Analyzing Telstra’s Value Chain Using Porter’s Model

Porter’s Five Forces Model

Telstra is one of the leaders in telecommunication and technology industry in Australia.  The company is known for its wide range of services that it offers such as communication services. Telstra Corporation Limited provides mobile services to more than 17 million subscribers in Australia. Among these services, it gives six million services in fixed voice and over three million in broadband services. The company’s mission aims at ensuring that many people are connected and as a result, they create more opportunities. The company is said to develop technology and solutions that are not only easy but also simple to use. Telstra Limited is ranked as Australia’s fastest and most extensive mobile network company.

The company has positioned itself in the market by trying to understand the needs and preference of their customers to offer the best services related to digital content and connection. The company not only serves citizens of Australia but has branches in more than 20 countries across the globe. The company believes that opportunities arise to those businesses that are connected including individuals, communities and governments. To analyze the value chain for Telstra Corporation Limited, Porter’s value chain analysis description of the company will be investigated. Porter’s five forces model for analyzing value chain was developed and named after Michael Porter.

The model works through recognizing and examining five competitive forces that determine the strategies that companies use in particular industries. These five forces play a significant role in determining Telstra strengths and weakness as well as providing an avenue to mitigate the weaknesses and improve on the strength for purposes of growing the business (Wu 2011). The Porter’s five forces include competition in the industry, new entrants to the industry, power of suppliers, the power of customers and threats to substitute products. These aspects of five Porter’s model can be applied in many segments and are commonly used to identify the structure of a particular industry for purposes of developing a corporate strategy.

The primary objective of this model is to look for areas that are attractive and profitable. The competition aspect of the model focuses on determining the number of competitors and how well they are positioned in the market to threaten an existing company such as Telstra. The significance of a firm is defined by a larger number of competitors that offer similar products and services. Suppliers in a particular industry often inquire about the competition of the company in situations where it is challenging to obtain a preferable deal (Aguirre-Milling & Parhizgar 2014). The potential of new entrants can weaken an existing company if it takes less money and time for a competition to set up and gain a market share in a particular industry. The power of supplier is a crucial element in Porter’s five forces where the fewer the suppliers and more a company is dependent on them, the more the power of supplier holds.

This power is determined by other factors such as the price of goods and service, distinction of the services and products and the ability to switch from one supplier to another. The power of customers holds in a situation where there is a smaller and robust customer base. This power is motivated by the ability of the client to influence prices (Brunsman, DeVore & Houston 2011).  The threat of substitute implies that if there are more company’s similar products or services in the industry, then it threatens the sustainability of an existing organization. Porter’s five force model focuses on how Telstra Corporation Limited can be able to develop a sustainable business strategy that can give them a competitive advantage in the telecommunication industry both in Australia and internationally.

Threats to New Entrants

New companies in the telecommunication industry threaten Telstra Corporation Limited as a result of innovation and better strategies that put Telstra under pressure. The change and new approach of operation by new entrants can be determined by reducing prices, costs and offering a better value proposition to existing clients. For Telstra to be able to maintain the competitive advantage, it should mitigate such challenges through developing countermeasures aimed at safeguarding their interests. However, there are strategies that Telstra can implement to tackle the threats of new entrants. Among these approaches include innovation of new products and services which will increase customer loyalty as well as attract new clientele (Lambert 2015). Telstra should also build an economy of scale to lower its cost of operation and maximize returns. Besides, Telstra should focus on building capacity by setting funds aside for facilitating research and development.

Bargaining power of suppliers

Majority of players in the telecommunication industry acquire their raw material from a wide range of available suppliers. These suppliers have the power to decrease Telstra profit margin. The suppliers can negotiate and guarantee higher prices among companies in the telecommunication industry such as Telstra Corporation (Spiler, Kvrgic & Vujadin, 2016). This power of suppliers is a threat to the sustainability of a Telstra since it reduces the profit margin of the corporation.

Consumers in most industries are often driven by the urge to satisfy their needs. Consequently, buyers will demand the minimum price for the same products and services. This will put pressure on Telstra Corporation to reduce its rates which will affect their profit margin. This implies that the higher the bargaining power of buyers the higher they are likely to receive discounts among other offers (Young, Tsai, Wang, Liu & Ahlstrom 2014).

Threats to substitute goods and services

The risk of substitute products and services is often high especially when the value proposition is uniquely different from similar products and services offered in the market. Telstra Corporation is bound to suffer from substitute services if it fails to innovate products that are needed in the market and its main competition does. Telstra can overcome this threat by becoming service oriented and understanding the needs of its customers (Xie, Li & Xie 2014).

Rivalry among the existing players

Telstra Corporation conducts its business in a very competitive industry where the intense rivalry is bound to drive the prices of their services down which will, in turn, reduce the overall profitability margin. If the revenue for the company is reduced drastically, the Corporation is likely to close some of its businesses to increase profit margin. However, the company can build a sustainable differentiation marketing strategy as well as capacity to have a competitive advantage (Vrontis, Thrassou, Chebbi & Yahiaoui 2012). Besides, the company can collaborate with its competitors to increase market share.  Telstra management should carefully consider Porter’s five forces and modify every aspect that threatens the existence of their business for sustainability and profitability of the company.

Fig 1. Porter’s Five Forces Framework

Bargaining Power of Suppliers

Three scenarios for optimizing value chain

Scenarios play a significant role in the value chain process that is not aimed at predicting the future but facilitating better decision making process in the business at present. The decision-making process involves three main areas which include the policy makers, individuals and companies. Scenarios are mainly developed for purposes of making the decision conscious, articulating the current mindset and developing knowledge and solid instinct. There are three different scenarios where Telstra Corporation value chain can be optimized which include making Telstra Corporation more sustainable, optimizing the shared supply chain and engaging with technology-enabled consumers (Sarfaraz, Jenab & Bowker  2015).

Making the Telstra more sustainable

There is an urgent need to ensure that Telstra becomes a more sustainable business concerning changing consumer trends in the telecommunication industry.  The growth of large economies and developing ones are going to limit the natural resources which will result in a more careful consideration of the actions people take (Kruehler, Pidun & Rubner 2012). This will force people to shift their analogy of sustainability form general but a requirement.  In the wake of such an environment, multinational companies such as Telstra will be forced to take responsibility. This implies that there is going to be a significant change in the working environment that requires firms like Telstra to start taking the initiative. The most prominent change in this scenario will be manipulating consumer behavior if a company is looking to make the change.

The radical change will force consumers to put more trust on the industry buy trusting their general stores that they interact with on a daily basis. This objective can be achieved where all the stakeholders in the industry work together for purposes of solving problems collectively (Kucha? & Vondrák 2016). He consumers, retailers and manufacturers should be able to understand the role they play and how significant the roles are to both their environment and lifestyle. The cooperation among these entities is inevitable and has been done before where the consumer goods forums were able to identify areas that emitted the most carbon to the environment.

This collective approach is not only focused on making the consumer to understand the role they play but also helps them to make the right decision (Nuntamanop, Kauranen & Igel 2013). This new framework that is aimed to make Telstra sustainable does not limit opportunities have a competitive advantage over others since the innovation holds the key to improve performance and make the business more sustainable. Besides, for Telstra to offer a value proposition for its customers, it has to create a transparent environment where it must come out and educate the consumers on the impact of their brands. This means that Telstra will have to partner with firms that share similar policies.

Another scenario that could be optimized is a common supply chain. This is because trends in market signal for the need of a collaborative and compete differently. Among these trends include increasing urbanization which will force local governments to increase regulations. To meet sustainable demands, the consumers need to be made aware of carbon-friendly product and services (Stadtler, Kilger & Meyr 2015). Telstra corporations should aim at manipulating consumer behavior through encouraging increased adoption of consumer technologies. Other factors that will change consumer behavior include an aging population and significant growth in urbanization.

Bargaining Power of Buyers

Through encouraging adoption of a supply chain, more transparency and visibility will be experienced. Advanced IT solutions are necessary for supporting collaborations and exchange of knowledge among partners in the value chain.  In a scenario where information is shared among partners, the distribution channel will likely to lose its competitive advantage.  The consumers will play a significant role in an optimized supply chain as a result of acting as signals depending on where they are located (Waters 2007). For Telstra to achieve an optimized supply chain, it will have to synchronize its production with actual feedback from the consumers. This will mean that they have to distribute their services from a localized network that is accessed by all their collaborating partners.  In companies that produce tangible products, after the production phase, the goods will have to be stored in a common store that is shared by other users.

After, the goods will then be transported to a regional location before they can be channeled to different locations for consumers to access. Telstra Corporation should aim at ensuring that consumers have easy access to their services through structuring locations around consumer residential where in case of any emergencies, there is a team that will be able to respond quickly and offers the services thus increasing their consumer’s value proposition (Manuj & Sahin 2011). The advantage of having a collaborative supply chain is to improve effectiveness, and previous examples that can attest to this scenario include increased in-stock availability in the retail industry, reduction of carbon emission, improved procedures, better customer services as well as the reduced time a company takes to generate new leads. The collaborative supply chain is also significant in improving efficiency measures such as minimizing the cost and cutting down on middlemen which increase profit margin. The value chain in telecommunication industry is influenced by content suppliers and application providers (Naude & Badenhorst-Weiss 2011).

The need to interact differently with technology-oriented customers is brought about by the increase in technology adoption across the world (Ittmann 2015). Consumer behavior is largely influenced by the trends that show an integrated use of all kinds of technology in their day to day life. Consumers are said to become increasingly knowledgeable regarding the products and service that they need as well as the ones they use.  This means that the consumers will take back the control of their purchasing patterns and more encouraged to become loyal consumers of products and brands that they find value in them.

This means that companies like Telstra Corporation will have to adapt to new business technologies that enable them to easily connect with shoppers and consumers of their services. The value proposition that Telstra will offer will change from the analogy of taking things services to the consumers but engaging with those consumers for purposes of offering the best services that meet the needs of the consumers (Reynolds & Yetton 2015). This means that the consumers and the service providers will have to interact together where the service provider has to educate the consumer on the importance and significance of their services for them to purchase.

The growth in technology will empower the consumers to share information with others through making comparisons with other products for purposes of getting the best value for their money to satisfy their needs. This means that Telstra should be able to innovate systems that can analyze the customer’s consumption patterns and be able to deliver or supply them adequately. Since people have different consumption patterns, future telecommunication companies should be able to tap into each consumer’s database and individually analyze how they can improve the services to make the client satisfied. Technology is going to have a considerable impact on the consumers since it helps increase awareness and experience in shopping a variety of products and services for purposes of getting the best value. Telstra Corporation should facilitate efficiency buy innovating technologies that will guarantee ability in communication among its service providers for purposes of improving their experience in shopping as well as sourcing for information that will influence their decision-making process.

Fig 2. The Future Value Chain

Porter’s five forces is a model that is used to describe the benefits and risks of the above three scenarios from the context of benefits as well as risks for Telstra Corporation Limited (Grunig, Kuhn & Clark 2010). In the first, situation, Making Telstra more sustainable, Porter outlines three pertinent benefits that are capable of increasing the benefits to the firm. The three frameworks include a hierarchy of source where Telstra ought to lower the labor costs and increase technology, brand reputation and customer relationships. Other aspects focus on some sources and constant improvement and upgrading of the company services (Executive Education Stimulates Strategic Thinking and Action 2012).

When focusing on entry Barriers, Telstra’s primary aim should be to improve its brand identity, switching costs and economies of scale. This can be achieved through innovation of new product and services. Innovation will play a significant role in for Telstra Corporation regarding attracting new customers to the business and also ensuring that it creates loyal customers. The risk of threats to the new entrant is pegged on losing customers and the business lacking competitive advantage. The rivalry among existing competitors is determined by similar factors such as brand identity, switching cost among others like product differentiation. The benefit of this aspect is that Telstra ought to make its products different from those existing in the market which is based on the generic strategy where it emphasizes the structure if the industry and positioning of the business.

The risk arising from this strategy is an increased competition that threatens the sustainability of the business. The bargaining power of supplier benefit is related to the differentiation of inputs, the role of many suppliers and availability of substitutes which aims at benefiting Telstra in building on dedicated suppliers who depend on the firm. The risk for Telstra based in power of suppliers is that it will lower their profit margin. The bargaining power of buyers has its benefits for the company which includes increasing customers and innovative new services and the risk associated is huge discounts and offers. The threat to substitute is often determined by price and the benefit relates to Telstra being service oriented while risks include stiff competition (Skalik 2016).

Optimize a shared supply chain

The second scenario is optimizing a shared supply chain which uses the game theory strategy through anticipating the reactions of key players in the supply chain process. The main areas of this approach are pricing, marketing and regulation (Lo 2014). The threats to new entrants benefits are determined by the access to distribution, absolute cost advantage and government policies which play a critical role in planning and scheduling as well as improved responsiveness to the supply chain. The risk associated with this force is losing the competitive advantage that Telstra has in the industry.

The rivalry among existing competitors is determined by factors such as existing barriers, fixed costs and intermittent capacity which benefits the firm through enabling a supply chain execution in real time as well as collaborating with competitors to increase market size while the risk associated with this force is increased competition in the supply chain that threatens the profitability of the business. The bargaining power of suppliers in this scenario is determined by determinants such as switching costs of suppliers and firms in the industry, the significance of volume of suppliers and the value relative to total purchases in the industry.

Therefore, the benefits include a dedicated supplier whose business depends on the firm which Telstra should emulate (Singh & Trivedi 2016). The risk for Telstra Corporation in this scenario is selling at lower prices which will affect their profit margin. The bargaining power of buyers is influenced by factors such as buyer concentration, buyer volume and buyer switching costs relative to a firm which contributes to benefits such as maintaining existing customers through innovating new products to reduce defection. This scenario has risks that are associated with profitability margin and market share for the company. The threat to substitute products and services is pegged on the propensity of buyers to change products and relative price performance where the benefits that can be drawn include order optimization as well as improved demand planning. Telstra should benefit from increasing the switch cost for its consumers the risk associated of Telstra fails to leverage the benefits is decreased profits that will have a negative impact on the business (Trzuskawska-Grzesinska 2017).

Fig 3. Value Chain

Engage with technology-enabled consumers

Engaging with the technology-enabled consumer is the third scenario which is proposed based on core competencies and capabilities where Telstra business structure will succeed only when the markets, products and customers are durable and well defined (Chu, Krishnakumar & Khosla 2014). Here, the threat of new entrants is determined by factors such as proprietary product differences, brand identity and expected retaliations. For Telstra to benefit, it has to build capacity and spend money on research missions which are aimed at identifying the needs of customers through engagement rather than taking the products to them. The risk associated with this scenario is developing products that have no use in the market. Rivalry among existing competitors is determined by factors such as brand identity, corporate stakes, informational complexity and growth in the industry. The benefits that Telstra can reap from this force is building scale where it innovates products that help them to get feedback from the customers and developing products and services based on the needs of the customers (Maria et al  2013).

The risk Telstra is bound to suffer is losing their profitability and competitive advantage to competitors who have improved engagement with their customers. The bargaining power of suppliers tends to benefits Telstra understands where and how to distribute the products and services through increased communication with the suppliers as well as customers. The risk in this scenario is higher supplier power which threatens the profitability of the business. The bargaining power of buyers concerning engagement is based on decision making where Telstra stands to benefits from quality performance as a result of a buyer being informed about the products they seek and the risk associated is buyers failing to understand the need for their products. The threats to substitute for products and services is based on buyers propensity to replace which will benefit Telstra through clearly informing the buyer uses of their products or result in risk of customers seeking other products that are defined by them.

Conclusion

Based on the above findings, the future of companies is determined by their future value chain process which is dependent on trends in the supply chain management, global logistics and process-based strategic planning. The effectiveness and implementation of these strategies plays a crucial role in improving the sustainability of a company and give it competitive advantage in the industry.

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