Open Innovation for Telecom Companies in the Middle East

Dr. Shaikha Al-Jabir
October 2010

What is Innovation?
• Innovation is the implementation of a new or significantly improved product (good or service), process, business models and organizations • It becomes “strategic” when it is an intentional, repeatable process that creates a significant difference in the value delivered to consumers, customers, partners and the corporation. • It becomes “open” when adopting a more collaborative approach to developing ideas and bringing them to market. And when bridging internal and external resources to make innovation happen.
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Innovation in the Middle East
• Innovation is a key growth driver and a high priority for executives worldwide. • Leading technology companies have thrived through innovation • In the Middle East, most of the telecom companies have not yet developed a robust infrastructure encompassing the tools and culture needed to successfully innovate and are, therefore, at risk in the new global innovation race. • Even during the financial crisis, we haven’t seen companies embracing innovation. • Yet some organizations have started to see innovation as a strategic choice to ensure sustainable growth and profitability!



Why Telecom Need Innovation
• Erosion of core revenues due to – Slowdown in growth: Wireless markets are approaching 100% penetration rate – Increased competition – VoIP impact • Innovation is the key to grow as there will be a need to compete against very innovative companies coming from different industries • The purpose is to identify new revenue streams, and to create
breakthrough growth strategies. • Telecom operators need to redefining their roles along the value chain and to embrace different business models • This can be accomplished by adopting open innovation values
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Erosion of Core RevenuesSlowdown of Growth
Median revenue growth of top 30 telecom companies by region (CAGR %) Historic revenue growth European telecom

Analyst forecasts

9.2 0.8

American1 telecom


11.0 2.4

Asian & Pacific telecom




Note: 1includes north and south America Source: InFinancials; Bloomberg; McKinsey analysis

The telecom growth is slowing down globally

Erosion of Core Revenues – Increased Competition
Average EBITDA Margins Evolution for Mobile Telcos in Selected Markets (2006–2009)

65 60 55 50 45 40 35 30


CAGR (%)

# MNOs

Indonesia Egypt

-6.1% -1.4%

8 3


Malaysia Singapore India Pakistan

-3.3% -4.7% -4.5% -2.3%

4 4 6 13





Growth slows down and increased competition is gradually eroding profitability margins of telcos
Source: Merrill Lynch Wireless Matrix, A.T. Kearney Analysis

VoIP is impacting Operators’ Revenues
Revenues from Switch & VoIP Services VoIP Traffic Growth (1988-2008)
TDM AND VoIP (Bn of Mins) Switched and VoIP Traffic Growth


0.3 1 2 3.5 4 4.5

5 4




CAGR 1999-2008 : +46.3%




45 40

36 6.8% 32.5
















Switched Revenues VoIP Revenues Lost Revenues due to Presence of VoIP

In the last three years, VoIP's growth overtook TDM traffic growth.
TeleGeography, VoIP in Europe: Its bite is worse than its bark, 2009 (need original data), ITU, Skype’s share of the international long-distance pie on the increase, 2009 DRAFT 20/20 Strategy Refresh | April 2010 7

Innovation Issues in the Middle East
• Innovation is a complex subject , of all the core functions of most companies, innovation seems to be managed with the least consistency and discipline • Main challenges are stemming from organizational prospective like culture, mindset • Lack of internal information sharing and cross-functional collaboration • Intranets used for disseminating information not for promoting collaboration • Dominance of vertical structure, innovators look up for approval before they look across for alliances and support. • Innovation is driven by technology trends only not by customer insight • In many organizations IP laws and IP protection are not well-defined • Degree to which firms will open their walls to engage external partners to advance innovation is not identified. • There is need to build skills in managing partnerships. • Traditional education systems which focus on building the ability of absorbing content and recalling it on exams without considering skills for research, analysis, critical thinking, collaboration.
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Open Innovation
• • Open innovation could be a major trigger to spur growth in ME telecom market Adopt open innovation model based on • internal resources capabilities • collaborating with customers, businesses, academic institutions and industry leaders; and • establishing presence at technology clusters • Historically, telecom innovation happened inside labs, and telecom firms rarely resorted to sharing innovative results as a means to generate competitive advantage. • Benefits from adopting open innovation are: – Faster development and of new products and services – Accelerate marketing new products and services – Reduce direct spending on R&D – Improve the success rate of new products and services – Increase in revenue and market share ( growth) Recently, initiatives are emerging uniting telecom operators and manufacturers to collaborate with application developers to generate valuable innovations (the Wholesale Applications Community or WAC). 10/28/2010


What is needed to adopt innovation?
• Create the basis for cultural change to support the development of innovation as a corporate trait not as a serendipitous activity. • Cross-functional teamwork and collaboration is a necessary tool for strategic open innovation. • Build on local capacity and talent by tapping into the education systems to keep these talent here (to avoid brain drain) • Encourage establishment of local VCs and create funding mechanisms for start-ups • Work with the education system (public and private, k-12 to universities) to cultivate a culture of innovation and collaboration at an early age and develop lifelong learners • Open innovations are only possible with the right IP laws and IP protection in place like Creative Commons
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How it can be achieved
• Innovation should start at the top, with leaders/ CEOs who provide strong direction for innovation and establish organizational cultures and climates that are conducive to innovative activity • Define a managed innovation process that coordinates the relationship between external and internal resources • Information sharing can be done through forums, fairs, workshops and conferences with industry and academic guests. • Internet technology can help in collaboration and access to information. • Better understanding of customer needs to derive innovation • Collaborate with local industries and academia (QU, Education City, QSTP) to develop and nurture open innovation • Measure quantitative and qualitative innovation outcomes to track results towards defined objectives. • Culturally, we need to be willing to accept failure



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