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Strategic and Cultural Analysis of BT Group Plc

| February 8, 2012 | 0 Comments

1. Introduction

BT Group Plc. is made up of four principal lines of business and operates in more than 170 countries, as one of the world’s leading providers of communications solutions and services. The principal activities include networked IT services, local, national and international telecommunications services and higher value broadband and internet products and services. BT provides business, technology, services and support professionals around the globe (BT Group, 2010).  BT is one of the FTSE 100 companies with a moderate market capitalisation of £174.2billion as at January, 2011. It however, has a very low ranking when compared to the other FTSE 100 companies; it ranked  92nd position within the FTSE 100 group (Hemscott, 2010).

The FTSE 100 companies was launched in January 1984, which is made up of the most highly capitalised blue-chip companies for share prices in the UK, representing around 81% of the country’s  market. The FTSE 100 is widely used as a basis for investment products, including derivatives, funds and exchange traded funds (FTSE, 2010).

The purpose of this essay is to evaluate the performance of BT Group one of the FTSE 100 companies since the financial crisis. The remaining part of the essay is organised as follows; section 2 focus on the most recent international expansion project of BT Group, Section 3 focus on the assessment of how cultural differences may hinder the growth of sustainable competitive advantage, section 4 focus on the evaluation of the financial performance of BT Group in the last four years, and section 5 concludes the essay.


2. BT Group: Recent International Expansion Project

In recent year, BT Group launched a global service titled, 21st Century Network (21CN Vision). The 21CN is designed to empower end users, organisations and communications providers with control, choice and flexibility. It is a service offer to communication providers which offers the ability to scale the client’s telecommunication  infrastructure to meet their business needs, reduce complexity, reduce reliance on legacy platforms and to consume computing resources as it is needed (BT Group 21CN Vision, 2010).

At the heart of the 21CN is a world class Service Oriented Infrastructure platform (SOI), which enables BT Group to deliver virtualisation, Software-as-a-Service (SaaS) and enable re-usable capabilities that transform service delivery, lower cost, and accelerate deployment circles. The SOI Platform enables the clients, not only to converge voice and data, but to add mobility service such as Field Force Automation and Fixed/ Mobile convergence. It also boosts collaboration   through tools such as audio and video conferencing and improves business process performance by lowering costs and increasing agility.

The BT’s 21st Century Network extends to over 80,000 customers across 174 countries worldwide, including over 8,500 multisite government and private organisations. There are currently 1,250 PoPs, a figure that is growing at the rate of one per day.


3. Cultural Differences and Growth of Sustainable Competitive  Advantage

The BT Group operates across 174 countries where there are diversities of cultures. The international business literature suggests several reasons why global diversification and firm performance should be positively related. First, markets are not perfectly integrated; the involvement in more than one national market serves to balance out regional macroeconomic trends that are less than perfectly correlated. As a result, multi-national enterprises should experience greater market performance since investors recognise and reward performance stability (Shaked, 1986).  Relatedly, greater spread across international markets reduces risk profile of the corporation’s overall portfolio of the business units, which in turns should have a salutary effect on corporate performance (Caves, 1982; Rugman, 1979).

Secondly, international diversification may yield cost advantages by allowing the firm to expand in its domain of distinctive competence and boost production economies without resorting to product diversification (Buhner, 1987; Hirsch, 1976). Thirdly, market imperfection theory suggests that multi-nationals can exploit their home monopoly advantage (e.g. intangible firm-specific assets such as technology and brand name recognition) by increasing their international presence (Palich, 1994).

Finally, international diversification can boost market power by  allowing the firm to arbitrage tax regimes (Agmon and Lessard, 1977; Lessard, 1979), obtain more accurate environmental information (Vernon, 1979) and raise barriers to entry (Palepu, 1985).

One glaring gap despite these advantages is a failure to consider the impact of cultural diversity. High cultural heterogeneity in MNEs global portfolio business units may offset the purported economic benefits of international diversification (Gomez-Mejia and Palich, 1997).

Bartlett (1986), Bartlett and Ghoshal (1992) and Jain (1989) opines that general management expertise and technical know-how are more difficult to exploit when differences in cultural context make activity sharing and synergy formation among business units less efficient. Venkatraman, MacMillan and McGrath (1992) assert that innovation within the global firm may be impeded by cultural barriers. Heiko (1989) observed that effectiveness of technology implementation may be influenced by cultural factors. For example, the Just-in-Time (JIT) method of inventory management which was well received in Japan, leading to substantial savings has produced disappointing results in other countries. Adler (1991),  Boyacigiller (1990), Harris and Moran (1992) Hendon, Hendon and Herbig (1996) concluded that attempts to successfully  operate multiple business units in diverse cultural contexts may be frustrated by conflict and frictions within the firm, causes lack of cohesion and misunderstandings among  key decision makers and communication breakdowns between boundary spanners.

Cultural heterogeneity can affect the nature and effectiveness of operational human resource programs in such functional areas as compensation and awards, performance appraisal, staffing and labour relations. As diversity of culture increases, human resource programs must become more complex and sophisticated to deal with. Taken all the above arguments together, one may argue that culturally related international diversification will positively influenced performance while culturally unrelated global diversification will negatively affect firm performance. It is in the light of this that the performance of BT Group plc is evaluated.


4. Evaluation of BT Group Financial Performance

Financial ratios played an important role in evaluating the performance and financial condition of an entity (Kim et al, 1989). Different ratios are commonly used in the finance literature. However, the ratios to be used for this essay are those that would be of interest to shareholders. The calculated financial ratios for BT Group Plc are presented in the appendix.

The financial crisis period was the years 2008 and 2009; the impact of the crisis was reflected in the dismal performance of BT Group Plc. however, there was significant improvement in the various performance parameters as reflected in the various ratios computed from the most recent financial reports. For example the group Earnings Per Share (EPS) show a significant improvement over the previous two years EPS. Similarly the market price per share improved significantly when compared with the previous year’s market price per share. The return on assets also shows a significant improvement over those of the previous two years.


5. Conclusion

On the basis of the computed financial ratios one may conclude that BT Group has benefited from its international diversification project and would be investors toast in terms or returns on investment. The implication of the above results is that BT Group business units are located in culturally related countries of the world.



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Appendix 1, BT Group Financial Ratios for the year ending 31st March

Ratios 2007 2008 2009 2010
ROA 10.28% 1.68% -4.37% 3.51%
EPS reported 34.4 5.4 -12.6 13.3
EPS adjusted 33.6 7.0 4.2 18.6
DPS 15.1 15.8 6.5 6.9
Payout Ratio 43.9% 293.6% -54.17% 51.88%
Market Share Price 303.75 217.25 78.2 123.9
Div. Yield 4.97% 7.27% 8.31% 5.57%
P/E Ratio 8.83times 40.23times 9.32 times
Earnings Yield 11.33% 2.49% 10.73%
Market to Book Ratio 1.68 1.85 25.38 -1.14

Source: Computed from BT Group financial reports for the years ending, 2007, 2008, 2009 and 2010



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