Kingston Communications - Research Paper Example

Kingston Communications Kingston recognized that their business and traditional valueswould be in need of a radical overall, to match their competitors and the market place when VOIP and other digital products came into being. Hence the overall of the company in 2006 -7. Initially, this seems to have been a sound strategy, given that the company is still in existence. It is doubtful that they would have survived if they had chosen to stay on the same path. However, as more and more companies enter in an ever increasing digital marketplace, the competition increases and, unlike in the past, Kingston no longer have the monopoly in communication service in their area of Humberside, in the UK. Using "Porter's Five Force Model" (http://www.12manage.com/methods_porter_five_forces.html), let us see where the issues may exist for Kingston Communications. Porter's model states that thefollowing forces can affect how business relates to the rest of the marketplace: 1. Entry of competitors. 2. Threat of substitutes. 3. Bargaining power of buyers. 4. Bargaining power of suppliers. 5. Rivalry among the existing players. We will address these in turn and then compare this against another model by Porter, i.e."Porter Generic Strategies model". Now let us look at each of these in turn: 1. Entry of competitors. The problem that Kingston had in converting from what was then a traditional telecoms industry using analogue technology to modern digital technology was that they did not readily have the expertise, technology or the agreements in place with providers such as British Telecom, in order to compete against established companies, such as Skype and recently, Vonage. Since then there have been a proliferation of VOIP providers. Various broadband providers have included VOIP as part of their services, when originally all they provided was a dial-up service to access the internet, and later broadband. There are now several companies on the market providing integrated services, including broadband as an 'add-on' as opposed to a primary service as was the case in the recent past. Examples are Sky Television, Orange mobiles, and even BT have got in on the act, by offering digital services alongside their communications offerings. Therefore, Kingston is not alone in feeling the heat of the competition, as others strive to win market share. How this has changed from a few years ago, and especially for Kingston Communications who used to have a monopoly on these types of service. Kingston probably recognized this as they acquired companies and organizations that had the technology and the resources available. This would make the transition easier, but it came at a price. The acquisition of Affiniti, the business communications integrator,Information Services providing contact centre and directory services, plus the development of their own broadband services would allow Kingston to compete on a level playing field. 2. Threat of substitutes. With regard to VOIP, a substitute phone serviceis exactly what happened.Once the technology for Voice over Internet Protocol (VOIP) was developed, it became a real threat, not only to Kingston, but other large telecoms companies such asBritish Telecom (BT).The real threat was in the cost of the service. For example, Skype offer a free telephone service to other Skype users. This is now standard among most VOIP providers. It became obvious to Kingston and other telecom providers that drastic decisions had to be made with regard to their technology strategy. 3. Bargaining power of buyers. With the proliferation of VOIP and integrated providers, the relative bargaining power of buyers in this market is relatively strong, especially for the average consumer. They can now choose between integrated solutions, such as digital TV and VOIP services, or choose a relatively low-cost broadband only solution. The costs of these services continue to decline, as more and more suppliers compete for market share. 4. Bargaining power of suppliers. In the early days of VOIP, perhaps the monopolies were owned by a few companies, such as Skype. However, now there are several companies which offer VOIP and integrated communication services all competing for market share. This means that the bargaining power of suppliers depends to a great extent on how they market their services. As youcan see below, that even recently the current share price at Kingston Communication has fallen dramatically. This is probably partly due to the credit crunch in the US, but competition amongst key suppliers is also another factor. Kingston current share price chart, last 3 months http://www.kcom.com (Home page of Kingston Communication): The problem with the model from the perspective of the bargaining power of suppliers is that it does not take into account of the investment needed for the marketing strategy and branding. This can detract from the bargaining power to some extent. 5. Rivalry among the existing players. The proliferation of integrated communication services means, in effect that competition is fierce. The fact that Kingston Communications acknowledged that the world of communications was changing allowed them to become on of the key players. Their reposition is a vital factor. Problems with the Five Force model. The limitations of the model of this model to some extent are that you should not estimate or underemphasize the importance/strengths of the organization. This is known as the 'Inside-Out' strategy. It was designed for analyzing individual business strategies, and does not allow for the variety of interpendencies which exist in large organizations such as Kingston Communications. It requiresrapid, systematic and radical change. This, in turn requires more approaches to strategies formulation. It might be possible to create completely new markets rather than competing in the existing ones currently in play. For Kingston this could take them away from their core market. Porter's Generic Model This may have been an improved approach to use for Kingston, as their aims are based on profitability/attractiveness in the industry in which it operates, and the position it holds within that industry. In this case, Kingston was well position as they were an established communications provider. The cost advantage and the differentiation. Applying strengths in broader scope, there are 3 generic strategies, of cost leadership, differentiation, and focus. They are called generic because they are not firm or industry dependant. The table illustrating the generic model "http://www.quickmba.com/strategy/generic.shtml" (QuickMBA) is shown below: Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) COST LEADERSHIP strategy. Kingston need to be a low-cost producer for a given level of quality, as this would increase Kingston's competitiveness. They would need to provide services at average industry levels to earn profit levels higher than their rivals. Alternatively, sell below the average industry price, in order to gain a higher degree of market share. This was not considered by Kingston, and as such they are probably not positioned as well on this matter as they could have been. This is a reasonable option, as they would still be profitable while the competition would suffer losses. This would allow further expansion due to the fact that significant investment would then be forthcoming in production. Investment in expansion is often a problem for many organizations. Future product development and the hiring of expertise if then also a related problem, and efficient distribution channels. DIFFERENTIATION STRATEGY This is where the product or service offers unique attributes which customers perceive to be better than products offered by the competition.If an organization succeeds in this strategy they have access to scientific research, have a highly skilled and creative production team, strong sales team, and are perceived on the strengths of the product. Therefore this implies corporate reputation for quality and innovation. One of the disadvantages with this strategy is that as soon as an idea is conceived by one company another company will attempt to copy the idea, and sometimes, improve upon it. Another factor is the general variation in consumer tastes. FOCUS STRATEGY The focus strategy concentrates on a specific segment of the organization, and the differentiation strategy for this segment. COMBINATION OF GENERIC STRATEGIES "Stuck In The Middle". The strategies in the generic model are not always compatible with each other. Porter acknowledged that the generic strategy is useful for separate business units for each type of strategy, so they are not in fact, "Stuck in the middle". The generic strategy is not always the best way, as there are various factors of quality, style, convenience and price. Overall, this would have been a more suitable approach to use for Kingston Communications. TASK 2. Having decided that the generic strategy of Porter's model would be more effective. I provide information on how the individual parts of this strategy may benefit Kingston Communications to the best advantage. Cost Leadership Strategy: Kingston Communications made radical and rapid change from their core business areas. If they had utilized the Cost Leadership strategy to better effect, they may have sustained the initial impetus they experienced in 2006/7, by obtaining a greater degree of market share. Differentiation Strategy: In the case of Kingston, this is one strategy that would probably have needed further investigation, as they did not offer the consumer integrated product solutions, such as those in general offer by various companies today. Focus Strategy: In the case of Kingston they could have focused there energies on one or two market segments, but a consequence of this is that it leads to less bargaining power with the suppliers, as the competition would require additional services, and thus the supplier would probably provide them with preferential treatment. TASK 3. Critical Success Factors: Revised Strategy. With reference to Critical Success Factors we can identify a few of these from the revised model in order to achieve the new strategy. Although, some of the points made here are equally applicable to the Five Force Model also. 1. Money. The losses that Kinston experienced in 2005 were due to the changing environment in communications, and the need for a revision of services. Due to the competition in the market place at this time, it would have been prudent to invest in the new services and make the available at a low price, in order to gain market share, of what was, at that time an unusual experience for Kingston with them having the monopoly in communications services until this critical period. 2. Future. Kingston did recognize that the environment had changed, hence the reason for acquiring more companies and resources. 3. Customer Satisfaction. Years ago, Kingston has the reputation of providing a good service at the lowest price in the UK. However, that all changed when the rivals also provided a great service at an even lower price. 4. Quality. The quality of service in analogue systems was always reliable. However, Kingston would need to ensure that the new digital and integrated offerings were based on quality, in addition to price. 5. Product Development. By acquiring companies with experience in the new arenas, Kingston assured that they were able to develop their products. They were not in the arena of fast and changing technology, so it would be essential that they had adequate research ability and product development strategies. 6. Strategic Relationships. In the new communications industry, there are more factors and diversification of services that at any other time. Kingston did recognize this by acquiring experts in the fields of digital communications, broadband and telephone services. Strategic Relationships are important when it comes to several aspects in running a successful business. 7. Intellectual Capital. By investing in new resources and expertise Kingston were able to draw upon resources they did not previously possess. This being the case they would more easily be able to identify those products and services which would be more profitable in the marketplace. 8. Sustainability. The Porter Generic model would enable the growth and ability for Kingston Communications to continue to remain competitive. This is essential given the new environment in competition in communications technology. TASK 4 (i) The Critical Success Factors can be delivered, but the implications of doing so would need to be investigated from several angles. Not least of which is the resources and knowledge needed to undertake such a task. In summary, the critical success factors will be delivered by sound project management and adequate resources in terms of manpower, and technology. In the UK there is also a law regarding companies which hold personal information. This is named the "Data Protection Act" (http://www.opsi.gov.uk/Acts/acts1998/ukpga_19980029_en_1). This will also be a factor when holding information on millions of customers on the company database. The use of monitoring tools will need to be implemented, so that bottlenecks on various networks can be identified and resolved. The project would need to be managed using a standard methodology, and it is likely that external contractors would need to be brought in to provide expertise that the company currently does not possess. End-to-end testing would need to be included therefore as such it is likely that a testing team would need to be involved in the process. The full software/project lifecycle will be required in order to document the various stages and a feasibility study will probably be required in the first instance, to identify if the project is reasonable and cost effective. It is likely that the stages involved, would be Feasibility Study, Requirements, Design, Implementation, Testing, and Review. Task 4 (ii) In developing basically, a new organization and implementing new technology and incorporating new organizations into the main stream, there would be several issues to resolve around the technology. The overall requirement is to convert old (legacy) systems into digital technology; convert analogue into digital systems, and integrate with new organizations. These will use different methodologies and networks. There would be diverse databases, various versions of software and hardware, and differences in methodologies. The information systems required to support the various components would include elements of digital technology, and the services of prime telephone providers, British Telecom. Consideration will need to be made regarding the use of networks and the availability of leased lines, the number of potential customers, internet capability, server technology, which includes factors such as the number of MIPS (Megabytes per second), and routing technology and machinery. Various databases will need to be implemented to keep track not of customer activity, network, and account and monitoring information. Various project management, programming and network expertise would need to be considered, and it is likely that a consultancy firm would need to be involved in the process. Other issues would involve legal aspects, i.e. conforming to the UK rules regarding the use of networks and private data, as mentioned briefly regarding the UK Data Protection Act. References: Internet http://www.kcom.com/aboutus/ (Kingston Communications Information) http://www.kcom.com/aboutus/our_brands.asp (Various Brands) Financial Reports:http://www.kcom.com/investorcentre/ (Current Financial Position) Share price info. http://www.kcom.com/investorcentre/sharepriceinformation/ (Kingston Share Price) Porter's Five Force Model (http://www.12manage.com/methods_porter_five_forces.html) Uk Data Protection Act (http://www.opsi.gov.uk/Acts/acts1998/ukpga_19980029_en_1) Critical Success Factors (http://en.wikipedia.org/wiki/Critical_success_factor) Books Pearson, K. E and Saunders, managing and using information systems: a strategic approach. 2nd ed. New York: John Wiley, 2004. Chaffey, D. and Wood, S. business information management: improving performance and using information system. Harlow: Prentice Hall/FT, 2005. Orna, E. information strategy in practice. Aldershot: Gower, 2004 Jashapara, A. knowledge management: an integrated approach. Harlow: Prentice Hall FT,2004. Read More