Telstra Corporation Limited’s Strategic Direction

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Introduction

Over the recent past, the business environment has become very dynamic. The changes in the business environment, have forced businesses to be more concerned with developing their strategic direction. Strategic direction refers to an organization’s strategic intent (Simons, 2000, p.45). This paper analyzes the strategic direction of Telstra by taking into account a number of issues such as the organizational tensions facing the firm and how it can confront them.

Identify and explain the strategic direction of the organization

According to Horngren, Datar, Foster, Rajan, and Ittner (2009, p.1), an organization’s strategic direction is illustrated by its vision. Strategic vision defines the organization’s purpose and direction. It also outlines the organization’s mission and goals. An organization’s strategic direction also incorporates the firm’s culture. By establishing a strong organizational vision, an organization is able to establish a link with the company’s values hence increasing the probability of achieving each of the predetermined goals. Strong vision contributes towards increased participation, enhanced communication, and employee commitment. Horngren et al (2009, p.1), further asserts that an organization’s strategic vision is critical in an organization’s effort to ensure that it is strategy-focused.

Telstra’s vision entails improving how people live and work. On the other hand, the firm’s mission entails providing its customers with diverse telecommunication technologies that are easy to operate and result in maximum customer value. The firm is also committed to serving its customers more effectively compared to its competitors. Telstra is also committed to developing a comprehensive understanding of its customers (Telstra, 2012, para. 1-3).

Telstra has also integrated a set of values in its strategic direction. The core values which guide the firm’s operations entail ensuring effective service and respect for all stakeholders and developing a high level of trust and integrity. With regard to integrity, Telstra’s management team is committed to ensuring that it operates in an ethical and honest manner. One of the ways through which the firm intends to achieve integrity in its operation is by complying with the law. Telstra’s management team is also committed to nurturing teamwork and accountability within the firm.

Telstra’s strategic direction is also well illustrated by its culture. Over the years, Telstra has developed a strong organizational culture. The firm has taken into account three main categories of culture. These include relating to being customer-driven, increasing the rate of collaboration and innovation, and the winning culture. To become customer-driven, Telstra is committed to understanding its customers’ needs, ensuring reliability, and ensuring that it offers its customers ready products, being courteous, and keeping its promises.

How strategic direction can be used in the context of the organizational tensions

Telstra is experiencing a number of tensions for example the need to balance its short-term results against its growth opportunities and long-term capabilities. Telstra has to ensure that it establishes a balance between its long term investment and short term profit demands. In order to achieve this, Telstra has diversified its operations by owning other firms which include Foxtel and HFC.

The second tension that the firm is facing arises from new legislation within the Australian telecommunication industry. The legislation requires firms to cease from being an owner and service provider. This is causing tension within Telstra with regard to its profit, growth, and control. The new legislation is limiting Telstra’s ability to attain its profit maximization objective. The new legislation requires Telstra to divest some of its investments such as Foxtel which is a major contributor to the firm’s competitive edge with regard to its sales. The legislation has made Telstra experienced a decline in its share price.

As a result of the above legislation, Telstra is facing a third tension arising from the need to balance its performance with the expectations of the various interest groups such as the shareholders, suppliers, financiers, employees, customers, and government bodies such as regulators. The continued support of Telstra by these parties is dependent on how effective it meets their expectations. For example, the firm has to ensure that it creates value for its shareholders. Failure to do this may force the shareholders to sell-off their shares. The resultant effect is that the organization may experience financial strain.

To confront these organizational tensions, Telstra’s management team has to ensure that it adheres to its strategic directions. One of the strategic directions which the firm should focus on is its vision which entails delivering a unique experience to its customers. In its operation, Telstra is committed to offering its individual and institutional customers technology solutions characterized by ‘one click, one touch, one button, one screen, and one step solutions’.

One of the ways through which Telstra can attain this is by engaging in research and development. This will lead to an increment in the range of products that the firm offers. The resultant effect is that the firm will be able to offer its customers diverse and high-quality products (Langfield-Smith, 2009, p.42). Currently, mobile phones are the main source of Telstra’s sales revenue. Therefore, in line with its strategic direction, Telstra has to ensure that it focuses on expanding its wireless spectrum when conducting its research and development. This will increase the firm’s ability to satisfy its customers.

If Telstra attains this, it will be able to deliver high value to its customers. This will culminate in the attainment of a unique customer experience hence increasing customer satisfaction. Increased customer satisfaction will translate into increased sales revenue and hence the firm’s level of profitability.

As a result of increased profitability, Telstra will be able to attain its wealth maximization objective. The resultant effect is that the firm will be able to offer its customers higher dividends. For example, during its 2010/2011 financial year, Telstra paid dividends amounting to $3.5 billion to its shareholders. Investing in research and development will enable Telstra to become more customer-focused (Ferguson, 2012, p.5).

Telstra’s organizational structure and how it seeks to focus the attention of the employees to its strategic directions

Designing an effective organizational structure is very important for the success of an organization. An organizational structure ensures that there is a free flow of material and information in addition to ensuring that the employees are focused (Simons, 2000, p.45). In its operation, Telstra has integrated a hierarchical organizational structure. The organization is headed by the Chief Executive Officer. To ensure effectiveness and efficiency in its control processes, Telstra has integrated a number of work units which are based on work processes.

The work units have significantly contributed to the firm’s effectiveness and efficiency in its operation in a number of ways such as through increased specialization, minimizing cost and avoiding time wastage as a result of switching tasks. The firm has a number of work units which include customer care department, finance department, information department, human resources, operations department, sales and services, digital media department, strategy and corporate services, research and development and marketing departments.

Through these work units, Telstra has been able to ensure that its employees become focused to the organization’s strategic direction. For example, through its human resource department, Telstra has been able to ensure that its employees are satisfied. One of the ways through which the firm attains this is by ensuring that its employees are effectively compensated. The firm has attained this by integrating an effective employee reward system which incorporates salaries and promotions.

To ensure that its employees are committed towards attainment of the firm’s strategic directions, Telstra has incorporated the concept of employee development by integrating an employee training program. This has played a significant role in improving the firm’s competitive position in addition to enhancing the level of satisfaction amongst the employees.

Considering the dynamic nature of the information and communication industry, training has enabled Telstra to enhance the effectiveness and efficiency with which its employees deal with changes occurring within the business environment. The firm’s training program has enabled the employees to attain their potential through increased employee empowerment. The resultant effect is that they employees are able to offer high quality services to the customer which is in line with its strategic direction of delivering customer value.

Delivery of quality services to the customers is also enhanced by the fact that the firm has a sales and services department which enables the firm to effectively handle diverse customer issues. On the other hand, through its information department, Telstra’s management team ensures that its employees are committed towards the organization’s strategic direction. This is attained by ensuring that the employees become customer focused (Blocher, Chen & Lin, 2008, p.34).

Reporting relationships within the organization

In an effort to establish the reporting relationship within Telstra, I evaluated the company’s organizational structure from its website which is accessible to the public. From the evaluation, I identified that Telstra operates as an interdependent entity. This has arisen from appreciation of the fact that communication plays a very important role in an organization’s success. As a result, Telstra has integrated a comprehensive internal reporting relationship.

Despite the fact that Telstra has adopted a hierarchical organizational structure, the firm has established both vertical and horizontal reporting relationships. Telstra has attained this by incorporating the concept of delegation. The firm delegates some of the management duties to the various line managers. In their horizontal communication, departmental managers are required to be accountable on different issues associated with their respective departments. To achieve this, departmental managers are required to maintain a good communication relationship with the line managers and supervisors on various issues associated with their department. This increases the effectiveness with which departmental managers attains operational efficiency.

To ensure development of an effective reporting relationship, Telstra has incorporated both a top-down and bottom-top communication process. For example, employees are required to report work-related issues to their respective supervisors who in turn report to their departmental managers. The departmental managers report directly to the Chief Executive Officer. On the other hand, the CEO communicates to the departmental managers who in turn communicate to the employees through the supervisors. The vertical and horizontal reporting relationship illustrates that the firm has adopted an effective chain of command. Additionally, the firm has been able to lower the managers’ span of control.

Performance measures

There are different ways through which Telstra measures its performance. Some of these include determining the firm’s profitability, solvency, liquidity and financial efficiency. The profitability measure is used to evaluate the extent to which the organization generates profit by utilizing the factors of production such as labor, land, capital and management. The profitability of an organization can be evaluated by determining the net revenues that an organization generates from its normal operations less the variable expenses. To ensure effectiveness in determining profitability, the accrual basis should be used. Additionally, an organization can also determine the rate of return on assets. Another profitability measure that can be integrated is the operating profit margin.

On the other hand, the liquidity measure is used to evaluate the effectiveness with which the organization meets its short term financial obligations without affecting its normal operations. One of the ways through which an organization can measure its liquidity is by calculating its current ratio. The third measure that an organization can use is determining the organization’s solvency. This measure is used to assess an organization’s ability to pay its financial obligations if all its stocks are sold. One of the solvency measures includes assessing the debt to equity.

The fourth measure that the organization uses is financial efficiency which is used to evaluate how an organization utilizes its asset to generate gross revenues. This measure is also used to assess the firm’s effectiveness in production, making financing, product pricing and purchasing decisions. Through these measures, Telstra is able to determine whether it is moving towards attainment of its strategic directions.

Financial performance measures

A company’s financial performance can be assessed using a number of measures such as operating profit, Return on Equity (ROE) and Return on Asset (ROA). Over the past few years, Telstra has experienced a mixture of strong and weak financial performance. However, the firm has managed to maintain a relatively high level of financial profitability. During its 2011 financial year, Telstra’s earnings before interest, tax and depreciation amounted to $ 4, 750 million which was an increment with a margin of 3.7% (Ferguson, 2012, p. 2).

Additionally, the firm’s ROE at averaged 25%. This has been very impressive to its shareholders because they are assured that their financial investment is effectively being utilized. Information on an organization’s return on equity can be used to show the effectiveness with which the firm can generate cash internally. However, the firm’s decision to distribute a significant proportion of its earnings to shareholders depicts a weakness with regard to re-investment and capital management.

Telstra has also managed to develop a strong return of asset. For example, during its 2011 financial year the firm’s ROA was 15.9% (Ferguson, 2012, p. 15). ROA is an important component in a firm’s strategic direction. This is due to the fact that existing and potential investors can be able to determine the effectiveness with which the organization manages its assets. This forms the basis of their financial investment decision. A high return on asset shows that the firm’s management team is very effective in utilizing its resources to generate profit. Additionally, Telstra can use its ROE and ROA to source funds externally for example by issuing shares.

On the other hand, these performance measures can also be used by the organization to seek financial resources from financial institutions such as banks. When advancing loans, financial institutions take into account organizations efficiency in managing its assets. Therefore, on the basis of its ROA and ROE, Telstra can be able to enhance its financial stability. The firm will also be able to increase its long projects such as research and development.

Having a strong ROE and ROA indicates that the firm is very effective in managing the shareholders equity and maximizing returns using the organization’s resources. This will increase the level of confidence amongst the shareholders and potential investors.

Conclusion

Formulating and adhering to a strategic direction is paramount in the success of an organization. Some of the issues which should be taken into account relate to defining the organization’s mission, vision and values. The strategic directions should be used to counter organizational tensions facing the firm. Additionally, an effective organizational structure should be incorporated so as to develop a strong working and reporting relationship.

However, a manageable span of accountability should be integrated so as to ensure that the employees are focused towards the firm’s strategic direction. The analysis also illustrates that an organization can analyze various performance measures so as to determine its efficiency in meeting its strategic directions. In case of any deviation, the management team can be able to integrate the necessary measures to counter such deviations.

Reference List

Blocher, E, Chen, K & Lin, T, 2008, Cost management: A strategic emphasis, McGraw-Hill/Irwin, London.

Ferguson, S, 2012, Telstra Corporation Limited financial resuslts for the half year. Web.

Horngren, C, Datar, G, Foster, S, Rajan, M & Ittner, C. 2009, Cost accounting: A managerial approach, Prentice Hall, Sydney.

Langfield-Smith, K, 2009, Management accounting: Information for managing and creating value, McGraw-Hill, London.

Simons, R, 2000, Performance measurement and control systems for implementing strategy: Text and cases, Prentice Hall, New York.

Telstra. 2012. About Telstra. Web.

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