Technological changes have proven again that incumbents may not always the ones that survive given the business uncertainties. Through the lens of innovation, extending capabilities and acquiring new competencies are prerequisites for a firm to maintain its competitive advantage. History has it spelt that companies staying within their competencies get trapped into a so called ‘Not Invented Here’ practices.
To avoid this repetitive failure, a firm must be willing to extend its competencies and capabilities. No firm can survive by offering similar products and services at all times. Technology is changing. So is the market. The way transactions are carried out changes for the sake of cost efficiency. Customers are becoming more prudent on what they buy. The information and communication technology has become pervasive on providing accurate information on what to buy, why one should buy and how much a good costs. Even more, competitors are raising their bets by launching new products and promoting innovative services. New entrants use all possible means to seize the market. They come with new trends. They disrupt the status quo. They can appropriate their costs through efficient transaction mechanisms.
This has created a dilemma for the incumbent. Staying within the existing technology trajectory may trap the incumbent into either a “lock in” or a “lock out” condition. At the same time, developing a totally new product takes time and may not fulfil the expectation. The incumbent may also overlook the imminent returns of appropriating the existing products. Hence, a company should manage its existing businesses while acquiring new competencies to maintain competitiveness in the (near) future.
Case Study: PT Telkom
Once was a dominant player in the fixed line service, PT Telkom has enjoyed prosperous growth due to the monopoly practice in the telecom sector. The company barely produced new services except for some service improvements in delivering customers’ line. The notion at that time was that fixed line communication seemed to be the solely local and long distance communication carrier in the country for more than four decades. The only competitor was PT Indosat, offering international long distance call services which did not intersect with PT Telkom business.
In the 1990s, the era of mobile communication emerged. Cellular phones were introduced to the market. However, the mobile market at that time was perceived as a niche one. The mobile device was very expensive and the airtime cost was hardly affordable to most people. Backed up by the president family and cronyism, PT Satelindo was set up as the dominant mobile operator serving the majority of customers in the country. Through the company, combined with the technological progress in mobile devices and networking technologies, the airtime cost started to decline.
The emergence of mobile communication in the country has pushed PT Telkom to enter into the mobile operator arena through setting up PT Telkomsel and later on becoming the largest shareholder of PT Telkomsel. The story went on that PT Satelindo was acquired by PT Indosat. The fall of the new order regime has further benefited PT Telkomsel on profits and market shares.
By contributing nearly 37% of PT Telkom sales, PT Telkomsel appeared to be the cash cow for PT Telkom. There was a notion that PT Telkom and PT Telkomsel would enjoy their prosperous growth in the long run. The only potential competitor that theoretically could outperform PT Telkomsel was PT Indosat. PT Excelcomindo was also considered as a potential competitor. However, frequent changes of the company stakeholder slowed down the company’s growth.
By the early 2000s, deregulations in the telecom sector permitting more players to enter the industry have changed the market structure within the telecom industry. With the new telecommunication bills, new mobile operators entered the telecom industry. They came with either the popular GSM technology or introduced CDMA technology. These players created more pressure to the incumbents. Players using CDMA technology operated with more efficient cost structures. In addition, the technology itself permits more efficient airtime usages. As a result, they came with lower airtime costs. Although PT Telkom set up Telkom flexi in responding the competition, the venture was considered as less successful than these new entrants. Even worse, with the anti monopoly law in effect, PT Telkomsel and other mobile operators were charged with tariff cartel practices.
Such condition created a decisive moment for PT Telkom to move ahead. Through the innovation lens, the company needs to acquire new competencies while looking at its complementary assets to create the maximum business value. Translating this term into strategic management words, the company should embrace a new market close enough to its existing capabilities.
One of the prominent markets rarely explored in the country is the enterprise IT solution sector. Two reasons on why this industry has been rarely levered. The industry requires highly skilled and experience talents. It also charges the customer with a significant cost to invest.
On the positive side, with the better outlook of the economic growth, business sectors requiring a better customer management system through investing on enterprise IT solutions are growing. Telecom industries have experienced a rapid growth, thanks to the declining cost of mobile phones and SIM cards. It is not uncommon to find people with their mobiles in the public spot. While the economic growth spurs people to buy mobile phones and use more airtime, more mobile operator players mean more customer choices and preferences. As a result, airtime costs are declining due to intense competition. Telecom companies are called for finding efficient ways to manage their customers while keeping the airtime price down. This can only be possible by deploying effective enterprise IT solutions.
Another factor that is becoming crucial for large companies handling huge critical data is securing the data integrity. Service industries dealing with large customer data must implement a disaster recovery plan (DRC) as the occurrences of disasters in the country are intensifying and becoming unpredictable.
While in the telecom business PT Telkom may have all technical and managerial competencies in the telecom, entering into the enterprise IT solution business requires additional complementary assets. Developing in-house capabilities may take time. The company may not have all the knowledge in appropriating the development results. Marketing enterprise IT solutions requires in depth technical and commercial knowledge since prospective customers usually have high expectations on the return of investment (ROI) measures.
Therefore, PT Telkom chose to acquire 80% of PT Sigma Cipta Caraka (Sigma) shares. The latter has been engaged in implementing enterprise IT solutions serving banking sectors. The company is also a prominent player in DRC solutions. From PT Sigma perspective, this acquisition opens opportunities for the company to extend their competencies beyond serving banking sectors. In addition, serving IT solutions for PT Telkom can be taken as a stepping stone to access larger market demographics. Through PT Telkom, the company can gain access to serve PT Telkomsel. From there the company can start exploring its services to Singtel, a Singaporean telecom company, as the remaining shares of PT Telkomsel are owned by Singtel.
