorrow? ................7

Upstream view – value maps according to technology providers .....................7

Downstream view – value maps according to customers ................................7

Management consulting view – business process-oriented

value maps .....................................................................................................8

Analytical view – value measurement, arbitration and

what-if scenarios .............................................................................................9

Activating Analytical Value Maps ........................................................ 13Enterprisewide analytics ................................................................................13

Business-aware management .......................................................................14

Strategic performance management (SPM) ...................................................14

A potential executive body: Business Intelligence Competency Center ..........15

Summary ......................................................................................... 16About SAS ........................................................................................ 17


Executive Summary

For years, the communications industry has generally accepted that wireless carriers are in charge. With typical net profit margins of 35 to 50 percent, carriers capture roughly 80 percent of total industry revenue, which includes handset makers, network equipment makers, distributors, software providers, manufacturers and retailers.

Recently, a wide variety of industry phenomena significantly disrupted the status quo:

• Thecustomerhasincreasinglyreplacedthenetworkasthecarrier’skey asset and crown jewel.

• TechnologygiantslikeGoogleandMicrosofthaveshiftedfromobservingandexperimenting to becoming major forces in the communications ecosystem.

• ContentandgamesbrokershavegainednewglobalcompetitorslikeAmazonand Best Buy.

• WhileNokia’smarketdominanceisindecline,Apple–arelativelynewentrant– rapidly gained market share and strengthened its position at the expense of both equipment manufacturers and mobile operators.

• Asthemarketcontinuestoopen,manynewfollowerswillenterthecategoryand the OEM market segment.

Basic economic rules still apply, but competitive marketing models have become increasingly fluid and will require serious revisions, and even a little creativity. As convergent companies and products enter the market, they will makeanunpredictableyetpowerfulimpact.Newvaluechainsaredynamicand interdependent, i.e., an upstream provider in one chain may become a downstream or parallel provider in another.

As a result of these dramatic changes in the industry, crafting and executing corporate strategy becomes more challenging. An in-depth understanding of how changes occur and how a technical revolution or industry evolution will affect business finances is critical to developing an effective corporate strategy.

Turbulent times require special tools. Technology-oriented value maps of upstream providers, end-user value perception maps or even robust value maps from management consulting partners are insufficient. Analytically driven corporate strategy and value maps allow us to establish two-way, near-real-time communication channels between business strategy and customer data. How can you begin using analytical value maps? There are several factors to consider jointly or separately, depending on the situation:

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■ Analytically driven corporate strategy and value maps allow us to establish two-way, near-real-time communication channels between business strategy and customer data.


• Enterprisewideanalyticsarethemostfundamentalprerequisite.Analyticschangesour view from a “What happened?” rearview mirror perspective to a forward-looking “Why is it happening? What if these trends continue? What will happen next?” outlook. This view includes deep statistical analysis, forecasting and predictive modeling.

• Abusiness-awaremanagementculturehelpsmonitorkeyperformanceindicators(KPIs) and, more importantly, enables fast drill-down to assess root causes and simulate remedial actions.

• Strategicperformancemanagement,whichtranslatesdailyperformanceintostrategic objectives, reflects the expected impact of the decision on the rest of the business and long-term goals.

• BusinessIntelligenceCompetencyCenterscansecureuninterruptedfunctioningamong cross-functional teams, define best practices and create continuous alignmentwithintheorganization.

Analytically driven value maps integrate traditional strategy management tools, such as backward-looking dashboards/KPIs, performance management solutions and enterprise business intelligence, with advanced analytics and predictive dashboards/KPIs. These value maps are particularly useful to the communications industry when:

• Productstructure,useandtechnologyareextremelycomplex.

• Volumeofdataprocessedissovastitcreatesmoreofalogistics/systemsissuethan a business problem.

• Changehappenssoquicklythatmerelycontrollingandreactingisnotenough.

Corporate Strategy In The Age Of Disruption

Even if we acknowledge that disruption exists in the communications industry, we don’talwaysagreeonhowitisdefined.Butitisclearthattheindustryhasbeendisrupted by:

• Tryingtoincreaserevenuefromexisting/potentialcustomerswithoutanunderstanding of the components that create this growth. Even if it is evident that the business has grown over time, the proportion of products or services creating thatgrowthisn’talwaysclear.

• Creatingmultiple“cross-vertical”or“vertical-horizontal”mutations.Forexample,globalplayersAmazonandBestBuyhaverecentlybecomeinvolvedingamesbrokerage,andsatelliteandcableTVproviderspurchasedmobilenetworkstobecome both connectivity and content providers.

• Increasingsalesbypowerfulbrandsthatcapitalizeontheirreputationtosellmoreproducts.

• AddingnewfollowerstotheindustryandOEMmarketsegmentasthemarketopens up.

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Nowthatweunderstandthebasicsofindustrydisruption,itistimetoexploreamorestructured, systematic approach to communications marketing.

Industry-dominant economic features - do they still exist?

Thefollowingisanoverviewofindustry-dominanteconomicfeaturesorganizedbytheir typical and future values.

Economic feature Typical value Future value Pace of changeMarket size and growth rate

Large, fast-growing in terms of volume and value

Large, saturated* (traditional services) fast-growing, (new services)

Stagnant* (traditional) Fast (new)

Lifecycle stage Early maturity, slowing growth Saturation and stagnation* (traditional services), rapid growth (new ones)

Stagnant* (traditional) Fast (new)

Number of rivals Few, traditionally network operators

Many (Internet providers, virtual operators, hardware suppliers)

Fast

Scope of rivalry Geographic area only, global players with limited or no advantage locally

Global players with strong brand and alternative services, niche technology or service providers

Fast

Number of buyers Huge, traditional end users Large, end users; however deregulation and technology promote wholesale of carrier-type services

Fast

Degree of product differentiation

Low, artificially boosted by multiple service bundles

Medium to high in terms of available connectivity technologies, large in terms of content

Medium (connectivity) Fast (services)

Product innovation Low, focused on network technology (speed and quality of connectivity)

High in terms of connectivity technology and service design

Fast

Supply factors Traditional shortage in supply (coverage networks, hardware)

New shortage in supply (capacity networks)

Fast

Demand factors High demand for services and hardware

Surplus in supply, crowd Medium

Pace of technological change

Traditionally high, above industry average

Extremely high with rapid changes in all aspects of the services

Extremely fast

Vertical integration Traditionally medium-to-high represented by prevailing end- to-end CSP organizations

The traditional integration weakened by regulatory bodies and market forces; another cross-vertical integration emerged (i.e., a service provider becoming a hardware manufacturer, etc.)

Fast and difficult to predict

Economics of scale Global players used to have strong negotiating position with hardware manufacturers

Price still matters, but demand and price are now driven by hardware and service providers; connectivity is now a commodity

Low to medium

Learning curve effects Powerful and rich CSPs used to invest a lot in customer R&D

New entrants and niche players look smarter and faster than traditional organizations

Medium to fast

Table 1. Communications industry-dominant economic features.

*Represents traditional market. Emerging markets are still growing.

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The table above illustrates dominant economic features disruption that exists throughout the communications industry, but there are more measurement tools to identify disruption.

The Five Forces model of competition

IstheclassicPorter’sFiveForcesanalysismodelrelevantbasedontheadditionaleconomic features in the left column of Table 1 above? Should it be abandoned as inadequate, or altered to reflect all the additional forces the industry must address? For example, handset manufacturers traditionally function as suppliers to service providers. Today, they can also create products (such as BlackBerry Messenger) that tap into new revenue streams – and divert revenue from service providers. Traditional end-to-end CSPs are forced to attack on more fronts, but there are several tools we can use to respond to these disruptions.

Traditionally, a service provider tackles connectivity/network issues and service issues at the same time, as outlined below:

Figure 1. Two different models of competition.

The network model in Figure 1 indicates that convergent products are at moderate levels, while service providers mark them as strong. Should the service and network modelsbeanalyzedseparatelyorjointly?Andwhichalgorithmsshouldbeapplied?

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Revolution of the industry value chains

Traditionally, telecommunications companies have tackled network challenges and service issues simultaneously, but this integrated approach is not the only way to compete.Somebusinesseshavebecomehighlyspecializedandcompeteinonlyone segment, while others compete as both a network operator and service provider. Differences between competition models for service providers and network operators are illustrated in Figure 1. Below, Figure 2 illustrates differences in the value chains for network operators who provide bandwidth, and service providers who deliver applications and content, etc.

Figure 2. Simplified value chains for network and service providers.

Figures 1 and 2 offer a basic overview of the industry, but reality is far more complex. Valuechainsarenolongerlinear.BecauseofdisruptiveproductslikeSkypeandthe Apple iPhone, among others, value chains have become intricate web of highly-specializedcompaniesconnectedbyamazeofpathsthatlinkbusinessrelationships.Namesoftelecommunicationscompaniesshowupinmultipleplacesinthevaluechain, and the structure of the chain is continually being reshaped.

Today’svaluechainsare:

• Dynamicintermsofparticipatingpartiesandthewayrevenueisdistributedamong providers, vendors, etc.

• Interdependent(i.e.,anupstreamproviderinonechainmaymigratedownstreamin a different value chain).

• Parallel(i.e.,morethanoneofthecompetitivevaluechainscanhavedifferentvaluecreationcharacteristics).Forexample,AppleorGooglecanfunction as handset and content providers, competing and cooperating with mobile operators.

• Market-specificorline-of-businessspecific.

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Who owns corporate strategy these days?

Corporatestrategyisusuallydrivenbyamixtureofshareholders’quantitativegoalsandacompany’smarketdifferentiators,includingmarketrealityandcompetitiverivalry.Recently, rapid technology growth resulted in an increase in products and solutions from incumbent marketers and in new entrants to the industry, putting long-term corporate strategy at risk. Corporate strategy is more than declaring company X will be the most profitable operator by 2015. Traditionally, shareholders rely on end-of-quarter revenue per share figures, which may not reflect long-term value. Within two to three years,acarrierserviceprovider’s(CSP)marketsharecanbereducedtoaslittleastwo-thirds of its original value. A CSP can be the most profitable in the industry, but a futureleader’ssharecouldbemuchlower.Thestrategicgoalswillbeachieved,butwillthe shareholders consider it a success?

We often witness power struggles among various stakeholders trying to claim responsibility for corporate strategy. The financial director could be under extreme pressure to secure a proper revenue stream and profit margins over time. The marketing director may face increasing churn and attempt to compensate with acquisitions and cross-sell of value-added services. And last, but not least, the chief technical officer might push forward her mission of balancing network assets, hardware investments and increasing service-level requirements for customers.

Maintaining traditional ways of doing business while planning for future growth requires an in-depth understanding of how technology enables service, and insight into probable usage patterns and how much value they will generate. To this end, the executive who owns strategy creation must be committed to collaborating and brainstorming with fellow decision makers.

Value Maps: Operationalization of Corporate Strategy

Typical corporate strategy is built on a foundation of company vision, mission and goals. At a minimum, goals should be SMART (i.e., specific, measurable, achievable, realisticandtimely).Next,wedefineandquantifyvaluesassociatedwithachievedgoals and construct a measurement system. A value map practically reflects business goals and ways to achieve them in order to create value

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Internal battle - which current value will still be valuable tomorrow?

Pillars of shareholder value (revenue growth, operating margins, assets, efficiency and brand image) are interrelated. Increasing pressure on one category affects the others. Howshouldtheybebalancedinordertomaximizetheoutputsgivenallcurrentconstraints? Also, which of these values will still be valuable tomorrow? Analytical valuemapsallowustosimulatemultiplescenariosusingoptimizationtechniques,butuntil those events actually happen, the results will remain uncertain.

There is an ongoing debate over how to balance values. Decreasing or increasing one value affects the others – and the total shareholder value. For example, it is impossible tomaximizecustomeracquisitionandcustomerretentionatthesametime.Itisalsoimpossibletoselladiverseportfolioatthelowestprice.Solvingtoday’soptimizationchallenges seems easy compared with solving future problems and setting the strategic direction for the business as a whole.

Upstream view - value maps according to technology providers

• IndustryorganizationsliketheTeleManagementForumattempttosetindustrystandards. The forum focuses on gaining a competitive advantage and true value from operational excellence and technological advancement, but meeting these standards can be costly for CSPs.

• Popularindustrystandardizationmethodslikeprocessandapplicationmapsarewell developed, updated continuously and can tempt chief technology officers toreplicatethemincorporatevaluemaps.Standardizationofprocessesandoperationalefficiencyaremandatoryforanyhealthyorganization,butthecostisnot always included in budgets. Businesses should research how much money they will save or earn based on implementing these new value maps.

Downstream view - value maps according to customers

Service providers and manufacturers focus on understanding a customer value model (i.e., what is important to customers). Customer value management is a science with an important, but costly, research and analysis methodology that is critical to daily business.

There are several challenges for those who exclusively use a customer value management model as the prevailing driver of corporate strategy. Unless customers are visionaries or early adopters, they mainly react to what they can see, feel and experience firsthand. They are not as opinionated about intangibles like future plans or ideas. This customer-value-focused approach suggests that the total market value ofanorganizationequalsthesumofthelifetimevalueofallcustomers-butthatviewismainlyhistoricanddoesn’tkeepupwithtoday’sdisruptivemarket.Themainchallenges of a customer value management focus are:

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• Thereisnomathematicalequationreflectinglong-termreturnoninvestment(ROI)over the life cycle of a customer relationship. Markets are constantly changing and are affected by competitors, technology, the global or local economy and industry trends. It is difficult to quantify long-term ROI for more than two months.

• Calculatingcustomerlifetimevalue(CLTV)byoptimizingcustomerrelationshipsis difficult to measure in the long term. It works perfectly for a short amount of time or for a small business, but it might be difficult in changing markets where customers are empowered by technology or competition but lack loyalty. Normally,acustomerisboundbyasubsidizedhandsetplusa24-monthcontract, and is restricted from changing or leaving a service plan. Easy and straightforward–butwhatwillthecostofgoodssold(COGS)bein12-18months? What is the termination rate? How will the exchange rate affect profits?

Management consulting view – business process-oriented value maps

Management consulting firms provide comprehensive, balanced value map templates. Well-trainedconsultantscanalignorganizationswithcorporatestrategyandrespectivevalue maps. There are, however, some constraints:

• Managementconsultantscomeandgo.Thereisaninitialrushtogatherinformation,analyzeanddeliverstrategyandvaluemaps.Whentheyleavewithno tracking procedures in place, the constant monitoring needed for creating real value is lost.

• Typicalmanagementconsultingvaluemapscovertheentireorganizationalstructure, but are maintained in silos. Asset management and operational efficiencyareoptimizedseparatelyandexclusively,notjointly.Realizinganoptimizationgoalislikesearchingforthehighestpeakonthehorizon–itrequiresconsensusthatitisthehighestpeak.Sub-optimizationgoalsaredefineddifferently and may have lower “peaks” that need clarification. What is our greatest challenge? What are the rewards for meeting that challenge? What are the risks and how can we mitigate them? What trade-offs are we willing to make along the way?

In many cases, these questions remain unanswered or are answered based on current trends and existing forecasts, without allowing for disruptive events like new competitive channels.

■ One way to demonstrate a democratic, organizationwide commitment to analytics is to create a BICC.


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Analytical view - value measurement, arbitration and what-if scenarios

The rationale behind analytically driven value maps is:

• Inturbulenttimes,youcannotaffordtoassessyourstrategyonlyonceaquarter.Alldetoursmustbecapturedandanalyzedinstantlyandallsuspicioussymptomsmust be thoroughly examined.

• Whenyounoticevariationsinperformance,youshouldbeabletodrilldownimmediately to evaluate:

o The root cause.

o How other business-critical values were affected by the change.

o The trends or future value fluctuations.

• Iftherootcauseofchangeisdrivenbyasubstantialandsystematicvariationof the market, you should prepare a variety of responses in advance by using a series of what-if analytical exercises. These ready-to-use business plans can be implemented to remedy or boost change.

• Iftherecordedoranticipatedbiasisnotlinearandfutureperformancecannotbeconfidently predicted, you should prepare alternative corporate strategies that will returnquantitativedataviamodelsofthefutureecosystemandtheorganization’sresponse.

• Bychangingparametersandbusinessconstraints,youcandeterminethemostlikely path and translate it into a revised corporate strategy and value map.

The wisdom of analytics lies in intelligent analysis of historical data. There are significant limitations when market events end quickly or evolve in a nonlinear manner. With any modern analytical techniques, we can simulate many variations of future market conditions and create strategies to address them, and when these processes are automated and streamlined, the level of uncertainty is significantly reduced, time to market is shorter and human labor and stress are kept to a minimum.

Analytically driven value maps do not look dramatically different from most value maps.Thekeydifferenceisinhowtheyareconstructedandused.Visually,analyticallydrivenvaluemapsusearecognizabletreestructurewiththemainbranchesreflectingfundamental shareholder expectations.

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Figure 3. Example of an industry high-level value map.

All values (or leaves) on the tree represent content that can be measured automatically and linked to other content mathematically or statistically.


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Figure 4. The industry analytical value map: the revenue and market share branch detailed and quantified.

Analytical value maps reflect quantified knowledge about the market and business mechanisms in the form of drillable values similar to KPIs.

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For example, the chart below indicates that year-to-date service revenue is below target, but that bit of information is not enough to trigger corrective action. Thus, in most cases, data analysts are asked to investigate, requiring valuable time and effort. Analytical value maps can fetch the answer immediately. They could report that the blended price of services is found to be in line with expectations, and there is a large decrease in voice services. The deficit could be even worse, but fortunately there is an increase in text messaging and a higher than expected revenue stream fromcallterminationservices.Nowwecandeterminewhetheritisafluctuation,aseasonal change or a more stable trend. Strategic value maps can provide this kind of stable data flow to verify strategic assumptions and make corrections to the current econometric model and long-term strategy.

Figure 5. Example of drillable KPIs connected with the value map.

It’sstilleasiertounderstandthepastratherthanpredictthefuture.Sohowcanweenable key stakeholders and decision makers to look beyond the past, understand the present and proactively make decisions about the future? How can analytical value maps be deployed to direct businesses toward a more promising future?


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Activating Analytical Value Maps

There is one mandatory component of value maps – analytics.

Enterprisewide analytics

Enterprisewide analytics are required for deploying analytical value maps. It is particularlyimportanttoindustrieswithahighlevelofdigitalizationorcomplexservices,both in terms of service structure and underlying technology. When we access randomly selected network analytics, we see customer-generated data that can be sliced and diced according to supporting hardware, performance, geographic location, type of service, etc. What type of customer information is typically stored? What is the overall profitability of services most responsible for outages or underperformance? These questions can be answered by an enterprisewide analytical platform combining information from disparate places.

With basic functionality in place, we can satisfy business managers by answering questions such as: “What happened? How many? How often? What actions are needed? Why is it happening?” Analytics can also supply more advanced information such as “What if these trends continue? What will happen next?”

In-depth statistical analysis, forecasting, predictive modeling and mathematical simulationandoptimizationcombinedwithsolidfact-basedanalyticsmakethedifference. Analytically driven value maps must be integrated with, or set up on, enterprisewide analytical platforms – especially in the communications industry.

Figure 6. Enterprisewide analytical platform as a foundation of analytical value maps.

■ With basic functionality in place, we can satisfy business managers by answering questions such as: “What happened? How many? How often? What actions are needed? Why is it happening?

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Business-aware management

Business-aware management can be broadly defined as a combination of business process management (BPM) methodology and business activity monitoring (BAM) and is considered a good starting point for creating analytical value maps. BPM and BAM are built on sound foundations:

• Repositoryforbusinessprocesses.

• Systemmanagementandadministration.

• Underlyingoperationaldatalayer.

• Basicbusinessruleengines.

• Basicbusinessprocesssimulationtools.

Although the list of assets looks complete, we should keep in mind that some very important business processes, or KPIs, happen remotely in a cloud of customers and connections.

Figure 7. Enterprisewide analytical platform and BPM/BAM framework as a joint foundation of analytical value maps.

Strategic performance management (SPM)

All kinds of performance management techniques turn daily performance indicators into short- or mid-term initiatives that may be acted upon. Once all this data is combined, it is difficult to extract meaning from it, especially in the communications industry. For example, customer retention costs might rise rapidly – not because of bad business processes but fluctuations of customers at risk in a given period.


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When a bridge is established between SPM systems and companywide analytics, both environments inform each other of exceptions and continually communicate and diagnose, no matter whether the exceptions are temporary or indicate a more strategic change of direction. With a solid SPM system in place, analytically driven value maps can label alerts as “temporary” or “persistent.”

Figure 8. Enterprisewide analytical platform and strategic performance management instance as a joint foundation of analytical value maps.

A potential executive body: Business Intelligence Competency Center

Business Intelligence Competency Centers (BICC) are designed to function as gatekeepersofbestpractices.Ideally,BICCsfilltechnicalororganizationalgapsbysupporting temporary information delivery techniques. This approach requires more of asystematiceffort,includingdesignatingBICCchampionsthroughouttheorganization– particularly in marketing and strategy divisions.

■ The disruptive nature of the communications industry, in particular, creates an emerging need for real-time, forward-thinking analytic value maps.

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Figure 9. Example of BICC governance area.

Summary

Constant change and disruption in the communications industry have become the norm.Newbrandsandproductsenterthemarketregularly.Companiespreviouslyoperating upstream in the supply chain move downstream - and vice versa. Customers’needsandshareholderdemandsareoftenatodds,andlimitedaccessto data prevents companies from uncovering the reasons for sudden financial gains or losses.

The disruptive nature of the communications industry, in particular, creates an emerging need for real-time, forward-thinking analytic value maps. Implementation can take various forms, but requires a business-aware mindset across the enterprise. And it requires a strong belief that analytics can function as a competitive and strategic asset to drive business forward. One way to demonstrate a democratic, organizationwidecommitmenttoanalyticsistocreateaBICC.Awell-functioningBICCinstills cross-divisional collaboration, consistent rules and processes for reporting, and ensures businesses receive full value from their data.


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About SAS

SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions, SAS helps customers at more than 50,000 sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers aroundtheworldTHEPOWERTOKNOW®.

SAS Institute Inc. World Headquarters +1 919 677 8000To contact your local SAS office, please visit: www.sas.com/offices

SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ® indicates USA registration. Other brand and product names are trademarks of their respective companies. Copyright © 2011, SAS Institute Inc. All rights reserved. 105465_S81497.1111

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