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1 April 2007
How Sprint Nextel is Betting Its Future on a New Wired Society
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 Gary D. Forsee, Chairman and CEO, Sprint Nextel Corporation, set the stage for the Executives’ Club of Chicago’s Technology Conference by outlining Sprint’s wireless strategy and a new vision for global community at the March enterprise CEO luncheon at the Chicago Hilton.
Sprint’s long history reflects the transformation of the U.S. telecoms market. The company has had a key role in remaking the U.S. telecoms industry during its privatization. It competed as a competitive local exchange carrier (CLEC) and once earned most of its revenue from long distance services, which are now essentially free. After its 2005 merger with Nextel, virtually all its revenue comes from wireless services.
Moreover, Mr. Forsee promised that Chicago would be one of two pilot cities for Sprint’s WiMAX initiative later this year. Chicagoans will be among the first in the U.S. to try 4G network services.
Sprint’s Wireless Future
Sprint Nextel has seen the future, and it is wireless. In 2007, having mostly completed a painful merger, Sprint is pedal to the metal to enable connected communities. People will use its network to keep connected with social network sites, multimedia (much of which will be created with handsets) and, yes, even talking. He hopes that this will help to rebuild the U.S. sense of “community lost.”
Echoing Motorola’s James O’Connor who spoke at the Executives’ Club in December 2006, Mr. Forsee emphasized that there were 2.7 billion mobile phones in use globally, compared with one billion computers. About one quarter of all Internet users access it through handsets; however, they are growing far more rapidly than PC users.
It is easy to forget that Sprint began as a U.S. CLEC and subsequently became a “long distance” telephone company which, along with MCI, challenged AT&T for its long distance franchise. Today, 85% of its revenue and its highest margins come from the wireless business. Reflecting the relative demise of the long distance business, Mr. Forsee shared a little anecdote:
My business cards used to contain an offer of free long distance minutes on the back. Some months ago, I gave one to a restaurant owner while paying for breakfast. She was puzzled, “Why do I need this? All my minutes are free now, no matter where I’m calling!”
Sprint’s merger with Nextel attempts to pair its strong consumer business with Nextel’s B2B focus. The merger has proven to be much more difficult than expected, due to the companies’ different focuses, networks, processes and cultures. But the merger is the centerpiece of a strategy to become a dominant wireless carrier.
In August 2006, Sprint announced its plan to deploy a 4G (4th generation) network in 2007-08, partnering with Intel, Motorola and Samsung. It will provide ultrafast throughput (most wireless in the U.S. is 2.5G as of writing) and deliver last mile connectivity via WiMAX. Sprint has aggressively acquired spectrum licenses in its quest to build a superior wireless network, and its 2.4 GHz licenses cover 85% of the households in the top 100 U.S. markets, the most of any wireless carrier in any single spectrum band.
This effectively means that people will carry their living rooms in their pockets: with wireless handsets, they will be able to exchange video and pictures, watch TV, listen to radio and surf the Internet as quickly as they can today with their computers. They will create much of this content with their handsets as well. These devices will also have e-wallet capabilities.
Sprint Stores and Pilots Set
Mr. Forsee acknowledged that it would be critical to field well designed devices that could contain all that functionality and provide the ease of use necessary to make it accessible to consumers. Taking a page from Apple’s playbook, Sprint will create “help desks” in its stores to help consumers understand and use the devices and network features. The WiMAX technology to be deployed in the network is expected to offer a cost-per-megabit and performance advantage that reflects a substantial improvement in the comparable costs for the current 3G mobile broadband offerings.
In Fall 2007, Sprint will pilot its 4G Wimax network in Chicago and Baltimore.
Analysis and Conclusions
- Sprint Nextel is taking a substantial risk that, if they build it, customers will come, and I give them credit for that.
- They are plowing massive investment into a new 4G network, when I’m not at all convinced that consumers in the U.S. will buy the value-added services as readily as Sprint hopes. U.S. consumers have frustrated network operators thus far by their unwillingness to pay for enhanced services.
- U.S. adoption lags considerably behind Asian hotspots like Korea, Japan and China as well as Europe. My guess is that it has to do with the U.S.’s computer-centric orientation.
- Although Mr. Forsee didn’t say so directly, it seems obvious that “wireless” will become the communications access service.
- Even “telephone” service will soon be outmoded: data and voice service are increasingly indistinguishable; they are all communications. You might send a video you shot of some friends doing something wacky rather than calling another friend to explain.
- On a social vector, I’m not sure what Mr. Forsee meant by the U.S. sense of “community lost,” but let’s hypothesize that it has to do with families living “distributed” lives. It’s a fact that people are more mobile and spend less time in the same physical space than they used to. I believe that communications services can play a role here, but most important is attention, commitment and focus. Sending a video is rarely a substitute for spending time with someone. That also means giving the person your undivided attention, and not paying attention to other things during that time.
19 February 2007
Meeting Customer Empowerment with Transformation
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 Michael L. Eskew, Chairman and CEO of UPS, outlined the package delivery giant’s vision for transforming itself into a “one-to-one” business at the Executives’ Club of Chicago’s Enterprise CEO Lunch, 15 February 2007. Before a packed house at the Chicago Hilton, he demonstrated UPS’s creative “whiteboard” marketing campaign and explained its role in communicating to customers the value of the company’s transformation.
The importance of UPS’s vision extends beyond UPS stakeholders because it reflects a shift in emphasis away from industrial efficiency to knowledge-based innovation. Make no mistake, efficiency is mission-critical to every business, but fewer companies can differentiate based on efficiency. To its considerable credit, UPS sees the shift and is striving to empower customers with information as well as delivery services.
A History of Transformation
Mr. Eskew set the context by emphasizing that UPS has a history of transforming itself to meet technology and market challenges:
- Founder Jim Casey began the company as bicycle messenger service in 1907, but emerging technology, in the form of the telephone, began to drive down demand.
- The company shifted emphasis to serve downtown retailers by delivering shoppers’ parcels to their homes via uniformed messengers. This business was subsequently challenged by the automobile after World War II, which gave rise to shopping centers and the fall of the “downtown shopper.”
- In response, UPS changed its focus to business customers, away from retail. It grew its numerous business-focused delivery services on a global scale.
- Today the value proposition is enabling customers’ growth through transparent supply chain services. The company has acquired complementary logistics and supply chain services and made aggressive technology investments in order to deliver as much as its services as customers wants—when and how customers want them. Reflecting the change, the “parcel” dropped from company branding, and the name changed from “United Parcel Service” to “UPS.” The tagline changed from “We run the tightest ship in the shipping business” to “What Can Brown Do For You?” For fun, here is a tagline history.
In August 2005, Mr. Eskew addressed the Asia Technology Summit, and his comments about UPS’s vision beautifully articulated the shift in focus from the Industrial Economy’s efficiency to the Knowledge Economy’s innovation:
When I started with UPS back in 1972, we were a one-dimensional business… we charged one rate… (whether) you were the largest department store in America or a small family-owned business… Residential and commercial rates were all the same. We picked up and delivered packages on our terms, that is, whenever we said we would. We were designed for efficiency and whatever was best for the masses… We came to work every day thinking about how we could better optimize the system.
We didn’t think about how we could help make each customer better; rather, how we could optimize the system better. (1:1 Technology’s Role in Creating Customer Intimacy)
New Customer Focus
Today, UPSers are constantly asking themselves, “How can we make senders and receivers more successful?” Executives are looking at two key forces that drive commerce today: 1) the globalization of labor and 2) the empowerment of the individual. These trends are reflected by the growth of the “small package” business:
- In 1976, the U.S. had $10 billion in foreign exchange per day, and 2% of U.S. GDP involved movement of “small package” freight (consumer pull)
- In 2006, the U.S. had $10 billion in foreign exchange per second, and 12% of U.S. GDP involved movement of “small package” freight
- These figures show that the supply chain is speeding up and becoming more granular and responsive
UPS is responding to these market forces by transforming how it goes to market: rather than “pushing” vertical asset “solutions” to customers, the company seeks to empower customers to “pull” individualized services to themselves. In other words, it is personalizing services, treating each customer, each package and each transaction as if it were the only one, and it has a strong SMB (small/medium business) focus. In connection with this, Mr Eskew cited “the Internet” as a metaphor: on the Web, small companies can look as big as the biggest ones. (The company has about 500 custom-built applications that enhance granular visibility into all aspects of the supply chain, and it makes select functionality available to customers through Web services. For more on this, see UPS Seeks End-to-end.. Visibility.)
Marketing Campaign: “Whiteboard”
However, it isn’t enough for UPS to transform itself; the company must also communicate to customers how it is changing, and what the transformation means to them. Enter “whiteboard,” an icon for brainstorming and creating sophisticated solutions for customer needs. “Andy” is the character that interacts with online customers while at the (online) whiteboard. Mr. Eskew demonstrated some of its concepts and features, live:
- UPS wants to get customers thinking and rolling their own solutions using UPS services.
- Choose time of delivery, mode and cost, and track every package all the way.
- Seamless supply chain solutions can bring global customers (and suppliers) closer.
- Clear customs faster by bundling discrete parcels to clear and splitting them for individual delivery afterward.
- Think of UPS as a “rolling warehouse,” whether over land, sea or air.
Mr. Eskew also stressed that UPS strives to make the complex simple (another way to look at this is that UPS encapsulates complexity. Customers get transparency of service options and shipping information, but they don’t have to understand all the intricacies of how UPS gets the package there).
Wrap-up and Q&A
- Mr. Eskew’s concluding message was, “Don’t let your current success prevent you from transforming your company.” UPS is still here because it’s been willing to transform itself to meet the market.
- One-to-one is how to meet customers today. Mass marketing is less relevant.
- Nimble is more important than size in many cases.
- Running a massively complex company like UPS is possible when you “get out of the way and depend on your people.”
- Chicago is very important to UPS to to its importance as a locus of distribution. UPS will continue to have a strong presence here.
- Regarding competitors, it’s more important to focus on customers.
- Of course, the growth of international trade is very important to UPS. China and India are on everyone’s list, but don’t overlook Europe and the U.S. UPS’s European operations have seen double digit growth over the past decade.
- The global labor shift is fueling UPS’s growth. In the 20th century, companies brought labor to the company (production line), beginning with Henry Ford’s revolutionary assembly line. Today, work flows to people.
Analysis and Conclusions
- UPS’s transformation reflects the shift to the Knowledge Economy in which companies: 1) create most of their value through knowledge rather than products and 2) use customer experience as a touchstone for innovation. For more on this, see The Knowledge Economy: the Ultimate Context for Understanding the Future.
- Supply chains can be defined as processes in which partners collaborate by sharing information and coordinating action. They have material channels and information channels. The latter enable coordination and largely determine the efficiency of the supply chain, which has a powerful bearing on competitiveness.
- UPS does move bits at the end of the day, but its differentiation increasingly comes from the information channel. When customers configure highly granular services (often for their customers), they create options and services for their customers. Many times, information about the movement of packages is worth as much or more than the package itself.
- Metaphorically, UPS and its rivals are the Internet of bits. On the Internet, a piece of data—whether text, picture, voice or video—gets split into packets that travel separately over the network and get reassembled at the receiver’s end. Similarly, UPS can chunk your bits-based packages to make them cross borders more quickly and/or cheaply and disassemble them for individual delivery. Their capabilities are growing in this area, and the increasing granularity of control over information can provide customers with extensive room to innovate.
- UPS delivers an increasingly sophisticated suite of supply chain and logistics resources to customers, many of whom cannot afford advanced supply chain and logistics experts as can large enterprises. Using information effectively, companies of all sizes can minimize the need for warehouse space and safety stock by employing just in time processes.
31 January 2007
Media Reflects Power Shift away from Producers to Consumers—Glimpses of Consumer Empowerment
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 The Executives’ Club of Chicago assembled a visionary panel to give Midwest business leaders their advice for media communications in the (“new” ,^) digital age. Rishad Tobaccowala, CEO, Denuo Group and Chief Innovation Officer, Publicis; Dr. Jim Taylor, Vice Chairman, The Harrison Group and Emily L. Barr, President & General Manager, ABC 7 Chicago were panelists, and Susan D. Whiting, Chairman, Nielsen Media Research moderated the breakfast, which took place 30 January 2007 at Chicago’s Mid-America Club.
Ours is rapidly becoming a P2P world in which individuals communicate with individuals digitally, and this represents a profound shift for media companies, their clients and everyone’s customers. The focus of the morning discussion was “media”—television, print, radio—which are still largely organized to deliver one message to an audience of many. Of course, the “mass” has always been comprised of individuals, but their alternatives to mass media have been few until fairly recently. Now they are tuning out mass messaging in favor of more relevant communications, which increasingly come from—other individuals. Meantime, people are increasingly connected via the Internet (whether through mobile phones, computers, cable, VoIP), and the scale of consumer communications is beginning to approach that of the mass media.
What global enterprises and their media advisors want to know is, “How do we evolve and ensure that we remain relevant in light of this emerging consumer empowerment?”
23 January 2007
2007 Pockets of Opportunity Revealed—Plus Political Handicapping
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 The Executives’ Club of Chicago assembled an all-star panel to give Midwest business leaders their guidance for various aspects of the U.S. economy in 2007. Diane Swonk, Chief Economist of Mesirow Financial, Alan Murray, Assistant Managing Editor of The Wall Street Journal and Robert “Bob” Froehlich, Chairman of the Investment Strategy Committee, Deutsche Asset Management broke out their respective crystal balls for 2007, and the audience was not disappointed for lack of insight or wit. The session was scintillatingly moderated by Terry Savage, Financial Columnist of the Chicago Sun-Times.
The consensus was that the U.S. economy would have a relatively benign year in 2007. All panelists predicted a higher Dow, and their predictions concurred with Wall Street’s most accurate ,^) indicator, the Super Bowl Predictor. Little of import will happen on the political front, the U.S. economy will grow at a slower pace, and investment returns will be generally highest outside the U.S. Elsewhere, consumer empowerment reared its head in the executive pay issue, Apple will remain an enigma for investors who don’t understand customer experience, and the U.S. will have to get over itself in order to realize its potential in the Knowledge Economy.
17 December 2006
High Potential for Business Innovation
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 Plus ça change* was the theme of The Executives’ Club of Chicago High Technology Conference December eighth, where an esteemed panel gave varying perspectives on Chicago’s importance as a technology center. William Avery of Brunswick Corporation, James O’Connor, Jr. of Motorola, Inc. and Ira H. Cohen of Goldman, Sachs & Co. spoke about technology from enterprise IT, mobile technology and investment points of view respectively. Prior to their prepared remarks, John Gentry of CSC Consulting outlined key results of the forthcoming Chicago Technology Outlook Survey, in which corporate technology leaders commented on IT trends for 2007 as well as Chicago’s role as a technology center. He moderated the panel during a Q&A session.
The net-net: Chicago has a way to go before it becomes a preeminent technology center; however, its best chance for creating breakaway value through innovation will lie in not focusing on technology, as explained in Analysis and Conclusions.
24 November 2006
Talking with the Ambassadors of the World’s Largest Trading Relationship—and the CEOs of Four Global Enterprises
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 Three eminent diplomatic leaders and CEOs from Baxter, Financial Dynamics, ITW and Philips briefed Midwest executives on the current status and future directions of the world’s largest trading relationship at the Executives’ Club of Chicago’s International Conference November 15. The half-day program featured several presentations, a CEO panel and a media round table. All speakers sought to impress upon the audience the pivotal importance of the transatlantic alliance for the United States and Europe, and most warned chief executives neither to take it for granted nor to be passive in the face of rising protectionism.
The fact that the importance of the E.U.—U.S. alliance had to be emphasized brought into sharp relief the relatively sudden rise of Asia as well as the shift from the Industrial Economy to the Knowledge Economy. Both megatrends pose opportunities and threats for the world’s largest economies and enterprises, and the concomitant uncertainty emanated from the assembly hall. I will summarize speakers’ remarks and question and answer sessions before adding conclusions.
17 October 2006
Advice from three successful CIOs
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 In the past 15 years, “enterprise IT” has been transformed from an accounting support function to the driver-enabler for innovation and value creation. By no means has this been a smooth transformation, as businesses in all industries are besieged by globalization, new competitors and rampant commoditization. At many companies, executives around the boardroom table have had mixed feelings about IT in the face of huge expenditures and uncertain ROIs.
At the Executives’ Club of Chicago High Technology Conference last week, Michael S. Carlin of Hospira, Richard Shellito of State Farm Insurance and Randy G. Burdick of OfficeMax shared their advice on keeping IT relevant in the boardroom. After their prepared remarks, Winifred A. Gillen of Capgemini moderated the panel during a Q&A session.
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