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Tech Industry

The wireless industry's killer "b"

Experts at strategy+business examine the myths and realities surrounding the emergence of yet another buzzword, m-business.

No industry suffered as much from the hope and hype of the 1990s boom as did telecommunications. The dream of convergence--for video, voice and broadband Internet--led companies around the world to imagine vast new traffic and wealth emerging from Internet-enabled business-to-consumer and business-to-business commerce.

This e-business mania led telecommunications companies to overbuild in the local exchange market and the long-haul fiber-optic transport market. When wireless became the "next big thing," the private sector piled in, with European telecom companies alone dropping $105 billion on sought-after third-generation (3G) wireless Internet licenses.

The result has been disastrous. The telecommunications industry worldwide is mired in overcapacity, deep debt, razor-thin margins and bankruptcies.

Was all for naught, especially in the highly touted wireless marketplace? The answer, for the moment, is no. Although it is true that mobile commerce has been slow to develop, particularly in business-to-consumer (B2C) applications, our research is showing that many companies have been quick to capitalize on wireless connectivity in a market surprisingly close to home: their own work forces. More than two-thirds of the 473 firms in our recent study of companies' wireless strategies, investments and experiences are using the wireless Internet primarily for business-to-employee (B2E) applications in order to improve productivity and operational efficiency.

All new technologies go through a hype cycle, and m-business is no different.
Many observers and analysts have anticipated continued growth in the wireless market, the industry's recent travails notwithstanding. The Telecommunications Industry Group's 2003 Telecommunications Market Review and Forecast report predicts that wireless spending will increase from $123.4 billion in 2003 to $164.5 billion in 2006, a 10 percent compound annual growth rate. Long-term growth in mobile business may come through partnerships across industries aimed at building loyal customer relationships in B2C and business-to-business (B2B) contexts.

The budding B2E segment, however, underscores an important, but oft-forgotten, fact about business development in industries that are based on rapidly evolving technologies: Markets frequently develop naturally in unexpected places.

We define m-business as the use of wireless handheld devices connected to public and private electronic networks to communicate, inform, transact or entertain, using text, voice and data. Following the characterization used by Ravi Kalakota and Marcia Robinson in their book, M-Business: The Race to Mobility, we use the term "mobile" to mean fully portable, real-time access to the same information, resources and tools that, until recently, were only available from the desktop.

The hype cycle
All new technologies go through a hype cycle, and m-business is no different. Estimates of the growth of m-business have swung wildly during the past several years, with growth projections in a sample of 10 studies published from 1999 through 2002 having a variance as high as 100 percent. This hype was driven largely by three factors: excitement about the technology and its capability; the continuing growth of wireline e-business; and the rapid adoption of wireless devices around the world.

The combination of these three factors could have yielded a legitimate "white space" opportunity--an unmet consumer need that previously could not have been filled. M-business's white space was assumed to be consumers' need to access information, connect with others and complete transactions anywhere, anytime while on the move.

M-business has fallen well shy of most expectations, however, prompting some to view m-business as simply an untethered extension of traditional telephony. This sluggish growth and disillusionment can be attributed to seven causes:

• Lack of network capacity. In its current form, the second-generation (2G) wireless Internet cannot deliver the speed and ease of use required for most revenue-generating m-business applications. For example, our study indicates that, on average, a 2MB file takes more than three hours to download to a mobile phone on current technology, more than 200 times as long as it takes to download to a desktop PC with broadband wireline technology.

• Lack of consumer demand. Third-generation technology is substantially faster than 2G; a 2MB file will download in about five seconds on a full-fledged 3G network. But customer demand is influenced by today's reality rather than tomorrow's promise, and it has remained low.

• Mobile device limitations. The real estate on a phone screen is a fraction of that of a laptop computer. "Browse and buy," an activity ubiquitous enough in wireline e-business to turn eBay into a household name, cannot easily be transferred to mobile devices. Such constraints also all but eliminate another common form of revenue generation in e-business: online advertising. And newer mobile marketing communications activities, such as sales promotions, are falling prey to the "law of diminishing astonishment."

• Consumer unwillingness to pay. Because revenue growth is so slow, consumers are being asked to bear the brunt of financing new m-business applications through pay-per-use or pay-per-download mechanisms. But consumers haven't yet shown their willingness to be both guinea pigs for new business models and financiers of new applications.

• Lack of worldwide wireless standards. To overcome barriers to interoperability around the world and provide end users with seamless service, wireless providers are required to have tri-band phones and service. In the United States alone, multiple technologies result in dropped calls as customers move from digital to analog networks.

Furthermore, device manufacturers face the significant challenge of developing a new breed of 3G handsets that can juggle music, video, e-mail and voice over three different radio bands within the next 18 months, when European 3G networks are expected to be built-out and functional. These new-generation devices must combine the wealth of applications of a computer with the roving versatility of a mobile phone. Many industry observers are skeptical that telecommunications manufacturers will be able to rise rapidly to this challenge.

• Ubiquity of PCs. The sheer number of PCs in large markets such as the United States is also a big barrier to m-business adoption, suggesting that consumers who have mobile access to the Internet do not necessarily use their mobile devices to complete revenue-generating transactions. With larger display screens and faster transmission available in homes, offices and schools, consumers' need for wireless use is diminished. The online tracking firm ComScore Networks reports that U.S. consumer e-business from PCs reached $17.9 billion during the third quarter of 2002, a 35 percent increase over the previous year--a statistic that highlights the continuing use of PCs for Internet transactions.

• Failure to understand customer value creation. Finally--and most importantly--companies that really want to derive value from m-business will have to reexamine customer value creation. Service providers must recognize that m-business probably won't thrive by re-creating Web experiences on the phone. Rather, m-business will succeed by providing customers with information and applications that they can use to solve problems more economically than they can with alternative means. The bandwidth requirements to fulfill these needs are at least four years away; until then, m-business providers will have to build their customer bases through services and applications that are simple, timely, location-sensitive and more cost effective than current alternatives.

Although these barriers have hindered B2C and B2B adoption, they do not appear to be impeding B2E implementation. Our study, which included companies in the United States and Europe, revealed that a significant majority (69 percent) of companies is focusing its m-business interests on B2E applications. A smaller proportion (37 percent) has invested in B2C applications. An even smaller proportion (19 percent) is using mobile solutions in its B2B interactions.

Different emphases
The B2E applications receiving the most emphasis include mobile office (communications and access to corporate information), customer care (contract and transaction management), and operational productivity (asset/fleet management and inventory management). Some companies are also focusing on mobilizing supply chains across organizations.

The different emphases reflect variations in strategic intent. B2E m-business investments suggest an interest in improving operational performance. B2C m-business investments are aligned with improving the company's range and its customer reach. B2B applications are used partly to roll with business model changes and partly to boost operational performance. Thus, it appears that companies' main near-term interest is to use m-business in order to improve performance--not to draw revenue--and that they believe that performance improvements will be achieved by focusing first on employees.

This short-term interest does not necessarily reflect how companies will implement m-business applications over time. When considering a new technology, a company faces two central decisions: how much to invest in the technology and how to align the investments with the company's strategic intent. By analyzing m-business investments by the companies in our database, we have developed a framework that can guide other managers as they confront these decisions.

M-business has fallen well shy of most expectations, prompting some to view it as simply an untethered extension of traditional telephony.
Some companies view a new technology as an incremental innovation, and their adoption of it is guided by potential changes to their revenues and profits and also by how it can enhance the organization's structure. Others consider a new technology a disruptive innovation that could radically alter their business model and sometimes the entire organization's culture and structure.

This framework shows that internal performance improvement is the "low-hanging fruit" that's most readily available to a company that's contemplating a technology investment--which explains the early interest in m-business's B2E applications. About 42 percent of the businesses we studied has equipped its work force with wireless voice or Internet systems, and another 28 percent is considering launching such systems.

In these cases, the new technology is seen as supporting the company's existing business model and not requiring significant internal business transformation. B2B applications can also improve employee, customer and business partner processes, although the lower degree of implementation found in our survey suggests that executives see these applications as requiring a greater degree of business transformation and as having a larger effect on the business model.

Companies pursuing B2C mobile applications appear to believe that the new technology requires both moderate change in the existing business model and a moderate amount of organizational transformation. Many companies in banking, insurance, manufacturing, transportation, telecommunications, media, utilities, health care and government, for example, have begun customer-facing m-business activities in order to increase customer reach, to increase product or service range or to improve customer loyalty. All of these activities--including customer self-service (mobile customer contact, query and order), mobile applications development and deployment (personalized and location-sensitive), and m-business (mobile billing, payment, and transaction)--require some behavioral change on the part of both customers and employees.

Finally, if the innovation threatens to disrupt the company's business model and to radically transform the organization, then the company will have to modify its existing business model or create a new one in order to address significant competitive threats. Because most companies are unwilling to take such actions, transformative m-business technologies, such as those that span B2E, B2B and B2C applications, will take more time to be adopted. M-business interests differ by industry. And within the solution sets, industries also differ in their specific areas of interest.

B2E solutions, for example, fall into three categories: mobile office (messaging and remote office), customer care (sales force automation and contact management), and operational productivity (fleet management and authorization). The primary solution set in B2B applications is supply chain management (order tracking, asset tracking, just-in-time delivery and procurement). The two most commonly used B2C applications are customer service (call centers, order processing, billing and payment) and information and commerce (location services, personalization and notification).

Industry differences
When synthesized, the differences among industries become even more apparent, revealing distinctions in the needs that they perceive and their strategic priorities. For instance, sectors such as insurance, manufacturing, utilities, retail, health care, services, technology and government are focusing on performance improvement applications in the B2E arena. Exploring more deeply, though, we can see additional correlations among industries. Banking and insurance traditionally emphasize customer service. But both industries are also placing emphasis on wireless B2E mobile office technology, reflecting the higher degree of mobility of the sectors' work forces.

Few companies are investing in B2B efficiency improvements. Some, however, are experiencing striking gains. Ethicon, a Johnson & Johnson company that is the world's leading supplier of sutures and other surgical supplies, is representative of companies seeking operational efficiency improvements through m-business.

Other organizations from our study that are attempting to use m-business in order to improve operational efficiency and performance include:

• McKesson, which armed 1,300 warehouse workers with strap-on computers and rigged 31 distribution centers with wireless local area networks. This has resulted in an 8 percent increase in productivity, an 80 percent drop in incorrect items shipped, and a 50 percent drop in product shortages over two years.

• Ohio's Hamilton County police department, which has launched project COP-SMART (Community-Oriented Policing Strengthened through Management and Report Technology), a program that enables officers to generate and transmit electronic reports, as well as access federal, state and local databases for vehicle records, wanted persons lists and criminal history information. The efficiencies of this system equate to the addition of 500 patrol officers.

• Trinity Development and Construction Services, based in Columbus, Ohio, which is generating a cash-flow windfall by leveraging wireless technology. For example, when $300,000 worth of materials arrives on the site of a state highway project, a worker transmits the receipt to headquarters, which in turn generates a bill to the Ohio Department of Transportation. Speeding this part of the procurement process has helped generate savings equaling 3 percent of revenue. Trinity said the system paid for itself in about nine months.

Industries that are emphasizing improvement of their range of and reach to customers include banking, transportation, telecommunications, and entertainment and media. Companies in these sectors are implementing mobile payment systems and trying to generate revenue by providing more content-based services to subscribers.

Leveraging mobile technology
Many businesses such as British Airways also see a significant opportunity to leverage mobile technology as a means of differentiation. In 2001, British Airways began to offer a variety of mobile Internet services to travelers. The airline views the wireless channel as one of the most useful service-centric components of its coordinated customer relationship management (CRM) strategy.

The wireless system at British Airways goes beyond simple access to real-time flight arrival and departure information (probably buoyed somewhat by the ubiquity in Europe of the wireless standard GSM, or Global System for Mobile communications). The British Airways system was the first in the world to give passengers the ability to select a seat via a graphical seat map on their Wireless Application Protocol (WAP)-enabled device.

Time-constrained travelers can check in using the pictorial seat selection tool on the phone, arrive at the airport, collect their boarding pass from a self-service kiosk in a matter of seconds, leave their baggage at the "fast bag drop" and go straight to the boarding gate, saving minutes or even hours. Despite the low-key marketing of its WAP services, British Airways has experienced positive monthly growth in use of the mobile channel.

In the B2B context, companies' major focus on supply chain tracking and procurement applications is in the transportation, telecommunications and manufacturing industries. International Paper and Motorola, for example, joined forces to create "smart packages," shipping boxes with embedded radio frequency tags that emit signals for tracking purposes. Smart packages take risk out of shipping valuables. The same RF tags can be used to notify suppliers when retailer inventories are low and to alert distributors if boxes are tampered with. Retail giant Wal-Mart has piloted an asset-tracking wireless application using RF tags.

About 42 percent of the businesses we studied has equipped its work force with wireless voice or Internet systems.
Wal-Mart says it has been encouraged by the results of the pilot study and expects wireless to improve supply chain efficiency in four areas: global supply chain visibility, on-shelf product availability, theft detection, and self-checkout at retail stores. Wal-Mart must still work on implementation hurdles, such as transmission problems with the tag, the cost of the tag and the quality of the readers, before it can launch the system.

Strategy involves choices--the choice of what to do, and the choice of what not to do. The Internet increased both the opportunity and the complexity in strategic decisionmaking. Mobility promises--and threatens--to intensify both, in particular as industry and application boundaries become more permeable. Companies can use the analytical framework outlined above to develop a strategically coherent rationale for investing in mobile solutions.

Although the emphasis by companies today is on mobile B2E applications designed to boost productivity, our study indicates that B2C and B2B applications--which are aimed at changing customer relationships and transforming the way that companies do business--will not lag for long, particularly as 802.11 wireless technology, much of which is known as Wi-Fi, continues to emerge as a major force in the acceleration of wireless Internet adoption. Indeed, Wi-Fi hot spots in restaurants, retail outlets, malls and other public places could become the single greatest catalyst for widespread mobile Internet use from all devices in the future.

Our suggested strategic approach and the examples of firms currently using m-business can provide executives an understanding of how this and other mobile technologies might affect their own company's business and organization models. An understanding of where m-business investments are being made in a particular industry, as well as in complementary and competitive industries, will also prove valuable, because mobile technology's "anything, anywhere, anytime" value proposition is eroding barriers that separate many industry segments.

Future opportunities probably lie in a cross-industry context rather than within a single industry. The capability to recognize and act upon cross-industry value networks that are aimed at constantly enhancing customer value may be the hallmark of successful companies in the wireless world.

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Copyright © 2003 Booz Allen Hamilton Inc.

Reprinted with permission from strategy+business, a quarterly management magazine published by Booz Allen Hamilton.