How Can NEPs Satisfy Today’s Market Demands while Pursuing Tomorrow’s Growth Opportunities?

Network Equipment Vendors (NEPs) are looking to pursue new growth beyond the traditional telco market. There is growing interest in diversifying revenue by leveraging software, Artificial Intelligence (AI), 5G, and cloud platforms. Nokia, for example, recently announced a new offering for data center networking that includes a Network Operating System (NOS), a Service Router Linux (SR Linux), and the Nokia Fabric Service Platform (FSP). With a highly diversified product portfolio that spans software, IP/optical networks, radio, core, and cloud platforms, Nokia offers end-to-end capabilities. Ericsson, on the other hand, as outlined in ABI Research’s report 5G Provides an Unlimited Window to Move from the Short Tail to the Long Tail (IN-5743), is pursuing a very focused strategy that is aimed at scale. The acquisition of Cradlepoint, a U.S.-based vendor for 4G and 5G enterprise solutions, further augments Ericsson’s established position in cellular technologies.

Clearly, NEPs, like the rest of the market, are seeking to establish new business models and institute new growth engines. Therefore, a question of significance is what can NEPs do to sustain growth as core lines of business mature. Being overly focused on existing business lines may, by extension, mean that they are insufficiently focused on building new-growth business ventures. Should NEPs wait for existing growth engines to fade away before they seek new-growth engines? Or, should they adopt growth engines that are kept running continuously by relevant investments, processes, and policies? Elisa, the Finnish-based operator, offers an indication of what can be done on that front.

Elisa has established three autonomous business units: 1) Elisa Automate, an independent company that provides automation solutions to Communication Service Providers (CSPs) for zero-touch network processes; 2) Elisa Smart Factory, providing solutions for manufacturers to enable better decisions, reduce downtime, and improve quality; and 3) Elisa Videra, an innovative managed services and solution provider for large enterprise video conferencing. Elisa is slowly shaping its fortunes by pursuing a hybrid strategy. It continues to reap the benefits of the core business, while at the same time launching three new-growth businesses. With a cost structure relatively lower than that of Elisa, these subsidiaries can pursue disruptive innovation with patience. Additionally, by virtue of being leaner units, these standalone companies can hone their resources, processes, and values to create new disruptive businesses.

Elisa’s example sets the foundation for what can be considered an axiom in the corporate world. That is, whether it is a CSP, or a vendor, as is the case with Ericsson, Huawei, Nokia, and ZTE, it will be a smaller, decentralized unit that can incubate disruptive businesses. A decentralized, autonomous company can establish the processes and values required to vigorously pursue disruptive innovation far longer than can a large monolithic corporation. In fact, most corporations that have transformed themselves over several decades were composed of a larger number of smaller business units. Often, these units operate under own brands, as is the case with Elisa.

Examples abound, but Hewlett Packard Enterprise (HPE), General Electrics (GE), and Johnson & Johnson are some cases, among many others. The success stories of corporations that have transformed themselves, by and large, follow the same trajectory. These corporations have not captured new revenue streams by reshaping business models of existing business lines into new growth opportunities. After all, no product or market can grow forever. Even a cutting-edge innovation will need to be readjusted eventually. Rather, to keep the growth engine running continuously, there is a need to establish iterative growth processes and to start investing before there is a need to.

A common denominator for all NEPs is that they succeed by being big. They provide scale. NEPs that focus on scope can be a one-stop shop for everything from cellular equipment, to software products and cloud/data center platforms. They may not be best-of-breed, but if they do everything, mostly acceptably well, for the vast majority of CSPs and enterprise customers, that will be attractive. But if not approached with caution, opting for scope by pursuing too many ends at the same time, and seeing the market in all its complexity, will almost certainly lead to a scattered and diffused approach that fires on too many cylinders.

At the other end of the spectrum, there is the alternative of being laser-focused on today’s market requirements. Yes, that would provide focus, but that will most likely come at the expense of an insufficient focus on tomorrow’s growth opportunities. Moreover, a growth strategy predicated on a highly undiversified portfolio may be effective, but on a key condition, and that is being right. “Being right” is a function of many things, not the least of which are the current market trends, such as Open Radio Access Network (Open RAN), successful partnerships with hyperscale cloud providers, and, equally important, a broader macro-economic environment.

NEPs, just like every other technology solution provider, should acknowledge that keeping the growth engine going is an inherently iterative process, not an event. This is when creating new disruptive, independent units and/or subsidiaries may pay off in spades. Achieving growth will require a determined approach to pursue new opportunities when it is not necessary. Elisa’s investment in its three standalone subsidiaries clearly highlight the operator’s intent to investing before it needs to. Eventually, it is very likely that the challenge will not be opportunity creation, but opportunity selection. To conclude, whether it is a highly undiversified strategy or a highly diversified one, NEPs must recognize the circumstances they find themselves in and adopt appropriate solutions for the most pressing problems the market has, not just today, but also tomorrow.