Critical Appraisal of the Practice and Theory of Strategy Development Processes in British Telecom - Essay Example

Strategic Management Critical Appraisal of the Practice and Theory of strategy development processes in British Telecom In this essay, the development strategies of one of world’s largest telecom house, British Telecom, is assessed through a critical eye. Starting with the privatization of British Telecom (BT) in 1984 till the aftermath of the global recession, the important strategies utilized by them are discussed here including their probable causes of failure. The discussion starts with the citing of different strategies followed by BT in the given sequence. British Telecom, prior to its privatization, possessed an authorized monopoly over fixed line network in local, long-distance and international operations as well as the supply of network services. (Florio, 2003) In 1981 the British Telecommunications Act separated BT from the Post Office and began the process of liberalization. Consequently in 1982, Mercury, an ancillary of Cable and Wireless, was certified as a national fixed line network operator became a competitor of BT. In 1983 the government declared its duopoly policy which stated that the only telecom service providers for fixed lines in the nation would be BT and Mercury for the coming 7 years. (Summanen, and Pollitt, 2003p.2) In 1982 the government planned to privatize BT. In 1984 the plan was executed and BT was privatized: 50.2% of its stakes were sold to the public. The creation of Oftel under the Telecommunications Act 1984 after BT’s privatization, finally led to the separation of its regulatory and operational functions. The privatization of BT in 1984 showed signs of a new structure of the telecom industry that could fare better in a competitive framework than in the public sector. The need for investment in the operations and services and customer orientation was acknowledged. (BT’s response, 2005, p.7) The duopoly stage of BT, from 1984 to 1990, led to a soft landing into competition. Even though BT sold its manufacturing units shortly after its privatization, the number of employees grew from1984 to1990. (Summanen, Pollitt, 2003, p.4) In 1987 Iain Vallance was selected as the chairman of BT. The initial reorganization of British telecom as an integrated telecommunications corporation was made in the early 1990s. In April 1991, BT came up with a different business structure, which was the outcome of a yearlong reorganization. BT’s new establishment concentrated on definite market sectors to satisfy the needs of a variety of customers- individuals, small companies, and MNCs. At the same time, the objective of achieving a leading position as a global telecommunications operator was laid down. The central strategic tactic for accomplishing this target was to spread out speedily into overseas by means of strategic pacts with telecommunications companies. In the same time, British Telecom sold its assets in cable operating corporations like, Coventry Cable, Ulster Cable, Thames Valley Cable, Swindon Cable and Aberdeen Cable Services Ltd as a part of its overall strategy of focusing on supplying network-related products and services to consumers globally. (Summanen,and Pollitt, 2003, p.13) BT underwent a number of mergers to promote itself globally. MCI, the 2nd largest hauler of long distance telecommunications services in the United States of America, merged with BT, a one billion joint venture which, was named as Concert Communications. The merger was done mainly to convert BT into a principal global telecommunications operator. In the subsequent years, BT purchased shares as well as made a number of alliances with foreign companies to facilitate a worldwide network to assist multinational corporate customers like Albacom a joint venture company in Italy with BNL(in 1995), Viag InterKom KG .( joint venture company in Germany). In 1996 BT bought Bell Canada’s 25% share in Clear Communications, New Zealand’s second largest telecommunications company and also another joint venture firm in Korea. BT targeted its overseas actions in three regions- North America in partnership with MCI; Mainland Europe (known as BT’s extended home markets), and the Asia-Pacific region. BT also intended to expand advanced services. In January 1996 Sir Peter Bonfield got selected as BT’s Chief Executive. Sir Iain Vallance continued as Chairman of BT. The strategy was to convert BT into a global telecommunications actor. In 1996 at the yearly shareholding conference the chairman Iain Vallance devised BT’s corporate strategy was to continue defending its market shares in the UK, to expand its presence and interests in the foreign countries, chiefly in joint ventures with others and to develop the market for sophisticated, interactive and multimedia services.However, the administration of BT misjudged WorldCom’s CEO Bernie Ebbern. The bid battle between BT and Worldcom for MCI finally ended in November 1997, leaving BT in need of a global partner. In July 1998 BT and AT&T decided to merge their international functions. In January 2000 Concert, a global organization between BT and AT&T formally comes into existence. However, its calculated revenues of seven billion dollars in 2000 were almost three billion dollars less than the initial estimation. Shortly after the telecommunications boom was over, Concert posed a serious burden for both the companies. Ultimately in October 2001 BT and AT&T declared the shutdown of Concert. This decision resulted in a £1.2 billion cost for BT and $5.3 billion for AT&T. (Summanen, T, Pollitt, M, 2003, p.15). More calming for BT shareholders was the information that, once the Concert charges were paid out, BT would sustain its fundamental profits at £1.39bn in the coming quarter. (BT unveils massive loss, 2001) Rapidly altered market environment in 2000 forced BT to focus all its efforts to protect the financial stability of the firm. The debt problem was on the program of every conference of the management, and all the administrative decisions were restricted by the severe financial crunch of the company. BT has also taken several attempts to strengthen its position on the European market - some more successful than others. After the third generation (3G) cell phone licence auctions BT, like the rest of European telecommunications companies who gained the licences, became seriously indebted. BT expected to reduce at least a third of its outstanding debt of £30bn by demerging its BT Cellnet wireless and Yell yellow pages section. But their hopes were shattered by the crumpling stock market valuations which meant that BT would find a much lower price by selling these sections. (The rise and fall of BT, 2001) In 2001 BT’s main strategy under Sir Christopher Bland was to focus on the voice and data markets in the UK and other parts in Europe. A considerable part of this strategy was devoted to the structural reorganization of the company. Two independent companies were formed: BT Wireless (later MMO2) and Future BT (later BT Group plc). After three years of quick growth followed by a thwarting reversal of its international strategy, BT has started to concentrate again on its domestic business. In April 2002 Ben Verwaayen, declared a 3-year strategy for BT. The main targets of this strategy were: to slash costs, boost revenues in BT’s central business in UK and cut borrowings. Broadband is the main focus. BT cut a considerable amount on wholesale Internet prices for the Internet service providers. BT also offered cellular services to business clients under BT brand using MMO2’s set of connections and cellular services to customers under the brand Mobile Sense to consumer market. In July 2002 BT Group and BSkyB declared a broadband interactive TV pact. This would lead the Sky customers to improve their interactive TV service to a quicker BT broadband network, which might help in increasing demand for the interactive TV services such as betting and shopping. BT includes the ideas of multimedia-proficient network and utilize new technology and associations to promote the reach of broadband to a larger customer base. The strategy also aims at changing BT’s management in order to pace up decision making and cooperation by reducing the number of senior management team from sixteen to five. In 2003, BT consisted of three-field business: BT Retail, BT Wholesale, and BT Global Services (formerly BT Ignite).In the same year, chief executive Ben Verwaayen announced the three parts of the company’s strategy- solid orientation for customers, broadband, and financial obedience. In July 2003 BT Group came up with BT Mobile Home Plan and reentered the mobile business as a MVNO (mobile virtual network operator to make the best use of the current mobile and fixed convergence. Under this plan BT geared up to compete with other cellular service providers, as well as its ex- mobile arm, MMO2. (Summanen, Pollitt, 2003, p.25) The concept of a “learning organization” is reflected in BT’s strategies. BT seeks to be a true learning organization. It spends two hundred million pounds every year on the training and development of its staff providing an all-inclusive portfolio of development and training opportunities comprising of technical and commercial guidance, personal skills and management growth. The internet is used extensively for providing this training. The BT Academy, a virtual corporate university, consolidates all types of learning, facilitating the trainees to access an extensive range of instructor-led and e-learning events. Associations with professional institutions like the University for Industry and other learning groups help to improve skills to meet shifting business needs. The strategic imperatives are reflected by the swift employment of new learning packages, using the Academy Learning System, a big corporate learning management organization in Europe. (Our People, n.d.) BT can go on with innovating new technologies, but it can also innovate in its marketing strategies through advertising. There are plenty of methods by which BT Global Services can differentiate its services. BT should make every effort to stick out as a differentiated service giver to its customers. (BT Global Services Scores First, n.d., p. 4) 2.The strategic implications for enhancing British Telecom’s strategic capability through organizing, resourcing and changed management strategies In the earlier section, the strategies adopted by BT management and their failures are discussed. This section is an extended analysis of the earlier section. The question is how can BT come up with an effective strategy that would solve its present problems? In this section different ways of enhancing the strategic capability of BT are discussed and the strategic implication on organizing, resourcing and changed management strategies. British Telecom (BT) is a leading provider of communication facilities having about twenty million clients in UK and numerous customers abroad. Their main strategy is to provide technologically upgraded services to their existing client base (British Telecom and Cisco Build Industry-Leading Global Service Proposition, 2006) BT has been suffering from a huge debt coupled with decreasing share prices and retarded scope of international business. It has a history of unsuccessful mergers and wrong investments in the Japanese and Irish telecoms markets and cost of taking over Securicors minority stake in its mobile phone division, BT Cellnet. (Telecoms chiefs face debt crunch, 2001) BT has tried developing the market for sophisticated, interactive and multimedia services as one of its strategic goals in 1996s yearly meeting under Iain Vallance. It has also tried to use the ideas of multimedia-proficient network and utilize new technology and associations to promote the reach of broadband to a larger customer base. BT has always pressed on providing better multimedia content and software. Simultaneously, new companies with a background in media are also seeking to develop into telecom operators. Software is perceived to be a competent service in future. If BT can attain the revolution to become a services corporation with sturdy competencies and assets in networking, they can create a vast market prospect and competitive advantage. (Dunphy and Lorenza, 2008, p. 2) Strategic capability tries to find out the adequacy and aptness of resources and competences necessary for an organization to survive and flourish. Strategic capabilities comprise resources and competences, which are the means by which the resources are utilized and organized. Strategic capability is defined as the potential to build up soundly based strategies and the ability to use strategic thinking and run an organization strategically. A good strategy must lead to better outcomes and allow for effective management of short term crises and future problems. A good strategy plan is not adequate on its own. Businesses require both the capability to operate strategically and to be strategically well supervised. (Aldridge, 2007, p. 5) Resources: The effectiveness and competence of different kinds of resources in an organization like physical, financial and human depends not only on their mere presence but how they are actually managed, the cooperation between employees, their malleability, their innovative capacity, their rapport with customers and suppliers, and the experience and knowledge to understand the good and the bad . The term competence refers to the skills and abilities by means of which resources are organized efficiently through an organization’s actions and processes. Better management of physical and financial resources by BT would lead to greater productivity and efficiency. If financial resources are well managed it would lead to a decrease in the debt level of the company. Plus a good financial profile will induce to raise the share price of BT’s stocks. Overall it will secure and improve its financial position. (Strategic Capability, 2007, p. 95) The human resource can be managed for capability development. Human resources are the ultimate brains behind all the strategies. So, developing their capabilities is the prime concern of every organization.(Saint-Onge, n.d.) Strategic capability is mostly visible in the daily activities of the employees in an organization, so developing the ability of people to recognize the relevance of what they do in terms of the strategic capability of the organization is important. More specifically these are as follows. Targeted training and development- For strategic purposes it is vital to target the development of competences which can provide competitive advantage instead of general training. Organizational learning may be accepted as central, chiefly in rapid changing conditions. Here successful industries may be those that have grown to readjust to gain the required competence continually. In effect their competence becomes that of learning and development which is popularly known as a ‘learning organization’ may become especially important Develop people’s awareness about their jobs and how that might count at the strategic level. Showing employees that how their job relates to the bigger strategic move can increase the possibility that they would contribute positively to help the organization attain competitive success and give them the impetus to do so. (Strategic Capability, 2007) Cost: Management of costs is regarded as a principle strategic capability by managers. Consumers can gain from cost efficiencies in the form of lesser prices or a greater number of features of a product for the same price. The management of the cost base of a firm can lead to competitive advantage. The chief cost drivers are to be considered as follows: Economies of scale may be particularly significant in manufacturing and telecom organizations, because of the huge capital costs of infrastructure need to be recovered over a huge volume of output. Supply costs are important. Location may affect supply costs, as we see form the past that steel and glass industries were set near the raw material or energy sources. Also, ownership of raw materials provides cost advantage. Supply costs are significantly important to firms that operate as intermediaries. The value added by their own activities is less and the necessity to classify and manage input costs is vital for success. Product/process design also affects cost. Efficiency gains in production processes have been achieved by many organizations through improvements in capacity-fill, labour productivity, yield (from materials) or working capital utilization. Relative importance of each one of these is important to sustaining a competitive position. Experience may be a chief source of cost efficiency and it is proved that experience enhances competitive advantage mainly in terms of the relationship between the collective experience gained by an organization and its unit costs, (Strategic Capability, 2007, 100) The main reason for BT to strategically manage its cost is to attain competitive advantage. This would help it regain its lost hold on the international market and improve its financial and global position. There are different ways in which managers might diagnose strategic capabilities like value chain and value network, activity maps, benchmarking and SWOT. These are explained below with their strategic implication on BT. The value chain and value network If organizations like BT are to attain competitive advantage by providing value to customers, managers need to recognize which activities they take on are particularly important in generating that value and which are not. Value chain and value network theories are able to provide a good understanding of this. A value chain explains the types of activities in and around an organization, which collectively produce a product or service. A single organization hardly ever undertakes all the value actions from blueprint to supply of the final product or service to the final customer all by itself. There is generally specialization of responsibility, so an organization is a branch of a wider value network. The value network is the set of inter organizational associations and relationships that are essential to make a product or service. (Strategic Capability, 2007, p. 111) So BT should be able to understand what activities it must take on itself and which it should not and/or outsource. Though, the cost and value creation to a large extent will take place in the supply and distribution chains, managers need to comprehend this entire process and ways to manage these connections and relationships to develop customer value. Activity maps Managers frequently find it intricate to understand the strategic capability of their organization clearly. Too often they emphasize capabilities not valued by consumers although they are considered important within the organization, perhaps because they were valuable in the past. Or else they spot capabilities at a nonspecific level Strategic capability is about the procedures, resources and activities that underline the capability to meet the critical success factors. This is because strategic capability is liable to be embedded in a complex, causally uncertain set of related activities. But if they are to be administered properly, a way of detecting and understanding capabilities and the relationships that are expected to exemplify competences is important to find. One way of doing such diagnosis is using an activity map that attempts to demonstrate how the diverse activities of an organization are connected together. BT can use this mapping to interlink its activities and point out its defects and diagnose them (Strategic Capability, 2007, p. 114) SWOT deals with the chief issues related to the business environment and the strategic capability of an organization that are expected to affect strategy development. SWOT analysis is only handy if it is comparative, that is, if it inspects strengths, weaknesses, opportunities and threats in relation to competitors. The privatization and liberalization of BT followed by the removal of duopoly in 1990 subjected BT to competition both in the national and global level. Since then, BT has been a world player and obviously can apply SWOT methodology to analyze its competitive ability. (Strategic Capability, 2007, p. 119) Appendix BT is one of the leading suppliers of communications solutions and services operating in a hundred and seventy countries. Its major activities include providing networked IT services internationally; and telecommunications services to the local, national and international customers for use at home, at work and while on movement; broadband and internet products and services and congregated fixed/mobile products and services. BT consists mainly of 4 lines of business: BT Global Services, Openreach, BT Retail and BT Wholesale. (Our company, n.d.) 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