Knowledge Management in Telecommunication Industry - Case Study Example

Case Study Contents Contents 2 3 Each Functional Area 3 Action Plan 3 Operational Plan 4 Accounting 4 Economics 5 Finance 7 Marketing 8 Management 10 References 12 Appendix 13 Abstract The company is a telecommunication company which is operating in US. The company is facing lot of trouble because it is not able to meet the demand and supply of the market. US are accepting third generation products while they are still sitting with second generation product. This makes the product useless. The company also invested into satellite cell phones which has design and cost issues. Again the company is not market leader in semiconductor. This report will take a look at the accounting, economic, management, marketing and finance. Each Functional Area The company is known as a famous microelectronics and Telecommunications Company in the world. This is the first time when President for the company has been hired externally by this company. The company now faces a critical situation because it is on brink of bankruptcy. There are a number of reasons for the company to be in this situation. The company has undergone a major joint venture for product and service development. The product and services developed are satellite cellular and satellite network. But during the expansion plan the company made lot of mistakes and took unnecessary risk in each of their functional area. This part of the report will discuss about the action plan and operational plan facing the company. Action Plan President of the company has to prepare an action plan so that the company can come out of bankruptcy. February 17, the President should announce stock consolidation so as to increase the stock value. February 18, The Company should look at buying back the shares of the company from the existing shareholders. February 19, The Company should try to invest the amount received from stock consolidation and buy back of shares into new business that is investing into Third generation telecommunication gear. This will help the company is following the demand of the market. At the same time the company should enter into partnership with companies which are expert in semiconductors and design. February 20, the company should try to promote the new product which they develop and follow penetrative pricing strategy. February 21, the company should also try to enter into new markets so that they can expand globally. Operational Plan Accounting The company went for major stock splits in last year and a 3 for 1 split in two years ago. The company also went for stock split of 2 for 1 split three years ago. A stock split makes the number of outstanding shares for the company increased while it reduces the face value of the shares. According to Plunkett (2008), a stock split makes the face value of the company lower, though the share valuation of the company remains the same (Plunkett, 2008). This helps the company in generating new investors since the share price of the company decreases. For a 2for 1 stock split, an individual investors who owned 1000 shares will become the owner of 2,000 shares. Though the stock holder’s number of shares has increased, the par value of the share will get halved. Suppose before the stock split, the value per share was at $80 for 1000 shares totaling the valuation at $80,000. But after the split, 2000 shares at $40 each will make the total valuation at $80,000. But the opposite things happen after stock consolidation. Here the shareholder who owned around 2000 shares of $40 each equals it to $80,000. But after stock consolidation, the shares will be 1000 shares with par value being $80 each. This makes the share price increase and the EPS of the company to rise. The company now owns only 19% of the ownership. This is far less than what should have been the ownership structure of the company. This makes decision making power of the company get reduced. So through buy back of shares the company will be able to retain most of the ownership. The company should try to improve the ownership structure to 51% so as to retain the ownership structure of the company so as to enable quick decision making of the company in such technological field where external environment is fast changing. The company has huge cash base so that the company can use it to reinvest in important projects like Third generation gear telecommunication device (Steil, 2013). Economics The telecommunications industry is a major driver in times of global economic recovery. Recent years has seen unprecedented growth in high-speed internet traffic. The company in consideration is facing severe crisis since it couldn’t adapt to the fast changing telecommunication industry of U.S. There are many broad economic factors which affects the future of telecom industry. Presently U.S. has accepted Third Tier generation of telecommunication gear. But the company has made huge investment in Second Tier generation telecommunication gear and it is not possible for them to invest additional money for third tier communication gear. The consolidation within the telecommunication industry occurs due to advances in several areas like high speed fiber based network, cloud based technology, virtualization etc. Going wireless is the key in this field, which the company has opened. The company has built satellites cell phones which needed satellite to provide satellite network. The company has invested into163 satellites to make the connection possible. But the company is not able to achieve the optimal result which it intended to achieve. According to McNamara (1991), supply and demand for any product is market determined and they shouldn’t try to control it (McNamara, 1991). The company is not able to meet the demand for third generation telecommunication gear which is in demand. Because of such huge investment the company is not able to generate adequate return for the company. The pricing policy of the company is bad. The cost of such huge telephone is so large that the company is not able to overcome the fixed cost. Thus it is at the state of bankruptcy. The company needs to improve on the cost structure by achieving economies of scale. This will reduce the demand for the products if they can’t achieve optimal pricing structure. The company needs to get a feel of the market demand so that the company can respond adequately. The company follows traditional pricing policy (Sherif, 2006). But it is imperative that the company must follow penetrative pricing policy so that they can initially capture the market and then increase the price of the product according to the demand of the market. Such a pricing policy along with economic factors will help the company generate enough revenue and make the market price of the company go up. The company is a late follower in case of semiconductor sector. But with rise in telecommunications products, the company is falling behind in the race. Semiconductors are needed in every field of our life, from cell phones, cars, to satellites. Thus the company is not being able to achieve market leader position since they lose the ability to innovate. Thus they have to invest heavily into the business so that they can achieve a significant market share. Through proper innovation, the company will be able to achieve competitive advantage and make it their core competency. The company has other business units in different sectors which includes automobile electronics, computers and as a government contractor. Thus it is imperative that the company must look at the supply demand function for it to respond accordingly. Finance The company underwent many stock splits in the past. The company did a major stock split in last year along with 3 for 1 stock split two years ago. Such kind of stock splits reduces the par value of the company. A stock split might have been done by the management to reduce the share price for the investors to an attractive level. But it is actually harmful to the investors since the dividend per share of the company decreases. The shareholders though has larger number of shares in their hands, the management needs to do stock consolidation. According to Metrick (2011) stock consolidation ensures that there is no price volatility in the stock because with increase in par value of the stock, fewer numbers of investors will participate for buying the shares (Metrick, 2011). With stock consolidation the earnings expectations among the investors will increase. Also stock consolidation will reduce the number of shareholders. This is important for the company because it is on the brink of bankruptcy. So with fewer numbers of shareholders, the management will be answerable to a less number of investors. The company should raise additional funds from the market by issuing company bonds. It is already mentioned that the company has a good reputation in the market. This will help the company in generating additional money needed for investing into the project. The only liability which the company will face is that it has to pay interest regularly. But as the company has a huge cash balance position, it can easily repay the interest amount due. This will help the company in saving tax as bonds are tax deductible. This sort of financing will instill confidence within the investors since no third party is involved and the company will pay the investors on the basis of their ability to earn profit. Over the past years the company has achieved high profitability which will make the rating agencies give high rating to the bonds. Bond financing will also allow them to retain the ownership of the company which is important for the President because he needs to take quick decisive decisions to bring the company back on track (Henten, 2010). The company has huge cash position in its balance sheet. Thus the company can easily buy back its shares which will increase the ownership of the company. There are a number of other benefits which the company can gain from it. With buy back of shares, the Earnings per share of the company will rise since the outstanding shares will decrease. With increase in EPS, the expectation of the stock belong undervalued will rise. This will increase the demand for the stock and thus the stock price will rise. Since the company has large amount of idle cash, it is better to reinvest it the company so that it can earn better return. Again with buy back of shares the company can defer the income tax. With such huge amount of profits earned by the company, it needs to retain as much profit as possible since floating new shares will result in additional cost. Retaining profit is the best way for investing money into the project. Since the company is going for stock consolidation, the share price will rise and it will make less number of investors invest into the shares and hence they have to pay fewer dividends (Housel and Hom 1999). Marketing The company has loaded the RBOCs with second level generation of telecommunication gear. During the same time, across Europe third generation of telecommunication gear has been developed and readily accepted and implemented. Thus the company needs to invest into this third generation gear so that they can easily meet the needs and desires of the company. As European market has already got a taste of the third generation telecommunication gear, the only way to achieve profitability is to differentiate its products from its competitors. The market innovator basically bears the cost for innovating new products. But the company has to just invest into already known idea which will entail much lower cost. According to Brock (2013), a market follower should try to differentiate its products so that its product is readily acceptable among the customers (Brock, 2013). The company should try to bring a distinct advantage to the target market. It should first select the target market, and design its strategy accordingly. For example the company can apply wider financial choice for the customers. It is given that the cost of satellite handset is high. So the customers must be given the option of buying it at zero down payments and with lower EMIs. It will make the product accessible to all the customers. The management should try to advertise the brand across multiple platforms like TV, social media, newspaper etc. It will help reach out the message to a larger target audience. Discounts should be given to the customers in lean season so as to boost the revenues. The company should bring out with other variants of the product for lower strata people if possible which has reduced features. The pricing model employed by them should be penetrative pricing model. This means that the company must initially price its products low and after it is widely accepted by the target audience, the company can increase its price so that it can increase its revenue and profitability. It is also mentioned that the semiconductor sector of the company is viewed as “me too” products. Basically they are the market followers in this category and thus lost the race in the European market. Thus the company must use the money from bond financing and invest it into Research and development. Clearly the company needs to be creative and innovative. The company needs to employ more number of people for its R&D so that it can drive the innovativeness of the firm. It should enter into partnership with companies which specialize in the production of semiconductors. It would help the company in transferring the technology knows about the product. By entering into a partnership the company can easily attain competitive advantage in the semiconductor sector. The company should try to achieve economies of scale by producing large quantities of the product. This will help them overcome huge cost structure for the product. The company should try to hold the current customers and try to win over the competitors customers. The company should provide good after sales service to the customers so that customer experience is improved. Management The management of the company has decided to play the strategy by delaying the introduction of the Third Tier generation of telecommunication gear in the U.S. The management of the company must realize that delay in the introduction of such important products will result in loss to the company. The management should check into the viability of the project and what is the cost of producing the equipments. After the analyzing the viability of the project, President should look at bringing together resources so that optimum allocation of the resources happens. According to Sheriff (2006) management should always aim at quick decision making so that the company can survive is such changing environmental scenario. The company has a worldwide presence with 23 factories out of which 5 are offshore located in England, Taiwan, China, India and Singapore. This shows that the company has to manage work place diversity and so that workers are given all necessary benefits. It is stated that the company was most profitable and economical early through late 50s, 60s, 70s and early 80s. This showed that the management followed principles which made them change with the changing environment. Clearly somewhere down the line management couldn’t change with the rapid change in technology. The management needs to take into cognizance the change in demand of the consumers and adjust accordingly. The management of the company must engage the workers in performance support training. Through these programs the workers will be able to keep themselves updated with latest technological advances. The management should try to implement Kurt Lewin model so that the change can be implemented properly. It was stated that the engineering design of the company was flawed. The satellite handset required a very large battery as its power source. This created weight issue for the customers. The management must try to solve the size issue by bringing together best design professionals. Design is an important feature for any company since companies like Apple boast of its simplicity of design to create an impression among the customers. The cost issue was beginning to show effect on the company. Management needs to outsource its raw materials from outside and assemble it within the country to reduce the cost. With this reduced cost, the company can achieve more operational efficiency, which can result in more number of profits for the company and in turn increase the dividend for the shareholder. Management also needs to take into consideration that the user of the satellite phone has to go to village areas since there are multiple frequencies in densely populated areas. Thus the management should bring in technical expert to solve the issue. It must take into consideration that it is not always possible to have a scarcely populated regions at time of need. The company must use technical expertise by hiring experienced candidates so that they can solve the problem quickly for making the product acceptable to customers. Being cash rich the management must use the opportunity to buy back portion of the shares and finally use it to increase the share price of the company. References Brock, G., 2013. Toward a competitive telecommunication industry. London: Routledge. Henten, A., 2010. Regulation and the Evolution of Global telecommunication industry. London: Edward Elgar Publishing. Housel, T., and Hom, S., 1999. Knowledge management of the Telecommunication Industry. London: Sage. McNamara, J., 1991. The Economics of Innovation in the Telecommunication industry. London: Greenwood Publishing. Metrick, A., 2011. Venture capital and the Finance of Innovation. New York: Springer. Plunkett, J., 2008. Plunkett’s Telecommunication industry Almanac. London: Plunkett research Ltd. Sherif, M., 2006. Managing Projects in telecommunication services. New Jersey: John Wiley & Sons. Steil, B., 2013. The battle of Betton Woods. London: Kogan page. Appendix Source: Welch, P.J. and Welch, G.F. (2009). Economics: Theory and Practice. New Jersey: John Wiley & Sons. Read More