Wal Mart: An Example Of Operating Efficiency

Wal Mart: An Example Of Operating Efficiency Marketing experts ascribe Walmarts remarkable success to its strategy of local dominance. It is also argued, amongst other competing explanations, that Walmarts superior returns are due to its size and its purchasing power (Greenwald Kahn, 2005). The company is also regarded to be an example of operating efficiency, even as detractors allege that its operational success stems from an exploitation of its labour force (Greenwald Kahn, 2005). 1. Application of Porters Generic Strategy Model to Walmarts Growth Story Porters Generic Strategy Model, first advanced in 1985, states that a firms relative intra-industry position is driven by its choice of strategy for achievement of competitive advantage in terms of (a) cost leadership versus differentiation, and (b) competitive scope. Competitive scope differentiates between firms that target broad industry segments and those that concentrate on narrow segments. Generic strategies are valuable since they exemplify strategic positions at the broadest and simplest levels. Table 1 below represents the different alternatives available to firms for choice generic strategy (Stanford, 2010). Table 1: (Stanford, 2010). Porters Generic Strategies (source: Porter, 1985, p.12) Whilst all important participants in the retail sector offered the same range of extensive merchandise offerings, unexciting clean stores and welcoming sales personnel, Walmart differentiated itself with its ground-breaking approach to stores layouts and formats and its exceptionally efficient distribution system. The companys revolutionary distribution system facilitated the development and implementation of its Everyday Low Price (EDLP) stratagem and helped in raising its market share in the US from 9 % in 1987 to 31% in 2000 (Akella, Manvika Roberts, 2003). Walmarts ELDP process has remained its core company value since the launch of its first store in 1962 and has been the key driving force behind Walmarts sustained growth (MarketWatch, 2010). With value-for- money being an important determinant of consumer behaviour worldwide, the companys continued focus on prices and quality through the optimisation of its supply chain and strict control over administrative and workforce costs have been instrumental in its growth. The companys rigid attitude towards its workforce has, however, hurt its penetration in foreign markets like Germany. More attention to its labour policies could have possibly helped the company in strengthening its service without sacrificing costs and improved its efficiencies as well as its image. 2. Alternative Strategies Globally, and even within the US warehouse stores format, Walmarts operating strengths are commonplace where other retailers enjoy similar operating advantages of advertising, distribution and store supervision. Sam Waltons brilliance lay in recognising these realities, first by establishing control over a core region, followed by assailing weaker rivals on the territorial fringes, wherein his core advantages could be layered with comparative ease (Greenwald Kahn, 2005). Walmarts operating advantages have had limited impact in its overseas markets (Greenwald Kahn, 2005). Walmarts overseas returns, on invested capital or on sales, are less than half its domestic margins. Despite Wal-Marts more efficient and competitive operations, such advantages are diluted in overseas markets, even where they are controlled by domestic companies with less advanced technologies and operations (Greenwald Kahn, 2005). Alternative successful strategies could have involved a greater focus on domestic urban markets in the earlier years. The overseas market expansion should have been done only after better appreciation of the cultures of overseas target markets. It is acknowledged that Walmarts market supremacy lies in its distinctive logistics capabilities, which render the company its competitive advantage. Its cross-docking inventory coordination system ensures that merchandise movement between two loading docks occurs in less than two days (Fahy, 1996). Walmart has gained from this, not only in terms of reduced cost of sales, (by 2-3%), but also in curtailing inventories (Fahy, 1996), interest outlays, and working capital cycles. The system helps in value generation and augments competitive advantage (Fahy, 1996). It is extremely complex to replicate such advanced communication and synchronisation amongst the suppliers, distribution centres, sales outlets and depots. It is this ability to erect high barriers to replication that confers Walmart with its competitive advantage (Fahy, 1996). 3. Use of Generic Strategy Model for analysis of competitor activity and charting of future growth Market experts state that Walmarts success does not come about just because of its lower prices (Cowgill, 2005). Comparisons of various product category prices reveal that 80 to 85% of Wal-Marts merchandise is more expensively priced than at its competitors (Cowgill, 2005)With many of its competitors selling at lower prices, the companys extraordinary success is felt to be due to its expertise in manipulating perceptions regarding its cost leadership (Cowgill, 2005). It is this lack of understanding of Wal-Marts strategies and its organisational efficiency that has prevented competition from overtaking it (Cowgill, 2005). The majority of successful retailers focus on raising market share and turnover to improve financial results. Their focus now and in the past has been on increasing asset utilisation/turnover (Willard, 2006). Walmarts Inventory Reload and Remix schemes emphasise its different focus. Deload refers to the broad-based endeavour to shrink inventory levels (the biggest asset on most retailer balance sheets) at both stores and distribution centres (Willard, 2006). Project Remix centres on the velocity of individual SKU (semi-knocked-down unit) sales (Willard, 2006). The end goal at Walmarts is to boost inventory holding power and simultaneously move the goods from the backroom onto the rack swiftly and efficiently (Willard, 2006). Walmart has however not paid enough attention to the serious repercussions of its overzealous cost leadership. It has relentlessly pursued cost-cutting at the cost of its workforce. It has ruthlessly eliminated its neighbourhood competition and has extracted unbearable price reductions from its suppliers and service providers. Its biggest worry now is a larger stakeholder and public opinion. With local activists halting planned new stores, former employee groups initiating class-action discrimination legal suits, the media condemning the companys miserly benefits and voters in Europe calling for legislation for the protection of small retailers, adverse public opinion has turned cost leadership into the single largest threat to the future profitability and growth of Walmart. Company executives have conceded that its recent stock price weakness is linked to its deteriorating image (Carr, 2006). Wal-Marts strategy for damage control in this respect is criticality for its future growth. 4. Use of Porters Five Forces and SWOT analysis to understand Wal-Marts current position and recommendations for future strategy The Porters Five Forces Model (1980) for analysis of competitiveness encompasses the five forces of New Entrants, Substitutes, Supplier or Buyer Power and Existing Competitors (Lever, 2008). Walmart manages its intensely competitive environment well. It deploys its clout and negotiates the lowest possible prices, stretching suppliers beyond their limits (Bysani, 2003). The negotiating power of buyers and suppliers is low since Wal-Mart has established dominance in its domestic marketplace and its overseas market share is also growing (Bysani, 2003). The prospects for new entries are limited because of considerable setup costs and regulatory restrictions. The threat from substitute retail formats appears to be low (Bysani, 2003). Internecine competitive rivalry among industry participants is, however, high (Bysani, 2003). Whilst Porters 5 forces technique is simple, its weakness is its external focus (Lever, 2008). It is based purely on microeconomics (Recklies, 2001). The last few years have seen the emergence and growing dominance of deregulation, globalisation and digitalization, developments that are outside the realm of the Five Forces Model (Recklies, 2001). It is thus inadvisable to develop an analytical strategy based solely on Porters model (Recklies, 2001). SWOT, an analysis of internal and external environment, is a popular strategic tool that encompasses 4 key organisational dimensions, namely strengths, weaknesses, opportunities and threats (Lever, 2008). Walmart is the largest global retailer. This bestows the company with worldwide intra-industry status and recognition (Bysani, 2003). Its logistics capabilities, distribution centres and supplier relationships are key strengths that add value to its entire system (Bysani, 2003). Apart from Walmarts domestic urban marketplace opportunities, the growing middle class in emerging markets like India and China offers Wal-Mart a remarkable expansionary opportunity. E-commerce provides the organisation with another growth opportunity (Bysani, 2003). Walmart demonstrates less adaptability to overseas markets and cultures. Weaknesses also exist in its anti-trade and exploitative labour policies (Bysani, 2003). Threats to the company encompass anti-globalisation factions, resistance from customers in new markets, recent wars and outbursts, increased competition in mature European markets, zoning regulations and rising trade blocks (Bysani, 2003). Strengths and weaknesses identify and are identified by opportunities and threats (Valentin, 2005). Strengths help in thwarting impending threats and in recognising visible opportunities, whereas weaknesses leave a business defenceless or work against the generation of value to its stakeholders (Valentin, 2005). The SWOT framework, however, does not accept tradeoffs (Valentin, 2005). SWOT guidelines are limited further because they not only mix accomplishments with strengths but also lack norms for prioritising SWOTs (Valentin, 2005). Wal-Marts future strategy has to fundamentally sustain competitive advantages in addressing its trade practices in adopting best-in-class supply chain, customer relationships and environmental management. The company should also focus on non-exploitative and fair practices towards all its stakeholders, especially its workforce. Section B: Dominos Pizza in India Pavan Bhatia took over as the CEO of Dominos Pizza India Ltd. in November 1999 and led the company till May 2001.The operations of the company under his leadership is a better-known case study of fast food retail chains in developing economies. Dominos outlets, during this aggressive phase, were opened swiftly across the country and multiplied by four times to 100 from March 2000 to January 2001. Such expansion of outlets at Dominos had not until then been witnessed in any of the 63 countries in which it operated. The companys growth rate increased from an average 4 stores per year in its initial 4 years of operations to over 100 outlets across 30 cities during these 10 months (Icmrindia, 2001). Bhatias expansion initiative, whilst accepted by Dominos officials, did not find favour with the Board and led to the companys reorganisation. Jubilant Food Works Limited (JFL) now operates the Dominos pizza chain within the Indian domestic market. Its master franchise agreement with Dominos is valid till 2024. JFL is Indias first quick-service restaurant (QSR) chain to be publicly listed (Chelluri, 2010). Bhatias main objective for Dominos India Bhatia was extremely ambitious for Dominos India and his main objective was to make it the largest fast-food chain in the country (Icmrindia, 2001). In early 2001 Dominos India announced plans to invest Rs. 500 million during 2001and add a hundred outlets each year (Icmrindia, 2001). Bhatia tied up with Jet Airways in India in 2000 in order to introduce their ultimate deep dish and sweetie pie food products on all Jet flights (Icmrindia, 2001). He announced that For Dominos, the sky is the limit. We like to deliver hot, fresh pizzas everywhere, anytime. This tie-up with Jet Airways takes our commitment to customers on the move even a step further. Dominos also signed an agreement with Indian Oil Corporation (IOL) to offer food products from IOLs 7,500 outlets across India (Icmrindia, 2001). The situation became complicated, post the March 2001 board meeting, wherein Dominos top management decided that Pavan Bhatias performance had not been satisfactory during his tenure of 18 months (Icmrindia, 2001). The board opined that Bhatias expansion strategy was reckless and not properly thought out. Not many analysts, however, agreed with the boards decision and believed that the board was disregarding the probable long-term advantages of his strategy (Icmrindia, 2001). Whilst Dominos officials felt that there was nothing wrong with the pace of opening outlets, Hari Bhartia, a rival Board Member, felt the expensive organisational infrastructure, including the distribution centres set up in 1999, needed to be better utilised (Icmrindia, 2001). Dominos, contrary to other fast-food chains, which operated either on the franchise or self-owned outlets models, or both, operated through company-owned premises. This entailed huge investments in back-end infrastructure and analysts felt that the companys business model could not support such overheads and yet implement the proposed marketing plan (Icmrindia, 2001). 2. Application of STEP and Porters 5 Forces to Dominos Adopted Strategy The STEP model is a variation of the popular PEST analytical business measurement tool (Businessballs.com, 2010).The PEST model is useful for understanding environmental factors, more specifically the Political, Economic, Social and Technological factors, which are important for the activities of specific business firms (Businessballs.com, 2010). The Indian food and food-processing industry are burdened with scores of legislations. Dominos India realised that too many resources, effort and time was being diverted to unproductive and burdensome work, whether it related to acquiring scores of permits for every store in every city or whether it concerned issues like licensing, city laws, realty brokers, infrastructure, title, lease agreements, water, power, signage, markets and dealing with contending restaurants (Icmrindia, 2001). India also had a significantly low per capita income (of less than 30 USD per month in the early 2000s. Bhatia, despite such environmental indicators, launched Dominos outlets in numerous cities and small towns between March 2000 and January 2001. Pizza consumption in many of such places was extremely low. Analysts also felt that many Pizza consumers felt Dominos prices to be high and unaffordable (Icmrindia, 2001). The uncertain viability of certain outlets led to their closure, not just in small cities but also in prosperous Delhi and Ludhiana. Michael Porters 5 Forces theory argues that the competitiveness of an industry depends upon five dimensions, namely (a) existing competitive rivalry between suppliers (b) threat of new market entrants (c) bargaining power of buyers (d) power of suppliers and (e) threat of alternate products (counting technology change) (Businessballs, 2009). Dominos future in India is fraught with competition, despite having the first-mover advantage over competitors like Pizza Hut (Chelluri, 2010). The negotiating power of buyers and suppliers is not very high as Dominos has established some control over the marketplace. The threat of new entrants is high and is expected to arise from local quick service restaurants. Dominos competitors, apart from stand-alone pizza outlets and domestic and global pizza chains include casual dining and other food service establishments. The threat from substitute goods is high as new cuisines continue to be introduced across Indian markets. Customers can choose to consume food and food add-ons at highly competitive price points from diverse local and non-local food establishments. The array of offerings varies from simplistic takeaway fare to the major dine-in alternatives of wider range and better quality. Competitive rivalry in the food sector is intense and numerous food establishments open and close every year. The use of STEP and Five Forces analytical tools corroborates that the expansion strategy adopted by Pavan Bhatia was hasty and inappropriate to prevalent circumstances. Expansion strategy has to be customised to the needs of particular markets and should take account of the different concerns that emerge from STEP and Five Forces analysis. 3. Application of Force Field Analysis to facilitate Stakeholder Analysis Force Field Analysis, propounded by Kurt Lewin in 1951, is extensively utilised for decision-making, especially in organisational planning and executing change management programmes (ODI, 2009). It is a potent method for obtaining a comprehensive synopsis of the various forces impacting a potential policy issue, and for evaluating their source and strength (ODI, 2009). Force Field Analysis naturally follows the Problem Tree Analysis, which is used for identification of policy changes. The stakeholder Analysis is a constructive continuation of Force Field Analysis and involves the recognition of particular stakeholders, who are in favour of or against change, along with their influence and interests (ODI, 2009). Stakeholder analysis aims to categorise the stakeholders (external or internal) that are impacted by the outcomes of specific performance improvement project (Alvord, 2010). Such an analysis helps in the determination of all perspectives and allows them to be represented in the performance project design process. No particular perspective is permitted to dominate a process in such circumstances (Alvord, 2010). Stakeholders depict individuals or enterprises that stand to benefit or lose from the achievement or failures of performance improvement effort. Their interests, in terms of needs and expectations in such matters, can be professional, monetary, cultural, personal, or can even arise from a horde of other motivations (Alvord, 2010). Stakeholders characteristically have positive or negative perspectives regarding a particular project, and frequently disagree amongst themselves, making it difficult to resolve diverse viewpoints (Alvord, 2010). Influence signifies a stakeholders comparative power and control over and in a project. Influence is described as the degree to which a stakeholder can influence project operations and hence shape project outcomes (Alvord, 2010). Management need to strategise and implement satisfactory decisions for the benefit of all or most stakeholders. They must otherwise make efforts to ensure that influential and genuine stakeholders are not too dissatisfied (Alvord, 2010). The most vital stakeholders, as inferred from a Stakeholder Analysis are the shareholders, franchisees, technology partners, and customers, the first three due to their ownership, project funding, franchising and technological capabilities, and the last for their purchasing power and income generating capability. The primary facilitator in the entire project performance is the workforce, (including the management), which is administered and self-managed by the senior management of the company. The management is accountable to the Board of Directors and it is the relative influence of constituents of the Board that decides the formulation and implementation of the organisational strategies and policies. The Board is ultimately accountable to the shareholders. The suppliers and service providers are next in relevance due to their lesser influence on the operations. Section C: IBM 1. Application of Porters Generic Strategy Model to explain IBMs Competitive Advantage before the 1980s Porters Generic Strategy Model avers that the position of an enterprise relative to its industry is led by its selection of a strategy for attaining competitive advantage, with relation to choosing between cost leadership and differentiation, and its competitive scope. Generic strategies represent strategic positions at the simplest and broadest levels (Stanford, 2010). Competitive advantage comes about when a companys product or service generates more value (symbolic, as well as in its features) for the customer than a contending product or service. To illustrate, IBMs introduction of the Selectric typewriter offered both kinds of value for users and buyers (Heide, 1992). There are two approaches, (which are not mutually exclusive), of deploying IT to gain competitive advantage, firstly, as an important product or service seller or service provider in the market to external customers, and secondly, as an organisational support system, which is transparent to the customer, for a product or service (Heide, 1992) IBM dominated the computer markets during the 1960s and the 1970s. Its superior service, during this period, was the source of its competitive advantage. The adage No data processing manager was ever fired for ordering IBM implied the unmatched commitment to service. Improved broad-based computer reliability in contemporary times, along with the technology led shift towards workstations and personal computers, has however made competition in the industry more difficult, counteracting IBMs distinct competency as a basis of sustainable advantage (Werther Kerr, 1995). It is difficult to sustain a specific competitive advantage in IT-based products and services in the contemporary era as competitors replicate successful moves swiftly (Heide, 1992). The product life cycle in several high-tech sectors like semiconductors and personal computers is normally as low as three to five years (Heide, 1992). Companies in such industries launch upgraded or radically novel products with short development cycles, much before the competition or the subsequent generation of products eats into their profits (Heide, 1992). Companies deploying such differentiation strategies (Porter, 1980) gain competitive advantage through the unique design, quality, creativity, customer support, and inherent research of their products or services (Heide, 1992). Other companies, intra-industry, often follow with lower-cost substitutes (Porter, 1980) (Heide, 1992). 2. Application of Porters Generic Strategy and Ansoff Models to Illustrate the Regaining by IBM of its Differentiated Position Michael Porters Generic Strategies model postulates that companies have three fundamental strategic alternatives for garnering competitive advantage, namely (a) Cost Leadership (b) Differentiation and (c) Focus (Stanford, 2010). The Ansoff matrix, on the other hand, helps organisations in deciding their growth strategies. It provides strategic alternatives on the products or services an organisation should offer and on the marketplaces that are crucial its growth and success (Verbera, 2009). The Ansoff matrix provides four feasible product/market permutations, namely market penetration, market development, product development and diversification (Ansoff 1957, 1989) (Verbera, 2009). Diversification is a popular strategic option for companies in the current competitive business environment. IBM owes much of its gains in recent years to its policy of carefully thought out and consistent diversification (Verbera, 2009). The company previously pursued a vertical integration stratagem, involving its entry into new industries to reinforce its core business, model. It benefited from backwards vertical integration with the disk-drive sector and forward vertical integration with the computer software and consulting services industries (Hill et al, 2007). IBMs vertical integration policy was previously an important source of competitive advantage (Verbera, 2009). IBMs subsequent policy of diversification, entailing the acquisition of over 400 businesses, was felt to be high risk by market observers. Its significant success is now however attributed to the companys business foresight and effective control mechanisms. The use of the Ansoff Matrix helps in analysing IBMs strategic choices for regaining its position of differentiation from other market participants and leads to the conclusion that organisations need to modify their strategic alternatives in accordance with the changing competitive scenario (Verbera, 2009). The emergence of the desktop computer in the 1980s changed the fundamentals of IBMs markets. The company during this period tried to reposition itself quite a few times. It sometimes appeared that different groups favoured different strategies and by 1992, the company was contemplating a break-up strategy. Louis Gerstner, CEO of IBM from 1993 to 2002 is credited with bringing about strategic changes that changed organisational fortunes and reinstated the companys erstwhile important position in the computer industry (Kelly, 2004). Gerstner did not veer IBM on a new course. He was, in fact, instrumental in taking it back to its roots. IBM had for decades stayed with its strategy of offering one-stop shopping to large companies for their information services, (IS); a strategy termed as singleness. It strayed from the strategy during the 1980s, alienated its clients, and under Gerstners leadership reverted back to it. The company went back to being a full-service provider for its clients and administering their technological integration. This singleness strategy has been formulated for the current IS environment (Mills, 1996). Gerstner kept the company together, refocused on the IT services sector, and embraced the Internet. His efforts resulted in one of the most extraordinary revivals in business history. 3. Application of the Boston Consulting Group Matrix to Analyse and Justify IBMs Products and Service positions The BCG Matrix provides a useful method for portfolio planning, through the evaluation of the health of different players within a portfolio of businesses or product lines (Mixner, 2006). Developed by Bruce Henderson at the Boston Consulting Group during the early 1970s, Â  the BCG growth-share matrix evaluates businesses or products as high or low performers, based on their comparative market growth rate with regard to the market share of the next best competitor (Docstoc, 2010). Different businesses or products, in the BCH Matrix, are categorised as Cash Cows, Stars, Question Marks, or Dogs on the basis of their performance (Docstoc, 2010). The BCG concept calls upon organisations to appreciate that Stars represent the best place for an investment of limited funds, because of their potential to achieve high market share within a high market growth segment, for the production of optimal profits (Mixner, 2006). There are difficulties with this analysis. The various problems with such an approach include the high expected expenditure associated with the growth of market share, difficulties of increasing profitability in challenging marketplaces and the possibly incorrect supposition of confirmed market growth (Mixner, 2006). IBM, based on the BCG Matrix portfolio analysis, appears to have a number of star businesses in the Systems and Technology Group. These have lead positions in their market segments and continue to maintain the high overall business growth rate in spite of emerging competitors. The Consulting and IT ITES services segments can be considered as Cash Cows, because of their strong market share and their potential to sustained profits and cash flows. The hardware segment within computer technology has seen commoditization over the last several years due to plummeting prices (Korzeniowski, 2003). This would require it to be placed, either in the Question Mark or Dogs category, because of inadequate profitability and steep competition. These businesses can be divested at appropriate valuations. 4. Strategic Recommendations for IBM with the Application of Porters Generic Strategy and BCG Matrix models The use of Porters Generic Strategy and BCG matrix models and a study of IBMs current and envisioned product lines reveals that IBM has a few enormously exciting models that should sustain and thrust its future growth. The company should focus on cloud computing, BPTS (Business-Performance-Transformation services) and grid computing. Inorganic investments in related enterprises, emerging or otherwise, will facilitate sustained star performance and maintain its eminent position in the overall IT ITES space. IBM CEO Sam Palmisano states that BPTS, involving a combination of IT and business-process outsourcing (BPO) with intelligent software and consulting services, has a potential $500 billion market. Consultants from IBM Business Consulting Group assist customers in deploying BPTS services for streamlining and re-engineering self-styled SGA (selling, general and administrative) processes like finance, accounting, and HR management ( McDougall, 2005). IBM has also recently announced its suite of cloud computing solutions, IBM Smart Business cloud services portfolio and IBM CloudBurst systems, which essentially comprise of pre-integrated software, hardware and services offerings that offer customers novel delivery models for IT ITES capabilities (MacSweeney, 2009). The IBM Mass Lab is generating software to manage some of the worlds most complicated process and infrastructure projects in areas like railroads, food traceability, water management and healthcare modernisation. Much of software demand is being generated by the requirement to modernise and automate nearly every system, for example, energy management, et al through smart grids (Ebizq, 2010). The IBM Mass Lab is generating software to cater to the new era of enterprise mobile computing for more efficient convergence and integration to support an exponentially increasingly mobile workforce (Ebizq, 2010). Grid computing has regained favour and is helping IBM in retaining its position of a chief industry vendor (Korzeniowski, 2003). Both the Porters and BCG models necessitate the recommendation that IBM focus and deploy all its assets (physical, information and intangible) in achieving differentiation for each of its product and service segments to remain in the star quadrant of the BCG Matrix. The company should however seriously think of exiting its slow-moving hardware business. Bharti Airtel Ltd: An Analysis Bharti Airtel Ltd: An Analysis This assignment has mainly been done to provide a discussion as to the application of Strategic Business Management and planning within current global business environment. For this study I have used a case study on Bharti Airtel Ltd that is an Indian mobile telephone company. Accordingly, this assignment basically covers followings objectives. Understanding the role of strategic business planning in Bharti Airtel Ltd Understanding of the strategies Bharti Airtel Ltd use to achieve competitive advantage Understanding of the impact of internal and external factors on Bharti Airtel Ltd Understanding of the environmental factors that have an effect on strategic business management and planning About Bharti Airtel Ltd Bharti Airtel Ltd is a one of the leading global telecommunication companies that operates in 19 countries across Africa and Asia having 200 million customers. It is a one of the six best performing technology companies in world that has been ranked by business week. Bharti Airtel Ltd mainly offers following services to its customers: Mobile voice and data services Fixed telephone line High speed broadband services IPTV, DTH Turnkey telecom solutions for enterprises National international long distance services to carriers (Source: About Bharti Airtel Ltd, available from: http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/About+bharti+airtel/?WCM_Page.ResetAll=TRUECACHE=NONECONTENTCACHE=NONECONNECTORCACHE=NONESRV=Page (Accessed on 10th March 2012) 1.1 Identify and critically evaluate Bharti Airtels goals, objectives and values It is said that global business environment is changing structurally and, in all probability (Kourdi 2003). Hence, any type of business organization should have strong, transference goals, objectives and values in order to succeed the business. They enable the managers of the organization to formulate and manage appropriate strategies within the business. Accordingly, in this section I will identify and evaluate goals, objectives and core values of Bharti Airtel Ltd. Goals and Objectives of Airtel Undertaking of transformational projects which has a positive impact on the society while contributing to build the nation Diversification into new businesses in sectors such as financial services, agriculture and retail business with world class partners To lay the foundation for creating a conglomerate of future Core Values of Airtel Being Flexible for the adaptation of the environment changes and evolving customers needs Openness and transparency Give power to People to do their best Creating Positive Impact on the society by creating a meaningful difference Making it happen through the innovation of new ideas with entrepreneurial spirit If we look at the above goals and objectives of Airtel, we can identify that they have been achieving them to a certain extent. If we consider the objective of diversification into new business, Airtel has been accessing to such business sectors. For example, now they have been engaging financial services in India through telephony services. Acquisitions of Airtel throughout the world convince us that Airtel has created a foundation for conglomerate of future. Above mentioned core values of Airtel which are the beliefs of owners have been the keys to its success. 1.2 Suggest ways in which Bharti Airtel can replicate its success in India in foreign markets It is a big challenge for any business to have or replicate its success in globe due to higher completion. For this purpose, business organizations must formulate and implement business strategies that suits global market conditions. Bharti Airtel has been succeeding mainly due to its values and management. In this section, I am going to suggest ways to Bharti Airtel that may assist in replicating its success in India and foreign market. Further acquisitions and mergers with other telephony service companies in India and foreign markets: Since Airtel has a healthy financial strength, it can focus on the acquisition of telephony service companies such as Reliance Comm. This will increase the customer base of Airtel. Access and expansion of Airtels business operations in to other countries such as United Arab Emirates, Kuwait, Saudi Arabia and Qatar Widening 4G network coverage within the areas in which Airtel operates: Airtel can widen its 4G network coverage through rural areas in India. Doing they can increase its market while supporting the nation building process in India. Introducing and promoting new innovative services that match with telephony service industry such new advance technologies such as ATM recharge Launching low price promotions to attract mass customers as much as possible Differentiation of the brand through emotional perspectives 1.3 Using your knowledge of different strategy development models analyse Bharti Airtels development of its strategy and identify the model(s) applicable to them. Bharati Airtel Ltd has been market leader in India since its business models and strategies attracted many industry experts admiration. So they have been innovative in formulating and implementing business strategies through strategy development models. Now let us analyse development of strategy in Bharti Airtel by using strategy development models applicable to them. 1.3.1 Porters Five Forces Model Threat of New Entrants Due to increase demand for telephony services in worldwide, there are possibilities for new investors to start their business in this field. Accordingly, Bharti Airtel may encounter threats from entrants in to its market in India, Bangladesh, Sri Lanka and Africa. The number of players in telecommunication industry in India has increased and it has caused Bharti Airtel to change its strategic approaches that they followed. Furthermore the inclusion of technologies such as 3G has into the industry has brought many entries in to the telecommunication industry. Hence, we can see an increasing threat from the new entrance into the telecommunication market. Bargaining Power of Suppliers We can see uniqueness in telecommunication equipment suppliers in the global market. There is not a perfect market for telecom related equipments and materials such as fibre optic cables, broadband switching equipment and software etc in the globe. Thus it can be seen that there is a bargaining power over Bharti Airtel. Whereas we can see an increasing trend towards the arrival suppliers in relations to the telecommunication related equipment. This have reduced Bargaining Power of Suppliers that may be encountered Bharti Airtel. Bargaining Power of Buyers In the telecom industry, the biggest is held by the customers. If customers are not satisfied, they may shift to other telephony service companies. Customers can be retained if quality services are provided for affordable prices. Accordingly, Bharti Airtel has been following cost leadership strategy to cope up Bargaining Power of its customers. Availability of Substitutes Presently, internet services have been the domain of mobile services. Hence internet sector and telephone services have come under one sector. With the arrival of broadband, WiFi internet services and new technological mobile devices, people have been able to have the role of telephone such as phone calls and SMS done through internet calls and chat services such as SKYPE, Yahoo messenger. These threats from such substitute products have becoming a significant issue for Bharti Airtel. Nevertheless Bharti Airtel has been developing and implementing many strategies to cope up such threats by expanding its internet services and introducing new products like IPTV, DTH services for its sustainable growth. Competitive Rivalry In Asia and Africa there is a high competition among telephony service providers. For examples, in India Bharti Airtels main competitors are Vodafone Essar and Reliance Comm. In the same manner it has many competitors in Sri Lanka such as Etisalat, Dialog, Mobitel and Hutch. Therefore we can see that there is a huge competition in the telephony services industry in Asia and Africa. So Bharti Airtel is implementing strategies such as cost leadership, differentiation in order to get competitive advantages. 2.1 Analyse the acquisition of Zain Africa by Bharti Airtel. If you were their consultant, would you have advised them to go ahead with the deal? In this chapter, I am going to analyse the acquisition of Zain Africa made by Bharti Airtel through the PESTEL and SWOT analysis. Afterwards I will evaluate the benefits that Bharti Airtel can have from the acquisition and potential problems that Bharti Airtel may have on its operation. 2.1.1 SWOT Analysis The SWOT analysis is a useful tool for decision making process and understanding all kind of situation which can arise in a business organization (Pearce, Robinson Mital, 2008). Accordingly, the word SWOT stands for Strengths, Weaknesses, Opportunities, and Threats of an organization. Now let us analyse Bharti Airtel acquisition of Zain Africa by using SWOT analysis. Table 1 provides the SWOT analysis as to the acquisition of Zain Africa. Strengths New market power over 17 African countries and 5 middle east countries Addition of 42 million subscribers to Airtels subscriber base Acquisition of more skilled employees Increase reputation of Bharti Airtel brand Entrance in to the league of worlds top five mobile network operators Weaknesses Financial difficulties may arise because money amounting to $7.87 Billion have been invested on the acquisition Amount spent on the acquisition seems to be expensive Most of the African countries like Uganda, Ghana and Madagascar have a very lower ARPU compared to others African countries Morale and commitment of existing employees may reduce due to new employees Difficulties may arise when Bharti Airtel coping up with organizational cultural changes in Africa Opportunities Bharti Airtel can dominate many telephony service market with its economies of scale Opportunity to build new kind of telephone services over subscribers in Africa. Opportunity for expanding of Airtels telecommunications operations further Africa the opportunity for restructuring of Bharti Airtels business operations Threats Falling of Airtels stock price by 9.22% during announcement of the acquisition Possible counter attack from other telephony services companies in Africa Management of Bharti Airtel may be excessively focused on the acquisition rather than focuses on the operations Table 1: SWOT Analysis for Bharti Airtel acquisition of Zain Africa 2.1.2 Benefits of the acquisition of Zain Africa With the the acquisition of Zain Africa, Bharti Airtel have been able to enter top five mobile network operators in the world. Bharti Airtel and Zain Africa fit well together because both companies have valuable skills and experience to deliver quality telephony services to the customers. As a result, there is an opportunity for Bharti Airtel to be the market leader in Africa. Global reputation of Bharti Airtel increases due to this acquisition. Increase in global customers of Bharti Airtel by an amount of 42 million This acquisition has led Bharti Airtel to boost its achievements in telecommunication sector in world wide. Finally this acquisition of Zain Africa as a growth strategy enables Bharti Airtel to expand its business operations to a greater extent. 2.1.3 Potential problems of the acquisition of Zain Africa Amount spent on Bharti Airtels acquisition of Zain Africa seems to be little bit expensive There may be complexities when such expanded business operations are going to be managed by Bharti Airtel Bharti Airtel may encounter some financial problems when a significant investment is again required to operate the business. Existing employees moral may decrease with new acquisition of Zain Africas employees. There may be some complexities when cultural changes which occur as result of this acquisition are going to be managed. According to the above evaluation of Bharti Airtels acquisition of Zain Africa, we can recommend this deal since it brings many advantages to Bharti Airtel Ltd for the current period as well as future periods. 2.2 Analysis of Bharti Airtels strategy for remaining competitive and increasing market share and subscriber base Due to the higher population in India, presently there is an emerging of more competitors such as local competitors as well as international competitors such as Vodafone and DoCoMo into Indian telephony service market. This has been a min threat for Bharti Airtel to cope up. Accordingly, Bharti Airtel should formulate and manage strategies so as to have competitive advantages over it competitors while increasing its market share. In this section, I will analyse strategy that Bharti Airtel is following to have competitive advantages. According to the case study Bharti Airtel Ltd, we can notice that they are following cost leadership strategy as its competitive strategy to remain competitive in the market. Due to the competition in telecommunication industry in India, Average Revenue per User (ARPU) in India which is one of lower ARPU in the world was declined. Bharti Airtel has Rs. 438 ARPU in 2005 and that was declined to around Rs 350 in middle of 2008. Part of this reduction can be attributed to low price life time recharge promotion sheme that Bharti Airtel introduced in 2007. Finally ARPU of Bharti Airtel has declined to Rs 230 by the end of 2009. Figure 1: Average Revenue per User (ARPU) of Bharti Airtel in its Indian Market According to the above figure 1, we can see that ARPU of Bharti Airtel is gradually decreasing due to its main cost leadership strategy. Although its ARPU is decreasing, Bharti Airtel has been able to remain competitive in the business because its application of cost leadership strategy has been increasing its market share as well subscriber base. 2.3 Critically assess the risks faced by Bharti Airtel in Africa and how they can overcome the risks There is probability to have a lower ARPU form African customers since Zains ARPU is less than 1$ and lower revenue in 2009 compared to 2008. This is mainly due to the fact that many African countries consumers have very little purchasing power. Thus, Bharati Airtel should decrease its prices and increase number of subscribers in African countries as to its sustainability growth. Since Zains African market had been struggling, there is a possibility not to deliver values to its shareholders. Zain was market leader only in ten of the fifteen African countries it may difficult for Airtel to dominate such markets. Thus, it has to adopt cost leadership and focus strategis for the growth of the business by which core values can be created. Bharati Airtels debt to equity ratio may increase to 1:1 due to long term borrowings from banks. This will lead solvency problems in future. Thus, it should try to raise fund through retained earnings, ordinary shares while making net profits in future. Cost of base stations in Africa is high since its cost is 3 times compared with Europe. This indicates that Bharati Airtel have to incure relatively high capital expenditure. With a higher capital investment and lower ARPU, it may generate lower Return on Investment for Bharati Airtel Ltd. Cultural, language and regulatory differences in the 15 African countries is a big challenge for Bharati Airtel. If they do not adopt such differences quickly, it may lead to an interruption for it operations in African market. Accordingly, Bharati Airtel should be dealing with 15 countries, 15 governments and 15 regulatory regimes effectively and efficiently to overcome possible operational interruptions. There are high fluctuations in local currencies of African countries. This may bring foreign currency risk for Bharati Airtel. Thus, Bharati Airtel should arrange hedging contracts with parties so as to reduce such risks. 3.1 Critically analyse Bharti Airtels, mission, vision and Strategic intent Before Strategic intent of Bharti Airtel is analysed, I will analyse vision and mission of Bharti Airtel because vision and mission of Bharti Airtel express its Strategic intent in broad terms and in specific terms. Vision Statement of Bharti Airtel Ltd To be globally admired for telecom services that delight customers Accordingly we can see that Bharti Airtels vision reflect what it does and the future status of the organization that it expect to be. This presents the detailed picture of Bharti Airtel while providing the major reason to do its business. This provides the company to go head successfully as it provides long term direction to employees. Mission Statement of Bharti Airtel Ltd We will meet global standards for telecom services that delight customers through customer service focus, empowered employees, innovative services and cost efficiency Accordingly we can see that mission statement of Bharti Airtel consists of following 3 essential components: Key market : Global telecom market Contribution: Telecom services Distinction : customer service focus, innovative services and cost efficiency Strategic intent of Bharti Airtel Bharti Airtels dtrategic intent express that it tries to give a telecom service that admired globally to its customer in a manner that they will be delightful. This indicates Bharti Airtel is prepared flexibility when several situations occur in global business environment. Accordingly this provides a direction, discovery and destiny for Bharti Airtels operations. 3.2 In the process of developing their strategy, do you think that Bharti Airtel used incremental change or transformational change? Analyse your answers There should be a transformational change in the internal environment of Bharati Airtel when they develop strategies. That is organization structure and culture of Bharti Airtel may have to be changed due to its new strategies being developed. Strategies are mainly prepared to cope up both internal and external environmental changes. Thus, when strategies are developed, they have to developed and implemented so as to adopt for such changes. As a result, Bharti Airtel should used transformational changes within its business operations. For example, acquisition strategy of Bharti Airtel led them to change its organizational structure and culture as they expanded its operation into Africa. Hence, they cannot do its operations in Africa with its previous organizational structures and cultures when they do business in Africa. Accordingly Bharti Airtel must adopt and use transformational changes such as adoption to African culture and regulations etc so as to develop and implement strategies in order achieve a sustainable growth. Analyse the potential impact of global issues in telecommunication industry and its effect of Bharti Airtel Political Unsuitability in countries Many of African countries have unstable government which directly affect the operations of Airtel in African countries. When government changes policies, laws and regulations of such countries may be changed. Hence, it may affect the smooth operation of Bharti Airtel. So they have to change its strategies so as to adopt such governmental changes. Issues in global economic conditions Global financial crisis, brewing for a while, demonstrate its effects in 2007 and 2008. As a result, stock market s around the world fell down and large financial institutions collapsed. Source: Global Financial Crisis-Global Issues, Available from: http://www.globalissues.org/article/768/global-financial-crisis (Accessed on 10th March 2012) Accordingly, there is possibility of global economy to unstable. If such thing happend, it would have seriously affect the operations of Airtel. There was high rate of corruption in African countries With the high rate of corruptions of people in Africa, Bharti Airtel will have an issue with regard to recovery of post paid bills from such people. Issues in bringing technologies to African countries The cost for establishment of base station in some African countries is 3 times compared with Europe. The cost of a base station in African countries is about $180,000 to $200,000. In Europe country the base station would cost about $50,000 to $60,000. Therefore, Airtel will have to invest more money on base stations. Threat of Internet for traditional role of telephone services such as phone calls and SMS In the world today, we can see that the internet has become the future of connectivity. With the arrival of free services such as Skype, Yahoo Messanger etc, there is a threat for telephony service companies. There is trend that people are becoming used to such free services. Accordingly demand for phone call services and Short Message Services in Airtel may decrease. Identify and critically analyse the impact of different stakeholders in Bharti Airtel Stakeholders are the outside entities and people that have an interest in an business organization (Verzuh 2003). Stakeholders of Bharti Airtel can be identified as follows. Customers Business and Individual customers like to experience the quality and prices of services provided by Bharti Airtel. If quality of its service is low, customers may shift to other service providers. Competitors Competitors such as Vodafone Essar, Reliance Comm, MTN and Vodacom are interested to know strategies of Airtel so as to give a counter attack toward airtel. Share holders of Bharti Airtel Shareholders of Bharti Airtel interested in the financial performance of the company. If the company is not performing well, shareholder may change the director board or dispose their shares. Government bodies Government bodies in each geographical area such as India, Sri Lanka and African countries have major impact on Bharti Airtel since they may change laws and regulations regarding telecommunication industry. Suppliers Supplies of telecommunication related equipments and Material know the financial positions and operations of Airtel so as to convince that they can continue the relation with Bharti Airtel. Employees of Bharti Airtel Employees are interested to their job safety and rewards. Employees may resign from the company if they were not treated well. Propose and argue ways in which Bharti Airtel can respond to the environmental factors affecting its Africa operations Political environment Many of African countries have unstability in their political positions. Airtel can cope up with these governmental changes by developing strategies that suits with such changes and keeping connections with such governments. Poor economic conditions in African countries Bharti Airtel can do its operations in African countries with such economic conditions by introducing low price scheme and increasing subscriber base. This will allow the company to give a higher competition towards other telephony service providers. Higher currency fluctuations in many African countries I suggest Airtel to have hedging contracts with banks so as to reduce such foreign currency risks. But this may take away the opportunities of having foreign currency gains. Low level of urbanization in African countries populations To cope up this environmental factor, Bharti Airtel should install additional towers and radios in such areas. This require substantial amount of capital to be invested. Conclusion The acquisition of Zain Africa has led Bharti Airtel Ltd to expand its operations globally and it can be considered as a prominent growth strategy of Airtel. Objectives of Airtel such as undertaking transformational projects and diversification into new businesses such as financial services have been achieved to some extent. Development of strategies of Airtel have enabled them to achive such objectives while having core values such as quick adaptation for the environment changes and customers needs, openness and transparency etc. The main competitive strategy that Bharti Airtel uses is low cost leadership. The acquisition of Zain Africa have brought benifits to Airtel such as New market power over 17 African countries while having 42 million subscribers to its subscriber base. But operations in such countries has been challenge for Airtel due to political instability, poor economic conditions and higher cost on base station. Therefore, Bharti Airtel must develop and apply appropriat e strategies in African countries in order to have sustainability growth.