By Dr. Venkatesh Bala, Chief Economist, The Cambridge Group
We are proud to continue our Lessons in Innovation Leadership interview series. This series showcases experienced business leaders who have led, and learned, from significant innovation initiatives. These innovators from across industries share the major, and often difficult, strategic choices they faced and discuss the long-lasting consequences that resulted for their organization’s performance. The interviews feature the innovators’ experiences and summarize what worked, what didn’t and why. We hope readers, such as yourself, find parallels between the strategic issues and approaches expressed here and within your own organization so that you can reshape your thinking around innovation, making it more effective for growth and organizational success.
We’re pleased to continue the series with a candid conversation with Marten Pieters, Managing Director and CEO of Vodafone India.
Mr. Pieters began his career at Royal Smilde Food PLC, occupying various management positions there between 1977 and 1989. In 1989 he joined KPN, the Dutch incumbent operator of the postal and telecoms services. In 1995, he was appointed Vice President of International Operations. From 1998 he was Executive Vice President for KPN International, extending the portfolio of telecoms assets in mainly emerging markets (Asia, Eastern Europe). In 2000 Mr. Pieters became a member of the Board of Directors of KPN and CEO of the Division KPN Business Solutions. From 2003 until 2007 Mr. Pieters was CEO of Celtel International B.V., a Pan African Mobile Telecom Operator working in 16 African countries.
In February 2009 he was appointed as Managing Director and CEO of Vodafone India, a subsidiary of Vodafone Group PLC in India.
Mr. Pieters is a board member of the Social Investor Foundation for Africa and member of the Supervisory Board of the Investment Fund for Healthcare in Africa. In 2012, he has been appointed as the Vice Chairman of Cellular Operators Association of India (COAI), the industry body for GSM telecom operators in India.
Q: I’d like to begin by asking how you define innovation.
For me, innovation is about doing things better, doing things differently, not just new product development. Unfortunately, I don’t think real innovation happens very often in telecommunications. Perhaps you could say that the invention of the Internet was a real innovation, but nearly everything from that moment on was very gradual versus step change.
There is opportunity in that, however. Our customer, in my view, is very much into how we can do things better for them, be smarter. Importantly, better means a lot of things—smarter, improving customer experiences, driving down costs—so there is a lot of opportunity for improvement.
Q: You mention customers want you to do things better for them, be smarter. Can you give me some examples of these ”smarter innovations” to bring the concept to life?
Sure. Let me give you an example from our products in rural India that highlights innovation when you understand the realities of how consumers are using your product. We have over 70 million customers in rural areas in India. Interestingly, while purchasing power there is not very high, in truth, the need for our mobile phone products is incredibly high. There are virtually no fixed lines, virtually no transportation … communication is honestly only happening by mobile phone.
Nearly 100 percent of people in these areas are on prepaid connections. That works just fine generally, but if you run out of credit and you have an emergency, you are in trouble because you have a phone but you can’t make a call.
We observed this situation, and developed a product that would allow the customer to borrow some money from us, or another customer, and more or less give them the opportunity to make calls when they otherwise couldn’t. That was a real innovation in the market and it was very well received by the customers. We gave them a smarter option for their needs.
Let me give you one completely different example, which is more about how you can be innovative in the way you use the information you have from your customers and then help them make the right choices.
We have developed a customer value management system. The system actually analyzes the data of a customer, and based on his usage patterns, we give him a dynamic offer that is customized for that specific customer and his needs.
We have 150 million customers, so I won’t claim that we have 150 million customized offers; that would not be possible. But we have at least 25 offerings in all 22 local markets. That is hundreds of offerings specific to the usage and needs of the customers. Tactically that means that when a customer calls, we are able to give the best offer for him based on his usage.
That is, I think, a real innovation on the product side. But it also was kind of thinking on behalf of the customer—trying to understand what he would like and how we could make sure the customer gets the best experience.
Q: Shifting gears for a second to the notion of innovation in emerging markets. I am interested if, in your experience, you believe there is a fundamental difference in how you would innovate in places like India or Africa, as compared to developed markets?
Absolutely. The Africans have a beautiful expression. They say “We do not carry stock,” which means you better have cash in your pocket. Tactically, it means the moment I buy cigarettes, beer, shampoo or a telephone card, the cash is gone. I can’t swap it any more. What you secretly see in these markets is that customers are interested in very dynamic offers and not interested in getting big discounts because they buy volume. They are happy to pay a premium more or less to get flexibility in their spending. Take the example of buying shampoo. If you bought a big bottle of shampoo and you bring it home, in Africa, you’re all living in a very small place together with your whole family. A day or two later, all your shampoo would be gone since the family structure is such that you cannot deny anyone access to your shampoo. With the inner family in Africa, it is just impossible to say no, so that affects purchase decisions. It’s a bit of the same with telephone credit. The second that someone comes up and asks to make a call on your phone, it’s very difficult to say no, and then your credit is gone. If you don’t have any credit, you can say, sorry, I don’t have credit.
Indian customers are extreme value-seekers; I’ve never seen anything like that in the world. If you sell a bundle to a customer in Europe, you might charge him 30 or 40 Euros. In my view, what happens is that if he sees he can save 10 euros or more, he might be interested and do something about it. But for anything less than that it, it’s just too much effort.
Now in India, it’s the other way around. They are willing to go through a lot of pain to save 10 euro cents or 20 euro cents or 50 euro cents or 50 dollar cents, which means that how you bundle and price your offerings is very critical. That’s what you see in our industry in India. We have 10 operators in India. You might well see a customer running around with let’s say three or four SIM cards: the one he uses to call his mother, because he knows that his mother is on a certain operator and he gets a good deal for that operator; then he swaps the SIM and uses the other one to, for example, call his business relationship in Dubai because he gets a very good offer from a certain operator for a certain period for calls to Dubai. So what I’m saying is that what the customer actually does here, if you bundle stuff, is that he unbundles it and uses it in a very smart way.
Due to the value seeking behavior of customers, it is not beneficial to have our most valuable products integrated together in complicated bundles. We need to think of different ways to make the products accessible—like a daily pack for caller ring back tone or music at less than 5 dollar cents! The customer would either find a way to unbundle the offering, or move to a competitor for the unbundled option if we didn’t offer it. Overall this means that you really have to spend time to understand the nuances of the market because the emerging markets absolutely do not operate in the same manner as the developed ones.
Q: That’s interesting, and ties into our next question. As a global company, how much do you, or do you not, adjust your strategies on a market by market basis, versus adhering to a global strategy?
I think the brand is trying to create the same identity everywhere. Clearly in telecom the strategy is to be the best network and differentiate yourself on the quality of the network. However, while from the helicopter view it all looks the same across markets, the reality is that how you execute in local markets is very different. Let me give you a few big differentiators.
In Europe, operators heavily subsidize handsets to get customers on their networks. Not only subsidize them, they pre-finance them for the customer. And that’s a very expensive game to be in. We don’t do that in India. In Africa nobody does it either, at least not in the real emerging markets. We clearly want folks in our system here as well, but we can’t operate that way because we don’t have a good credit system where we can see if a customer will pay us back. We’re not sure about his address because you know he might move; we will never find him back in this country, so operators are typically not willing to pre-invest in customers. Instead, we choose to give them the service very cheap and get them in our network that way.
But it makes the business model completely different because if I’m in Europe and I don’t have the right price for the iPhone or Samsung Galaxy or whatever the fancy handset at this moment is, then I’m in trouble because in the end, the customers buy the handsets first and the connectivity comes with it. Here it’s completely the other way around. People buy a handset that is not locked to any operator and then decide which operator they’re going to use. So it’s a completely different decision-making process for the customer.
But it also of course means that we have to behave very differently. We don’t advertise much for terminals; I don’t have to advertise for these terminals because that is actually not the business I’m in. I’m really in the connectivity business; while in Europe you will see that it is far more of a blur—where if you don’t sell the terminal you probably are not able to sell the connectivity.
So you see, there are huge differences from country to country that really affect the business model.
Q: How has your definition of innovation changed, if at all, over the course of your tenure in the industry?
To be honest, it hasn’t really. The definition has not changed but I think the way you apply your innovation is different depending on your industry and your situation. Let me give you an example. When I worked in the food industry, we were producing margarine, where it was kind of a very low-margin product typically because it’s a very commoditized product .At a certain moment these ”light” products came in. It was a real innovation. You want innovation because suddenly you could kind of produce a spread that has probably 60 percent or 50 percent of the calories that the original product has. It’s a funny thing because actually what you do is you actually blend fat with water. Water, as you know, is very cheap. Fat is actually relatively expensive. So by blending a lot of fat with water your product becomes a lot cheaper. But the funny thing was that you could sell it to consumers at a huge premium because you positioned it as a healthier product!
So that’s a real innovation, isn’t it, which has a huge impact on the margin of the product and so on.
But again, if you go to a service industry like we are, you will see less of that, but you see a lot more innovation in other ways—like back-end processes, the way the customer experiences the product so in a way, innovation typically is a little bit more invisible and it goes more creeping than you would see with kind of, oh a big bang, there’s a new product and that’s a real innovation because there’s a new product.
Q: Finally, any advice that you’d give to a young person starting out working on innovation?
I would say come and work in the telecom industry because it really is a nice place to be. As for innovation, in my honest opinion, creativity is frequently underestimated or at least not appreciated. I think that’s one of the problems that big companies have. Big companies tend to be more process driven. They have to be to service millions of customers for a very low price, that’s the only way to create the scale efficiencies and the cost efficiencies.
Now at the same time, if someone says that you’re very process-driven, that doesn’t sound like you’re being very creative. So I think that young people should really try to build on their creative capabilities because there are many people in the world who have process capabilities, but there are relatively few who have creative capabilities, and it’s always the creative capability that creates the breakthrough or the innovation.