Shock of the new

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Not all business strategy problems have answers, including those of BT, as Sir Christopher Bland will find when he takes over.

What should EMI have done when General Electric came into the scanner business? How could US Steel – once the world’s largest company – have maintained its dominance? How could International Business Machines have sustained its position when the focus of the computer market shifted from mainframe market to personal computers? What should railways have done when they saw the internal combustion engine?

One of the hardest things for students of business to accept is that many problems of strategy have no solution. The competitive advantages of companies are the product of a market between the capabilities of companies and their commercial, political and regulatory environment. When their environment changes, the required capabilities change. And more often than not, these capabilities will be better provided by different businesses.

When British Telecommunications was privatised in 1984, the transition to commercial freedom in a competitive market seemed a great strategic opportunity. But the question posed for BT’s management was one to which there could never be an acceptable answer. What is the role of an established telecoms monopoly in a liberalised competitive market? To pose the question is to answer it The role is to decline.

This is not a response that anyone in business will ever like. No-one in AT & T – faced with the same challenge at the same time – liked it much either. Nor does the current management of France Telecom or Deutsche Telekom welcome the prospect. And the intrinsic strength of monopoly gives these businesses resources that enable them to resist this conclusion for a long time. BT’s first idea was to become a vertically integrated telecoms provider, making equipment as well as supplying services. The next was to become a diversified supplier of services loosely related to telecoms. Better, but still not good enough.

The more recent story has been the creation of an international telecoms business through international alliances and acquisitions. It is possible that some international firms, free at last of the clutches of their local telecoms monopoly, simply want to find some other telecoms monopoly to which they can entrust their worldwide purchasing. But it would be surprising. They might prefer to take the opportunities to drive deals in a competitive market. So far the evidence is that alliances between telecoms giants have not yielded new business that would compensate for the trouble and costs of setting them up.

Unfortunately size and scale are a problem, not a benefit, in a business environment, that changes as fast as the telecoms industry. The weakness of the old telecoms monopolies is not that they are too small, but they are too big. The political skills which are key to running a state owned enterprise – and which may still be useful in a tightly regulated market – are very different from the attributes needed for success in a competitive market. BT’s management have made a decent shot at turning the company into a different kind of business. But in doing so it has no advantage, and some disadvantage, relative to other companies with no such legacy. Its disappointments in the UK have been matched by similar disappointments for AT & T, and will be matched by similar disappointments in France and Germany.

Of course, incumbent BT management has made avoidable mistakes. Their largest mistake was not strategic, but financial. When telecoms valuations lost contact with reality, BT was handing over cash for telecoms assets, when the sensible thing to do was to hand over telecoms assets for cash. The outcome for BT is the loss to its shareholders that comes from having paid more for things than they were worth. It is not a pointer to any future course of action. Except to force the conclusion which has been evident for two decades . If BT did not exist as the product of almost a century of state-owned monopoly, no-one would have invested a company structured that way.

But students hate the conclusion that problems are intrinsic to a company’s environment. And the model of the businessman as hero encourages them to resist this kind of analysis. Surely any problem can be overcome with sufficiently heroic leadership? If Sir Iain Vallance and Sir Peter Bonfield are not the knights for the job, then perhaps Sir Christopher Bland can put the enemy to flight?

But the success of medieval knights reflected their relative heroism because the rules of engagement insisted that all had the same weapons. This is not true in modern warfare, where success depends on resources and dispositions rather than leaders. Business problems are about issues, not personalities.

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