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Du Telecommunications Ltd.: Strategic Planning Report

Executive summary

This report was written to examine strategic planning options of Du mobile telephone service providing company operating in the UAE. It starts by giving research methodology that was used to collect data in which primary data was collected through direct interviews and secondary data through books and other publications. Then it introduces the background of the company giving its vision, mission, and the functions of the crisis management department. Strategy and strategic management are explained elaborating their importance. Three strategic goals are tackled and plan to achieve them is set while introducing the contribution of the crisis management department to them.

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External environment analysis of the environment is done while explaining the theories applied in them. Success factors are explained and the internal analysis of the company which includes a resource audit is elaborated. It explains SWORT analysis for Du and the gap in its marketing strategy. It further identifies strategic options such as competitive advantage and market growth and their implications. Evaluation and choosing of the preferred option are also explained as it is a basis for strategic planning whereby the force field analysis and Lewin’s model of change are introduced. The report also discusses implementation with an action plan of three years. , discussion of the findings and recommendations made to the management. Then a conclusion is made and the report ends with a least of the cited works which were used in the research and the appendices of the abbreviations that were used

Background information

Industry background

The UAE mobile phone industry has two operators Emirates Integrated Telecommunications company (Du) and Emirates Telecommunications Corporation (Etisalat). According to Business Monitor International (2009) during the year ended 2008 there was a recorded growth of 9.8 million subscribers. 2.5 million Subscribers had been registered to lead to a 34.5% growth. In 2007 the market penetration rate was 162% while in 2008 it was 207.8%. The growth of population has led to growth in subscriber base due to immigrants and ownership of more than one SIM card. The industry is booming because it has been recording a high subscriber growth and penetration to the market. The industry is in its early years and is enjoying existence of only two players in the market.

Company background

Du was awarded a license of incorporation in December 2005 and in February 2006, it was granted a license to operate telecom network for public in UAE. This included internet services, fixed lines, connecting gateways for communication and mobile telephone services. The company launched a mobile television service in September 2007and the company has also ventured into broadband internet market and tests are being conducted for WIMAX broadband which gives wireless connection. It has also made investor partnership agreement with Vodafone of UK to share services and products (Business Monitor International, 2009). The corporate vision of Du is to create an easily accessible and convenient service that focuses on the consumers in their business. Du’s mission is to offer its customers excellent service, tailored products to their needs and the right to make choices in purchase by providing products and services that are relevant to consumer needs, money and their lifestyles thus giving a better experience to customers.

The crisis management department handles, evaluates, assesses and prevents threats that may affect the organization, the customers and the shareholders (Lerbinger, 1997). It also involves responding and acting on the occurring disasters. It will help the organization to develop a crisis management plan which involves crisis response methods, establishing their degree and response mechanisms and communication on crisis in the management scenarios. The organization will overcome crises that may occur during its operations increasing expenses, reducing the competitive position, decreasing value of products, and income sources as well as the stock and their prices. This enables the company to make contingency plans to respond to such disruptions reducing financial damage and their impacts.

Research Methodology

Primary research was done by interviewing the managers and senior middle level a manager of Du. A questionnaire was developed and a focused interview was carried as this would give a complete and detailed understanding of strategic planning. An interview guide with topics that needed to be covered in the research was used. The targeted population was the senior managers since they were the ones responsible for making strategic decisions for the firm.

Secondary research was done by collecting data from books, the company’s website and the internet. Government publications were also used to collect information for the research, newspapers and magazines.

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Strategy and management

Strategy

Chandler (1962) argued that strategy involves determining the basic long-term goals and enterprise objectives and the adoption of course of action and the allocation of necessary resources to carry out these goals.

Strategic management

Strategic management is the management of change through a systematic approach where the firm is positioned through capability planning and strategy response in issue management in real-time and management of resistance occurring on strategic implementation.

Importance of strategy

Strategy helps to set the vision or mission for the organization and establishing long term aims of the business as concerns stakeholders & competition. Strategies help in implementation of decisions, provide integrity standards and accountability to the public. It helps in setting the key product mark, quality, resourcing and targets arising from long-term aims. It ensures that there are appropriate team structures and staff for business operation to function effectively and efficiently. It ensures that there is an appropriate procedure for monitoring and a feedback is given at every level of enterprise.

Du is concentrating on improving shareholders’ value by sustaining maximum profits. The company is also increasing market share and retention of current customers while expanding its customer growth. Du will increase its market share by 30% in 2009 and develop as well as introduce new commercial products and services which will meet the customer need like the mobile Television, International roaming, fast network connection and competitive prices and fast download of media from the internet. Du will have to develop strategies that will enable it to penetrate and make a realizable presence in the UAE market

Strategic goals for three years

To be a market leader by increasing the market share. To introduce new products and services that will meet consumer needs and wants. To increase sales turnover or volume while reducing costs and to increase customer base.

According to Business Monitor International (2009), Du had 2.498 million active customers and in three years it should target 4million subscribers by the end of 2008, Du will also increase its network coverage by building new base stations and partnering with operators to increase its market share from 25.5% at present to 50%. Also by the end of 2008 Du had revenues worth 1,076.2 million US dollars which should rise to 4 million US $. This will be achieved through introducing new products and improving services, investing in network coverage and marketing and training staff to increase efficiency. Day and Wesley (1988) noted that when monitoring and evaluation will be done occasionally to measure performance.

The crisis management department will make business continuity planning to minimize any disruptions. Each function involved in running Du will have its own contingency plan which will assist managers to consider both short term and long term effects of the decisions with accuracy in case it fails. The contingency plans will be tested through rehearsal of the actions to create awareness and sensitivity to crisis enabling a quick and effective response to any crisis which may affect performance of Du in its business running.

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External analysis

Macro- Environment

PESTLE is a strategic planning analysis tool that involves political, economic, social, technological, legal and environmental forces which influence business operations and competitiveness. Socially, Du sponsors an annual event capacity Middle East 2009 a congress held annually by North Africa and Middle East telecommunications companies. Technologically, Du has brought broadband to people’s homes by using the fiber optic cable. In the economic terms, Du has issued a share capital of UAD 4 billion. The public owns 20%, Federal Government 40% and 40% by Mubadala Development Company and Tecom Investment. Environmentally, Du offers international and wholesale solutions that have integrated packages across Asia and Europe (Business Monitor International, 2009). IN legal terms, Du is registered as a mobile telecom company in the UAE and operates in accordance with the statutes of the country. Politically, Du has demilitarized its employee recruitment by using the national program for UAE nationals and attracts them through school visits, career conferences and open days to the public.

Micro Environment

Porter (1980) has proposed five major influences on the firm’s ability to compete that include the threat of new entrants, bargaining power of suppliers, rivalry among current competitors, threat of substitute products and bargaining power of suppliers in an industry. Currently Du is competing for a market share with Etisalat. There is a threat of new entrants to the market for mobile television after submission for interested companies to broadcast it was finalized by the UAE Telcoms market. Du is in a partnership agreement with Vodafone UK so that it can use its products and services increasing its bargaining power. The consumers in the UAE have a bargaining power since they can own two SIM cards or stay dormant without purchasing. The new substitute technology of mobile DVB-h by Nokia and media flow by Quakomml is a threat to 3g based mobile television.

Key success factors

Du is experiencing cost advantages due to economies of scale after partnership with Nokia unlike new entrants. Du has developed brand loyalty and culture to its products by its customers through product differentiation, Government policy has allowed only two players in the market limiting more entrants. Du is established and has cost advantages and experience in the market, access to appropriate technology, favorable technology and government subsidies.

Internal analysis

Resource audit

It is the evaluation of the resources that are available and accessible during strategic planning and which include people, expertise and money (Mintzberg, 1994). The physical resource of a company which includes its branches should be attracting customers and with low operation costs of rent and in easily found places. The company purchases goods of high quality from a trusted partner Nokia. Kemp (1995) has proposed that Intangible assets such as good reputation and image are positive resources to the company. Hofer and sender (1986) have argued that essential resources such as cultures, traditions, values, religions and norms of the organization and the established legislation of the government are crucial. Adding value, maintaining a dedicated service will also help to increase the number of clients. According to Business Monitor International (2009), Du issued a share capital of AED 400 billion in 2006 and in 2008 its revenue grew to AED3.951 billion. The adoption of the fiber optic cable replaced the copper cables and made connectivity fast. The capital expenditure of AED1.9 billion was invested in fixed and mobile networks. Du has a media center that gives general communication to customers and general public and management. Du has qualified staff and has attracted different talents from different parts of the world who are hired with skill and expertise, trained on career development academically. Baker (1985) suggested that the staff should give the company a positive image by offering a good service to the clients and that the individuals should be promising for the company to achieve its goals.

SWOT analyses

SWOT analysis is the internal review of organizations’ strengths and weaknesses and external environment threats and opportunities that influence strategic decisions. Kotler (1988) has noted that a company should keep evaluating its strengths and weaknesses and threats and opportunities if it has to survive in a competitive marketing environment.

Strengths

Du has a first-growing market share and is the second-largest mobile phone operator in the UAE. Du provides data, mobile television, fixed voice calling and broadband internet in the wireline communications. Du has a wholesale business that provides data, international connectivity gateway and voice calls to ISPs, other operators and carriers. Since launching its commercial services, its first portable year was 2008.

Weaknesses

Du depends on local market due to lack of international coverage like its competitor Etisalat. Du is always lagging behind Etisalat as per network coverage and customer base.

Opportunities

Du will continue operating wireless and fixed networks in the UAE and also roll out 3G networks in major cities. The adoption of the fiber optic cable by Du has given customers an opportunity to increase their connectivity speed and bandwidth experience. Introduction of IPTV platform will change the customers viewing of the digital television. Mobile television’s introduction that airs many channels may increase video viewing demand. Brand loyalty is increased by introducing products and services that meet consumer needs.

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Threats

The mobile industry is in a boom and is nearing reach saturation point and will have minimal future growth. Du’s business operations may be affected by the global crisis and possibility of a licensing of a third operator may increase competition and lower returns.

Gap Analysis

It helps to make strategic plans for marketing by marketing managers and is the difference between the current market share and the projected share. A competitive gap exists where a business sells similar products with the competitors in a perfectly competitive market. The gap is the difference between where we are now and where we want to be in the future. It can be modified by strategic gap analysis.

Ansoff’s matrix of strategic planning
Figure 1. Ansoff’s matrix of strategic planning

Identifying strategies

SAF analysis

Survivability is when a system is able to overcome accidents, attacks and uncertain failures and complete its mission on the required time. Survivability Analysis Framework (SAF) will emphasize business work processes, technological risks that may occur and threats that may occur during the business process. It concentrates on potential failure conditions, likelihood of error occurrences and their impacts as well as their recovery strategies. Lerbinger (1997) proposes that SAF analysis is crucial because several risks may occur during business operations like the human resource risk which includes workplace violence and human breakdown. Technological crises like break down of the communication system, errors of human application, and confrontational risks like legal crisis with the government which may affect operations and prevents the organization from achieving its mission.

Choosing the best options

Research approach is the best since it will ensure that new innovations are introduced to the firm and quality work, products and services are produced. It will ensure that all business work processes are monitored like active work processes, local work processes and externally generated work processes to ensure that there is control to prevent any failures that may prevent the achievement of the mission or goals. Du should encourage research to overcome failures in its network operations which may reduce consumer loyalty to it, revenues and anticipated growth. It will ensure that organizational needs and consumer needs are met and there is focus towards achieving the organization’s mission.

Change management

Force field analysis

Lewin (1951) suggested that all behavior is an equilibrium result between two forces which are driving forces and restraining forces. Driving forces will push a person to attempt to bring about change. Restraining forces push the opposite way to maintain the status quo. Human beings use force to make change by exerting pressure on those opposing them, the other side resists and no change is achieved. To overcome resistance, focus should be made to weaken the objections and the fears of resisting side. Management should focus on the objections and fears of change and how to deal with them.

Lewin’s model of change

It consists of unfreezing existing behavior through gaining acceptance to change. This is followed by changing behavior which is achieved through modifying behavior and adopting new attempts usually by use of a change agent. Then there is refreezing of new behavior by reinforcing the new patterns of working or thinking. Management should see that change in the people’s attitudes, actions, and values, then helping them to acquire ownership of the changes by the change agent. Peters (1988) has noted that the management will consolidate and reinforce the changed behavior by various support systems like promotion, participative style of management, consultation and encouragement.

Implementation

Action plan for 3 years.

Time frame

The strategic plans will be implemented for operations within the company for the next three years.

Main tasks

The establishing of new base stations to increase market share, increasing sales volumes and revenue. To introduce new products and services to Increase customer share through marketing.

Metrics

Market share will be determined by area penetrated in square kilometers. Sales volumes and revenue will be determined by monetary value. New products will be measured or determined by quantity moved into the market. Customer base will be determined by number of new subscribers to the network.

Monitoring and evaluation

This will be done after every one year to determine the performance in the market and quality control of products determined before they are introduced into the market. There will be continuous research and development to establish consumer needs and wants.

Responsibilities

The marketing department will be concerned with advertising, sales promotion and distribution of goods to the customers. It will also be recruiting and training new salesmen and pricing of the goods. It will also be concerned with customer service and after-sales service. It will be communicating the feedback from the market to the strategic management for actions to be taken.

Administration function

It will be remunerating and motivating staff and the general management of the company on a daily basis. It will also promote social responsibility and communication into and out of the organization. It will also be handling employee grievances and appraising their performance.

Finance function

It will develop budgets for smooth running of the company. It will also be doing financial valuation of projects to ascertain their value and profitability. It will also assist with costing and debt collection from our debtors.

Crisis management department

This department will be training on risks and their analysis and creating awareness on them. It will also be managing risks that have occurred and ensuring the organization is in harmony with the employees and the public. It will be keeping the company ready for risks that may affect operations and prevent the company from reaching its mission.

Findings

Nearly 23% of Du’s customers were inactive by the end of the year 2008 and it enjoys 25.5% of the market share in the UAE. This results in multiple SIM ownership by mobile customers. Du is facing stiff competition from already established Etisalat which has instigated price war and new product developments. Du will experience a threat of a new entrant to the market after UAE has declared that it will be laying a plan for a license for a third mobile network operator. Du has made a less penetration in the fixed-line service and controls only a share of 4.8%. Du provides internet only on UAE economic free zones but not outside where it can maximize its revenue. Du will face reduced future growth because the mobile market is nearing saturation point. Du had 2.498 million subscribers in its close of 2008 financial year. Du is ranked second in the production of mobile services and is experiencing a slow growth due to competition. It is targeting to benefit from customers who cannot change their share network operators due to legislation of the UAE. By the end of 2008, Du had a market share of net additions of 62.5 % (Business Monitor International,2009). Du has been operating in the market without doing a lot of research to establish what the consumers need but with product orientation which has contributed to its slow growth.

Recommendations

Recommendation is given based on Ansoff’s matrix of product market alternatives. It suggests market growth strategies that are based on the current market and products or moving into new products or markets.

Product development

Where competing firms are offering the same products, the competition will be stiff and will lead to low revenues due to lowering of the prices. This also lowers revenues and increases operating costs but may improve provision of services. Du will overcome this by developing new products and services or brands. Du will also do research to establish the consumer needs and produce products to meet their needs. It may also differentiate its products and services from those of the other companies by introducing value-added services and reliable network to satisfy its consumers. Kotler (1988) has suggested that new products will help firms to maintain and expand their sales because consumers tend to believe that the new products in the market are the best.

Market penetration

When the competition is stiff and a company establishes itself into a market with a similar company that is well established and has made customer loyalty, entering the market will be slow. This may reduce the anticipated profitability of the firm and revenues in the short run. Du can make a market penetration by conducting a market research to establish consumer needs and wants, introducing consumer products that meet their needs and lowering their prices to attract existing consumers of the competitors. It should focus on increasing market share in the UAE through intensive advertising. This may also be achieved through offering services and targeting a market that has not been tapped with unique products.

Market development

A company may take its existing products and services to new markets. The fact that Du has a wide unexploited market in the UAE and outside UAE it may decide to take its products and extend network coverage to those areas that have not been covered. Baker (1985) has argued that a firm should strengthen relations with its supplies for reduction on prices and link up with more distributors of its products to sell them. It should also create customer loyalty and give value-added services to its existing and new customers and advise to create awareness to new buyers. It may also involve opening more branches to bring its presence closer to the consumers for convenience and customer service.

Diversification

Firms may also decide to introduce new products in the new markets. It may be done horizontally by sideways extension into the same type of markets using related products. It may also be vertical integration by downwards or upward extension into products or markets covered by wholesalers or suppliers and conglomerate diversification, by new products in an unrelated technology and with a new type of market (Kotler, 1988). Du can start offering different products in the industry or start offering different services.

Conclusion

The legal environment in the UAE does not allow subscribers to change networks. This gives a network operator an advantage. In the UAE consumers make a choice depending on the value-added services offered by them. Competition in the UAE is even since the du and its competitors have signed contracts with the same international networks such as Nokia to use their products, enjoy their services and act as their agents. Du has already earned several awards in a competitive market and it has higher chances of success in the future if it makes good strategic plans. There is a need for the adoption of new market growth strategies for Du to increase its growth rate and command a share in the UAE mobile phone market. Du should also incorporate research and development to prosper in its activities.

There is a good investment in the UAE because the operators are few and the economy is stable and in a boom and the enjoyment of security and peace which creates a good business operating environment.

Bibliography

  1. Ansoff, H. (1965). Corporate Strategy. McGral Hill.
  2. Baker, M. (1985). Marketing Strategy and Management. London: Macmillan. Chandler, A. (1962). Strategy and Structure.
  3. Day, G. &. (April 1988). Assessing Advantage: A Framework for Diagnosing Competitive Superiority:Journal of Marketing.
  4. Hoffer, C. &. (1986). Strategy Formulation: Analytical concepts. West Publishing Company. International, B. M. (2009). United Arab Emirates Telecommunications Report Q2. London: Business Monitor International.
  5. Kemp, L. (1995). Hand Book of Strategic Planning. East Rock away,NY: Cummings & Hathaway.
  6. Kotler, P. (1988). Marketing Management (6th Edition ed.). Eanglewood Cliffs,N.J: Prentice Hall.
  7. Lerbinger, O. (1997). The Crisis Manager:Facing Risk and Responsibility. Erlbawn.
  8. Lewin, K. (1951). Field Theory In Social Science. Harper.
  9. Mintzberg, H. (1994). The Rise and Fall of Strategic Planning. Prentice Hall.
  10. Peter, T. (1988). Thriving on Chaos: Hand Book for a management Revolution. Macmillan.
  11. Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press.

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