JEDDAH – As operators continue in their efforts to maximize the value of their portfolios, they can benefit from assessing their operations to recognize their essential differentiated capabilities that distinguish them from their competitors.
At the same time and based on their capabilities, operators need to determine the way to play for each of their subsidiaries-the strategy that will allow them to succeed and beat the competition in each of the markets in which they operate, Booz & Company experts in a study on "Managing Telecom Portfolios for Sustainable Growth."
These factors combine to present an operator with the right to win that, in turn, will translate into stronger profits, increased market share, or a number of other results-the coherence premium that operators can achieve when their capabilities and way to play operate in concert.
Along with the coherence premium – an inherent advantage in focusing an entire company around a set of capabilities-there also is an incoherence penalty that can grow over time as companies expand into new markets and their strategic focus broadens. The study showed the existence of up to 10 percent disparity on EBITDA margin between operators that build their portfolios around their capability sets and others that did not use the coherence lens in their expansion.
"In the Middle East, and specifically in the Gulf Cooperation Council, incumbent operators participated in this strategy, consolidating within their region and beyond. Many operators, however, did not keep a close eye on how each newly acquired operation fit into their overall portfolio," said Karim Sabbagh, Senior Partner at Booz & Company. "During the rapid growth phase, capabilities and capability systems were less important than pursuing time-critical and scarce opportunities. As growth starts to level off and a certain level of maturity is reached, competition will increasingly be won on the basis of capabilities."
Chady Smayra, Principal with Booz & Company, said "it is not always practical-or wise-for an operator to sell or spin off a unit that does not fit into its strategic strength, especially if that unit performs well on a financial basis.
Nonetheless, operators can set aspirational targets or better understand the contribution to the company from each of its operating units by undertaking a two-pronged assessment of strategic and financial considerations."
The strategic assessment measures whether an operator’s investments or potential investments are fit with its capabilities and ways to play, whereas the financial assessment takes into account the needs of the corporation in terms of growth and profitability. – SG