Resource-Based Competitive Advantage
Introduction
The telecom industry is evolving at a significant pace and the companies have to keep up to remain in the market. It is necessary to note that the internal resources of organisations are vital for gaining and maintaining a competitive advantage. It is possible to compare two telecom companies to understand the importance of the internal resources. EE is one of the leading mobile networks in the UK with over 31 million connections within its networks (EE results for the year ended 31 December 2015 2016). O2 is another UK telecom company, and it has a network of 23 million customers across the country (Company history 2016). It is possible to consider peculiarities of the companies in terms of strategic capabilities, value chain analysis and SWOT analysis.
Capability matrix
Internal organisational resources enable companies to create the value for the customer. These capabilities are manifested in such spheres as product development, marketing, human resources, IT and so on. Düker et al. (2010) note that a dynamic capabilities framework should be applied in all the processes within the organisation. The dynamic capability refers to the innovative set of resources applied to achieve a competitive advantage.
It is necessary to pay closer attention to this type of capability as the telecom market is highly innovative. The absence of the hierarchal organisational structure (Düker et al., 2010). Strong communication patterns are also crucial for the effective operations. The use of cross-functional teams (especially in the process of new products development) is also an important factor that has a positive impact on the company’s development.
It is clear that the companies in question managed to develop their competitive advantage through the focus on innovation. EE pays specific attention to the innovation and offers innovative products and services including 3G and4G (EE results for the year ended 31 December 2015 2016). O2 uses a similar approach and offers similar services (Company history 2016). At that, each of the companies also provides services the other does not offer (see Table 1). This also contributes to the development of their competitive advantage.
Table 1: Capability matrix.
One of the weakest points of both companies is their structure. O2 has a hierarchal structure, which adds bureaucracy and deviant communication patterns (Telefonica transforms its organisational structure 2011). EE has a similar approach to the structure that is quite hierarchal (BT announces new structure 2016).
Value chain analysis
To evaluate the efficiency of the internal resources and their impact on the organisation’s performance, it is possible to implement a brief value chain analysis. Haberberg and Rieple (2008, p. 242) note that the value chain analysis allows identifying ways “linkages between different activities can generate value.” The companies in question refer to network-style organisations, and their major value is to link as many people as possible. Haberberg and Rieple (2008) state that network-style organisations can be measured by the size of their customer base.
According to Porter, the supply chain includes such primary activities as inbound logistics, operations, outbound logistics, marketing & sales, and service (Haberberg & Rieple 2008). It is possible to apply this model to the analysis of the telecom companies in question. The inbound logistics activities involve the development of the network infrastructure, contracting with providers of software, hardware and content. The operations stage includes the development of infrastructure, the network integration and competitive position. The outbound logistics activities are the provision of GSM services, broadband. At this stage, the two companies differ as O2 has Wifi services while EE provides emergency services network.
The two other stages are quite similar as the two companies’ activities are as follows. When it comes to marketing and sales, the activities are market innovations, strong channel distribution, unique and innovative advertising strategies. As for service activities, both companies use similar methods including various applications, updates and so on. It is noteworthy that these activities are often important for telecom companies as the customers feel connected, which is one of the most valued assets.
SWOT analysis
SWOT analysis is another effective method to measure the value of internal resources (Haberberg & Rieple 2008). It is possible to note that the companies have similar threats and opportunities as well as strengths. One of the differences is associated with weaknesses that are common for telecom companies (see Table 2).
Table 2: SWOT Analysis.
Emiris et al. (2013) note that telecom companies often face similar issues, and employ quite similar strategies to address them. It is possible to note that the strengths of both organisations include strong brand names and effective strategic management. The official websites include a lot of information on these aspects. The employees (the top management) are high-profile professionals who have valuable experience and can contribute greatly to the development of their company.
The organisations also focus on innovation and employ up-to-date technologies. It is also necessary to add that the companies successfully create the value-added services as they both utilise social networks to develop the added value. People feel connected due to the network and the use of social media that promote and maintain the links between members of the network. Opportunities and threats are also common for both companies. Importantly, the threats include the growth of costs and increasing governmental regulations, which can be difficult to deal with.
At the same time, the two organisations are characterised by certain weaknesses. Slow services caused by technological issues are quite common for the telecoms. At that, O2 is less competitive as it is not sufficiently focused on the organisational structure that affects the performance of employees. The issues of diversity are poorly addressed and the code of ethics is not quite sound. EE has quite a strong code of ethics. More so, the company reveals its major public policies that address the customers’ need for connectedness (Public policy 2016).
Mergers and Acquisitions
Types of mergers and acquisitions
Mergers and acquisitions are quite common ways to improve the organisation’s competitive position (Johnson et al. 2013). The merger can be defined as the “creation of a new legal entity by the bringing together of two or more previously independent companies” (Haberberg & Rieple 2008, p. 513). In this process, the two companies are quite equal. As for the acquisition, it is the process of buying of one firm by another one (Haberberg & Rieple 2008). There are different types of mergers.
One of these is the so-called conglomerate deal. This is the merger of two companies that are characterised by very different business activities (Johnson et al. 2013). The companies continue operating in their markets facing the same issues but the methods used may differ due to the corporate culture or leadership differences. An example of this type is the merger of Walt Disney and American Broadcasting Company (Bernstein 2015).
It is necessary to add that this merger strengthened the position of both organisations. The horizontal merger is another common strategy. It takes place between the companies operating in the same industry. This type is associated with such synergies as the reduction of manufacturing costs and accessing larger markets. The merger between Procter & Gamble and Gillette enabled the organisations to increase their bargaining power in major retail chains (Haberberg & Rieple 2008).
The vertical merger is the collaboration between firms that produce different products that can be used to develop some product. This merger often involves companies that do not compete, which brings various synergies. These companies can often be placed in one supply chain. Thus, companies producing components of some equipment can merge to reduce costs and access new markets. When it comes to telecom companies, telecom service providers may acquire smaller producers of particular products or even materials.
Market extension and product extension are also quite common types of mergers. The former occurs between organisations that offer similar products but operate in different markets while the latter takes place between companies that operate in the same market but produce quite different products. These mergers help companies extend their operations and access new markets. An example of the market extension merger is the acquisition of Jazztel Plc by Orange SA (Mergers: commission clears acquisition of Jazztel by Orange, subject to conditions 2015). Jazztel operated in Spain, and it was acquired by the French telecom company that competed with it in the Spanish market. Thus, Orange removed the competitor from the market and took over the customer base and the necessary facilities.
Strategic motives for M&A
Strategic motives
There are various motives for mergers and acquisitions (M&A). They can be placed into three major categories strategic, financial and managerial. Strategic motives are central to the vast majority of M&A. They are mainly focused on extension, consolidation and improvement of capabilities (Haberberg & Rieple 2008). Extension of the business is associated with such aspects as location, globalisation and market extension. Consolidation goals are associated with the removal of competition. Capabilities motives involve the need to obtain the access to technology and innovate.
The Orange’s acquisition mentioned above can be regarded as an illustration of the focus on the strategic motives. Thus, the French telecom company could access the Spanish market and promote its brand in a new country (). The acquisition resulted in the removal of the major competitor. The French company became a leading telecom firm in the country. Orange also received the access to the technology. The company obtained a well-established network, and the process did not require investment in the technological development. Clearly, the company will have to use innovative technologies as well. At that, the costs are significantly reduced.
Financial motives
Financial motives often accompany the strategic ones as organisations also want to improve their financial performance with the help of M&A. The company T-Mobile can be regarded as an illustration of the relevance of financial and managerial motives. The financial motives of the M&A involve the desire of bigger companies to develop a greater return via the investment in other organisations (Haberberg & Rieple 2008).
T-Mobile has been a target company, and many organisations have considered acquiring it (Weiss 2015). This can help the companies earn a better return. It is necessary to note that the price of the merger will not be very high, which makes it quite attractive. T-Mobile has experienced significant financial constraints, which led to the low cost of a possible acquisition.
The company that will acquire T-Mobile will also be able to sell associated surplus assets. Clearly, the acquisition will positively affect the assets of both companies. It is necessary to add that T-Mobile has its customers and its share in the market. Saving this business will be beneficial for any organisation that will be able to expand and acquire loyal customers.
The acquisition may be vital for T-Mobile as it can be the only way to survive and retain the market share. The company has failed to find internal resources to innovate and optimise its operations (Weiss 2015). Therefore, it is crucial for this telecom firm to get access to resources of a larger company.
Managerial motives
As for managerial motives, these are associated with such aspects as image and reputation (Haberberg & Rieple 2008). Every M&A is associated with a significant attention of media and public. This attention often leads to the increase in both companies’ assets. For instance, a possible acquisition of T-Mobile has been disputed for months (Weiss 2015). Another example of the public involvement is Orange’s acquisition mentioned above (Mergers: commission clears acquisition of Jazztel by Orange, subject to conditions 2015).
People focused on the ethical aspect as they feared that the French company will destroy the competition and will create a monopoly. Clearly, it is vital to make sure that the acquisition follows all the necessary regulations and conventions. The managerial motives also include quite individual motives (Haberberg & Rieple 2008). Top managers may consider the acquisition due to their personal interest as their salary will potentially increase as the company’s assets will increase.
It is necessary to add that these motives do not play the main role in the process, but they often play a significant part in the decision-making process. It is possible to conclude that people take into account strategic, financial and managerial motives when considering acquisitions and mergers. At that, strategic motives are central to big companies while financial are often more potent in the decision-making process of smaller organisations.
Reference List
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Telefonica transforms its organisational structure to reinforce its status as global leader in the new digital world. 2016. Web.
Weiss, TR 2015, ‘Rumors resurface that T-Mobile could be a takeover target’, Eweek. Web.