Analyse At;T’s Strategic Position Essay Example

Internet offerings. This document presents recommendations for a revised strategy and direction for AT in light of two scenarios for the telecommunications industry's development towards 2000 and their effects on AT&T. The primary divisions within AT&T are AT&T Business Services and AT&T Consumer Services.

Throughout its history, Ma Bell (AT&T) operated as a legally sanctioned and regulated monopoly. However, when AT&T entered the global market, traditional competition dynamics changed, requiring AT&T to restructure and adapt their strategy to address the new challenges of a global economy.

In 1994, AT&T's Strategic Position

After the divestiture period from 1984-1988, CEO Robert (Bob) E. Allen implemented a process aimed at streamlining the business. The expansive functional organization was divided into 21 manageable business units by Allen in order to improve responsibilities and accountability.

Up to 1994, Allen reorganized AT's core telecommunications network, focusing the company's expansion in areas that enhanced this core. His strategy aimed at putting more traffic on the network and enhancing its value. However, due to increasing competition, convergence of industries, deregulation, and international trust laws, Allen realized that this strategy needed to change. The BU structure and strategy of 1989 were no longer suitable for AT's business needs in 1994 and beyond. To address this, a thorough analysis was conducted to reshape AT&T's strategy, and this report includes its recommendations.

Current situation analysis

Internal environment (SWOT, TOWS): The SWOT analysis (Appendix 1) identified internal positive and negative attributes of the organization, while the TOWS analysis (Appendix 2) identified external weaknesses and strengths that may impact growth. The analysis will be incorporated into the new strategy.

External environment (PEST): Various factors in the environment can significantly impact AT, especially if the company

wants to gain and maintain a competitive advantage in a global sphere of operations.

The PEST analysis, outlined in Appendix 3, will be utilized in formulating a new strategy for AT;T. Additionally, various competitive forces, including Porters five forces (Appendix 4), the Porters diamond (Appendix 5), the value chain (Appendix 6), and the BCG matrix (Appendix 7), were examined to assess AT;T's competitive environment. These frameworks offer valuable insights into AT;T's competitive advantage, international success, and potential partnerships. Furthermore, a thorough financial analysis, presented in Appendix 8, reveals that AT;T took advantage of favorable interest rates in 1992 and 1993 to refinance a significant portion of its long-term debt.

In 1994, AT;T refinanced McCaw's debt and utilized derivative financial instruments, such as interest rate contracts and foreign currency exchange rate contracts, for non-trading purposes. This enabled them to mitigate the impact of fluctuating interest rates and safeguard their margins on current transactions. The writer believes that AT;T faces minimal risks associated with the use of these derivative financial instruments, while enjoying advantages like enhanced earnings stability during periods of interest rate or currency exchange rate fluctuations.

In the past three years, new shares of common stock have been issued in their shareowner and employee plans. However, these new issuances have not significantly affected the earnings per share. They will only sell equity interests in AT&T subsidiaries when necessary. By December 31, 1994, the total debt and preferred stock to total capital ratio has decreased to 58.3% from 64.4% at December 31, 1993. This decrease is primarily due to higher equity from earnings in 1994. Excluding financial services and leasing operations, the debt ratio also decreased to 34.1%

at December 31, 1994 compared to 49.1% at December 31, 1993.

Their main goal should be to decrease this ratio to below 30%. The growth in cash balance, along with increased inventories and receivables driven by revenue growth, led to a net working capital of $6.7 billion in 1994, compared to $4.3 billion in 1993. This enabled them to quickly seize new opportunities outside the U.S. Inventory turnover remained constant at 3.4 times in both years. The increase in operating cash flows in 1994 was mainly due to higher income.

Conclusion

Despite generating consistent revenue from long distance services, AT&T's senior management acknowledged the need for adaptation in response to market changes by transitioning from solely being a long distance company. Their strategy involved transforming into an integrated provider of communication services, products, network equipment, and computer systems.

AT;T had to withdraw from various market segments and has now refocused on its primary product, long distance. Despite considerable strategic and structural modifications, AT;T has been unable to attain a leading position in the telecommunications sector. It is now apparent that for AT;T to harness the potential growth possibilities, it must split into smaller and more specialized business divisions. Nonetheless, this long-range strategy clashes with investors' short-term anticipations as they prioritize swift returns on their investments.

The public's attitude towards AT has consistently been uncertain, but investor fickleness significantly increased in 1994. AT has now come to a stage where the benefits of its large size and extensive reach will be outweighed by the resources and efforts needed to align and merge sometimes conflicting business strategies.