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Author: Dan Bieler
We attended a briefing by T-Systems outlining its SME strategy. The 'Mittelstandssegment' is part of the Business Services division which reported a revenue decline of 1.9% of €2.2bn and an EBITDA margin of 2.4% in H1 2006. The Business Services division accounts for about a third of T-Systems' revenues.
Comment: Deutsche Telekom has long tried to regain traction with the all-important Mittelstand in Germany. For years competitors like Arcor, BT and Colt, but also city carriers have taken market share from Deutsche Telekom. Earlier attempts to retake SME customers were not successful. We believe that this time round a more credible SME strategy is emerging.
The new Mittelstand strategy is built on four points: revamp the distribution model, restructure the sales team, reposition the product and service portfolio, and demonstrate to the Mittelstand that T-Systems is truly dedicated to address their needs.
Key to its Mittelstand strategy is to improve the understanding of Mittelstand requirements and expectations. In an internal survey competence (63%), quality of service (61%) and trust (60%) were ranked as the most important reasons for choosing a supplier. Price was ranked top by only one third of SMEs. The immediate task for T-Systems is to comprise these findings in its four point strategy.
T-Systems is moving away from a technology - towards a solution-oriented approach. T-Systems maintains a modular offering in order to minimise costly customisation. With the exception of CRM and ERP, T-Systems does not address vertical sectors within its Mittelstand strategy. It aims to address business challenges that SMEs face and to help deliver solutions to these challenges. A change in senior management, a process that in the case of SMEs often implies a generational change, offers some of the best opportunities to introduce new ways to utilise ICT.
An important part of its Mittelstand strategy is the close cooperation with financial partners like Grenke, Gefa, Siemens Finance and Sparkassen, which provide leasing solutions for the Mittelstand. More generally speaking, partnerships are entered where T-Systems sees gaps in expertise. However, partnerships can manifest themselves in greater integration issues and hence risk creating pressure on margins. T-Systems is keeping a limit on the number of partnerships it maintains. In total T-Systems maintains around 300 SME partnerships at present.
VoIP is gradually gaining momentum as a solution for the Mittelstand, although security concerns remain an issue as security-related extra costs often undermine the business case for VoIP today. However, as part of its IP Revolution, T-Systems will push new, more secure VoIP solutions to the Mittelstand in 2007. BPO still remains a niche area for many Mittelstand firms and is largely limited to services like scanning and credit control.
What we like best about T-Systems' Mittelstand strategy is the fact that common sense seems to have resurfaced. The division is trying to speak the language of its customers and avoids the all-too-often abstract consulting lingo. In the SME segment, ICT decision makers and owners are often combined in the same person. Thus, for the Mittelstand strategy to bear fruit T-Systems must show real commitment to personal and local relationships. But as always, the strategy is only as good as its execution.
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