SCIENTIFIC RESEARCH INSTITUTE OF BEHAVIORAL PSYCHOLOGY (SRIBP)Global Corporate Strategy"BT Group: Bringing external innovation inside"

RESEARCHER: ADNAN UL HAQUEwords: 3823 (10%)

Executive Summary:The evolvement of words Telecom Industry has transformed the dynamic of the communication world from a simple call and voice messaging to a forceful and advanced rich media services. Telecommunication has become a fundamental contributor to worlds economy where todays fast pace life has become solely depended on the telecommunication network and 4G mobile internet subscribers exceeding its number in billions only in 2012 itself.

According to UK Telecommunications Market Research, (2010), The United Kingdom telecommunication market is expanding with the projected growth of 2 % to 4% by 2014. Taking a look at the placement of BT in the industry, British telecommunication Group has been the largest and oldest telecommunication service provider to British consumers. The company started its operations with the landline and broadband service progressively gaining entry to mobile market and further expanding its perspective to television services. Entry to new entrants and bargaining power of buyers are high whereas substitute and bargaining power of supplier is quite low. Through times with strategic merger, acquisitions, collaborations and alliances BT has been able to emerge as an industry leader. Two global corporate strategies that are used to determine the approach of BT's performance in the global environment and assess the outcome of its strategic approaches and innovation in telecom industry are SCP and IO-based theories.

The venture with AT&T allowed BT to multinational its company, product and service as well as brand image. The strategic alliance deal with AT&T came to end due to lack of trust and confidence as BT was seen as a biggest threat by AT&T in its expansion. Furthermore, the split was also due to differences in strategic approach, culture, and management system. British communication did not only focus on acquisition and alliance but also on the scale of consumer needs that rose with such vast expansion as its global strategic approach is evident in shaking hands with Cegetel (Germany), Viag (France), Telfort (Netherlands), and Airtel (Spain) are approaches to ensure strong presence in market and attain competitive advantage. The expansion in this case study is vertical integration through bringing organisational excellence by adapting innovation. BT emerged as an innovative player through its value chain and move as a pioneer of next generation network service provider. Disruptive innovation is used by BT to improve its market reputation and quality of customer's experiences. These improvements are determined in shape of Broadband, 21CN global network, and VoIP services offered by British Telecom. TABLE OF CONTENTSRTOPICSPAGE NO.

EXECUTIVE SUMMARY...........................................................................................02

1INTRODUCTION .............................................................................................................04

2LONG TERM GLOBAL CORPORATE OBJECTIVES ...................................................05

3GLOBAL CORPORATE STRATEGY THEORIES AND BT........................................... 05

4 PORTER FORCES FOR BT's MICROENVIRONMENT ANALYSIS .............................06

New Entrants...................................................................................................... Buyers' power.................................................................................................... Suppliers' Power................................................................................................ Substitute............................................................................................................

5VERTICAL INTEGRATION................................................................................................ 08

Strategic Alliance......................................................................................... Merger and Acquisitions............................................................................. Competitive Advantage...............................................................................

6JOINT VENTURE BETWEEN BT AND AT&T (CONCERT)................................................ 12

7ORGAINSATIONAL EXCELLENCE OF BT THROUGH INNOVATION..............................13

8CONCLUSION AND SUGGESTIONS................................................................................... 17

9REFERENCES...................................................................................................................... 18

10BIBLIOGRAPHY...................................................................................................................21

11APPENDIX24

INTRODUCTION:British telecommunication operates from its headquarter in London, England and with its vast global service division has become a leading provider of telecommunication service to government, corporate and individuals worldwide. According to BT, (2014), BT retail division has become a leading supplier in UK with delivery services of telephony, broadband and subscription television, having over 18 million consumers. Furthermore BT has the uppermost number of fixed line with its extensive offers of low cost calling of broadband plans. However with the expansion comes the extensive challenges of operational management, lack of competitive lead as well as the road map for long term company vision. According to Satu, (2009), in present environment there has been a decline of tangible assets in favor of inclining preference of intangible assets.

Source: Sohail, (2012). BT Broadband Strategy.

LONG TERM GLOBAL CORPORATE OBJECTIVES:

Source: Sohail, (2012). BT Broadband Strategy.

GLOBAL CORPORATE STRATEGY THOEIRES AND BT:As per Levitt (1983), "World markets are transformed into homogenized due to rapid increase in the technologies linked with travel and transportation and communication. Moreover, preferences and demands for same products among consumers all across the globe has increased" (Cited from Zou and Cavusgil, 1995; P. 52). "The approach of Levitt is single dimension, 'standardization' which is not a case always as large capital investments, global volume expansion due to economies exploitation, and attainment of synergy in distinct activities are reasons for global expansion" (Zou and Cavusgil, 1995). As per Scherer and Ross, (1990), "Bain (1968) proposed Structure-conduct-performance SCP paradigm that explains that the external structure of industry decides the strategy of firm (conduct) which leads to its financial performance determination" (Zou and Cavusgil, 1995). The theory indicate BT's current situation as the competition in the market has made it revise its strategy. In case of entrance in the U.S market, alliance with AT&T is example of SCP approach. As per Venkatraman and Prescott (1990), IO-based theory is to ensure firm finds a perfect 'fit' between strategy and environment, based on consistency (cited from ). The joint ventures with Cetegel and Viag are examples of BT's adaption of IO-based strategy theory in global telecommunication market. Another example of BT's theory implementation is available in shape of VoIP services to achieve innovation in dynamic environment that will lead to competitive edge. PORTER FORCRS FOR BT's (MICRO ENVIRONMENT ANALYSIS): In order to gain better understanding of British communications placement in united Kingdom as well as in global telecommunication industry four out of the Michael porters five factors will be used as an essential tool. Furthermore the analysis with four out of Porter five forces will allow to have a detailed look at the BTs microenvironments affect and the understanding of their impact on its ability to service its consumer while generating revenue. However the Porter analysis will be conducted based on the companys product portfolio of broadband, mobile, and communication services. As per Porter, (1985), The combined strength of five competitive forces determines firms ability to produce and to appraise the rates of return on investment in surplus of the cost of capital in the industry. The potency of the five forces does vary from industry to industry based on its evolvement (P. 32).

New Entrants

The threat of new entrants in United Kingdom's telecommunication industry is less likely due to the high infrastructure cost involved. Furthermore there has been a significant level of competition between two major providers; BT at the market share of 27% as a service provider of UK broadband where as Virgin has been holding 37% market share with its Media services. According to Satu, (2009), Virgin Media is the second-largest fixed-line broadband provider in the UK, with its 22.5% overall market share. Furthermore the market was captured by Virgin with its fast and reliable service reaching broader consumer range though it had a late entry in the telecommunication industry. Whereas BT failed to market its product highlighting its low price point factor has opened doors for Virgins entry into the market. However the significant level of current competition of the industry in unlikely to see the entry of new players. Consequently the access to the market requires government approval where regulations has to be followed, though the governments absence from dominant position of BT in 1999 has allowed significant access to other providers to gain momentum in the industry with their unique and innovative products therefore the threat on new entrant is moderate to low.

The Buyer power:The buyer power is high in case of British communication Porter force analysis (Sohail, 2011). According to BT, (2010), British communication serves over five million consumer base. Whereas BTs competitor Virgin serves 8.2 million customers" (Sweney, 2010). Furthermore SKY customer base has reached 10 million due to its diverse and premium product portfolio. According to Sky Telecom, (2010), the low price point of Skys HD products has boost its customer base to approximately 10 million. The stated figures are clear indication to draw attention to the higher buyer power in the industry. The consumers with the availability of vast choices and tendency to shop for best available product and service deals in the market provide them with the higher bargaining leverage furthermore the high cost for product and service switch does allow consumer to consider various factor at purchase point. However BT has a large portfolio of diverse products which does gives it a competitive edge to have appealing offer to its consume with cost effective product and service deals. The higher price sensitivity of UK consumers due to the changing economic conditions does allow BT to compensate consumer with its vast range of product with minimal variance such as its fixed lines. The biggest competition to BT is Virgin and SKY who has various packages to offer but BTs biggest advantage is its competitive price.

Supplier power: Supplier power can be evaluated in terms of the orders received for equipments which do allow buyers to have negotiation leverage for discounts and constructive credit and payment terms. Furthermore suppliers can also have competition among their selves; Nokia, Ericson and Motorola competing for the market share as a supplier. BT too have a significant say on product price and quality. Consequently the cost of the material also determines the suppliers power and does become a significant factor in companys operational cost. In terms of British telecommunication in UK telecom market, the company deals with various suppliers for its products and equipment material in order to have a high quality product which allows the company to operate under open reach act and gives it an opportunity to explore other potential supplier and be unbounded to one in specific (Sohail, 2011). Consequently BT has committed suppliers which assure the delivery for quality products. Thus supplier power in this case is low.

Substitutes:The emergence of advance technology and the extensive development of telecommunication industry have made the communication convenient, easy, swift, user friendly and approachable through diverse range of products and services. Considering the UK market, BT has established its niche in the telecom industry through its various products and service as well as its establishment of higher fixed line service provider. Furthermore the relative price point of BT product has given it leverage on substitution. Trauth and Pitt (1992), argues that innovation and technology has given competitive edge to BT over other substitute. Consequently the cost of switching the provider due to high transfer price of broadband as well as installation charges will make the substitution to be likely very low (Sohail, 2011). The analysis of four porter forces considered potential threats and opportunities for British Communication. However it cannot be used to conclude for sure the future outcome of BT but can be used safely to predicted that the intense competition and other factors does not significantly affect the position of British communication in local as well as global markets.

VERTICAL INTEGRATION OF BT:

Strategic Alliance:The telecommunication industry has evolved in United Kingdom with a rapid speed after being the first along with United State to be deregulated in 1980s. The BT was the first in Europe to introduce telecommunication services. BT has travel a long journey to arrive at the platform as world's leading telecommunication provider. The journey has been focused on the needs of its consumer where the ultimate objective has been to provide its consumer with the latest in the market of telecommunication and technology through various means and this has led to the British telecommunication's active investment in mergers and alliance to reach wider consumer base with the diverse product portfolio.The strategic approach to establish oneself as a brand leader is an approach that has to be initiated with the understanding of consumers needs and demands along with the changing dynamics of the industry. To congregate the global market BT has use diverse range of strategic approaches such as brand asses and marketing campaigns to differentiate itself from other competitors in the industry along with the strategic approach of mergers and alliance to integrate in the global market with diverse services to diverse demographics. According to Samzelius & Camman, (1996), new generation of telecom companies must establish their market position through their association with the expanding market and restrict its brand elasticity.Being a key player of telecommunication industry BT has isolated itself from the old approach on economic growth placing focus on the leadership in the area of mobile communication and internet to build a unique brand image. The major factor of BT establishment of its unique image was its ability to minimize the potential reliance on the available phone companies domination. The approach did allow BT to deliver its consumer the quality product with the cost effective price increasing its profitability capacity. Such flawless operational strategic network became an important building block as well as an incentive for alliances. This was seen in the form of alliance shaped between BT and AT&T with the formation of Concert. The alliance allowed both companies to expand their domestic as well as global network reaching broader consumer base. In other words, BT did this strategic alliance to avoid local competition in U.S market. According to William & Willow, (1997), the demand for end-to-end network where consumer view handset and wireless telephone along with internet services as one product, urges BT is building all in one product concept with single price allowing consumer to utilize discount on package purchase.Mergers and Acquisition:With the continuous economic growth in telecommunication industry through the introduction of internet has lead to higher demand from consumer which further led to the telecommunication companies entering the joint ventures. As per Raphael, (1998), with the estimated growth of internet continuation will have global growth in voice and traffic up to 80% and remaining 20% in 2010. This has happen which forces telecom firms to have strategic alliance and mergers.British Telecom and AT&T ventured to a high growth are through their joint alliance in the form of Concert. According to BBC, (2000), British telecommunication has invested $2 billion in e-commerce sector. BT expanded its infrastructure investment a notch further by opening a facility in South Africa in 2012 providing international traffic routing strengthening its position as a leading provider of IT and network service in African market. Teraco, a neutral vendor facility was used to link BT's routing facility. Such development partnerships are beneficial tools in linking BT's ability to complement its consumers with new offerings. This is another strategic approach towards gaining competitive edge by offering customers unique and distinguish quality services. BT bought 26% in Pan-Europe to establish a vast network in shape of Cegetel in France, and with Telfort in Netherlands and Viag with Germany had joint venture (Valetti & Cave, 1998). Furthermore the joint ventures were formed with Albacom (Italy), Spain's Airtel, Ireland's Ocean and Sunrise in Switzerland to ensure it has strong dominance and presence in the market with no or low competition (Valletti and Cave, 1998).Competitive Advantage: "Customer base is essential in determining the network's value and strength for sustaining a market position and interconnecting with other networks" (Kramer and NiShuilleabhain 1997; and Yoffie 1997). However the diverse nature of mergers and alliances are used by various telecommunication companies to compete in market for the attainment of the competitive edge. Concert has been one of the primary global alliance in the telecommunication industry (Rossenberg, 1997). The three primary alliances Concert, Global One and World partner have been suspended to create one alliance that is Concert. The formation of Concert initially was a basic equity relationship that formed partnerships between BT, MCI, Portufal Telecom, Telefonica and AT&T (Johnson, 2006). Under the banner of Concert BT purchased 20 percent stake in MCI with the foresight for future purchase. Telefonica, a Spanish carrier and Portugal Telecom performed an equity swamp as a member of Concert. Furthermore the diverse combination developed strong presence of Concert in Latin America's market despite Portugal Telecom and Telefonica's investments. Consequently Bell (Local Canada Exchange Company), leading service provider became a distributor of Concert in Canada due to alliance. In order to become a sole owner and operator of Concert BT initiated a purchase of MCI signals. These all steps are part of strategy to increase its competitive advantage.

Source: Sohail, (2012). BT Broadband Strategy.The continuation of domestic investment with Oftel in UK was required of BT in addition to that the purchase of MCI took longer than the anticipated time leading to the dismissal of the merger. BT's renegotiation of the deal when the information became public led to the disagreement between shareholders and management stopping the persuasion of the merger. Later on the Concert consist of AT&T and BT merger gave consumers services of data and voice telecom. In other words, merger with AT&T helped BT to some extent to have competitive advantage.Today BT serves over 170 countries around the globe with its prominent presence in every continent due to its global expansion strategy. the company has an infrastructure in Canada for over 20 years and has significant presence in North America. It has a vast market growth in Asia Pacific with its hub in Hong Kong along with a well organized European network structure in Europe (Zielinska, 2004). Furthermore the Brand has recently stepped in African market with strategic plan of future development and enhancement plan. In short with its long journey, BT has been a trend setter and a global leader.

JOINT VENTURE (Concert) BETWEEN BT AND AT&T:According to BBC, (2000), approximately 270 MNCs and other 29,000 customers are being provided voice and data telecom services through Concert (AT&T and BT) by means of distribution network. The AT&T, leading US telecommunication provider and BT joint venture was formed in 1998, where both companies formed their operational head quarters in London and Washington DC respectively. The venture was formed with the focus on serving multinational companies through vast network. In order to strengthen the Concert's network the allies brought Japan Telecom to the merger as well. According to BBC, (2000), "In Japan telecom, 30% stake is being taken up by AT&T and BT as a team and brought Japanese carrier into the global market". However the strategic alliance between AT&T and BT collapsed in 2001 due to the cultural, strategic approach and management differences. The alignment of decision making had become a significant issue among the leading telecommunication giants leading to the failure of the one's most power alliance of global telecommunication industry. As per Schiesel, (1998), there is no trust among the partners as BT was viewed as threat to expansion by AT&T. Thus, joint venture was split in two with AT&T receiving the share of North Americana and Eastern Asian where as BT was allotted $400 million dollars along with the rest of the world demographics.The emergence as a global leader has not only been contributed by the alliance and mergers but has been through innovation of the BT as a strategic approach to make its presence felt in the global market. Innovations is a vital factor for any organization to survive and expand in the global market that is ferocious, vigor and extensively competitive. Radjou (2006), " 20th century industrial models of R&D-led product modernization are becoming progressively more marginalized by market forces". For any company to sustain commercial success in order to avoid consumer's substitution to the competitor it must work with innovation and product quality. Furthermore the innovation should be initiated in terms of avoiding higher risk.

ORGANIZATIONAL EXCELLENCE OF BT THROUGH INNOVATION:The concept of expansion in BT's case is through innovation and integration and is considered as end to end process. BT expansion come in existence through its implementation and architecting a unique infrastructure based of disruptive innovation (Anderson, 2006). Disruptive innovation is based on the need and demands of the consumers. BT's strategic approach of transforming its network played a vital role in its development and expansion which has been neglected by other networks around the globe by following SCP theory. The major innovation factor for BT's management has been selecting right partners. BT chose partners for the BT 21CN project that are big companies: Siemens, Cisco, Alcatel, Ericsson, Fujitsu, Ciena, Lucent and Huawei to name some (Birudavolu and Nag, 2011). Furthermore the selection criteria is based on these large firms ability to work in alliance with smaller firms to supply solutions to BT. BT's management approach was to be innovative and successful in the present market place by combining BT's core capabilities with the ally smaller firms to provide its consumer with the complete end solution with a sophisticated business look (Anderson, 2010).

Source: Sohail (2009). BT Broadband StrategyFurthermore with its technological approach BT adopted a use of Internet protocol to form alliance and be able to provide cable and TV services to its consumer to improve customer experience and bring process innovation. Furthermore its used Internet Service providers such as Yahoo, Skype and Google along with Mobile Telecom operators and Media firms such as Disney and paramount, following IO-based approach. BT progressed from Narrowband technology to a Broadband (Birudavolu and Nag, 2011). However in telecommunication industry, innovation within the firm cannot be alone assessed by itself, the selection of supplier is significant factor in forming company's brand image. According to Berris (2005), Discover and research, validation and articulation, and execution composed continuum of innovation.

Source: Birudavolu and Nag, (2011). A study of Open Innovation Within its network domains, BT formed , BTs 21st Century Network (21CN), which allows BT to provide its consumers with their communication needs through a flexible and intelligent network. With the lack of single IT network BT faced a huge barrier in its IT sector for providing its customers with main business line as well as IT operations. Furthermore the company had a very complex system which created barrier in its ability to develop new product and service to gain competitive edge in the global market (Birudavolu and Nag, 2011). BT's use of Matrix system transformed the company's infrastructure in a radical format where it composed a single platform allowing BT to use its capabilities by forming a flawless bond with its network partner alliance to expand its services (Glass, 2011). This further allowed the company to transform its product according to the needs of its end consumer.BT strategically develops its product for enhanced customer experience with the change in the technology. The great example has been its VoIP services where a diverse and multifaceted set of network has been used to have the product reach consumers around the globe. The use of standardized IT platform has allowed BT to use its in-house IT domain and provide a structure to have cost-effective, re-usable ICT solutions.The approach to use is core capabilities appears essential in providing suppleness in offering self services, zero-touch, real-time IT solutions along with enhance customer service experience globally. BT restructured its IT estate by reducing the over head from 3500 to 2700 with further reduction possible to reduce the maintaining cost. Furthermore with the Domain management system BT has been able to provide a low level technology domain which supports BT network services consisting of broadband and voice servers (Birudavolu and Nag, 2011).

Source: Birudavolu and Nag, (2011). A study of Open InnovationWith 21CN global platform, BT used access domain which allows its existing network to carry voice to its consumer on 32 core node IP base network. Furthermore the combination of core node and metro node integration allows to have signal functions of voice and video to be transferred in a cost efficient manner through high capacity, large scale routers such as core nodes. Optical fiber transformation structure is used to allow electronic converter for signal carrier. Analyzing the BT transformation became more responsive needs it is evident that the company has been very responsive to its consumer needs and ensure that with its diverse range of products to reach its wider consumer base. Furthermore BT's agility in terms of its vast product portfolio and network structure its has a vast range of service to satisfy its end consumer. BT has been a game changer with its new technology of 21CN where consumers are provided service instantly with their order placement with no further intervention and delays. The concept in itself is a unique approach which has not been initiated by any big telecommunication service providers in the global market.CONCLUSION AND SUGGESTIONS:BT has used SCP strategy as well IO-based theory to expand its business in global environment. Through alliances, mergers, acquisitions and ventures BT has carved its niche as a global leader of the telecommunication service. Through its journey of global expansion the company has formed as well as dissolved alliances and overcome the hurdles of regulatory systems. AT&T is one the strategic alliance of BT that is worth considering as to avoid local competition in U.S telecom market. Though this merger later on split due to lack of trust and AT&T viewed BT as biggest threat for its own expansion. The main reason behind the implementation platform concept is to have BT control its cost in an effective manner. Voice service and Broadband are two innovative steps for BT to improve its market share and performance. To enhance satisfactory consumer experiences, BT has used innovative Concept of VoIP and optical fiber. The short term recommendation for BT is to connect everywhere at reasonable prices the customers via hotspot technology and implementing BT huge manpower to offer 7-24 customer services. The long term recommendation include leverage the network for corporate clients so that they have complete pie of corporate communication services. BT should follow DIP- Deep-Packet-Inspection to measure network's traffic on distinct rates and type of bandwidth. Open innovation should be used by opting for open OBM- Open-Business-Model, through which flexible strategies should be designed that is feasible globally and link it with E-governance. Moreover, it should opt for fiber-based-network for voice and data.

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APPENDIX:Article related to BT merger with MCI:

THESE EXTRACT IS FROM BUBBLE.COM: There has been emergence of various fundamental trends in recent years becoming a real game changers of telecommunication industry. The introduction of M2M, Wi-Fi, and cloud has been a trends that has transformed entire sectors of society and its economy. The Wi-Fi and cloud played a vital role in the future development of telecommunication industry and creating new opportunities for sectors expansion. The stated preference have changed the prospective and outlook of telecommunication industry in context of the significantly growing new telecommunication technologies used to provide services in international global market and playing a significant role in globalization.NEW YORK TIMES Article related to BT merger with AT&T:

THE GUARDIAN Article on Virgin Media beats Expectations:

UK TELECOMMUNICATION SURVEY 2010: