Telefónica and MIT Sloan Leaders Consider Distributed Future

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The digital organization distributes knowledge across its entire infrastructure and enters into deeper relationships with employees, customers and suppliers in order to realize new sources of value. With this new distribution of data, power and autonomy comes the impetus for everyone within the organization and supply chain to be involved in value creation.

In conversations with Cristina Álvarez, CIO of Telefónica, the global telecoms company, and Professor Thomas Kochan of MIT Sloan, the Business Value Exchange has examined how companies must facilitate this transformation. Digital tools and infrastructure play their part, but entire organizational processes and structures must also be overhauled to ditch the silos and achieve transparency – the ultimate distribution.

Perhaps, most crucially of all, organizations have to review the social contract they have with employees and customers to make sure jointly created value is fairly distributed, and to ensure a virtuous cycle of innovation. The challenges are immense and the rewards equally large if the new balance of interest between parties can be attained, as our two panellists highlight in their shared perspectives.

Telefónica embraces customer focus to harvest value at the edge

Telefónica, the second largest corporation in Spain and a global telecoms giant, is abandoning functional silos for a customer-focused and project-based way of working. This is part of its transformation to become a data-driven company, which, as CIO Cristina Álvarez explains, entails a new relationship with customers and employees in order to harvest value at the edge.

1: Which distributed and digital technologies will solve future challenges?

Cristina Álvarez: The first call for IT strategy is to consolidate the three critical and transformative elements of cloud, security and big data to transform our core offering, and move the mix of revenue from communications to digital services provision. The network and infrastructure are absolutely a number one priority for us as we’re all moving huge amounts of data and information around. Speed is also a critical factor for all our customers. Companies need to move faster and accelerate their transactions and interactions, and they need technology and our help with that.

Our ambition is to combine communications with infrastructure and to offer digital services from the cloud that go way beyond our traditional communications offering. The first part of the journey toward IT infrastructure is cloud and by that we mean hybrid cloud: it’s no longer about using one supplier but joining different domains. Security is absolutely fundamental and must be executed cross-domain, across networks, services and big data.  

Big data and the combined use of artificial intelligence is creating new scenarios for customers. I see these less as standalone technologies, but something that brings new value when we integrate it with other technologies and apply it to how we interact with the customer. It’s a huge opportunity and affects the way we work and how we manage data right across the company. For example, if we monitor customer complaints, whether it is billing or the commercial package, using all related data to provide context starts to bring new perspectives, then that’s a dramatic change.

2: What value does decentralized intelligence bring?

Cristina Álvarez: Much of the exciting stuff in this new distributed and digital world happens on the edge of the network, as we add intelligence at the point of interaction with customers in their homes or offices. One area where we are offering new value and service to customers using new technology on the edge of the network infrastructure is in video. We capture customer interactions and relevant information using data filtering in all our customers’ homes in Spain: the TV events they watch, their usage patterns and preferences on their home network. Access networks, combined with big data in real time, lets us mine content in the context of the individual customer. Based on this intelligence we can deliver packages or offer recommendations and advertising.  

Telefónica is working with industrial companies and energy providers, and so far there seem to be two areas of benefit: efficiency improvements and the way suppliers interact with customers and sell their services. While there are some exciting opportunities as infrastructure, data monitoring and analytics come together, finding a business model that works for government, participating technology suppliers and for citizens is not easy. Monetizing the Internet of Things (IoT) is at a very early stage.

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We also have some initiatives around the IoT and together with our partner, DXC Technology, are working to help create smart cities in Spain. We are involved in two smart city initiatives in Valencia and Santander, where sensors are being embedded in energy and traffic infrastructure, and communicated and mined to make the city more energy efficient and the environment healthier and safer.


3: How is the flexible enterprise structured and kept on course? 

Cristina Álvarez: Technology on its own is not enough: you can put it in and it can fail. IT is the tip of the work an organization must do in order to transform. Telefónica is moving from a functional company, where technology is siloed, to a customer-driven business, where employees will have the opportunity to access and manage the information they need to work in a new way.

While all this is going on there’s the equally huge challenge of keeping the new flexible organization aligned to business goals and that needs structure. The key element is how to align people around a common purpose and a business role, so we’re moving away from a hierarchical organization with KPIs for separate departments to a project-driven company. Revenue and customers continue to be drivers and that needs focus around the new project style of working.

As we are moving to the cloud in order to create the new organization, we also have to have new HR procedures to rethink the way we reward people and interact with each other. It’s a journey and it’s going to take time. It can’t be achieved in a six-month project. The board is having a conversation and our president, José María Álvarez-Pallete López, is very aware of the importance of new technology, and we’ve created a powerful team around security, big data and the cloud.

4: What role does the autonomous employee play?

Cristina Álvarez: As CIO of Telefónica my ambition is to lead a service department that enables employees to access the tools they need on a self-service basis. I don’t want to be a bottleneck and we are already offering big data capabilities on a self-service basis. Employees can be far more autonomous than in the traditional model of corporate workforce: work now mirrors employees’ private lives, where they are used to navigating social media and downloading apps. Telefónica is putting all these together in a digital space for staff.

The changes to output have been dramatic. Staff members can create a space for a project, where people can choose whether they want to come, or be invited because their title or responsibilities are relevant. In the new workplace technology enables a ‘pull’ as well as a ‘push’ in team building and we can already see the commercial benefits. We are asking all managers and employees to look at using new technologies to change behaviours.

Telefónica is developing a multifunctional way of working, but the challenge must not be underestimated. DevOps is a case in hand: it sounds great and is seen as the latest fashion, but the reality is it breaks traditional barriers between IT and the business. Suddenly, you have to create teams consisting of users, developers and business. It’s a dramatic difference and there have to be incentives to work in this way.

5: What will the workplace look like?

Cristina Álvarez: It’s part of our mission to be a transparent company. Data has to be shared more and the owner of data does not have the power it conferred in the past. Instead, we have to share information and knowledge, and tools such as Microsoft’s Office 365 are helping. If you have a great topic on Yammer there’s an intuitive coming together: it’s not a mandate, people are there because they want to be.

The real difficulty is that people find it hard to work with such flexibility and in an uncertain environment: they are accustomed to having their own people and their own budget. We are testing the new reality and workstyles in DevOps and in our Big Data initiative. It’s been very useful to have millennial workers around these projects and they have mentored other staff on how they use technologies. It’s an opportunity for them to be more productive and visible.

We have ambitions to be leaders in IT services for our enterprise customers. We have all the internal capabilities to be the biggest service providers in Spain and want to be part of the digital transformation of our own customers: we can share our own example of how we are disrupting the way we do things here.

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Cristina Alvarez has more than 20 years’ experience in the telco sector, with several director positions: Alcatel-Lucent (1992-1995), Vodafone (1996-2006) and in Telefónica Spain (from 2006) as CIO (Chief Information Officer), Director of Services Development and Systems, and as a member of the Board of Directors.

Cristina is member of CIONET Advisory Council and also serves on various boards of small Spanish IT companies, including Acens and Telefónica I+D. She participates in Foros to represent Telefónica and to help to improve the role of women in the technology industry. Cristina is a member of the Woman Boards Club (WBC) lead in Spain by IESE. She has recently been nominated ‘Engineer of the Year by COIT and AEIT.

Broad participation ensures distributed future is successful and ethical

Thomas Kochan, Professor of Work and Employment Research at MIT Sloan, makes a powerful case for a new social contract with the employee: empowered and augmented by digital, the employee has the potential to push innovation and knowledge up through the organization. Digital has the power to augment human judgement, but technologists must listen to users, while the CEO must examine how the rewards are distributed if digital is to fulfill its potential, he warns.

1: Which distributed and digital technologies will solve future challenges?

Thomas Kochan: I think it’s the wrong question. It’s not technologies that will solve future challenges but how we use them that counts. That means we have to start with human and societal problems, and how to put technology to work to address and complement what we can do together with other institutions. We must define the questions we ask of technologists and not view technology as an autonomous, deterministic force, but as an asset that is mobilized to address these important issues.

There’s an old Japanese phrase that came out of robotics work in the 1980s and 1990s in manufacturing that technologists ought to begin to understand and build into their work: “It’s workers who give wisdom to machines”. People give wisdom to the technology and then technology can in turn enhance human judgement. We can solve big problems in the world and create big opportunities and the next generation of inventions and jobs.

Technology platforms and the IoT are clearly changing the structure of organizations. The valuation of companies today is out of line with the numbers of jobs they create. In the past, the General Motors, and even the Googles, created lots of new jobs and the valuation of the company reflected this. Compare Netflix with its old-world equivalent, Blockbuster, which at its peak had $7 billion in revenue and 60,000 employees. Today, Netflix has just 3,700 employees and a larger market capitalization. The world is changing and the question is: will we create enough good quality jobs to meet the needs of the workforce of the future?

2: What value does decentralized intelligence bring?

Thomas Kochan: There’s no single deterministic model or market design for digital platform design. Uber has created a particular form of ride service: it controls all the information, and information is power. The firm uses this data to control its customers and driver workforce. What would be different about the experience for drivers, and maybe customers, if that information was decentralized and Uber’s drivers could access it and had the ability to mobilize and use that data, so they could maximize their own incomes and improve their own livelihoods? We have to think about how we design these new platforms, so the benefits are more broadly shared across the different stakeholders.

Double exposure of man wearing virtual reality headset with city backgroundIn the long run, a good business model is where the more your customers and employees know how the company works and have information to control their actions, the more committed they will be to building the business to their benefit, but also for the organization that is providing that information. Think about the power grid and solar power and the ability to co-generate electricity by designing your own home, and being energy-efficient and having a green system embedded in the home. The more customers understand where value and expenses lie and how to control that, the more this feeds into the company that provides the tech, and at the top of the power grid, the more they optimize services and find value that the customer will pay for.

We’ve got to think about ways customers, employees, even public/private partnerships can share information to use these technologies much more holistically than for some specific stakeholder. That’s the shift that will see whether technology, on balance, will serve society, the economy and the people who have the IP rights. In this way, customers become part of the innovation cycle. Maybe not the first mover for innovation but the second generation, and that will create new jobs, opportunities and applications.

3: How is the flexible enterprise structured and kept on course? 

Thomas Kochan: It will need a lot more coordination across groups and different bodies of expertise. That means the solid, functional firms, comprising finance, operations, HR, marketing and so on, are really going to be challenged to work out how the discovery and deployment of new apps will involve people across functions. It’s not about technology per se, it’s the interactions with people that use them and organizational designs that drives high levels of productivity, customer service and innovation. The new flexible enterprise also has to draw on people outside the organization more fully, as our example of the electricity grid and Telefónica’s work with its customers shows. We must ask what’s in it for various stakeholders, and have them contribute to further development and inventions. If they are invested in it and see joint gains, it continues a positive cycle of innovation.

That doesn’t mean the old-world corporation is defunct. We still need people who have specialized knowledge in IT and marketing, but the productivity comes in linking them. Knowledge bases won’t go away, but the people and skills most valuable in the future (and incomes already reflect this) are the ones that have hybrid skills with technology know-how and figure out how to apply to functional areas. HR people won’t only specialize in compensation and performance management, but also know how to utilize technology to better design how we do our work.

With a lot of knowledge at the edges of organizations, strategy has to keep an eye on what the business is trying to achieve and ask how to be successful on a financial and sustainable basis, as well as when it needs to ally with others outside its traditional boundaries. This remains the role of the CEO and the board. However, they also have to rely on information flowing up rather than dictating what will be. That day is over. If they don’t listen to the voices at the coalface they may be good at routine business and keeping costs down, but miss the opportunity to learn from employees how to satisfy their customers.

4: What role does the autonomous employee play?

Thomas Kochan: The reality is if we don’t start to engage in this way and have a social contract where people feel their interests are being served, we are going to have an explosion. It happened with Brexit, it happened in the US election. A new social contract must be based on trust, mutual interest and listening to each other, creating value together and negotiating how to distribute value more equitably. Use the knowledge of the workforce by all means, but we can’t have a world of winners and losers.

We have to get over the notion that it’s all about shareholder value and the shorter term, and instead invest for the long term and listen to employees. This means finding ways to expand and create value, but also discovering ways to distribute value more equitably. At MIT, we have a good companies and good jobs initiative, and are going to hold a series of multi-stakeholder forums around these broad questions. What makes a company a great place from the standpoint of financial return, but also good for jobs and career opportunities?

5: What will the workplace look like?

Thomas Kochan: Technology is leading to a more decentralized workplace, with the flexibility to work in different places at different times. But do we have the managerial wisdom to take advantage of the new norm? There’s still the legacy of Frederick Winslow Taylor’s management control thinking: “If you’re not in the office, I don’t trust you’re not at home playing computer games”. The distributed workplace calls for a mindset change in management to ensure that we work with people and don’t compensate them for the amount of time spent in the office, but for the contribution they make and the work they do. If we can get over this managerial hurdle, we can take advantage of distributed workplaces.

Most important, we have to educate technologists and hold them accountable to the ways in which we’re talking today and not leave them to define the objectives of the technology. If we do they will define it very narrowly and squeeze out as much human variabilities as possible, which would lead us to false solutions. A broad participation in defining the problems will enable us to find our way to a better world for everyone.


Thomas Kochan is Co-director, MIT Sloan Institute for Work and Employment Research, where he is Professor of Work and Employment Research. Author of Shaping the Future of Work, he is interested in trying to understand how digital platforms are affecting the workforce and what business needs to do to ensure they are used in constructive ways to augment work and human judgment. He teaches an online MITx course, Shaping the Future of Work, that is free and open to the public. It is available here.



Helen Beckett

Author: Helen Beckett

Helen Beckett is the Community Manager of the Business Value Exchange. She has been a writer and editor for over 20 years and takes a particular interest in the challenges facing the CIO in today’s business climate.

  • Morris Barrett

    This is a great article.