Ericsson's Biggest Challenge Is Complacency

At its recent analyst event, Ericsson outlined its strategy, product, and service ambitions. Ericsson remains the overall benchmark for network infrastructure vendors. The company has a leading market position in the growth segments of mobile broadband and network services and delivers a solid financial performance — despite the disappointing Q3 2012 results. Still, in my view, Ericsson has several challenges that it needs to address:

·         The cloud strategy is built on a questionable assumption.Clearly network infrastructure is becoming more, not less, important for cloud-based solutions. Ericsson therefore assumes that carriers are well positioned to be cloud providers. But CIO perceptions suggest otherwise. CIOs tell us that carriers are far from the preferred choice for cloud-solutions (see Figure 9 in the “Prepare For The Connected Enterprise Now” Forrester report). Carriers therefore need help in addressing the potential of cloud computing. For instance, Ericsson’s cloud solutions ought to help carriers cooperate with cloud partners regarding embedded connectivity in devices and applications.

·         The approach to innovation is too narrow.Innovation is about more than intellectual property rights and R&D, where Ericsson is reasonably strong. Innovation is also about helping customers develop new business models. Most carriers are desperate for help with transitioning toward new business models and establishing partnerships with over-the-top providers like Skype, Google, or WhatsApp. Hence, Ericsson’s innovation process should further extend the concept of a carrier solution partner. Ericsson is already moving in this direction in the voice and messaging space. Here, Ericsson is pushing innovative thinking around communication services to be delivered as “contextual” offerings, such as communication sessions that are launched out of online health applications for instance.

·         The customer experience message is too technological.Thanks to the Telcordia acquisition, Ericsson has a strong OSS and BSS offering, which is reflected in the good deal growth rates. Ericsson offers all the right OSS and BSS components to its clients to enhance its customer experience, e.g., through quality customer relationship management. The trouble with this approach is that “customer experience enhancement” is increasingly a CEO priority — but BSS and OSS are “boring IT issues” for IT managers. To make the CEO aware of the potential IT plays for customer experience, Ericsson ought to develop a less technological and more CEO- and CMO-focused customer experience message, along the lines of Nokia Siemens Networks.

·         Its enterprise strategy remains unclear.Ericsson expressed its commitment to cater to the media and TV, public safety, and utilities sectors. But addressing the enterprise sector is very different from selling to the carrier segment. If Ericsson is serious about the enterprise segment, it will encounter new and strong competitors like Cisco; require new skill sets to address vertical requirements; and need to develop a new go-to-market approach, including a clear channel strategy. Ericsson risks confusing the market with its current enterprise strategy. This task is even more pressing as Ericsson hinted at its intention to address new verticals like the oil and gas and retail sectors. Its main competitor, Huawei, is struggling with similar challenges.

We see a risk that Ericsson will become too complacent about the challenges ahead. Ericsson’s strength is relative, as most of its traditional competitors, except Huawei, remain weak. Ericsson can point to a solid product portfolio, which is crucial to its success. But a solid portfolio is just the entry ticket to be invited to RFPs. To position itself for the future and target new market segments, Ericsson needs to ready itself for a deep transformation, including its go-to-market, organizational approach, and undergo cultural change. Ericsson demonstrated a decade ago that it is capable of taking on such fundamental challenges.