Telefónica’s digitally inspired business transformation
No matter the type of organization or industry, the inspiration behind digital transformation strategy today is the same: the need to adapt to a more competitive — and potentially disruptive — business landscape and respond to dynamic customer expectations. But for global telecoms giant Telefónica, there is an additional driver that is more fundamental and deep-rooted — and which explains why, for the past four years, global CIO Phil Jordan has been actively pursuing a transformational agenda that is set to continue until at least the end of the decade.
Despite the digital nature of many of the products and services it offers under its own name and through the O2, Movistar and Vivo brands, 93 year-old Telefónica has been such “a traditional business that it’s had to make a complete business transformation in order to become digital,” says Jordan. That has involved the Madrid-headquartered company overhauling its core business processes and systems across its global operations, with the goal of moving to a real-time business model capable of reacting to rapidly changing business circumstances. Historically, says Jordan, the €47.2 billion ($49.7bn) company functioned through “post-event processing” with decision-making often informed by “looking in the rear-view mirror.”
“We weren’t born in the digital era and so our processes and customer journeys were fragmented. Recognizing that, we had to make a profound change, to simplify our business processes and effectively re-implement our business model in all our markets,” he says. In effect, that involves “a complete greenfield rebuild of our business processes and new full stack of systems in 15 countries — all in parallel.”
Jordan emphasizes that the business case for the ongoing transformation is as wide as it is deep — ranging from the creation of true multichannel capabilities to a dramatic reduction in manual processing in its back offices. But it is fixed as one of the company’s six strategic pillars: to create a data-driven, customer-focused organization delivered by end-to-end digitalization. Appropriately, says Jordan, that “business-led but enabled by IT” journey was initiated — and is still owned — not by him, but by the company’s chairman, José María Álvarez-Pallete.
Its complexity stems from the fact that each of Telefónica’s country operations around the world has different reasons to digitally transform. “In some cases, it’s about competitive capability and catching up with the market; sometimes a country, such as Brazil, may be ahead of the market but needs to force greater convergence [of mobile, fixed, broadband and TV]; and sometimes it’s about efficiency and cost,” explains Jordan, who oversees an IT organization of around 6,000.
Despite those diverse drivers, it was critical that all of the regions were aligned behind consistent global implementations, says Jordan, with IT guiding decision-making around common processes, architecture, systems and data policies and models.
Telefónica’s 350 million customers — and the data they generate — sit at the center of that transformation. “End-to-end digitalization for us means transforming the customer experience at the front end — making everything online, making it mobile, making it real-time, automating all the processes, making it truly omnichannel so customers can stop and start processes in any channel. And that is what customers demand in a digital world. The other side of digitalization, within our labour-intensive commercial and operational back offices, is about how we enable customer journeys that are automated across our business, driving out human intervention and inefficiency in processes.”
In short, he characterizes the twin goals as, “Any interaction, on any screen and zero back office.”
Behind that digitalization drive is a desire to make customer data one of the company’s key differentiators. Telefónica already amasses a vast amount of data from customer activities, Jordan emphasizes — “about how they use the network, their location, what they are doing, who they’re talking to.” The important step is to make that information actionable, he says.
“Traditionally we have used data in functional silos, for example, to work out where to locate network infrastructure cost-effectively. It’s now starting to be used to enhance the customer experience and drive differentiation into the way we offer new products and services. In a world of connectivity, IoT and digital, the one key differentiator across all businesses will be customer insight and data. That’s a big transition for a lot of businesses because to date they haven’t had to think too hard about how data flows across their business. But in the digital world that’s what it’s all about — pure data flow,” he says.
Much of the transformation underway at Telefónica to standardize and commoditize its core operations — ordering, billing, CRM and so on — is not about creating differentiation, says Jordan. “How we take an order, how we capture a customer interaction, how we produce a bill — none of that’s creating differentiation for the future. It’s going to be the data that comes out of those systems and how it’s used that will be the key.”
Genuine value exchange
Critical to the development of that differentiation will be customer trust and the establishment of a genuine value exchange around the use of their data and the services delivered. Over the next five years, Telefónica will progressively allow the customer to balance the extent to which they want the company to use their data in exchange for agreed benefits — while at all times allaying privacy concerns.
“A lot of consumers currently aren’t aware of how their data is being harvested on the web and used by some other suppliers. We want to make it really clear to our customers how they can live their lives on the web in a safe way,” says Jordan.
This means that Telefónica will not only let users decide where and when the company can use their data, but also provide information about how other companies are using their online data. “As their partner for connectivity, we can help them understand where they are on the internet, who’s watching them and how the data is being used. And we think that’s a great trust-builder that will help with this value exchange,” he says.
Location, location, location
Location data will certainly play a big role in delivering new customer services and ecommerce. “Passive location is a great asset to us — it’s something we have over competitors such as Google which can only infer location from the [search] data customers are generating,” Jordan explains.
He gives the example of a service the company already provides to banks and credit card companies which helps verify the authenticity of credit card use by customers traveling outside their home country. “We provide an API that banks can just ping us and ask ‘is the phone in the same location as the card?’” he outlines. This doesn’t necessarily mean the consumer in question is actually the one trying to make the purchase but it adds an additional layer of security to the debit or credit card company’s fraud detection. “The customer, in turn, gets a better service because their credit card doesn’t get rejected as often as it might,” he adds.
Such services have set Jordan thinking about how Telefónica can use location data further in the future. “If, for example, an airline is waiting to close a flight we could give them a simple way of knowing where boarding passengers are located in the airport or elsewhere, and identify anyone who is unlikely to get to the gate in time. The airline could then resell any vacant seats and message the delayed customer that they can be booked onto the next flight.”
Another suggestion Jordan makes is being able to tell users if an ecommerce site is varying its pricing based on the customer’s detected location or the device they’re using. For example, some ecommerce sites already charge more for the same product to, say, an iPhone 6s in London versus a user on a Nokia feature phone in a less-prosperous town.
The idea is to make more efficient use of the vast amount of data the company has at its disposal and, ultimately, create a stronger experience for the customer. And Jordan thinks that will reshape the activities and image of the IT department. “One of the things I’m trying to do is move IT from being seen as a function that manages telco operational assets to more of a function that understands the data, can interpret the data, can link to the data and enable the business to see how it can do things differently.”
Indeed, he is already trying to refine the traditional definition of IT inside Telefónica. “The ‘T’ is becoming much more commoditized: it’s now about cloud for infrastructure, it’s standardized applications, it’s software as a service. The ‘I’ is where all the focus in the future has to be,” he says, suggesting a name change. “We won’t be IT. We’ll be ‘I3’ because it’s all about information, integration and innovation. So within five years I’d love to think we’ve moved from an IT organization and that I was running an I3 organization.”