Strategy & Operations Management at O2 Mobile Network - Case Study Example

Running Head: STRATEGY & OPERATIONS MANAGEMENT AT O2 Strategy & Operations Management at O2 Student’s Name Course Tutor’s Name Date Introduction O2 mobile network is a UK-based company which as of February 2013, held 24% of UK’s mobile phone market share (Statista, 2013). The mobile service provider is part of Telefonica Europe, and its product portfolio includes telecommunications, financial and internet services (Global Data, 2014). Its mobile network services include voice services and non-voice services such as media messaging, text, games, music, video and data connections through WLAN, 3G, HSDPA, and GPRS (Global Data, 2014). O2’s major competitors (by market share) include Vodafone (17%), Orange (15%), EE and T-Mobile (at 9% market share each) and Virgin Mobile (8%) (Statista, 2013). The main stakeholder at O2 is BT Cellnet, which initially had a 60 percent stake at O2, but later purchased the remaining 40% stake from Securicor (Parker, 2010). O2 trades as a private limited company, and as of 2010, it had a £2.973 billion revenue. It also had 10,147 employees. To stay ahead of competition, O2 has had to invest in new technologies that have enhanced its customer satisfaction levels, consequently helping the company to attract and retain customers. One of such technologies is an app that enables subscribers to make calls and send text messages using Wi-Fi, hence requiring no network signal. PEST Analysis A political, economic, social and technology analysis gives a clear picture of the macro-environment in which a company operates in. The macro-environment of O2 and other telecom players in the UK is as follows: Political factors Deregulation of markets is one of the major factors facing companies in the UK and the larger European Union (Bichta, 2001). Deregulation will open the markets to new competition, and as such, O2 can expect to face increased competition going forward. The EU roaming regulation is also another political factor, whose main aim is to reduce roaming charges for mobile phones by 70% (Dudovskiy, 2009). At the same time, the EU regulations intend to increase consumer rights for mobile phone users in the larger Europe (Falch, Henten & Tadayoni, 2009). While the current charges are capped at €0.24 per minute for voice calls and €0.08 for text messages, new laws propose the charges to reduce to €0.19 and €0.06 for voice calls per minute and text messages respectively (Gibbs, 2014). Consequently, O2 and other telecom companies should expect reduced revenues from customers who use their networks in the larger Europe. Economic factors How the UK economy performs generally has an impact on O2 in that a growth in the gross domestic product (GDP) would mean that people would have more disposable income to spend on mobile phone communication among other things. The level of inflation also has an impact in that the higher the inflation, the higher the costs of using mobile telephony would be. Inflation also means the cost of living would be costlier hence implying that spending on mobile phone services would depend on whether consumers perceive mobile phone services as a priority. As part of the global world, the UK is also prone to occurrences at the global economic front, with issues such as global recessions or financial crises having an effect on the local economy. The level of unemployment, which stands at 7.1% (2.33 million people) (Trading Economics, 2014) is also another economic factor that affects the level of disposable incomes that the population has. People who do not have much to spend can only use mobile phones out of necessity, and would hence refrain from making ‘friendly’ or unnecessary phone calls. The effect of the foregoing is that the higher the unemployment rate, the lesser revenues O2 would generate from the market. Social factors It has been indicated that the UK has an individual-centred society, where individuals value their private space (Kushchu, 2007). This suggests that when people become of age (18 years) they move out of their parents’ houses in search of personal space and freedom. The distance between children and their parents enhances mobile phone usage since keeping tabs on each other is a routine that a significant percentage of the UK population partakes (Kushchu, 2007). Consequently, it has been argued that telecommunication service providers have enabled “fluid connectivity”, just like what happened when families would reside together in villages, to occur in the current society (Kushchu, 2007). Since the UK society values convenience, Falch, Henten and Tadayoni (2009) observe that mobile network service providers (and the mobile phones) have enhanced communication and accessibility in the society, have brought efficiency, and have enabled the creation of a culture that expects a lot from the telecommunication service providers. O2 has for example had to experience tough times when it focused too much on acquiring new customers, and did not pay too much attention to its existing customers. As a result, existing customers started complaining and O2 had to change its strategy (The Marketing Society, 2013) as a result of the societal pressures, O2 had to embark on operational improvement in its services by rewarding loyalty and offering communication new strategies and rewards to existing and new customers (The Marketing Society, 2013). In the UK (as is the trend in most of the developed world), societies expect corporate organisations to be involved in corporate social responsibility initiatives that give back to the community (Mobile Network Comparison, 2014; Wayne et al., 2010). To respond to such pressures, O2 has a community programme dubbed ‘Can Do in the Community’, which supports charities and gives the company’s employees opportunities to volunteer in different community activities (O2 Plc, 2005). Technological factors The telecommunications sector heavily relies on technology. The ever changing technology therefore affects O2 and other telecoms in that while competition was previously on voice and text spending, it is now quickly changing to data-based competitions. In part, the changes experienced by telecom service providers is occasioned by the evolution of the mobile phone from a simple calling and texting gadget, to the current smartphones whose usage spans Internet surfing, playing games, downloading music and videos, and using social media platforms such as WhatsApp, Twitter and Facebook. Liao et al. (2009) suggest that to survive in a fast technologically-paced world, telecom service providers need to anticipate future changes and make the necessary changes in good time. Value Chain Analysis According to Michael Porter (Cited by NetMBA, 2010), the generic value chain consists of inbound logistic, operations, outbound logistics, marketing and sales, and services. Combined, these five factors lead to profitability (or lack thereof), and this determines the competitiveness of a company in a specific industry. The five activities are supported further by other factors namely: firm infrastructure, technology development, human resource management and procurement (NetMBA, 2010). O2’s supply chain involves suppliers across the world, who range from network equipment manufacturers, mobile handset manufacturers, software manufacturers, IT equipment providers, and service providers (Telefonica, 2009). O2 also provides telecommunication services to more than 30 million customers in the UK alone (Telefonica Europe Plc, 2011). While O2 has all activities identified in the value chain by Porter, this discussion will focus on marketing and sales and service as the two activities that have created a competitive advantage for the telecoms service provider. Marketing and sales at O2 Marketing is one of O2’s strong areas. The company has a principle of keeping the customer first, and has been innovative in responding to changing marketing needs (The Marketing Society, 2013). Some of the innovative marketing ideas by O2 include the Pay&Go wild tariff and happy hour promotions where customers could enjoy free calls and text services. As part of its marketing strategy in the past, the company launched a campaign dubbed ‘A world revolves around you’, which was meant to convey the value it attaches to its customers. In recent times, O2 has sponsored the O2 academy and The O2 entertainment venue, and collectively, these sponsorships have provided the company with platforms to endear itself to new and existing customers (The Marketing Society, 2013). From its marketing efforts, O2 was able to become a leading mobile service provider in the UK within four years of launching (Ibid.). Additionally, the company had developed a reputation for its consistent and effective communication, which made its customers believe that it was indeed committed to putting them first. Tangibly however, the success of O2’s marketing efforts was best seen in the 80:1 payback in its share price, and of November 2005, the company was valued at £18 billion (The Marketing Society, 2013). Another recent approach (mainly related to sales) that has contributed to O2’s competitive advantage over other telecom service providers is that the company has packaged mobile service contracts in a manner that makes them more acceptable to users. Based on the foregoing, O2 has migrated a significant percentage of its subscribers to contracts (post-paid) from the pay-as-you-go service, thus making it harder for them to switch between networks (Wireless Intelligence, 2009). The contracts strategy enhances customer retention, but to make customers even more comfortable, the company provides “simplicity price plans”, which makes it easier for unsatisfied customers to cancel their contracts by issuing a 30-day notice to the operator. Service provision at O2 O2 is passionate about educating its customers (Wessels, Azzarello & Kovac, 2014). Additionally, for all the services it offers, it ensures that the installation is completed and that activation has been done (Wessels et al., 2014). By doing the aforementioned, O2 has a competitive advantage over its competitors in that it uses sales and the services offered thereafter to build long-term customer loyalty. For its product offers (e.g. the mobile phones it sells), the company has technology gurus who are dedicated to ensuring that customers can proficiently use their mobile devices before leaving the O2 shops. Additionally, O2 has developed a smartphone icon for installation by willing product buyers, and this enables them to contact the technical experts at the company whenever the need to do so arises. As well, with the use of hand-held devices being on the increase, O2 has enhanced its innovations by developing an app (TU GO) that allows users to text or call from their PCs or tablets. The app uses the GSM mobile network, and one can connect multiple devices (a maximum of five) at once (Thompson, 2014). The TU GO is a pioneer innovation in mobile telephony in that the device in which it is installed does not need to have signal coverage since it works over 3G/4G or Wi-Fi connections (BBC, 2013). Arguably, the app will enhance O2’s competitiveness in an industry where consumers are constantly complaining of poor network coverage. In addition to its innovations, the telecoms industry regulator OFCOM indicated in a 2013 research (cited by Thompson, 2014) that O2’s overall customer satisfaction was the best in the country by 82%. This was an impressive performance from the previous year (2012) in which the company had recorded 76% customer satisfaction (Thompson, 2014). Even in 2012, the company had still been the highest ranked in the customer satisfaction metric. As is evident from the explanation above, O2’s service provision and the company’s marketing and sales strategies have given it a competitive advantage over other players in the industry. Conclusion The PEST analysis in this paper reveals that the macro-environment facing O2 in the UK presents mixed fortunes for the telecoms service provider. Deregulation is one of the consequences of the political environment, which can open up the market hence increasing competition for O2. The economic environment on the other hand presents an uncertain environment for business, especially considering that factors such as inflation could result in increased costs for customers. Additionally, the UK is prone to global economic disruptions such as what happened in the 2008/2009 global recession. Socially, O2 is faced with societal values that require it to enhance its service provision in order to continuously provide high quality services to its customers. Otherwise, it would lose its competitive edge in the market. Rapid advances in technology especially in the telecoms sector require O2 to continually be in the lead in order to provide its customers with superior services. The value chain analysis has identified marketing and sales and services at O2 as the main activities which create competitive advantage for the firm. Marketing and sales has enabled the company to gain market share, hence increasing its profitability and competitiveness. Service offerings on the other hand help the company satisfy its customers, thus making it more successful in its customer retention efforts. References BBC. (2013), O2’s Tu Go aims to challenge Skype and other VoIP apps. Retrieved April 10, 2014, from http://www.bbc.com/news/technology-21623810 Dudovskiy, J. (2012). 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