A number of people – mainly, readers of the book ROKC, Leadership Built on the Return On Key Component – have asked me why leadership and ROKC are synonymous with each other? So I will take another stab at it here.
Today, I read a New York Times article by James B. Stewart entitled Brash C.E.O. Keeps the Giants of Mobile Off Balance, published November 29, 2013, in which he posits an explanation of how the new T-Mobile USA CEO, John J. Legere, turned the company around. In this article, the reasons given to justify the change are:
- upgrading the service to 4G LTE, and
- branding the T-Mobile “the un-carrier”.
In fact, adding LTE service only brings T-Mobile on the par with other carriers effectively leveling the playing field. So, that catch-up cannot the reason for the increase in the number of users. That leaves only the re-branding, which in and of itself is not enough to turn a business around. However, there must be some explanation for their recent success. This left me scratching my head as to what it could be.
The only explanation I could find was in the re-branding but not the branding. How can I explain? The brand is T-Mobile and even if the company changes its tag line to “the un-carrier” this is not a re-branding but a repositioning of the brand in the consumer’s mind. So the substance of what Mr. Stewart calls a re-branding is a repositioning.
Through Mr. Legere’s leadership the company focused its key component, the spectrum licenses, and getting a return on those rights they paid so dearly for. Probably, Mr. Legere coming from a network hardware background, Global Crossing, was quick to identify the need to not focus company resources on controlling the whole value chain – licenses, towers/infrastructure, customers and so on – but only whatever brought a return on the licenses. The decision-making process was probably helped by the likelihood that 5G technology will not be available for another ten years or so making the infrastructure a mature business that could be sold off and leased back as needed. From this perspective, by being the first big carrier to market with no-contract service was a pre-emptive strike on Verizon, AT&T and Sprint taking users away from them. The no-contract model is also consistent with T-Mobile’s 2013 purchase of MetroPCS, a well managed low-cost virtual carrier.
Seen from an historical perspective, cellphone companies used the 2-year contract as a way of issuing securitized loans to raise cash to build their infrastructure. This explains why canceling your 2-year contract before it was up included such enormous penalties. Now that the infrastructure exists there really is no need for 2-year contracts. Mr. Legere identified this and quickly shifted the company to making a profit on the sale of handsets effectively front-loading the profit-making machine as the profit is made at the time of sale. On the other hand, by debundling handsets from service and keeping the price of service where it was before the great change, the company is getting an even higher profit on service than before.
It is now fairly clear to see that Mr. Legere – unknowingly – applied the ROKC method to T-Mobile by developing a business model that is no longer focused on infrastructure to get a return on the spectrum licenses but on service. As you may – or may not – know, T-Mobile offers international data roaming for free. It will be interesting to see what other services the company launches in the future and how the competition responds. For now, the company stock price is doing nicely and analysts are bullish.
Hopefully, it is now clear why leadership and the ROKC methodology are so intimately connected.