Case Study On British Telecom 2020
The assignment is based on the case study on British Telecom, the largest telecom operator in Great Britain. In the assignment Porter’s five forces,vertical integration, diversification,disruptive innovations have been discussed in the light of Telecom industry and more specifically for BT performance. The growth journey of BT is studied under the above mentioned points.
Introduction
British telecom (BT) is the pioneering company in telecom sector across the world. BT’s head office is in London, England. The operations of BT are expanded in more than one hundred and seventy nations. The customer base of BT is of retail, corporate and government customers. The telecom business of BT is majorly divided into two groups – BT Global Services & BT Retail. The customer of BT global are governments and corporate clients, whereas BT retail is providing subscription of broadband and television, telecom services in the whole circle of Great Britain and is having a customer base of more than eighteen million.BT was founded in the year 1980 and in the year 1984 got privatised (Folsom, 2007). The company is listed on FTSE 100 Index and London Stock Exchange. British Telecom grows manifold in the past few years because of its consistent growth and wise acquisitions. Some of the acquisitions by BT are Infonet, Tikit, i2i. Each acquisition has proven to be well planned and has resulted in the enhanced revenue figure of the whole organisation. The acquisitions have made BT a global company with global reach. British Telecom which was at a time known to the Britain only now have a global footprint and is renowned for its services, products and providing utmost satisfaction to its customers. The number of acquisitions made by BT is huge which showcases the planned investment by the top management. The company is consistently involved in innovating new products for ever changing demands of its customers. This reflects the proactive attitude of BT in forecasting the demand of customers well in advance (Sylvia et al. 2006).
Telecom industry required huge amount of investment and making finance available isa challenge for entry in the sector.Intensive capital is required to cover hugefixed cost involved,and only serious players would try to make the finance available in telecom world.If capital market is strong then threat of entry is more since chances are more to raise finance from the market.On the contrary, if finance availability is low then level of entry in the industry is low.Apart from the obtaining licence of telecomis a major threat of entry for new players. For example in United States, new telecom companies are still required to apply for licensing to the Federal Communications Commotion and talking regulatory approval. The availability of limited spectrum for data and voice applications restrict the authorities to widely distribute the license.Apartfrom that industry demands for great experienced management and highly skilled employees huge limited availability further make then entrance more difficult (Porter, 2008).
On first look ,it might be interpreted that suppliers of telecom industry have substantial bargaining power on the operators .This is because that in the absence of switching equipments,advance technology broadband,mobilehandsets,fibre cables and various operations software ,the telecom operates will not be in a position to transmit data or voice from one place to another.But in reality there are large number of suppliers operating at national and international level for example the supplier list includes, Alcatel,Nokia,Cisco,Lucent,Nortel,Tellabs,Ericsson and many more.The more the number of suppliers the less is the bargaining power of suppliers .And so BT has to less worry about the bargaining power of supplier.However,a major concern is making sure enough number of talented engineers and managers remain in the organisations since industry is full of competition and retaining talented and experienced people is a challenge.
With the entrance of many operators in the telecom industry, a customer now has many choices to select from.This has raised the bargaining power of the customers very high.It’s a fact the offerings of telecom companies a mostly alsike for their voice and data applications.A slight difference in offering might help great in attracting new customers.Price is a crucial factor on the basis of which customer switches from one company to another.The segment of customers varies heavily for example a customer may be an individual like me and you or may be an organisation like American Online who is ISPsor a University. It is the buyer for whom telecom companies are bringing customised offers, so as to maintain their market share (Porter, 2008).
1.1.4 Availability of Substitutes
The threat of substitute is from non traditional telecom sector industries offering their products and services. Satellite operators and Cable television are trying to gain more customers. The cable TV operators through their wide network of cable offering broadband services there offering substitute for traditional broadband service of telecom operator. Energy and railway organisations utilising their own infrastructure for laying down high technology cables .With the advent of android phones Internet poses threat to voice calls by providing calling facility through data applications. Services by ISP like Internet telephony would reduce the revenue of voice messaging business.
It is one of the major factors which influence the marketer’s performance in market and have power to control the strategies and market stability. The competition in telecom industry is intense. The various deregulations by government and emergence of capital market after 1990s have opened gates for new telecom companies in the market. Improvement in technology paves way for switching to alternatives. Every customer in the present market is ready to pay for services but he prefers to select the low price operators offering attractive services. This situation is affecting the profit margin of companies adversely. Apartfromdecreasing margins the industry is also suffering from exit barriers as the assets of the company are specialised equipments.The existing network and the prevailing billing system are of no other use and if become obsolete then will face difficulties in Liquidation.If we talk about the competitors about the undertaking company which is performing well and reducing its value in market are Virgin Talk-Talk, BskyB, Orange, and O2... These operators are increasing its value by developing competitive environment and making people more attracted towards their offering. They are offering less price tariff, good internet services and text message services for existing customers and also making delighted services to all the customers so that they can get more satisfaction and make people happier. It is one of the main forces considered in industry analysis. British telecom is losing its market share in current time period due to the improper marketing planning for attracting customers.Overall porter five forces analysis is highly for this company which is clearly shown in figure.
Below there is a triangle model which is suited over BT to satisfy customers and offering more value preposition in its marketing activities. It is most suited model for making company innovative analysis in market and understanding its behaviour towards customers.
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All above diagram are showing the BT future innovative approaches and marketing activity which will be executed to change the company position in market. In above figure we have also considered the future objective which will be achieved by making proper management practices by BT management.
2.1 Vertical Integration of BT
When a company expand its trade into several kinds of areas with the same way of production can be called vertical integration. One of the examples of vertical integration is a situation when a trader owns different suppliers as well as distributers for his goods.
With vertical integration, organizations can get benefits like advance effectiveness, less cost due to decreased turnaround time for requirement of raw material and reducing expenses for transport etc. On the other hand, some economists criticise this on the basis that in various condition organization has to be depend on expertise of other traders as well as economies of scale instead of using vertical integration (Lotz, 2007).
BT’s acquisition of suppliers- in the context of BT; BT’s plan, in which BT’s is acquiring Tikit can be best example of its vertical integration. That is now BT is going to acquire Tikit (IT service provider) at the worth of GBP 64.2 million (estimated).
This acquisition of Tikit is supposed to be a big move in order to enhance BT’s business in retail. In United Kingdom the acquisition with Tikit is regarded to assist ICT services of BT to legal firms. It is also expected that Tikit’sknow how and expertise, deep understanding, relationships and portfolio of the legal sector will progress business of BT in retail sector.
Another example of vertical integration of BT can be taken is acquisition of Infonet. BT acquired Infonet at the estimated value of GBP 64.2 million. Aim of the acquisition with Infonet was make better consumer base and making a mark in the worldwide potential market. Some big consumers of Infonet are Hitachi, Bayer and Nestle and these all are Infonet’s leading customers. Vertical integration with Infonet has overall operations in approximately seventy nations and with this BT’s customer base is close to 1800 large and medium organizations. Through vertical integration with Infonet, BT gained advantages over its competitors, get larger and enhanced customer base than earlier and enlarged their business (Stokstad, 2008).
Vertical integration always assists to make better delivery of inputs at the time. British Telecommunication acquired its suppliers to give better services which can make able to meet expectations of the customers in the best way with which it will be easy to retain existing customers and also to attract new customers.
2.2 Diversification of BT’s products and services
The word diversification can be defined as a technique of managing risk through expanding products, locations, services, markets and customers for an organisation.
Diversification assists a company to survive in difficult economic conditions as in such scenario chances are very less that demand for all the products or services of the company fall together. A fall in demand for a product gets compensated by the rise in demand for another product. In this way diversification protects a company from closing up of business. BT has diversified its business into various products for example broadband services, television recharge, mobile phone and many other services (Conlin, 2007).
The diversification into various businesses has always helped BT to earn huge amount of revenue on YOY basis (Case study).The sales turnover of BT has reached the figure of GBP 20, 306 million in the year 2009 as compared to the GBP 18429 million in the year 2005.The rise in turnover is due to the strategy of BT for diversifying its business and going for vertical integration to enhance its portfolio.
The business of BT is diversified into four broad categories which make it easy for the organisation to assess the performance of each group separately. These 4 business verticals are –
- BT Global Services- BT Global Services provides IT and telecom services to large companies. Earlier it is known as BT Ignite and Bt Syntegra.
- BT Retail-BT retail provides retail telecom services which includes customers like home users and end consumers.
- BT Wholesale- This is involved in operations of BT’s Network services.
- Openreach- Openreach is a fenced-off segment. They work for proving BT’s network up to last point of Great Britain. It coordinates with other operates to make sure network reach to its customers (Christensen et al. 2004).
The prime motto of creating these business verticals is to easily assess the performance and to easily find the weakness to take corrective action well in time.
2.3 BT’s acquisition of Distributors
There is one of the examples which can prove that BT acquires distributers and that is acquisition of i2i in India to distribution channels. BT’s acquisition with i2i was mainly aimed to assist in order to make a broad band based platform in the potential market of India and it was supposed to assist in building a single BT brand channel in India. Since, Indian market has fast and growing economy as well as technologies in BPO market and this step to put BT’s foot in the highly potential market in India will be definitely benefited for BT group.
At the same time, one of another attempt in this is Securicor’s 40% stake’s acquisition in Cellnet. As the result, in the present time BT is handling its own distribution channels also, with providing telecom services (Lotz, 2007).
3.1 Continuous innovation and foray into new areas to ensure sustainable growth
The word disruptive innovation denotes an innovation that will provide a valued network and a new market by disrupting the current market and current value network. Whenever an organisation goes for disruptive innovations it has to lose earlier technology it is using.And so disruptive innovation are the innovations which makeschanges in a product or service drastically by way of deciding completely new segment of consumers in a complete new market and thereby reducing prices in prevailing market of prevailing product (Meyer, 2007).
The disruptive innovation is opposite to sustain innovation.In sustain innovation no new market or no value network is explored,in fact improvements in the current market through improving current product and service is done by each player of the industry in a good competitive environment (Chaniot, 2007).
The organisational culture at BT is of both sustaining innovations and along with it promoting disruptive innovation. The organisational culture at BT promotes continuous improvements of its products andservices and along with it the R & D department and marketing department of BT is working hard for disruptive innovations.Any new invention made in information technology,mobility,broadband,network technologies,NG Customers experience and process innovations will open up new market for BT.An example for this is the disruptive innovation of BT in the form of DSL services under broadband category.
The innovations at BT are inspired by the changing pattern of demands of the customers in the market.To meet those demands various technological innovation are done by BT to make the conversation between its users more effective. Some of the innovations are like revolution in voice transfer technology.Through development of new technologies and collaboration various endless and new opportunities are evolving that helps BT to derive benefits even through its collaborators (Erwin, 2006).
The management at BT is making effort to construct a growth model after realising the current trends in market and along with that maintaining the reputation of the organisation.Each person is looking for expressing his or her feeling to its close ones and even world.For that BT is continuously trying to improve the experience of its customers through its voice, conferencing, video, and mobile solutions. An example for this is, an organisation now operates in different teams located in widely dispersedareas,and to connect with all the people of the organisation companies are using Telephonic conferencing or video conferencing for sharing their ideas, problems so as to achiever the overall objectives of the organisation as a team. This way companies save huge cost and take effective and informed decisions. This business scenario wouldn’t be a reality if BT has not innovated these better ways of communication. Inearliertime, there are no medium like telephonic conversation or video conferencing, thisclearly indicates that these modes are a result of continuous and disruptive innovation of BT and other telecom companies for meeting the requirement,needs and demands of its customers (Wetton, 2007).
Until 2001, the market for broadbank in United Kingdom was at growing state.And till 1990s the term broadband was regarded as a different form of broadcasting television like services.Later, Integrated Service Digital Network (ISDN) and Broadband Integrated Service Digital Network (B- ISDN) were developed for introducing high capabilities in the field of voice and broadband in telecom network.Due to increase in the competition in the telecom world,pay per view and VOD (Video on Demand) are used as disruptive innovations to increasing the sales figure of the organistaion.BT has introduced Digital Subscriber Line ( DSL ) for providing internet services o its customer (Williams, 2008).
At that time it was a question before BT that whether DSL service will be acceptable by the customer or not. Anothermajor concern before the telecom giant BT and other cable industry players like Telewest and National Transcommunications limited were related to the performance of new service they are going to provide and the return on investment that will be earned from that service.Because at that time nearly ten million users already using dial up connections and it would be challenge to shift those customers to new broadband connection technology which is costlier than their existing connection.In this way, BT has invented many products and services which have changed the way people were using the telecom products and services.
The management and the prevailing organisational culture at BT is the prime factor for the entire growth journey of the organisation.Since its inception in the year 1980, the management has invested its capital so intellectually that BT has become a global name today.In the year 1994, BT has entered into a partnership with MCI communication corporation, the 2ndbiggest carrier in UA for providing long distance telecom services) of GBP one billion in the form of joint venture.This move of BT has proved to be highly fruitful as it gave both MCI and BT an international platform for providing highly advance services (Rory, 2008).
The formation of Concert Pls. is another attempt to make the presence felt in the global world.But in 1997, BT withdraws its stake from MCI by selling it to WorldCom and gaining 2 billion GBP from the deal.
Period from 2001 – 2006: BT’s Dot Com had been stopped in thisperiod and for that BT had sold the assets for clearing the debts of DotCom.In the year 2004, the launch of 21CN has been done by BT,the network transformation of the gennext.21CN is suitable for current communication and network with the use of devices like mobile phones,personal computers or any similar device.
In the year 2005, BT has done various mergers and acquisitions for example it has got stake in Infonet for covering new geographical areas. The company has also taken over the business of 2nd biggest telecom company of Italy,Albacom. Similarly, BT has bought Radianz which earlier run by Reuters and owing to which the buying power of BT got escalated and its coverage of market also (Johnston, 2009).
In the year 2006, another acquisition made by BT was of Dabs.com for 30.6 million GBP.The firm was a retailer of electrical.Scenario between 2007 till present: The growth plan of BT remains intact in this period also,and it continues to innovate and acquiring new businesses.In January 2007, BT has acquired PlusNet Plc and because of which it got a new customer base of 200000 customers.In February 2007, BT got stake in International Network Services INC (INS),an international operator providing IT consultation and software solutions.By this acquisition BT increased its consultancy business and along with it makesits presencedeeper in North Americanmarket.In Oct 2007, BT acquired Lynx Technology bases at Chesterfield (Richard, 2008).
In the year 2008, BT purchased Wire One Communication and changed it as BT Conferencing. Afterwards, it was transformed into video business branch of BT.In the same year BT has also acquired Ufindus’s online business directory.
BT has continued its acquisition strategy till date and because of so many acquisitions is has now become one of the biggest telecom operator of the world. In the year 2013, BT has started BT sport, its 1st T.V. channel for to fight its rival, Sky Sports. In the month of Feb.,BT has purchased ESPN’s United Kingdom and Ireland television channels (Wetton, 2007).
Thus,BT has introduced innovations and increased its offerings not only by its own innovations but also by acquiring new businesses.It is not operating in telecom business only but also in technology and broadcasting world which provide huge boost to the revenue of the organisation.
The organisational culture at BT promotes innovations and helps management to properly allocate its resources.Through wise decisions of effective management BT has proved itself to be an example for effective and efficient use of its resources through sustaining innovation ordisruptive innovation or acquisitions of others business.The various disruptive innovation by BT in the field of broadband,telecom,teleconferencing,video conferencing ,data usage etc all have now become an integrated part of daily life of people (Sylvia et al. 2006).
In this way British Telecom has adopted various strategies to reach at the summit of telecom world. From using vertical integration to going for diversifications, each strategy shows the company’s expertise and care it has taken to implement those strategies so as to enhance both its revenue and profit figure. The company has always proved itself against all the challenges made by its competitors in the form of new innovations brought by them or starting of price wars for attracting the customers of BT.BT has fought all challenges of price wars and innovations through its own strategies and is successful always.
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- http://www.telecomsmarketresearch.com/blog/?p=115
