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Telefonica’s digital re-structure - summary and review of analyst webinar held 12th March 2014

Eduardo Navarro, until recently Group Chief Strategy & Alliances Officer at Telefonica and since March this year its new ‘Chief Commercial Digital Officer’, held a webinar for analysts yesterday (12th March) to describe the reasons for the re-structure of Telefonica’s digital activities and the closing of Telefonica Digital (TEF Digital) as a separate Business Unit. Eduardo led the establishment of TEF Digital two and half years ago. Below is a summary of what he said and our initial analysis.

Have the lights gone out?The “light bulb” at TEF Digital; have the lights gone out?

He said that “nothing had changed in terms of the vision and strategy”. The reason for the change was to “remove the barriers to moving fast”.

In particular he said that a year ago he decided that the company needed to bring ‘digital’ activities much closer to the Operating Businesses (Europe, LATAM, Spain) and now they have implemented that plan.

He said that TEF Digital had been a success in terms of growing revenues, increasing value to the company and helping to create a ‘digital DNA’ across the company. However, now is the time to embed this more deeply in the main organisation.

In practice it means the following:

  • There is a re-structure of the whole Telefonica organisation. Eduardo will be in charge of revenue growth. A new Chief Global Resources Officer will be in charge of cost efficiencies, global platforms and procurement (with an objective to create 1.5 bn Euros of savings).
  • The previous activities of Telefónica Digital, Telefónica Europe and Telefónica Latam will move into the Global Corporate Centre with global leaders for Consumer, Enterprise and New Digital business.
  • Video will move into the Consumer group led by Michael Duncan, M2M/Cloud/Security will move into Enterprise (to give them more powerful go-to-market support), and all other digital activities (advertising, health, home, financial service etc) will stay in a New Digital group run by Stephen Shurrock.
  • A bigger focus on:
    • ‘Big Data’ and business intelligence/customer data, TEF acting as a custodian of personal data for its consumers and applying the principles [espoused by the World Economic Forum] in terms of enabling trust, transparency, value and control for the consumer.
    • IP Communications: a ‘key battleground for telcos’, important to ‘protect the core’. TEF will leverage the skills and experience developed by TuGo, Topbox, Jajah etc.
  • No offices will be closed - the digital activity will ‘align close to where the customers are and where the talent is’. Product ‘Centres of Excellence’ will be based around the world.

Measurement will change: since many digital products will be bundled with the core products, ‘digital’ will be measured against its impact to the overall company’s revenues rather than always on an individual product basis.

The operating model will change: TEF will try to execute on the model of ‘Discover, Disrupt, Deliver’ - applying a different operating model to projects and products that fit into different categories (eg. M2M in the ‘deliver’ category, since it is s closer to core telco; Big data in the ‘discover’ category; IP Comms in the ‘disrupt’ bucket).

Eduardo started the analyst webinar by saying that there was a huge opportunity for telcos to win in the next phase of the ‘digital revolution’, especially as it moves beyond apps, games social media and search to more ‘vital’ services related to security and trust (healthcare, financial services, etc).

Our Initial Analysis of this announcement

  • It is a clear attempt to bring the ‘Digital’ activities closer to the Spanish power base and, implicitly, an indication that that the Telefonica Digital business unit was not performing as well as management would have liked.
  • It is also an indication that Telefonica Digital’s ‘smorgasbord’ approach to service development and delivery was not working. The business unit covered everything from core Telco services such as hosting, cloud and enterprise communications to non-Telco digital activities such as OTT communications, financial services, health, advertising, OTT content etc. Everything in the middle - security, IPTV, customer data etc. was also part of Telefonica Digital’s remit. The result, STL believes, was:
    • A lack of focus. Too much going on, too many priorities.
    • A culture clash. The core telco services require traditional infrastructure skills, partnerships, metrics whereas the digital services require new software and marketing skills, new partners and opex- rather than capex-based metrics. Putting the two areas together in Telefonica Digital meant that the business unit was not, quite frankly, digital enough.

By spinning off more traditional telco services into the operating businesses (both consumer and enterprise), Telefonica has reduced the Digital unit’s scope and, despite management’s protestations that this is about integrating digital into the rest of Telefonica, it is clear that the true digital services are being ring-fenced within Eduardo Navarro’s organisation under Stephen Shurrock. This will give them what they need and what they lacked before: protection from the Telco 1.0 culture.

NOTE: A full report, How SingTel and Telefonica are making their ‘Digital Business Units’ more digital (and innovative) will be published next week on the Telco 2.0 Research site. This will cover the shortcomings of existing ‘Digital Business Units’ together with an appraisal of how SingTel, and now, Telefonica are addressing these issues with recent moves. Contact us for more information.

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