R&D innovation for European telecom operator
Today, innovation is key to creating lasting competitive advantage. But European telecommunication operators hardly control their innovation processes. Instead, innovation is usually based on technology provided by external partners.
Individual telecom operators do not have the scale to justify an R&D budget large enough for ground-breaking innovations. The main telecom technology players devote on average ten times more resources to new equipment development than the average European incumbent operator. Therefore, to maintain their innovation pace and avoid becoming pure distributors, telecom operators must leverage vendor capabilities and resources in R&D activities.
A European telecom operator recognized the potential to gain competitive advantage by better managing innovation across a network of partners.
Challenge
To gain a distinctive technological advantage over the competition, the European operator wanted to develop a unique approach and methodology that would best leverage their partners' R&D capability. They engaged A.T. Kearney to work with them in developing a strategic vendor-relation model.
For most telecoms, the common approach towards innovation is to wisely select the best performing technology available on the market, buy the technology that provides greatest advantage when integrated with the existing infrastructure, and limit investment as much as possible when no technology standard has yet emerged.
This cautious purchasing attitude of "innovation buyers," plus a strong assessment by their technology departments, can save companies from the disruptive experience of implementing the "wrong" technology. However, it often fails to provide them with sufficiently differentiated technology and solutions for a sustainable competitive advantage. The European telecom’s challenge was to develop a new model.
Approach
A.T. Kearney and the telecom operator used a strategic approach to develop the vendor-relations model. In part, this approach was based on a survey the team conducted with key European R&D centers to better understand best practices of vendor management in R&D.
The team was guided by a comprehensive set of rules in developing the model for partnerships with vendors with R&D capabilities:
- Determine the technology domains where research will be open to external cooperation
- Define an holistic approach to technology alliances
- Develop the alliance top-down within an agreed-on strategic framework
- Follow a few basic rules in negotiation to establish a win-win agreement
- Set up a structured partnership governance process
- Exploit proactively Intellectual Property Rights (IPR)
The model is accompanied by a thorough methodology, designed to operationally lead the overall Vendor Management in R&D process. The methodology is supported by practical tools (e.g., R&D Vendor Database framework, multi-criteria Vendor evaluation model, R&D partnership agreement framework).
The model was successfully tested in three R&D situations, providing "proof of concept." Each test developed a solution for a key issue of vendor management in R&D:
- Selecting the best partner for a long-term research project when investments need to be balanced between vendor and operator
- Involving a vendor in exploiting internally-developed IPR by showing a compelling business case and negotiating adequate license fees
- Selecting the best partner for a shorter-term development project when most of the investment is made by the operator
Results
With the new vendor-relation model, the company’s research centers have a structured way to operate that overcomes their lack of scale, so they can work together with technology vendors in win-win partnerships.
An Innovation Map, which was developed as part of the model, now guides the organization through the different technology domains and potential partnership trade offs. It helps the operator concentrate on a few strategic technologies and use rigorous practices to select and manage vendors.
Additionally, the application of some vendor management concepts to the R&D function has helped the telecom operator increase their influence on technology suppliers and gain a technology advantage over the competition.
Contact
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Andrea Fumagalli is a principal in A.T. Kearney's Rome office.