Telstra’s Implementation of Market Based Management Strategy

Subject: Strategic Marketing
Pages: 11
Words: 3042
Reading time:
12 min
Study level: PhD

Introduction

Market-Based Management aims at ensuring the success of an organization by transforming its focus and structure into more accountability for each action taken by each member of the organization. The concept relies on the Austrian school of economics views of the benefits of management and realization of profit under a free market environment that fosters accountability which results in the efficient harnessing of resources to ensure long-term availability (Dabic & González-Loureiro, 2011).

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Telstra provides customers with an integrated telecommunication experience through its products and assets. The company’s services include Sensis® and BigPond® (Implementing market based management, 2008). This paper offers a case study of Telstra an Australian Telecommunication company that embraced MBM in its five-year strategic revival plan to recapture its number one position in market share.

Market-Based Management

Market Based Management (MBM) is a system that transforms organization structure and its business process to embrace elements of the free market rather than remain in the commanding nature of most organizational structures. The system has key elements that facilitate a comprehensive transformation of an organization. These key elements are knowledge processes that consist of initiatives to create, obtain, distribute and apply relevant knowledge while taking note of the feedback and effect on the profitability of the organization. The second element is decision rights. In this element, the aim is to ensure that the correct persons are in the right positions in the organization to make decisions that they can be held accountable for. This is similar to private property rights as described by Koch that owners of a resource realize its profit and incur the costs of its consumption (Koch, 2007).

On virtues and talents as another element of MBM, the aim is to ensure that people possess the recommended skills and values as well as capacities when they are hired and these should be retained and undergo continuous development. This should ensure that every staff is compliant at any time. Vision is another element of MBM and concerns a strategy to ensure the long term success of the organization by creating a long lasting value. Therefore organizations have to embrace constant constructive destruction to ensure they are relevant to market needs (McCraw, 2007).

The final element of MBM is incentives, rewards in recognition of exceptional performance and value creation for the organization. Each interest of the individual should be according to the company’s interest and incentives help to focus the interests of staff to the organization’s objective (Klein, 2006).

About Telstra

Telstra is an Australian telecommunications company that started operations using the name Telstra in 1993. The company has a business strategy that focuses on sales and service. This strategy is still implemented by its current David Thodey who as the CEO of the company. It was initiated by in 2005 as a five year strategic plan for the company to reclaim its market share and transform into a customer centered company.

The telecommunication industry of Australia is an expanding market place and Telstra recognized this fact. The company has since moved from focusing on technology and products to a dedicated focus on customer service delivery based on the principles of Market Based Management (MBM). With the philosophy of MBM, Telstra delivers an oriented to the market business approach that incorporates processes and tools that are necessary for the development of unmatched customer experience that includes value and ensures the company is profitable (Best, 2009).

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Concerning market and competition the telecommunication market of Australia is affected by external factors just like any other market. As a result, the industry has passed through several change phases and still has a dynamic outlook. To understand the market mix and customers, positioning is the key concept of Telstra’s strategy of implementing Market Based Research. In order to meet its customer’s evolving needs Telstra has continued to be innovative and has introduced a number of innovative services like its Next GTM broadband network in 2006 (IHS Global Insight, 2007).

The Knowledge process at Telstra

In the knowledge process as a key pillar of the Market Based Management, acquiring knowledge and its relevant application in addition to measuring its practicability and profitability are essential entrepreneurial strategies that employees and senior management must employ in their respective capacities to maximize of customer’s loyalty and demand. Telstra’s initiative to obtain comprehensive customer feedback and the subsequent reward of its employees for realizing any improvement in customer satisfaction is a step towards becoming knowledge driven. As employees eye the bonus for improving the company’s performance, they become micro managers of their respective workstations and roles akin to a sole proprietor and evaluate their decisions more responsibly. Overall, such an initiative raises the company’s performance as employees and management participate tacitly in organizational learning.

Previously, the company used to develop products according to the reviews by its research and development departments and then push the finished products to its marketing department for final delivery to customers. Now with the adoption of an MBM strategy, the company listens to the customers’ feedback and finds out what kind of product and service is required in the market. The company then develops new products and services with the intention of fulfilling the identified needs. As a result, the company comes up with superior products that require very little marketing effort. In addition, the new products help to lock in more customers to be loyal to the company and ensure the company remains profitable (Telstra, n.d.).

The pursuant of customer-centricity ensures that companies remain relevant to customers. Commercially this approach leads to a large pool of loyal customers who consume the company’s products and services for the long-term. To accomplish successfully this focused approach, a company needs to differentiate the customer experience for each customer segment across all customer touchpoints (McGrath, Bassili, Orr, & Adang, 2006).

Value

The adoption of MBM by Telstra infers that the company has a framework that fixes the attention of every organ and department in its structure to the market as a guide of strategies and decision-making. Therefore, how Telstra uses marketing strategies, tactics and ways of communication with its customers rely on the framework of MBM. Two CEOs of Telstra have been instrumental in implementing the MBM approach at the company. According to Brown, Gallagher and Brown (2008), in 2005 when the approach was initiated by the then newly appointed CEO Sol Trujillo, a new leadership team came was initiated with the commitment to develop a superior value delivery to customers. The MBM approach formed the philosophy of a five-year commitment on the company culture and infrastructure transformation. The company came up with a rating for its market focus and identified its opportunities and threats. The team appointed to form the new leadership came up with a new vision for the company and communicated the vision to all staff and the market. As part of implementing the strategy, in 2006, the company was re-organized to focus on the customer and created market based measurements and processes concentrated on customers to support the existing initiative of developing a new market culture for the company (Trujillo, 2008).

According to Brown, Gallagher and Brown (2008), Telstra initiated developed learning programs to be implemented across the organization beginning with the marketing and product management functions. This approach covered all business units and from 2006 to 2007, the company carried out its learning and change management programs. These programs were embedded in the market culture, the company systems and all processes of the organization that provides customer-faced functions.

Virtue and Talents

In accordance with the requirements of the MBM process, all Telstra’s staff work towards achieving a common objective of getting a deep understanding of their customers in terms of what does the customer value in service provision, and this assists Telstra do repositioning its responses to the market so as to remain distinctively superior in its service delivery. This perspective pays off by allowing the company to sell products that advertise their superiority by meeting customer needs.

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The company’s marketers understand their role in achieving the company objective and have the freedom to be innovative in their approach of delivering solutions as long as their approaches are in line with the company’s values and the MBM strategy. Each marketer driven by their individual passion and energy for delivering results in their company assignments has contributed to the formation of a complex focus of each element in the marketing mix. Hence, the creation of portfolios, that deliver greater results to customers (Telstra, n.d.).

Incentives

According to Adamson (2009), in 2009 Telstra was reportedly the most hated company in Australia as measured by the number of complaints regarding the company’s service delivery. Then the company took notice of the dire situation and initiated a customer feedback initiative in the hope that customers will assist the company to correct its flaws (Proctor, 2011). The news report stated that shortly after firing its Chief Marketing Office Holly Kramer the company through its CEO David Thodey decided to offer a 40 per cent bonus to its staff if there was going to be any improvement in customer satisfaction level. It is clear that the company’s customers are eager to give their feedback. After announcing the intention to set up the initiative to combat the soaring dissatisfaction levels, the press release received 421 comments that were 98 per cent hostile in 12 hours. This figure was a hundred times more than the average rate of comments per new item on the website, walteradmason.com that published the news. (Adamson, 2009)

Achievements of MBM

The most visible result of the implementation of the MBM has been the creation of an intimate relationship with customers that have not been marched by any other company in the industry. The process of implementing the MBM has been an opportunity in disguise for the company to conduct the largest and most extensive market research in Australia. Now the company can group its customers according to their life needs and the corresponding influence that the paramount life needs have on their needs for services and products provided by Telstra in communication, entertainment and information.

The customer segmentation of Telstra has moved beyond benchmarks set for the industry worldwide. The company has had contact of 14 million customers per annum and this impressive reach has been topped up by the successful sales conversion rate of 74 per contact. In April 2010, Telstra was awarded the SAS Enterprise Excellence Award for its rally of the effective use of SAS software. The software award to Telstra was in recognition for the company’s efficacy in deploying and using the software to optimize its performance while enabling staff across the company to make their decisions comfortably. With the use of SAS software, Telstra acts swiftly in delivering solutions to business channels facing it and is able to develop innovative business solutions using technology. Finally, using the SAS software, the company meets the needs of its customers. In the acceptance speech of the award for Telstra, the company’s Chief Marketing Officer Kate McKenzie was categorical that the award is symbolic of the company’s progress in giving customers value for their money in terms of service delivery and product innovation. The award signified the continued shaping up of the company’s MBM approach (Computerworld, 2010).

A focus on the market for its services has made Telstra initiate an expansion drive for its physical stores and upgrading of the existing store using MBM enhancements. The stores incorporate a visual merchandising strategy that is suited to the customer segment around a shop’s locality, the sales personnel at each shop have a free mandate to engage customers using discovery questions and profile read to know the exact needs of customers and respond individually to their requests (Pearce, 2011).

Concisely the MBM strategy at Telstra ensures that the company focuses on customers as the center of the overall marketing strategy. Therefore, an unrelenting concentration exists on the customer needs, what value competitors are scheming and how Telstra is different to the extent of performance of its products, the service quality offered by its products and its staff and the brand affinity that the superiority of its products generates in the market. In addition to the placement of the customer at the center, the company focuses on value rather than price. Each staff at Telstra has the importance of value as their driving force when delivering solutions to the customers. The focus on value is driven by the fact that customers pay more when they are convinced that products deliver superior value. Therefore, as the company adapts all its operations to the implementation of MBM, its profitability tactic shifts from price to value based competition. To deliver value to customers, the company has to know what each of the approximately 14 million customers, which its marketing program reaches, wants and values in terms of entertainment, communication and information delivery. Finally, adaptation to MBM principles at Telstra is not just another marketing program; on the contrary, the MBM approach at Telstra is a full-fledged business philosophy. In this facet, Telstra’s development of innovative products, customer lifetime service, implementation of strategic plans and the instillation of company values and goals that are common is heavily dependent on the MBM framework (Telstra, n.d.).

Telstra identified customer call-centers as one area of the company that lacked a customer centric approach. The call center department was driven by its function of routing calls and customers to specialists on the specific aspects of their inquiries and other feedback. The company changed that into a process that starts on the customer needs and segments then transforms the needs into a specific call center experience that fits the identified needs. So instead of focusing on the function of the call center, at Telstra a hybrid of the customer and needs view is implemented. To achieve this fete, Telstra has invested in analytics, awareness campaigns for staff and customers, training of staff and reorganization of the company culture such that staff has the freedom to make decisions on how best to handle unique queries from customers to ensure a personalized response is maintained (McGrath, Bassili, Orr, & Adang, 2006).

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From 2005 to 2009, customers negatively received the company MBM approach implementation. The number of complaints reached a peak in 2009 against the company service provider. At the same time, the company has just completed an upgrade of its network to take into account the dynamic changes of customer experience and changes in preference. The upgrade was initiated to enable the company to be able to be swift in its reaction to changing market factors and remain relevant in the industry. In defense of Telstra’s strategy, its chief financial officer John Stanhope offered that the upgrade of 1400 to 1500 of the company’s system undoubtedly affected most of its customers in a positive way; however, some customers experience minimal to total disruptions of service. Stanhope identified the adoption of market-based approach as a key element that will ensure the company’s operations are transformed to impact favorably on customers (AAP Newswire, 2009).

While the strategic reorganization of Telstra was midway in 2008, the company had already achieved revenues and growth that ranked it among the top of its peers in Asia, Europe and the United States on key financial benchmarks. The company CEO in 2008 named the MBM approach as the initiative that had enabled the company to obtain a comprehensive knowledge of its customers which resulted to an improved overall customer experience. The improvement was reflected in the customer value and satisfaction scores in all the company’s businesses, market segments and product lines. Telstra simultaneously earned a price premium and increased its market share. In 2007, the company reclaimed its market leadership position and realized increased profitability prompting the company to raise its revenue and profit estimates for 2008 (Brown, Gallagher & Brown, 2008).

After a dismal performance in 2009, the company initiated a spirited campaign that transformed its operational structure and focused on its key products. Telstra set up a one billion fund to finance the fighting back initiative to reclaim its profitability through the win back of its market share. Telstra has succeeded in this initiative as its turnover for 2011 indicates. Battersby (2011) reports that, a significant drop in profits in the last half of 2010 was offset by the company’s achievement of its greatest growth in customers in a decade. The drop in profit for the year was attributed to an increase in operational costs and not a drop in revenues. Telstra’s current CEO, David Thodey asked shareholders to be content with the results of the 2010 financial year as it signified a success of the MBM approach and showed its potential to guarantee long-term value addition to the company portfolio. To add on the success, Knight (2011) reports that, Telstra added approximately a million new subscribers to its wireless network, which is the most important business of the company. The company hoped that the new customers would translate into profits in the following year.

Conclusion

The market based management approach has enabled Telstra to propel itself from a non-responsive product based company into a market driven, customer focused organization. The company’s strategic plan launched in 2005 has seen the company overhaul its organization structure to be in line with its new objective of delivering products and services suited to fulfilling customer needs. In this respect the company has shifted from relying on market reports and annual analysis of the market based on past results. This focus on past results has failed to provide the company with a timely response to the ever-changing needs of a telecommunications customer. As a remedy, the company refocused its attention on the constant feedback from customers and developed dynamic structures that can adapt to the different segments of its customers.

The implementation of Market Based Approach by Telstra has been successful as measured by the company’s results. Telstra has been able to upgrade its network to position itself as a next generation ready company with enough capacity to meet the sophistication of customer expectations. In addition, the company has realized the highest number of new customer sign ups in a decade and a steady increase in profit over the last half of the strategic plan implementation period.

References

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Battersby, L. (2011). Costs, not sales revenue, to blame for Telstra fall.

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