Abstract
Purpose: The purpose of this case study is to showcase how the Saudi Telecom Company, the largest telecommunications company in the Middle East and North Africa, has applied the differentiation strategy to ensure continuous success in the fast-paced, highly-competitive telecommunications industry.
Research design, data, and methodology: This particular research paper consults and references various secondary sources, including reviewed journals, interviews, commentaries, and websites, to explore both differentiation as a business-level strategy and the Saudi Telecom Company.
Results: The results of the studies showcase a positive correlation between the differentiation strategy and organizational performance. The findings of the study illustrate the differentiation strategy is not only applicable but also sensitive in the telecommunication industry.
Conclusion: The differentiation strategy is highly successful in a fast-growing and highly competitive industry, such as the telecommunication industry. The paper will be valuable in the study of the impact of different business strategies on organizational performance.
Introduction
The past two decades have witnessed a rapid rise in the telecommunications industry. The growth of the telecommunication industry is evident in the fact that more and more individuals are gaining access to telecom services from acquiring cellular phones and broadband to fixed telephones. Many emerging and developing economies across the world are investing more in the sector with the conviction telecommunication is a critical component in the future of the economy. However, prosperity in the industry attracts more investors, and as such, increasing competition in the industry. Therefore, a majority of companies in the industry have to adopt various business-level strategies in a bid to gain a competitive edge.
The dynamic business environment in the telecommunication industries necessitates firms to develop appropriate strategies in response to the challenges postulated to remain competitive. A business strategy is about gaining a competitive edge. A strategy is vital since there is more than one ideal position in the market. Indeed, if there were only one perfect position, operational efficiency would be capable of delivering success to each business. Irrespective of size, location, or industry, every firm has a business strategy, whether official or unofficial, that it applies to approach the market effectively. A business strategy is essentially a plan on how a company will compete, formulated after evaluating the strengths and weaknesses of the company in question and how they compare to those of the competitors.
There are three core levels of strategies, including; corporate, business, and functional levels. The business-level strategy focuses on integrating corporate and operational level strategies. It is involved in core decisions such as firm location, market segmentation, and geographical coverage and distribution channels. Therefore, it is engaged in mission, business goals, and competencies. Under the business level strategy, there are three critical strategies, including; cost leadership strategies, differentiation approaches, and focus strategies. A differentiation strategy is an approach where a firm aims to develop and market unique products or services to gain the ability to charge a premium for the goods or services in question. Undeniably, the differentiation strategy endeavors to provide value to consumers through unique features and characteristics in a particular good or service. Differentiation is often achieved through high quality, rapid product innovation, and better customer service, advanced technological features, among other techniques.
The paper intends to shed light on the continued success story of Saudi Telecom Company (STC) by focusing on how the organization applies the differentiation strategy. The article focuses on the role of differentiation strategy in market entry and evolution of Saudi Telecom Company (STC). In the introduction section, the paper provides background information on the telecommunication industry and the concept of strategy. The article proceeds to offer a review of the literature on both theoretical and empirical aspects concerning the differential strategy. Moreover, the literature review section provides an overview of the telecommunication industry is not only Saudi Arabia but also in the Middle East and surrounding continents. Besides, the literature review offers a background of the Saudi Telecom Company (STC). Most importantly, under the methodology section, the paper provides a case storyline of how the Saudi Telecom Industry has continually and successfully applied the differentiation strategy to gain a competitive advantage and subsequently expand.
Literature Review
Business-level Strategy
The strategy of an organization describes the techniques that a firm applies to achieve its goals, given the threats and opportunities in the environment and also taking into consideration its strengths and weaknesses. As mentioned, there are three levels of strategies, business-level, corporate-level, and functional-level strategies. Corporate-level strategies focus on product and market choices of an organization. Corporate-level strategies often define the vision, corporate goals in addition to describing the organizational culture (Nandakumar, Ghobadian, & O’Reign, 2010). Functional-level strategy, on the other hand, focuses on implementation and is often short-term and quantifiable. The business-level approach bridges the two in a sense; it concentrates on how a firm deploys its resources in the product and market areas taking into account the activities of the competitors.
While both the corporate and functional-level strategies are essential, the business-level strategy is recognized as a powerful tool in predicting a multitude of phenomena as it relates to a particular company and by extension industry. Research indicates the business-level approach is the most crucial strategy in the empirical analysis of the influence of strategy on organizational performance (Nandakumar, Ghobadian, & O’Reign, 2010). It is universally acknowledged that an effective strategy is one that provides a sustainable competitive advantage to the firm and, subsequently, better performance. Therefore, a strategy can only be effective if it matches both the external and internal conditions of a particular organization.
Although the business-level strategy is associated with high performance when expertly matched with the organization structure in addition to the internal and external environment, it is a broad strategy that is often categorized into different groups. The core strategies under the business-level strategy are differentiation, focus, and cost leadership strategies. The cost leadership strategy envisions gaining a competitive edge through reducing operating costs to a level below the industry’s average and subsequently passing the savings to consumers through low prices. The differentiation strategy, on the other hand, encompasses offering unique products or services that are valued by consumers. The focus strategy applies both differentiation and cost leadership within niche markets in a technique that broadly-focused organizations cannot achieve.
Differentiation Business-Level Strategy
Notably, differentiation strategy is grounded on providing consumers with something unique, a feature that makes the firm’s product or service different from those of its competition. The fundamental assumption behind the differentiation strategy is the idea that customers are willing to pay higher prices for a good or services that are different, or at the very least perceived to be distinct in some significant way (Nandakumar, Ghobadian, & O’Reign, 2010). Differentiation strategy endeavors to create superior value by focusing on higher quality. Essentially, differentiation creates a competitive edge through making consumers less price-sensitive and more loyal to a given brand and by extension organization.
Moreover, it is unlikely that customers will search for other products once they are satisfied. An effectively applied differentiation strategy allows a firm to earn higher than their average returns because of the strategy; in most cases, is associated with higher prices since it emphasizes the concept of pricelessness. Undeniably, differentiation strategy is one of Porter’s key business strategies.
It is vital to acknowledge that although all products and services can be differentiated, not all the minor distinctions are relevant to the consumers. Therefore, the essential step is to differentiate a product in a way that is important to the consumers. Moreover, an organization must take keen notice on the number of differences to promote to avoid cases of over-positioning or under-positioning or confused positioning (Okeke & Onyemachi, 2018). Some of the core aspects for establishing differentiation include; attention to product and service quality, being more involved in the community, after-sale services and conveniences, technological-advanced products, creativity in creating the organization’s portfolio, offering a feature that the competitors do not or cannot offer, training employees with more in-depth information about the company, and providing e-commerce, among other techniques. However, management needs to recognize that differentiation should also take into account the cost structure. Specifically, while the cost of production is of less consequence to the organization using differential strategy, the total cost is relevant. The organization needs to ensure the cost of production does not exceed the premium charged. A firm pursuing differentiation needs to seek cost parity or at the very least, continue cost proximity with its competitors.
A multitude of research asserts there is a positive correlation between differentiation strategy and organizational performance. Quality is a core measure of organizational performance, and product quality is one of the underlying core aspects behind the differentiation strategy (Aliqah, 2012). According to Aliqah (2012), total quality management is positively and substantially associated with the differentiation strategy. Both the resource-based view (RBV) and the Capability theories support empirical research on how differentiation strategy is a source of competitive advantage to an organization. The RBV theory provides insights on why some resources in an organization are more valuable than others and also why resource asymmetries remain in society despite open competition. RBV argues differentiation strategy is the reason why organizations with similar resources perform differently (Okeke & Onyemachi, 2018). Moreover, the capability theory recognizes the difference in capabilities as the reason for deep-seated competitive advantage associated with a differentiation strategy.
Saudi Telecom Company and Overview of Telecommunication Industry
Overview of the Telecommunication industry in Saudi Arabia
The telecommunications industry has undergone dramatic shifts in its evolution. The Kingdom of Saudi Arabia has the most essential information communication and technology market in the Middle East, both in terms of capital volume and spending. The telecommunication sector in Saudi Arabia is dominated by the Saudi Telecom Company (STC), Mobily, and Zain. Lately, companies utilizing the Mobile Virtual Network Operators (MVNOs) including Virgin Mobile Saudi Arabia and Lebara Saudi Arabia increasing competition in the Saudi’s telecommunication industry (Al-aklabi & Al-Allak, 2011). The government has licensed STC and Go Telecom. Three mobile operators, STC, Mobily, and Zain, launched the commercial 4G long-term evolution (LTE) broadband services in 2011. Currently, they are competing for LTE subscribers. The industry has 60 million subscribers and a penetration rate of more than 185%, making it competitive.fo insta Indeed, the mobile services demand in the kingdom is driven by demand from local population, which is growing at a rate of 2.6% annually. Moreover, the demand for telecommunication services in the Kingdom is also fueled by religious tourism during both Hajj and Ramadan seasons.
In recent years, the Saudi government has dedicated resources and passed policies to ensure liberalization and continued growth of the sector. The Saudi Arabian government perceives the development of the telecommunication sector as a national priority. The Ministry of Communications and Information Technology and the Communications and Information Technology Commission are the key government entities and regulators in the industry. The telecommunication sector in Saudi Arabia has been undergoing a privatization program to liberalize since the late 1990s. The introduction of MVNOS is one significant development in the direction of liberalization. Besides, the information and telecommunication sector is expected to continue to receive support from the government, both monetary and policy-wise. Lately, the Saudi government has been promoting and supporting technology start-ups such as Mobily Ventures, STC ventures, and Alkhabeer Capital.
Increased fiber connectivity has been evident in the fixed broadband services sector, especially in urban areas. Previously, segment had been dominated by the STC. Moreover, Saudi’s youthful population is likely to promote the use of data. Some actors in the industry, such as STC and Mobily, focus on the creation of triple or quad-play offering for customers through bundling services. The telecommunication industry in Saudi Arabia will continue to witness fierce competition over the coming years.
Saudi Telecom Company (STC)
Saudi Telecommunications Company (STC) is a telecommunication company that was established in 1998 after the Council of Ministers decree No.213. The company has its headquarters in Riyadh, Saudi Arabia. This firm provides landline, mobile, and internet services in the country. The firm provides telecommunication services at the global level through connections and investments in various nations (Al-aklabi & Al-Allak, 2011). STC entered the international market through the acquisition of a stake in Malaysia’s Maxis Telecom. STC acquired a 25% stake in Maxis, which gave access to an extensive market in the Middle East and Asia since Maxis served a vast population in Malaysia, India, and Singapore. Over the years, STC has invested majorly through acquisition in various international organizations. STC has 100% ownership in Viva Bahrain, 51.8 stake in Viva Kuwait, 35% stake in Oger Telecom Limited in the UAE, which controls Turk Telecom, Avea in Turkey, Cell-c in South Africa and 25% ownership in Binariang GSM in Malaysia, which controls Maxis in Malaysia. STC is ranked first among the telecommunications companies in the Middle East and North Africa (MENA) region. Despite a rather extensive international presence, the local market remains STC’s largest contributor to revenue and profit margins.
STC is a publicly-traded company. Until 2003, STC was wholly owned by the Saudi Arabian government. The government, owns 84 percent of the company while the public owns the remaining 16%. STC is considered among the top ten largest organizations in the Middle East and is among the top twenty largest telecommunications companies in the world. The vision of the organization emphasizes its dedication to provide innovative services to its customers within the MENA region. The mission statement confirms the company’s pursuit to exceed the customer’s expectations.
The organization functions through several core units, including; Al Hatif, Al jawal, Saudi Net, STC Online, and Saudi Data. Al Hatif ventures in landline, card phones, public telephones, prepaid cards, and business services. Al Jawal offers various mobile services such as Family Al Jawal, messaging services, Sawa, roaming services, data services, and other business services (Al-aklabi & Al-Allak, 2011). The Saudi Net is an internet provider while STC Online involves payment of electronic bills. Saudi Data provides data solutions. The organization is a source of income for more than twenty-three thousand individuals.
Methodology
Since its development more than two decades ago, the Saudi Telecom Company (STC) has endeavored to embrace different strategies to ensure its success in the highly-competitive telecommunication industry. The past two decades following the Council of Ministers’ Decree N0. 213, the firm focuses on challenging program to change its business model from a government-oriented model to a standard commercial business model. In 2007, STC launched the FORWARD strategy. The FORWARD approach focused on reinventing and re-enforcing STC’s competitive position. FORWARD means; Fulfill mobile potential, Offer wholesale services, Re-invent home communication, Win enterprise customers, Achieve external growth, Re-organize internal structure, and Derive operational efficiencies. FORWARD is a customer-centric strategy the marked the beginning of STC effectively using the differentiation strategy. Differentiation is grounded on the assumption that consumers are willing to pay more for a unique product or service (Al-aklabi & Al-Allak, 2011). The FORWARD approach focuses on the needs and expectations of consumers, a system that allowed STC to set itself apart from its competitors and subsequently achieve a vital competitive edge.
It is evident the Saudi Arabia telecommunication industry is in the midst of a seismic shift. Indeed, consumer expectations are higher than ever, products and services are becoming increasingly digitized, and market deregulation continues to create unprecedented competition. Similarly, mobile usage in the region continues to grow daily with predictions asserting the end of 2019 might witness an additional 20 million mobile users. Moreover, modernization is underway in every sector in Saudi Arabia, including administration. As the Saudi Arabian government releases Vision 2030, an ambitious program to diversify the country, it is deductive the telecommunication industry will continue to witness dramatic growth.
STC strategy from 2012 to 2014 was LEAD, whose core objective was to lead the KSA market. Compared to its main competitor Mobily, STC enjoys a relatively large market share in Saudi Arabia. Moreover, during this period, STC expanded its international presence. Indeed, in late 2013, STC sold its stake in the Indonesian PT Axis Telecom due to operating issues and proceeded to acquire 100% of Viva Kuwait. Between 2015 and 2017, the firm concentrated on the NEXT HORIZON strategy. This strategy emphasized the importance of new digital ecosystems that encompassed creating and embracing new opportunities beyond the organization’s core business activities (Telecom Review, 2019). Moreover, the strategy also emphasized the importance of shaping win-win regulatory outcomes and focusing on strategic investments in Saudi Arabia. During the period face of the NEXT HORIZON strategy, STC signed a 1.8 billion dollars broadcasting deal per the organization’s new digital transformation strategy that included embracing investments in digital media content and advertising services.
The current strategy that was adopted in early 2018 is known as the DARE, which intends to make STC a world-class digital leader by concentrating on providing innovative products and services. DARE is essentially a differentiation strategy since it encourages STC to invest in research and development in efforts to produce and providing creative and better quality goods. DARE in full is Digitalizing STC, Accelerating core assist performance, Reinvesting customer experience at world-class standards, and Expanding aggressively both in scale and scope. Digitalizing STC encompasses digitization of all internal processes by focusing on developing a data-driven organization and developing agile delivery platforms, which is IT and Network (STC, 2019). Accelerating performance involves the efforts of extracting more value from the currently existing resources. Re-investing customer experience focuses on improving customer’s quality experience, digitalizing sales, and other customer services in addition to improving brand perception. The expansion envisions increasing STC operations in scale and scope through strengthening the STC position in connectivity and infrastructure.
The DARE strategy illustrates that STC understands its profound competitive environment and is currently applying differentiation strategy through expanding to new markets and new digital products and services. As mentioned, differentiation is grounded on providing unique products and services that warranty charging a premium. Indeed, over the past few years, STC has invested in new products and services such as the Internet of things, cybersecurity, cloud computing, data analytics, among others. Innovation and quality products and services are some of the most important elements associated with the differentiation strategy. In the DARE strategy, STC evaluates its objective appraisal of resources by valuing its employees. Focusing on employees is an essential factor in the efforts of being an innovative service provider.
Indeed, it is through the objectives and operations of the DARE strategy that STC recently launched the 5G network. The organization launched 5G with a vision of creating new verticals for its consumers. The launch of the 5G network is grounded on tremendous efforts in studies, trials, partnership, and worldwide collaborations, all per the concepts of a differentiation strategy. STC’s aspirations over the next half a decade are grounded on growing and diversifying their portfolios (Telecom Review, 2019). The expansion encompasses expanding both geographically and in the number of businesses. The DARE strategy allows STC as an organization to focus on championing digital transformation in not only Saudi Arabia but also the MENA region.
Findings and Implications
The strategies that STC has applied since its launch a mere two decades ago have worked successfully. Indeed, as mentioned, since it began in 1998, STC has used different strategies that have enabled the organization’s massive market share, rapid expansion into the international market, and impressive profit margins. The current paper focused on the strategy the organization has applied over the past ten years from 2007. These strategies include; FORWARD, LEAD, NEW HORIZON, and the most recent DARE. All these strategies employ various concepts associated with establishing and maintaining a certain level of differentiation.
The differentiation strategy is grounded on providing unique products or services to consumers to the extent that allows the organization to charge a premium. As mentioned, an organization can achieve differentiation in various ways, including; providing better customer service, providing after-sale services, producing quality products and goods, producing technologically innovative goods and services, better employee training, and primarily producing goods and services in a capacity that other competitors do not. The FORWARD strategy embraced the concept of differentiation by focusing on ensuring customer satisfaction; LEAD applied differentiation by concentrating on better products and goods and the ability to lead the KSA market. NEW HORIZON concentrate on international expansion, another factor associated with differentiation. The current strategy, the DARE strategy emphasizes several aspects linked with differentiation strategy including but not limited to technologically advanced goods and services, better customer service, more comprehensive employee training and expansion in the international market (STC, 2019).
As noted, while the telecommunication industry can expand due to the ever-increasing customer-demand of products and services in that industry, there is unlimited competition. To not only survive but also to thrive in such a competitive sector, STC has endeavored to develop strategies that set it apart from other industries. In an industry where customer service is vital in the customer satisfaction analysis, STC concentration on customer-oriented approach has ensured customer loyalty. Moreover, STC focuses on creating technologically advanced products, a factor that appeals to a majority of the organization’s current and potential customers. Apart from providing better goods and services, STC as an organization values its employees. STC offers an opportunity for its employees to continuously train and keep pace with the changes in the industry. The organization’s dedication to the development of their employees is one of the core reasons why the differentiation strategy has worked successfully in the organization.
The current study supports a multitude of research that concluded there is a positive correlation between differentiation strategy and organizational performance. Currently, STC is the largest telecommunication company in the Middle East and some parts in North Africa based on market capacity. The organization’s total revenue in 2017 was more than 50 million SAR(13.5 million US dollars) and a profit of more than 10 million SAR(2.7 million US dollars) (Telecom Review, 2019). For an organization that begun barely more than two decades ago, a significant market presence of more than 100 million users at a global scale, is impressive. Indeed, analysts maintain STC success is primarily due to the organization’s dedication to set itself apart from the competition. Therefore, it is conclusive the differentiation strategy has worked successfully for STC as a telecommunication company.
The findings of the study imply the differentiation strategy is a good approach in a fast-paced, highly-competitive, and customer-oriented industry such as the telecommunication industry. The technological advancements associated with the 21st century suggest customers often demand better and innovative goods and services, as such guarantying success to any organization that employs the differentiation strategy. Moreover, the differentiation strategy allows an organization to build customer loyalty through emphasizing customer satisfaction, a factor that not only ensures a company maintains its current customers but also attract new customers. It is conclusive the differentiation strategy allows an organization to acquire necessary internal resources that eventually set it apart from the competition, and subsequently ensure organizational success.
Conclusion
STC, one of the biggest telecommunication companies in the globe, continues to successfully apply the differentiation strategy in a bid to remain relevant in the fast-paced, highly competitive telecommunication industry. Undeniably, the telecommunication industry is currently among the fastest-growing sectors not only in Saudi Arabia but across the globe. Due to the success associated with the industry, more and more individuals are investing in the industry, creating unlimited competition. For any organization to remain successful, it is imperative to develop and embrace strategies that set it apart from the competition. Over the past two decades, STC has embraced various facets associated with the differentiation approach in a number of their strategies. Concepts of differentiation are evident in each of the organization’s new strategy, FORWARD, LEAD, NEW HORIZON, and the most current DARE. Undeniably, for decades, STC has been a pioneer in terms of championing revolutionary new technologies. STC evident success in terms of market share, revenue, and profit margin over the past decade showcase, there is a positive correlation between differentiation strategy and organizational performance.
Future research on the impact of differentiation on organization performance should focus on another industry. The current study concentrates on the telecommunication industry, with a particular focus on the Saudi Telecom Company; as such, the results cannot be generalized to a broader population. Moreover, the focus on a single organization, STC, implies that the current research paper is a case study, which is often criticized on issues such as methodological rigor and researcher subjectivity. Critics maintain the case study is a synonym for freeform research, where anything goes. The absence of specific methodological guidelines in the current research necessitates future research where the research applies a particular research methodology to ensure the validity of the results. Therefore, future research in the area should preferably focus on another industry and use a different research methodology apart from the current case study for conclusive, definitive proof of a positive correlation between differentiation as a business-level strategy and organizational performance
Discussion Questions
A.
(1)What is the weakness of your chosen company compared to the main competitors?
Some of the weakness of STC compared to its main competitors in Saudi Arabia such as Mobily and Zain is declining bottom line and reduction in asset liquidity. The declining bottom line is largely due to the organization dedication to quality productivity, which encompasses technologically advanced products and services. Indeed, STC dedication to research and development and innovative productivity increases the organization’s expenses as such declining bottom line. Unlike, STC, Mobily and Zain are relatively small organizations that tend to rely on product and services simulation rather than development. Additionally, the company’s dedication to quality productivity has over the years reduced their asset liquidity unlike their smaller competitors.
(2)What further strategy should the company take to develop weak points? Discuss using the terms and frames you learned in class.
As mentioned, while differentiation is a successful strategy in the telecommunications industry, it is vital for STC to take into account the financial implications. Liquidity showcase whether there is a ready market for an asset. STC can increase its liquidity through reducing overhead expenses in addition to paying off liabilities. The same strategies can be applied in reducing declining bottom line since it is directly related to extensive expenses
B.
(1) Look for issues that the company has recently faced ( for example, changes in the economic or social environment), and list them in three points.
- Political instability due to extensive power concentration.
- New entrants such as the Mobile Virtual Network Operators (MVNOs) due to recent liberalization of the telecommunication industry in Saudi Arabia.
- Cyber security issues
(2) To solve these problems, discuss what ideas or strategies the company needs using the terms and frames you learned in class.
To solve the above problems, it is necessary for STC to continue to invest in research and development to ensure their users are adequately protected from cyber security threats. Focus on innovative products will ensure STC is able to keep pace with MVNOs to avoid the case of reduction in market presence. At a political level, Saudi Arabia is characterized by an evident power concentration. The research of the Kingdom’s vision 2030 indicate STC will play an active role in achieving the objectives and as such can work to ensure political stability through facilitating income distribution and government support for policies that reduce and discourage power concentration.
References
Al-aklabi, A. S., & Al-Allak, B. A. (2011). Saudi Telecommunications Company: A strategy for sustainable competitive advantage. Journal of Advanced Social Research, 76-88.
Aliqah, K. M. (2012). Differentiation and organizational performance: Empirical evidence from Jordanian companies. Journal of Economics, 3(1), 7-11.
Nandakumar, M. K., Ghobadian, A., & O’Reign, N. (2010). Business-level strategy and performance: The moderating effect of environment and structure. Management Decision, 48(6), 907-939.
Okeke, O. T., & Onyemachi, U. C. (2018). Differentiation strategy and impact on business. Strategic Journal of Business and Social Sciences, 1-18.
STC. (2019, November). Our Stategy. Retrieved 2019, from STC: https://www.stc.com.sa/wps/wcm/connect/english/stc/aboutSTC/Strategy
Telecom Review. (2019, February 26). STC outlines its ambition to become a world-class digital leader. Retrieved November 27, 2019, from Telecom Review: https://www.telecomreview.com/index.php/articles/exclusive-interviews/2831-stc-outlines-its-ambition-to-become-a-world-class-digital-leader
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