Safaricom PLC Discussion of Digital Transformation

-- M-Pesa is one of the most successful mobile money platforms in the world, with revenue growth of 30.3% year-on-year in FY2022. George Njguna, Chief Information Officer of Safaricom, explains how Safaricom chose the distributed cloud architecture and unified storage resource technology to achieve business success in the face of challenges such as low resource utilization, high O&M complexity, complex data governance, and data security risks.

Safaricom, an 11-billion-dollar telecom company employing over 6,000 people and serving over 38 million customers in Kenya, now contributes around 6.5% to Kenya's GDP. With our core philosophy of putting people and processes before profit, we have embarked on a mission to transform the lives of the people in Africa and beyond. M-Pesa from Safaricom is one of the most successful mobile money platforms in the world and has largely contributed to the financial inclusion programs across Kenya and many parts of Africa. We are applying our inspiring innovations to deliver new solutions also across other sectors like agriculture, healthcare and others. Our core focus is to deliver technology that is relevant to customers and that can enrich their lives.

The Success Story of M-Pesa

M-Pesa has contributed strongly to our service revenue during FY22, growing 30.3% YoY to KES 107.69 billion. With that, it has surpassed the voice revenue and has emerged as the biggest revenue contributor for Safaricom. M-Pesa now accounts for 38.3% of service revenue while voice contributed 29.6% in FY22. Active customers per month for M-Pesa crossed the 30 million mark during the year, growing at 7.8% to 30.53 million. Also the total transaction value grew 34.0% YoY to KES 29.55 trillion while the volume of transactions grew 34.9% YoY to 15.75 billion.

Another significant milestone in the journey was the launch of M-Pesa in Ethiopia. This marks a special achievement for Safaricom in Ethiopia as it was the country's first mobile money license to a foreign company. The investment also marks the largest foreign direct investment by a Kenyan company since our independence in 1963. We believe this journey will take us further, beyond the Kenyan economy to the rest of the Africa and the entire globe.

Safaricom's Digital Transformation Mission

Safaricom is guided by a vision that by 2025, it will be not only a telco with a mobile money proposition but also a purpose-led technology company that strives to accelerate growth around new areas by delivering superior customer experiences. To achieve this, we have to establish a competitive, agile, customer-obsessed technology environment, capable of taking us through the transformation journey. We hope these new growth areas, which are not part of our traditional businesses, will emerge as major contributors to our service revenue by 2025.

The IT As-Is Challenges

While embarking on the digital journey from the legacy siloed infrastructure, telcos confront several challenges. The longer time spent on marketing, the higher cost arising from the low utilization of the resources: The O&M complexity and the risks associated with data security are the most important concerns. Many OEMs and application vendors are not capable of offering agile platforms. There are huge costs associated with running the infrastructure and applications on disparate infrastructure and platforms. The complexity brought by these platforms and applications result in inefficiencies and unanticipated delays in troubleshooting. Also, various skillsets need to be deployed to deal with local data regulations and service innovation requirements. There are also challenges associated with achieving unified data governance.

Safaricom Cloud Transformation Vision 2022-2025

To address these challenges and realize the goals, it is needed to have a clear IT vision and also a strategy to pursue that vision. The most important thing is to select the right technology architecture and also the right vendors. The first consideration in the technology architecture should be to accelerate innovation through cloud because it drives application supplier decoupling and help us migrate into an agile architecture with abundant services delivered via cloud. With cloud, we can also accelerate the TTM and take advantage of the advancements in machine learning (ML) and cognitive AI that otherwise consume significant time and effort to build on premise.

Achieving cost-resilience is also an important criterion in our mission map. The moment that we are able to stretch our resources to do more and to utilize the unutilized capacity within our environment, we will start moving a notch on our cost agenda. Open-source technologies are an option, but they also demand cloud for their deployment. Thus, Safaricom's cloud transformation journey envisages that we will have 65% of IT applications on cloud, at least 76% of care interactions on self-service platforms and all of our digital channels deployed on cloud. We have also set robust KPIs to ensure reliability across all our services. With these we hope to emerge as an always-on and always-secure digital service provider with the No.1 NPS. By adopting innovative cloud technologies and implementing automation and consolidation strategies, we aim to achieve more efficiency and cost leadership during the journey.

Selecting the right architecture and the right vendor

As part of the cloud strategy, operators also need to consider whether they should opt for public cloud, and if so, whether they are able to address the security and compliance concerns associated with them. While public cloud promises cost savings, it also brings up issues related to latency and reliability. There are challenges associated with customer data as well. A distributed cloud infrastructure is viewed as the best strategy in the transformation process. At least for a while, it will co-exist with public cloud. There may be some applications running on premise as well. Thus, the management of the hybrid, distributed architecture becomes the next biggest challenge for digital service providers. The cloud O&M architecture should support the co-existence of multiple clouds, allowing synchronization of different types of services. It is also important to ensure cross-collaboration between the heterogeneous cloud resources to eliminate the discrepancies and ensure optimal utilization of resources. This will not only improve the reliability, but also will support the evolution of the organization's legacy service support ecosystem. We also aim to create fully automated O&M that provides end-to-end intelligent capabilities and simple management of the resources from different vendors. A unified management platform with capabilities like centralized monitoring and remote troubleshooting can help improve operational efficiency and reduce workloads. Consistent cloud architecture plus collaboration and management of multi-cloud are several other factors that need to be considered as well. Lastly, a resilient system that provides end-to-end security with data auditing capabilities can promise greater reliability.

Thus, while deciding the technology vendors, the key question is whether they actually need to step up to understand and bridge the gap between traditional telco services and cloud as a key enabler. I believe telcos actually are in the best space to take advantage of cloud, be it for data centers, connectivity, delivering content or running workloads. They have developed the industry's best practices in terms of security and compliance. Safaricom has a greater advantage at these, especially with our several years of experience with our mobile money platform. A vendor who understands and is familiar with telecom services can effectively reduce migration risks, efficiently make the most take best of the advantages that cloud technology offers, and help the team pass the cloud familiarization period quickly. They can also inspire the telcos to leverage their core capabilities and scale their infrastructure to explore new opportunities.

Storage Considerations

Storage is a critical part of our infrastructure; it is where the data, the most precious asset, lies. The storage of a telecom operator is provided by different manufacturers, so it is important to unify the storage resources for easier management and also to achieve greater control over the resources. For Safaricom, this strategy also aligns well with our SDG agenda - to enable 30% energy savings by 2025 through the use of the latest storage technologies to reduce carbon emission and reduce OPEX.

Let me also explain how the unified architecture helps us realize Safaricom's Storage Vision 2022-2025. The always-on environment in the unified storage pool provides high availability across any application, promising greater resilience and 99.99999% service reliability. Latency across core business services can be reduced to <1ms, which is crucial to meet the requirements of 5G applications. The fully automated O&M provides E2E intelligence and O&M capabilities to improve efficiency. We also expect the architecture to be open and able to support the future multi-cloud environments. From the CIO perspective, this unified approach leads to a fully automated, highly available and resilient architecture that support not just the public cloud and private cloud, but also the hybrid cloud.

Addressing the culture issues in digital transformation

The cloud journey of telcos is likely to encounter a cultural face-off in many scenarios. Having the courage to think differently and act according to the new norms requires a radical shift in approach. In fact, a study by Deloitte has found that 53% of companies are saying that the challenge they're facing in terms of digital transformation is really coming from culture. So I believe one of the biggest behaviors that one needs to adopt in terms of digital transformation is courage. To take bold steps, to walk a journey that we have never taken, and to hold on to a belief that is not familiar to us demands courage. Next, we need to be agile and curious. Our team needs to have the openness to know how the world is evolving and how others approach new changes and how much they can evolve to adapt to these changes. We need to make a decision on whether it's the public cloud, private cloud or a distributed cloud, to balance the concerns associated with storage efficiency, latency and security, and address the challenges associated with data regulations, and demands for an agile and open approach.

From the perspective of CAPEX/OPEX, the cloud journey brings a paradigm shift in the conventional approach. Earlier, CAPEX was the top priority for CFOs; but with cloud, CAPEX is going down and OPEX is emerging as the cornerstone. With the As-a-Service approach to software, the platform, and storage – all of these will help drive down TCO. Cloud infrastructure eliminates the clunky procurement process, allowing us to build an agile organization by accelerating TTM. Over the past couple of years, we have seen many organizations that were spending much for digital transformation through cloud, mainly driven by the fact that cloud brings down CAPEX, and also reducing OPEX through automation and unified management capabilities. Thus we are pursuing the digital transformation journey that helps us deliver differentiated services with the help of an agile and secure cloud platform and thus emerge as a leading digital service provider in Kenya.