Selling to small and mediumsized. businesses (SMB) Telesperience Revenue Maximisation Series

Telesperience Revenue Maximisation Series Selling to small and mediumsized businesses (SMB) Teresa Cottam, Chief Strategist with Morgan ap Darran and Monica Zlotogorski Sponsored by

Selling to small and medium-sized businesses Table of Contents Sponsor s Message... 3 1 Management summary... 4 2 Defining the SMB opportunity... 5 3 Segmenting the SMB sector... 5 4 Assessing growth potential of SMB by sector... 7 5 Maximising success in the SMB market... 10 6 Challenges for CSPs in addressing the SMB sector... 12 7 Creating an effective infrastructure to support the SMB sector... 14 8 Telesperience Insight... 15 9 Research methodology... 16 Appendix I Terminology and Definitions... 17 2 P a g e

Sponsor s Message The small and medium business (SMB) sector is now the key growth area for many service providers this research shows that 72% of service providers see the SMB market as a significant growth opportunity. This is certainly the case for many Amdocs customers, which report year-on-year growth rates of 35 or even 40 percent in the SME sector well above the single digit growth that is typical for the enterprise and consumer sectors in these markets. One reason the sector is flourishing is because SMBs have increasingly sophisticated requirements for information and communications technology (ICT) services. Successfully selling and supporting these more complex services is not trivial though. Service providers worldwide are working on strategies to provide the level of made-to-order services required for this sector at a cost-to-serve that is profitable and sustainable. The research also highlights key challenges that service providers face in successfully addressing the SMB market. Competition is shifting from traditional competitors other network operators and resellers to virtual network operators (VNOs), ICT and cloud companies. These new competitors won t be competing on connectivity or even just on price, but on good customer experience and innovative product offerings. To differentiate against these types of competitors, service providers need to identify ways in which they can deliver a more compelling experience to their customers: beginning with the sales process and encompassing the whole lifecycle from enquiry to cash as customers buy, use, and change what they are using. Amdocs recognises the importance of SMB revenues to our customers growth and profitability, and our portfolio of products and services addresses challenges throughout the SMB customer lifecycle. This starts at the very beginning of the lifecycle with guided and interactive support for sales, seamlessly integrated with OSS and BSS to help service providers deliver the right end-to-end experience at the right price and, most importantly, profitably. I hope you find this research and the insights discussed in this paper helpful as you determine your strategy for profitable growth in the SMB sector. For more insight into the research, and how Amdocs can help you capture new revenues in this market, please contact your local Amdocs representative or visit www.thefutureissmb.co.uk. Elizabeth Bavin Senior Product Marketing Manager Amdocs OSS Division 3 P a g e

Selling to small and medium-sized businesses Selling to small and medium-sized businesses 1 Management summary The small and medium-sized business (SMB) i market has become the number one target for many communications service providers ii (CSPs) worldwide, who see it as the next significant growth area as competition in the consumer and large business sectors becomes increasingly tough. While it is true that the SMB sector is currently significantly underserved in terms of ICT provision and therefore holds considerable potential for growth, the challenge is how to profitably unlock the potential in a sector that is effectively a hybrid of service providers other two main targets large businesses and consumer. Many tier 1 CSPs have set up SMB programmes in the past, only for these to stall because the cost-of-sale and cost-to-serve meant the sector was unprofitable for them. This is largely because their existing sales, order handling and fulfilment processes have been set up either for the consumer market (and can therefore handle large volumes of customers but only relatively low levels of tailoring and complexity) or for the business market (where sales are complex and made-tomeasure, processes manually intensive, and high sales and support costs are offset only by the large amount of revenue generated from each customer). The challenge is therefore to devise a sales, order management and fulfilment approach that enables CSPs to sell more complex products to SMBs in a way that is efficient, effective and appropriate. This is an area that those wishing to successfully target this market really need to pay attention to, as an effective process will deliver considerable competitive advantage. In short, the right sales approach, together with the right kind of support and automation in order handling and fulfilment, is hugely strategic and a critical enabler of commercial success. CSPs can use this report to judge their current approach and gain ideas about how they can increase their efficiency (including cost reduction), reduce the time to deliver, and thereby optimise the customer experience ensuring customers receive the right experience at the right price. Key messages: The SMB market holds huge revenue growth potential for CSPs. All CSPs in our study say the sector has growth potential and 72% say it has significant growth potential Growth is going to come from consolidating SMB spending (reducing the number of CSPs each has), selling more basic and advanced products to SMBs (see Figure 5). In this study 93% say they expect revenue growth from selling more complex communication services to SMBs (74% see significant growth) 90% believe revenue growth will result from selling quality connectivity plus cloud services (71% see significant growth) 84% of CSPs believe workforce mobilisation will be a revenue generating opportunity for them (52% see significant growth) The initial barrier to selling more to SMBs is the sales process itself. CSPs need to make it easy for SMBs to buy from them while increasing efficiency through the end-to-end process (Figure 8 shows where CSPs are experiencing problems in their current enquiry-to-cash cycles) The SMB market is actually comprised of a number of sub-segments based on size, maturity, business type, and industry vertical Figure 2 shows perceived sales growth for each of the SMB sub-sectors (micro, small and medium-sized businesses) Figure 4 shows that nearly 9 out of 10 CSPs expect to see revenue growth from providing a verticalized offer. The region that is most optimistic about the potential for verticalization is APAC, where 7 out of 10 CSPs expect significant revenue growth Differentiating against competitors is key and competition is shifting from other traditional operators to virtual network operators, Cloud and ICT companies (see Figure 7). These companies will be competing with CSPs not on the network level or on price, but on service provision. Optimizing the customer experience is therefore critical and this begins with the presales cycle. CSPs need to make their processes more efficient to meet customer expectations, as well as to drive out cost. Figure 10 shows where CSPs intend to invest to improve their infrastructure 100% will invest in self-service capabilities 87% will invest in the provision of unified platforms to manage network and cloud services 84% will invest to reduce order fallout 4 P a g e

2 Defining the SMB opportunity The vast majority of businesses globally are not large corporates but in fact small and medium-sized businesses (SMBs). In the US, 99.7% of the 27.5 million firms are defined as small to medium businesses, which together generate over $7.5 trillion for the US economy (or 50% of the total). In Europe 99.8% or 20.8 million firms are defined as small to medium enterprises (the European preferred term for this sector). These companies generate 58.4% of Gross Value Add and contribute 3.5 trillion to the economy of the European Union (EU). In comparison, large businesses generate 2.5 trillion. Despite the significant economic value of the SMB sector, one basic problem when analysing the opportunity is that definitions and terminology for this market vary between regions, countries and institutions (see Figures A and B in Appendix I). Furthermore, the sector is subdivided typically into three subsectors. For example, the EU subdivides the sector into microbusinesses (companies with up to 10 ) iii, small businesses (companies with 11-50 ), and medium-sized businesses (those with 51 to 250 ). There is less standardisation of size criteria in the US, although the Small Business Administration takes into account criteria such as the industry vertical, ownership structure, revenue and number of to define SMBs. In some cases companies with up to 1,500 can be defined as SMBs, though usually they are taken to be companies with up to 500. Both the US and the EU use the same categorisation of fewer than 10 for microbusinesses. Interestingly, although small and medium-sized businesses are often defined separately, they tend to be grouped together when it comes to governmental policy, grants, tax and so on. It has been argued by some researchers and commentators that the division is arbitrary and functionally of little use iv. What CSPs need to consider, however, is whether any such division reflects or is useful for addressing differences in ICT usage, and the way in which they sell to, or support, these businesses. To understand how CSPs view their target sector, we asked them how they define the SMB market internally for commercial, product development, sales and support purposes. CSPs in our study perceived the uppermost cut off limit for the SMB sector to be businesses with 500. However, this upper limit varied considerably by region in line with regional attitudes and circumstances. Thus while North American companies generally included companies with 500 within their definition and targeting of SMBs, no CSP in CALA regarded a company employing over 250 people as being within the SMB sector (see Figure B in Appendix I). 3 Segmenting the SMB sector Whatever the official definition of the SMB sector and its constituents, CSPs need to consider how they segment this sector based on different customer needs and budgets, as well as how they will support these customers. Historically, most CSPs have segmented their customer base into a relatively small number of buckets. In the consumer sector it has become obvious that such simplistic segmentation has meant customer needs have not been adequately addressed - leaving potential revenue on the table, and leading CSPs to start addressing the needs of consumers at a more granular level. In the business market, there has historically been even less sophistication in terms of segmentation. Business customers have all been grouped together into one segment which has meant that larger SMBs, or those that are heavy telecoms users, have been put into the business sector along with large enterprises; while smaller SMBs have been managed as consumers (often self-opting into consumer packages). One complicating factor has been that it is relatively common for SMB to use their mobile phones or home broadband for both work and home use. This increases the challenge of managing them throughout the customer lifecycle: from identifying them as business customers, understanding their needs, targeting & selling to them, and ultimately supporting them. The way most CSPs have explicitly managed their business customers has, by definition, been geared up to the needs and the spending of large enterprises. Business customers are offered personal account management along with a high degree of tailoring - a complex mix of products, tariffs and discounts which create a bespoke offering. This level of complexity is difficult and expensive for service providers to sell, set up, manage and maintain, but also involves a lot of effort on the part of the business itself to negotiate and manage. These arrangements can become so complex that, over time, businesses don t have a clear idea of what they re paying for or using creating customer dissatisfaction. Large businesses often have tailored support services as well, involving dedicated account managers. Such an approach is only financially viable because of their enormous spend. 5 P a g e

Selling to small and medium-sized businesses On the other hand, there is a hidden group of business customers that is, SMBs managed as consumers. These are often not explicitly managed in this way, but rather because SMBs self-opt onto consumer packages. However, since CSPs are only selling them standard consumer packages, the package might not be suitable for their needs causing dissatisfaction. Furthermore, they are leaving money on the table because they are not able to target these customers with suitable business products. Many CSPs believe they don t serve the SMB market, whereas they are already selling to substantial numbers of SMBs without being aware of the fact. Simply identifying these hidden customers as SMBs is therefore the first challenge the CSP faces in selling more to them. We asked CSPs if they intend to sell to and manage business customers differently according to their size. As might be expected, the smaller the customer the more likely the CSP is to provide an entirely automated or self-service approach to sales, see Figure 1 below. In contrast, the offer of personalised sales and account management increases as the size of the customer grows. In the middle are hybrid approaches mixing self-service with phone or web-based CSR support and account management that involves site visits. This hybrid approach is the most common in the SMB sector overall. It should be noted that for a variety of reasons, relatively few CSPs believe that SMBs will be able to be supported entirely by self-service. Figure 1 Sales approach to different types of SMB 71% 65% 65% 58% The level of personalised account management increases as the size of the business increases 61% 35% 23% The level of self-service decreases as the size of the business increases 19% 13% 13% 3% 0% Micro business/soho Small businesses Medium businesses Entirely self-service Hybrid Will include at least one pre-sales visit Personalised account management (multiple visits) The challenge of supporting the SMB sector from a sales viewpoint is thus complex. In this study we found that every service provider (100%) intended to invest in providing more self-service options to meet the needs of SMBs and drive down the cost of sale. However, as can be seen from Figure 1, service providers also recognise the need to offer a wider mix of sales channels, including phone-based or web-based CSR support, direct sales from account managers, and even potentially sales via bricks and mortar stores. In total, two-thirds intend to use a hybrid approach to support both micro and small businesses. A site visit to capture requirements may or may not be needed as part of the presales activity, but is more likely to be an intrinsic part of the process the larger and more complicated the business. Thus 58% believe at least one sales visit will be required to support small businesses, and 61% believe it will be required to support medium-sized businesses. For medium-sized businesses, 71% believe multiple visits and personalised account management will be required. Where a sales visit is required, CSPs need to consider how they can make this part of the process as efficient as possible, in order to decrease time-to-order, increase right-first-time fulfilment of orders and optimise the cost of sale. Currently, presales processes and order entry are often manually-intensive in the business sector. This can have a range of negative outcomes including: 6 P a g e

costly rework due to inefficient requirements and order capture, working from out-of-date information, or breaching of policies or pricing constraints - resulting in design rejection and provisioning errors which makes SMB customers less profitable slow time-to-revenue due to extended sales cycles a failure to optimise the sale by matching customer business needs more accurately due to lack of up-todate product or pricing information lower customer satisfaction due to delays in meeting expectations because of slow order and fulfilment processes and errors inconsistent customer experience due to inefficient hand-offs and ineffective collaboration between teams pricing errors leading to unprofitable deals or overinflated prices that cause the customer to churn to rivals or delay buying services. CSPs recognise the weaknesses in their current processes and plan to invest in overhauling and improving them. In this study: 84% plan to invest in reducing order fallout (that is, where errors result in orders not being fulfilled and require intervention to fix) 77% plan to invest in reducing the time required to initiate a new service (from planning to availability to order) 71% plan to invest in reducing time to deliver the service (from order submission to service turn up) 71% plan to invest in reducing the duration of the sales cycle from enquiry to quotation to order. As the volume and range of products being sold increase, and CSPs move to network-plus business models where they offer not just communications services but also more complex Cloud services, the risk of errors in the sales and ordering cycle will increase due to inherent complexity but also the sales teams lack of familiarity with an increasingly diverse range of products. In future, success in the SMB sector will require CSPs to drive efficiency through their sales and ordering processes, in order to ensure they are meeting both customer and commercial expectations. They cannot simply leverage legacy approaches that may not even be explicitly designed to support the SMB sector and expect these to yield optimal results. Instead, they need to deliberately design sales and ordering processes for SMBs, supporting these with the right type of automation where appropriate. 4 Assessing growth potential of SMB by sector In addition to requiring different approaches to sales (according to the type of SMB being sold to), the SMB sector is also not homogeneous in terms of growth potential, which will affect both investment strategy and approach. In our study, 72% of CSPs identified the SMB sector as a significant growth opportunity, but segmenting the sector by size of company shows that globally it is the small business sector that is perceived to have the most growth potential (see Figure 2). There is some regional variation as to which of the SMB sectors hold the most revenue potential with the Central and Latin American region identifying medium-sized businesses as their top target. This situation requires a little more analysis though and reference back to the SMB definitions shown in Figure A. It should be noted when interpreting this finding that in LATAM the maximum size of companies defined as SMBs is smaller than in other regions. Thus, in reality, Latin America CSPs are quite possibly identifying a similar size of business as holding the highest growth potential to those identified as small businesses in other regions. Our in-depth primary research backs up the finding that small businesses are of particular interest, as there appears to be a gap in provision where micro-business applications won t extend to the increased complexity of a small business and enterprise applications are too expensive and heavyweight. Thus the heart of unmet need appears to be businesses with around 50 to 100. 7 P a g e

Selling to small and medium-sized businesses Figure 2 Growth potential of SMB sector by region Large enterprises Globally #5 4 in EMEA, APAC, CALA 5 in NAR SMB Sector: 72% of CSPs see this sector as a significant growth opportunity Medium enterprises Small enterprises Globally #3 1 in CALA 2 in APAC 3 in NAR, EMEA Globally #1 1 in NAR, EMEA, APAC 3 in CALA Micro enterprises Globally #2 1 in EMEA 2 in NAR, APAC, CALA Consumer Globally #4 4 in EMEA, NAR, CALA 5 in APAC In Figure 2, we revealed which sectors CSPs believe hold the most growth potential. But what about their ability to realise this growth potential? In Figure 3 we show that CSPs confidence that they can realise the potential matches the identified growth potential on a global basis apart from the fact that they are equally confident about addressing both the micro and small business sectors. However, this global picture hides significant regional variations in confidence. For example, service providers in EMEA feel less confident about realising significant market growth in the microbusiness sector than those in CALA, while service providers in APAC feel more confident about growing the medium-sized business market than those in CALA or EMEA. In CALA and APAC though, more operators perceive they can grow the consumer sector. In contrast, service providers in North America and EMEA are less confident of growing revenues in the consumer sector unsurprising as in these markets the sector is already largely saturated and highly competitive. 8 P a g e

Figure 3 CSPs ability to realise revenue from each sector 2013-2015 Region Micro Small Medium Enterprise Consumer Ranked by ability to grow revenue in next 3 years (global) =1 =1 3 5 4 EMEA North America Asia and Pacific Central & Latin America Key: We will significantly grow revenues We will grow revenues to some extent No growth (or no response) Responses are shown on a scale of 1-10 where 1 = approx. 10% of CSPs and 10 = 100% Another way in which CSPs intend to unlock the value of the SMB market is by targeting vertical industry opportunities creating verticalized offers and product bundles. Currently, 35% of CSPs say they provide this type of offering; 19% say they are rolling out this type of approach and 35% have plans to verticalize their offerings. As can be seen in Figure 4, nearly 9 out of 10 CSPs expect to see revenue growth from providing a verticalized offer. The region that is most optimistic about the potential for this approach is APAC where 7 out of 10 CSPs expect significant revenue growth. The least optimistic region is EMEA where only 2 out of 10 expect to see significant growth from a verticalized strategy. Figure 4 Revenue growth through verticalization World 48% 39% NAR 56% 33% EMEA 22% 67% APAC 71% 29% CALA 50% Significant growth Some growth 9 P a g e

Selling to small and medium-sized businesses Verticalization is a form of segmentation, packaging and tailoring, where the offer, product and support are adapted to the needs of a particular industry to create industry-specific solutions. It removes the requirement for individual tailoring and because the solution is standardised, a vertical solution is cheaper to support than a custom solution. For smaller businesses the appropriate vertical solution might be sufficient to meet their needs, and these type of off-the-shelf verticalized solutions can be provided and sold via a self-service portal. However, a verticalized package is only likely to fit a proportion of the needs of a business, and some businesses might require a closer fit. Telesperience believes that the Pareto Principle applies here: with CSPs being able to meet 80% of the needs of businesses in a vertical market via a verticalized solution. However, that means that some businesses particularly bigger and more complex ones will require additional services, or would like to have the package tailored to their needs. This will require a more bespoke approach which will involve a sales visit to capture the business s requirements. CSPs will need to think how they can blend these two sales approaches to minimise costs, shorten timeframes and provide a good customer experience. The verticalized package could be used as a foundation by the salesperson, which can be adapted or built upon to better meet a business s needs thus removing some of the cost, speeding the delivery of the solution and so on. But this approach will only work if the CSP has both an integrated and flexible approach to their sales and ordering processes. 5 Maximising success in the SMB market The types of products that service providers intend to sell into the SMB market correspond to what Telesperience terms a network plus strategy. That is they build value on top of core connectivity capabilities. As can be seen from Figure 5, service providers believe that the biggest growth potential comes from providing enhanced communications services such as unified communications, and through providing access to Cloud services. Figure 5 Products with the most growth potential in the SMB market Enhanced comms products (unified comms) 74% 19% Bundling cloud apps with network services 71% 19% Additional cloud applications 52% 32% Additional value-added services 45% 48% More products through partnerships 32% 48% Time limited or ad hoc access to products 19% 48% High growth potential Some growth potential The good news is that this fits with what SMBs want to receive from their service providers. In previous research amongst SMBs we found that receiving all communications to a mobile device (a form of unified communications) was the most appealing service to SMBs, followed by access to applications via the Cloud. The critical issue though is whether CSPs can position themselves to gain more value from the Cloud, or remain simply the pipes that enable access to the Cloud (in which case they will give away both added value and strategic positioning to others). What stands in CSPs favour is that our research shows that most SMBs would prefer to have a single supplier to take responsibility (a single throat to choke ) and co-ordinate all the elements required for a Cloud solution. 10 P a g e

However, trust in service providers and loyalty is also very low. Our research on the European SMB market revealed, for example, that 8 out of 10 SMBs have plans to change service provider. v This finding is obviously both an opportunity and a risk. Telesperience therefore advises that CSPs wishing to build their SMB business need to begin by identifying and strengthening relationships with their current SMB customers ensuring they have the right kind of experience. This begins with the sales experience (is it easy to buy from you? can you on-board customers quickly? can you fulfil orders quickly and get these right first time?) and requires attention to the whole customer journey and lifecycle. As we have said, this customer journey should be explicitly designed with SMBs in mind and not just borrowed without any adaptation from either the business or consumer businesses. In terms of where CSPs perceive their biggest sales differentiators to come from, on a global level this corresponds with where they perceive the highest growth potential to be that is from bundling network and cloud applications (see Figure 6). However, they acknowledge that to realise these opportunities they have to pay attention to essential underpinning sales and support processes. What CSPs perceive offers the most sales differentiation varies considerably by region. For example, North American CSPs are concerned with driving out costs in both the sales and operational support processes; in Europe (where service providers have already been through a programme of cost reduction) the emphasis is on reducing time to revenue and reducing error rates. Both APAC and CALA see differentiation coming from new service provision. However, service providers in these regions are cautioned that innovation could be hampered by lack of operational efficiency to deliver against opportunities. (Readers should compare Figure 8 which shows where CSPs currently experience delay, problems and inefficiencies in their order-tocash cycle.) Figure 6 Biggest sales differentiators in the SMB market Region Most important Second most important Third most important World Bundling network services with cloud applications Reducing order to fulfilment time Pricing flexibility Improving right-first-time order capture and service delivery NAR Reducing the cost of sale Reducing the cost to serve Customer experience in the sales cycle EMEA Reducing duration of sales cycle from enquiry to quotation to order Reducing order to fulfilment time Improving right first time order capture and service delivery Bundling network services with cloud applications APAC Bundling network services with cloud applications Self-service and/or self-care Reducing order to fulfilment time CALA Bundling network services with cloud applications Customer experience in the sales cycle Self-service and/or self-care Reducing duration of sales cycle from enquiry to quotation to order Reducing the cost of sale Reducing the cost to serve Reducing order to fulfilment time NB: Where more than one factor is stated this is because these are ranked equally by CSPs 11 P a g e

Selling to small and medium-sized businesses 6 Challenges for CSPs in addressing the SMB sector Two common sets of challenges are facing CSPs looking to target the SMB sector. The first is competition from other players who are already supplying services to SMBs or are looking to do so, and the second is identifying and addressing weaknesses in their current processes and systems to increase efficiency and enable them to deliver against their plans. CSPs currently perceive their biggest competitors in the SMB market to be their traditional competitors: other network operators (90% say these are biggest competitors) and resellers (68%). However, going forward (see Figure 7) this pattern changes considerably. In two years, CSPs tell us that while traditional rivals will still be in the competitive mix, virtual network operators (VNOs), information and communications technology (ICT) and Cloud companies are set to become much more significant competitors than they are today. What this acknowledgement of future competition means is that CSPs cannot just have sales and operational processes that are good (or good enough) in the telecoms world they have to have processes and systems that are comparable or better than those in the online and IT worlds. Virtual Network Operators (VNOs) won t be competing with CSPs on price and connectivity, but on a good customer experience, innovative packages, products and offers. To differentiate against these types of competitor, CSPs need to identify ways in which they can deliver a more compelling experience to their customers from sales right through the lifecycle as customers buy, use, and change what they are using. Figure 7 Future competitors in the SMB market Now 2016 Other network operators 90% 71% Resellers 68% 45% Virtual network operators 48% 52% ICT companies 48% 29% Cloud companies 29% 48% Another set of challenges for CSPs is understanding where bottlenecks and weaknesses are in their enquiry-to-cash cycle and addressing these to compete more effectively, deliver a better customer experience, lower costs and get to revenues faster. Our research shows that CSPs suffer problems and bottlenecks throughout the enquiry-to-cash cycle (see Figure 8) either frequently or occasionally. 12 P a g e

Figure 8 Causes of delay and faults in the enquiry-to-cash cycle Global NAR EMEA APAC CALA Pre-sales requirements capture Pre-sales design and validation Upsell and cross-sell offerings Quotation Order entry and confirmation Order decomposition and technical design Order processing Order activation service live Charge for service Collect for service Key: Frequently a problem Sometimes a problem Not a problem Responses are shown on a scale of 1-10 where 1 = approx. 10% of CSPs and 10 = 100% The table shows that while CSPs in the CALA region in particular identify some areas as frequently a problem (notably, order processing), problems in other regions might be chronic but intermittent. This, in itself, can be a challenge. While frequent, high-impact problem areas clearly demand immediate attention, areas that experience less frequent problems can be harder to fix, because problems are less predictable or because it might be harder to justify fixing them. Instead, intermittent problems are usually resolved on a fire-fighting basis, and thus there is a low level of recognition as to their overall cost and impact. When a fire-fighting approach is taken, it results in more and more resources being taken up resolving problems (including resolving the same problem multiple times) rather than driving positive business-impacting programmes. CSPs are therefore advised to consider how they can improve the entire end-to-end enquiry-to-cash process for their SMB business. Even if they start with the most acute or highest impact areas and improve things incrementally, there should be a plan that describes what the customer journey should look like so that each improvement takes the CSP nearer to their goal. It should also be remembered that this analysis of challenges in the end-to-end enquiry-to-cash process is retrospective: it only considers what is happening today. As CSPs begin to rollout a much more diverse range of products, as well as verticalized offers, even more weaknesses are likely to surface. A process that is just about 13 P a g e

Selling to small and medium-sized businesses managing to support the sales and delivery of basic communications services may stall under the demands of more complex products or packages sold at volume. CSPs recognise that they need to invest in supporting infrastructure - 9 out of 10 of the CSPs we spoke to have either assigned budget to addressing their challenges or are making a business case for budget to be assigned. 7 Creating an effective infrastructure to support the SMB sector As we saw in the previous section, CSPs face a number of challenges in terms of identifying weaknesses in their current enquiry-to-cash cycle and addressing these, as well as whether their current systems and processes will support their SMB business ambitions (such as supporting the provision of new types of services). The good news is that most have either assigned budget to SMB initiatives to resolve infrastructural challenges (39%), or are in the process of doing so (48%). But what will they be spending this money on? What we discovered is that only around 4 out of 10 CSPs targeting the SMB market have a dedicated infrastructure for this business area, but relatively few (10%) intend to invest in a dedicated infrastructure if they don t already have one (see Figure 9). The majority will use existing infrastructure either consumer or business and add adjunct capabilities or support. Whether they use business or consumer infrastructure as the starting point appears to depend on the area of the SMB market they are targeting with microbusinesses seen as a consumer-plus play, and medium-sized businesses seen as a large business lite play. In this sample, more operators were taking a business lite approach by investing in adjunct support for their existing business infrastructure than were taking a consumer-plus approach. Figure 9 Infrastructure strategy to support the SMB business We have a dedicated infrastructure 39% We plan to implement a separate/dedicated infrastructure 10% We will use our current consumer infrastructure 13% We will use our current consumer infrastructure with some additional/adjunct support 26% We will use our current enterprise infrastructure to support our SMB business 13% We will use our current enterprise infrastructure with some additional/adjunct support 42% If few CSPs intend to implement an entirely new infrastructure and are, in fact, taking an adjunct approach then where do they intend to spend money? As Figure 10 shows, CSPs tell us they have already invested in automation (74% have already done so) although tellingly this investment is not over as 55% will continue to invest in this area in the next two years. However there are some clear and common patterns in terms of where investment is focused, with self-service (100%), the provision of unified platforms to manage network and cloud services (87%), and efforts to reduce order fallout (84%) being the top three areas of planned investment globally. 14 P a g e

Figure 10 Areas of infrastructure investment to support the SMB business Automating our manual processes 55% 74% Reducing time to deliver the service (from order submission to service turn up) Reducing duration of the sales cycle from enquiry to quotation to order 45% 42% 71% 71% Reducing order fallout (ie where failure results in orders not being fulfilled and needing intervention to fix) Reducing time to initiate a new service (from planning to availability to order) 35% 35% 77% 84% Providing a unified, automated platform for managing network and cloud services 16% 87% Providing more self-service options 6% 100% We've done this We plan to implement or enhance 8 Telesperience Insight Telesperience believes that CSPs have a great opportunity to deliver new growth from the SMB market. However, they need to think carefully about how they address it and understand that it is not a single homogeneous market and that segmentation is needed to better address the opportunities. CSPs have tried before and failed to exploit this sector. The question is, can they come up with the right approach this time? And can they ensure that they are able to deliver the right products, prices and experience at a cost that makes this sector profitable? CSPs are cautioned that the SMB market requires a high level of underpinning automation in the support systems. However, perhaps the most critical area where this business will succeed or fail is in the sales cycle itself. CSPs need to sell to SMBs in an appropriate manner with a mix of approaches that includes using site visits and sales people where necessary. Most CSPs we have spoken to believe that site visits will continue to be important when selling to SMBs, as a way of building relationships, better understanding customer needs, ensuring all options are considered, tailoring the service and so on. Integrating different sales approaches into a process that is efficient and acceptable for customers, but also cost-effective for CSPs, will be a significant challenge but is also a moving target. As CSPs roll out more complex products such as unified communications and Cloud-based applications bundled with network connectivity, the potential for sales and support services to go wrong will increase exponentially. Paying attention to where bottlenecks and problems occur today is helpful, but it is possible that new service types will expose chronic or intermittent problems and make these more acute. Manual solutions and workarounds to problems and operational inefficiencies will quickly become untenable as SMB volumes, orders, and order complexity grow. What CSPs have to consider is that the right kind of automation puts people where they do most good in customer-facing and innovation roles rather than fighting fires and manually patching processes that don t quite work. Good automation should support salespeople to sell, operations to deliver, and customer service representatives to resolve problems quickly and effectively thereby maximising the potential of any SMB initiative. 15 P a g e

Selling to small and medium-sized businesses 9 Research methodology This research programme uses a technique which is sometimes called the expert panel or expert sample. In other words we sought to locate a relatively small number of highly qualified and senior staff who had the knowledge and experience to answer the questions we were researching, and who could also represent the views of their peers. The research was focused on delivering a picture of the current status of SMB sales and delivery within the global CSP market, as well as future goals and investment plans. Thus we sought to locate and speak to those staff within CSPs who are currently responsible for supporting, or who substantially influence, the company s SMB strategy and business as well as those who provide the infrastructure to support it. The trends shown here are based on a global sample, with regional breakdowns provided where indicated. In this programme we spoke to 62 senior managers (CXO, SVP, VP and Director level staff) across 31 communications service providers worldwide. Figure 13 provides a breakdown of the operators represented in this sample by size of region of operation and type. It should be noted that this study focused on the views of larger operators and operator groups. Figure 13 Regions and type of CSPs in research sample APAC 23% North America 29% Cable 3% Fixed 3% Broadband 13% Europe 29% CALA 19% Mobile 16% Multi-service operator 65% 16 P a g e

Appendix I Terminology and Definitions Figure A Country, region or institution Examples of terminology used worldwide for the SMB sector Term Size of sector Further notes on classification Argentina PYMEs (Spanish: pequeña y mediana empresa) Up to 100 The Subsecretaria de la PYME y Desarrollo Regional defines SMEs as companies with annual sales up to USD 600,000 (micro enterprise), USD 3.6m (small enterprise) and USD 28.8m (medium enterprise). Australia SME Up to 200 The two most common ways of defining an Australian small business is by annual turnover, the number of, or a combination of the two. The Australian Bureau of Statistics (ABS) defines a small business as an actively trading business with 0 19 ; micro businesses are those with 0 4 ; a medium-sized business is an actively trading business with 20 199, and a large business is one with 200 or more. Some definitions include turnover, in which case it should be less than AUD10 million Brazil PMEs (Portuguese: pequenas e médias empresas) Not standardized SMEs in Brazil are subject to a multitude of definitions but all definitions are clearly smaller in size (annual turnover) compared to Europe African Development Bank Small and mediumsized enterprise (SME) Up to 50 Asian Development Bank Small and mediumsized enterprise (SME) No official definitions or criteria uses those of individual countries Canada Small businesses (sometimes the term SME is used) Up to 500 Industry Canada defines a small business as one with fewer than 100 (if the business is a goods-producing one) or fewer than 50 (if the business is service-based), and a medium-sized business as one with fewer than 500. The Tax authority defines a SME for taxation purposes based on revenue, not on number of. EU Small and mediumsized enterprise (SME) Up to 250 Microbusinesses - up to 10 ; Small enterprises - 11-50 ; Medium-sized enterprises - 51 to 250 Annual turnover must not exceed EUR 50 million India Micro small and medium-sized enterprise (MSME) Based on investment, differentiates between manufacturing businesses and service-based businesses The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 which provides a standard definition of SMEs based on investment. For companies engaged in manufacturing or production a micro-enterprise is one where investment in plant and machinery is up to Rs. 25 lakh; a small enterprise one where investment is between Rs. 25 lakh and Rs. 5 crore; a medium enterprise is one where investment is between Rs.5 crore and Rs.10 crore. How this investment is calculated is specified by the Ministry of Small Scale Industries via its notification No.S.O.1722(E). In contrast, service-based enterprises are defined differently. Here a microenterprise is one where the investment in equipment does not exceed Rs. 10 lakh; a small enterprise where the investment is between Rs.10 lakh and Rs. 2 crore; and a medium enterprise one where the investment is between Rs. 2 crore and Rs. 5 crore 17 P a g e

Selling to small and medium-sized businesses Figure A Country, region or institution Examples of terminology used worldwide for the SMB sector (continued) Term Size of sector Further notes on classification Kenya Small and mediumsized enterprise (SME) or MSME (micro, small and medium enterprises) Up to 150 Sessional Paper No. 2 (2005) defines a SME having between 1 to 50. World Bank defines a Kenyan SME as one that is formally registered, has an annual turnover of between Kenya Shillings 8 to 100 million, an asset base of at least Kenya Shillings 4 million and employs between 5 to 150 Mexico PYMEs (Spanish: pequeña y mediana empresa) Up to 250 They are classified in two types of small and medium enterprises: family businesses and non-family businesses. PYMEs are also classified by type (manufacturing, commerce and service) and size. In manufacturing up to 10 are microbusinesses, 11-50 are small, 51-250 are medium, and 250+ are large enterprises. Service enterprises have smaller classifications with divisions at 10, 50, 100, and more than 100. Norway Small and mediumsized enterprises (SME) Up to 100 US Small and mediumsized businesses (SMB) Up to 500 Microbusinesses - up to 10 Small businesses - 11-50 Medium-sized businesses - 51 to 500 World Bank Small and mediumsized enterprises (SME) Up to 300 The World Bank also sets a limit of USD 15m in revenues and USD 15m in assets Figure B How CSPs define the SMB sector, by region Region Up to 10 11-50 51-250 251-500 500+ EMEA NAR APAC CALA 18 P a g e

About the authors Teresa Cottam is the Founder and Chief Strategist at Telesperience. She has more than 19 years experience in the industry and was previously an Associate Principal Analyst with UK-based telecoms consultancy Analysys Mason. Before that she headed up Research and Publications at Chorleywood Consulting, a specialist BSSOSS consultancy which was acquired by Informa Telecoms and Media. Prior to this she was Managing Editor at industry analysts Ovum. Teresa has authored numerous influential reports and trends papers during her career, is a regular speaker and chair at telecoms events, and is a judge at the Global Mobile Awards presented at Mobile World Congress. In addition she has worked as a consultant and strategist in a wide-range of vertical and geographical markets experience that she uses to help businesses maximise their opportunities, attract and retain customers, and operate more efficiently. You can follow Teresa on Twitter at @teresacottam. Morgan ap Darran is a research assistant at Telesperience where he s responsible for statistical analysis, mathematical models, scenarios and forecasts. A digital native, he brings a fresh perspective to our team and writes about the needs, demands and views of the under-25 generation. He s particularly interested in how ICT is applied within the smart home and smart buildings, as well as the development of wider area, smart city environments. Monica Zlotogorski is Vice President of Research with Telesperience and is responsible for research in North, Central and Latin America. Monica s current research focus is around development of new revenue streams for CSPs and revenue maximisation. Monica is also Vice-chair of TM Forum s Latin American Advisory Board and editor of Inside Latin America. Prior to working with Telesperience she worked for a number of BSSOSS companies as well as the TM Forum, and before working in the telecoms market was a research and professorial assistant, as well as a journalist covering trade and economy topics in Latin America and the Israel Export Institute (IEI). You can follow Monica on Twitter @MonicaCZN About Telesperience Telesperience is a global communications and media analyst firm, headquartered in the UK, with a focus on how business models, technology and data impacts the operational and commercial performance of Communications Service Providers (CSPs), as well as the experience they deliver to their customers. Telesperience provides research and consultancy services to a range of industry players including CSPs, VCs, vendors and SIs. In addition to advising on B2C customer solutions, experience in other vertical markets helps the company counsel service providers that are exploring existing and emerging opportunities (e.g. M2M, OTT, verticalization, and partnerships) for both business and Small & Medium Businesses (SMBs) in key verticals such as advertising, media, retail, healthcare, automotive, education, financial/banking/insurance, energy, food, government, consumer goods, real estate, pharmaceuticals and biological sciences, and transportation/travel. You can follow Telesperience on Twitter @telesperience and join our community free at www.telesperience.com About Amdocs For more than 30 years, Amdocs has ensured service providers success and embraced their biggest challenges. To win in the connected world, service providers rely on Amdocs to simplify the customer experience, harness the data explosion, stay ahead with new services and improve operational efficiency. The global company uniquely combines a market-leading BSS, OSS and network control product portfolio with value-driven professional services and managed services operations. With revenue of $3.2 billion in fiscal 2012, Amdocs and its 20,000 serve customers in more than 60 countries. You can follow Amdocs on Twitter @amdocs. i In the US the term SMB (small and medium-sized business) is used for this sector, although Europe and most of the world uses the term SME or a variation of this. See Figure 1 for examples of different terminology and definition. In this report we use the term SMB as standard. ii In this report we use the term CSP (communications service providers) to refer to all companies that provide communications services irrespective of network technology. This term includes fixed and mobile operators of various types, companies that provide services but do not own a network (MVNOs and VNOs), as well as cable operators. iii Microbusinesses are also sometimes referred to as small office/home office (SOHO). iv See: www.brookings.edu/~/media/research/files/papers/2008/9/development%20gibson/09_development_gibson.pdf v We are pleased to be able to offer readers a free copy of Telesperience Strategy Insight: How European CSPs can create new revenue streams by meeting the needs of SMEs which you can request by emailing editorial@telesperience.com 19 P a g e