strategy and strategic choice

8/7/2019 Strategy and strategic choice

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Strategy and Strategic Choice: The Case of TelecommunicationsAuthor(s): Richard J. Butler and Mick CarneySource: Strategic Management Journal, Vol. 7, No. 2 (Mar. - Apr., 1986), pp. 161-177Published by: John Wiley & SonsStable URL: http://www.jstor.org/stable/2486164 .Accessed: 09/02/2011 17:45

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Strategic Managenment Journal, Vol. 7, 161-177 (1986)

Strategy and Strategic Choice: The Caseof TelecommunicationsRICHARD J. BUTLEROrganizational Analysis Research Unit, University of BradfordManagement Centre, Bradford, U.K.

MICK CARNEYDepartment of Management, Concordia University, Montreal,Quebec, Canada.

SummaryThis paper outlines a miiodel f organizational strategy that takes intoaccount both the task ambiguity and concentration of theenvironmiient. A com1petitive trategy, in the sense as used in classicaleconomics, is most suitable with low task amnbiguity andconcentration. When task ambiguity increases a shift to aninnovative strategy can be expected. When concentration is highconsolidative and cooperative strategies with respectively low andhigh ambiguity can be expected. These latter two strategies, inparticular, tend to imnpose nstitutional and regulatory constraintsupon firns, an aspect that is seriously neglected in the conventionalbusiness policy and strategic management literature. This model isillustrated using the case of the British telecomnmnunications ndustrywhich has recently been subject to consider-able r-egulatory andtechnical change. Imtiplications or mianagenment re that strategyshould be mtiatched o environmziental onditions as defined by taskambigutity and concentration. However, these dimiiensions are notfixed but enacted by firms in a particular industry. Implications forgovernmnent re that a mnoe contingent approach to regutlation anidde-regulation needs to be considered.

INTRODUCTION

Many writers on organization and business policy have emphasized the importance of non-

economic goals and the necessity of managing relationships with government or otherinstitutions. Yet the theories and prescriptions of business policy and strategic managementpresented hardly reflect these non-economic goals. Pre-eminence is given to the finding ofmarkets based upon a rational economic model of the kinds of strategies that organizationspursue.

That nationalized corporations, or social service organizations, pursue non-economicgoals is generally accepted but large business corporations also have to be concerned aboutgovernment policies as regards, for instance, exchange rates, tariffs, regional developmentgrants for technical development and so forth. Even small or medium-sized business areinfluenced by these kinds of developments and, furthermore, may often have to exist in an

industry alongside directly state-controlled corporations; if government does not impactdirectly upon them it can affect the behaviour of a nationalized giant upon whom they relyfor custom or supplies. This we see very clearly in the telecommunications industry asdescribed below.

oi143-2095/86/020161-1 $08.50 Received 22 October 1984?C1986by John Wiley & Sons, Ltd. Revised 4 M>arch 1985


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162 R. J. Butler and M. Carney

In part the 'crises of capitalism' thesis pointed to by a number of sociologists(Braverman, 1974; Baran and Sweezey, 1968) can be seen as the inadequacy of pureeconomic measures for the performance of modern business corporations. The use of profitand price as simple measures of performance must rely upon the operation of efficient

market places with low interdependence between firms; as soon as firms become intertwinedin a complex web of exchanges of products, components and information; and as marketconcentration increases, economic measures have to be supplemented by normativemeasures (Butler, 1983).

This paper aims, first, to establish a general model for the understanding of strategicaction taken by organizations. The model is quite general, allows us to consider theconditions under which particular strategies may be followed and the kinds of choicesavailable, and is applicable to all kinds of purposive organizations. Second, the model isillustrated through the developments taking place in the British telecommunicationsindustry.

WHAT IS STRATEGY?

A strategy may be defined as a course of organized action. This rather pithy definitioncontains all the necessary ingredients to develop dimensions of strategy which emphasizeaction in an environment.

At first sight this definition of strategy is at variance with well-established definitions inbtusiness policy. For example, Hofer and Schendel (1978:25) carry out an extensive survey ofthe various uses to which the term strategy is put, and derive their own definition:'fundamental pattern of present and planned resource deployments and environmental

interactions that indicates how the organization will achieve its objectives'. Hofer andSchendel tend to emphasize strategy as a means to an end rather than what the end is.Further, they view ends (objectives) as defined and measurable, which may fit theconstraints of manufacturing firms but does not fit the much wider sample of organizationsof interest here. Nevertheless, as we go on to consider the dimensions of strategy, we will seethat these can contain the essential ingredients of strategy proposed by writers such as Hoferand Schendel.

Other authors in the business policy area do not make this distinction between strategyand objectives, for example Chandler and Ansoff. For Chandler, strategy is the:'determination of the basic long term goals and objectives of the enterprise' (1962:13), and

the 'Decision to expand the volume of activities to set up distinct plants and offices . . .involve the defining of new basic goals.'An unusual view of the strategy of an organization taken by Mintzberg is to see it as a

'pattern in a stream of decisions'. This accentuates strategy formulation as an ad-hocmuddling-through kind of activity, which it undoubtedly is in many organizations.Mintzberg's definition, however, is post-facto; one can only determine the strategy after ithas happened, which removes that purposive aspect of strategy seen as an organized courseof action.

The concept of organizational strategy is undeveloped in the literature. Business policyand strategic management authors (e.g. Ansoff, 1968; Hofer and Schendel, 1978; Glueck,

1980) have tended to emphasize how organizations, and business firms in particular, canexpand this choice. The emphasis is to provide rules for effective strategy with stress uponthe use of search methods and the pedagogy of the case teaching method.

From a more sociological angle organizational analysts have emphasized dimensions or


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Strategy and Strategic Choice 163

variables which may be used to describe the strategy across many types of organization, notjust business firms. Miles (1980, Ch. 10) gives an excellent review of the dimensionsproposed by many of these authors.

Thompson (1967: 25-38), in his book Organizations in Action, has gone beyond the

presumptions of the business policy authors. In the space of a few pages he has presented anoutline of the conditions under which an organization might choose a particular strategy.We attempt to develop these ideas by allying them to our general theme and to some ideaspresented by other authors from organizational analysis and business policy. At this stagethis must be an incomplete attempt, but at least it serves to pinpoint an aspect of the theoryof organization which must attract further attention.

THE ENVIRONMENT OF ORGANIZATIONS

An organization has to negotiate (Pfeffer and Salancik, 1978) or navigate (Bourgeois andAstley, 1979) between often conflicting demands and expectations of powerful elements inits environment upon which it is dependent. These elements may be called suipporters:typically they are customers, suppliers, government agencies who provide finance or otherkinds of support, banks, financial institutions, and so forth.

There is another important category of environmental elements who are trying to attractthe attention of the same set of supporters. An organization is not directly dependent uponthese elements but must take cognizance of their existence. These elements may be calledcompetitors: typically they are recognized as such as regards business organizations, butnon-business organizations also compete for a pool of support alongside otherorganizations.

Together supporters and competitors form the task environment for an organization.Exchanges have to be made directly with some supporters, as when a firm sells a product toa customer, the proceeds of which allow supplies to be bought; or indirectly, as when avoluntary organization collects contributions from donors to be later distributed to clientreceivers; although different rules govern this kind of exchange than govern marketexchanges (Butler, 1983), an exchange of some kind is eventually made in the environment.During these exchanges the competitors act as reference groups (Festinger, 1954) to whichthe performance of a focal organization may be compared by supporters. If a supportingelement realizes that its expectations can be better realized elsewhere through a competitor,then it may exit (Hirschman, 1970) to that competitor.

Supporters have certain expectations as to the performance of an organization; many ofthese expectations may be expressed as economic measures but others can take a morenormative aspect. An organization may be pulled in one direction by one set of expectationsand pulled in another by a different set, as we see when a nationalized corporation is told bygovernment to make a profit, but whose customers expect a social service. Overall, then, anorganization must satisfy sufficient of these expectations of powerful elements to achieve adomain consensus (Thompson, 1967). Without this sufficient consensus an organizationcannot survive.

THE CONCENTRATION OF SUPPORT AND COMPETITION

Four limiting conditions may now be identified arising from the density or concentration ofcompetitors and supporters. As shown in Figure 1, a focal organization is strong in relation


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SupportersFew Many

Few Oligopoly (bilateral) Monopoly(equal, strong) (strong)

CompetitorsOligopsony Competition (perfect)

Many (weak) (equal, weak)

Figure 1. The strength of a focal organization in relation to itssupporters

to its supporters when there are many supporters and few competitors; in economics this iscalled a monopoly.

The weakest position for a focal organization is found when it has few supporters andmany competitors; this is an oligopsony when applied to economic organizations as foundwhen a manufacturer of components is highly dependent upon one large corporation to takeits output. Equal power can be obtained with few supporters and few competitors (equaland strong), a bilateral oligopoly, or with many supporters and many competitors (equaland weak,) perfect competition.

Although the terms applicable to economic organizations have been used in Figure 1,these conditions will be found in other kinds of organizations. For example, some voluntaryorganizations gather support from a wide range of organizations, whereas others may behighly dependent upon a single supporter; the manufacturer who supplies to one very large

customer is in this category.Both dimensions of Figure 1 may be seen as variables of concentration of supporters andof competitors. Again, economists have developed measures of this concept and, again, theprinciple can be applied to non-economic organizations. Generally, a concentrated marketis one in which production is in the hands of perhaps two or three producers of equal size orof one dominant producer. Concentration can also occur, likewise, on the demand side.Supporter and competitor concentration are, then, vital aspects of the strength anorganization has in relation to its task environment.

Regulators and institutions

To see the environment of an organization in terms of only the population of supportersand competitors is still only a partial view of that environment. We also need to understandhow these elements come to be there and what governs their relationships; we need tounderstand the making and the enforcement of the rules of the game governing thepopulation of organizations in the domain.

Two further aspects of the environment of organizations need to be considered. First isthe general culture within which an organization operates. This includes the generalideology and dominant values of a host society; the state of knowledge in that society, animportant aspect of which in Western industrial societies is the scientific community; andthe political institutions that are the essential value-mediating and rule-setting institutions.

Any organization has to operate within the values and rules set by these institutions; forinstance the profit-seeking firm derives its right to pursue profit in a capitalist societythrough the acceptance of profit as value and enforcement of property rights.

Second, the regulatory environment consisting of those regulators whose purpose is to


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enforce these rules needs to be considered. Government may create regulatory agencies toenforce laws about monopolies, pollution, safety standards, the operation of charities andso forth. There can also be non-governmental regulators such as professional associations,trade unions or industry associations. The nature and manner of operation of these agenciesbecome apparent later.

Dimension of task environmentHaving developed a model or image of the environment of an organization, we can nowidentify the two dimensions of the task environment which can be seen as most important inthe working out of an organization's strategy and which capture the essence of the variousdimensions discussed by many authors. The two dimensions are: concentration versusdispersion of competitors and supporters, and ambiguity of task knowledge. Thesedimensions may be applied to an industry or to an organization's task environment.

Concentration-dispersionInitially we focus upon the concentration of competitors. As we have seen above, a highlyconcentrated task environment is found when the output of an industry is concentrated inthe hands of a few producers as opposed to being dispersed amongst many.

Examples of concentrated industries are steel and aerospace manufacturing, andeducation and water amongst service industries. Examples of dispersed industries aretextiles and electronics.

A number of exogenous factors deriving from the general cultural and regulatoryenvironments can create concentration. Technological scale and indivisibility make itdifficult for new organizations to enter an industry and more efficient for operations to bemade big. Regulatory factors,

giving a monopoly, preferential treatment or prohibitingcompetitors, can also increase concentration. Conversely, changes in technology and inregulations, such as through government programmes of privatization, can reduceconcentration and lead to a more dispersed industry structure.

The state often steps in to control concentrated industries in an attempt to make themmore accountable to supporters. Alternatively, the state can be the creator of concentrationthrough nationalization. A subsidiary organization which is highly dependent upon anowning group also experiences a concentrated task environment.

Ambiguity of task knowledge

A number of authors have pointed to the importance of task knowledge (Hage, 1981; Burnsand Stalker, 1961). Any purposive organization displays some degree of expertise which isincorporated into the goods and services sold or exchanged in the task environment. Fromthe viewpoint of how well that organization can adapt to its environment, the extent towhich it has superior knowledge in relation to its competitors is vital. From the viewpoint ofan industry, we can consider the extent to which there is a lack of clarity, or ambiguity ofends/means relationships as regards the knowledge used in producing goods and services.We can think of industries where ambiguity is high, such as aerospace manufacturing andhigher education, and where it is low, such as water and textiles.

Task knowledge can become more ambiguous as a result of scientific development

emanating from the cultural environment. Development of the microcomputer and opticalfibres are examples in the telecommunications industry. Similarly, maturing technologiescan become routinized and less ambiguous. Four industry conditions can be seen below inFigure 2.


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ConcentrationHigh Low

High Aerospace ElectronicsEducation

Ambiguity

SteelLow Water Textiles

Figure 2. Industries and their characteristics

The industryTo this point we have used the term industry without defining it. As with the variable ofconcentration, the notion of industry has been extensively used and discussed byeconomists, but here these ideas are used in a more general and dynamic way.

Generally, an industry defines the population of organizations in the task environmentand may be seen as a set of competitors with an associated task knowledge. The members ofan industry, therefore, share a common concern over the means to reach an end. Thesupporters, especially if they are viewed as customers and suppliers, are not generallymembers of the industry, although if they also are competitors then they will be members.Often, for instance, a firm may supply another firm with components but also be acompetitor.

We can also see that the assignment of whole industries to single cells in Figure 2 is a grossapproximation since different sectors of an industry may be in different cells. For instance,university higher education can be seen as ambiguous whereas vocational training is routineand specific in its clarity of ends/means knowledge.

Further, we can also see that Figure 2 is useful for tracing out changes in an industry.Particular sectors in aerospace may, say following government privatization programmes,become less concentrated but remain ambiguous.

STRATEGIES

Much has been written on strategy, and some limitations of this literature have already beenpointed to. We are now, however, in a position to consider the conditions under whichvarious strategies might be pursued.

Institutional and task strategiesOne distinction of importance is between organizations that pursue task goals, or whatRhenman (1973) calls strategic goals, and those which pursue institutional goals, or asFigure 3 shows, a combination of both.

Task goalsNo Yes

Institutional No Entrepreneurial Corporations

goals Yes Subsidiary Institutions

Figure 3. Institutional, task goals and organizational types


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We adapt Rhenman's argument and point to organizations that have no task orinstitutional goals as entrepreneurial; entrepreneurship is based upon the opportunity of'time and place' (Hayek, 1945) and does not involve either long-term planning or concernswith the management of the institutional environment. At the opposite extreme are those

organizations, the BBC would be an example, which have long-term plans concerning task(the kinds of programmes and so forth) and which also have to pay considerable attentionto institutions and regulators. As the BBC is highly dependent upon government regulationspermitting the raising of revenue and controlling the number of competitors, considerableattention must be given to institutional goals.

Subsidiary organizations are those for which task goals are secondary to institutionalgoals since the major problem in managing the environment is to fulfil headquartersexpectations: typically a manufacturing subsiduary is expected to be a primary source ofraw material for the parent company. Corporations are those organizations which plan taskgoals but are relatively unconcerned with institutional goals. Typically, these are medium-

sized firms operating in fairly unconcentrated environments; they are firms which have notyet become institutions.The significance of Rhenman's analysis is that we can identify the extent to which the task

or institutional environments are targets for strategic action. Within that broad framework,four broad types of strategy can be identified which subsume a variety of particularstrategies mentioned by other authors (Glueck, 1980; Hofer and Schendel, 1978). The fourstrategies are competition, innovation, cooperation and consolidation.

The general principle behind each strategy is that an organization will try to manageinterdependence with environmental elements by reducing or controlling dependence uponthose elements. The general logic of strategy is to acquire power (Thompson, 1967) over the

environment.These four strategies may be seen as belonging to particular combinations of taskknowledge and industry concentration (Figure 4).

CompetitionThe thrust of a competitive strategy is to use pricing and internal operating efficiency toundermine competitors' ability to obtain resources from supporters. This is a strategyparticularly appropriate for low competitor concentration and low ambiguity of taskknowledge. Cost-cutting and price competition correspond with the theory of the firm in theclassical economics theory of perfect competition.

Organizations constrained by such market conditions will tend to be of theentrepreneurial type mentioned above and will generally not have goals in the institutionalenvironment. Sometimes we can see entrepreneurial activity as breaking regulations. In thiscell the incentive is greatest for regulation-breaking; Staw and Szwajkowski (1975) have

Competitor concentrationHigh Low

Task High Cooperation Innovation

ambiguity Low Consolidation Competition

Figure 4. Types of strategies


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shown how firms in scare environments, that is those with many competitors and fewsupporters in our terms, tend to break regulations. More typical is the simple expedient ofignoring regulations as the chance of detection among dispersed competitors is low (Pfefferand Salancik, 1978). It is also in this condition that a great deal of the black economy takesplace.

We see the competitive strategy as having a proactive time and place flavour to italthough others have stressed its reactive qualities. For instance, Miles and Snow's (1978)non-planning type of organization is called a reactor. Similarly, the behaviour of thepopulation in random-placid environments (Emery and Trist, 1965) are viewed asorganizations for whom 'the optimal strategy' is the simple tactic of attempting to do one'sbest on a purely local basis.

CooperationA cooperative strategy is diametrically opposed to the competitive and is suitable forconditions of high concentration and high task ambiguity. The main problem for anorganization in this condition is to ensure a supply of supporters and avoid the entrance ofcompetitors. As the organization is weak in its ability to control critical dependencies it can,however, use task ambiguity as a base of power, rather in the manner that coping withuncertainty may be used as a source of intra-organizational power (Hickson et al., 1971;Hinings et al., 1974). As Thompson (1967: 35) points out, cooperative strategies achievepower through the exchange of commitments, and hence the reduction of potentialuncertainties for both parties.

Joint ventures are one way of making these commitments. Each organization will bringspecial task knowledge and resources which the other does not possess. A joint venture maybe surrounded by a considerable legal contract trying to specify contingencies. As taskknowledge, however, gets more ambiguous the resort to litigation to settle disputes becomesincreasingly cumbersome (Butler and Carney, 1983) and the relationship has to rest upongood faith and trust. Tacit agreements are based upon mutual trust and may be used tohedge the more formal contracting of joint ventures, to control competition, or to ensurecontinuity of custom or supply. Both joint ventures and tacit agreements are appropriatebetween organizations of equal power; that is, when competitor and supporterconcentration is high. Because of the greater formality of joint ventures, task knowledgewill tend to be less ambiguous although not sufficiently so to make a joint venture as part ofa consolidation strategy.

Coopting absorbs environmental elements into the management of an organization. AsThompson points, out, it is essentially a strategy of the weak since it also constrains theactions of an organization. Hence, we might expect to see coopting when there is supporterconcentration and competitor dispersion.

Generally, the cooperative strategy is particularly useful for organizations embarking ona project in a technologically ambiguous and concentrated environment as it can bringtogether a variety of 'core skills' or 'distinctive competences'. The case of Project Mercury,described below, shows how a consortium composed of very different organizations mayenter a domain commonly considered a natural monopoly.

ConsolidationWhen competitor concentration is high but task ambiguity is low we would expect to seeconsolidative strategies pursued. This is the strategy of an organization that operates anessentially routine technology and enjoys a monopoly.


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The first aspect of its strategy will be defence of the existing domain in order to preventcompetitors entering. This is similar to the notion of a defender organization (Miles andSnow, 1978) which has a rather myopic internal orientation. In contrast we wish to drawattention to the strategy's environmental management features. Defence can be achievedthrough institution-building, that is, by legitimizing the monopoly or near-monopoly withinthe institutional environment. Considerable public relations and political activity will berequired to achieve this. Another approach may be to capture regulatory agencies to ensurethat rules of the game are enforced in a favourable way. This will usually be used inconjunction with institution-building.

Institution-building and capture of regulatory agencies are strategies particularlyavailable to publicly owned organizations since public ownership gives them access to thecorridors of political and regulatory power. Private business corporations have to be morecircumspect in dealing with these aspects of their environments although, as Dunkerley,Spybey and Thrasher (1981) have argued, large multi-national corporations are notnecessarily powerless over governments.

Another type of consolidative strategy is integration. Integration may be vertical, as whena firm acquires or merges with a supplier or contractor, or horizontal if there is a mergerwith a competitor. Formulation is a consolidative strategy that falls short of completeintegration and is seen, for instance, whenever a focal organization closely formulatesstandards for suppliers which tend to tie that supplier in with a particular organization. Wesee this when Marks and Spencer closely specifies the manufacturing methods for itssuppliers or, as we shall see, British Telecom (BT) unnecessarily specifies high engineeringstandards for its suppliers. Formulation of standards in this way creates a barrier to entryfor competitors and links in supporters to the focal organization.

InnovationWhen an organization operates in a task environment of low concentration but of high taskambiguity it will tend to pursue an innovative strategy. In that an organization tries to gainan advantage over competitors, innovation is similar to competition; but the strategy issimilar to cooperation in that superior task knowledge, through product or servicedifferentiation, results in concentration of competitors. Any consequent monopoly,however, is expected to be temporary until competitors re-enter the market emulating orimproving upon the innovation.

Innovation, therefore, leads to differentiation and diversification. This strategy is likely

to be particularly dynamic. Because competitors are dispersed any one organization canonly proceed with innovation incrementally. Innovation involves internal expenditureswhich are related to an uncertain future benefit. Organizations in this sector of an industrycannot usually find the resources for large-scale innovation without moving to a cooperativestrategy. Hence, in telecommunications we see the development of joint ventures for riskylarge-scale research and development.

Alternatively, an organization can routinize its technology and move towards thecompetitive strategy with its concern for operating efficiency and price advantage. Adiversified organization will hedge risks by balancing the cash-hungry 'star' projectsinvolving high ambiguous task knowledge, against the more cautious incremental

development of maturing 'cash cow' products, where the production process has beenthoroughly learned but market growth is low. The cash-hungry projects may be financedinternally by cash cows or externally through joint ventures. Joint ventures may also berequired to develop the requisite task knowledge.


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Innovation may be pursued by acquisition, by which means an organization buys itselfinto new products or services, but this is expensive and only likely to be carried out bystrong organizations. Thompson has pointed to prestige-seeking as a cheap method ofgaining power over the task environment. This strategy enables an organization todifferentiate itself from competitors so that supporters see some distinct advantage indealing with a prestigious organization. Such advantages would accrue if the supporter isable to use the reputation of an organization as an economical way of assessing its work. Itis under conditions of high task ambiguity that supporters find it particularly difficult toassess the performance of an organization, since this is when information is asymmetricallydistributed (Williamson, 1975). Prestige provides a kind of shorthand whereby supporterscan carry out such assessments. Figure 5 summarizes the strategies.

ConcentrationHigh Low

Cooper-ation InnovationJoint ventures DifferentiationHigh Tacit agreements Diversification

Coopting Acquisition

Task Prestige seekingambiguity

Consolidation ComlpetitionInstitution-building Efficiency

Low Capturing regulators ExtensionFormulationIntegration

Figure 5. The practice of strategies

THE TELECOMMUNICATIONS INDUSTRY

The British telecommunications industry is particularly appropriate to illustrate the modelof strategy outlined since all four kinds of strategy can be seen in operation. It is alsopossible to see how the structure of the industry has changed under conditions of changingtechnology and deregulation.

MethodData have been collected from three main sources for this study. First are publishedgovernment and industry statistics; second are trade journals and newspapers discussingdevelopments in the industry; finally personal interviews and mail questionnaire responsesto executives in telecommunication, manufacturers, retailers, and service organizations.

The methodology does not follow the traditional hypothesis-data collection-analysisapproach due to the nature of the industry under examination. The pace of changingtechnology and the added uncertainty brought to the industry by de-regulation has created asecretive atmosphere among many executives. For this reason the research relies upon anapproach best described as 'inductive-detective work' which is:

the tracking down of patterns [and] consistencies. One searches through aphenomenon looking for order, following one lead to another. But the processitself is not neat (Mintzberg, 1979: 584).


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Miles (1980) employed a similar approach to good effect in a study of the strategies of U.S.tobacco companies.

Background to the events: concentration and low ambiguityIn the U.K. the telephone industry had for a long time been run by the General Post Office(GPO), and had thereby virtually enjoyed the same monopoly accorded by government tothe letter side of the business. The separation by the Labour government in 1978 of the GPOinto two corporations, one to remain as the Post Office, the other to become BT (BritishTelecom) introduced the notion that telecommunications could be run on more businesslines than the letter and parcel business. Separation formally broke the idea that the twooperations had much in common, either technologically or in terms of the kinds ofregulation that should be applied to them.

The telecommunication industry, however, remained highly concentrated with BTcontinuing to run all but the telephone system of one city, Hull, and the supplies to BTremaining in the hands of three firms operating under conditions of highly managedcompetition; in effect, a cartel. These companies were Plessey, General Electric (GEC) andStandard Telephone and Cables (STC) a subsidiary of IT&T accounting for approximately40, 40 and 20 per cent respectively of supplies in the industry.

In many respects by the mid-1960s the industry had ceased to be an industry of hightechnical ambiguity. Although the introduction of radio short waves, satellites and newexchanges gave rise to some degree of technical change, technology had become essentiallyroutinized and well understood.

Technical and regulatory changesTwo major changes occurred in the industry which have created a dramatic upheaval of thestatus quo. First are changes in the technology of communications.

New ways of transmitting messages over long distances came into being giving five maintechnologies: by copper wire, coaxial cables, microwaves between towers, satellites and,most recently, optical fibres. BT has shown itself as remarkably adept at keeping the firstfour of these under its tutelage, mainly through the help of regulations making it difficultfor competitors to enter. Optic fibres, however, are being utilized by other organizations, inparticular Project Mercury, discussed below.

Other technical changes have also occurred which BT has found difficult to control. Inparticular, computer manufacturers have become increasingly interested in the linking ofinternal information systems over long distances. The net effect of these technical changes isto increase task ambiguity in certain sectors of the industry.

The second type of change arises from the policy of de-regulation pursued by theConservative government elected in 1979. In general, this policy makes it more difficult forBT to prevent the attachment of peripherals to the network which are not marketed by BT,and makes it easier for other firms to enter the industry, or at least to break down cartelsand implicit agreements between existing firms. The net effect of these regulatory changes isto decrease concentration in certain sectors of the industry.

Industry sectorsA number of sectors in the telecommunications industry can be identified:

1. The BT common carrier network which has always been seen as a natural monopolyand is still very central to the industry. This is the network which all telephone usersmust use for connection to other users.


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2. Low-value peripherals such as telephone-answering machines which plug into thenetwork.

3. Common carrier network equipment involves manufacturing and marketing ofwires, switches and other equipment for the common carrier.

4. High-value peripherals also plug into the BT network but have a greater taskambiguity, such as PABX switchboards.

5. Value-added network services (VANS): these are services or devices that addspecialized equipment or condition the wires to provide non-voice services, such ashigh-speed facsimile capability, which an operator then sells.

6. Hybrids: this is especially a sector where high-technology developments occur,usually involving a combination of communications media. An example is cellularradio, a network of radio stations so that radio telephones can be used in vehicles,eliminating constant retuning as the vehicles move out of range of one station intoanother.

Sectors 1-3 generally involve relatively well-understood non-ambiguous technology. Theother sectors provide considerable scope for technological ambiguity. The sectors consist oforganizations which are linked together within and across sectors.

Consolidative strategiesUp until the impact of recent technical and regulatory changes we would have to describethe industry as dominated by firms in the consolidated category of Figure 5. BT, previouslythe Post Office, was seen as a natural monopoly, meaning that technological barriers toentry and the desire to see telephones partly as a social service required the maintenance of a

monopoly. In this respect BT was seen as comparable to, say, railways.In spite of the technological and regulatory changes we would still have to accept thatmost of the industry is still in this cell; for instance BT still takes 74 per cent of the output ofall U.K. suppliers. We are therefore describing a trend towards the other three strategieswhich, if continued, would alter the structure of the industry.

We see in BT a strategy which stresses the social aspects of their work; the need to providetelephones to old age pensioners and to remote rural areas, and consequently there is cross-subsidization, particularly from business to domestic use, and from urban to rural use. Thisis part of the process of institution-building.

In their stance towards suppliers, BT has consistently laid down stringent technical

standards (formulation) and at the same time gained a considerable stranglehold over oneregulatory agency, the British Standards Institute. Manufacturers have to meet thesestringent standards but BT and the three dominant suppliers have a considerable hand informulating these standards; the manufacturers obviously have an interest in settingstandards, making it difficult for new entrants, and BT appears to have accepted this as atrade-off since a smaller number of manufacturers makes it easier for them to keepconcentration in the industry high.

This rather cosy arrangement (a cartel called the telephone ring) has recently been upsetby BT under government pressure, insisting upon a greater degree of competitive biddingfor contracts (Financial Times, 13 February 1982). This can be seen as BT wanting the best

of both worlds-that is maintaining few competitors but increasing the number ofsupporters. The evidence, however, is that this strategy is self-defeating to BT sincesuppliers, which have previously enjoyed this cosy relationship with one big customer, arenow forced to seek other customers.


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For example, the manufacturer most dependent upon BT in terms of sales and profitshas, since de-regulation, been most active in attempting to penetrate foreign markets.Another has pulled out of the System X switch consortium. The manufacturer leastdependent upon BT has been least active in seeking new customers for its

telecommunicationsproducts.

Competitive strategiesIn the competitive sector of the industry we see the low-value peripheral (e.g. telephones,answering machines) and common network suppliers (e.g. cables, testing equipment). Thetechnology is essentially clearly defined and routine. While de-regulation has undoubtedlymade it easier for suppliers to sell low-value peripherals, the significant feature of this sectoris the extent to which regulations were ignored and the reaction of BT, who supply thenetwork, to this.

BT undoubtedly adopted an obstructive attitude towards the idea of allowing other

suppliers to provide telephones, as shown by a number of press reports(e.g. The Times, 14November 1982; Economist, 5 February 1983); this was akin in Britain to the stateelectricity boards insisting not only that they supply one's washing machine, but that theyalso own it. While the manufacturers of telephones were British, BT could exercise leverageover them to prevent them selling low-value peripherals other than to BT. The growth ofoverseas telecommunications industries, however, took this means of control away from BTand peripherals came into Britain to be sold through a number of retail outlets. The sellingof these attachments was not illegal, but the fitting of them was. Difficulty of monitoringmade the only tactic available to BT as that of obstruction. This can be seen in BT's attitudetowards the Independent Telephone Suppliers Association (ITSA), the industry association

of the importers, manufacturers and suppliers of this peripheral equipment: at an exhibitionITSA did not receive its telephone from BT until the exhibition was nearly over (Campaign,21 August 1981).

Cordless telephones provide one example of how BT's attempt to maintain itsconsolidative strategy led to importation of illegal devices and their slow introduction in theU.K. The cordless telephone was quite well established in a number of other countries, forexample the U.S. and Italy, and their manufacture well understood. By setting stringentstandards and making it difficult for people to fit them, cordless telephones made a slowstart in the U.K.

A number of aspects of the strategies of firms in the competitive sector may be seen from

our data:

1. Obtain supplies mainly from overseas. Hence, the firms selling low-value peripheralsare generally importers and retailers, and not manufacturers.

2. Ignore BT's rules about peripherals.3. Circumvent BT's attempt to restrict attachment of peripherals by the use of specialist

sockets.4. Form a pressure group to get regulations changed (ITSA). In this respect firms in this

sector do exhibit some institutional goals, but from the viewpoint of the firm it is nota dominant part of their strategy. The essential mode is that of entrepreneurship.

5. Extend or diversify into other 'respectable' markets; for example, telephones for onelarge supplier in this sector are only a small part of their business. The major part oftheir business is in photography, an industry well outside the range of BT's interestsand hence the firm is not susceptible to BT's pressure.


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Table 1. Task environment strategy in low-valueperipherals

Strategy Organizations

Competitive pricing 7'Niche' identification 3Service orientation 2

12

More specifically the results of a mail questionnaire (Carney, 1984) returned from 12 firmsin this sector can be analysed as shown in Table 1. Senior managers in these firms wereasked to rank the kinds of strategies their firms pursued.Although the numbers are smallthis represented 25 per cent of the companies in that sector of the industry in 1983. We cansee that the dominant strategy is that of competitive pricing.

Firms in the competitive sector are weak in relation to the institutional environment. Asimporters or manufacturers of routine technology products they do not pursue the goals ofdominant institutions: for instance, the Department of Industry is interested in thedevelopment of high-technology industries and employment creation, and these profit-seeking firms are not visibly helping either of these objectives. Moreover, BT has used itsnear-monopsonic procurement power to induce the most vital new entrants into its ownsphere of control. From this weak power base firms in the competitive sector are in a poorposition to influence the institutional rule-making process.

Innovative strategies

As technical change has increased and industry concentration decreased, a number ofcompanies have increasingly displayed an innovative type of strategy. Typical of the stillsmall but increasing number of companies in the cell of Figure 5 is the Canadian company,Mitel. This small company has now become a major force in the British telecommunicationsindustry. A number of features of the behaviour of this company in gaining a foothold inthe U.K. market typify the innovative strategy.

First, there obviously must be a high degree of technical activity in the company to createinnovation. But research and development is not of a long-term nature; it must give quickpay-off, perhaps based upon exploitation of a single product or component. We see thisemphasis in Mitel through development of a digital PABX. Secondly, ambiguous products

are used as 'cash cows' to fuel innovation. Mitel quite clearly followed a policy ofdiversification, balancing the riskier high-technology products against cash-producingestablished products. Diversification nevertheless takes place around a common knowledgebase.

Further, innovation by means of internal R&D may be short-circuited by acquisition tospeed the process up. In 1976 Mitel acquired an integrated circuit manufacturer in Quebecfor this purpose. Internationalization is a means of reducing supporter concentration andhence the move into the British market. The management of this process was critical to thestrategy since the Canadian market is small. Mitel was already used to operating in the U.S.

Initially, Mitel came into the U.K. flying a free enterprise flag and did not sell to BT.

Vigorous use was made of available government grants. To spread their risks they quicklydiversified and started selling to BT since they were not sure how long de-regulation wouldtake. This caused disappointment to existing companies following the free enterprise flagand members of ITSA. Mitel, however, hedged their bets and also joined ITSA.


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The innovative strategy is the most complex of all to follow, since the environment iscomplex. When technology is changing fast, movements between competitors andsupporters are difficult to track. Innovation has to be fuelled by cash. Unless a companycan successfully diversify into a spread of technologies of differing maturities, there arepressures to routinize and follow the competitive type of strategy already outlined, or tomove to a more comfortable cooperative strategy. Recently Mitel announced a loss for thesecond consecutive quarter. This was attributed to delivery delays due to technical andproduction problems with their latest PABX (Globe and Mail, 8 October 1983). Mitel'simmediate response was to seek development aid from the Canadian government. However,in the longer term, Mitel's next generation of PABXs will largely be a product of a jointventure with IBM. According to Cornwell (1982), a pattern of joint ventures amonginnovative telecommunications manufacturers will be a significant feature of this decade.

Cooperative strategies

We see cooperation as a means of coping with task ambiguity, and industry concentration isseen in two projects in British telecommunications. First is the System X consortium ofSTC, Plessey and GEC. This joint venture's purpose was to develop a new large-scalecentral digital switchgear system for use by BT. These companies, as we have seen,previously cooperated on the 'telephone ring', although BT's policy of competitive biddingbroke this. This project was bedevilled by lack of trust between the companies as aconsequence; in particular Plessey and GEC did not trust STC.

Distrust particularly arose out of handling export orders. System X was intended to makea mark in the world markets and the companies undertook to sell in particular parts of theworld. At the same time, Swedish and French companies had also designed systems; the less

sophisticated but more adaptable Swedish design in particular was destined to be successful.System X failed to capture any significant overseas orders and BT is now planning to buythe Swedish system.

Project Mercury is the other joint venture illustrating the use of cooperative strategies.This venture has been set up between Barclays Merchant Bank, British Petroleum (BP) andCable and Wireless. Here we might see a more successful formula for a joint venture, witheach initially providing a distinctive competence rather than being potential rivals; the aimwas that Barclays would provide the necessary cash, BP the experience of dealing withgovernment and regulatory agencies (very important in this kind of project) and Cable andWireless the technical expertise, although Barclays and BP eventually dropped out of the

consortium.Mercury is to provide an alternative optical fibre network to BT which would be ofespecial interest to business users: it is not intended for domestic users since the capacity totransmit a high volume of information is not demanded. Optic fibres are potentiallysuperior to coaxial cable for transmitting information because light waves are of a very highfrequency and hence more information can be crowded into a single channel. Of particularimportance to the success of this project will be the cooperation of British Rail, who areexpected to provide the all-important wayleave for much of the fibre cables.

To date, Project Mercury has faced a number of obstacles including technical problems,BT and trade union resistance. However, they have gained favour in the institutional

environment; the president of Project Mercury frequently stresses the high-technologynature of the project and also how it will act as a 'pull-through' for other high-technologydevelopments.

In sum, we can see that the telecommunications industry as a whole is moving from a


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situation of being a relatively low task knowledge/high concentration industry (cell 2) tobeing a high task knowledge/low concentration industry (cell 3). The industry as a whole isbecoming even more fragmented as certain sector technologies mature rapidly andefficiency considerations become paramount. At the same time, other sectors will becomereconcentrated (cell 4) as task knowledge remains high, sustained innovation becomesincreasingly expensive and differential learning allows companies to increase and maintainmarket share (Hage, 1981). Figure 6 displays this process graphically.

3 L EL 4 High

Taskambiguity

1 q 0 2 Low

Low HighConcentrat ion

Figure 6.The discussion so far is largely based on an historical definition of the

telecommunications industry. As an indicator of why task ambiguity in the industry is highand becoming higher, we must consider current technological changes taking place withinthe wider institutional environment of communications.

SOME CONCLUSIONS

The purpose to this point has been to identify some general types of strategy and to identifythe conditions under which each might be used. This broad framework has then been

applied to one industry, telecommunications, to illustrate how organizations in the differentsectors of the industry pursue particular strategies. On the whole, the case oftelecommunications is held to be illustrative of the framework.

The framework has shown how an industry under pressure from changing technology,de-regulation, and foreign competition can be forced from the low task ambiguity/highconcentration condition into the other three conditions. This is not to say that there will stillnot be a need for a standard common carrier network operating to a well-establishedtechnology, but that the industry will be more diverse than in the past.

Following our conceptualization of organizational environments, we can make a contrastbetween firms in competitive sectors and those in less competitive concentrated sectors. In

the former, participation in the institutional environment is, at the most, marginal:pursuing no institutional goals, firms do not achieve a symbiosis with importantinstitutional elements. During the course of investigation several firms indicated anintention of moving away from telecommunications and toward new niches in other growthareas of electronics and communications and an important aspect of their strategy isensuring they can make these quick moves as conditions change.

In contrast, BT sought to consolidate its position in the industry by negotiating withgovernment and regulatory agencies and allying with these. We may also tentatively point toProject Mercury's nascent articulation of institutional goals following its entry into aconcentrated domain. Similarly, Mitel, seeking a stake in the U.K. market, has not

neglected institutional elements. Their decision to establish a manufacturing plant in theU.K. cannot be unconnected with its long-term supply contracts to BT. While there areundoubtedly commercial reasons for such a decision, we would stress the importance ofpolitical and institutional motives.


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