1. Industry Background
Global Communications is in the midst of a difficult mid life corporate scenario that most companies need to go through and come out of, focussed and successful, in order to enter a phase of rapid progress and growth.
All successful companies have to go through the sort of litmus tests that confront Global today. The company needs to solve has a set of problems which have arisen in the business environment have impacted the working of the company.
However, along with the challenges of modern day business the company also has access to the many advantages of todays globalised scenario that allow businesses to access both external markets and external costs and then leverage both to gain significant competitive advantage.
Global Communications is a player of some significance in the Telecommunications Industry. It is a single industry player and thus while able to fully reap the benefits of industry boom times is also more susceptible to the troughs when they do occur. The telecommunications industry is still young and is far from entering maturity. Product life cycles are still playing out. In the last couple of decades the working of the industry has been impacted enormously by technological developments which while spurring growth have also needed industry members to move fast, absorb, implement and introduce new technologies in order to run with the pack.
In the 1990s the industry was the place to be in and the future appeared immensely attractive. The internet was proliferating rapidly, broadband was on its way and the reduction in regulatory practices effected by the Telecommunications Act of 1996 led businesses to invest heavily in capacity expansion, both in land line and wireless networks and in other equipment to facilitate the expected increase in high speed transmission.
Growth continued to happen steadily in all sectors, fixed line, wireless and broadband, but not at a clip that was able to accommodate all the entrants, who had rushed into the business area and put in huge investments expecting fast and sharp returns.
New developments in cable television allowed broadband access and grew faster than wireless and fixed line companies. Cable however was again threat in their mainline business by satellite broadcasters. “Powerful competitors and rapid technological change have made the quest for competitive advantage more difficult and its accomplishment less sustainable” (Lyon, and Ferrier)
A vast range of technological advances has been instrumental in reducing costs and increasing capabilities in telecommunications. Advances have occurred n areas of microelectronics, photonics, computer software, network architecture, high-definition television, and superconductivity. These developments have simultaneously reduced the costs, expanded the capabilities of complementary goods and services, and been instrumental in raising a generation of highly aware consumers with a flavor and inclination for interactive communication.
Competitive markets are anyhow very difficult and complex places to operate in. Enormous and sustained thought and skills are being put in by business organizations into analyzing what is required by customers as also how to deliver it to them satisfactorily to obtain competitive advantage. As such fiercely competitive organizations are incessantly increasing customer expectations trying to push competitors out of business.
“Customers want more of everything they value. If they value low cost they want it lower. If they value convenience, they want it easier and faster. If they look for state of the art, they want it first and want to push the envelope. If they need expert advice they want more time and dedicated effort and investment.” (Sidorowicz, R 1)
Across the business spectrum of the telecommunication industry, prices started falling as demand could not keep pace with capacity. Prices and margins fell, sometimes sharply and for an industry that had invested heavily anticipating both steep sales curves and hefty accruals this was bad news. It was time for a shake out.
Global telecommunication is but a part of this industry scenario and is bound to feel the heat of being part of a sunrise business when the clouds do occasionally come in.The shares of the company have dived from a high of US $ 28 to about $ 11 and investors have begun to feel jittery.
“Companies that face the same opportunities and challenges often respond to them in different ways, depending on their competitive strategic posture” (Zahra) Global Communications has, in the business circumstance, responded to the challenge from the marketplace mainly by recasting its corporate strategy to introduce new goals and by focusing on thrusts in two business areas to regain its competitive advantage. .
The company plans to achieve growth through introduction of new services. The target market for these new services will primarily be small business and consumer customers who form the major customer base of the company. The company proposes to service both in long distance and local markets.
The company also plans to expand its footprint through alliances with operators in allied businesses. An agreement has been inked with a satellite provider to offer video services and a satellite version of broadband. A similar alliance has been realized with a provider of wireless services to allow small business owners 24/7 internet access with the use of wireless cards for telephones and PCs.
The company has also focused on reducing the costs of its technical service calls by shifting them to technical call centers in Ireland or India. This will enable the company to take advantage of the equal skills that exist in India in this area at a vastly reduced cost. The company estimates that even after factoring in the increase in administrative, control and training costs in operating a remote operating center, the cost per unit call will reduce by 40 %, which is a lot of money and will help towards financing the globalisation effort.
The company feels that with the progression of these initiatives it will be able to achieve competitive advantage in the market place by increasing its’ service basket and sharply cutting down on its recurring servicing costs. The advantage obtained will give the company both the service portfolio and the cost structure to embark upon a planned and thought-through sales effort in the international market and become a truly global player.
Apart from maximising its existing sales and servicing effort the company has two immediate goals, ensuring the optimum use of its alliance to broaden its service portfolio in areas of satellite broadband and wireless services for phone and PCs and achieving significant cost reductions through the effective outsourcing of its technical call services to efficient Indian call centers without any decrease in quality or aggravated customer ire.
Global Telecommunications is headed by its CEO Katrina Heinz.
She is very familiar with the European telecommunication market by virtue of previous experience and has been given the brief of increasing both revenues and profits through aggressive globalisation. Heinz has a senior management team, some of whose members are the two Executive Vice Presidents of Sales and Marketing, Sy Rodriguez and Nancy Everhardt and the EVP, HR and Public Relations, Joel Thomson.
The group of four will be critical to the success of the company’s immediate goals in enhancing the service portfolio and implementing the outsourcing of call center operations. While Joel Thomson will not really have anything to do with the implementation of the outsourced call center operations he has the critical task of handling the employees who will necessarily have to be relocated or even displaced from their jobs with Global with the commencement of the outsourcing operations.
2. Identification of Key Issues
Pursuant to a recapitulation of the background situation the company is faced with a number of key issues that will need very careful enunciation and study to arrive at a definition of the various problems and alternative solutions to put the company on track for the future.
The key issue is of course the changed business setting in which the company operates. The change in business scenario has arisen from a rapid expansion of capacity in the telecommunication business by existing and new entrants, heavy investments in new technology and technology enhancement, new developments that have resulted in sharp drops in operating costs and an extremely aware and demanding customer base, all of which has resulted in an extremely competitive knowledge and expertise dependent business scenario and the squeezing out of players who prove inadequate in matching up to the changed rules of the game.
This rapid and sharp change in business scenario has squeezed margins of mostly all industry players and has hurt Global Communications, which has seen its stocks dipping by more than half from $ 28 to $ 11 and created a business difficulty that could undermine and even prove fatal to the business. The shareholders of the company are naturally perturbed at this turn of events and expect the management to come up with innovative and practical suggestions to change the fortunes of the company and put it on a track of growth and profits. The management of Global Communications is also extremely disturbed by the current situation and feels that strong and focused steps, even if they appear to be harsh, need to be taken to save the company.
The management of Global Communications has decided to respond to this situation by expanding its service portfolio by introducing new services for the small business market and through alliances with providers of cable and wireless services. It will thus also attempt to boost its revenues by providing a wider range of services to its small business customer base across a much broader geographical area by piggybacking on the technological expertise of its partners in areas in which it does not have either specialised skills or expertise. In addition to these efforts the company will also move vigorously in selling its services in the international market, an area in which it has had very limited success till now.
The company, in its efforts to be more competitive has decided to outsource its technical call centre support operations to either Ireland or India. While both India and Ireland are under consideration, the favorite choice appears to be India because of the greater economies available and the possible savings that can be generated. There are two pertinent issues here. The company has not had any experience with outsourcing of any operations before this decision. Also important is the fact that the company does not have any presence in India, either from the sales or organisational point of view and consequently no exposure whatsoever to dealing with the extremely different governmental, regulatory, and cultural demands of a large and critical customer service operation working out of India.
The decision of the company to shift its technical call center operations out of the USA must necessarily result in a good amount of organizational upheaval with a significant number of employees mandatorily having to be displaced with sharp drops in remuneration or, even worse, having to be dispensed with. The employees of the company have, very recently, come forward and on their own decided to take cuts in their benefits to help the working of the company and thus will be justified to a great extent in thinking of the outsourcing plan as a betrayal and an act of bad faith, especially when they were kept in the dark about the company’s intentions at the time the benefits were reduced. Any decision that will affect the lives of these employees who have worked sincerely for the companies benefit needs to be taken with great care and thought in the interests of equity, fairness and ethics.
3. Definition of Problem and Alternate Solutions
The company, in its attempt to climb out of the adverse business scenario in which it finds itself and take control of it future growth and profits has chalked out a frenetic activity path involving alliances, new services, expanded sales areas, international sales, manpower displacement, salary reduction and possibly termination, and the setting up service operations in a globally and culturally distant country.
A swathe of decisions like the ones Global is in the process of taking and proposes to take lead to results that affect the different stakeholders of the company, be they shareholders, bankers, management, suppliers, business partners, employees or customers. The effect of these decisions upon the various stakeholders need to be assessed before the company charts its course to ensure that the path chosen is one of thought and wisdom rather than one of adventurism and hubris.
The first problem relates to the plans for growth of sales, resting on new services and alliances with suppliers in different businesses, to use their expertise and services to augment the basket. It needs to be determined whether this is the correct solution for increasing revenues of the company and the incremental margins it proposes to earn after compensating the alliance partners. Obviously sales have been hurt badly because of a number of reasons that have already been elaborated. The company needs to reach new levels of sales for its different product and service groups as well as in totality and the gap between performance and objective needs to be narrowed with new products, services and areas.
The company has a number of options and needs to decide whether it should work in all directions or use a selective step by step approach. One of the sales thrust initiatives focuses on new services to small business and consumer customers. The thrust will be handled by Nancy Everhardt, who is new to Global and has experience with a telephone company in growing the small business market. She has proven expertise in creating innovative packages of valuable solutions for small and medium businesses. Nancy has one of the most crucial sales jobs in the company and the success of the company will depend a great deal on the quality of effort that is put in by her and her team.
Focusing on small businesses she will need to concentrate on knowing the customers intimately and will have to work on close and long term relationships, creating a dependency of customized service and support, focusing on customer retention and satisfaction. Again she will possibly have to keep on working at innovation and development of new products and introducing new services. One of her major objectives will be to make the competition obsolete.
The biggest constraint a small business has is the availability of time and the owner’s disinclination to put in effort in any area outside the immediate pale of knowledge. The company will need to change to the mindset of the customer, offer free consultations and take the business to the customers’ door. The key to her success will obviously be very careful product planning. Considering that telecom companies are offering a plethora of services for the small customer in areas like security, remote working and voice communication, to name a few Global will need to work on very careful product planning to provide a host of services which can first establish a competitive edge and convert it into a competitive advantage. Competent product planning and development will obviously be the bedrock for obtaining competitive advantage in the market. It will involve product engineering, marketing research and analysis and will form the preliminary phase of the life cycle of new Global services. Nancy will need to be given the choice of picking up new services or reengineer existing products with some minor modifications
Effective product planning requires a multidisciplinary effort. Sales and Marketing teams will need to determine the impact of various products in the market and in forecasting of needs, which will need to be met. The production and engineering people provide valuable inputs about product performance and risks and the finance people are very useful in working out the financial implications of the exercise, the BEPs, and the profitability projections. Sy Rodriguez and Nancy Everhart will need to draw upon all these departments to make their product planning exercise a success. The product planning process is one of the most controversial within any company. Everyone wants a hand in new product definition and almost everyone will have contributions that will make a new product successful.
Apart from bringing in new products and services for small business customers the company has also entered into alliances with cable and wireless companies to introduce video and satellite versions of broadband and with a wireless company to offer internet access to small business customer on an anytime basis. This service can obviously be a part of Nancy’s basket and will add to the range of her wares. Time to market is also a crucial element in the introduction of a new product and the sales effort will have to recognise this fact. . “A number of studies showed that roughly half of all new product development investments resulted in products that failed. It became clear that time-to-market is more financially important than all other considerations in launching successful new products for most companies” (Goldense, B. L., 1)
The new services available from the alliances are going to be introduced progressively in the market. It would be advisable to possibly introduce these products softly and offer it as part of the service basket in the beginning. It would thus be possible to check both customer acceptance and the competence of the partners before a more sustained thrust is generated in the market.
The use of caution is also important and it is not uncommon for companies in difficulties to push through plans without proper study. However, we also have pragmatic voices of caution, which state, “In the rush to achieve rapid time-to-market, short-cuts are often taken with the product definition phase. The result is a product that is off target or additional time spent with subsequent requirements definition and redesign iteration. To be successful, a comprehensive, well-defined, continuous process is needed. The starting point is a product plan, which defines markets so that proper customer needs can be captured.” (Crow, K)
The company is planning to simultaneously expand its geographical reach not just nationally, but globally with a sharp emphasis on marketing its services in other countries. International thrusts may be a bit too premature for the company at this stage and possibly it would be more advisable to conduct market research with particular reference to the companies products and services in specific countries in the two most promising markets outside the US, West Europe and East Asia
The company wishes to establish an offshore outsourcing facility in a geographically distant and culturally different country for a key service which it provides to its customers at the same time that it proposes to enter new markets, create a global footprint and introduce new services. A number of operational problems are likely to arise out of this decision and the inherent practicality and achievability of the decision needs to be established. The country selected for this purpose is India. Salaries in India for a call center operator for technical services is in the region of US $ 300 per month whereas comparable salaries in the US will be around 8 to 10 times this amount, i.e., around 2500 to 3000 US dollars per month. As such even if infrastructure, data transmission and other costs are three times salary costs the net savings work out to practically 50 % of current US costs. Prime facie, the idea seems to be workable but has a number of other constraints. Even considering that the company has taken a judgmental decision to outsource its technical call service facility to India the risks of the decisions need to be quantified. Most US companies who outsource call center services from India set up their own organisations and run them as internal departments with expatriate and local staff. Efforts like this need time, effort, expertise and strong knowledge of local conditions. The fact that running a call center is not a core competency of the company also needs to be taken into account when considering this decision.
If Global Telecommunications decides not to set up its own call center in India it still has two sound alternatives for outsourcing and effecting significant cost reductions. It can decide to appoint a US based company operating a departmental call center in India or can decide to offload the work to an Indian company. In all probability it will be more economical to offload the call center operations to strong Indian companies with established and satisfied US clienteles and stay away from unknown Indian companies who could be even cheaper but may not be able to provide adequate quality.
The decision to appoint a call center company is not a particularly easy task as it will entail choosing a supplier company that has the requisite infrastructure and will be able to absorb the service requirements of Global Telecommunications, arrange for recruitment and adequate training of the proposed call center operators and meet the necessary clauses of the service level agreement. However a clear decision on the pattern of outsourcing to be followed will help in moving towards the next step, i.e, the calling of tenders and the beginning of presentations and the evaluation process.
It is thus quite illogical for Sy, the VP Sales and Marketing to talk about recruiting a thousand salesmen with the savings generated by shifting the call centers to India. A call center decision entails planning, a number of visits to India and a time frame of at least one year.
It is evident from the correspondences exchanged between the CEO, Katrina Heinz, other senior members of the company and the officials of the Technology Workers Union that the outsourcing decision is not going to go down well with the employees and could have repercussions that could hurt the company’s reputation in the marketplace, its employee morale and company productivity. In the very recent past the employees had recognised the difficulties the management was going through and had on their own agreed to take a cut in their medical benefits. There is also the possibility that the management team will be ready to look at expediency first as far as outsourcing was concerned and employee interest would necessarily play second fiddle to organizational cost imperatives.
This area of corporate problem definition is important as while it is intrinsically dependent upon a corporate decision to cut costs it involves the disadvantaging of employees of the company for no fault of theirs and works against the assurances of job security which the company would have given the employees on numerous occasions. The decision would also have the potential to demotivate other existing employees and thereby reduce productivity.
The company has a number of options to handle this issue much more gracefully and equitably than what is being attempted or planned at present. The employees are important stakeholders of the company and at the last negotiation came forward to accept cuts in their benefits in the interest of the company. Very unfortunately there does not appear to have been any reciprocal gesture from the top brass of the company, Katrina Heinz and her team to come forward with offers of reciprocal cuts in their salaries. The management could thus first come forward with an announcement of remuneration cuts for the officers and managers of the company in response to the company’s poorer operational position and in solidarity with the gesture of the employees.
The company should also be as transparent as possible with the union and workers on this issue taking the time to explain the developments in the environment and the business, which makes it necessary for the company to cut costs sharply if it needs to turn the corner. Joel Thomson is not just EVP for HR; he also takes care of the Public Relations and now has to a job in PR with Global’s own employees. He has to put the company’s position before them as clearly and lucidly as possible taking special care to detail the company’s efforts to ensure that the disturbance is as muted as possible for the employees. He also has to provide information on the company’s offer to shift them to alternate work cells in consumer sales and the remuneration they will still be able to earn.
The CEO of the company has in the past worked with a European company, where workers are protected much more than in the US and outsourcing is a far more difficult exercise. It would be improbable that she has any exposure to outsourcing and it is evident that the other members of the team also have not handled a similar exercise before. Extra care thus needs to be taken about this exercise, possibly with the help of external experts.
The management also needs to implement a policy of making it easier for the employees who may need to leave by helping to get them alternative jobs, putting them in touch with recruitment consultants and maybe arranging for some relevant training on coping with the situation.
4. Corporate Goals
Well thought out, detailed and practical goals need to be set by Global Telecommunications in its next step towards achievement of its plans. These goals will necessarily have to be part of the business plan of the company, which will have to be drawn up for immediate, six months, and intermediate, on year to two year, time frames.
The sales thrust of the company focuses on four areas, new and innovative services for small business customers, sales of services arising from alliances with satellite and cable TV companies, sales arising out of further geographical penetration, and from efforts in international sales. Goals have to be set separately in each of these business areas apart from in its traditional products. As most business areas are new and involve new products, goals will need to be quantitative and qualitative and should apart from numbers growth, focus on proper product identification and planning. The company needs to focus on gaining strategic competitive advantage, staying ahead and shutting out the competition.
The company is going to focus on sales locally as well as over long distances. Short and medium term goals will need to be set for incremental sales arising out of these thrusts. All sales goals on the ground will depend upon the competence of the sales infrastructure to deliver figures. The sales team will need to be strengthened substantially. One of the major reasons for going in for outsourcing and reducing costs, according to Sy Rodriguez, was to be able to afford a thousand salesmen. The sales and HR departments will need to chalk out a strategy for strengthening the sales function and set targets for recruitment, assimilation in the company and training.
The project for outsourcing of technical service calls to India has just been conceived and approved and is being touted as the solution to all the company’s ills. A dedicated multi disciplinary team, consisting of accountants, technical people, the managers of the internal call centers and HR heads need to get together to consider the option in detail, get first hand information from the market and arrive at a structured time bound plan for implementation. The goal for outsourcing of call center services has to consider the opportunities, the difficulties, the various alternatives available and the practicality of implementation of the plan.
The HR department, headed by Jeff Thomson has one of the most critical responsibilities of the company with regard to the restructuring of the company’s operations. Jeff will need to detail the employees of the company about the need for cost savings and the various options the management has to achieve its objective. He needs to devise a plan which needs to be eminently fair and equitable and very definitely incorporate into it a significant sacrifice from the members of the management. The coming few months will essentially be traumatic for the affected employees and more than the neat cost savings exercise apparently envisaged by the CEO and her team. Goals thus need to be set for the HR department which will mainly be qualitative in nature but focus on transparency and equity in dealing with th employees. The number of employees who are going to be affected is presumably very well known. The corporate goal must be to take care of each of these employees through alternative, work within the company, alternative employment or rehabilitation support.
It is strange that until now no financial goals have been set and the CFO is not even a part of Katrina’s team. All corporate plans appear to be fuzzy without strong figure backup and it is necessary for the goals discussed above to be translated into time bound figure based goals that can be monitored and checked on a quarterly, half yearly and yearly basis.
The goals set by the company must therefore be both qualitative and quantitative in all the thrust areas and monitored at pre determined time frames. It is also essential for the CFO to be involved in all the decisions that are being planned for achieving revenue growth and profits, if they are to be translated into reality.
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