BT Global Services Strategic Analysis

In the past BT Global services strategy has experienced hard times, resulting in the company incurring high levels of debt through the heavy use of joint ventures. In recent times, BT Global Services have adapted from this past by offering more homogeneous products, leading to a needs-based strategy focusing on multinational corporations instead of products intended for domestic use, as they offer in the UK.

Their strategy is based on their strategic position in the telecoms industry: Hard for new competitors to enter, however they have a competitive parity with their main competitors AT&T, Verizon Business and Orange Business Services.

Their large client base and brand image has played a key role in their strategy for targeting multinational corporations and world governments. However, they show a weakness that they have a relatively high senior management turnover which may have had a negative effect on their strategy formation process.

Due to the size of BT Group, it is difficult to judge the success of BTGS’ strategy in relation to the whole of the corporation’s operations. However, as a business unit, their financial results are inconsistent potentially showing that improvements are needed to be made.

Recommendations made relate to maintaining key senior management staff; truly differentiating themselves by innovating to create a temporary competitive advantage; and to focus on European based multinational corporations to take advantage of BT’s brand power that it has developed in that region.

1. Introduction to the report

This report contains a strategic analysis of the international company ‘BT Group’ (BT) focusing upon its business unit ‘BT Global Services’ (BTGS) through the lens of strategic formation.

The report starts with an analysis of BT Group’s overall strategy, then their subsidiary BT Global Services’ global strategy, then the report progresses onto conducting an external and internal analysis before concluding with recommendations.

2. Introduction to the Company

British Telecommunications (BT Group) is one of the largest publicly traded companies in the FTSE 100 at the present time, with a market capitalisation of £ 13,818 million (London Stock Exchange, 2011). The company operates in the telecommunications industry supplying various products ranging from Broadband to Ethernet to Voice.

From humble origins as a subsidiary of The Post Office and its initial public offering in 1982, BT has grown into a large multi national company whilst maintaining itself as the market leader in the UK. Since its flotation, BT has been prevalent on the international scene, entering joint ventures with many overseas corporations, most notably AT&T. (BT Plc, 2011)

3. BT Group

Overall BT Group’s strategy has been focused on standardisation of their products and services; since 2009 they have decreased their range of products from 3,500 to 1,400 (BT, 2011). In the future BT are planning to combining their global networks into one standard network, by doing this they aim for a cost transformation (BT Plc, 2010).

Since Global Services expansion abroad, BT Group has had to change its strategy to protecting its dominant market share in the UK after deregulations in the UK and the subsequent emergence of foreign competitors has posed a threat (Turner and Gardiner, 2007). BT Group’s strategy for their domestic marker involves diversification into new markets such as Broadband, Online gaming, Voice, TV and IT services (BT Plc, 2010).

4. BT Global Services

BT Global Services have experienced some large changes over the past decade, they have just recovered from incurring large losses standing out from BT group’s improving subsidiaries’ financial achievements: their pre-tax profits fell 45% in three months (BBC, 2009).

These large losses were contributed to BTGS’ bad global strategy during the period of 1994 to 2004. During this period BT set out to become the largest supplier of telecommunications, therefore its strategy was to expand globally. The company’s target market was multinational corporations who have operations in a variety of regions. However, due to BT’s industry, heavy investment in physical infrastructure would be needed. To overcome these market entry barriers, BT’s strategy had to involve forming strategic alliances with foreign companies: BT committed itself to numerous joint ventures. By creating a truly global network, they hoped to posses a unique and rare product to gain the advantage over their competitors who could not offer such a large network (BBC, 1999; Turner and Gardiner, 2007).

Nevertheless, this did not succeed. Reasons for this could be attributed to their strategic alliance partnerships. BT failed to maintain stable relationships, such as for example, in their joint venture ‘Concert’ originally with MCI but due to flaws in a takeover bid, this failed. BT then set up a new joint venture called ‘New Concert’ with another US telecoms giant AT&T. Yet this failed again. These flaws in BT’s joint ventures, couple with the huge amount of debt that BT built up acquiring them, lead to BT’s large losses (BBC, 2001; BBC, 2001; Turner and Gardiner, 2007).

In response to these failures, BT radically changed its strategy. This strategic renewal saw BT initiate a radical withdrawal from the majority of its international markets, to consolidate their UK and EU market to protect their main source of revenue, the UK market (Forbes, 2010; Turner and Gardiner, 2007).

At present they are forecasting a result of £100m in operating cash flow this year, which is evidence that their current strategy is effective and that they have learned from their mistakes in the past. Their change of strategy can be seen by their offering of an increasingly homogeneous service around the globe (BT, 2011). Levitt (1983) highlights the importance of multinational corporations operating in a consistent manor, in BT’s case, by offering the same service globally, by doing this BT can operate at a relatively low cost.

BTGS are differentiating themselves by utilising a needs-based strategy. By focusing on meeting the needs of large multinational corporations that are constituents of strong global sector industries, they can differ from their competition by using their breath of scope, thanks to their large multi-protocol switching network (Porter, 1997; BT, 2011).

One could say, that BTGS’ strategy formed itself out of an adaptive mode, in which their strategy was decided by many managers with conflicting views compromising over issues to produce their final decision; Turner and Gardiner’s (2007) case study outlined poor management behaviour as a cause for their initial strategy’s shortcomings (Mintzberg, 1978).

BT’s intended strategy was to replicate its business in the UK globally, however through the pattern in a stream of decisions, the realised strategy became focused on consolidating their home market and the European market, whilst taking on ‘lighter’ activities worldwide. Their strategy has been formed through the environment of the dynamic telecommunications market, influenced by many changes in leadership (BBC, 2001; Mintzberg, 1978).

5. External Analysis

De Wit and Mayer (2004) state that external and internal assessments are necessary for the diagnosing aspect to a realised strategy. Using Porter’s (2008) five forces, focusing on potential entrants of new competition and direct competitors, one can see how the competitive environment has affected BTGS’ strategy formation.

Threat of new entrants

The need for infrastructure to enter the market makes it very difficult for small firms to enter because of the huge amount of investment required. This point can be emphasised because one can see the problems BT experienced when they attempted to set up their own global system with joint ventures. Therefore all of BT’s competition is from other large multinational telecommunication companies.

New competitors may also find a difficulty to establish a market share due to brand issues; multinational corporations have high prerequisites and need established companies that have a track record of consistent and reliable services (Gardiner and Turner, 2004).

However the global telecommunications industry has an estimated worth of 3.7 trillion dollars which may attract large multinational companies that have the resources to diversify their operations, such as Virgin group has done in the past in different markets (Plunkett Research Ltd, 2010).

Direct competitors

The global telecommunications market is made up of large competitors which have access to a large pool of funds for extensive advertising campaigns. These multinational corporations such as Orange Business Services, AT&T and Verizon Business are strong competitors with strong brand images in their own right; however Ovum (2009) reports that the BT brand is dominant when compared.

Since AT&T was granted an operating licence in 1994, they have been in competition for BTGS’ MNCs but also BT group’s domestic client base (Fagan, 1994). BTGS’ competitor AT&T, have a similar strategy of differentiated their products to multinational corporations. Before ‘Concert’ AT&T strategy had involved leasing out its use of networks from BT, however they began to offer the same standardised service as they offered when cooperating with BT in ‘Concert’ joint venture, supplying businesses with their own global IP network (AT&T, 2011). This is very similar to BT’s strategy of targeting MNCs, and so poses a great threat; their joint venture in the past had a negative affect on BTGS’ performance (BT Plc, 2002).

Since the end of the joint venture, AT&T have been heavily investing in improving their global infrastructure, and in product innovation (Pappalardo and Mears, 2002).

Cooperation with this competitor in the past has proved troublesome, however BT and AT&T have joined an additional strategic alliance by interlinking their video-conferencing product network (Taylor, 2010). By using this strategic alliances, BT have been able to stem competition from AT&T and maintain their MNC client base.

6. Internal Analysis

Following on from the external analysis using a SWOT analysis, focused on BTGS’ strengths and weaknesses, one can further inspect the diagnosing aspect of strategy formation.

Strengths

BTGS has an increasing brand power, which BT’s management have been focusing on customer service (“Servicedesk,” 2009). The image that BT has built upon over the decades have given BT Global Services a good foundation in which to build and maintain its own.

BTGS has a large client base comprising of MNCs such as Siemens and BNP Paribas, these providing BT with large volume sales. BT Global Services have also managed to secure key exclusive contracts, such as supplying Unilever with a four year contract. By securing these contracts, BT have pushed out the competition and have created an opportunity for them to extend these contracts in the future (Harris, 2010;”International,” 2010;BT Plc, 2009).

Weaknesses

A large weakness that BTGS possess is relatively high executive management turnover, since 2001 BTGS has seen many changes in management which may have diluted the company’s strategic vision (BBC, 2001; BT Plc, 2010; “Servicedesk,” 2009; Glick, 2008).

Finally, the need for an extensive global network is a necessity for BTGS, without it they have no value on their products from their clients perspective. These network infrastructures carry high maintenance costs and must be constantly innovated to compete effectively.

7. Evaluation of Strategy

Overall BT Global Services’ strategy seems to be overdependent on joint ventures which have led BT into large debt problems. Evidence for this can be seen in their financial reports as they coincide with the break up of their joint venture ‘New Concert’; BTGS suffered a loss of £1,459m in 2003 surprisingly after they recorded their largest profit of £8,911m in 2001 (FAME, 2011). Whilst their turnover has been steadily increasing from 2006, BTGS’ management have been unable to make consistent gains on their return on total assets (FAME, 2011). This could be because of the senior management not efficiently utilising their assets.

Their trade-off of excluding offering domestic telecommunication products globally has, in my opinion, been a good strategic move because, for example the US market for Ethernet services is saturated with fierce competition (“Vertical,” 2007). Their strategy of focusing on multinational corporations fits well with their other operations…

The deregulation of telecommunications has had a large impact on their global strategy as governments in developing countries lift competition rules to end state owned monopolies (Poh, 1994). This deregulation has allowed BT to branch out internationally and to set up global networks to offer their prospective clients.

Since the banking crisis, BT Groups share price has been steadily rising, however this may not be due to Global Services but other operations of the group such as BT Retail or BT Innovate, therefore it is difficult to judge BTGS’ strategy’s success on the groups overall share performance (London Stock Exchange, 2011).

8. Conclusion

In conclusion, BT Global services’ strategy can be viewed as insufficient. Their strategy has proved successful in the fact that they are acquiring exclusive contracts; steadily increasing their total revenue over the past five years and maintaining themselves as one of the largest international telecommunications company. One the other hand, they have been incurring large losses and sub optimal return on assets shedding a pessimistic view on the strategy’s success.

Their external and internal environment can be seen as contradictory; the limited threat to new entrants and their large client base show a favourable business environment, however their current competitors and the need to maintain such a large infrastructure pose a great threat.

9. Recommendations

Taking into consideration BT Global Services’ past strategic history and their internal and external environment, recommendations to improve their global strategy would include:

Creating and sustaining a clear strategic vision by maintaining key senior management staff, by doing this BTGS will be able to maintain their objectives in accordance to their joint ventures, a problem they had with ‘Concert’.

Truly differentiating themselves from AT&T and Verizon Business, these two companies offer very similar IT and telecoms solutions to multinational corporations: Innovating will help create a temporary competitive advantage.

Focusing on the European telecommunications market to continue securing key exclusive contracts with multinational corporations’ head-quartered there to take advantage of the strength that the BT brand has in that region.

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