Business Deconstructed BT

by: Josephine Stadler

Table of Contents

1. Introduction 4

1.1. Company profile 4
1.2. BT’s vision and mission 4

2. Stakeholder Theory 5

2.1. BT’s stakeholder definition 5
2.2. Addressee of this report 6
2.3. Stakeholder mapping – the needs of shareholders 6

3. BT’s legal form and its implication on shareholders 7

3.1. Memorandum of Association 7
3.2. BT Group plc 7
3.3. Shares 7
3.4. Dividends 8
3.5. AGM 8
3.6. Accounting records 8

4. Analysis of the financial strengths and weaknesses 9

4.1. Horizontal Analysis 9
4.2. Profit margin 10
4.3. Profitability – roce 10
4.4. Efficiency – asset turnover 10
4.5. Liquidity – current ratio & quick ratio test 11
4.6. Structure – leverage ratio & debt to shareholders’ equity 12
4.7. Cash Flow 12
4.8. Comparison of BT to the Deutsche Telekom 12

5. BT’s financial strengths and weaknesses 14

6. New financial strategy 15

6.1. BT’s overall strategy 15
6.2. BT’s new financial strategy 15

7. Implementation of the new financial strategy 17

7.1. Inform shareholders 17
7.2. Build a team 17
7.3. Introduce Balanced Scorecard 17

7.3.1. Proposed Balanced Scorecard Approach 18

7.4. Budgeting 18

7.4.1. Proposed Budgeting Process 19

8. Appendix 20

8.1. Bibliography 20
8.2. Calculation – financial analysis of BT Group plc 22
8.3. BT Group plc Balance Sheet 23
8.4. BT Group plc Profit and Loss Account 24
8.5. BT Group plc Cash Flow Statement 25
8.6. BT’s Key performance indicators and targets 26
8.7. Deutsche Telekom – Consolidated Balance Sheet 27

Tasks:
• Critically evaluate how the organisation’s legal form determines the organisation’s interaction with its stakeholders.
• Prepare an analysis of the financial strengths and weaknesses of the organisation and propose a strategy to address the issues raised by the analysis that would satisfy the needs of different stakeholders.
• Include a justification of the internal processes and structures necessary to implement the strategy devised.
 

1. Introduction

1.1 Company profile

BT Group plc is a provider of telecommunications employing a total of 100,000 people worldwide and operating in 170 countries. In the UK, BT serves more than 20 million business and residential customers. The group consists of the following 5 sectors: (Company Profile, 2006)

[table only in downloadfile]

1.2 BT’s vision and mission

BT’s vision is to be dedicated to helping customers thrive in a changing world (Vision, 2006). A vision in general is the “desired future state: the aspiration of the organisation”, whereas a mission is the “overriding purpose in line with the values or expectations of stakeholders” (Johnson & Scholes, 2005, p. 13). BT’s mission is “to be the leader in delivering converged networked services”. (Annual Report, 2006, p. 7)

2. Stakeholder theory

A stakeholder in general is “any group or individual who can affect or is affected by the achievement of the organisation’s objectives…” (Freeman, 1984). Eden and Ackermann (1998) define stakeholders as “People or small groups with the power to respond to, negotiate with, and change the strategic future of the organization…”. Ward (1992) specifies the term stakeholder and divides it into different groups with the power to influence the overall business strategy.

[table only in downloadfile]

2.1. BT’s stakeholder definition

BT defines its stakeholders in a slightly different way. Its stakeholders are: customers, employees, suppliers, shareholders, partners and the community (Stakeholder Dialogue, 2006). Different to Ward (1992), BT does not take into consideration its managers, the government and debt holders. However, managers can be considered as part of the staff and the government could be part of the community. BT engages with its stakeholders by different means in order to satisfy its stakeholders. Examples are Consumer Liaison Panels or the Supplier Satisfaction Survey.

2.2. Addressee of this report

This report provides information about BT’s financial performance and position and proposes a future financial strategy. Hence, it is directed at investors and shareholders. Shareholders are owners of the company through the ownership of their shares (Emerson, 1997). Investors need financial information to evaluate BT’s ability to generate cash. The author focuses on the “information needs of present and potential investors” (ICAEW, 2002/2003). Emerson (1997) recognised that the company exists for the shareholders’ profit and benefit. Profit and benefit derive from good performance. Hence, it is justified to address the report solely to shareholders.

2.3. Stakeholder mapping – the needs of shareholders

[...]