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From Network Computing Vol 18 No 06 November/December 2009

CHRIS MACFARLAND, CHIEF OPERATING OFFICER OF MASERGY PROVIDES AN INSIGHTFUL VIEW AS TO HOW NETWORK SERVICE PROVIDERS CAN FOCUS TO KEEP THEIR CUSTOMERS

Many executive teams are assessing their business strategies for surviving the current economic downturn. From lowering prices to reducing service levels, managers can adopt a variety of tactics to help minimise losses; but while short-term strategies may bolster revenue, they also create a dilemma for the business. Restoring healthy margins post-recession requires a rebuilding of customer value; something that may have been lost when undertaking the short-term survival measures.

While cost cutting may be inevitable, there are other options available that can maintain competitiveness. Deploying a success-based business model, leveraging industry knowledge for market positioning, maintaining flexibility for unanticipated challenges, focusing on the customer experience and offering value-based performance, are all approaches that do not risk the long-term value of the company.

SUCCESS-BBASED BUSINESS MODEL

The success-based business model allows companies to compensate for economic swings by employing techniques that range from growth-driven technology deployment, to just-in-time production and inventory management.

The networking industry is filled with facilities- based carriers who build and own the long- haul and local access transmission lines. This business model is slanted toward a "build it and they will come" approach. A significant

capital investment is made in facilities and pressure is applied to the sales team to "fill up the pipes" with paying traffic.

To compete, companies may find it better to adopt an alternative business model; one that follows a "build it when they come" approach. For example, leasing local access circuits to connect customers to the provider's network and only spending the capital to build a hub, after establishing a minimum number of local access circuits in a market. This lets the company align its costs with customer growth.

LEVERAGING INDUSTRY KNOWLEDGE AND FLEXIBILITY

Traditionally, businesses have always competed on price, technology or service. By understanding its industry and identifying which areas to demonstrate market leadership, a successful company can dominate its chosen sector.

For example, large carriers are typically facilities-based, giving them considerable power over the prices they can charge to use those facilities. Customers are often apprehensive to adopt new technology and, because of their comfort in legacy networks, rarely support new service providers.

To combat this, new service providers could choose to deliver a superior networking experience by opting to compete primarily on service. In a service-based approach, beating the competition involves working with your customers to identify and deploy meaningful

new service offerings. This approach builds the service provider's value while helping clients maintain a technological edge.

CUSTOMER EXPERIENCE AND VALUE

Perhaps the biggest mistake service providers make is thinking that when the economy faces a significant downturn, customers simply want lower prices. However, even during a recession, customers continue to focus on value. Customers that receive superior service will often look elsewhere for savings rather than sacrifice that experience. Delivering a holistic approach to service is vital to making the customer experience count, thus helping the customer form a tangible impression of the value provided.

Ultimately, companies that wish to maintain customers and healthy margins must direct the focus of the customers away from what they think they are losing (money) towards what they realise they are getting (value). A legitimate approach could be creating a customer experience index which measures how well the provider is performing in those areas that are important to the customer.

POSITIONING FOR SUCCESS

Economic recessions provide opportunities to bring out the best in a customer relationship, rather than driving down to a zero-sum experience. Companies built on a success- based business model have an advantage over infrastructure-centric competitors because of their focus on managing costs and delivering exceptional customer service. NC

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