Strategic Management: British Telecommunications Group plc

Strategic Management: British Telecommunications Group plc

Introduction

For a company to become successful it has to formulate and implement effective strategies. Strategizing is a crucial process that corporations should undertake with care and precision as it can determine whether the firm comes out on top of its competition. In most industries, players establish dominance by coming up with effective strategies that give them a competitive advantage over their rivals. A competitive advantage normally ensures that a firm is able to operate in the industry with relative ease, in comparison to its competitors. Normally, the advantage allows the firm to be better equipped at providing goods and services, making the industry more profitable for them than it is for their competitors (Porter, 2004a). Strategists and analysts widely consider competitive advantages crucial to the success of a company. The fact that many companies struggle to attain the advantages exemplifies that theory. BT Group can attribute the success it has had to the implementation of strategies that were well formulated.

Strategic Models and Concepts

Porter (2004a) argues that many companies face a problem where they are unable to separate operational effectiveness from strategy. Both aspects are needed for a company to flourish, but they are usually applied differently. In operational effectiveness, companies carry out normal tasks but at a much higher level of competence. This normally allows the corporation to get more value from these processes than its competitors do. Alternatively, strategy entails the act of finding special qualities that can be used to gain an edge over competitors (Porter, 2004a). When dealing with strategy, companies prefer to look for a range of operations that give them unique qualities. Over the years, strategists and analysts have come up with a wide range of theories, models and concepts that relate to strategy and the different ways that companies can strive to get ahead of their competition.

Porter’s generic Strategies

According to Porter (2004b), companies can use three generic strategies to become better than their competition. The first generic strategy is cost leadership. In this case, companies try to make products or provide services at costs lower than those of any other competitor (Porter, 2004b). Companies that are large and span a wide range of related sectors and industries are the most capable of implementing this strategy. Such companies are able to take advantage their operations and productions in other departments to create certain advantages for themselves (Stonehouse et al., 2004). Such advantages could include special technology and easier access to certain raw materials. Corporations that want to utilize this strategy to its full effect usually need to find every possible origin of the cost advantage.

Another generic strategy that Porter identifies is product differentiation. In this strategy, a company will try to manufacture products that are unique and distinct in ways that customers value (Porter, 2004b). Normally, the organization selects a number of attributes and qualities that buyers consider important and focuses on those features to make sure that the customers are satisfied. Differentiation differs within each industry because of the demands of the consumers and the specific dynamics of the sectors. Porter (2004b) argues that the actual product, the means of delivery or the marketing strategies that a firm applies can determine differentiation. One of the most important aspects of this strategy is uniqueness. A firm seeking to capitalize on differentiation needs to ensure that it provides a special service or value that its competitors cannot.

The last strategy that Porter (2004b) discusses is focus. This strategy requires a firm to place emphasis on a narrow section of the industry. The company selects a specific part of the industry it deals with and engineers itself towards serving that section only (Porter, 2004b). This results in services and products of a higher quality at the expense of the wider consumer base. Focus could be applied with respect to cost, where a firm makes sure its prices are pleasing to a specific group of consumers. Companies can also apply the strategy with respect to differentiation (McLoughlin and Aaker, 2010). However, both applications of the strategy require the company applying the concept to create differences between its products and services and that of the other companies. One important thing to note is that a company cannot apply the three generic strategies together. Doing so could leave the firm stuck in the middle, meaning that rivals applying just one strategy will be more likely to generate more revenue (Porter, 2004b).

Resource Based View (Grants Model)

Another strategy that companies apply in pursuit of a competitive advantage is the resource-based view (RBV). Grant formulated the RBV strategy as a response to the models that Porter developed (Powalla and Bresser, 2007). The RBV strategy tries to explain how a firm can source sustained competitive advantage from its internal resources. The main idea is that a corporation can achieve a sustainable advantage by acquiring resources that are “valuable, rare inimitable and non-substitutable” (Kraaijenbrink, Spender and Groen, 2009, p. 2). The unique nature of a firm’s resources is a key facet of this strategy (Bridoux, 2004). This means that that strategy would not apply if all of the firms in an industry were able to access the same resources. The uniqueness of the attributes effectively locks out all of the competitors, preventing them from achieving the same competitive advantage as the subject corporation (Grant, 2005).

 

VRIO Model (Barneys Model)

The VRIO framework was developed by J.B. Barney as a system of analyzing the resources and attributes of a firm (Cardeal and Antonio, 2012). The framework is essentially a practical application of the RBV model. In this case, the resource-based view is broken down into four key aspects that the experts then analyze. The four aspects are Value, Rarity, Imitability and Organization (the acronym ‘VRIO’ is derived from the four values) (Powalla and Bressler, 2010). Companies that have all of the aspects listed above are more capable of achieving competitive advantages over their competitors.

Value is an important attribute because it allows a company to exploit certain opportunities. Normally, a valuable resource makes it possible for the company to improve its efficiency and effectiveness (Gassmann, 2006). Rareness is an important attribute because it ensures that companies do not develop similar strategies by exploiting resources in an identical manner. Similarly, inimitability makes sure that other companies cannot copy a rare resource and take away any advantage that a firm had established (Akio, 2005). Lastly, organization makes sure that firms are able to combine their strategies and resources in an effective way to achieve the best possible outcome (Powalla and Bressler, 2010).

Application of Different Strategies and Models by British Telecommunications plc

BT Group plc (British Telecommunications) is an international telecommunications firm from Britain. Headquartered in London, the company is a global telecommunications giant as it provides its services in more than one-hundred and seventy countries in the world (Anon, 2013a). Through different subsidiaries, BT Group plc provides a wide range of services including fixed-line services, information technology services, internet broadband and mobile products and services. BT Group sells its services and products to a wide range of consumers including individual users, governments, wholesale buyers, small companies and medium sized enterprises. BT Group has four companies through which it carries out its operations. They are BT Retail, BT Wholesale, Openreach and BT Global Services (Summanen and Pollitt, 2003).

Cost Leadership within BT Group

One key strategy that BT has implemented is cost leadership. The key idea in this strategy has been to reduce the cost at which the company is able to provide its services and products. This would make it possible for BT to make those services available to the consumers at more affordable prices. Large companies are able to implement this strategy effectively because they can utilize departments and subsidiaries that they have in related sectors and industries. Similarly, BT is better suited at implementing the strategy because it is a large company with several subsidiaries. In its 2013 annual report, the company explained that it was looking to further reduce costs of production by taking advantage of the subsidiaries that it owned (BT Group plc, 2013). Additionally, the reduction of wastage in the production process along with the freeing up of resources has made it possible for BT to make generate its products and services in cost-effective ways and this affordability can then be extended to the organization’s consumers (BT Group plc, 2013).

BT Group’s Product Differentiation Strategy

BT has also applied the product differentiation strategy to gain an edge over their competitors. This strategy requires a firm to come up with products that are unique and distinct from those that the competitors manufacture. These products are supposed to focus on certain values or features that consumers value and use them to reach out to different market segments. BT mainly applies this differentiation strategy through innovations from their research and development department.

The company is constantly trying to generate the next key innovation in the telecommunications industry, and a large number of resources are dedicated towards this end. In 2009, BT was one of the United Kingdom’s highest spenders on research and development, spending more than a billion sterling pounds on its R&D department (Anon, 2010). This sort of expenditure later came to bear fruit as the company registered sixty-nine patents in 2012 (BT Group plc, 2013). Through these inventions, the company can create products and provide services that target very specific needs within its customer base. The fact that these products are made using inventions patented by BT means that the company could create a lasting competitive advantage because its rivals will be unable to copy the innovations.

Resource-Based View within BT Group

Another key strategy that BT implements is the resource-based view. The application of this strategy mainly entails the maximum utilization of the key resources that a firm has at its disposal. This strategy requires a firm to have unique resources that other firms cannot imitate. Additionally, the resources need to be non-substitutable. These resources place the firm in a unique position to create sustainable competitive advantages. This means that the firm can place itself in a position that rivals find difficult to challenge.

The resource-based view is a strategy that BT Group has relied on to create a competitive edge over its competitors. The focus that the company places on its research and development department is one aspect of this strategy. Rivals cannot copy inventions patented to BT Group. This means that they provide the firm with a valuable and non-imitable resource. If well designed, the innovations may also lack viable substitutes. These factors make it possible for BT Group to have a lasting competitive advantage over rivals.BT group’s effective utilization of its subsidiaries is also an aspect of the RBV strategy. One way that the company uses its subsidiaries is by using them to expand its networks and customer base (BT Group plc, 2013). The company’s subsidiaries also work together to make BT a strong brand name. Having a powerful reputation makes it easier for BT Group to expand its customer base and introduce new products into the market (BT Group plc, 2013).

Conclusion

Recent years have seen BT come under a lot of pressure from close competitors such as German operator, Viag Telekom and Vodacom (Anon, 2013b). This situation has increased the company’s need to come up with new strategies that can match the dynamic nature of the telecommunications industry. The company also has to deal with constant technological innovation within the sector along with the emergence of new markets, all of which increase the need to adapt to the new environment. However, it is important to note that BTs rise to the summit was not borne out of luck or coincidence. The company formulated and implemented effective strategies that dictated various facets of its operations and made sure that it stayed ahead of the competition. Through effective strategies such as product differentiation and the RBV strategy, BT has made sure that it will remain a key player in the telecommunications industry, even as rival companies grow stronger and the market continues to change.

 

References

Akio, T. (2005). The critical assessment of the resource-based view of strategic management: The source of heterogeneity of the firm. Ritsumeikan International Affairs. 3, pp. 125-150.

Anon (2010) BT and Vodafone lead UK IT R&D spending. Available from: http://www.computerweekly.com/news/1280092246/BT-and-Vodafone-lead-UK-IT-RD-spending [Accessed 10 December 2013].

Anon (2013) BT Group. Available from: http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=BT.A:LSE[10 December 13].

Anon (2013) BT Group plc (BT/A: London). Available from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BT/A:LN [Accessed 10 December 2013].

Bridoux, F. (2004). A resource-based approach to performance and competition: An overview of the connections between resources and competition. PhD, Universite Catholique de Louvain (UCL).

BT Group plc (2013) BT Group plc Annual report and form 20-F 2013. London: BT Group plc.

Cardeal, N. and Antonio, N. (2012) Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage? African Journal of Business Management. 6(37), pp. 10,159-10,170.

Gassmann, O. (2006). Towards a resource-based view of corporate incubators. International Journal of Innovation Management. 10(1), pp. 19-45.

Grant, R. M. (2005) Contemporary Strategy Analysis. Oxford: Blackwell Publishers.

Kraaijenbrink, J., Spender, J.C. and Groen, A. (2009) The resource-based view: A review and assessment of its critiques. MPRA. 21442, pp. 1-44.

McLoughlin, D., and Aaker, D. A. (2010) Strategic Market Management: Global Perspectives. Hoboken, N.J: Wiley.

Porter, M. E. (2004) What is strategy? In: Segal-Horn, S., ed., (2004) The Strategy Reader. Oxford: Blackwell, pp. 41-62.

Porter, M. E. (2004) Generic competitive strategies. In Porter, M.E., ed., (2004) Competitive Advantage. London: Free Press, pp. 11-25.

Powalla, C. and Bresser, R. K. F. (2007) Can Ignorance Beat the Resource-Based View? Comparing the VRIO Framework to the Recognition Heuristic. Berlin: Freie Univ..

Powalla, C. and Bresser, R. K. F. (2010) Performance forecasts in uncertain environments: Examining the predictive power of the VRIO-Framework. Strategic Management. 22, pp. 1-14

Stonehouse, G., Campbell, D., Hamill, J. and Purdie, T. (2004) Global and Transnational Business: Strategy and Management. Chichester, West Sussex, England: Wiley.

Summanen, T. and Pollitt, M. (2003) British Telecom: Searching for a winning strategy, Case Study. MBA, Judge Institute of Management

 

Latest Assignments