Resource-based analysis of Telkom South Africa's telecommunications strategy

¶ … total 3000 words: Organisation - Telkom South Africa Questions strategy theory applicacable models 1. Undertake a resource based analysis Telkom, South African telecommunications company comment implications analysis future strategy organisation

Telkom South Africa

The telecommunications industry is the fastest growing industry at an international level. It relies on innovation and developments and it impacts all aspects of life. The telecommunications industry in the Western Hemisphere is generically assumed as the leader of the world, possessing the most impressive resources and developing the most impressive technologies. Aside from the United States however, intense telecommunications is also present in Japan, China or Russia.

In the global discussion of telecommunications, South Africa is often overlooked as a region noteworthy of attention. Nevertheless, the African continent does possess an impressive telecommunications company, which operates in 38 countries and which could easily pose competition to the more commonly known westerner companies. This is the Telkom Group Limited and the current project seeks to assess its strategic efforts and match them with the resources it possesses.

2. Company and industry information

The Telkom Group Ltd. was founded in 1991 in Johannesburg, Transvaal Province. The company currently operates in 38 countries offering products such as wireless and wireline services, data hosting, telecommunications services and devices, broadband services or managed services. The company's services are centered in the regional hubs of Nigeria and Kenya, from where they spread throughout the 38 states served (Website of the Telkcom Group Ltd., 2011).

The Telkom Group has originally been a governmental institution, but today, only 39 per cent of the company is possessed by the government, with the rest of 61 per cent having been privatized. Still, the government has high stakes in the firm and the group encounters virtually no competition. This means that it is practically a monopoly, it maintains internet costs high and it raises populous discontent. The alternative solution identified by the population was that of using smaller size and niche sources of internet. These providers are however insignificant and do not pose severe competition for Telkom.

Aside from the competition, it is noted that the demand for the telecommunication services is directly pegged to the state of the economy, in the meaning that economic downturn generates decreased demand, whereas economic growth generates an increase in the demand for telecommunication services. A constant need within the industry is that of ensuring that the changing needs of the customers are served and that infrastructures are developed to serve these needs.

Larger size economic agents, like the Telkcom Group, compete based on economy of scale advantages, whereas smaller size companies can compete by developing and delivering specific products and services, which serve specific needs. The telecommunications industry is capital intensive, meaning that it raises significant financial barriers to entry (Hoovers, 2011). Such a context explains the monopoly detained by Telkom and the lack of competition.

In a numeric presentation, the telecommunications industry in South Africa is characterized by the following:

4.32 million main telephone lines in use, making the country as such the 34th largest state in terms of main telephone lines in use. The main line telephone infrastructure is the best developed one on the African continent.

46.436 million mobile telephones, making South Africa the 26th largest state in the world by mobile telephones operated by the population.

3.751 million internet hosts, the 24th largest internet providers' population on the world, and finally

4.42 million internet users, being the world's 54th largest internet using population (Central Intelligence Agency, 2011).

3. Resource-based analysis

The Telkom Group Limited is an intriguing organization on the African continent and it is safe to assume that it maintains its strong position as it possesses increased resources that consolidate its position. It for instance enjoys the support of the government, possesses large financial resources, regional expansion and the advantages of the scale economy. These generically represent the competitive advantages at the basis of its success. But a deeper look is required and this would be ensured through the lenses of the resource-based analysis.

The resource-based analysis is an organizational tool to assessing the strength of the economic agent through the lenses of the competitive advantages it possesses. These competitive advantages are generically understood as resources and sources for future growth and success. But in order for the resource to be solid and sustainable, it has to simultaneously meet four criteria. Specifically, it has to be valuable, rare, un-imitable and non-substitutable (Tsai).

a) Governmental support

Valuable feature: The South African government owns shares of almost 40 per cent in the Telkom Group (39 per cent to be accurate). This feature presents the company with advantages and opportunities for value creation in the meaning that it allows the Telkcom Group to be more competitive. In consequence, the fact that the governmental share in the company strengthens the company's competitive position makes it valuable.

Rare feature: The South African government does not possess significant shares in any other telecommunications company and it as such does not support the competition. This means that the resource of federal support is rare as well as valuable.

In-imitable feature: The governmental support is a feature which is either possessed through a solid contract with the federal authority, or it is not possessed at all. This virtually means that it is in-imitable as it is controlled and possessed only by Telkom to increase its competitive position.

Non-substitutable feature: Similar to the previous feature, the support from the government is also non-substitutable, meaning as such that Telkom's competitors cannot create this competitive advantage from other sources, meaning subsequently that they would not pose major competitive threats.

b) Regional expansion

Valuable feature: The Telkom Group expanded its operations into 38 states of the African continent. This advantage allows it to create value by accessing wider customer markets and increasing its sales and subsequently its revenues and profits. In other words, the regional expansion is a highly valuable resource.

Rare feature: The regional expansion resource is rare in comparison to other competitions in South Africa, and even other telecommunication companies in Africa. It is not however rare at a global scale, where the majority of the leading companies expanded not only regionally, but even globally. Nevertheless, the rare feature is possessed at a regional level, where Telkom activates.

In-imitable feature: Expanding the operations to a regional level is not an in-imitable feature, but it could be perceived as such through the lenses of the investments it requires. Since Telkom's competitors do not possess the resources necessary to such an expansion, this feature is assumed as possessed by Telkom alone.

Non-substitutable feature: The regional expansion is a strategic advantage difficult to substitute. It could be -- to a limited degree however -- be replaced with a more in-depth penetration of the local market. Yet, it would be difficult for any of Telkom's competitors to create substitutes for the company's expansion into the 38 states.

c) Scale economy advantages

Valuable feature: The advantages of the scale economy present the Telkom Group with opportunities to generate more value through actions such as the offering of higher quality products at more affordable prices, the development of the infrastructure, or the attraction of customers through efficient marketing and distribution operations.

Rare feature: The scale economy is a rare feature, not encountered at the level of any other telecommunication company in South Africa.

In-imitable feature: The scale economy cannot be imitated by any other type of business model.

Non-substitutable feature: The advantages of the scale economy cannot be substituted with any other advantages. In some limited situations, competitive companies can find alternative ways of being competitive, but the totality of the advantages of the economy of scale cannot be substituted.

d) Large financial resources

Valuable feature: In order to create any type of value, the company requires financial resources. And the Telkom Group possesses these vast resources which allow it to develop new products and services, create new infrastructures, expand into other markets and other such value creating operations. In other words then, the important financial resources it possesses are strong competitive advantages and valuable resources.

Rare feature: Financial resources are not, in their traditional manner, rare resources. They are the result of strategic actions and decisions which lead to the creation of financial resources. In the context of the South African telecommunications industry however, the financial resources are a strong competitive advantage of Telkom since its competitors do not possess such impressive financial resources.

In-imitable feature: Financial resources are present everywhere within the industry and they can as such be imitated. In the current scenario however, it would be difficult for any company to imitate the resources possessed by Telkom.

Non-substitutable feature: Finally, in terms of their substitutability, it is noted that the financial resources cannot be replaced. In some special and limited circumstances, they can be replaced with barter contracts. On the long-term however, the financial resources cannot be substituted and this adds to the competitive strength of the Telkom Group.

4. Strategy analysis

The scope of this section is that of assessing the strategies developed and implemented by the Telkom Group through the lenses of the resources identified in the resource based analysis. In other words, it is wondered whether the strategic efforts at the South African telecommunications company are suitable and tailored to the four competitive strengths it possesses: governmental support, regional expansion, scale economy advantages and strong financial resources.

A valuable source for assessing the strategic directions and decisions at the Telkcom is represented by the company's annual report. According to this, the strategic efforts at the Telkom Group are centered and hoped to be attained through the implementation of nine strategic imperatives, as follows:

The creation and delivery of shareholder value

Good governance

Engagement to create stakeholder satisfaction

The protection of the Telkom business

Focus on customers

Social responsibility

Environmental management

Continuous transformation and development, and last

Focus on human capital (The Telkom Group 2011 Annual Report).

At the level of the actual strategies implemented by the Telkom Group, these refer to the following:

Driving broadband-based consumer services

Maintaining market leadership in enterprise services

Transforming the network for growth and cost efficiency

Growing the mobile business

Evolving into a true convergence player

Creating a sustainable African business

Remaining a wholesaler of choice

Ensuring they are an employer of choice

The lines below present the strategic efforts at the Telkom Group in a more detailed manner, and they also focus on assessing them through the lenses of the resource-based analysis.

a) Driving broadband-based consumer services

In a market context in which the emphasis falls predominantly on mobile devices and mobile connections as these are more convenient, the Telkom Group strives to increase its offering of fixed-line broadband-based services. The company has decided in favor of this strategic direction due to the superior and unequalled quality of base line services. In implementing this strategy, the company uses three of its resources, namely the regional expansion as a source of base line expansion, the scale economy advantages to efficiently expand the broadband-based services and the financial resources to fund the expansion of these services.

b) Maintaining market leadership in enterprise services

The Telkom Group provides services to numerous enterprises, including banking institutions, retailers, airline organizations or governmental agencies. The company argues that competition in this area is intense and that they strive to create points of difference by delivering services which cannot be delivered by other companies.

At the level of this strategic effort, it can be argued that the company employs two specific resources from the four ones previously described. In this order of ideas, the partnership with the government implies that the federal institution is directly interested in the profitability of Telkom and would as such stimulate federal contracts between the state institution and the telecommunications firm. Then, the company's access to impressive financial resources allows it to create new products and services, to integrate innovation and to create competitive advantages of new and unique products.

c) Transforming the network for growth and cost efficiency

At this stage, emphasis is placed on the development of the network in order to both increase access, as well as improve its quality and resilience. In the implementation of this strategic effort, the company makes use of scale economy advantages to sign efficient contracts with providers, as well as the financial resources required to finance the investments.

d) Growing the mobile business

While continuing to strengthen the base line broadband services, the Telkom Group also recognizes the role played by mobile devices within today's market. They as such desire to expand their operations in the mobile market and turn this new venture into a source of new revenues. In implementing this strategic decision, the company makes use of the advantages of the scale economy to sign favorable contracts and attract customers, the support of government by accessing the newest technologies, as well as the financial resources to fund the research, development and distribution processes.

e) Evolving into a true convergence player

At this strategic level, the company strives to create new products and services and sell them in the form of package or bundle offers. Such a decision would ensure that the various needs of a wider consumer market would be better served. In attaining this strategic objective, Telkom South Africa -- as part of the overall group -- primarily employs the advantages of regional expansion where to sell the bundle packages and the scale economy advantages to better appeal to the customers through competitive products.

f) Creating a sustainable African business

The Telkom Group has decided to move away from the African regions where it is not the market dominant and to focus on consolidating the services offered to corporations across Africa. In implementing this strategy, it uses the regional expansion advantages, the scale economy advantages and the financial resources advantages.

g) Remaining a wholesaler of choice

The competition within the industry is intensifying in South Africa, as well as the other countries where Telkom provides services. And as the competition intensifies, the Telkom Group strives to "ensure that our pricing is extremely competitive, that we install services quickly and that the quality of our products remains exceptional" (The Telkom Group 2011 Annual Report).

In attaining this desiderate, the company makes use of the scale economy to provide competitive products, as well as the financial resources to fund the new ventures and quality improvement efforts.

h) Ensuring they are an employer of choice

A last but not least strategic effort at the Telkom Group is that of being a desirable firm in which the people seek employment. The organization recognizes that it faces a shortage of skilled and talented staff members, and strives to create a context and culture through which Telkom is viewed as an "exciting and caring employer" (The Telkom Group 2011 Annual Report).

In implementing this strategy, the managerial team at the telecommunications company employs two specific advantages -- the governmental support and the financial resources. The governmental support is used through association and through processes of recruiting and selecting the best staff members, whereas the financial resources are used to fund these processes, as well as to ensure the training and rewarding of the Telkom employees.

At the particular level of the four resources employed by the company, the lines below reveal them in order of popularity, or recurrence in the strategic efforts:

1. The financial resources (7 incidences out of 8)