Global Corporate Strategy of British Telecommunication - Case Study Example

Global Corporate Strategy – BT Contents Contents 2 Introduction 3 Answer 4 Regulation 4 Convergence 5 Intensity of competition 6 Porter’s five forces Model 6 Porters Value Chain 7 Answer 2 9 Answer 2a 9 Answer 2b 10 Answer 3 11 Conclusion 13 References 15 Introduction British Telecommunication is one of the leading communication services company in the world and it operates in UK and in more than 170 countries globally. The main activities of the group are the provision of broadband, TV products and services, fixed line services and mobile. The company is the leading communication services provider in UK and it sells their products to consumers, public sector and small and medium enterprises. The company has 89,000 employees along with 6.3 million BT Retail broadband customers. They have 16.8 million total broadband lines along with 15.5 million exchange lines. The BT Retail division supplies broadband, telephony and subscription television services in GB. In 2013, the UK fixed telephony services generated revenue of £ 2.1 billion in Q1 2013 which was 2.8 % less than that in Q1 2012. Out of these the market share of BT was 46.0 % which is 1.7 % less than a year previously. In the UK telecommunication industry at the end of Q1 2013 there were 33.1 million fixed lines which is 0.5 % less than the previous year. British Telecom is renowned for the high end innovations in the services and technologies used in the company. However, after globalisation, due to the increased level of competition from the international telecom companies entering into the Britain telecom industry, British Telecom started suffering losses. The advent of globalization brought about then need of innovating inside the company rather than sourcing innovation from external sources. The regulatory factors, convergence aspects of globalization and the increasing intensity of competition in the telecom industry brought about the urgent need for British Telecom to facilitate innovation within the company in order to ensure the profitability, sustainability, long term viability and competitiveness of the company. Answer 1 Regulation Political forces British Telecommunication is influenced by political risk. With change in government the business rules will get negatively affected which can have a negative influence on operation on British telecommunication. The influence of OFCOM is likely to grow in the telecom industry. This will result in more regulation. Further in UK there has been potential threat of legal action against ISP’s and carriers’ for downloading copyrighted material (Ansoff, 2007, p. 89). Economic forces The presence of difficult market and economic conditions, mainly in Europe has increased operational and financial pressures on their customers. In 2010 British telecommunication has made investments into high-growth regions for doubling its business across Africa, Middle East and Turkey. This will lead to access to richer portfolio of innovative services. Presence of high inflation and high interest rates puts a cap on the growth of telecom industry. But telecommunication industry has grown strongly from 2000 to 2012 at a pace of 6.7 % per year (Sadler, 2013, p. 242). Social forces Worldwide the society is changing with increasing adoption of IT. This has taken place along with the increased earning capabilities of the company due to increasing investment rates. Today Lifestyle have changed, there has been increased earning capacity of the consumers along with population shift which has resulted in a gap within the service of many industries namely leisure industry, health care and merchandise industry. Out of 11000 new products which were introduced by 77 companies it was later found that there were only 56% products left in the market after 5 years. This indicates that only 8 % of the new concepts finally made into the market but out of that 83 % failed to meet the marketing objectives. Thus it is clear that the consumer behaviour is fast changing (Porter, 2008, p. 142). Technological factors In 2009 British Telecom declined due to their inability of anticipating and reacting to changes in technology. It is quite evident that there will be change in the technology sector which in some cases will completely revolutionize the industry. The changes will be in the form of high speed internet which is available to them to on the internet and other new technologies like android etc (Varbanova, 2013, p. 142). Further the continuing integration of telecom industries and IT industries opens a horizon of opportunities for the company. The company can also acquire many small telecomm companies and spread their network to remote areas. This will lead to reduction of competitors. Convergence BT has made significant investments for doubling their business in important Latin American countries. BT have recruited around 250 new staff, increased the professional services capabilities, implemented a wide range of customer service improvements and networks, and opened many centre of excellence so that they can expand globally. According to research BT found that in 2011 the total value of Latin America region was £ 12 billion and it is expected to grow at 7 % per annum. The company has signed many contracts with Latin-American companies like £ 133 million worth of contract with Empresa Brasileira de Correios e Telegrafos (ECT). BT also entered into contract with Caixa Economica Federal for connecting its data centres with the lottery outlets and banking correspondents in Brazil. Further contract was made with Ministry of Information and Communication Technologies of Columba where the company supports the Compartel programme for delivering internet connection to hundreds of hospitals, courthouses, schools etc. BT launched 30 new products and services for increasing the reach of BT Inbound Contact services with new nodes and built a new extension of BT Cloud Contact platform for making the customers access to “pay-as-you-go” cloud centre in these regions (Saloner, Shepard and Podolny, 2008, p. 152). Intensity of competition Porter’s five forces Model Threat of new competitors The threat of new competitors is high. This is because huge capital investment is required, customers are loyal and established players enjoy high economies of scale. Threat of substitutes This threat is high since there are low switching costs and customers can easily access information on the product. The substitute products can be pagers and the internet service. Bargaining power of customers The customers enjoy high significant bargaining power as customers are the king. This industry is highly regulated and there is cut-throat competition between the established players. Bargaining power of suppliers The suppliers provide mobile operators with technology infrastructure for setting up mobile operations. Further mobile operators are also suppliers to these industries. Telecommunication industry in UK has large number of suppliers (Varbanova, 2013, p. 176). The suppliers concerning to the company were Fujitsu, Siemens and Alcatel to name a few. Intensity of rivalry The intensity of the competition is very high because rival firms make use of non-price and price strategies for gaining competitive advantage. The competitors are Vodafone and Cable and Wireless PLC. Porters Value Chain Key primary activities Inbound Logistics Logistics of BT is network development. BT has wide range of signals all over UK. The services BT provides to the customers forms part of inbound logistics. The wide ranging signals cement the platform of an efficient inbound logistics. Processes Key primary activities of BT are the provision of fixed line services, mobile, broadband and TV products and services including networked IT services. BT provides broadband services to the respective customers with good speed and in this fashion takes the initiative to cement the customer base. Outbound Logistics BT handles different outbound logistics like delivery vehicle operation, collections, physical distribution of products to the buyers, warehousing, order processing and material handling etc. The outbound logistics department is highly efficient and takes less time in product deliveries. Marketing and Sales These include activities like promotion, advertising, channel selection, sales-force, and channel relations, pricing and quoting (Thesis, 2008, p. 68). Service The company has hired 250 service professionals for handling customer complaints and they provide 24 X7 online supports to the customers (Peppard, and Rylander, 2006, p. 98). Supporting activities Infrastructure BT has wide range of network infrastructure and other equipment like Transmission equipment, exchange equipment, payphones, motor vehicles, computers and office equipment. Procurement BT concentrates on generating the best value form their largest suppliers. Such kind of category approach has resulted in cost savings. BT has a team of 300 procurement people working in 27 countries. HRM BT presents their employees significant development opportunities like access to senior leaders, talents events for building knowledge. The company has 30 % of Board members as female and was ranked the Times Top 50 Employers for Women. Performance measure In 2013 the revenue of the company was done 3 % though it showed an improved trend for the second half of the year in comparison to first half. The lines and calls revenue was down 8% in 2013 as compared to 9 % in 2012. The EBITDA increased by 2% in 2012. BT paid a dividend of £ 1,400 million on 2012 and the directors have in 2013 declared a dividend of £ 1,300 million (BT Group plc, 2013, p. 21). Answer 2 Answer 2a The strategic alliances and mergers are done by companies to gain mutual benefits from the key resources and competencies of the partnering companies. British telecom always entered into alliances with the aim of extending their strength as a global supplier and to access the key technological competencies in the alliancing companies like MCI and AT&T. The post-merger periods showed major boosts in revenue and growth of British Telecom. The revenues of the company went up to18429 in 2005. The earnings per share also were significantly high GBP 18.1 in 2005. Also, the share prices of British telecom increased to a high price and remained in the range of 150p-250p from 2003-2006 (Sull and Monteiro, 2007, p.841). In 1994 European Commission took a formal decision on strategic alliance between MCI and BT. The result of this strategic alliance was that BT took a stake of 20% in MCI and thus a new company was created under the name of Newco for the enhancing the global telecommunications services of large regional or multinational companies. Newco offered a portfolio of global products including services like value added applications, data transfer, intelligent networks, travelling and global outsourcing. The company was created to meet the demands of the telecommunications market and it provided ubiquitous service across multiple borders in various languages, time zones and local infrastructures. Newco was created for positioning their partners with a view to full liberalisation. Answer 2b The aspiration of British Telecom to become a leading player in the global telecommunication industry drove the expansion of the company into foreign markets. The expansion process of British Telecom is guided by major strategic alliance, mergers and acquisitions and partnerships with other companies and other players in the industry (Johnson, 2008, p.112). The expansion process started in June 1994 when British telecom acquired a stake of 20% in the second largest carrier company in the United States, MCI Communication Corporation. British Telecom established a major high value joint venture known as Concert Communications Services with MCI Communication Corporation. This joint venture was a billion dollar venture which made BT and MCI the leading service providers in the telecommunication services sector. The Concert joint venture helped BT and MCI to become the service supplier to more than 3000 multinational companies. The strategic alliances of British Telecom were based on the need for sourcing external innovations into the organization. Therefore, British Telecom worked continuously towards entering into new alliances in order to access the externally available technologies (Mintzberg, Ahlstrand and Lampel, 1998, pp.45-48). The late 1990s saw the establishment of another major joint venture of British Telecom with AT&T which was known as the second concert joint venture of British Telecom. The joint venture was done with team of accessing the new technological innovations in the telecommunication industry of the United States. Therefore, the agreements of the joint venture allowed for the sourcing of external technologies from AT&T but prevented the establishment of business activities by British telecom in the US market. Answer 3 The role of the senior management of British Telecom was crucial in bringing in external innovations as well as fostering open innovation in the company in various aspects of service provision in the business. The ultimate value for the customers of British telecom is created through high end technical innovations in the company (Johnson, Scholes and Whitington, 2005, pp.114-115). The internal innovations and the sourcing of external innovations have helped to facilitate the creation and delivery of maximum value for the customers of the company (De Wit and Meyer, 2010, p.44). The content and rights services of British telecom involves the contents of media like videos, data, audios, text etc. and rights management related to content. British Telecom focused on protecting their innovations through the acquisition of patent rights for their major innovations in telecommunication. The extensive networks of British Telecommunications have made other companies in the telecom industry of United Kingdom more dependent on the company for providing their services to the customers. The other companies operating in the country have to gain the rights to use the cables and looks of British Telecom in order to provide their services. The service provisions of the company consist of applied services provision and basic service provision. The basic services include Internet Service Provisions (ISPs), carrier pre-selected services and intelligent network services like call forwarding and caller line identification .The application service provision includes video streaming, Voice over Internet Protocol (VoIP) and MP3 readers. The service provision is the main part of the value chain in British Telecom which creates maximum value for the organization (Jones, 2009, p.34). British Telecommunication had rationalised their IT infrastructure and network platform. For example the company closed a major legacy network which served the sector of financial sector and it migrated the customers into their global MPLS platform and thus it enabled them improve reliability and service. The company established different programs for rationalising their legacy UK backhaul and global IP networks and combined the BT Innovation and Design. Company have also operated into their new BT Technology, Operations unit and Service. Also, British Telecom improved the software and product development across all the lines of business through better quality, prioritisation, and automation of testing. British Telecom developed an external innovation area comprising of the innovation scouting teams, innovation central and applied technology central in order to facilitate a high level of innovation in the company. This also helped them to calibrate research and development activities to foster technical and service innovation and ensure that the financials of the company regained their previous position. Today British telecom provides managed networked IT services in UK as well as around the world (Hill, 2008, p.250). The company has future plans of completing the rollout of Extra TV across their multicast IP Network, launching BT Sport, encouraging the customers for shifting to BT Infinity and improving their TV channel on-demand and line-up content. The company is trying to add a lot of extra features like their free BT Wi-Fi connectivity, free BT Home Hub connectivity over the largest in-country Wi-Fi network in the world. All these innovations have been driven by the company structure and management vision to increase the competitiveness and global operations of British telecom. The organization structure and processes supported and encouraged bringing in external innovation as well as developing open innovation for the benefit of the organization (Lynch, 2006, p.244). The senior managers of British Telecom were successful in driving the future success of the company by encouraging innovation in different success. Conclusion British Telecommunication is a leading multinational telecommunications services company. The advent of globalization brought about the need of innovating inside the company rather than sourcing innovation from external sources. The regulatory factors, convergence aspects of globalization and the increasing intensity of competition in the telecom industry brought about the urgent need for British Telecom to facilitate innovation within the company in order to ensure the profitability, sustainability, long term viability and competitiveness of the company. The macro environmental analysis of the company finds that Political, technological and economic forces have affected the company and it is imperative for the company to design suitable strategies for overcoming these forces. The value chain analysis of the company reveals that the company has created successfully strong innovation across its entire value chain in services like Content and Rights, Application service provision, Service Provision, Network Platform and Service Access Navigation. The mergers and acquisitions of the company were major mediums for accessing sources of external innovation and bringing the external innovation inside the organization. Along with that, British Telecom focused on fostering and developing innovation inside the company in order to increase the sustainability and competitiveness of the company in the background of a continuous evolution in the global telecommunication industry. The ability of British Telecom to access and commercialize the innovation existing in the external environment is the critical reason driving the survival and continuous innovation in British Telecom. British Telecom is renowned for the high end innovations in the services and technologies used in the company. But recent economic challenges have created new challenges for them which they need to overcome by means of new technological innovations. References Ansoff, H.I. 2007. Strategic Management. London: Palgrave Macmillan. BT Group plc. 2013. Annual Report. Available at: http://www.btplc.com/governance/2013_BT_plc_Annual_Report.pdf. [Accessed on: 23 April. 2014]. De Wit, B. & Meyer, R. 2010. Strategy Process, Content and Context: International Perspective, 4th Edition. Stamford: Cengagae Learning. Hill, C. 2008. Corporate Strategy. Stamford: Cengage Learning. Johnson, G., Scholes, K & Whitington, R. 2005. Exploring Corporate Strategy: Text and Cases, 7th Edition. 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