Telefónica Walks the Digital Tightrope
Amid the noise and excitement of this year's Mobile World Congress in Barcelona, Telefónica stuck with its financial calendar and announced its fourth-quarter and full-year earnings report. (See Telefónica Reports 2013 Profit Growth and Euronews: Telefónica Plans Capex Rise.)
Nothing strange there -- this isn’t the first time Telefónica SA has unveiled its financials while much of the industry's attention is focused on the wireless party happening in the Spanish carrier's own back yard. (See Light Reading’s Mobile World Congress coverage.)
This year, though, the operator had another important announcement to make as it revealed its financial performance -- a corporate restructuring that had a significant impact on its most recent offspring, Telefónica Digital.
That division was created, complete with its own management team and operational agenda, in September 2011 as a hothouse for new digital services, and charged with developing new business plans and opportunities that might otherwise not be conceived within the regular management structure of a traditional telco. (See Telefonica Restructures, Creates New Units and Telefonica Holds Key to Digital Model.)
Telefónica Digital's activities have been tracked closely by Light Reading during the past two years and have often provided inspiration for the types of activities that could (and should) be pursued by telcos that need to adapt to the challenges and opportunities of what some describe as an "information society." (See Telefónica: A New Breed of Telco, Telefónica: Digital Dreamer?, Inside Telefonica's Startup Incubator, and Why Gonzalo Martin-Villa Is Kissing Frogs.)
Now, though, as part of the carrier's new organizational structure, Telefónica Digital will cease to exist as an independent operation following a board decision to centralize a number of operations, "bringing them closer to the corporate decision-making centre, simplifying the global structure... to improve flexibility and agility in decision making," the operator noted.
The move, though, isn't a case of shutting down an unsuccessful experiment: Instead it seems to be designed to move from a fledgling digital operation to one that is more grown up. The operator notes that Telefónica Digital, under the presidency of Matthew Key, "duplicated its value" during the past two-plus years and "achieved incremental revenues to reach a growth of nearly 20%. In this way, it has become the seed for the Telefónica of the future."
To grow that seed, Telefónica has appointed a Chief Commercial Digital Officer, who will be "responsible for fostering revenue growth" based on digital services developments (advertising, cloud, security, M2M, digital content distribution, e-health, and financial services) fostered at Telefónica Digital. But that officer is not Matthew Key: Instead the role goes to former head of strategy and alliances Eduardo Navarro.
So if Digital was growing and doing well, why not let it continue as it was? It seems one of its key strengths -- its independence within the Telefónica group -- was also its main problem. As well as being based in London, and so not on the doorstep of the Spanish operator's Madrid headquarters, the unit was not represented at the executive management team level: To feed its ideas and developments to the operating units in Europe and Latin America, it was working through multiple layers of middle management, a process that was holding up the introduction of new applications and services.
Now, under the new structure, it does have top-level representation and is at the very heart of Telefónica’s growth engine -- at the cost, however, of the unit's independent identity and without Matthew Key, who slips back into a director’s role at Telefónica UK. (We can expect to see Key moving on soon, then...).
The reorganization comes at a critical juncture for Telefónica, as the operator is also embarking on a radical evolution of its network infrastructure with the introduction of NFV and, ultimately, SDN capabilities. (See Telefónica Unveils Aggressive NFV Plans and Defining SDN & NFV.)
So that's a global operational revamp and a challenging new networks strategy -- a lot of change within a large global organization (about 130,000 staff and 323 million revenue-generating connections).
Such upheaval does not come without teething pains. The danger is that by centralizing the management of its digital services developments, Telefónica might actually suppress the exuberance and innovation that characterized the Digital unit. That would also impact staff morale, something Navarro must avoid if the flow of new ideas and developments is to be maintained.
Any such negative impact would be a major step back for a company very focused on moving forward -- Telefónica, and Navarro in particular, needs to make sure that the gains made during the past few years are not wasted. And that's going to be a tough management challenge for the new Chief Commercial Digital Officer.
— Ray Le Maistre, , Editor-in-Chief, Light Reading