Saudi Telecom Company Strategic Management – Bus 495 Case Analysis Report Instructor


Saudi Telecom Company
Strategic Management – Bus 495
Case Analysis Report
Instructor: Dr. Allwiya Allui
Section 380

Prepared By:
Noura Alwahhabi: 213510086
Sarah Alajaji: 212510097
Raghad Alameel 213410308

Table of Content

?History, development, and growth of STC 2
SWOT analysis 3
Value-chain analysis 4
Saudi Telecom business level strategy 20
Corporate-level strategy pursued by STC 20
STC Structure and control system 21
Organizational Structure: 21
Control systems 22
Recommendations 23
Conclusion 23
References 23?

History, development, and growth of STC
Saudi Telecom Company (STC) is a Saudi based telecommunication company. STC is mostly-owned by the government through Saudi Arabia’s Public Investment Fund (70.0%), the Public Pension Fund (6.6%), and the General Organisation for Social Insurance (7.0%). It offers landline, internet services, mobile and computer network. The company was established in 1998 and its headquarter is in Riyadh. STC is considered as the seventh largest company in the middle east, and the eighteenth largest telecommunication company worldwide (Forbes,2017). Being the lead in their field, STC received a number of awards through the years. During 2016 they’ve won multiple Dubai Lynx creativity awards, mega contact centers, and social media services awards.
Competitor’s Vision and Mission ‘Mobily’
Vision of Mobily: “Enriching your life by continuously leading and innovating in communications services.”
Mission of Mobily: “To exceed the expectations of our employees and customers by fully leveraging our capabilities and potential.”
Vision and Mission of ‘STC’
Vision of STC: “We are a world-class digital leader providing innovative services and platforms to our customers in the MENA region.”
Mission of STC: “As leaders in a world of constant change, we strive to exceed our customer’s’ expectations so that, together, we reach new horizons.”
Comparing the vision and mission of the two companies, STC are engaged with more focused, strong, and clear statements. Therefore, there is no need for a proposed vision and mission for the company.

Company’s internal strengths and weaknesses.
SWOT analysis
Strengths:
Sole integrated telecommunication services provider in KSA and market leader in both mobile and fixed line segments.
Strong and expanding international presence and increasing revenue contribution from international operations.
Robust brand recognition due to strategic focus on marketing, advertising and branding.
Professional management team.
Good corporate governance policies in place.
Technologically advanced operations.
Focus on consumer acquisition and retention practices.

Weaknesses:
High currency losses in FY 2008 and Q1 2009 signifying exposure to exchange rate risks arising from international operations.
Goodwill charges for 2008 indicating overpayment for licenses and acquisitions.
Declining profitability ratios.
Increasing leverage.

Opportunities:
Increasing population and favorable demographic profile of KSA.
Developing IPTV and VoIP markets.
Potential demand from the ICT infrastructure development in
economic cities.
High revenue potential from under-penetrated
telecommunication markets of India and Indonesia (through its
direct and indirect subsidiaries).
Further expansion of operations through international
acquisitions.
Better placed than rest of the competitors to offer bucketed
offers and to cross sell its products.

Threats:
Decline in market share due to increasing competition in both GSM and fixed-line market.
More than 100% penetration levels in local GSM market.
Decline in margins due to price erosion.
Mobile number portability.
Decline in growth of fixed line segment.
Further appreciation of USD with respect to operational currencies like Turkish Lira.

Value-chain analysis:
Primary activities:
Inbound logistics:
Mainly needed for infrastructure (network) development.
Supplier coordination and order management, inbound primary transportation.
A formal inventory of all information assets is maintained and kept up-to-date.

Operations:
In order to enhance the company’s strategy for digital transformation, The company is building the largest Network operations center in the middle east and north Africa (MENA). Enabling digital services and enriching experience of individual and corporate customers in alignment of Kingdom’s vision 2030. The center, which will be located at the King Abdulaziz Telecom Complex in Al-Mursalat district in Riyadh and is expected to be completed in 2019, includes smart control and operation methods for all network components, information systems and modern data centers established by the company in different regions.

Outbound logistics:
Hub or warehouse management pick and pack of material.
Inventory management.
IT solutions.
periodic inventory audits.
Freight management.
Marketing and sales:
STC uses heavy advertising mainly due to the fact that Mobily and Zain heavily market their products. In order to compete STC has a wide variety of Advertising platforms. STC uses Television advertisements along with program sponsorship to increase their brand presence. STC also uses radio advertisements to get to more listeners. STC places regular magazine and newspaper ads as well and has a strong social media presence with their own Facebook, twitter and google plus pages.

Services:
Where You can get service from STC:
STC’s official website.
Stores in the city in which it operates where customers can find skilled employees who provide the assistance and care needed.
The services can be divided into three categories: Al-Jawal (mobile network), Al-Hatif (landline network), and Enterprise services.
Mobile computing
Internet Services
Television Services

Support activities:
General administration:
STC seek to support societies it serves in many different ways, while at the same time ensuring the utilization of leading-edge technologies.

Human resource management:
STC seeks to make its work environment pleasing and compassionate to its employees. STC focus and goal is to insure employees grasp their full potential and aim higher. The company’s workforce development is important to their success. Therefore, they are honing their skills using diversified development channels in order to upgrade their abilities to perform their work efficiently. This is done by implementing annual approved training plans in advanced centers inside and outside the Kingdom.

Technology development:
STC is dedicated to offer market-leading and pioneering products and services while still maintaining their low-cost competitive strategy. STC Group shall be committed to offer modern services and technologies and high quality unique solution that fulfil customer’s expectations and needs. This can only be achieved by persistent pursuit for developing its policies and processes as well as training its employees using the stat-of-the-art technologies and management concepts. For example: STC signed a “strategic alliance” contract with India’s Tech Mahindra to provide tech and digitization solutions ahead of Saudi Vision 2030. this alliance will improve STC’s cloud and IoT platforms and the reach of its network penetration with Tech Mahindra’s experience in newer technologies such as big data and analytics, machine learning and robotic process automation (RPA).

Procurement:
STC insures regular communication with its suppliers.
STC suppliers must have certain qualities like responsiveness, flexibility and transparency in all dealings.
STC also makes sure that the products offered by their suppliers are competitive commercially.

Resource based view:
Tangible resources:
Financial:
STC’s net profit margin is forecasted to grow at a CAGR of 3.1% for 2016-2018 to reach SAR 12.4 billion. Net profit margin has historically stood at an average of 23%, STC have estimated net profit margin to be 22.4%. also, STC was able to earn the following:
Revenue $13.6 billion (2016)
Operating income $3.09 billion (2014)
Net income $2.27 billion (2016)
Physical:
STC has 253 offices In Saudi Arabia. 145 are ladies’ branches.

Technological:
STC and Huawei announced the successful trial of the first 5G innovative Massive MIMO network in MENA region. STC completed the testing of the latest 3.5GHz Massive MIMO technology, which is considered as a cornerstone technology enabling core 5G services. It uses a large number of antennas and beamforming to enhance spectrum multiplexing among multiple user equipment (UEs) to improve the end user experience. The new 5G technologies aim at providing huge capacity, better spectral efficiency and lower latency. Widespread 5G connectivity will eliminate information islands, boost the prosperity of a digitalized sharing economy, and promote changes to existing production methods and lifestyles. Massive MIMO increases the cell capacity without the need for extra spectrum or additional new sites. Also, STC has chosen to apply for the TLD to promote awareness of its services and products and facilitate the digital growth and physical expansion of STC. The TLD will control and protect STC and its Trademarks by providing an official digital hub for consumers worldwide as well as fostering consumer trust by creating a secure and technically stable zone. STC’s mission requires it to exceed customers’ expectations in order to collectively reach new horizons, and the company is confident that the deployment of the TLD will enable it to do so. STC is also confident that the TLD will allow the company not only to achieve its own goals but also contribute to ICANN?s commitment to innovation, consumer protection, security, and stability across new markets.

Organizational:
STC is seeking to provide its customers with the highest quality ICT (Information & Communication Technology) services and solutions aligned with the Kingdom’s Vision 2030 and National Transformation Plan 2020.

Intangible resources:
Human:
STC has 17,000 employees. STC strives to leverage and nurture the skills of its employees in a way that reflects STC’s core values. STC recognizes its employees as the backbone of STC’s success. The human resource department seeks to attract and maintain an extremely talented and dedicated workforce.

Innovation and creativity:
STC’s vision: “We are a world-class digital leader providing innovative services and platforms to our customers in the MENA region”. In 2016 STC’s Technology Innovation Strategist for Technology Procurement are working to build an innovation pipeline using supplier enabled innovation to extend the enterprise. Trying to establish relationships with startups and SMEs to go beyond the traditional suppliers as well as exploit and promote technologies such as Blockchain, RPA and Big Data ; Advanced Analytics to give STC an edge.

Reputation:
STC actively is known for its role as a corporate citizen in developing a responsible society. Empowering women is one such activity which is promoted to larger extent in the KSA. The Company has supported the educational meeting “Woman in Imam University; Ambitious Leadership and Leading Creativity” that was organized by the Social Science College at the University, which was attended by group of female leaders, the female representatives of the Educational and Administrative Body and the students of the University. The event aimed at highlighting the leading educational and leadership experiences and expertise in the educational field. Also, The Company has supported the productive family’s exhibitions on the Eastern Area and Al Madinah Al Munawwarah to empower women to work and produce in a dynamic and an effective community.

Organization capabilities:
Some of the awards won by STC:
1- 2017 Dubai Lynx International Festival of Creativity:
total of 7 awards (1 Grand Prix, 2 silver, 4 bronze)
STC received these awards based on the creativity portrayed in their advertising campaigns (Unveil Saudi and the MYSTC application).

2- 2016 Effie Worldwide. (nonprofit organization and provide awards to honor the most effective marketing communications ideas).
special award for the platform ” laywagif” as a gate and source for media and entertainment content.
award to MYSTC app for the marketing campaign “The campaign that never saw the light”.
3- CommsMEA Awards 2016: (The leading awards event for the region’s telecoms sector).
“Customer service provider of the year” award.
4- Contact Center World Summit 2016.
STC received the gold medal for “contact center”.
silver medal for “Best use of Social Media in the Contact Center”
5- STC acquired King Khalid Development Partners Award for supporting “The Clinicians” App. This award is an annual award that aims to honor the achievements of inspiring individuals or groups in corporate Social responsibilities (CSR).

General analysis:
Demographic:
Saudi Arabia’s population is estimated to be more than 27 million people of which 8 million are foreign nationals. Of the nineteen million Saudis, 30% are under the age of 15, 67% are between 15 and 65 and the remaining 3% are 65 years and older. Saudi Arabia’s population is growing at fairly good speed and with a good portion of the population still under the age of fifteen, there is a great opportunity for businesses to expand and enter Saudi Arabia’s market. Although target markets are specific and it’s never safe to say that a particular company’s target market is the whole nation. In the case of STC though their target market is the entire population. With a focus on the 67% population that’s between the ages of 15 and 65. STC’s success throughout the years has been mainly due to the factor that STC has produced services that cater to all section of the market, regardless of age or income levels. This means that people will continuously be ready to adopt new service that STC releases.

Social culture:
STC has a productive approach in addressing the regional youth bulge. They strive to become the leader in information and communication technologies by providing comprehensive and innovative services and solutions to win the trust of our customers, and enrich our society. For example: their activities to empower youth. first example STC has contributed in establishing the National Entrepreneurship Institute in collaboration with the Ministry of Petroleum and Mineral Resources and the Technical and Vocational Training Cooperation. The Institute is considered a non-profit national center that is specialized in helping people interested in self-employment and owners of small and medium enterprises (SMEs) of both sexes and this resulted in opening more than 8123 projects. Second, STC has collaborated with Prince Mohammed bin Salman Foundation “Misk” aiming at establishing an effective technical community, sponsoring creative initiatives, enhancing and developing educational, technical, media and cultural skills of Saudi youth in various fields of knowledge. Third, STC supported the event of (Young Female Investor) that was held at Tuwaiq Centre for Family Development in Riyadh, which is affiliated to Ministry of Labor and Social Development, in order to empower the family and the age groups of children and youth to produce, invest, and display their products. STC also stresses the importance to develop the skills of their employees, while highlighting the hiring of nationalists whenever possible. The company’s staff development is key to their success. Because of that, they are improving their skills using diversified development channels in order to increase their abilities to perform their work efficiently. In order to achieve this, annual approved training plans are implemented in advanced centers inside and outside the Kingdom. This encourages the Saudi youth women or men to want to want to be clients of STC or work for the company.

Economic:
STC are going to be influenced by the macroeconomic factors of any country. If there are recessionary or inflationary pressures, sales are likely to be affected since changes in consumer’s buying behavior is determined by the perceived increase or decrease in the level of disposable income. But the this wouldn’t affect STC in an extreme way considering that STC serves people who fall under a low-income who may not afford to buy from a higher price telecom company. Even during the fourth quarter of 2017 when Saudi Arabia’s economy remained in recession on lower oil output in Saudi Arabia. STC’s net profit increased by 27%, Operating Profit increased by 61%, and EBITDA increased by 29% compared to comparable last year.

Technological:
STC and Nokia are collaborating to launch the STC 5G network in 2018. They agreed to collectively work towards finding the most optimal network strategy and relevant use-cases for 5G deployment in the Saudi market. As a first step, hundreds of 5G base stations are planned to be deployed in the Western region in the Kingdom (Makkah, Madinah and Yanbu). The 5G partnership indents to use Nokia’s equipment and solutions, plus, 5G-ready AirScale platform and AirFrame data center for the network launch. The unique combination of high-speed and low-latency in 5G technology opens up a number of new and exciting Use-cases such as: Virtual Reality, Augmented Reality, connected cars, industrial Robots, remote Healthcare, etc. If STC continuous to be innovative and improve their products they will stay ahead of competitors and earn profit.

Global:
STC’s has been able to expand their operator’s coverage across the country. STC was able to extend their coverage to 99% of Saudi Arabia, compared 94% by Zain. Serving a larger percentage of population means a higher chance of increased sales compared to competitors.

INDUSTRY ANALYSIS:
Political factors:
Regulation issues come up frequently. The government has one idea how telecoms should be handled. The people have another. Wi-Fi and internet are a daily part of life. Customers wish the government to acknowledge the internet as a basic human right. It’s required for education and many careers. Even applying to a job is an online experience; going to a company website and uploading a resume on their servers is essential. There are different opinions about net neutrality. Customers believe internet and data should be treated the same by service providers and the government. For instance, to stop service providers from throttling internet and data speeds net neutrality would achieve that. This is a huge political battle between government, service providers, and the people.

Economic factors:
Interest rates, inflation, and taxes affect the telecommunication industry. Expenses affect the pricing per plan offered to customers too. It’s expensive to build towers and resources in rural areas. Customers who are not living in large cities are affected. The more houses are built, the more there is a need for telecommunication resources. This can increase prices and revenue depending on location, number of customers in an area, and the need for telecommunication services. Growth is relies on the market (customers) and tech advancements. Businesses are using the internet and mobile phones for marketing. They create social media pages, advertisements on sites, and digital marketing campaigns to reach customers around the world. For this reason, work opportunities are opening up and increasing in the telecom industry. Customer service representatives are hired to solve problems via website live chat. Marketers, writers, and media managers handle online marketing and campaigns. Graphic designers and programmers are necessary to create websites for computers and mobile users. The need for everything to be available and accessible 24/7 is growing rapidly.

Social factors:
Telecommunications horizontal growth is limited. Specifically, it’s difficult (and expensive) to expand in rural regions. Customers are left with less than a handful of options when it comes to buying internet, mobile, and television packages. Telecom corporations are monopolies, that means they’re in charge of both internet and mobile carriers. Because customers need to connect with friends, shop online, find stable careers and more they require these packages. Telecommunication has become a massively essential aspect of the daily lives of people.

Technological factors:
Both needs and requirements for telecom services are advancing. For example, telephone companies implement fiber wire in their buildings over copper now. Phones are becoming more compact, moving the telecom business into a primarily wireless business. Basic needs in smartphones, like voicemail, caller ID, and messaging are covered. Now people want internet access on the go. So, data is added to mobile plans. Wi-Fi is installed in transportation vehicles. This ‘need’ leads to more investments in companies who hold a strong influence over telecom developments in computers, smartphones, and laptops.

Legal factors:
The telecommunication industry is often impacted by legislation problems. especially problems with the government, monopolies, and customers. But the telecom industry approves of importing and exporting of telecom products (international smartphones, for example). Allowing more development in telecom tech devices.

Environment factors:
Climate changes and global warming can affect how telecommunication products reach customers. With the advancement of technology, employees need to adapt to changes. Products come and go, often replaced by something ‘better’ (depending on who is asked, customer or company). The previous version becomes redundant or unnecessary. Which means people who worked on a previous version may now be unemployed. Customers demand and telecom companies are expected to deliver. In the telecommunication industry people’s needs are continuously changing, it’s not guaranteed which technology will stay, be advanced, or discarded.

Criteria for Sustainable Competitive Advantage:

Is the resource:
Valuable?
Rare?
Difficult to imitate?
Without substitutes?
Implications for competitiveness?
financial
yes
yes
yes
no
Temporary competitive advantage
physical
yes
yes
yes
no
Temporary competitive advantage
technological
yes
yes
yes
no
Temporary competitive advantage
organizational
yes
yes
yes
no
Temporary competitive advantage
Human resources
yes
yes
yes
no
Temporary competitive advantage
Innovation resources
yes
yes
yes
no
Temporary competitive advantage
Reputation resources
yes
yes
yes
no
Temporary competitive advantage
Organizational capabilities
yes
yes
yes
no
Temporary competitive advantage

Porter’s Five Forces:
Bargaining Power of Customers – Medium
Saudi Arabia happens to be the biggest telecommunication market in the GCC with a population of over 27 million (24 million in 2007), mobile phone penetration of around 120% and fixed line penetration of over 16%. With youth forming a major portion of the demographic profile and increasing levels of per capita income, the industry is expected to grow at steady pace in future. The bargaining power of customers increased due to the entry of new companies in GSM and PSTN segments. however, we have assigned medium rating due to the fact that the industry is still consolidating and the penetration levels are significantly high, especially for mobile segment.

Bargaining Power of Suppliers – Medium
The suppliers for the telecommunication services industry are the telecom network and infrastructure providers. The relatively fragmented structure of the supply-side industry and increasing technical innovation reduces the bargaining power of suppliers; however, they form an integral part in the set-up of telecommunication network and infrastructure.

Threat of Substitutes – Low
Telecommunication industry includes mobile, fixed line and internet services, which in turn happen to be substitutes among themselves; so, given the diversified nature of telecommunication industry and its importance in the social and economic development, the threat of substitutes tends to be low. However, within the industry, with increasing popularity and low cost of internet and mobile services, the popularity and demand for fixed-line segment is expected to decline.

Threat of New Entrants – Low
Given the capital-intensive nature of the industry with high sunk costs (which include license costs and other initial setup costs), the entry barriers are high and subsequently the threat of new entrants is low. Also, the mobile and fixed line market in Saudi Arabia are relatively saturated with high penetration levels, however, the internet penetration is low and has potential to expand in future. Internet based services such as broadband, IPTV, E-governance, Voice IP are expected to grow further in future and are good sectors to venture for new entrants.

Industry Rivalry – High
Though the telecommunication industry in Saudi Arabia is relatively concentrated, the level of competition in the mobile segment among the three players is high; with the increase in number of fixed line service providers, rivalry in this segment is also expected to be relatively high.

Industry life cycle:

Stage/factor
introduction
growth
maturity
decline
Competitive condition:
low
Fight for share.
Entry of competitors.

Difficulties in gaining share.
Emphasis on efficiency/low cost.
Selective
distribution.
Buyers/users:
low
increasing
Repeat purchase reliance
Drop-off in usage
sales:
low
moderate
peak
decrease
costs:
High per customer
average
limited
limited
Technical change:
high
moderate
limited
limited
product:
Quality improvement
Continue quality improvement
Concentrate on features
No change
Product line:
narrow
bread
Hold length of line
Reduce length of line
Saudi Telecom business level strategy
Porter’s generic strategies are for businesses to achieve and maintain a long-term advantages over their competitors. There are three business level strategies; cost leadership, differentiation, and focus. In the case of Saudi Telecom company, they are approaching the differentiation strategy. STC offers the same main products and services as their competitors in the industry, but to always be ahead of their game and to deliver the best quality, they have a “Value-Added Department” as one of their most important departments. In this department, they develop and work on new projects to be differentiated within the industry. One of the team’s responsibility is adding new non-telecom features to STC’s main products and services. For example, if customers get specific packages or upgrade to new packages, the company will offer them a free-six months period on Netflix or having Careem, Amazon, Microsoft deals and such; they are linking trendy services with their own to get the best of both worlds and attract more customers. STC are the first upon their competitors in saudi arabia to make such offers.

Corporate-level strategy pursued by STC
Diversification is the process of firms expanding their operations by entering new businesses. There are two types of diversification, related diversification and unrelated diversification. As for STC, their strategy is considered unrelated diversification. As mentioned before, they have a joint venture with Netflix. They are collaborating with Netflix to offer STC’s customers free Netflix services.
To engage with the community and be relevant, STC does several projects and partnerships. About two years ago, STC launched its own incubator under the name of “Inspire U” for digital startups. Last year, STC incubator “InspireU” have partnered with Careem to support entrepreneurs. According to STC’s website, “According to the agreement, Careem will provide free rides for the 40 entrepreneurs and members of arbitration committee dealing with “Inspire U”. The agreement is an initiative to support entrepreneurs and innovations as well as telecom and IT projects, as the region is witnessing accelerating growth in investments and innovations.”
For STC’s international activities, they are providing telecommunications services in the international markets through its networks and investments on countries like Turkey, Kuwait, Bahrain, India, Malaysia, South Africa and Indonesia as subsidiaries. For example, they own more than 20% in companies like, Viva (Bahrain and Kuwait), Cell C (South Africa), Cyberia (Lebanon and Jordan) and Turk Telekom (Turkey). Where there are companies that STC owns only less than 20% for example, Maxis (Malaysia), and Aircel (India).
STC Structure and control system
Organizational Structure:

With a lead strategy that supports its strategic objectives STC follows the divisional organizational structure which contains a several parallel teams that focus on one product or service line. When a company use this type of structure, all divisions will benefit from the resources it needs that the company has. Also, a division’s focus structure allows and enhances a common culture that leads the company to be higher in morale and have a better knowledge of the division’s portfolio. So, the divisional organizational structure is considered as the most appropriate structure for STC’s LEAD Strategy.

Control systems

In 2004 STC issued resolutions related to corporate governance, laws and its related by-laws issued in Saudi Arabia, because the majority of these principles are already covered in the company law, Capital Market law and related by-laws, regulation and resolution, and other related laws.

STC has issued Corporate governance principles in order to maintain and control a healthy and safe environment for the company. Moreover, Corporate governance principles have an impact on STC relationship with its suppliers, employees, customers, and society, as well as, the corporate governance principles influence the STC stock prices, the status of liquidity and its financial objectives.

In addition, since STC is a public company, it has a board of directors, who is a group of experts, elected to represent shareholders. A board’s commitment is to build policies for corporate management and make decisions on major company issues. Moreover, STC’s senior managers are a group of high-level executives who actively participate in the daily supervision, planning, administrative, monitoring and controlling processes needed to achieve the company objectives.

STC has an effective internal control system especially for the audit committee, STC documented the objective, scope and tasks of the Audit Committee in a document, furthermore, the Audit Committee’s objectives are assisting the Board in having its responsibilities with respect to the existence of a professional and adequate internal control system, as well as, to give recommendations to the Board that would contribute to enable and improve the internal control system in order to save the interests of the stakeholders at a reasonable cost

finally, we tried all our best to get all information about their control system but, they refused to provide us with their employees’ code of conduct and information about STC’s managers rewards , for confidential reasons.
Recommendations
STC should extend their investments and having a subsidiaries internationally to diversify their investment portfolio. Also, STC should invest in the development and education of Saudi youth to contribute to achieving Vision 2030
Finally, we recommend STC to increase the level of its transparency to be highly efficient and quality.

Conclusion
in conclusion, we completed this deep in industrial strategic analysis of STC by using and implementing most of the strategies that we have learned in Strategic Management course. Which will help us in our professional future.

References

An introduction to Porter’s Generic Strategies. (2017, April 24). Retrieved March 31, 2018, from http://www.capsim.com/blog/an-introduction-to-porters-generic-strategies/
N. (2017, May 24). Saudi Telecom – pg.18. Retrieved March 30, 2018, from https://www.forbes.com/pictures/591b6ecf31358e03e559255f/saudi-telecom/#4f0aa4843b21
(n.d.). Retrieved April 15, 2018, from http://www.stc.com.sa/wps/wcm/connect/english/stc/NewsItems/partnership-inspireu-stc-careem