Rumelt on 3G: Lessons for 5G and IoT

The consultancy McKinsey recently republished a 2007 interview with Richard Rumelt [1], professor of strategy at UCLA’s Anderson School of Management. Rumelt opened his commentary on strategy by noting that most corporate strategic plans have little to do with strategy. Instead, they typically end up being “three-year or five-year rolling resource budgets and some sort of market share projection”.

What senior managers want out of the strategy process, according to Rumelt, is a pathway to substantially higher performance. That can happen in one of two ways. A firm can either invent its way to success or, it can quickly and skillfully exploit some change in the environment. Examples of such change include technology, consumer taste, resource price or competitive behavior factors.

The telecoms industry finds itself at the intersection of many such changes. On the supply side, the arrival of 5G networks and the standardization of low-power IoT devices provide two industry transition opportunities. These developments will usher in new service concepts and business opportunities.

Consumers are becoming increasingly aware of the data they generate in ways that are changing their expectations and ‘tastes’ for different services and service providers. They are learning about how businesses are prepared to exploit that data, and not always on equitable terms of trade.

The legal framework for data management is also changing. There are developments such as GDPR for personal data and efforts in the USA to emulate GDPR-like and Open Data frameworks [2]. 5G will alter the way that network resources are packaged, as in the example of this highly local, factory-wide deployment [3].

Finally, examples of the way in which competitive behavior is changing include the way that telecoms operators are entering new markets. Consider how telecoms operators have acquired rights to sports events. Or, Safaricom and Orange offering mobile money and higher-value financial services. Meanwhile, Vodafone is active in the automotive sector, Verizon has built a fleet-telematics business while Orange and Telus have built business units in the healthcare sectors.

These are arguably isolated examples in the context of the global mobile network operator community. There is no great move to capitalize on industry-wide opportunities that will see standardization and massive economies of scale benefitting the end customer globally. Much of today’s 5G marketing focuses on low-latency and high bandwidth features. At the risk of history repeating itself, it’s instructive to go back to Professor Rumelt’s 2007 comments from the era of 3G networks. He viewed high-bandwidth opportunities as being overhyped. He expressed less interest in the higher-bandwidth applications, like streaming video, than in lower-bandwidth opportunities, like streaming audio and mobile search. Instead, he considered that a cell phone that “combines voice recognition with location-filtered search results would be a product that a wireless company can differentiate”.

This week, as the industry enjoys Barcelona for MWC19, Prof. Rumelt’s insights offer a lesson about the hype around 5G bandwidth capacity. Might there be greater rewards from information services that depend on lower data payloads? Or, from more intensive and transactional exchanges of data. How about dependable (intelligent) communications in dense population areas (buildings, cities, factories, transportation hubs etc.)?

It’s one thing to recognize environmental change points that create strategic business opportunities. That alone is not enough. Prof. Rumelt’s observation about quick and skillful exploitation is a critical ingredient to the success story. That’s where the mobile industry needs to pursue common innovation approaches, especially if it is to help Tier 2 and 3 operators that have limited investment capacity [4], but which tilt the industry’s economies of scale balance. Some of this can happen through standardization. In addition to the valuable standardization work at 3GPP and oneM2M, attention needs to focus higher up the value chain [5] compared to where the telecommunication industry has historically operated. Another part is to build go-to-market alliances with service delivery partners that are more agile and closer to customer demand, which is where individual operators can compete with one another.

5G and IoT are not ‘new news’. They are known industry change points and ripe for targeting. The advice for mobile operators, in the words of Prof. Rumelt, is about “taking a position”, which means “investing in resources that will be made more valuable by the changes that are happening”. Investing in networks will capture part of the opportunity. Business-model innovation coupled to investment in other areas are ways of capitalizing on over-the-top opportunities. And, all this needs to happen quickly and skillfully either on the part of large, market moving players or through cross-industry alliances such as the GSMA.

[1] An interview with Richard Rumelt, McKinsey & Co. (2007) https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/Strategys-strategist-An-interview-with-Richard-Rumelt 

[2] H.R.4174 - Foundations for Evidence-Based Policymaking Act of 2017 (2019) https://www.congress.gov/bill/115th-congress/house-bill/4174 

[3] Bosch in Worcester has become the first-ever British factory with 5G wireless access, thanks to an innovative trial programme (2019) https://www.ledburyreporter.co.uk/news/regional/17442274.worcestershire-is-testbed-for-5g-technology/? 

[4] 10T Tech Announces Formation of Global eSIM Alliance (2019) https://www.prnewswire.com/news-releases/10t-tech-announces-formation-of-global-esim-alliance-300798763.html 

[5] BearingPoint Exec: 'CSPs, Don't Miss Out on Digital Transformation', (2019) http://www.broadbandworldnews.com/author.asp?doc_id=748492&section_id=548