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CPA 117 2013 Sem 1 - Telstra Analysis

By timholt2978 Apr 18, 2014 6485 Words
Case 2 Telstra
Module 2 External Analysis
1. Define the industry of the company (2.6)
Australian mobile telecommunications carrier industry
2. What are the characteristics of the industry that the company is in and how is the industry changing over time? Characteristics:
Technology innovation is a key driver for changes and success in this industry. The industry is under scrutiny of government. Government policies play an important role in market competition and pricing. *ongoing price competition in japan and government support in Korea Changes over time:

Changes in market
Voice segment used to be the most profitable segment, however, it has been experiencing significant drop in revenue recently. Improvement in mobile phone and improved network capacity and functionality has enabled data consumption to be the prospective most profitable segment in the industry. Changes in governmental regulations

Deregulations in the industry has led to more fierce competitions to stabilize and grow player’s market shares.

3. Industry value chain (2.9)

4. Industry segmentation (based on products or services) (2.14) 5. The life cycle stage of the industry and reason (2.17)
Industry segmentation by products and services
Segments (definition)

Historical perfomance
Expected performance
Reasons for growth or decline
Equipment
(sale of handsets and mobile devices)
Steady growth in revenue
Expected to growth in revenue steadily
1. Growth in revenue
2. demand has been driven by the advancement in smartphone and tablet Voice
(call charges and access fees)
decline in revenue

Expected to decline further
1.Significant decrease in revenue over years
2. Customers like to communicate in a different way (eg messaging) 3. new competitors eat up some market shares (VoIP)
Messaging
(text/short message service; multimedia message service)
Growth in revenue
(second fastest growth)
Expected to grow in revenue
1. Major growth in the past five years.
2. Customer like to communicate in messaging.(Customer behavioural change) 3. Business trends to increase usage of messaging as a means of communication Non-messaging data
(mobile internet, media updates, musice streaming, mobile tv, gaming and GPS mapping) Growth in revenue

(fastest growth of all the segments)

Expected to grow the fastest
1. Driven by development of smartphones
2. High proliferation of high data usage device(smartphone)
Mobile commerce
(commercial transaction, typically payment transaction)
Growth in revenue
Expected to grow the fastest
1.Convinence by conducting transactions on phones.

6. Remote environment analysis (TEMPLES model) – Growth (2.21) Factor
Issues that have impacted and will impact on the industry
Impact on
industry growth
Technology
Development of smartphone and tablet technology has led to greater demand on data usage as smartphone can allow users access to internet, entertainment, social networking and games ect.Positive

Development of technology in improving network has allowed faster speed to explore internet on smartphone. Positive

Development in technology has allowed greater competition on traditional voice service by introduction of VoIP.Negative

Has shifted demand from voice service to data service. Potential growth lies on data service segment.

Has integrated services together across different telecommunication sector. (video transaction media) Overall impact of Technology factor very high. Potential growth in this industry except voice service segment Positive

Economy

Didn’t mention

Overall impact of economic factor

Markets

Optimistic market prospective: four billion subscribers are set to be exceeded in 2015. The amount of mobile data downloaded is expected to at least double in the four years. And the industry is expected to continue as one of the most profitable industry. (p.16)

Resulted from technological innovations in communication devices and network upgrade. Growth driven by non-message use and the introduction of 4G network rollout.

Voice segment decline in revenue.

Positive

Positive

Negative
Overall impact of market factor general market expectation and outlook is very good and optimistic. High
Politics

Since 1989 the sector has been progressively deregulated and open to competition.

Declare on access to a particular service will increase market competition. (Government has a plan to declare on 4G)

Positive

Positive
Overall impact of political factor Generally government has allowed great competition in the industry which will lead to further growth in the market

Legal

Government has the power to grant spectrum licences, which is a key factor in rollout of new mobile devices and services. Compliance with this is essential in developing new services and products to meet ever changing market demands (telecommunication act)

Pricing policies has to be complied with ACCC. Increase costs here because ACCC impose very low cost charged on customers. Lead to increased competition.

Negative

Positive
Overall impact of legal factors High costs resulted from compliance with this two factors and potential danger for further development on the company if spectrum licenses are not attained High
Environment

Not mentioned

Overall impact of environmental factors

Society

There is a trend from prepaid to postpaid subscription by consumers which will increase ARPU (three times higher). Generation Y is expected to produce increasing ARPU as they take up postpaid contracts for 3G and 4G service and use significant data.

better knowledge on smartphones and tablets has enabled further growth in the industry as smartphone turnover and penetration is high in Generation X and Y. (more equipment sales and data usage)

Young generation like to use mobile phones to communicate. Major market growth from this demographic group.

Demand in households and business is greater.

Positive

Positive

Positive

Positive
Overall impact of societal factors The changes in customer behaviours have enabled further growth in market, especially in data usage segment. High
Overall

-What are the major issues will influence the future growth of the industry? Overall growth in this industry is highly possible. See the technology, social and market factors. Although there are strong legal compliance and political influences on competition.

7. Industry Environment analysis (5 forces) - to the industry (Profitability) Threat of new entrants 2.42

Industry size Large, 20000 million revenue in size in the AMTC industry Government controlcontrol of spectrum licenses is a great barrier to enter the industry Economics of scale. Major players all have cost advantages from economies of scale Level of capital requirementvery capital intensive. Include upfront costs in the rollout of network. Short life of network means constant investment if desired to improve product and services. Switching costs very high. As the major players provide bundled products that integrate products and services outside AMTC industry. Barrier to small or more specialised prospective entrants. Access to distribution channels High marketing and advertisements costs Power

Low
Profitability
High

Profitability is high as the threat of new entrant is low, existing players’ financial returns are not likely to be affected by the new entrants. Power of suppliers to the industry P2.44
Supplier industry domination
Smartphones and tablets supplier power is low, eventhough equipment is one market segment and driver for further market development. Services in other telecommunication sector are integrated such as TV, search provider and content owner. Switching cost for supplier (uniqueness of products and services) Three major carriers have their own network setup. No further switching cost for supplier Capability of forward integration

% of the supplier’s output

Power
Medium
Profitability
Medium
Certain suppliers are likely to enter the industry and forward integrate, however the pressure from supplier is medium and therefore effect on profitability is medium.

Power of Buyers P2.45
% of the seller’s product or service
Capability of backward integration
Major customers fall into two group: reseller and individual customers. And they are likely to be very dispersed therefore no collective buying power from buyers is assumed Customers can carry number if they change carrier so costs of switching is low. Alternative suppliers

Cost of changing suppliers
% of the buyer’s costs
Easiness of substitution

Power
Low
Profitability
High

Power of Substitutes P2.46
Possible substitutes
Fixed telecommunications. The level of threat is low as there is a strong decline in this product.(Voice segment) Mobile and fixed VoIP: impose the strongest threat. (example is skype allowing user to make free calls and text message if they have a fixed broadband) (voice and message segment) Wifi and WiMax: expected to grow but it is a niche market. Wimax impose greater threat to AMTC industry.(data segment)

Overall, the level of threat in substitute is very high therefore profitability in the furfure maybe affected in a negative way.

Power
High
Profitability
Low

Intensity of industry rivalry P2.49

Number of competitors three major players in the market: Telstra, Optus and VHA. Competitions are also arising from telecommunication resellers and MVNO (mobile virtual network operator), such as virgin and woolworths. Rate of industry growth prices have been fallen in the past five years Amount of fixed costs High capital intensive

Capacity
Degree of government involvement
Exit barriers

Power
High
Profitability
Low

Extended -- Government influence

Government has the power to grant spectrum licences, which is a key factor in rollout of new mobile devices and services. Compliance with this is essential in developing new services and products to meet ever changing market demands

Pricing policies has to be complied with ACCC. Increase costs here because ACCC impose very low cost charged on customers.

Deregulation has increase competition in the industry

Summary

8. What are customer market segments? - Customer market segmentation (2.57)

9. The basis of competition (2.59)

What drives demand for the products and services of the industry?

Technological progress in communication devices and networks capacity, speed, coverage and reliability.

What drives price, product performance and supply availability?

Technological progress in communication devices and networks capacity, speed, coverage and reliability.

Government has important influence in supply availability as a spectrum license is required to establish rollout network, which is essential in AMTC industry. And the industry is also subject to government regulations.

How is price determined in the industry?

Price is strongly influenced by government as ACCC has power to set a price range for the products and services in the industry.

Moreover, price is determined by strong competition in the market as two major players are competing via lower price over Telstra

What are the main drivers of cost in the industry?

High fixed costs, very expensive establish network rollout and improve them if there is any technological advancement

What are the current and potential risk?

10. Strategic groups for the industry (competitor analysis) (2.66)

Optus (wholly owned subsidiary)
VHA (Joint venture)

Market share

30 percent (2nd player)

25 percent (3th player)

Size of parent company
9.5 million customers in Australia
Parent company has strong power as it operates in more than 20 countries and has 470 million mobile customers 7 million customers in AUS
Vodafone: 70 countries and 400 million customers
Hutchison Whampoa: over 60 million customers

Strategies

Strong price competition
Improving customer experience

Strong price competition
Tend to provide more stable and reliable service via improved networks

Proposition

Reduce the workforce in AUS by 10%
More branded distribution channels (more company owned store, hence more direct selling) Reduced price and larger downloaded limits
Improve networks coverage, capacity, speed and reliability
Plan to rollout new 3G network and commence the rollout of 4G

Strengths

Strong customer base (30 percent of the market share)
Lower price than Telstra
Have 4G network rollout

Strong performance of Vodafone Group and its plan to develop data usage market in developed country has underpinned the operations of VHA Brand name of Vodafone Group

Weakness

4G network rollout does not cover remote regional areas
Poor service due to network coverage difficulty and resulted in bad reputation and customer loss Maybe too late to carry out 4G rollout plan therefore lose market to Optus and Telstra

Module3Internal Analysis
1. Corporate strategy: if the organization is a corporation, what is the corporation trying to achieve? Telstra is repositioning itself for an increasingly competitive and technologically evolving marketplace. The business in redefining as a network carrier and retailer offering premium and competitive products, services and pricing. The corporation aims to get an improvement in customer satisfaction and retention rate in order to offset the decline in its fixed telephones and printed directories. 2. Key stakeholder requirements: who are the organization’s key stakeholders, and what are their expectations of performance? Telstra Corporation

Improve its customer satisfaction
Improve retention rate
Offsetting their decline in fixed telephones and printed directories through the development and growth of Telstra Mobile Major customers
Reasonable price
Best network coverage and performance
Good quality of customer service
CEO and board
Expand the share of mobile market
Revenue and profit growth
Total shareholder return
Retain and grow customer base
Australia Government
Effective competitive in the industry
Avoid one corporation out of three monopolies the market
Efficient cost
Good customer service
Control the availability of the spectrum licenses
Reduce the profitability of one or other of the three main carriers Competitors
Enhance their market share
Technology innovation
Retention of customers
Expand network coverage
3.The five questions (5Qs) approach to business strategy analysis Q1:Growth-does the organization plan to grow?
Improve margins and profitability:
Telstra aims to improve margins and profitability through the provision of value-added and innovative products and services, combined with strong customer service. Q2:Products/services—what products and services does it plan to provide? Mobile connectivity

Data transmission for mobile services
Network coverage of Next G and the 4G network
Five segments: Equipment, voice, messaging, mobile data (non-messaging and M-commerce) Q3:Markets—what customer and geographic markets does it plan to provide service? Geographic markets: The areas in Australia’s capital cities and regional centers. Customer markets: Mainly for customers on smartphone, tablets and seek for mobile broadband package services. Q4: Generic strategy—what generic strategy does it plan to follow to position itself uniquely against competitions? Leader strategy—Differentiation:

Rollout and operate 4G network
Continue to operate Next G and a GSM network
Premium-priced provider
Good network coverage
Q5: Industry position--- what position in the industry does it plan to hold in the future? Leadership position: Maintain its industry leadership position In 2012, Telstra’s mobile business operation is the largest business in the AMTC industry, with 13.8 million domestic customers. In 2011-2012, its share of the total industry revenue was 43.28% (8668/20030); In 2012-2013, its share of total industry revenue was 43.79% (9200/21010); In the forecast of 2013-2014, its share of total industry revenue was 47.40% (10500/22150) Profitability growth: Keep the profitability growth in a price-competitive market 4. The balanced scorecard and the Key Success Factors

Balanced Scorecard
KPI
Business Performance
Financial perspective
Revenue

Increase in margin

Increase in EBIT

In 2011-12, Telstra Mobile generated about AUD8.7 billion in revenue

3% increase in margin, to 36%

$500 million increase in business’s earnings before interest, tax, depreciation and amortization. Customer perspective
Customer retention ratio

Customer satisfaction
rate

Number of customer
complaints

Customer division

An improvement in customer satisfaction and retention rate supported by the AUD 1 billion corporate transformation projects to retain and gain customers in the mobile phone and mobile broadband markets.

Thodey is the first to open Telstra customer service lines 24hours a day, cut mobile and broadband prices to competitive levels and send technicians out on weekends.

Fewer customer complaints:
Fewer customer complaints would reduce the number of staff tied up in compliant departments and the fees imposed on Telstra by the Telecommunications Industry Ombudsman.

Telstra announced a Chief Customer Office and organizational changes to bring customer-focused activities into the one business area. The CCO will be responsible for sales and service to all segments including consumers, business, enterprise and government customers. Internal process

perspective
Coverage

Number of base stations

Population coverage

Next G is the largest network in Australia, at more than twice the size of rival networks

Since the rollout of 4G in September 2011, Telstra has installed over 1000 base stations

It covers 99 percent of the population
Learning and
growth perspective
Number of new customers

Employee training dates

Other initiatives
Since the rollout of 4G in September 2011signed up 375,000 customers on 4G mobile devices and mobile broadband packages.

Telstra will emphasis the importance of customers through employee training-reminding staff that customers have a choice in today’s telecommunications market and by getting rid of confusing plans and products.

Include a new IT trouble-shooting service, higher subsides for mobile handsets and the possibility of “welcome” credit for new customers.

5. SWOT analysis:
Strengths
Technological skills
The rollout of Next G and 4G networks;
It is the first to rollout a 4G Long Term Evolution network, which enables greater transmission capacity and speed for mobile devices.

Production quality
The good network coverage and good customer service
4G operates on the Next G network and offers speeds of up to 40 megabytes per second, a data transmission speed significantly faster than 3G. Weaknesses
High price premium
Telstra had allowed the premiums it charged for its services to get too high. P18

Limited liquidity position

Opportunities
Smartphone penetration
As smartphone penetration rises in the market to 50 percent and above, there will be a growing demand for the faster data transmission and download speed of 4G.

4G Mobile Broadband Network launch
Threats
Declared service
Australian Government may make Telstra’s 4G network a declared service, requiring the network be opened up to competitors, which could adversely affect Telstra’s investment returns, earnings and financial performance.

Limited access to spectrum
The limited access to sufficient spectrum required by the Australian Government will be another threat.

Price competition
The price premium it charged for its service was too high

6. Strategic capabilities

Key success factors
Valuable to customers?
Better than capabilities of
Competitors?
Difficult to imitate or replicate?
Strategic capability?

Innovative technology
Yes
4G network which offers speeds of up to 40 megabytes per second, a data transmission speed significantly faster than 3G.

Stability

Reliability

Wide network coverage
Yes
Telstra was the first mobile carrier to rollout a 4G Long Term Evolution network, which enables greater data transmission capacity and speed for mobile devices.

Yes
Heavy capital expenditure is required to build the networks and coverage, and to offer the full range of mobile products and services

Telstra’s strategy with the accelerated rollout of 4G is to embed its network advantage over its rivals Optus and VHA. Yes
Better than competitors.
Premium Products and services
Yes
Best network coverage

Mobile positions itself as the premium-priced provider in the AMTC industry, with the best network coverage and performance in the industry arising from the rollout of its Next G mobile network.

Good customer service by providing Telstra 24 hours service line and setting up a new customer division focused on customer experience. Yes
Telstra’s competitors like VHA has Network problem and customer service

Some of the customers has switched from rival VHA because of VHA’s network and customer service problems

Optus cannot extend its 4G network into regional areas for several years because it does not have suitable low-spectrum available. Yes
The first to open Telstra。

Customer service lines 24 hours a day, cut mobile and broadband prices to competitive levels and send technicians out.

Set out a new division focused on customer experience, simplicity and productivity Yes
Better than competitors

Summary
Telstra has managed to regain market share in the last two years through more competitive pricing and continued development of its mobile network. As a result, the number of customers in Telstra Mobile increased by about 1.6 million in the 2011-2012 financial year, and by a similar number in the previous year. As a conclusion, Telstra has strong capabilities to implement its strategic capabilities and its strategic capabilities are stronger than main competitors in the AMTC industry. What capability does it have?

Telstra is now rolling out and operating the 4G network, and continues to operate a 3G network referred to as next G. Next G uses a low-frequency spectrum that travels long-distances, enabling the network to extend into regional areas. Telstra’s network is available in Australia’s capital cities and regional centers, covering about 40% of the population and expanding to about two-thirds of the population when all sites are live.

7. Gap analysis

Areas of focus
Trends
Strategy consistency
External environment to Business strategy gaps
Remote environment gaps
Technological innovation provides it the best network coverage and performance in the industry

The rollout of 4Gnetwork and Next G
Consistent (↑sales, ↑revenue, ↑profit margin and ↑EBIT)

Consistent (the increasing number of new customers)
Industry environment gaps
Five forces
Profitability is high as the threat of new entrant is low, existing players’ financial returns are not likely to be affected by the new entrants.

Certain suppliers are likely to enter the industry and forward integrate, however the pressure from supplier is medium and therefore effect on profitability is medium.

Overall, the level of threat in substitute is very high therefore profitability in the future maybe affected in a negative way.

Government has the power to grant spectrum licenses, which is a key factor in rollout of new mobile devices and services. Compliance with this is essential in developing new services and products to meet ever changing market demand

Deregulation has increase competition in the industry

Consistent
The high profitability will enable the company to invest more on the 4G network rollout and the focus on improving on customer service.

The supplier power is not high, and Telstra is providing more value-added and innovative products and services to regain and grow the customer base.

Although the threat from substitutes is high, Telstra has set out strategies to fight against this with differentiating its products and services, such as the rollout of 4G network and the new division of Chief Customer Officer.

The government policy change and its power over the industry may have some negative impacts on the profitability of Telstra; however Telstra’s competitors also have this kind of problem. Telstra has focused on improving its products and services by meeting changing markets, and it will be a defense against the changes in policies. Industry competitors’ gaps

Reasonable price for the services and products

Best network coverage and customer service
Consistent
In August 2010 Thodey announced that EBITDA in that year to June would be lower as the group cut mobile and broadband pricing and sweetened its offers.

Telstra opened Telstra customer service lines 24 hours a day, cut mobile and broadband prices to competitive levels and send technicians out on weekends. The 4G network is now available in Australia’s capital cities and regional areas covering about 40% of the population and expanding to about two-third of the population when all sites are live. Internal environment to Business strategy gaps

Capability gaps

Growing market share

Technological innovation
Consistent
Telstra has managed to regain market share in the last two years through more competitive pricing and continued development of its mobile network. This has helped Telstra to achieve strong growth in its share of the mobile market by increasing about 1.6 million in the 2011-2012 financial years. Consistent

Telstra was the first mobile carrier to rollout a 4G Long Term Evolution network which enables greater data transmission capacity and speed for mobile devices. Performance gaps

4 perspectives in BSC
Financial perspective

Customer perspective
Customer retention ratio

Internal process
Perspective
Network Coverage
Number of base stations
Population coverage

Learning and
growth perspective
Increase in number of new customers

Employee training

Consistent
In 2011-12, Telstra Mobile generated about AUD8.7 billion in revenue, 3% increase in margin, to 36%, $500 million increase in business’s EBITDA An improvement in customer satisfaction and retention rate supported by the AUD 1 billion corporate transformation projects to retain and gain customers in the mobile phone and mobile broadband markets. Telstra also aims to increase customer satisfaction, reduce number of customer complaints and set out a new customer division

The 4G network is now available in Australia’s capital cities and regional areas covering about 40% of the population and expanding to about two-third of the population when all sites are live. Since the rollout of 4G in September 2011, Telstra has installed over 1000 base stations It covers 99 percent of the population

Since the rollout of 4G in September 2011signed up 375,000 customers on 4G mobile devices and mobile broadband packages.

Telstra will emphasis the importance of customers through employee training-reminding staff that customers have a choice in today’s telecommunications market and by getting rid of confusing plans and products.

Key stakeholder gaps
Stakeholder expectations
Australia Government
Good customer service
Effective competitive in the industry

Major customers
Reasonable price

Best network coverage and performance
Good quality of customer service

CEO and board
Expand the share of mobile market

Revenue and profit growth
Retain and grow customer base
Consistent

Good customer service by providing Telstra 24 hours service line and setting up a new customer division focused on customer experience.

In August 2010 Thodey announced that EBITDA in that year to June would be lower as the group cut mobile and broadband pricing and sweetened its offers. Telstra also aims to increase customer satisfaction, reduce number of customer complaints and set out a new customer division

Since the rollout of 4G in September 2011signed up 375,000 customers on 4G mobile devices and mobile broadband packages.

In 2011-12, Telstra Mobile generated about AUD8.7 billion in revenue, 3% increase in margin, to 36%, $500 million increase in business’s EBITDA

Module 4 Product & Market Development
1. Ansoff classification
Telstra’s business operations can be viewed either market penetration or new product development, as shown in the following figure. Ansoff’s
matrix
Products

Existing products
New products
Markets
Existing
markets
Improving customer service
More competitive pricing
Rollout of a 4G network

New
markets

Market penetration
Attracting new customers to gain greater market share of existing customer segment. Improving customer service: Telstra executes customer service lines 24 hours a day and sends technicians out on weekend. Other initiatives include a new IT trouble-shooting service, higher subsidies for mobile handsets and the possibility of ‘welcome’ credit for new customers. In addition, a new division has been set up to focus on customer experience, simplicity and productivity. All these measures aim to expand market share in the current market segment with limited variation in products. Competitive pricing:Although Telstra provides mobile service with the best network coverage and performance in the in industry arising from the rollout of its Next G mobile network, the premium price it charged for its superior service was considered too high. In order to strength its market share, Telstra has managed to regain market share in the last two years through more competitive pricing and continued development of its mobile network. As a result, the number of customers in Telstra Mobile increased by 1.6 million in the 20011-2012 financial year, and by a similar number in 2010-2011. Some of these customers had switched from rival VHA, therefore, such new customers are gained from the existing customer market. Moreover, the products do not change regarding competitive pricing. In summary, Telstra expands its market share through the strategy regarding.

Product development
The rolling out and operating of the 4G network could be viewed as a product development strategy as Telstra provides a new product which enables greater data transmission capacity and speed for mobile devices. Compared to the previous technology (3G), 4G network is considered to be a new generation product base on new technology, providing faster speed and crystal clear voice communication. Concluding that Next G (3G network) is the traditional service provided to customers, the development 4G is a strategy to deliver a new product in the existing AMTC market. 2. Balanced potoforlio

Risk vs. reward Continuous capital investment in 4G expansion until it achieves the coverage target and offer the full range of mobile products and services. According to statistics, Telstra has signed up 375000 customers on 4G mobile devices and mobile broadband packages after the rollout of 4G in Sep 2011. Regarding market expectation, Telstra will capture 95 per cent of new mobile customers during 2013 and 50 per cent of new customers in 2014, as a result of its 4G leadership. In particular, Telstra’s first mover advantage in the rollout of a 4G network, combined with the strong increase in smartphone usage, is likely to raise ARPU and generate strong revenues for Telstra mobile in 2013 and 2014. Moreover, Telstra is a high-cash-flow, high-dividend-yield venue for investors. Thus, sufficient funds will be allocated to develop the 4G network. Timing issuesTelstra always focuses on technique shift in mobile industry. It gains the premium-priced provider position because of the best network coverage and performance in the industry, especially from the rollout of Next G mobile network. 4G expansion can be considered as its medium and long-term innovation. Next G network (3G) has been fully established, thus, developing 4G network is in the priority position for Telstra. Project type issues In addition to the 4G expansion, Telstra continue tooperate Next G (3G) network. It can be considered as balance between new product and product maintenance. Moreover, 4G network can be identified as technology characterization in terms of project type. With the available resources, it now covers Australia’s major areas, including capital cities and regional centres. Resource allocation issues Increasing capital expenditure (from $800 million in 2011 to 1.2 billion in 2012), which can be considered as a large proportion of Telstra’s available budget, is a strong support to accelerate the expansion of 4G network. Budgets can and are being significantly adjusted when opportunity knocks. 3. Mode of entry

Australian local company: originally owned by the Australian Government, thus pushing Telstra Corporations Ltd the largest organization in the Australian telecommunications sector. However, Telstra lost its monopoly position in the early 1990s. Direct selling

4. Key success factors for new product development
Right contextCompared to previous generation (3G), 4G network is an advanced technology, which enables greater data transmission capacity and speed for mobile devices. So 4G development is aligned with Telstra’s market leadership position as a premium-price provider with the best network coverage and performance in the industry. Business leadership and orgainsational alignmentGovernment policy and access to key resource (spectrum) are identified as risks of 4G expansion. In such circumstance, Telstra focuses on managing effectively in the regulatory regime, in particular, protecting its network advantage and securing sufficient spectrum to reduce the risks of failure regarding 4G network. Updated assumptions of strong benefit from 4G leadership is provided based on the market trend, such as increase in smartphone usage. Customer input

Right capabilityTelstra has announced a series of appointments that confirm its commitment to customers, and to prepare for a new era as its 4G network is rolled out. Among the appointments, Telstra announced a Chief Customer Officer and organizational changes to bring customer-focused activities into the one business area. Telstra has also set up a new division focused on customer experience, simplicity and productivity. Thus, organisational capacity is applied to new premium service instead of only focusing on 4G expansion.

Module 5 Making Strategic Choice
1. RegardingTelstra’s 4G network project, map it into cooper et al.’s model. Category of the quadrants
Reasons
Pearls
The 4G will be a highly profitable sector.
1. Generation x, y, households and businesses tend to use mobile phone over fixed telecommunications. 2. Data applications (M-commerce, online games, GPS, picture and video service) represent future revenue engine for AMTC industry. The revenue from data is forecast to outweigh revenue from voice over the year to 2016-17. 3. 4G is expected to provide a further boost to data consumption from mobile and data cards. High likelihood of technical success.

1. The Australian government may make Telstra’s 4G network a declared service. Increase competition within industry, limit Telstra’s profit. 2. Telstra may have the risk of losing its spectrum license. If the company don’t have the license, it may limit introduction of the products and service. But the possibility of the event is quite low.

2. Assess the risk the company may face in pursuing the strategy(4G implementation) Step
Possible risk

Identify the risk
project risk

competitor risk

customer risk

transition risk &competitor risk

Stagnation risk *
Failure of 4G network development
Telstra may have the risk of losing its spectrum license.
Commoditization of the 4G segment
The Australian government may make Telstra’s 4G network a declared service. Optus start to develop their own 4G network, its plan has lower price and larger download limits than Telstra’s plan Increasing customer power

Technology shift, tend to use mobile and fixed VoIP and Wi-Fi and WiMax technology

If the Telstra doesn’t conduct the 4G project, the company may lose its innovative advantage and lose a future growth incentive. Quantify the risk
project risk

competitor risk

customer risk

transition risk &competitor risk

Stagnation risk *
If project failed, company will incur huge lost, due to high upfront investment The possibility of losing license is quite low

If the 4G network is declared, all the competitors will enter into the market and push the profit down. The possibility of the situation is quite high, as GSM and CDMA are already declared by the government.

Customer may tend to other competitors because of unsatisfied customer service. The possibility of the situation is low, as company’s core concentration is improving customer service.

Customer may tend to use different technology, since these technologies such as Wi-Fi can provide greater capacity to users. The possibility of the situation is medium.

The company is highly unlikely to abandon the 4G project, since huge up front invest has been put in.

Develop risk mitigation action plans
Try hard to follow the government regulation and keep a good relationship with government. Provide quality service with comparative price
Improve customer service
Improve the speed and capacity of 4G technology, invest more money to perfect the network Identify the potential upside
No way to turn the risk to advantage
If the service and price is comparative, even if the network is declared, we still can take the main share of the market. High customer satisfaction can attract the customers from other companies High speed and capacity may lead to high customer satisfaction Adjust capital decisions

Decrease the premium of the service and improve the customer satisfaction. Invest money on customer service
Invest money on R&D, build more base station

3. Evaluate strategic options (useRumelt’s model and assess options) 1. External consistency: is the strategy consistent with the external environment? Yes.
1. Generation x, y, households and businesses tend to use mobile phone over fixed telecommunications. 2. Data applications (M-commerce, online games, GPS, picture and video service) represent future revenue engine for AMTC industry. The revenue from data is forecast to outweigh revenue from voice over the year to 2016-17. 3. 4G is expected to provide a further boost to data consumption from mobile and data cards. 2. Internal consistency: is the strategy internally consistent? Yes.

1. The 4G network may provide future growth incentive to the company. 2. It may provide the customers with higher speed and larger internet connection service, increase customer satisfaction. 3. Feasibility: is the strategy feasible?

Yes. Telstra has enough capital and capability to finish the project. 1. Telstra has the essential spectrum license, so the network can cover 99%of the Australian population. 2. Telstra has installed over 1000 base stations and signed up 375000 customers in 4G mobile devices and mobile broadband packages. 3. Plan to increase spending on its network from $800 million last year to $1.2 billion to accelerate the expansion of 4G network. 4. Telstra has some similar experience of conducting new network, as the 3G network was successfully introduced by the company. 4. Competitive advantage: does the strategy create or maintain a competitive advantage? Yes.

1. It will create a competitive advantage over other competitors, as the technology is consistent with the major trend in AMTC industry; it will retain the customers from using the service of other companies; it will keep the company’s technology superiority. 2. Telstra also have the first mover advantage, it is the first company which has a wide spread network. Other companies, such as Optus, don’t have spectrum license, so their network can’t reach regional areas. Conclusion:

Based on several aspects, the 4Gproject is consistent with the company’s strategic goals.

Module 6 Leading & Implementing Strategy
2009, David Thodey-surgeon
Reduce the premium of the service & allocate funds for growth opportunities cut mobile and broadband prices to competitive level
Improve the customer service
appoint a chief customer officer
customer service lines 24 hours a day
send technicians out on weekends
new IT trouble shooting service
set up new division focus on customer experience
more employee training
Huge invest on innovative technology
spending on its 4G network from $800 million last year to $1.2 billion Goal: maintain its industry leadership position and grow profitability in a price-competitive market. 1. Use Kotter’s eight step process to identify the company’s change 1. Establishing a sense of urgency.

Generation x, y, households and businesses tend to use mobile phone over fixed telecommunications. Telstra’s traditional fixed wire products and services, in particular its fixed telephone and printed directories, are in significant decline. Telstra’ success depends on offsetting this significant decline through the development and growth of Telstra mobile. The Competitors provide some competitive service:

-VHA provides 3G coverage to 94% of Australians, invested AUD 1billion in upgrading its network. -Optus has revealed prices that are cheaper, with larger download limits than Telstra’s plan. 2. Forming a powerful guiding coalition.

The change is introduced by the CEO of the company, David Thodey and approved by the board. The company not underestimate the difficulties of producing change thus focused the importance of a powerful guiding coalition. 3. Creating a vision.

Maintain its industry leadership position and grow profitability in a price-competitive market. 4. Communication the vision.
n/a
5. Empowering others to act, and eliminating obstacles.
n/a
6.Planning for and creating short-term wins.
Number of customers in Telstra mobile increased by about 1.6 million in the 2011-2012 financial years, and by a similar number in the previous year. In 2011-2012 financial years there was an 8.5% increase in revenue from mobiles, a three percentage point increase in margin, to 36 %, and a $500 million increase in business’s earnings before interest, tax, depreciation and amortisation. 7. Consolidating improvements and producing still more change. n/a

8. Institutionalising new approaches.
n/a

2. In terms of organisational life cycle, the leadership style of David Thodey belongs to which category? Surgeons:
Features
Reasons
Organisation begun to peak in growth or to fight against current problems. The premium is too high:
The group was losing market share to its rivals as, despite being seen as having the superior network, consumers thought its pricing was too high. Solution:
Cut mobile and broadband prices to competitive level
Improve the customer service
Appoint a chief customer officer
Customer service lines 24 hours a day
Send technicians out on weekends
New IT trouble shooting service
Set up new division focus on customer experience
More employee training
Ability to prune or server parts of the organisation that have become a hindrance. Revenue in fixed telephone and printed directories declines: Revenue declined in voice segment.
Solution:
Spending on its 4G network from $800 million last year to $1.2 billion. Improve customer service.
Telstra’s former CEO: Sol Trujillo-surgeon
Construction of the Next G network, Thodey’s predecessor. Invested AUD 26 billion in a new billing system and the Next G network, a 3G network. If Sol Trujillo had not invested, Telstra would be in a much worse position. Sol Trujillo focused on construction of Next G network and ensures the business to survive into the future.

3. Based on Dunphy and Stace (1993) change matrix for leading organisational change, David Thodey belongs to which category? Charismatic transformation:
Modular transformation
The changes on customer service division are huge. Appoint a chief customer officer. Organisational changes to bring customer-focused activities into one business area. Set up new division focus on customer experience, simplicity and productivity. Collaborative style

The CEO didn’t dominate the change. He discuss with the board about the service premium is too high, the board agree his judgment.

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