Telstra CEO Andy Penn spoke today at the American Chamber of Commerce in Melbourne about the intersection between emerging technologies, disruptive business models, and new patterns of customer behaviour and expectations.
He said that while Telstra was in the technology business, and the telecommunications business, most of all we are in the customer business.
Here’s what he had to say:
Thank you James and good afternoon.
I welcome the opportunity to participate in this AmCham event today and speak with you. Telstra has extensive relations and business interests in the US.
There are three aspects to these.
Firstly we have significant global partnerships with key technology companies in the US particularly on the West Coast, Amazon, Microsoft, Apple, Google, Facebook, Tesla and others, where we are jointly bringing cutting edge technology solutions to our Australian customers.
Secondly we are one of the largest carriers of data from the West Coast of the US to Australia and the Asia Pacific region through our extensive submarine cable network, points of presence and data centres.
And thirdly the US is a hot bed of technology innovation where we have significantly invested directly in software and other cutting edge technology businesses. We have many software engineers and data scientists in our intelligent video business in Silicon Valley as well as significant investments through Telstra Ventures.
Many of these investments are targeted to help us build the capabilities to transform Telstra into a world class technology company. This is one of the key themes of my talk this morning.
There is a lot written today about how technology innovation is disrupting traditional business models.
I think the point is more subtle than this. Technology innovation is not just disrupting traditional business models it is facilitating the transformation of customer experiences.
We are all familiar with the Uber example. Uber has taken a relatively simple piece of technology and completely transformed an experience, that let’s face it, until Uber came along was one of the worst customer experiences anywhere around the world.
Finding a taxi, finding a taxi that knew where it was going, finding a taxi that took cash when you only had cash or a credit card when you only had a credit card – all of this has been transformed in a relatively short space of time.
Of course there is lots of discussion about the viability of Uber’s economic model, or whether they have had an unfair advantage from or have avoided regulation.
However, all of this misses the point, because as far as the customer is concerned the horse has already bolted. Customers are simply not going back to accept the sort of experience they used to receive. The traditional incumbents are now under enormous pressure to transform their service experience if they are to survive.
So what does this mean for all of us?
The question I would ask in your business is where are the customer pain points? Where do you already know that let your customers down? What aspects of your service are your customers most frustrated with? Identify these and fix them quickly because I believe this is where technology disruption is most likely to arrive first.
This is the journey we are on at Telstra. This is why our aspiration is to become a world class technology company. So that we can leverage technology to provide a better customer experience.
We have come a long way in improving customer service at Telstra. But I would be the first to admit we have so much more to do. And if we are going to make significant further progress we need to leverage technology to transform the customer experiences we provide.
In my talk today I want to address this issue, how the rate of pace of technology innovation is accelerating. How this is driving transformations in customer experiences, what this means for traditional companies that were not born digital and how we might respond.
I will share with you some examples of both very traditional businesses that are transforming as well as disrupters that are already facing their own potential disruption.
In short, to demonstrate how technology is not just for technology companies, it is for all of us.
There are three factors driving the acceleration in the rate and pace of technology innovation today.
Firstly the shift from desktop to mobile; secondly the rush to move technology to the cloud and thirdly advances in artificial intelligence and machine learning.
Let me comment first on mobile.
20 years ago there were less than 100 million mobile devices in the world. The International Telecommunications Union, the ITU estimate there will be 7 billion mobile devices by the end of this year.
Less than 10 years ago mobile phones were used for making voice calls and texting. Today, they are our mobile office and the remote control for many aspects of our lives. They are literally computers in our pockets.
In the next five to six years mobile data traffic is expected to grow tenfold. Video represents more than three quarters of this.
But the real growth in the coming years will be in the internet of things. Tens of billions of connected devices from aircraft engines to cars, smart TV’s to domestic appliances.
In the future, anything that can be connected will be connected.
Some estimates predict that by 2020 there will be up to 50 billion connected devices globally.
5G will be critically important in facilitating this new world of the internet of things. And while 5G is unlikely to be in ubiquitous commercial use before 2020, Telstra is among the global leaders defining the standards for this technology as we were for 4G.
We will launch the first major 5G in market trial in Queensland in 2018 in conjunction with the Commonwealth Games.
On premises to cloud
The second factor driving rapid change is cloud.
Continuing advances in technology virtualisation are driving an acceleration in the migration of traditional IT environments to the cloud.
A recent research study of large Australian companies showed 86% are now using the cloud in their production environment.
Cloud is growing exponentially because it gives your technology environment improved flexibility, scalability, and cost efficiencies.
You can stand up capacity or dial it down as you need it and new functionality is constantly being added in the background.
The most complex aspect of cloud however, isn’t running the IT systems and applications in an off premises data centre. The complexity of cloud is getting the data in and out of the cloud, at speed and securely, through the network – as well as effectively operating the multiple cloud solutions you need at scale.
This is a telecommunications challenge and is why Telstra is the leading provider of hybrid cloud solutions in Australia today. It is why our cloud business is growing at 30% per annum.
Advances in artificial intelligence
The third and perhaps most significant driver of technology innovation is advances in machine learning and artificial intelligence.
Advanced algorithms in conjunction with the massive increase in computer power as Moore’s law enters its 50th year, mean computers can now see and hear better than humans. They can also learn as we provide them more data.
The implications of artificial intelligence are profound. The world ahead will be full of products and services that are intelligent and able to learn our preferences, interact with each other, the cloud and other devices that we have.
Three tech drivers summary
While each of these trends is significant in of itself, it is the power of the three in combination that has the accelerator effect an innovation.
The exponential growth in data which is driven by the massive shift to mobile and the internet of things, with the ability to store and access that data in the cloud, together with computing power and advanced algorithms. It is these three things together that are providing the capacity to solve almost limitless problems.
What makes this digital disruption so exciting, but also challenging for business, is the rapid rate at which it is occurring. We have never seen anything like this before.
Competitors can come from anywhere, in what is now a connected global marketplace, and from nowhere in the form of new start-ups.
Technology has democratised innovation and today there is potentially more innovation on your business happening outside of your organisation than within it. The question is how do you tap into that innovation and leverage it.
That’s the reality of our digital world today and that is the reality of our digital future.
One surprising company that is embracing this is General Electric.
GE is the quintessential incumbent. It is the only company alive today which listed on the Dow Jones Index when it started in 1879. Today GE has a market cap of $287billion and 300,000 employees.
GE is a traditional manufacturing company making everything from aircraft engines to toasters, microwaves, locomotives and light bulbs.
However, amazingly GE have recently declared an aspiration to become one of the world’s top 10 software companies by 2020, as they look towards a completely different business model for the future.
What sits at the heart of this plan is Predix. Predix is GE’s platform for the industrial internet.
I mentioned earlier the internet of things, the concept that virtually everything that can be connected in the future will be connected. Well Predix is the internet of the really big things.
The idea is to provide a standard way to connect machines, data and people, securely to allow industrial scale analytics for asset performance management and operations optimisation.
For example, by connecting virtually every component within an aircraft engine and constantly monitoring and analysing it, GE can achieve massive efficiencies in operations for airlines through predictive maintenance and constant fine tuning of engine performance.
The future that GE sees is no longer selling aircraft engines, rather aircraft miles as a service. A world where the airlines no longer actually buy the engines from GE but sign up for an aircraft engine as a service, per mile travelled and weight transported completely turning its business model on its head.
It is a concept fundamentally built around the customer experience and for the airlines this creates incredible efficiencies at the intersection of intelligent machines, big data, analytics and people.
This concept will have applicability across a whole range of GE’s large scale engineering businesses. And this is why they have been investing hundreds of millions of dollars in Predix, and why they have become one of the largest employers of software developers and data scientists in Silicon Valley.
It cannot be easy to pivot a $287billion, 135 year old company, but GE are doing just that.
Let me now turn to a more recent company, Netflix.
Netflix started life in 1998 as a dvd mail out rental business in the US. However, it foresaw the demise of physical dvds with increasing internet bandwidth and transformed its business model to a digital media company in 2007 when it launched streaming.
In fact in 2000, Netflix proposed a partnership with Blockbuster Video which at the time was the leading video company in the world. The offer was declined and as you know Blockbuster went into Chapter 11 in 2010.
Netflix today has more than 75 million subscribers globally, operates in more than 190 countries and has a market cap of approximately $50billion.
If you look at Reed Hastings’ background, the CEO of Netflix, there is a clue as to why Netflix was able to take advantage of this transition quicker than most traditional media companies.
Reed who founded the company was not originally a media guy, he has a Master’s degree in Computer Science from Stanford.
What has made Netflix extraordinarily successful has been their focus on the customer experience through the use of technology.
From a content point of view they have a relatively limited library and while House of Cards has been successful for them, they face exactly the same experiences as the rest of the industry repeating that formula in original content.
However what they have developed is an intuitive and compelling customer experience enhanced by their recommendation engine.
The recommendation engine is the algorithm software smarts that determines how to serve up content and offer it to customers in a way that they find compelling and personalised to their taste. This is where Reed’s AI background comes in.
Netflix spends 20 times as much on their recommendation engine compared to traditional companies.
In summary, it has been their focus on using technology to transform the customer experience that has driven Netflix’s success.
But the digital media story is far from concluded. Indeed Netflix the disruptor may be about to become the disrupted with the launch of Fullscreen, one of the largest YouTube multi-channel networks in the US.
Fullscreen offers a number of services including production, promotion and talent development in exchange for a cut of ad revenue.
It has just launched a $5 per month subscription video on demand service that blends original content and licenced content including tv shows, films and web series.
What makes Fullscreen potentially disruptive is that its talent network is 75,000 content creators including some of YouTubes biggest personalities. It is also pioneering the integration of digital media and social media, a powerful combination.
However, the traditional media companies are responding too.
Disney, one of the most powerful brands in the world, have recently launched an app based service, Disney Life. This provides on demand access to content including movies, songs, games, soundtracks and TV episodes all within a single user experience.
Disney realise the power behind their brand will not protect them if their customers can find a better experience elsewhere.
Likewise our own partner company Foxtel is also making significant enhancements in customer experience through technology.
The good news for companies such as Foxtel and Disney is the power of their content. It is clear that the Foxtel content offering far exceeds that of any other media company in Australia both in terms of breadth and quality.
So if we as traditional companies can transform our customer experience leveraging technology, then this puts us in an extremely strong position to win in the future given the power of our content.
At Telstra we have the mobile digital rights for both the AFL and NRL until 2022. We have recently invested significantly in these apps which are providing an amazing experience leading to a massive growth in the amount of content consumed online.
Today we also announced a new five year partnership with Netball Australia.
As well as offering to support one of Australia’s highest participation sport and the newly formed Netball Premier League, today’s announcement is an example of the type of disruptive, game-changing entertainment experience we are looking to offer our customers in the future. Access to live netball, no matter where they are.
From 2017, netball lovers will be able see all the games each week either on their smartphone or tablet or at home on their Telstra TV.
What we have learnt from our AFL and NRL apps is that more and more customers want choice about how they experience their sport.
Some want to watch it at home, many when they are mobile, and others want to enhance the experience at the ground by being able to do things like watch replays and access game stats in real time.
And if you cannot catch the game live, you want to be able to catch up later, see the highlights and, the post game interviews.
Our AFL, NRL and now NPL apps let you do just that.
The fourth and final story I wanted to share today is about Starbucks. A company disrupting itself.
With our sophisticated coffee culture in Australia, I know we find it hard to relate to the Starbucks business model and even harder to relate to the coffee!
Starbucks had a near death experience in the mid 2000s. However, they have been phenomenally successful since and Starbucks now has almost 25,000 stores worldwide growing at more than 10 percent per annum.
At the heart of this recent growth has been a digital and customer experience transformation.
Starbucks have rebuilt their business around digital tools, one of the most successful of which is their mobile app. A relatively simple concept the app allows customers to order and pay for a coffee before they go into a store to pick it up.
The app accounted for more than 8million mobile orders and payments in April alone. And Starbucks have found that mobile app users spend three times more than average Starbucks customers.
The technology has also given them the ability to increasingly personalise their order and pay process through a sophisticated loyalty program.
Last year, one in six Americans received a Starbuck’s e voucher for Christmas and they are now looking at how they can send personalised offers directly to their huge data base of customers.
These case studies are from the US, but the lessons are universal.
In fact every year for the past 25 years we have run the Telstra Business Awards to celebrate the best and brightest of our small and medium sized businesses in Australia.
What we see with these companies is that increasingly, digital technologies are now at the heart of their strategies, even in the most unexpected places.
The Lark whisky distillery in Hobart for example is, a Telstra Business Award from in 2014. Lark is now using cloud technology right across the back end of their business.
It is a great story of cutting edge technology taking whisky to the cloud – an outstanding innovation if ever there was one!
These are all very different companies, in very different markets with very different challenges and opportunities.
But there are some common themes.
Firstly, the pace and rate of change is now moving so fast that today’s disruptors can quickly become tomorrow’s disruptees.
Secondly, companies have to constantly think and re-think how and what they do as the world changes; GE becoming a software company is a great example of this.
But perhaps the biggest link between each of these stories is the absolute focus on the customer experience.
Our highest priority at Telstra is to improve customer advocacy. Nothing matters more to us. 40% of all variable remuneration of the company is linked to this single outcome. It carries more weight than any other measure in the company.
Through the hard work and dedication of our team over the past 5-6 years we have done a lot to improve customer service. Many things have contributed to that.
As an example the Telstra 24/7 app now has 2.6 million active users.
More customers now interact with us online than in person and we have progressively enhanced functionality to help customers get the most out of their services with us.
Another example is the service app we have introduced for our field technicians that visit 20,000 Australian homes every day.
Most jobs require them to navigate to a customer’s home, the local exchange and interconnection points in the street. While at the job they need information about lead-in cables and to run diagnostics.
All of that is now available to them on a simple field service app along with maps to help them find their next appointment and one-touch calling system so they can send an SMS to tell a customer they are on their way.
We also continue to remove friction points from our core processes and systems and to address the legacy issues which result in a poor customer experience.
For example we recently introduced process changes that have seen mobile order-to-activate times reduce 6 fold from 43 minutes to 7.
That means that more often than not a customer can walk into a Telstra store, buy a phone or tablet and walk out with it connected to the network.
Other changes to core processes have led to faster customer experiences including a 23% improvement in the agent bookings, a 20% improvement in processing move orders and a 17% improvement in new customer orders.
No silver bullet
But while we have achieved a lot, we have much more to do.
We are a long way from where we started, but if I was unkind to us I would say we have done this by sprucing up our current processes not transforming them.
What I mean by this is that we answer the phone quicker, we are more likely to have a reliable and better-informed agent answering the phone, and that agent can rapidly address the issue.
If you contact us, we will send you an email or an SMS to tell you the name of the customer service representative you just dealt with so if you do have a follow up issue you can speak to the same person.
This may not sound like a big deal, but when we receive 1 million calls a week it is a very difficult thing to implement logistically. But we know customers are frustrated when they are required to repeat their issue to us
But a world class customer experience means customers should not need to call in the first place. That is the whole premise of many of the most successful disruptors today.
Who has tried Uber’s or Facebook’s call centre? They do not really have one. They are offering an experience in such a way that it is intuitive, it makes sense, so you do not actually need to connect with them or follow up.
There is no silver bullet when it comes to building world class customer experience.
It is customer by customer, interaction by interaction, process by process. This is a long road, a hard road, but it is so important.
One of the things they say in Silicon Valley is there is no compression algorithm that you can build for the customer experience.
What this means is if the existing infrastructure and processes and the way in which you deal with customers and organise the backend of your business is clunky, you are never going to be able to build an algorithm that is big enough to compensate. You have to go the root cause and find a way to put products and services into the market that are intuitive, easy to use and that customers love.
That is a really hard thing to do for a traditional company, both from a capability point of view, but also from a cultural point of view.
But that is exactly what we are committed to doing at Telstra and it is what I believe all companies need to do.
Before I close I wanted to make a few comments in relation to Telstra’s network.
Over the last decade we have seen a convergence between traditional technology and telecommunications. Today there is virtually no technology innovation that occurs that does not fundamentally rely on a network.
Telstra has the best networks in Australia.
Our 4G network alone now reaches 97 per cent of the population and will reach 98 per cent by June this year and 99 per cent by June 2017.
Our commitment to investment in expansion of the network for all Australians means we will increase our overall footprint to more than 2.5 million square kilometres, double that of our nearest competitor.
Our customers enjoy Australia’s fastest mobile speeds based on a national average of 3G and 4G.
Last year, we achieved two world first mobile speed milestones using our new LTE advanced capabilities as well as launching Australia’s first Voice over LTE service. This allows users to experience high definition voice quality and faster call connection time.
This year, we are working towards achieving peak network speeds of one gigabit in the Melbourne, Sydney and Brisbane CBDs and we will launch Voice over Wi-Fi and Video over LTE.
It is because of this commitment to network leadership that we were so disappointed with the network service interruptions earlier this year.
We responded by conducting a full review with global experts in the field of telecommunications networks.
This review, which looked at every aspect of our network has been completed and the good news is it has confirmed the incredible strength and resilience of our network. Dave Williams, the independent global telecommunications expert that came in to be part of the review, said the Telstra network was world class, both from an engineering and an operations perspective.
He said: “When a telecommunications company focuses itself on quality, it’s a long-term play, and there’s a handful of those networks around the world.” Telstra is one of those.
There were three key recommendations were in the review.
Firstly we confirmed the root causes of the disruptions and have implemented a range of steps to reduce the likelihood of them happening again. This includes increasing redundancy in the nodes, adding more capacity to the core network, introducing new processes and procedures for key network element restarts, and improving resilience in our international connectivity.
Secondly we are increasing the sophistication of our network monitoring systems. This will involve a $25 million investment in new tools and analytics that will provide detailed and sophisticated analysis of traffic patterns.
Thirdly, we are improving our network recovery time, specifically reducing the time it takes for a large number of customers to be simultaneously re-registered or reconnected to our network.
This re-registration process is a common challenge for network operators around the world and we are investing an additional $25 million in this work so that our recovery time will be best in class.
While no network operator in the world can guarantee that disruptions will not occur from time to time, what we can do is reduce the likelihood and the impact of those disruptions.
We are acutely aware of the impact the outages had on our customers and we are committed to rebuilding their trust in us by meeting, if not exceeding, those expectations every day.
That is the experience we are aiming to offer our customers: the right offer, the right services, the latest product and technology, at the right time on the best networks.
So, to conclude, as the rate and pace of technology innovation accelerates, every company is effectively now a disruptor or disruptee. Every company is a technology company.
The question for a very large organisation is how can you find ways to move faster, to be more responsive and less bureaucratic.
The future success of every organisation will depend on how quickly they can digitise their core and how quickly they can move to positively touch the lives of their customers with goods and services, but also with the customer experience they offer.
At Telstra we are building these capabilities. We are in the technology business; we are in the telecommunications business; but most of all, we are in the customer experience business.