Internet Enabled ‘Corporate Unbundling’ Business Model

John Hagel’s concept of ‘unbundling of corporate’ talks about a company being an unnatural bundle of three very different types of businesses- Infrastructure management business, customer relationship business and product innovation & commercialization business.

To me, the genesis of outsourcing industry is in having these 3 diverse businesses- with very diverse economics, skill-sets and cultures-tied together within a company . E.g. customer relationship business would thrive on ‘economies of scope’ whereas infrastructure business’s key financial KPI would be driven by ‘economies of scale’, ‘time to market’ would be the critical performance parameter for a product innovation business. When the margins come under pressure, CEOs would be faced with a tough choice of cutting the flab and sustaining the margins. In past, situations like this forced CEOs to do some soul searching and ask questions such as ‘what business are we really in?’ E.g. If the company was in the business of selling communication services/products, what business did it have to have in-house call centre or a software development or a product development department, thereby adding to opex and putting pressure on already strained margins.

Pondering over cost optimisation options led to the thought of outsourcing call centers, software development, product development etc to those locations, where these costs would be much lower and margins would be sustained, if not improved. Thus unbundling of corporate led to creation of an outsourcing industry in late nineties with ‘comparable services at lower cost’ being the key value preposition. Important point to note in this story is of enablement or facilitation of unbundling by rapid evolution of internet and communication technologies in late nineties. Internet’s recent prodigy ‘cloud computing’ is expected to take this corporate unbundling process to the next higher orbit.

First wave of ‘internet enabled unbundling (outsourcing)’ ensured margin sustenance by outsourcing call centers, software development and product development etc to those locations where resource cost base was much lower. Second wave of ‘cloud enabled unbundling’ is about saving capex (by eliminating the need to buy/own physical hardware, expensive software and capital intensive storage capacities for ‘in-life’ IT operations) as well as reducing the opex by running very thin IT operations and buying only the amount of computing power as required by the company for a pre-defined rental fee (‘on-demand’ service model). This will rid CIO of need to burn midnight oil planning capacities for cyclical nature of service uptake.

In India, cloudware application companies like Nustreet are actively leveraging this unbundling business model and running cloud based ‘subscription’ revenue model on Microsoft Windows Azure platform, which allows companies to begin using software applications (at a rental fee) almost immediately, with very minimal upfront investments in hardware or software licenses

Does Femtocell Address Coverage Woes Of Rural Telephony In India?

A smaller base station in Femtocell, which was originally designed to enhance cellular network's indoor service coverage could be deployed in coverage driven sparsely populated rural indian markets at much lower costs than traditional base station. This is possible using a new chip from Picochip, which could support as many as 32 active mobiles outdoor. This technological disruption could not only cut down the rural expansion costs for indian Telcos but also challenge the traditional macro basestation industry and the prevailing business model...

New Business Model for Addressing the Energy Cost/Quality Issues of Telcos In Rural India

A typical cost of ownership (TCO) percentages for the components of Base Station System (BSS)- comprising of BTS/BSC- for an Indian Telco is shown in the adjoining figure. One could easily make out the 3 big ticket cost items from there-they are telecom equipment, power (16% of BSS TCO), and civil work in that order. As Indian Telcos take the next leap forward in terms of reaching out to rural markets (average rural teledensity being 19%), they are grappling with the challenges of reducing the TCO for the rural operations. Rural markets are low-ARPU market segments and thus the solutions for the rural market need to have a fundamentally different cost structure for the business model to become sustainable. Telco’s passive network (towers, shelter, ac equipment, diesel electric generators, battery and electrical connections) sharing is already in vogue; soon to be followed by the active network (base transceiver station, microwave, radio equipment, antennas etc) sharing, which will further drive down the cost on account of telecom equipment in a 'coverage' rather than 'capacity' driven fragmented rural telecom market.
Another big ticket cost item for Telcos is Power. Power in rural India poses a dual challenge. Apart from the higher consumption costs, Telcos are also grappling with the issue of lack of uninterrupted supply which is affecting their QoS to the customers severely. Various solutions like solar power etc have been talked about but the CAPEX associated with the solar power solution is prohibitive and hence has not been picked up much.
Here is my thought in terms of creating a new solar energy based business model which will directly address the second biggest cost item for the Indian Telcos.
No, it’s not about Telcos installing the solar panels. This would require making a huge capital investments upfront and being able to reap the benefits only after 15-20 years. We all know that selling solar installations to Telcos, though a good clean technology, does not necessarily make a good business case given the ROI imperatives. An Alternate approach is where the Telcos (where vertically integrated) or the Tower Sharing Company (TSC) could form a joint outsourced Solar PowCo (Power Generation/distribution Company), similar to the existing Tower Sharing Companies. This PowCo can then sell Solar Power Purchasing Agreements (SPPAs) to all the participating Telcos/TSC in that circle. This PowCo would then install and manage the solar installations with a committed power uptake from all the participating Telcos/TSC at a fixed price for a pre-defined period (say 10 years).To finance the investment in solar installations, PowCo would re-package the SPPAs and sell them to the investors. Investors then become the legal owners of the installations and thus reap the rebates and tax benefits associated with the green energy. SPPA payments would give the investors the same return on investments as any other energy. What does the PowCo get in return?. The PowCo gets paid fees by the investor for developing, monitoring and servicing the SPPAs.

This has a potential to bring down the TCO for power by almost 30-40% making Telcos so much more competitive in the rural market segment. SunEdisson has been successfully operating similar kind of model for other sectors of US economy. Reliance, Tata being the Power and the Telco Companies could have a head start with this business model.

Why Publishing Cost Of Production (MCP) Would Be A Game Changer

As service industry grows in India, companies are innovating newer products/services and coming out with differentiated offerings to the market. Innovation is not only expected to trigger demand for newer products/services (topline) but also help sustain the margins (bottomline) in recession squeezed markets...marketeers seem to have (re) discovered the mantra to help boost the sagging sales/morales of their sales teams...so the key is to come up with 'non-commoditised' product or service offering to the market...

However the important dimension to this emerging story, from the consumer point of view is- how do i -a consumer- assess the 'fair price' or 'right value for money' for the non-commoditised product/services, before i make a decision in favour of or against buying that product/service
This question becomes extremely important especially for markets like India (and majority others for that matter) where the print and organised electronic media, supposedly an educater/emancipator of the masses, is bought over by the manufacturers of these goods and services (sponsored and paid news is (not so) unique feature of Indian democracy!!)...Consumer movements in India too have become dysfunctional and Govt is perpetually faced with a dilemma of whether or not to regulate the 'market forces'(!) and thus ensure fair price for the end consumer...

To me the answer lies in a simple change (first proposed in ninetees by an eminent Indian economist late Prof M.G. Bokare), which could be brought about by an act of parliament whereby a manufacturer will be mandatorily required to publish per unit cost of production along with MRP on every article they sell in the market. So one would have MCP (Max Cost of Production) and MRP (Max Retail Price) clearly dispalyed on e.g. bottle of mineral water or hotel bill..(fortunately, Cost Accounting practices have evolved enough in last decade to make this per unit cost calculation quite possible now)
What are the benefits:- there are many but the most important one, from a consumer perspective-with increasing number of non-commoditised (read innovative) products/services flooding the markets, consumer will precisely know the per unit cost of prodution (MCP) and the premium they are being asked to pay (MRP) over and above the cost price..Consumer will pay the premium if they really think its worth the benefits....going forward, this will definately ensure a fair pricing by the manufacturers of the goods/services or else consumer will make an 'informed decision' of not buying the product/service...real power to the consumer!!