Elisa finds growth through digital services

When it comes to monetizing digital services, Finnish operator Elisa is ahead of the game. What’s more, it hasn’t been afraid to take a risk, or even to get its fingers burned, to arrive at the right strategy.

In 2021, Elisa Corporation’s combined digital services accounted for nearly 400 million euros of its 2021 revenues, or 20% of the 2 billion euros total.

“Our ambitions are a lot higher,” says Henri Korpi, Executive Vice President, International Digital Services, Elisa Corporation.

The telco, which operates fixed and mobile networks in Finland and Estonia, develops and sells an eclectic mix of digital services, including specialized manufacturing software and IT services for manufacturers worldwide; network operations center (NOC) automation for other telcos; and a content production company, which in 2021 won an award for the best TV series at the Canneseries TV festival.

But what do TV production, manufacturing and network automation services have in common? According to Korpi, it is an ability to deliver growth.

“We started more than 10 years ago investing in movie production,” he says. “Today, we are the second largest financier of content in our markets [of Finland and Estonia]. It has become a sizable business – and profitable. Only the Finnish National Broadcasting Company is bigger.”

However, Elisa’s path towards profitable digital services has been long and has led to more than one dead end over the last 15 years, notably in healthcare and banking.

“At one point I was actually chairman of a small bank,” says Korpi – a venture he admits cost millions of euros.

“At the time when we started, we didn’t know much about lean business development, and we did it the wrong way. We believed what we put on the PowerPoint, and then we made a business case out of it…and then we went to the wall.” Nonetheless, he believes: “It was also necessary to gain those experiences of failure for us to learn how to make it more efficient and less costly.”

Today Korpi, who started at Elisa in 2006, heads its international digital services division, which encompasses Elisa IndustrIQ, a provider of smart manufacturing software and services to major companies worldwide, Polystar, a network automation business that serves the telco industry, and Videra, a virtual communications offering.

Insourcing software expertise

As with other telcos, several factors pushed Elisa to seek growth from new services from the mid-2000s onwards.

One was the desire “to internationalize because we saw that Finland is a small country and Estonia is an even smaller country. We are a big fish in a small pond. And if you want to really, really grow you need to go beyond national borders,” explains Korpi.

This strategy involved some international acquisitions, but not of other telcos.

“In 2005/2006, we made a very conscious decision not to start acquiring telcos [internationally], which was the name of the game in those days, and somewhat still is,” says Korpi.

Although Elisa made telecoms acquisitions in Estonia and Finland to consolidate its domestic position, “we saw no opportunities for making shareholder value by acquiring [elsewhere]. The valuations are ridiculously high. What we’ve learned with our Estonian operation is that cross-border synergies are quite limited [as is] the capability of extracting value for shareholders from those kinds of transactions.”

Instead, acquisitions have tended to focus on deepening Elisa’s digital services expertise, notably in manufacturing, where Elisa’s competitors are specialized manufacturing software companies and systems integrators, rather than telcos.

In September 2021, for example, Elisa acquired 50.1% of Belgium-based software company TenForce, which provides large global industrial customers with operational risk management software, delivered as-a-service, to help protect them from environmental, health, safety and quality risks.

At the same time, technology changes and the desire to launch new services drove Elisa to acquire fresh skills internally. These in turn opened up new and unexpected service avenues, which made possible both Polystar and IndustrIQ.

From as early as 2006, “we saw that cloudification will move telecoms and connectivity and IP application services near to each other,” says Korpi. “We had to build software capability. So, we started hiring developers, architects, designers, and for a telco it’s a totally different game. We had to learn a lot about what is required culturally from having people-centric operations, which is what software is, side by side with the kind of infrastructure-centric operations of a telco.”

He continues: “The original decision to make stuff from scratch by ourselves was vitally important. We learned a lot about making software. We became one of the largest software service providers in the country — not for external customers, but for ourselves.”

Network automation

When Elisa launched an unlimited, tiered pricing model, for example, it developed network automation software to ensure it could deliver on its sales pitch.

“If you pay us five euros more for a higher speed, you will get it,” says Korpi. But ensuring it could do so involved changing “the whole parameter of operating. That wasn’t available. So, we turned to our own software development unit,” he explains.

“It required a huge investment and a change of the operating model in our networks to basically automate everything within the network – not only to cut costs, but to enhance quality so that we could materially deliver on our promise to our customers.”

It meant that by the mid-2010s Elisa found itself with fully automated NOCs and a set of rare skills.

“Six years ago, the last person left our network operations center and [it is] all computers now,” says Korpi. “Around five years ago we kind of noticed that this is unique. You couldn’t buy this, and we knew that all the other telcos are going to run into similar problems. So, why wouldn’t we productize this?”

Elisa, however, lacked the sales and support systems to sell its network automation expertise to other telcos. So, it acquired Polystar.

“We located and acquired a company that was already doing something very complementary to the automation software we have,” says Korpi. “Polystar had been providing monitoring and analytics solutions for many, many years. And they had processes for sales, for delivery, and for support, so we injected the startup that we had into Polystar.” Today, Polystar sells software to around 120 CSPs worldwide to help them automate operations and optimize the network.

Manufacturing, however, is where Korpi sees the greatest scope for international growth. “Verticals in the manufacturing side, they are burning hot and getting hotter,” he says Korpi.

Manufacturing success

Korpi describes Elisa’s initial entry into manufacturing partly as a stroke of good fortune.

“It’s a funny story. Years ago, we had one of our customers in Finland come to see our automation solutions.” The idea was to show how Elisa was using automation to guarantee high levels of network performance. However, the customer was a manufacturer.

“They said: ‘Nice. It looks like you’ve solved the problem of having a lot of different machines from different vendors and different IT systems on top of those…and you have gathered the data [to drive insights], and then used the analytics in operations. And that’s exactly the problem that we have in our factories. Please help us to do something.’ And we said, we know nothing about manufacturing, but we can try.”

Elisa put together a small team to work with a couple of customers in manufacturing. “And we learned that the factory actually isn’t that different from the telco network from the data point of view,” explains Korpi.

Elisa decided to find out more and partnered with the University of Aachen in Germany’s Industry 4.0 Transformation Center, which is an important hub of innovation for the German manufacturing sector.

“We were able to test our solutions there…and benefit from all the ideas we got from real people with real manufacturing problems.”

The big stroke of luck, however, came when someone from the American arm of Procter and Gamble walked through the door, recounts Korpi.

“They became our first international customer. It was a huge learning experience, and we developed software for deployment in their factories globally.”

Elisa’s focus is “on industry verticals that share the same characteristics from a data point of view as a telco network,” says Korpi. These are manufacturers in the fields of semiconductors, electronics, advanced materials and food and beverages, as well as medical device companies that for regulatory reasons need to keep data secure for many years.

Cultural shift

Elisa’s development of digital services was also helped by an internal cultural shift. This change was partly shaped by the company’s decision in the early 2010s to invest in improving quality by using lean production methodologies developed by Toyota.

“Gradually, we learned the philosophies of lean and…understanding the power of not making decisions based on your assumptions, but by experiments…and that has had a profound effect on our ability to be curious…If the outcome is something you didn’t expect, it’s not a failure to have learnt something.”

An openness to experimentation and its accompanying willingness to accept that some experiments will fail but will nonetheless provide important lessons has helped shape a new approach to management.

“Once you accept that there are important people doing a quite clever job without us guiding everything, it’s like the command or control it’s not there any more,” says Korpi.

Bringing on board people from the worlds of software, data analytics and AI has also demanded a cultural adjustment. Today, 2,000 of Elisa’s staff of just over 5,000 are in software and AI, and around 1,000 of these are based outside Elisa’s domestic markets.

“The variety of people [we have] is much wider than typically in a telco. They get influenced by each other. They really have had a positive effect on our willingness to be open to new ideas.”