O2 Business Strategy: An Analysis of the Telecom Environment

This report provides a comprehensive analysis of O2's business strategy within the telecommunications sector. It begins by examining the external environment using the PESTLE model, highlighting the impact of political, economic, social, technological, legal, and environmental factors on O2's operations and strategic decision-making. The report then employs Ansoff's growth vector matrix to evaluate O2's strategic positioning and potential growth strategies. A detailed internal analysis follows, utilizing the VRIO/VRIN model to identify O2's strategic capabilities and core competencies, alongside its strengths and weaknesses. The analysis extends to the broader telecommunications sector, assessing competitive dynamics and market trends. Finally, the report leverages Bowman's strategy clock model to analyze O2's strategic direction and available options, culminating in a conclusion that synthesizes the key findings and implications for O2's future strategic development.

Business strategy
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Table of Contents
Introduction................................................................................................................................3
Task 1 – The external environment (P1)....................................................................................3
i. PESTLE model for environmental analysis............................................................................3
ii. Ansoff’s growth vector matrix to analyse the organisation’s strategic positioning...............6
Task 2 – The internal environment and organisation capabilities (P2)......................................8
i. Explain what strategic capability means.................................................................................8
ii. Apply the ‘VRIO/VRIN’ model to determine the strategic capabilities possessed by your
chosen organisation....................................................................................................................9
iii. Identify the organisation’s strengths and weaknesses........................................................12
Task 3 – Analysing the telecommunications sector.................................................................12
Task 4 – Understanding and interpreting strategic direction...................................................14
Using Bowman’s strategy clock model, analyse the strategic direction and options available
for your chosen organisation (p4)............................................................................................14
Conclusion................................................................................................................................17
Reference list............................................................................................................................18
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Introduction
With the growth in industrialisation and advancement in technologies, every subsector and
super sector is becoming extremely competitive. This scenario is mostly evident in the
telecom industry. The industry is growing extremely profitable and the prolific nature of the
industry is attracting several new organisations and this is making the industry more
competitive. It has been observed that the telecommunication industry has generated as huge
as 3.8 billion euro revenue in the first quarter of 2017 only and this is a £32m increase from
the previous year. This eye witnessing growth shows the way this industry is becoming more and
more prolife and attractive for business organisations. The existing organisations are able to
realise the effect if this growing competition in this industry. This scenario has made it mandatory
for organisations to evaluate several internal and external factors that are influencing the business
activities. The following section will provide a beneficial understand regarding the internal and
external forces of one of the largest organisation in UK telecom industry O2. The report would
also analyse strategic competencies and some other aspects associated with the organisation.
Task 1 – The external environment (P1)
i. PESTLE model for environmental analysis
Despite being one of the leading market players in the telecommunication industry in UK, O2
is facing the challenge of sustaining its position and growth in this highly competitive market
environment. This has made it essential for analysing the external market forces that
influences the strategy formation and internal functionality of the company.
The following section would analyse the external forces and its influence on O2, by using
PESTLE framework.
Factor Influence
Political  The organisation has over 25 millions
of customers in UK only (O2.co.uk,
2018). Political decagons and changes
bear a significant influence on this
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wide number of customers. For
example, the political decision of
Brexit has created significant impact
on consumer confidence. The impact
on consumer confidence has impacted
the company by reducing the
purchase of its services.
 However, the government of UK has
found to be quite collaborative with
the telecom organisations and have
undertaking several initiative for
improving telecom sector. For
example, UK government’s 25
million euro initiative for 5G projects
is going to benefit the telecom sector
and create several opportunities for
organisations like O2 (Gov.uk, 2018).
Economical The telecommunication industry constitutes a
major part of the GDP of UK. Therefore, the UK
economy is closely connected with the telecom
sector. Economic changes therefore have a
considerable influence on the profitability of
organisations like O2. A fair economic scenario
provides the customers a better per capital
income and this further enhances the ability of
purchase (Battistella, 2014). Thus, a better
economic scenario ensures more profitability.
On the other hand inflation, recession and other
economic decisions may deteriorate profitability
of O2. During the 2010 recession the organisation
suffered major lose and this also let into losing
potential customers as well as employees.
Social Consumer behaviour and the way customers
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belonging to different social segments and
demographics, determines the service type and
pricing of the services. For example, the teenage
generation is a potential customer segment.
However, due to lack of sources for earning they
cannot buy high price services (Nardotto et al,
2015). In order to overcome this barrier and
access to this potential customer segment, O2 has
to develop pocket friendly service facilities.
Consumer demand are changing in a faster pace
and consumers are becoming easily bored with
one type of services. As a result, it has become
mandatory for the company to develop new
strategies to lure the customers (Grešková, 2015).
Thus, social factors influence strategies and
internal functionalities of the company.
mandatory for using new strategies to lure the
customers. Thus, social factors influence
strategies and internal functionalities of the
company.
Technological As O2 is a telecom organisation, it is quite
definite that the productivity of the organisation
is immensely dependent on technology and in
fact telecommunication itself is a major bliss of
technology. Due to technological advancement
the company is able to provide its customers with
newer generation services. From 2g to 5g, the
telecom industry has witnessed a vast change.
Technological advancement has facilitated a vast
improvement in the functionalities of the
organisation.
However, technological advancement has
increased competition. Consumer preferences are
changing frequently. Other organisations are also
using several technological tools and this has
enhanced productivity of organisations making
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the market more competitive.
Legal Several regulations and legal publications are
there that the organisation has to comply with in
order to function in the soil of UK.
Being a telecom organisation, it has to oblige by
regulations like The UK Communications Act
2003, and some others (Legislation.gov.uk,
2018).
Several environmental and employment
regulations such as Employee Act 2010 and
others are also major legal obligations for the
company.
The organisation has to consider the prohibitions
of such regulations in order to avoid any legal
complications and maintain work environment.
Environmental Environment is one of the major pillars of
sustainability, and therefore in order to have a
sustainable existence, the organisation would
have to consider the ways environmental benefits
can be ensured.
O2 has several CSR programmes that are aimed
at redoing its negative impact on earth.
Table 1: PESTLE analysis
(Source: Created by author)
ii. Ansoff’s growth vector matrix to analyse the organisation’s strategic positioning
As the competition in telecom industry is growing significantly, O2 needs to consider
expanding its market by using effective strategy. Developed by Igor Ansoff, the Ansoff
Matrix provides beneficial understanding regarding the strategies that the organisation should
use for market expansion (Hussain et al., 2013). With the help of Ansoff matrix N O2 can
also initiate strategic position after determining the strategy that best suits its purpose. The
four strategies and the one that would be most beneficial for O2 are as follows.
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Product development: According to this strategy, O2 have to sell new services in its
existing market for the purpose of business expansion. For example, it can introduce its 5G
services in the market of west London. Thus the company would be able to gain new
customers in the existing market. This is a low cost low risk strategy as the company already
have a position in the market and therefore would require giving much effort for gaining
attention or customer base.
Market penetration: Selling existing services in the existing market can be done for the
purpose of enhancing market share. This strategy is known as market penetration. This is
also low cost and low risk strategy and is most applicable in the case of coping up with
increasing competition. Market penetration would be beneficial for O2 for enhancing its
competitive edge over other organisations in this industry.
Diversification: Selling new products in an entirely new market is known as diversification.
This procedure is highly expensive and also time consuming. O2 can use this strategy in case
of extreme necessity (Simmonds, 2015). For this purpose the organisation can develop smart
phones and launch it in such a market where it has no or little existence.
Market development: Market development refers to the process of launching existing
service in an entirely new market (Loredana, 2016). The emerging nations are becoming
potential business destinations as the economy of such nations are boosting significantly. The
company can select the market of India as the huge spendthrift population of this country can
work as potential customer base for O2.
MARKET PENETRATION
(5G services)
PRODUCT DEVELOPMENT
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MARKET
EXISTING

(New market: emerging mations )
MARKET DEVELOPMENT
(New region,
New product: Smartphone)
DIVERSIFICATION
Table 2: Ansoff Matrix
(Source: created by author)
Task 2 – The internal environment and organisation capabilities (P2)
i. Explain what strategic capability means
Strategic capabilities
Strategic capabilities indicate to the core competencies as well as resources that are required
for survival and prosperity of an organisation (Lengnick-Hall et al., 2011). This also refers to
the ability of an organisation for successfully employing competitive strategies that can help
the company for surviving in its industry on a long term basis and can help in ensuring
further growth. Effective strategic formulation requires utilisation of resources as well as
assets in the best possible way.
O2 has developed several strategies that have enabled the organisation to use its sources
effectively and manage it in the most efficient manner. For example, the organisation has
effective in store support stuff that uses Salesforce Chatter for solving customer related
issues. This effective sales force, known as “Gurus” are beneficial for enhancing customer
satisfaction (Salesforce.com, 2018). Thus, the organisation utilises its extremely efficient
workforce, equipped with proper product knowledge and sales skills, for enhancing customer
satisfaction which further ensures better productivity.
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NEW

The key components of strategic capabilities
The key components of strategic capability are foundations, effective cost management,
organisational knowledge, Sustainability, strategic analysis and development. Strategic
competencies of the company O2 is depended on four major factors that are resources, core
competences, and dynamic capabilities. The competencies of O2 are depended on the way it
uses its potential workforce and other resources.
Figure 1: Core Concepts in Strategic Capability
(Source: created by author)
ii. Apply the ‘VRIO/VRIN’ model to determine the strategic capabilities possessed by
your chosen organisation
In order to determine the core competencies of the organisation O2, it is essential to have a
brief outline of the capabilities and resources of the organisation. The resources and
capabilities of the organisation are described in the following framework.
Resources Competencies
Threshold capabilities Threshold resources
Tangible
Threshold competences
 Skills of the employees
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CoreConceptsinStrategicCapabilityFoundationsAnalysisDevelopmentCostefficiencyOrganisationalknowledgeSustainability

 supply chain
network: Full
fibre core
network
Intangible
 Information
 data base
 Strategies for ensuring
sustainable practices
 Effective supply chain
management
Capabilities for
competitive analysis
Unique resources
Tangible
 Monetary
resources
 Provide products
and services
according to the
demands and
trends in the
market
 Recycling of
devices
Intangible
 Effective and
unique sales
force; “Gurus”
 Sustainable
practices
Core competences
 Effective sales force that
uses effective technologies
for ensuring better
customer satisfaction
 Effective supply chain
management, the process
of recycling, ensures
sustainable practices
Table 3: Strategic Capabilities and Competitive Advantage
(Source: Created by author)
Developed by Birger Wernerfelt, in the year 1984, the resource based view (RBV) propagates
the idea that competitive advantage of a company depends on the organisation’s ability in the
application of its valuable intangible as well as tangible resources. Based on this model, the
VRIO model has been developed, which is used for analysing the value of tangible and
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intangible resources of an organisation. In the following section, the VRIO model has been
used for analysing the competitive potentiality of tangible and intangible resources of O2.
Resource or
capability
Valuable Rare Inimitable and
non
sustainable
Organized to
exploit
Database Yes Yes No Yes
Full fibre core
network
throughout its
domestic
market
Yes No Yes Yes
Recycling of
devices
Yes Yes No No
Employees:
effective sales
force
Yes No No Yes
Service
innovation
Yes Yes Yes No
Table 4: VRIO of O2
(Source: created by author)
The data base regarding customer information is the most valuable source as most of the
strategies and functionalities of the organisation are initiated and depended on customer data.
For example, if the organisation wants to introduce some new innovative service then it
would have to evaluate the customer data for understanding consumer behaviour and
developing such services that can actually appeal the customers (Battistella, C., 2014). The
customer data of O2 are entirely its personal and they are not imitable. However, the loss of
data base may lead to making it vulnerable to exploitation as the data can be used and
exploited by other competitor telecom organisations.
Another major capability of the organisation is the use of Full fibre core network throughout
its domestic market. This is extremely valuable as this ensure effective connectivity among
the different geographical locations where the company operates. However, this capability is
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not rate and therefore does not provide competitive advantage. This provides the organisation
the ability to sustain its existence in the telecom industry and continue providing its services.
The workforce of O2 that includes more than 21,580 employees is one of the most valuable
resource and the core competencies of the organisation are chiefly depended on its human
resources. However, this resource is not rare as UK has an efficient energetic young
workforce and job seekers that provides the organisations in telecom industry to employ from
this enormous talent pool.
Due to the increasing competition in telecom industry, innovation has become an inextricable
part and therefore innovative services of O2 are valuable and beneficial for ensuring
competitive advantage. The rarity of innovative services and ideas is also beneficial for
gaining completive advantage. Innovations can be adapted by other organisations; however,
individual property rights can help in retaining the ownership of innovations. The
organisation’s supply chain is also a major capability as this ensures sustainable practices. It
is also quite rare in this industry and therefore should be considered as an effective
competency.
iii. Identify the organisation’s strengths and weaknesses
Strengths: One of the main strengths of O2 is its brand value, which has helped in attracting
more number of customers. The company also has good advertising and brand presence,
which has helped the company to provide adequate information to its customers (Anselmsson
et al., 2014). This helps the company to create awareness about the products and services of
O2. The other main strengths of the company are that it has reliable suppliers, which helps
O2 to overcome any supply chain bottlenecks. O2 also has strong the distribution network,
which has helped the company to reach majority of the potential market in the United
Kingdom.
Weakness: One of the main weaknesses of O2 is that it has limited global presence due to
which the company is not able to take competitive advantage over its competitors. There is
also high employee turnover and the company has to spend more as compared to its
competitors on the training and development programs. This has increased the expenses,
which has led to the decrease in the profit margin of the company (Lasserre, 2017). The
company spends less in the research and development due to which the company is not able
to provide innovative products and services as compared to its competitors.
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Task 3 – Analysing the telecommunications sector
a. Bargaining power of buyers
The bargaining power of the customers refers to the level to which the customers of telecom
industry are able to exert power on the organisations in this industry. Several kinds of results
can come from this scenario. For example, the customer buyer power can reduce the overall
prices of services in this industry. The customer can also demand better quality services. Due
to the numerous organisations in the telecom industry, the customers get the opportunity to
frequently switch from one organisation to another. They can choose a better service provider
in a lower price. In the case of telecom industry, the market is characterised by high
bargaining power. This makes the organisation consider its pricing strategies effectively so
that the customer base of it can be retained. Due to the high bargaining power in the telecom
industry, O2 has to introduce low priced services.
b. Bargaining power of suppliers
The aim of this force defines the power of the suppliers in driving up the prices of goods and
services in the market. This force is generally affected by the quantity of the suppliers
depending upon the aspects of goods and services. When there is fewer numbers of suppliers
present in a particular region, where the organisation performs its operations, the organisation
becomes dependent on the available suppliers t6hus, increasing the power of a supplier.
The organisation of O2 will have a long-term positive influence over the bargaining power of
the suppliers and this adds to the organisational value. Most of the inputs of this organisation
do not have a big component of costs that leads to the less bargaining power from the
suppliers. Hence, the low input costs affect the O2 organisation in a positive way.
c. Threats of new entrants
The presence new entrants into its market also determine the power of the company. When a
new competitor enters the market of an existing company with less investment and time, the
threat of weakening in the company’s position arises.
The threats of new entrants to the O2 Company are dependent on six factors.
 The expenditure of building a strong distribution network has positive effect on the
organisation.
 O2 have comparatively stronger brand name than compared to its competitors and
there is no threat to its brand name.
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 O2 uses most of the advance technologies than compared to its competitors thus
adding a positive affect for its survival in the market.
 Patent limits add to the O2 Company’s positive affect to its career in the market than
compared to its compe3titors.
 High learning curves also affect the organisation in the positive way.
 O2 has a high entry barrier that makes the survival as well as entry of new entrants
difficult.
d. Threats of substitutes
Many organisations produce similar types of goods and services that add to the competitions
between those organisations in the market. When there is limited number of substitutes in the
market, it becomes easy for the customer to choose from those available types of products.
The O2 organisation has limited number of substitutes in the market that is a benefit for the
company. There is limited number of telecom industries present in UK namely, Vodafone,
BT Group and Virgin Mobile that offers low competitions to the O2 organisation.
e. Rivalry within the market
The threats of rivalry of O2 organisation within the market depend upon two major factors:
 Government policies and regulations limit its competitions within the market. The
legislations and regulations of the government are responsible in determining the
competitions within its industry. When the government limits the competitions, it is
merit for the O2 organisation. While the company suffers from negative impacts for a
longer period when the government does not limits the competitions.
 The organisation is known for its large size. This prevents the organisation from
stealing its market share by its competitors.
Task 4 – Understanding and interpreting strategic direction
Using Bowman’s strategy clock model, analyse the strategic direction and options
available for your chosen organisation (p4)
Bowman’s Strategy Clock model can be defined as the model that is used by the company
while developing the marketing strategy. This model helps in analysing the competitive
position of the company as compared to offerings of the competitors. It also helps in showing
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the relationship between the prices and customers value. There are eight positions of
Bowman’s Strategy Clock, which are as follows:
 Position 1: Low Price / Low Added Value: This is considered as the less competitive
position of the company. This is regarded as the “bargain basement” where the
company does not want be in this particular position. The company selects this
position where there is the lack differentiated products. In this position, despite lower
price, the customer perceives little value. By being in this position, the company will
not be able to gain customers’ loyalty but it will be able to sustain itself, as long as the
company is ahead of the customers (Haselwanter et al., 2016). Additionally, the
products qualities in this position are inferior but the prices are attractive enough to
force the customers to try the products or services once.
 Position 2: Low Price: When the company is the low cost leader, the company makes
choose this position for their products and services. When the company is
implementing this strategy, the profit margin of the company will decrease, so it will
be essential for the company to sale high volume (Panwar et al., 2016).
 Position 3: Hybrid (Moderate Price & Moderate Differentiation): Hybrid are those
companies that offers the products and services at lower cost but provides products
and services at the higher perceived value as compared to its competitors. In this type
of position, volume is an issue but companies build a reputation of providing the
products and services at affordable prices.
 Position 4: Differentiation: In this position, the company develops such products and
services that has offers unique benefits that the customers values. By providing such
products and services, the company is able to gain competitive advantage over its
competitors (Hammad, 2015). In order to implement this strategy, the company is
required to have high brand awareness and customer loyalty, which can help to
differentiate the products and services.
 Position 5: Focused Differentiation: In this position, the company offers high
perceived value against the higher price. This strategy is applicable to those
companies where the company makes use of the products and services based on the
perceived value. With the help of this strategy, the company will be able to make high
profits but at the same time, only the best products and services can sustain this
strategy.
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 Position 6: Increased Price and Standard Product: Sometimes, companies simply
increases the prices of the products and services without increasing the value side of
the products and services. If the company accepts the increasing value, companies
will be in a position to earn higher profit. On the other hand, if customers do not
appreciate the increased value, there will be a decrease in the market share of the
company. In the long run, companies will not be able to make use of this strategy, as
unjustified price strategy will soon be discovered in the competitive market.
 Position 7: High Price / Low Value: The Company can charge higher price and offer
less value in the monopoly market. As a monopolist, the company is not required to
be concerned about the price, as the customers will have to pay if they need the
products and services. In the modern world, Monopolies Companies do not last for
longer time due to increase in the level of competition (Li, 2016).
 Position 8: Loss of market share: Any company implementing this strategy will not
be able to maintain its market share. The only way to sell the low value products and
services is at its on price.
Figure 1: Bowman’s strategy clock model
(Source: Haselwanter et al., 2016)
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Among all the strategy, O2 mainly makes use of focused differentiation and differentiation
positioning strategy. With the help of this strategy, the company is able to maintain the
market share in the market of the United Kingdom. With the help of the differentiation
positioning strategy, the company is able to retain its loyal customers. Focused differentiation
also helps the company to retain its premium customers. Differentiation position strategy
helps the company to gain competitive advantage over its competitors.
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Conclusion
The above study provides beneficial understanding regarding several internal and external
aspects associated with the telecom organisation O2. It is observed that the external forces
make an effective influence in the functionalities and internal activities of the organisation. A
better economic scenario ensures more productivity, while the organization has to oblige by
the legal prohibitions entrusted by the organisation. The organisation has several
competencies like its effective human resources and effective supply chain management that
ensure sustainable and effective practices.
The report also evaluates major strengths and weaknesses of the organisation. One of the
major strengths of the organisation is that it has high brand value and high market
recognition. The effective marketing strategies have also enabled the organisation to reach to
its targeted market. The above report also provides beneficial understanding regarding the
industry. The industry analysis is conducted by using Porter’s Five Forces. It is observed, that
the industry is characterised by high bargaining power of customers. The external and
internal analyses provided in the report are beneficial for having a convenient understanding
of the telecom industry and the forces that influences functionality.
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