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Consumerization of devices are causing technology disruptions

Posted by Henry Cheang | August 6, 2014 8:00 AM

What is Cliff Theory?

Not long ago, Tomi Ahoen unveiled the concept of the Cliff Theory. Basically, this is a description of the catastrophically-swift speed with which cell phone makers can fall from grace. Represented (somewhat) mathematically, the Cliff Theory looks like this:

Cliff_theory

You see that steep, steep, steep drop on the right? That’s the Cliff. A cellphone maker can be one of the big five providers for years on end, only to see their market share (or even company viability) drop to zero in just under three years. It’s certainly bad news for cellphone makers. But it’s also bad for modern businesses too, especially big ones who have fleets of hundreds or thousands (or more!) mobile phones.

Why does the Cliff occur?

According to Ahonen, the Cliff occurs for three major reasons:

  • Very short replacement cycles for handsets.
There’s probably no other consumer electronic category where consumers rocket through models this quickly. The average replacement cycle for cell phones went from 21 months in 2000 to 18 months in 2006. Last year, it was just 16 months, and for smartphones, consumers upgrade to the latest model every 11.5 months.
 
 
To give you a further insight into the enormity of the volume of cell phones regularly replaced, I’m going to call your attention to the fact that there are very viable companies in the world who actively mine the gold from disposed cell phones for huge profits.
 
 
You may not know this, but there are trace quantities of gold in all cell phones (it’s a good conductor, and it doesn’t really rust). Despite the minuscule amounts of gold in each phone, the volume of disposed phones is so vast that cell phone gold miners extract more gold from unwanted handsets than they would from actual gold ore.
 
 
Meanwhile, it takes handset makers 18 months to design, produce, and bring new models to market. Effectively, consumers throw out handsets at nearly twice the speed at which handset producers create more phones. If makers can’t keep up, then it becomes a real problem. On a related note, there’s also the fact of…
  • Tenuous relationships between customer and handset maker.

There’s very little consumer loyalty to cell phone maker brands. Or, alternately, even if there is massive loyalty to a brand, it only exists for a finite time window. If the tail end of loyalty happens to coincide with the beginning of the next replacement cycle and a lack of new product launch by a particular brand, then the customer is as good as gone.

  • Deep concentration of power in the hands of carriers.
Added to the above problem is the fact that only a handful of carriers (basically, just 10 companies) control 46% of all handset sales and the subscriptions of 2.7 billion people. That’s access to almost 40% of all humanity, folks.
 
 
Functionally, that means that should carriers really want to kill a handset maker, they have the power to do so casually.
 
Cliff Theory
 

How does this affect companies? And what can be done?

The potential fallout of the Cliff effect on companies with sizable handset fleets is easy to guess. If you have thousands (or even just hundreds) of handsets by a suddenly-dying brand or company, you’re faced with an enormous cost, in terms of time, money, and lost productivity. There are even potential security risks (imagine if the handset provider has cut support and security services first?).

The Cliff effect will wreak havoc with a company’s budget and processes one way or another. However, for the organization unprepared for it, the chaos becomes even worse. It’s important to have a proactive plan. You have to be on the constant lookout for red flags or even moderately-sized warning signs that handset maker isn’t doing well. For example, are sales dropping by a significant margin for two consecutive quarters? Is the maker in financial trouble? Legal trouble? Keep on top of these issues, and you’ll know whether or not you need to consider a new overall handset solution for your company.

And then, when you’ve made the decision to change handsets, you need to have an implementation plan. Fortunately, the Telecom Expense Management Industry Association (TEMIA) has come up with a six-step plan to ease the process. Here are steps, in easy-to-follow format:

  • Identify:
    • An overall manager for the project. You can’t be directionless or haphazard in implementation, after all.
    • Stakeholders. Who’s going to be impacted, and how should new handsets address their needs?
    • True costs of the shift. It’s not just the one-time sale price. What are pricing options for plans, etc.?
    • Executives who will offer buy-in. This will be a noticeable investment, one way or the other. You’re going to need a friend in the C-suite (or similar) to help justify the project.
  • Define
    • Data risks, responses to security risks, and usage policies – these are pretty self-explanatory…
    • Employee needs.
    • Regulatory requirements. This can be a real minefield if handled incorrectly. Do the smart thing and make sure that whatever course you follow (in terms of data transfer to the new handsets), it’s vetted out by legal experts.
    • Assets that need to be replaced.
    • Benchmarks. Transition is a good time measure telecom cost against budget, because you’re basically starting afresh.
    • Training programs for the new devices.
  • Test
    • You really need to pilot the new handsets first. Better to spend a bit more testing with a restricted set of employees rather than sinking the entire transition budget into getting handsets that don’t satisfy all your needs for everyone. You’d have to redo this whole exercise again if that happens!
  • Implement and Track Deployment
    • Once you’ve figured out what works and what doesn’t, it’s time for full-organization rollout.
    • You’re also going to run up against employee resistance. Although I’ve said that brand loyalty can be tenuous, the unspoken flipside is that there are people who are unreasonably loyal to particular devices (sentimentality is never logical, after all!). You have to track deployment and adoption to ensure full employee buy-in.
    • This, step, incidentally, is where having a telecom expense management (TEM) tool will help! Tracking all of these elements on your own is going to be hard. An automated TEM software will make it painless!
  • Benchmark
    • After rollout! You need to know how you’re doing!
  • Control Future Processes
    • After you’ve done it once, you’ve basically created the procedure for managing future technology disruptions. Part of that must include continual evaluation of new technology and the financial health and market position of current suppliers (as mentioned above).

And that’s the overall plan for dealing with the Cliff. Given the current context, I’d say it’s just about inevitable that you’ll have to deal with massive technology disruptions sooner rather than later. Better to have a strategy for managing it planned out well in advance! Being caught flat-footed will not be pleasant, I assure you! In the meantime, if you have any useful or interesting experiences with the Cliff already, I invite you to share them in the comments below!

And if you have questions or need help with managing technology disruptions of telecom and IT assets, contact us at Cimpl! We’re Canada’s leader in IT and telecom expense management, and we will help you take full control of technology disruptions!

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Topics: Mobile Devices, IT Assets, TEMIA

Written by Henry Cheang

Henry has a lifelong passion for science and technology. This enthusiasm is put to good use in a cutting-edge software company like Cimpl. As product marketer, Henry researches market and user needs to develop user and buyer personas, contributes to product design, and helps coordinate product messaging. Henry also writes nearly the entirety of all documentation for Cimpl’s many successful platforms. In his spare time, Henry devotes much energy to family, friends, and martial arts. Henry recently completed his Master’s in Business and Administration from Concordia University, where he specialized in the study of marketing, organizational behavior, and corporate governance. He has authored academic papers on the latter two subjects; these papers form part of his bibliography of over 20 professional research publications.

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