Strategic Management Process: Airtel

Strategic precaution Process AirtelIndustry TelecomThe Indian telecommunications industry is 1 of the fastest growing in the world, with about 19 gazillion additions a month. The industry has witnessed consistent developing during the last year on the back of rollout of tenderer circles by operators, successful auction of third-generation (3G) and broadband wireless access (BWA) spectrum, network rollout in semi- untaught aras and increased accent on the measure added functions (VAS) market.thither drop been several new entrants in the markets lately. This has led to ever pocket-sizeering tariffs and a decrease in the taxation of existing actors. Fresh acquisition of clients is no doggeder a guarantee to increase in revenue. Consequently, in addition to the lower calling rates, the operators have been forced to grant a host of judge added and auxiliary inspection and repairs. To retain its leadership limit, Airtel is already leading the way in atomic number 18as of industrious commerce, banking etc.As the Indian telecom industry enters its third phase, growth in the markets is bound to mirror the growth in the economy. This provides valuable pointers to the next driver of growth the rural India where mobile penetration levels still remain an immensurable 15%. Airtel has been looking to expand and learn in the rural/low income market part. Airtel has already ventured into providing mobile financial services, mobile money transfers to customers in rural areas, further leveraging its existing base of cellular subscribers.Vision and MissionVisionBy 2015, Airtel pull up stakes be the most loved brand, enriching the lives of millions.MissionWe allow for meet themobilecommunicationneeds of ourcustomer through error-free service deli reallyInnovative Product and Service make up efficiencyUnified pass a desire solutionObjectives/GoalsTo undertake transformational projects that have a positive impact on society and contribute to the nation buil ding processTo diversify into new origines in agriculture, financial services and retail line with world class partnersTo lay the foundation for building a conglomerate for future.Environment AnalysisPorters Five Forces (Cellular Services)1. menace of new entrants MEDIUMTRAI has been interest a liberal regulatory regime to encourage greater competition with better quality and affordable hurtsThe government now allows FDI of 76% in the sector, encouraging foreign players to enter the Indian market.Heavy capex requirements and strict licensing policy hinders entry2. Bargaining Power of buyers VERY HIGH leave out of product eminence- There are short term gains that one player may have from innovation/ stolon mover return into a new value added serviceExtremely low switching be in moving from 1 service provider to a nonherMultiple service providers- precise wide variety of choice for the customers.Competitive landscape implies consistently better offers and deals for custo mers.3. Bargaining creator of suppliers VERY LOWAirtel outsources most of its operating rooms. Since contracts are allocated to the highest bidder, Airtel only looks at getting the best deal. This mechanism provides Airtel with a high degree of flexibility. For eg. Network outsourcing/maintenance partners Ericsson(15 circles), Siemens(7 circles), Huawei., IT system partner IBM, Tower maintenance and separate infra complex body part Bharti Infratel and Indus towers.4. wedge from substitutes HIGHThe communications space is very dynamic with new technology (3G and 4G) and products flooding the market. Mobile services are competing with products such as, Wired-lines ,CDMA, Video telephony, Tata/ Reliance- Walky phones, Internet telephony- Skype, google, fring etc, VSAT phones.Additionally, entropy services on cellular phones have become an essential product feature. On this front, mobile services face a significant threat from topical anaesthetic ISPs, broadband service, leased lines, Blackberry and iPad.5. Current Rivalry MEDIUM-HIGHAirtel is the current market leader in the mobile service (GSM) sector with 31% market share. Vodafone, BSNL, idea are its major competitors.Competitive AdvantageAirtel has the next competitive advantagesStrategic alliances Acquisitions and JVsAirtel has been entering into various JVs and acquisitions to increase its footprint as well as spherical presence. The upstanding has stake in JT mobiles, Sky Cell etc. With the acquisition of Zain and other players, Airtel has used this strategy effectively to become a global playerOutsourcingAirtel has a clear outsourcing strategy. It outsources all its functions except marketing, sales and finance this has helped the firm focus on its core competencies. Further due to its market leadership position and volume of its operations, in that respect are multiple bidders which has imaged high quality service/products for AirtelSupplier RelationshipsAirtel has strong relationships wit h its suppliers. It relies on Bharti Infratel for towers, IBM for IT systems etc. It is able to sustain its innovative channel model ,by focusing on relationship management with vendorsInternational PresenceAirtels global presence and deep pockets are a source of competitive advantage for the firm. tax Chain AnalysisThe traditional mobile industry value chain basically involved the mobile operator, service provider, device manufacturer and the customer. deprively the mobile services industry is rapidly evolving with value added services, data services etc. gaining significance. These are a very profitable revenue stream for the service provider.For example in the value added services segment, the network operator keeps about 60% of revenue, the technology/software developer retains about 25%, while the content provider gets about 20% of the revenue from value added services (Source IMRB Research).With M-Commerce contents becoming increasingly in-chief(postnominal) in the value c hain, it is seen that the operator share in the value chain has been declining. Airtel has been tying up with entertainment providers, FMCGs, insurance companies to maintain a share in the value chain. From a strategy perspective, this should be one of the focus areas for Airtel.Business Level StrategyAirtel cellular service follows a cost leadership strategy. The market focus is broad- with the firm catering to 137 million customers as of FY10. Further, since polariation is very short lived and immediately imitated by competitors firms attempt to maintain a cost advantage over their competitors. Airtel has maintained its cost leadership by trim down its operable costs and its unique business model- which outsources all major functions except, sales, marketing and finance. Differentiation is also attempted with the help of value added services. While there are several player in the market, including the new entrants, Bharti-Airtel, Rcom and BSNL are the only players to gain a dif ferential advantage on the account of existing infrastructural capability.Differentiation centre differentiationCost leadership- AIRTEL CELLULARFocused CostIntegratedCompetitive Scope intendBroadSource of competitive advantageDifferentiationCost corporal Level StrategyBharti Airtel has been divided into distinct business units, as followsThe Mobile Services division is probably the most valuable division of Bharti Airtel. Airtel offers GSM mobile services in all the 23-telecom circles of India and is the largest mobile service provider in the country, based on the number of customers. It provides numerous value added services such as mobile apps, hello tunes, m-commerce, wireless internet etc.The Airtel Telemedia Services division provides high speed broadband internet and think services. It also provides landline service in 93 cities across India. It also launched its DTH services in 2008 and is bow in to a greater extent than 150 cities now.The Enterprise Services division provi des a various portfolio of services to large Enterprise and Carrier customers. This division is further divided into two unite Carrier business unit and merged business unit.The merged Business Unit provides end to end telecom solutions to Indias large corporate. It specializes in providing customized solutions to address the unique requirements of different industry verticals.The Carrier Business Unit provides long distance wholesale voice and data services to carrier customers as well as to other business units of Airtel. It is present in significant talent in the International arena as well.DifferentiationFocused differentiationCost leadership- AIRTEL CELLULARFocused CostIntegratedCompetitive ScopeNarrowBroadSource of competitive advantageDifferentiationCostThe Digital TV Services provides customers with a unique TV viewing experience with a wide variety of channels and programmes and with the on-demand content on Airtel Live.The global business group deals with all of Airtel s operations outside India and South Asia.Bharti Airtel has comparatively low levels of diversification, and it follows a Dominant Business strategy. The second quarter financials of Airtel show that its mobile services division had a gross revenue of Rs. 8099 crore, which is roughly 82% of its total revenue of Rs. 9846 crore.Thus its mobile services division is its dominant business.The causes for Airtel to diversify are purely based on value creation. As all its divisions focus generally on telecommunication and related technologies, the transfer of core competencies becomes much easier and much much useful. Moreover sharing activities and resources, especially technological knowledge, is very helpful and creates a positive synergy for Airtel. It also gives Airtel to increase its market power by engaging in multipoint competition with competitors such as Tata. Further it provides efficient intrinsic capital allocation opportunities to airtel, as the retained earnings from its hugely profitable Mobile services can be put to good use in other divisions.Value creation through diversificationAirtel seeks to create value through diversification by moving across businesses that share both operational and corporate relatedness. With this approach, it expects to achieve high resource sharing and consequently, significant cost reduction.It looks at operational relatedness since a number of its businesses operate across similar technologies and then the platform for a given product can be used directly for extending the service from a completely new product. As an example, the cables for a telephone connection provided by Airtel can be used to provide broadband service to the customer without any significant change in infrastructure. The skills required from the technicians are also not very different and thus economies of scale are quite possible. The same logic can be extended to exploring the corporate relatedness. tout ensemble the diversified businesses re quire similar managerial and technical expertise as can be seen in the example provided above.In pursuing this strategy, Airtel will have to be conscious of the fact that it can lead to diseconomies of scope. This can arise primarily from the very factor which Airtel is banking on similarity across its businesses. A ruin move in any one of the businesses can spill over to its other business and cause repercussions even in the short term. This is the very reason that the organization cannot afford to go easy on any of its domains and needs to keep up to speed in all its businesses.International Strategy immediately Bharti Airtel operates in 19 countries throughout the world. Apart from being the largest cellular service provider in India, it is the fifth largest telecom operator in the world. It has about 207.8 million subscribers worldwide 152.5 million in India, 50.3 million are in Africa. This has helped Airtel to increase its global market share and revenues significantly.Inte rnational Business Level StrategyWe will view this in further detail using Porters Determinants of National Advantage modelIt is worth noticing here that after the Indian subcontinent, Airtels main region of operation is Africa. It is possible that the company found it attractive to enter Africa because due to its economic conditions, countries there would be lacking in necessary factors of production. domestic companies in Africa would be lacking in technological resources, human resources, and capital necessary in the telecommunications sector. On the other hand, there is no lack of such resources in India. This is one of the major reasons why Airtel chose to expand there.Although the demand for services provided by Airtel is increasing at a rapid pace in India, there is still a lot of competition and the demand is smoothing out slowly. To further increase its revenues and market share Airtel has to expand to other nations as well. Due to the lack of existence of bare minimum inf rastructure in Africa and the slow but steady increase in its economic well being, the demand conditions over there should be very high.The related and supporting industries are also very competitive and there are a lot of players in the telecommunication sector, like Vodafone, BSNL and Reliance.International Corporate Level StrategyThe business of Airtel has been divided into two units based on geography.Need for cost responsivenessThere are three basic global corporate level strategies availaible to any firmNeed for local responsivenessAirtel has always made it a point to focus on the needs of customers and provide solutions to customers according to their requirements. For example, the mobile services that they offer vary even among the different states of India according to customers preferences. Similarly, the kind of services, offers, plans and value addition that they offer in India is very different than what they offer in other nations. For Airtel, need to address local re sponsiveness has always been of the utmost importance.On the other hand, the need for global integration is not very high. The two business groups, as shown above, are distinct from each other. Due to the lack of proximity of the locations where Airtel operates, and other strategic factors, it is best for Airtel to have low levels of global integration.Keeping the above points in mind, it is clear that Airtel follows a multidomestic strategy.Organizational StructureBharti Airtel follows an integrated structure responsible for all aspects of its telecom business in India. Significant reorganization took place in October 2006 in line with the vision of making Airtel, the most admired brand in India by 2010.As quoted by their president, it is their endeavor to build an integrated business, leading to higher synergies efficiencies and creating an organization that has a truly national character in every aspect of business operations. The present structure marks the transition of Airtel towards a customer focused organization while building sustainability scalability to seamlessly manage 100 million customers and beyond. The new organization has been knowing to enable strong corporate governance whilst ensuring operational freedom, through functional hyaloplasm reporting relationships.Actual StructureBharti Airtel is structured into four strategic business units Mobile services, Broadband Telephone (BT) services, Enterprise services and DTH services. The mobile business provides mobile fixed wireless services using GSM technology across 23 telecom circles. The BT business provides broadband telephone services in 94 cities. The Enterprise services provide end-to-end telecom solutions to corporate customers and national and international long distance services to carriers. All these services are provided under the Airtel brand. The top level management of Airtel across its four divisions is as shown in the following run across.In the case of Airtel, a inter cellular substance organization structure introduces, or at least recognizes, the real life complexity of a business environment. Geography, function, technology, business unit and technology (among others) are the important factors that are recognized in the matrix organizations structure.However, the above mentioned structure also introduces a higher level of sexual complexity and some additional people management challenges, so there must be significant advantages that are seen by the organization that outweigh the matrix people management challenges.Matrix organization structures were initially introduced in complex projects such as the airspace industry to cope with complex projects. Since then a number of organizations, often prompted by large strategy consultancies, have adopted or altered the matrix organization structure to help deal with interior(a) and external complexity.In the following figure, a sample matrix organizational structure is shown. In the case of Airtel, the project manager refers to the managers of the different services provided by Airtel across its divisions. It is clear that this allows for sharing of resources across the various projects.At its simplest the matrix organization structure just reflects this external complexity in the internal structure. Airtel is a brand that is aiming for a global presence and realizes that geography is important but so are function, customer grouping, product and technology.Basically, a matrix organization structure is an acknowledgment of the notion that since it is improbable to specify the weightage of importance that can be attributed to these factors, there is a need to allow a structure that is flexible and permits rapprochement and prioritizing on a daily basis between the various divisions. Thus there is a conscious trade-off for clarity in return for more flexibility.An important issue to consider here is that while the organization structure itself is a good fit for Airtel, a lot of e mphasis needs to be laid on the successful coordination of the people and their skill specifys within the organization.AdvantagesAs a synopsis, the advantages reaped by Airtel as a result of its organizational structure overwhelmImproved resource accessibility across the old functional and geographic silos.Effective coordination on shared technologies across the organization (extended to a global level)decentralization of management finalesImproved access to a diverse range of skills and perspectives.increased communication and coordination across the businessFlexible as per the needs of global or regional customersStructural IssuesDual reporting structures run a risk of initiating power struggles. Dual lines of authority in the matrix often create power struggles between the vertical and lateral forces as each tries to secure member loyalty and budget rupees.Teams may develop groupitis, the matrix depends on team functioning, there may be an overdependence on group decision-maki ng even where it is unnecessary. This can slow down projects and further be a point of frustration for people managers.It is a widely acknowledged fact that the matrix structure increases administrative overhead, it also ideally suits the progressive development of new ideas into projects. However, when a slump hits, one coarse tendency is to discard the matrix in favor of more traditional approaches. The matrix can become a scapegoat for inefficiencies.Decision strangulation matrix organizational structures legitimize multiple information flows throughout the organization, creating the danger that too much information will be processed before a decision will be made. Some project managers may feel compelled to check with everyone on every project decision.Corporate GovernanceCorporate Governance is a set of mechanisms used to manage their relationship among stakeholders and to determine and control the strategic direction and act of organisations. An organisation is owned by its shareholders but is managed by the monomania (Principal Agent Issues). Many a times the decisions taken by the management may not be in the best interests of the shareholders and thus Agency costs arise. To guarantee that such a scenario does not arise it is essential for the firm to have strong corporate governance tools.BhartiAirtel limited firmly believes in the principles of Corporate Governance and is committed to conduct its business in a manner, which will ensure sustainable, capital-efficient and long-term growth thereby maximising value for its shareholders, customers, employees and society at large. Companys policies are in line with Corporate Governance guidelines prescribed under leaning Agreement/s with Stock Exchanges and the Company ensures that various disclosures requirements are complied in letter and spirit for effective Corporate Governance.As proof of the excellence of Bharti Airtel in the Corporate Governance it has been Rated Level 1 by CRISIL which is the highest Governance and Value Creation rating (GVC).One way to ensure strong corporate governance is by having independent directors on the circuit board of Directors. Their sole purpose is to ensure that the decisions taken by the management are in the best interests of the shareholders.In order to ensure that this corporate governance tool is a sound check, Airtel has ensured the followingThe board has 2 executive members and 14 non executive members. 50% of the members of the board are independent directors which is a good sign of corporate governance. The board meets regularly outside the presence of management.The chairman of the board is not the CEO or a former CEO of the firm. Else it may impair the ability and willingness of independent board members to express opinions contrary to those of management.Independent board members have a primary or leading board member in cases where the chairman is not independent. carte members are not closely aligned with a firm supplier, c ustomer, share-option plan or pension advisor. This may lead to a conflict of interest scenario.another(prenominal) suitable means of aligning the interests of the shareholders with that of the management is by means of changing the structure of executive compensation. Having parameters such as stock options as part of the conduct will ensure that management will take decisions that benefit both the stockholders as well as themselves indirectly. This a strategy that is used extensively at Airtel particularly as far as the top management compensation goes.Other Corporate Governance Initiatives taken by Airtel areShareholdersBoard of Directors analyse CommitteeManaging DirectorHR/ RemunerationManagement OperationsESOP CompensationInvestor GrievanceCorporate Governance Mechanisms at AirtelAudit Committeesix members, two-third of which is independent directors.At least four times a year. (Max time gap 4 months)The Committee Chairman shall attend the Annual General Meeting.To ensure t hat the financial statements are true and accurate and provide sufficient information.Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of their audit fees.Human option (HR)/ Remuneration CommitteeSix non-executive directors, out of which four members including the chairman are independent directors.Attraction and Retention strategies for employees.Employees Development Strategies.CompensationAll Human Resources related issue.ESOP Compensation CommitteeConstituted in accordance with SEBI Guidelines, 1999.Six members of whom four are independent and all are non-executiveFormulate ESOP plans and define on future grants.Formulate terms and conditions Employee Stock Option Schemes of the CompanyInvestor Grievance CommitteeConstituted in accordance with Clause 49 of the Listing Agreement.Four members of whom three members including the Chairman, are non-executive directorsEnsure speedy dispo sal of various requests received from shareholdersfrom time to time (within 7-10 days from the date of receipt ofcomplaint).Redressal of shareholders and investor complaints/ grievances.Monthly meetingThe above detailed initiatives clearly point towards the importance that Airtel gives to Corporate Governance and this is further reaffirmed by Level 1 rating for GVC by CRISIL again in 2006.Organizational ControlsThey guide the use of strategy, indicate how to compare actual results with expected results and suggest corrective measures when the difference is unacceptable. It is an important part of the organisational structure and its key to a firms plans to exploit its core competencies.The organisational controls can be broadly classified asStrategic control It is used to determine the fit between what a firm might possibly do on the basis of opportunities in the environment and what it can do on the basis of its core competencies and competitive advantages. In other words, the pro cess of evaluating strategy, is practiced both after the strategy is formulated and after it is implementedFinancial controls They are used to measure the performance of the firm against set thresholds and analyse the reasons for being unable to meet them if the case by. Such controls generally include measures like Return on Investment (RoI), Return on Assets (RoA).Management control It focuses on the accomplishment of the objectives of the various sub strategies comprising the master strategy and the accomplishment of the objectives of the intermediate plans.Operational control It is concerned individual and group performance as compared with the individual and group role prescriptions required by organizational plans.Each of these types of control is not a separate and distinct entity and, in fact, may be indistinguishable from others. Moreover, similar measurement techniques may be used for each type of control.While both Financial and strategic controls are important the extent of importance accorded to each is determined by the firm strategy. Airtel which is following a cost leadership strategy focuses more on financial controls more than strategic ones.However a firm should not get too carried away along just one set of controls as that would hurt the long term sustainability. So if a firm focuses just on strategic controls while giving a cold shoulder to financial ones, it may curtly face a scenario wherein it will run out of cash.The organizational control to a very large extent is determined by the Organisation Structure.RecommendationsConsidering the expectant fragmentation of the Indian mobile market, we propose the following recommendations so as to ensure that Airtel continues to be the market leader in this domain.As the above figure suggests, there has been a heavy influx of new players in this arena of late which has seen the market share of Airtel fall from above 50 % to about 30 % in half a decade. This means that Airtel should look at her eto untapped markets specially in developing countries with low penetration. Thus following the Multi Domestic strategy more aggressively is crucial to continued successMoreover the ARPU (Average Revenue per User) in India is pretty low. Thus more acquisitions like that of Zain telecom (ARPU of $55 vs Bharti ARPU $7) makes sense. There is no point in proliferating the number of subscribers if Airtel cannot charge them at competitive pricesSince the competition in India has intensified, most players are engaging a price war which can be deleterious to the companys short term prospects. Herein Airtel should leverage its strong network and brand equity and not engage in a price war and try in move towards an integrated cost leadership/differentiation strategy.The urban market penetration is about 95 % and hence the only way of expanding revenues from this stream is by introducing quality VAS (Value Added Services). These give high margin services and are going to be in much greater dem and as the smart phone market swells. Entry and quality innovations into this niche domain (presently) would give it a big first movers advantage.Forging strategic alliances with mobile phone manufacturers specially those of high end handsets will be a great way to tap the premium segment. This segment often has very high usage and contributes significantly to the revenue stream. By locking them in with Airtel at the point of purchase itself, Airtel guarantees itself a long customer lifetime value. Also given the economic spurt, many such players have expressed their keen interest to enter the Indian markets.