Same Old Challenges in the New Telecom Era

No competitor, whether born in the Internet boom or several decades earlier, will succeed without recognizing that revolutions in strategy call for bold steps in organizational design.

There comes a single, unified network. One that carries data, voice, and video all over the same wires. The alphabet soup of telecom technologies — POTS, SONET, ATM — will vanish. It will be all Internet, all of the time. The convergence of networks will open the doors for a revolution in a number of industries including music, movies, television, and publishing. Most of all, it will revolutionize the business of building and operating the telecommunications network infrastructure itself.


Basic industry-defining questions are up for grabs. Do we really need both a computer and a telephone on every desktop? Will we ever pay for service by the minute again? Can we find more fluid ways to combine text and voice communications?

And most of all, who will own the new infrastructure? Will the merging legacy telecommunication companies, such as BellSouth and AT&T, inevitably own it all? Or will they be too gargantuan to adapt to new demands? Maybe they are to be trounced by new-age Internet companies like Yahoo (which has announced its intention to build a new Internet-telephony business) and eBay (which acquired Skype).

It will be interesting to watch. Though it is easy to suggest that legacy telecoms are too wed to decaying business models to survive, Yahoo and eBay have legacies too. It would be easy for executives in either of these new-age companies to underestimate the degree of difficulty associated with moves into telecom.

Yahoo and eBay may be young, but they are also efficient machines, excelling at the games they already know well. Thus, their challenge is very much in line with that faced by companies with much deeper roots looking at the same opportunities, such as Verizon and Time Warner Cable. The coexistence of an established and proven business with a new and uncertain one is uncomfortable at best. No competitor, whether born in the Internet boom or several decades earlier, will succeed without recognizing that revolutions in strategy call for bold steps in organizational design.

No doubt, all of the potential entrants to this market are full of innovative technologists. But a smooth transition to the world of the single network will demand at least as much organizational ingenuity as technological insight.
With time, strong established companies, in telecommunications or in any industry, develop processes and policies that deliver efficiency and profitability. But whenever you hard-wire an organization to excel at one business, you almost guarantee that it will stumble in a different one. Established companies must build new businesses from scratch, by reevaluating all of the powerful choices that shape the way organizations behave, like how you hire and promote, how you define relationships and assign authority, and how you measure business performance and evaluate individual performance.

There seems to be no conventional wisdom beyond simplistic, even clichéd nuggets such as “You have to break all of the rules” (When does the chaos end?); “You need to build an innovative culture” (Doesn’t valuing ideas and initiative just help you get started?); and “The new business has to be separate” (Separate how?).


Indeed, part of the challenge is making a break from the established formula for success. This is much harder than it sounds. Achieving a simple conversational awareness of differences in business models is insufficient, because there are so many reinforcers of organizational memory. Bold steps, such as giving significant power to outside hires, are necessary.

But there must be a delicate balance. Too much emphasis on breaking away can easily lead to complete isolation of the new business unit. That may sound attractive to some innovators. However, without access to valuable assets such as existing brands, manufacturing capacity, and expertise, the innovating unit gives up its most important advantage. There must be some links between the new business and the existing one, but these are tough to manage. Tensions are inevitable, and they must be anticipated and managed.

In industries ranging from airlines to software, building new businesses is a smart way to secure the long-term viability of established companies. Seeing the breakthrough opportunity is actually the easy part. The real challenge is organizing for success.

Vijay Govindarajan and Chris Trimble are authors of Ten Rules for Strategic Innovators – from Idea to Execution (Harvard Business School Press, December 2005.)Both are on the faculty at the Tuck School of Business at Dartmouth.