BT (British Telecom) Business Strategy Analysis: A Comprehensive Study

This report provides a comprehensive analysis of BT's (British Telecom) business strategy, examining its external and internal environments. It utilizes frameworks like PESTLE analysis, Ansoff's Growth matrix, VRIO model, and Porter's Five Forces to assess BT's strategic capabilities, strengths, weaknesses, and competitive position within the UK telecommunications sector. The report also explores BT's strategic direction using Bowman's Strategy Clock model, highlighting potential opportunities and challenges for the company's future growth.

BUSINESS STRATEGY: BT (British Telecom)
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Table of Contents
Introduction...................................................................................................................3
Task 1 External Environmental analysis......................................................................3
i PESTLE analysis........................................................................................................3
ii Ansoff's Growth matrix...............................................................................................5
Task 2 – The internal environment and organisation capabilities................................7
i. Explain strategic capability........................................................................................7
ii VRIO’ model to determine the strategic capabilities..................................................7
iii Organisation strength and weakness........................................................................8
Task 3 – Analysing the telecommunications sector.....................................................9
Porter's Five Force Model.............................................................................................9
Task 4 – Understanding and interpreting strategic direction......................................14
Bowman’s strategy clock model.................................................................................14
Conclusion..................................................................................................................17
References.................................................................................................................19
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Introduction
The success of any organisation is based on the strategic planning of management.
Similarly, management decide the business strategy based on the external and
internal business environment. This research report is developed for the academic
purpose and is an analysis of the UK based telecommunication company, BT (also
known as British Telecom). This report analyse the current strategic position of BT in
telecommunication industry by using different strategic management tool and
technique. This report covers both internal and external scope of BT, find out the
current business situation of BT. The telecommunication market of UK is very
competitive due to several factors, and companies are facing constant threat to
maintain their position in market. Especially small companies are struggling to
maintain their market share in domestic and international market. This report can be
a great help for those academics who are planning to perform further research on
UK telecommunication market.
Task 1 External Environmental analysis
i PESTLE analysis
PESTLE analysis framework is used to analyse the macroeconomic environment
and this is significant for any manager for strategy formulation (Greenspan, 2015).
Therefore a PESTLE analysis on the macroeconomic environment of BT has been
done to understand how the external business environment is affecting the business
organisation.
Political factors
British telecommunication industry has always been greatly influenced by the British
Government. British government has made many rules which should be obeyed by
any business organisation if it is running business within UK market. In last few
years, the UK industries along with the people of UK have seen much of political
instability due to the Brexit agreement. The British Government has taken the
decision to remove themselves from the list of EU countries to enjoy the liberal
market of UK. However, in this process most of the UK companies have lost that
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right to run business in EU countries. Naturally, it has created a negative impact on
the overall economic growth of the UK and telecommunication companies like BT is
no exception in this scenario (Dhingra et al., 2016).
Politics of any country has the potential to create a dramatic effect on the future of
BT presenting many opportunities and threats in existing and future developments of
BT. The strong presence of UK ombudsman system has been a great help for
customer and the major threats for companies. Customer has the right to lodge a
complaint against BT and if the Ombudsman authority found BT guilt then the
company has to pay compensation to the customer. Alongside, the UK government
has introduced their Environmental Protection Act 1990 due to which any business
(especially telecommunication) which uses natural resources should have strong
business strategy to make a sustainable environment. The initial telecommunication
market was 'monopolistic' market where BT was the only provider however with the
privatisation of telecommunication market in 1984 allowed new entrants and
increased the competition level for BT.
Economic factors
There are several economical factors which should be considered for the BT. The
economic growth, inflation and rate of interest all these factors have direct impact on
the business of BT. BT played the role of a great contributor towards the economical
growth of UK. It not only helped to flourishes the domestic market, but through their
global business BT have also earned considerable amount of foreign revenue.
Despite the global economical crisis, BT has managed to be consistent with their
business profit. The telecommunication sector of UK has generated £ 3.8 billion in
retail revenue in the first quarter of 2017 which is low from the previous quarter but
definitely higher than the last year (Deloitte, 2018).
Social Factors
According to a survey done by the Deloitte more than 50% of the population in
between 16-75 years in UK use smart phone while walking, this is a total population
of 22 million people of the UK. This survey report clearly suggests that mobile phone
and network is a biggest part of the UK social life. The lifestyle of the people in UK
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society is completely addicted to technologies and gadget. Therefore, Bt has a
golden and opportunities market in UK.
Technological Factors
The rate of technological changes in global and domestic telecommunication market
in UK is very high. In order to sustain in market any organisations including BT need
to bring innovation in product and technology. Customers are always in demand of
new technology and any company, which is able to offer new technology, is
obviously in a advantageous position in the market. In order to invent
groundbreaking technology BT need to identify development expertise and supply
chain which has potential to produce the new system. Therefore, introducing product
and services with new technology is one of the biggest challenges for BT and has
long term impact on business growth.
Legal Factors
There has always been an on-going debate on how the UK telecommunication
sector should be regulated. BT is run under the framework of the UK communication
Act 2003 (Watson and Hill, 2015). It sought to harmonise communication regulation
within the European Union.
Environmental Factors
The government of UK has taken the initiative of promoting safe environment. Every
business must take the responsibility to reduce the carbon emission. This is
especially applicable for industry where the consumption of natural resources is high.
BT as the biggest energy provider of the UK has also invested lot of revenue for
promoting sustainable environment. This is also known as the CSR (Corporate
Social Responsibility) policy of UK. Certainly, this CSR policy has a positive impact
of the future business environment of BT.
ii Ansoff's Growth matrix
Ansoff growth matrix has been developed to help management team to focus on
aspects of points of business growth (Dawes, 2018).
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Figure 1: Ansoff Matrix
(Source: Dawes, 2018)
Market Penetration; is the accurate growth strategy for the organisation which
seeks to obtain growth with existing product in their current market segment and aim
to increase their market share
Market Development; is best strategy for organisations which is looking for growth
by targeting its existing products to new market segment.
Product Development; is appropriate strategy for organisations which develop new
product targeting their existing market segment (Simmonds, 2015).
Diversification; is the right strategy to gain growth by diversifying product into new
business by developing new products for new markets.
BT has always taken the market penetration as their growth strategy because it is
the least risky strategy for business growth. Simultaneously, BT tries to acquire more
amount of market share with their existing product type. However in order to give
tough competition to the competitors BT has adopted product development as their
new growth strategy. BT has come up with a wide range of product and services for
their existing market to lure more number of customers towards the business.
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Task 2 – The internal environment and organisation capabilities
i. Explain strategic capability
Strategic capability refers to business ability to employ competitive strategies that
allows increasing the value of organisation over time. Rarity of strategic capabilties
of any organisations is ease of transferability, sustainability, core rigidities. Core
competencies lead an organisation to competitive advantages in the following
condition
 When they relate to an activity which is difficult for the competitors to imitate
 When they lead to high level of performance that is visible better than the
rivals
Dynamic capabilities of BT are they are able to renew and recreate their strategic
capabilities to meet the changing demand of market (Zhou et al., 2015). BT has the
collective experience of working in market for long time. Therefore, they have
successfully accumulated organisational knowledge through collective experience,
system, routines and organisational activities. Bringing innovation in business is the
biggest strength for BT.
ii VRIO’ model to determine the strategic capabilities
According to Bringer Werner, felt resource base view competitive advantage of a firm
lies primarily in the application of bundle of value tangible or intangible resources.
This theory is the basis of VRIO framework (Min et al., 2016). A business activity is
full of many resources and together they allow business executives their activities.
Capabilities, which are required for achieving sustainable advantages, are Value,
Rarity, Inimitable and Organised to exploit.
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Figure 2: VRIO Model
(Source: Min et al., 2016)
Valuable Rare Inimitable Organisation
Applicable
Yes No Yes Yes
BT focuses on value
of the service and
provides an obvious
customer value and
gained competitive
advantages among
competitors.
BT is not the only
service provider that
focuses on the
customer value
however they focus
on customer value at
every level of service
throughout the
group.
Any organisation can
imitate the business
strategy of BT as it is
less costly. However
organisations need
to come up with a
good strategy to gain
competitive
advantage in market.
BT is running their
business for a long
time in the market
therefore they have a
strong customer
base. This helped
company to be
successful for many
years.
iii Organisation strength and weakness
It is essential for the management of BT to understand the strength and weaknesses
to formulate the right strategy for business. A brief description of the internal
strengths and weaknesses of the company is analysed below
Strengths Weaknesses
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 Strong presence of brand with
huge number of customer base
 BT has wide range of product and
services which is greater than
their existing competitors like
Vodafone, Talk-Talk.
 The historical base and strong
understanding of market helped
BT to come up with strong
business strategy
 Global market presence
 Availability of network is remote
areas where other competitors
could not supply service
 High value customer care service
 BT has some excellent marketing
strategy which cannot be imitated
by their rivals and thus provide
competitive advantages to
company
 Value added service of BT is one
of the biggest strength of the
company
 Strong financial background and
excellent relationship with the
supplier made BT one of the
biggest energy suppliers in UK
market.
 The biggest weakness for BT is
their market limitation within UK.
Though BT is one of the biggest
suppliers in the market of UK but
they have no market share is Asia
Pacific Region while one of their
biggest competitors Vodafone has
managed to gain market share in
Asia Pacific Region.
 Recently BT has been separated
from Openreach the biggest
supplier of network and that led to
a big brand loss and increase the
operation cost for BT.
 The numbers of complaint from
the customers are one of the
drawbacks for BT, for some
reason BT has failed to manage
and respond their customer's
complaint on a timely manner. In
most of the cases BT end up
paying penalties or large amount
of compensation to customers.
 Many scandal associated with BT
has impacted the reputation of the
company on a long term basis;
one of such scandal was pension
deficit and accounting scandal in
Italian business.
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Task 3 – Analysing the telecommunications sector
Porter's Five Force Model
Porter defined five different forces, which have to be thought when determining the
attractiveness of any market. Base on the Porter's point of view one should consider
entering into a new business based on the profitability of the industry (Adi, 2015).
Therefore the attractiveness of market is defined by the profitability of the market
offer to its entrants. The stronger these forces are, the less profit can be achieved in
that particular industry and naturally it will be less attractive for the potential entrants.
Figure 3: Porter's Five-Force Model
(Source: Adi, 2015)
The five forces of Porter's model are threat of new entrants, the bargaining power of
buyers, the bargaining power of suppliers, threats of substitute product and services.
The threats of new entrants
According to Porter the threats of new entrants in any industry is the vital factor to
decide the profitability from the industry. He assumes there are six major barriers for
the new entrants to enter in the industry (Moreno-Izquierdo et al., 2016). If an
industry is easy to enter and profitability is high then rivalry soon intensifies. As soon
as the rivalry increase the profitability of the industry decreases. Therefore, existing
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company must create barriers and prevent the entrance of new companies. Threat
from the new entrants is generally high under these following industry or market
condition
 Low amount of capital is required to enter a market
 Existing company have very little power to prevent the entry
 Existing companies have poor brand reputation
 Lack of government regulation
 Low customer loyalty
 Identical products
 Economics scale is easily achievable
 Customer switching cost is low
Considering the condition of UK telecommunication market, above conditions are not
present in UK telecommunication industry. The UK government has very strict
government policies that restrict the entry of new companies in market. Similarly, a
company require huge capital to start business in UK telecommunication sector and
compete with the existing companies like BT. And finally the string brand presence
restrict potential entrants to enter from the UK telecommunication industry.
Therefore, it would be correct to state that the threats of new entrants are low in UK
telecommunication industry.
Bargaining power of buyer
Buyers can demand for lower prices or high quality product from the industry when
they have strong bargaining power. While lower price indicates low profitability,
higher quality normally raises the manufacturing cost (Fabbri and Klapper, 2016).
Unfortunately, in both the condition the profitability is low for the manufacturer. Buyer
apply strong bargaining power under the following condition
 The number of buyers is low
 Switching cost from one supplier to other supplier is low
 The number of substitute is high
 Buyers are price sensitive
In UK telecommunication market buyers possesses strong bargaining power.
Certainly the number of buyers is not low however the numbers of energy supplier
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are high is UK market. Customer can easily switch their supplier with paying zero
switching cost. Because of the high level of competition, companies fixed their
product or service price lower than the rivals. This provides opportunity for the
customer to bargain and choose their provider. Thus, bargaining power of buyers is
high in UK telecommunication market
Bargaining power of Suppliers
Strong bargaining power of supplier allows supplier to supply low quality prices at
higher cost. This has a direct and negative impact of the industry as companies have
to pay high cost for poor quality material. Supplier can exert power in companies
when they understand that producers have very less options of supplier to shift.
Under the following condition suppliers hold strong bargaining power within industry;
 The number of supplier is very limited
 Few substitute of raw material exist in market
 Supplier holds more resources than the manufacturer
 Cost of switching raw material is high
The number of supplier is less in UK market and that increases the bargaining power
of supplier. A recent separation of BT from their main supplier Openreach has a
negative impact on the business in BT. The major reason of supplier holding high
bargaining capacity is the cost of switching product is high in UK market.
Threats of Substitute
Companies feel threatened when customer can easily switch their service provider at
low switching cots and that is possible only when there are plenty of options in
market. The amount of competition in UK telecommunication market among the rival
are very intense. All service provider offer almost same quality product or service
within affordable cost. Therefore, customers get plenty of substitutes for their product
and service and this naturally increases the threats from substitute. BT with that
strategic business plan still managed to provide product at low cost which is major
threats for other companies.
Industry Rivalry
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This force is the major determinants on how profitable an industry is. Rivalry among
competitors is intense when the profitability is high in market (Zervos, 2017). In
competitive market like UK telecommunication industry, organisation needs to
compete aggressively to hold back the market share. Rivalry among competitors is
high under the following circumstances;
 Number of competitors is high
 Exit barrier is high
 Product differentiation is low and can be easily imitated
 Competitors are almost equal is size
 Low customer loyalty
Based on the market condition, it can be stated that UK telecommunication sector
has many competitors and each of them have strong market hold. Even though BT is
the major service provider but other competitors like Vodafone, talk talk have strong
business base. Similarly, the product differentiation is low and any company can
come up with the same product concept as BT or other major competitors. Besides,
customer can switch their product at any given point of time without paying any exit
fee. Therefore, the rivalry among competitors is very intense in UK
telecommunication market.
Considering the Porter's five forces of it can be stated that the profitability in the
industry is through high however level of competition is intense. Furthermore any
new entrants have to invest a large amount of capital to enter in this industry, where
BT is already a leading service provider with strong customer base. Therefore BT
has little threat from new entrants considering their customer base and brand value.
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Task 4 – Understanding and interpreting strategic direction
Bowman’s strategy clock model
Bowman's strategy clock model is used in marketing to analyse the competitive
position of a company in comparison to their rivals or competitions (Haselwanter et
al., 2016). Cliff Bowman and David Faulkner as an elaboration of three Potter’s
general strategies originally developed it.
Figure 4: Bowman's Strategy Clock
(Source: Haselwanter et al., 2016)
Following are the eight strategic position of Bowman's strategic clock
Position 1: Low Price or Low Added Value
Companies usually avoid competing in this category. Companies generally choose
this position when their products lack differentiated value. A company can apply this
by increasing the sales volume and by constantly attracting new or potential
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customers. Quality of product is not significant in this position but price must be
attractive enough to convince customers to try their products.
Position 2: Low Price
A company can choose this option for their products when it decides to be the low
cost leader. As soon as the company focus on this strategy the profit margin from the
product will be very low, therefore company need to concentrate on high sales
volume for achieving desired profit. A company, which is low cost leader and have
large sales volume or if they have string strategic reason for their position then it can
survive with this approach and can be a market leader. In case if company failed to
increase the sales volume then by staying in this strategic position company will only
contribute for the profit of customers.BT is one such company which remained in this
strategic position for a long time. BT managed to keep the price of their product and
services low in order increase their sales volume. This strategy has helped BT to
sustain in market for long run
Position 3: Hybrid (Moderate price and Moderate differentiation)
This is a very interesting strategic position for any company. In this strategic position
company offer low cost product to their customer however offer higher apparent
value to customer than other low cost competitors (Reeves et al.,2015). Though
sales volume is an issue in this strategic position but companies manage to build a
brand reputation by offering product at fair price. As customer get better quality
product at fair price so company gain more number of loyal customers. This is best
strategic position for companied which are looking for loyal customers for their
product.
Position 4: Differentiation
In differentiation option company develop unique product attributes which are valued
by customers. Companies which choose this strategic position and develop product
which offer uniqueness and different value to customer than competitors it
automatically gain a competitive edge in market. Branding is an important aspect in
this strategy. As branding allows a company to become unique with quality and
price. Companies which offer premium quality product to customers gain premium
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position in market and even if they charge high prices customer are ready to pay that
due to the quality of product.
Position 5: Focused Differentiation
Companies, which choose to remain in this strategic position, offer high value
product for high price (Cattani et al., 2017). Companies whose customers by product
on perceive value choose this strategy. Not necessarily, every product has a high
value however, the perception of the product value is enough for companies to
charge high price. Companies, which choose to remain in this strategic position
always, target premium customer with high profit margin.
Position 6: increased price and standard product
There are companies, which choose to increase their price all of a sudden with the
hope to gain higher profit margin without changing the value of the product. If
customers happily accept the price of the products, the company will enjoy higher
profit else the value of their market share fall (Li, 2016). In that situation, company
needs to adjust their product price to regain the market value. This strategy is
absolutely inappropriate in highly competitive market. For instance, BT cannot
increase the price of their existing package without offering addition value or if they
do in that case customers will change their service providers.
Position 7: high Price/Low Value
A company can choose this strategic position if the company is the single service
provider in market and there is no other competitors. As a monopolistic company,
companies don't need to add value to product for charging higher prices. As long as
the company is the single service provider, customers have no other options to
choose but take service from the company. In such market, type there is higher
change of unfair pricing. A company can charge any price for its product or service
without offering any extra value to customers. If customers need the product, they
will buy the product set by the company. However, monopoly does not stay long in
any market. In the age of globalisation companies start entering market where the
profitability is high. For example, the nature of business of BT was monopolistic and
BT was the single service provider in UK telecommunication market, thus they had
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limited restriction over price fixing but it has changed over the years as competitors
started entering in the market.
Position 8: Low Value/ Standard Price
Any company that adopt this strategic position is definitely having low share value in
market. If a company offer low value the only strategy for the company for sailing
their product will be their price. In case if the company cannot sale a product at
certain price, they can reduce the price for sale of the product.
Considering the above Bowman's strategy clock it can be stated that BT need to
understand their market position, customer base and value of service before taking
up any strategic position to compete in the market. Considering the strong and
existing market position of BT, it can be stated that the company will be able to
sustain in market if they continue remaining is the position (Differentiation) and
Position 5 (Focus Differentiation) in Bowman's strategic clock.
Conclusion
The original purpose of this report was to evaluate the strategic position of BT based
on the internal and external business environment in UK telecommunication industry.
It can be found that BT has been able to manage a sustainable growth through their
unique strategic capabilities. In the first section of this report it can be found that the
external macroeconomics factors have great impact of the business policy of the
organisation.
From the nest section, it can be found that due to the higher competition and big
investment BT has less threat from the new entrants. However, the competition is
ever growing among the existing rivals. Similarly, it can be found from this report that
strong brand value and customer loyalty is the biggest strength for the company.
Finally it has been recommended that BT should focus on product differentiation in
order to gain long term sustainability and high profit margin in UK telecommunication
market. Though BT has still unexplored business opportunity is Asia Pacific region
where one of the biggest rivals of BT is already doing well. Therefore, BT should
start taking strategy for penetrating in global telecommunication market, keeping
special focus in Asia Pacific Market.
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