BT Group’s Approach to Innovation and Share Performance
Companies struggle hard to survive in the market by overcoming the competition around them. In order to position themselves from the others, companies need to establish a unique competitive advantage of their own. A distinct competitive advantage will not only enable a company to overcome the competition from the others but also to ensure its long term growth prospects. A distinct competitive advantage will also help companies to overcome the bad times in the market without much difficulty. BT Group which owns British Telecommunications plc is one of the leading telecom groups in the UK with presence across a number of categories related to the telecom sector like landlines, mobile, broadband, and TV products. However, the company started facing new competition in the industry due to a number of factors like convergence of a number of previously distinct telecom services and the deregulation of the services enabled companies that were providing a limited range of services to offer other modern telecom services in which they did not have any presence.
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Establishing a competitive advantage is a challenging task for any business as a lot of monetary and non-monetary resources need to spend on building the advantage in the long term. Companies also follow different kinds of strategies for building a competitive advantage in the long term. According to Porter (1980), a business can establish a competitive advantage following three different types of strategies. The three strategies highlighted by Porter are: cost leadership strategy, differentiation strategy, and focus strategy. Companies following cost leadership strategy try to build competitive advantage in the market by providing their goods at a price which is substantially different from those that is offered by the competitors in the market. Cost leadership strategy involves finding cheaper ways of providing the product or service to the consumers like focusing on the economies of scale and innovative manufacturing processes. Focus strategy involves focusing one business area or a small segment of customers instead of trying to satisfy the needs of all the customers in the marketplace. The last of the strategies that the companies can follow to gain a competitive advantage is differentiation. Differentiation strategy involves focusing on providing services that are totally different form the ones that are offered by the competitors in the marketplace. Differentiation involves coming out with innovative products that are not present in the marketplace, providing high quality of service than that is offered in the marketplace by the competitors. Firms that focus on differentiation strategy have a distinct advantage over the competitors as they differentiation strategies that are followed by companies cannot be easily copied by the competitors in the long term. The three strategies are shown in the table given below.
Faced with increasing competition in the market place, BT decided to focus on adopting a differentiation strategy to survive in the marketplace. As the company was facing new competition in the marketplace, BT focuses on sourcing innovative ideas from outside the organization to differentiate itself from the competitors. A new innovative process called as ‘scouting’ was followed to source new ideas from the outside the marketplace. As many small start-ups around the world are now coming out with innovative ideas, BT thought that sourcing a new of those innovative ideas could help it in differentiating itself from the other. The steps taken by BT had also helped it in gaining price leadership advantage over its rivals. The joint ventures that were entered by it with companies like AT&T and MCI Communication Corporation enabled it to offer services at a cheaper than the main competitors. As per scouting process, the executives of the company meet the managers of the small companies that have innovative ideas and discuss the prospects of selling/lending them to be used by BT. Some of the countries that were approached as per the scouting process were Isreal, Japan, China, and Taiwan. Every year, the company comes across nearly 1,000 new and innovative ideas from outside the company but focuses only on 400 of them. A new technology was introduced in BT since the scouting process was started in the year 2000.Some of the innovations that were introduced by BT from the scouting process were Facelook, PSN Hothouse, Mobility and BOYD, etc. The strategy of BT to scout for more information from outside the organization has paid off well and the company’s net profit has increased from £ 1,539 in the year 2005 to £ 2,501 in the year 2013. Increased net profits for the company also had a good impact on the performance of the company’s share price. Its share price has increased from £ 132.76 in January 2005 to £ 385.60 in September 2014. The innovative differentiation strategies followed by BT helped it to sustain itself from competition and survive the competition in the market place.
The telecom value chain deals about the different business activities that create value for a telecom firm like content, service provision, network platform, and navigation. All the activities act in tandem to create value to the company’s customers and other stakeholders. BT started to face a lot of competition in the marketplace due to the impact of regulation, convergence, and intensity of competition in the external market. Many major global telecom markets in the world started to merge the different telecom services offered by them. Known as consolidation, the regulator of the British telecom industry too has started converging due to the changes in the regulatory environment. The convergence that was brought about by the changes in the regulatory environment led to an increase in the competition in the market. The regulatory action that has increased the competition in the market has impacted the two major areas of the telecom value chain, viz. service provision and network platform. Services which were offered by the different players in the market like Internet Service Provision (ISP), mobile telephony, and landline telecom services were soon offered by a single big telecom company. The impact that the company on its telecom value chain left it with no other option other than look out for innovations from outside the company through a new innovative process called scouting. Giant American telecom companies and technology giants in the Silicon Valley were partnered with to get new ideas from outside the organization. Joint ventures with the big telecom companies like AT&T too has helped in getting new ideas flowing into the organization. All these changes related to innovation that were brought about in the company helped it survive even after its mobile telecom business was hived off as a separate entity. As mentioned above the changes that were brought in the company made it possible to give a significant boost to its share price from the year 2005 till now.