The focus on services began to pay off seriously during 2005.

Back in the autumn of 2003, shortly after the GMC in Stenungsund, Hans Vestberg, the new head of Business Unit Global Services, and his management team made a tour of Ericsson’s 24 market units. By the start of the next year, they had identified 114 business cases and strategic problems for services and had come up with a revenue forecast of SEK 69.9 billion for 2008.

One powerful argument was that, on average, an operator could reduce its costs by 20 percent by outsourcing its network operations. 

“While developing our services offering, we specifically included the market units and ensured we always moved forward just one step at a time,” Vestberg says. “We were looking for a really major deal that would show how much potential this offered.”

Johan Wibergh, then head of sales for Global Services, started using the term “megadeal”. Ericsson landed its first in 2005: operating Hutchison company 3’s 3G network in Italy. This was a seven-year contract worth about SEK 15 billion, at the time Ericsson’s largest contract. 

The next megadeal, worth even more, came in December the same year, this time with 3 in the UK.

NEW APPROACH

“These were enormously complex transactions that have many similarities with the acquisition of an entire operation,” Vestberg says. “We had to develop a new approach, with tools and plans that could support our sales processes. New sections of the organization were involved in this, such as Human Resources and Communications, providing documentation of our processes for our customers.” 

New business areas emerged for the services segment such as customer support, network construction and system integration. In Germany, for example, Ericsson carried out a record upgrade of T-Mobile’s network. A pioneering revenue assurance project for Telefónica in Latin America included consultancy and system integration services for both the fixed and mobile networks.

“Services is incredibly fragmented, not a stand-alone business. As the complexity of networks increases, customers need more and more help. As a vendor, you have to know all the technologies and learn about all the other vendors’ products,” Vestberg says.

The most important factor is expertise. Vestberg ranks the next ones in order as cost, efficiency and knowledge of how operators can generate the greatest revenues, for instance by knowing how to market broadband.

Ultimately, economies of scale are vital. “We do not say we are ‘better’ but we do explain what being able to work on a larger scale means for us. Things we learn in Pakistan can turn out to be useful in India, across Africa and so on. We can work in the same way all over the globe – with the same tools, methods and processes.”

Author: Svenolof Karlsson & Anders Lugn

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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