Subject: [NEXTEL-1] Rational Exuberance: The Wireless Industry's Killer "B"

From: [email-masked]
Date: Tue, 17 Jun 2003 06:01:09 -0400

Rational Exuberance: The Wireless Industry's Killer "B"

By Venkatesh Shankar, Tony O'Driscoll, and David Reibstein

From the ashes of an overbuilt industry rises a promising new marketplace:
business-to-employee communications.

No industry suffered as much from the hope and hype of the 1990s boom as
telecommunications. The dream of convergence - of video and voice and broadband
Internet - led companies around the world to imagine vast new traffic and wealth
emerging from Internet-enabled business-to-consumer (B2C) and business-to-business
(B2B) commerce. This e-business mania led telecom companies to overbuild in the
local exchange market and the long-haul fiber-optic transport market.  When
wireless became the "next big thing," the private sector piled in, with European
telecommunications companies alone dropping $105 billion on sought-after
third-generation (3G) wireless Internet licenses.

The result has been disastrous.

The telecommunications industry worldwide is mired in overcapacity, deep debt,
razor-thin margins, and bankruptcies. Was all for naught, especially in the highly
touted wireless marketplace?  The answer, for the moment, is no. Although it is
true that mobile commerce has been slow to develop, particularly in B2C
applications, our research is showing that many companies have been quick to
capitalize on wireless connectivity in a market surprisingly close to home: their
own work forces. More than two-thirds of the 473 firms in our recent study of
companies' wireless strategies, investments, and experiences are using the
wireless Internet primarily for business-to-employee (B2E) applications to improve
productivity and operational efficiency. (See "About the Research," at the end of
this article.) The surveyed sectors included banking, insurance, manufacturing,
telecommunications, transportation, media, utilities, retail, health care, and
government.

Many observers and analysts have anticipated continued growth in the wireless
market, the industry's recent travails notwithstanding. The Telecommunications
Industry Group's 2003 Telecommunications Market Review and Forecast predicts that
wireless spending will increase from $123.4 billion in 2003 to $164.5 billion in
2006, a 10 percent compound annual growth rate. Long-term growth in mobile
business may come through partnerships across industries aimed at building loyal
customer relationships in B2C and B2B contexts. The budding B2E segment, however,
underscores an important - but oft-forgotten - fact about business development in
industries that are based on rapidly evolving technologies: Markets frequently
develop naturally in unexpected places.
In this article, we explain the early "m-business" hype and the reasons for
widespread disappointment with the telecommunication industry's progress. We also
describe how mobile technology is being successfully leveraged by some
organizations to enhance their competitive advantage.  In addition, we evaluate
the propensity for industries to adopt wireless technology, identify potential
opportunities, and raise guiding questions for firms considering m-business
solutions. Through various examples, we provide senior executives with a sense of
how to approach investments in new technologies in general and m-business in
particular.

The Hype Cycle

We define m-business as the use of wireless handheld devices connected to public
and private electronic networks to communicate, inform, transact, or entertain,
using text, voice, and data. Following the characterization used by Ravi Kalakota
and Marcia Robinson in their book M-Business: The Race to Mobility, we use the
term mobile to mean fully portable, real-time access to the same information,
resources, and tools that, until recently, were available only from the desktop.
All new technologies go through a hype cycle, and m-business is no different.
Estimates of the growth of m-business have swung wildly during the past several
years, with growth projections in a sample of 10 studies published from 1999
through 2002 having a variance as high as 100 percent. This hype was driven
largely by three factors: excitement about the technology and its capability; the
continuing growth of wireline e-business; and the rapid adoption of wireless
devices around the world.

The combination of these three factors could have yielded a legitimate "white
space" opportunity - an unmet consumer need that previously could not have been
filled. M-business's white space was assumed to be consumers' need to access
information, connect with others, and complete transactions anywhere, anytime
while on the move.

M-business has fallen well shy of most expectations, however, prompting some to
view m-business as simply an untethered extension of traditional telephony. This
sluggish growth and disillusionment can be attributed to seven causes:

Lack of Network Capacity. In its current form, the second-generation (2G) wireless
Internet cannot deliver the speed and ease of use required for most
revenue-generating m-business applications. For example, our study indicates that
on average, a two-megabyte file takes more than three hours to download to a
mobile phone on current technology, more than 200 times as long as it takes to
download to a desktop PC with broadband wireline technology.

Lack of Consumer Demand for the Technological Capabilities.  Third-generation
technology is substantially faster than 2G; a two-megabyte file will download in
about five seconds on a full-fledged 3G network. But customer demand is influenced
by today's reality rather than tomorrow's promise, and has remained low.
Mobile Device Limitations. The real estate on a phone screen is a fraction of a
laptop computer's. "Browse and Buy," an activity ubiquitous enough in wireline
e-business to turn eBay into a household name, cannot easily be transferred to
mobile devices. Such constraints also all but eliminate another common form of
revenue generation in e-business, online advertising. And newer mobile marketing
communications activities, such as sales promotions, are falling prey to the "law
of diminishing astonishment."

Consumer Unwillingness to Pay. Because revenue growth is so slow, consumers are
being asked to bear the brunt of financing new m-business applications through
pay-per-use or pay-per-download mechanisms. But consumers haven't yet shown their
willingness to be both guinea pigs for new business models and financiers of new
applications.

Lack of Worldwide Wireless Technology Standards. To overcome barriers to
interoperability around the world and provide end users with seamless service,
wireless providers are required to have tri-band phones and service. In the U.S.
alone, multiple technologies result in dropped calls as customers move from
digital to analog networks.  Furthermore, device manufacturers face the
significant challenge of developing a new breed of 3G handsets that can juggle
music, video, e-mail, and voice over three different radio bands within the next
18 months, when European 3G networks are expected to be built-out and functional.
These new-generation devices must combine the wealth of applications of a computer
with the roving versatility of a mobile phone.  Many industry observers are
skeptical that telecom manufacturers will be able to rise rapidly to this
challenge.
Ubiquity of PCs. The ubiquity of PCs in large markets such as the U.S. is also a
big barrier to m-business adoption, suggesting that consumers who have mobile
access to the Internet do not necessarily use their mobile devices to complete
revenue-generating transactions. With larger display screens and faster
transmission available in homes, offices, and schools, consumers' need for
wireless use is diminished. The online tracking firm ComScore Networks reports
that U.S. consumer e-business from PCs reached $17.9 billion during the third
quarter of 2002, a 35 percent increase over the previous year - a statistic that
highlights the continuing use of PCs for Internet transactions.

Failure of Firms to Understand Customer Value Creation. Finally, and most
importantly, firms that really want to derive value from m-business will have to
reexamine customer value creation. Service providers must recognize that
m-business probably won't thrive by re-creating Web experiences on the phone.
Rather, m-business will succeed by providing customers with information and
applications they can use to solve problems more economically than they can with
alternative means. The bandwidth requirements to fulfill these needs are at least
four years away; until then, m-business providers will have to build their
customer bases through services and applications that are simple, timely, location
sensitive, and more cost-effective than current alternatives.

Looking Inside

Although these barriers have hindered B2C and B2B adoption, they do not appear to
be impeding B2E implementation. Our study, which included companies in the U.S.
and Europe, revealed that a significant majority (69 percent) of firms are
focusing their m-business interests on B2E applications. (See Exhibit 1.) A
smaller proportion of firms (37 percent) have invested in B2C applications. An
even smaller proportion of firms (19 percent) are using mobile solutions in their
B2B interactions. The B2E applications receiving the most emphasis include mobile
office (communications and access to corporate information), customer care
(contract and transaction management), and operational productivity (asset/fleet
management and inventory management). Some companies are also focusing on
mobilizing supply chains across organizations.

The different emphases reflect variations in strategic intent. B2E m-business
investments suggest an interest in improving operational performance. B2C
m-business investments are aligned with improving the firm's range and its
customer reach. B2B applications are used partly to effect business model changes
and partly to boost operational performance. Thus, it appears that firms' main
near-term interest is to use m-business to improve performance, not draw revenue,
and that they believe performance improvements will be achieved by focusing first
on employees. This is a natural development in a difficult economic environment.
Performance enhancement often translates into cost savings, which can be quick,
observable, and measurable. Revenue growth frequently takes time and requires
customer education and behavioral change.
This short-term interest does not necessarily reflect how companies will implement
m-business applications over time. When considering a new technology, a company
faces two central decisions: how much to invest in the technology, and how to
align the investments with the firm's strategic intent. By analyzing m-business
investments by the firms in our database, we have developed a framework that can
guide other managers as they confront these decisions.

This framework shows that internal performance improvement is the "low-hanging
fruit" most readily available to a company contemplating a technology investment,
which explains the early interest in m-business's B2E applications. About 42
percent of the businesses we studied have equipped their work forces with wireless
voice or Internet systems, and another 28 percent are considering rolling out such
systems. In these cases, the new technology is seen as supporting the firm's
existing business model and not requiring significant internal business
transformation. B2B applications can also improve employee, customer, and business
partner processes, although the lower degree of implementation found in our survey
suggests that executives see these applications as requiring a greater degree of
business transformation and having more effect on the business model.

Companies pursuing B2C mobile applications appear to believe that the new
technology requires both moderate change in the existing business model and a
moderate amount of organizational transformation to adopt.  Many firms in banking,
insurance, manufacturing, transportation, telecommunications, media, utilities,
health care, and government, for example, have begun customer-facing m-business
activities to increase customer reach, increase product/service range, or improve
customer loyalty. All of these activities - including customer self-service
(mobile customer contact, query, and order), mobile applications development and
deployment (personalized and location sensitive), and m-business (mobile billing,
payment, and transaction) - require some behavioral change on the part of both
customers and employees.

Finally, if the innovation threatens to disrupt the company's business model and
also radically transform the organization, then the company will have to modify
its existing business model or create a new one to address significant competitive
threats. Because most companies are unwilling to take such actions, as Clayton M.
Christensen showed in The Innovator's Dilemma: When New Technologies Cause Great
Firms to Fail (Harvard Business School Press, 1997), transformative m-business
technologies, such as those that span B2E, B2B, and B2C applications, will take
more time to be adopted.

M-business interests differ by industry, and within the solution sets, industries
also differ in their specific areas of interest. (See Exhibit 3.) B2E solutions,
for example, fall into three categories: mobile office (e.g., messaging, remote
office), customer care (e.g., sales force automation, contact management), and
operational productivity (e.g., fleet management, authorization). The primary
solution set in B2B applications is supply chain management (e.g., order tracking,
asset tracking, just-in-time delivery, procurement). The two most commonly used
B2C applications are customer service (e.g., call center, order processing,
billing, payment) and information and commerce (e.g., location services,
personalization, and notification).

Industry Differences

When synthesized, the differences among industries become even more apparent,
revealing distinctions in the needs they perceive and their strategic priorities.
For instance, such sectors as insurance, manufacturing, utilities, retail, health
care, services, technology, and government are focusing on performance improvement
applications in the B2E arena. Exploring more deeply, though, we can see
additional correlations among industries. Banking and insurance traditionally
emphasize customer service. But both industries are also placing emphasis on
wireless B2E mobile office technology, reflecting the higher degree of mobility of
the sectors' work forces.

Few companies are investing in B2B efficiency improvements. Some, though, are
experiencing striking gains. Ethicon Inc., a Johnson & Johnson company that is the
world's leading supplier of sutures and other surgical supplies, is representative
of firms seeking operational efficiency improvements through m-business. (See
"Ethicon's B2E Efficiency Effort," below.)

Focus: Ethicon's B2E Efficiency Effort

Ethicon Inc., a Johnson & Johnson company, is a leading supplier of sutures and
other surgical supplies, providing more than 3,500 products to some of the largest
hospitals all over the world. Daily restocking of surgical supplies in emergency
and operating rooms is critical to these institutions and to the lives of their
patients. In the past, hospitals relied on time-consuming manual methods of
checking inventory, registering supply needs, and placing orders.

Ethicon estimated that nearly half of all health-care facilities still placed
orders via a fax machine or pager, and another 40 percent placed orders by
telephone. These labor-intensive processes were both time consuming and error
prone.

Compounding these problems was the fact that many hospitals lacked the information
technology infrastructure to automate their supply reorders, and the cost of
building such an infrastructure was prohibitive.

Given these constraints and the compelling need for hospitals to maintain their
inventories, Ethicon determined that providing an affordable, simple wireless
order-entry system for its products would clearly differentiate the firm from its
competitors. It took less than six weeks for Ethicon, working with IBM, to develop
a handheld mobile solution called E-sy Scan that allowed users to scan the bar
codes on items in the surgical supply closet, enter the quantity of items needed
into the device, confirm the order, and wirelessly transmit it to Ethicon.  This
"mobilized" process allows supply managers to relay orders to Ethicon instantly,
saving customers significant time while reducing the possibility of errors in the
manual maintenance of inventory. Ethicon first tested this wireless service in
November 1999 at the Manchester Royal Infirmary in the U.K. Following its success,
Ethicon installed this system in 14 other hospitals over the next 16 weeks.

Ethicon's mobile system demonstrates how value can be created for both the
customer and the provider by the application of wireless technology. Ethicon
customers using the system report an 80 percent reduction in the time it takes to
place orders, a 10 percent reduction in the time supply managers spend ordering
inventory each day, access to bulk purchase savings, and a streamlined supply
chain management process.
- V.S., T.O'D., and D.R.

Other organizations from our study that are attempting to use m-business to
improve operational efficiency and performance include:
o The McKesson Corporation, which armed 1,300 warehouse workers with strap-on
computers and rigged 31 distribution centers with wireless local area networks.
This has resulted in an 8 percent increase in productivity, an 80 percent drop in
incorrect items shipped, and a 50 percent drop in product shortages over two
years.

o Ohio's Hamilton County police department, which has launched project COP-SMART,
a program that enables officers to generate and transmit electronic reports, as
well as access federal, state, and local databases for vehicle records, wanted
persons lists, and criminal history information.  The efficiencies of this system
equate to the addition of 500 patrol officers.
o Trinity Development and Construction Services, based in Columbus, Ohio, which is
generating a cash-flow windfall by leveraging wireless technology. For example,
when $300,000 of materials arrive on the site of a state highway project, a worker
transmits the receipt to headquarters, which in turn generates a bill to the Ohio
Department of Transportation.  Speeding this part of the procurement process has
helped generate savings equaling 3 percent of revenue. Trinity believes that the
system paid for itself in about nine months.

Industries that are emphasizing improvement of their range of and reach to
customers include banking, transportation, telecommunications, and entertainment
and media. Companies in these sectors are implementing mobile payment systems and
trying to generate revenues by providing more content-based services to
subscribers.

Many businesses, such as British Airways PLC, also see a significant opportunity
to leverage mobile technology as a means of differentiation. In 2001, British
Airways began to offer a variety of mobile Internet services to travelers. The
airline views the wireless channel as one of the most useful service-centric
components of its coordinated customer relationship management (CRM) strategy.

The wireless system at British Airways goes beyond simple access to real-time
flight arrival and departure information (probably buoyed somewhat by the ubiquity
of the wireless standard GSM, Global System for Mobile Communication, in Europe).
The British Airways system was the first in the world to give passengers the
ability to check seat availability, check in, and select a seat via a graphical
seat map on their wireless application protocol (WAP)-enabled device.
Time-constrained travelers can check in using the pictorial seat selection tool on
the phone, arrive at the airport, collect their boarding pass from a self-service
kiosk in a matter of seconds, leave their baggage at the "Fast Bag Drop," and go
straight to the boarding gate, saving minutes or even hours. Despite the low-key
marketing of its WAP services, British Airways has experienced positive monthly
growth in usage of the mobile channel.
In the B2B context, companies' major focus on supply chain tracking and
procurement applications is in the transportation, telecommunications, and
manufacturing industries. 

International Paper Company and Motorola Inc., for example, joined forces to
create "smart packages" - shipping boxes with embedded radio frequency (RF) tags
that emit signals that allow tracking. Smart packages take risk out of shipping
valuables. The same RF tags can be used to notify suppliers when retailer
inventories are low and to alert distributors if boxes are tampered with. Wal-Mart
Stores Inc. has piloted an asset-tracking wireless application using RF tags. The
company says it has been encouraged by the results of the pilot study and expects
wireless to improve supply chain efficiency in four areas: global supply chain
visibility, on-shelf product availability, theft detection, and self-checkout at
retail stores. Wal-Mart must still work on implementation hurdles, such as
transmission problems with the tag, the cost of the tag, and the quality of the
readers, before it can roll the system out.

Analyzing Investments

Strategy involves choices - the choice of what to do, and the choice of what not
to do. The Internet increased both the opportunity and the complexity in strategic
decision making; mobility promises - and threatens - to intensify both,
particularly as industry and application boundaries become more permeable.
Companies can use the analytical framework outlined above to develop a
strategically coherent rationale for investment in mobile solutions.
Although the emphasis by companies today is on mobile B2E applications designed to
boost productivity, our study indicates that B2C and B2B applications, aimed at
changing customer relationships and transforming the way companies do business,
will not lag for long, particularly as 802.11 wireless technology - the so-called
Wi-Fi standard - continues to emerge as a major force in the acceleration of
wireless Internet adoption. Indeed, Wi-Fi hot spots in restaurants, retail
outlets, malls, and other public places could become the single greatest catalyst
for widespread mobile Internet use from all devices in the future.

Our suggested strategic approach - and the examples of firms currently using
m-business - can provide executives an understanding of how this and other mobile
technologies might affect their own company's business and organization models. An
understanding of where m-business investments are being made in an industry - and
in complementary and competitive industries - will also prove valuable, since
mobile technology's "anything, anywhere, anytime" value proposition is eroding
barriers separating many industry segments. Future opportunities probably lie in a
cross-industry context rather than within a single industry.  The capability to
recognize and act upon cross-industry value networks aimed at constantly enhancing
customer value may be the hallmark of successful firms in the wireless world.

http://www.strategy-business.com/press/enewsarticle?ptag-ps=&art=50495677&pg=all

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