RESOURCE-BASED 3. RESOURCE-BASED ANALYSIS OF TELKOM AND
RESOURCE-BASED ANALYSIS OF TELKOM CONTENTS: 1.
INTRODUCTION3 2. DEFINITION3 3. RESOURCE-BASED ANALYSIS OF TELKOM AND IMPLICATIONS FOR FUTURE STRATEGIES3-4 3.
1 RESOURCES AND CAPABILITIES4 3. 1. 1 RESOURCES4 3. 1. 2 CAPABILITIES4-5 3.
1. 3 COST ADVANTAGE AND DIFFIRENTIATION ADVANTAGE5-6 3. 1. 4 COMPETITVE PRICING AND VALUE GROWTH6 3. 1.
5 VALUE CREATION6-7 4. ARE THE STRATEGIES SUSTAINABLE OR NOT? 7-9 5. EXTERNAL FORCES PLAYING A ROLE9 6.
INTERNATIONAL MARKET9-10 7. CONCLUSION AND RECOMMENDATION10-11 8. BIBLIOGRAPHY11 1. INTRODUCTION:In order for me to undertake a resource-based analysis of Telkom and whether or not they are appropriate for Telkom and the implications it holds for the future strategy of the company, I would like to firstly refer to the Definition of a resource-based view. 2. DEFINITION: The resource-based view (RBV) is a business management tool used to determine the strategic resources available to a company, in this instant I will be looking at Telkom. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal (Porter, 1998).
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The good of business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage: 1. Cost advantage; 2.
Differentiation advantage. A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products(differentiation advantage).A competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Cost and differentiation advantages are known as potential advantages since they describe the firm’s position in the industry as a leader in either cost or differentiation. A resource based view emphasizes that the firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation (Porter, 1998). 3.
RESOURCE-BASED ANALYSIS OF TELKOM AND IMPLICATIONS FOR FUTURE STRATEGY:Telkom is a telecommunication service provider, providing integrated voice and data services through its land line and wireless networks into Africa and other countries. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage which I will be using to discuss Telkom’s analysis: 3. 1 RESOURCES AND CAPABILITIES: In order for Telkom to develop a competitive advantage, they must have resources and capabilities that are superior to those of its competitors, like MTN, Cell C and smaller telecommunication services.Without superiority, Telkom’s competitors could simply replicate what Telkom is doing and any advantage would disappear (Porter, 1998). 1. RESOURCES: This would be Telkom’s specific assets, useful for creating a cost or differentiation advantage and that few of the competitors could easily acquire. Telkom has been steadily increasing its presence in high-growth, multi-service SSA markets.
Thanks to several strategic acquisitions since early 2007, its geographical footprint now encompasses the length and breadth of Africa, excluding only Northern Africa. The first acquisition outside South Africa was Africa Online, an Internet service provider operating in nine African countries: Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Telkom acquired 100% of Africa Online in February 2007. • In May 2007, the telco gained a foothold in West Africa by acquiring 75% of Multi-Links, a Nigerian private telecommunications operator with a Unified Access Licence with a term of ten years (seven years remaining).
The ULA allows fixed and mobile data and voice, long distance and international telecommunications services. It is focused primarily on the corporate, wholesale and mass markets in Nigeria. Currently, Telkom owns 100% of Multi-Links, having acquired the remaining 25% in January 2009. • In April 2009, Telkom bought 100% of M-Web Africa for R498 million. MWeb Africa is a group of companies offering Internet services and its own VSAT access services.
The group owns 88% of AFSAT Communications and 75% of M-Web Namibia.Between Africa Online and M-Web Africa, Telkom Group’s reach stretches across the entire SSA region. This presents an outstanding opportunity to offer Internet access and data products to multinational and corporate customers throughout the region.
With that in mind, Telkom is preparing to exploit the synergies between these two acquisitions, by consolidating their satellite bandwidth capacity and data centre operations( ITWeb informatica, 2011). 3. 1. 2 CAPABILITIES: This refers to Telkom’s ability to utilize its resources effectively.An example would be Telkom’s broadband growth in South Africa remains buoyant, thanks to Telkom’s competitive ADSL pricing, the higher speeds it has been introducing, wider ADSL access and better, faster service. Telkom’s ADSL subscriber base showed growth of 33% in the year ended March 2009, reaching 548 015.
Do Broadband subscribers increased 58. 1% to 188 540, which represents a penetration rate of 15%, leaving plenty of room for ADSL to grow. Paving the way for this, the company has worked harder than ever at expanding its ADSL capabilities and coverage. ADSL coverage has risen from 82% in March 2007 to 93% in March 2009.For the benefit of customers falling outside the ADSL footprint, Telkom has introduced wireless broadband, specifically WiMAX. Faster service activation times have gone hand in hand with this drive. In the 2008/09 financial year, Telkom was installing 91% of ADSL lines within 21 days in areas where no network build was required.
This compared to 79% in the year before. In areas where network build was required, 74% of lines were being installed within 21 days, up from 66%. Another major factor in speeding up installations has been Telkom’s ADSL Self Install option.Instead of waiting for an appointment with an installation technician, Telkom customers can quickly commission their ADSL modem and equipment themselves.
Apart from being quicker to activate, Self Install is also cheaper for customers, as Telkom only has to handle the network activation side. As many as 57% of ADSL customers chose to use Self Install during the 2008/09 financial year (ITWeb Informatica, 2001). 3. 1. 3 COST ADVANTAGE AND DIFFERENTIATION ADVANTAGE: Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product.
Telkom therefore positions itself in the telecommunications industry through its choice of low cost or differentiation. |Telkom’s strategy is to become an Information Communication Technology (ICT) solutions partner for global, corporate, business and | |residential customers, moving up the value chain, providing higher level products and services to our traditional voice and data products. | |This strategy has been validated by their success in winning large corporate customer accounts and delivering to their ICT requirements | |from voice products and services to network management. | | |Telkom’s aim is to enhance the customer experience by introducing innovative value enhancing bundled products and services. In line with | |this strategy, Telkom Closer bundles rental, call answer, peak minutes and off-peak minutes and ADSL into a package which allows the | |customer to pay a flat monthly charge. Telkom Closer now bundles PC’s to improve the PC penetration rate in South Africa. Demand for the | |Telkom Closer range of products has resulted in the sign up of 217,564 customers during the year ended March 31, 2007.
| | |Telkom’s enhanced business bundles have shown strong growth. Telkom launched the Supreme Call package during May 2006. As at March 31, 2007| |Telkom had 5,771 Supreme Call package subscribers. | | | |Telkom’s strategic intent to retain and grow revenues has led to the development of flat rate plans to combat the negative minutes of use | |trend in the consumer market and term and volume discount packages for the corporate market.The sales of the term and volume discount | |plans have performed exceptionally well. In addition, arbitrage opportunities between local and long distance and the gap between Standard | |time and Callmore rates are being reduced while tariff rebalancing is taking place.
| | | |Through bundled products Telkom intends to increase its annuity income, create a value comparison for customers and improve our competitive| |position. Annuity revenue constitutes 9. % of Telkom’s fixed-line segment’s revenue as at March 31, 2007 (2006: 8. 2%).
(SAITadmin, 2011) | | | |3. 1. 4 COMPETITIVE PRICING AND VOLUME GROWTH | | | |Telkom announced an overall average tariffs decrease on their regulated basket of products and services of 1. 2%, to be filed with ICASA to | |become effective on August 1, 2007.
| | |Telkom expects that its future tariff rebalancing will continue to focus on the relationships between actual costs and tariffs of | |Subscription and Connections and Traffic in order to more accurately reflect underlying costs and to capture volume. | | | |The reduction of telecommunication costs should benefit all South Africans and contribute positively to the economy. 3.
1. 5 VALUE CREATION: This would involve Telkom to create value by performing a series of activities that Porter identified as the value chain. In addition to Telkom’s own value-creating activities, Telkom operates in a value system of vertical activities including those of upstream suppliers and downstream channel members. To achieve a competitive advantage, Telkom must perform one or more value creating activities in a way that creates more overall value than Telkom’s competitors.Telkom’s Group Chief Executive Officer, Numbulelo Moholi, commented that they have to capitalise on Telkom’s strengths, including the network and relationships with business, to provide higher speeds and end to end reliability that cannot be matched by they’re competitors. Turning to 8.
ta, Ms Moholi said that Telkom has a competitive advantage by virtue of its existing business and customer base. A product range spanning both mobile and fixed value pools will assist Telkom to defend itself more effectively against competitors and to grow revenues. She outlined five key focus areas for the future:Leadership and organisation – ensuring stable, quality management; implementing the right structures and enforcing accountability EBITDA and cash flow focus – challenging the status quo and demanding innovation; driving revenue through exclusive differentiators; continued commitment to cost efficiency; and efficient capital allocation to drive revenue growth 8. ta – providing innovative packages that allow people to talk more and to take advantage of the full range of telecommunication services that only an integrated fixed and mobile operator can offerBroadband – driving growth through convergence and bundling Africa – consolidating existing subsidiaries; exiting the Multi-Links CDMA business (SAITadmin, 2011). What risks does this company face? Simply put, Telkom has been its own worst enemy.
Over the past few years it has been unable to capitalise on its strategic advantages. Its move into Nigeria, its ISP operations in sub-Saharan Africa and its fixed-mobile convergence have all been potentially good ideas hamstrung by poor execution.Industry Analyst, Spiwe Chireka from Frost & Sullivan noted that Telkom should be able to pursue a convergence strategy more cost effectively, faster and on a larger scale than any of its competitors . However, the company has been consistently slow to market. It now runs the risk of losing its competitive advantage across all operations, including the fixed-line space, because it has not been agile enough in introducing services and offerings. Competition is another factor that Telkom has increasingly had to consider.The South African government recently confirmed that Telkom will be required to unbundle the local loop – the last stretch of infrastructure that supplies internet connections to homes and businesses – by November this year.
This is one of the last monopolies the operator still enjoys. The company may however be forced to reduce its retail rates to some extent to be able to compete with alternative providers employing voice over internet protocol (VoIP) technology (Cairns, 2011). 4.ARE THESE STRATEGIES SUSTAINABLE OR NOT? The deregulation of the telecommunication industry in South-Africa opened the way to enter into the telecommunication market. This has forced Telkom into a new competitive market, where Telkom was the only operator up to May 2002. With its past monopoly status, Telkom did not gain any exposure to competition (Kekana, 2002). The four major forces that challenge Telkom are competitors, customers, technology and regulations.
In order to evaluate Telkom’s position in the ist of these challenging forces, I will conduct a SWOT analysis to determine the capabilities of the organization to attain its goals successfully. |STRENGTHS: |WEAKNESSES: | |Solid telecommunication infrastructure; |Inadequate technical exposure to emerging technologies; | |Sufficient capabilities and resources for business expansion into |In-house R&D initiatives insufficient; | |Africa.Highly qualified expertise in telecommunication and IT fields;|Inefficient lines per employee ratio; | |Sound financial background for business expansions; |Uneven workforce distribution in core business areas; | |Very experienced strategic partners; |No previous experience as a competitor in the international market; | |Good relationship with international operators; |Competitors have established their presence in other African | |Maintaining the telecommunication standard set by the local and |countries; | |international standards organization; |Lack of knowledgeable suppliers; | |Not hesitant to adapt new technologies; |Technical and marketing skills are not fully developed to compete in | |Efficient billing system in place.
|the international market. |OPPORTUNITIES: |THREATS: | |Other African countries lack telecommunication infrastructure; |Deregulation of International telecommunication services and legal | |Demand for better call rate in Africa as a whole; |usage of VoIP in South-Africa by VANS and other network operators; | |Increasing demand for voice connectivity in many African countries; |PC to phone and PC-to-PC international calls via Internet, bypassing | |Global trend towards the deregulation and privatization of the |Telkom etwork; | |telecommunication industry; |Competitors are well known role players in the international market; | |Established relationship with international telecom operators; |Competitors with good financial backing could establish their business| |Demand for voice and date integrated services; |at a faster pace; | |Demand for end-to-end managed service in the corporate environment; |The past mentality of being a sole telecommunication operator in | |Increasing number of Internet users an ISP’s. South-Africa is still prevalent in the minds of many Telkom employees;| | |Political instabilities on the continent, social issues such as the | | |AIDS epidemic, crime, natural disasters such as floods and storms | | |could jeopardize the business expansion initiatives; | | |Managing staff members through retrenchments might affect the highly | | |skilled workforce; | | |The private telecommunication networks in South-Africa cause loss of | | |income for Telkom business.
| (Porter, 1998) 5. EXTERNAL FORCES PLAYING A ROLE: The 1996 Telecommunications Act in South Africa and also the 2001 Telecommunications Amendment Act stated that network operators such as Telkom and MTN should provide universal services to the country. This is a liability on them, as these services are not free of charge, nor easy or cheap for these companies to rollout new services to previously unserviced areas in South-Africa.But the opportunity for Telkom to roll out services to areas that was overlooked in the past, will improve South-Africa’s overall teledesity and the country will be comparable to other middle to high-income countries. The turnaround of Telkom as a monopoly carrier with its traditional problems of poor quality service and customer care has been remarkable. Although customers are still experiencing problems, the network operators have met the various targets set. The strategic partnership of the Malaysia Telkom and SBC has repositioned Telkom to face competition (Kekana, 2002).
6. INTERNATIONAL MARKET: 6. 1 INTERNATIONAL MARKET EXPANSION STRATEGY This would entail expansion of Telkom’s business into the international market by the following: 1. Offering satellite services in those countries that lack terrestrial infrastructure; 2.
Aggregating the international calls from African countries, Telkom gained more international calls, thereby adding profit and recovering the equipment capital costs; 3. Introduced VoIP technology into the international network for bandwith efficiency; 4. Expanding their wireless network services into the higher potential market for example East Africa; 5. By negotiating better deals with international operators(John & Buys, 2003). 6.
2 BANDWITH WHOLESALER FOR THE AFRICA CONTINENT One of Telkom’s strategies is to capture the African market through bandwith wholesale: 1. Utilising the already established relationship with the satellite operators for the purchase of additional satellite bandwith capacity; 2.Reselling excess bandwith capacity available on the terrestrial; 3. Implementing VoIP on the international circuits (John & Buys, 2003).
6. 3 ATTAIN COST COMPETITIVE ADVANTAGE Telkom can attain the cost competitive advantage through the following: 1. Implementing VoIP on the satellite and terrestrial network, Telkom will be able to provide international voice and data services at a competitive rate; 2.
By providing cheaper international rates for South-Africa through the aggregation of international calls from other countries diverted through Telkom international network; 3. Creating tariff imbalance in the international calls; 4.Creating a price differentiation on a similar service offering of competitors (John & Buys, 2003). 6. 4 NETWORK AND INFRASTRUCTURE UPGRADES FOR BROADBAND In order for Telkom to compete in the global market, it is necessary to have a sound network infrastructure that can cater for all types of future needs: 1.
Identifying the right satellite platform and satellite coverage for the international broadband solutions; 2. Implementing a highly reliable broadband satellite network that can provide VoIP solutions (John & Buys, 2003); 6. 5 INTERNATIONAL REQUIREMENTS Telkom wants to compete in the International market, they need to concentrate on developing the following areas: 1.Achieve competence through adequate skills development programmes; 2.
Restructure and reorganize the organization for competitive advantage; 3. In-house R&D support; 4. Retain skills through job security, high rewards and better retention strategies (John & Buys, 2003). Taking in account all of the above, the question is whether the strategies as analysed are sustainable or not? 7. CONCLUSIONS AND RECOMMENDATION: 1.
Africa as a whole is still an unsaturated market, with little competition. For Telkom to have a competitive advantage, the African market could be the cost and differentiation advantage. Mobile technology such as 8.
ta could be most appealing and appropriate technology for Africa; 2.Having identified the advantages of implementing VoIP on the existing infrastructure, Telkom needs to take the initiative to provide value-adding services to the corporate business and telecom operators both in South-Africa and in Africa, on satellite and terrestrial networks using VoIP. To implement VoIP, Telkom requires highly skilled technical personnel, that need to get the technical know-how through proper training; 3. Success of Telkom’s business in the international market will depend on how efficient the existing legacy networks can be used to support the emerging technologies. Telkom should therefore use the existing networks instead of replacing them with new ones; 4. There is a strong need to develop a great teamwork attitude in Telkom.
The nature of the current organizational structure is more favourable to creating silos in various sections. To solve this problem, Telkom’s senior management should use the competitive mind-set programme to motivate the staff to get accustomed to the new changes that will eventually lead to better teamwork. Due to current staff volume and their geographical dispersal, this change may not happen overnight (John & Buys, 2003). 8. BIBLIOGRAPHY: 1.
Cairns, P. (2011). The investment Case – Telkom SA LTD Online. Available from : Updated 5 July 2011 2. ITWeb Informatica (2011). Telkom’s Defend and grow strategy online. Available from: Updated 17 July 2011 3.
John, M & Buys, A. J. 2003.
Developing a technology-based business strategy for the International Business of Telkom SA’, SA Journal of International Engineering, 14(2):109-120; 4. Kekana, N. 2002. ‘Information, communication and transformation: a South-African perspective’, Communication, 28(2): 54-61; 5. Porter,M.
(1998). Competitive advantage: Creating and sustaining superior performance online. Available from :< http://www. quickmba. com/strategy> Updated 9 August 2011; 6. SAITadmin. (2011).
Telkom Outlined Information Plan. online Available from:< saitnews. co. za/featured-news/Telkom-outlines-transformation> Updated 13 June 2011.
———————– RESOURCES DISTINCTIVE COMPETENCIES CAPABILITIES COST ADVANTAGE OR DIFFERENTIATION ADVANTAGE VALUE CREATION