Deutsche Telekom in 2016: Driving Disruption from Within the Industry PESTEL Analysis / PEST & STEP / MBA Resources

Introduction to PESTEL Analysis

PESTEL Analysis / PEST / STEP Analysis for Deutsche Telekom in 2016: Driving Disruption from Within the Industry

At Oak Spring University we have updated the Deutsche Telekom in 2016: Driving Disruption from Within the Industry PESTEL Analysis is light of emerging geo strategic and geo-political factors such as Russia Ukraine war, tensions between China & Taiwan, chances of stagflation, interest rates hikes, volatility in the financial world etc.

Case Study Description of Deutsche Telekom in 2016: Driving Disruption from Within the Industry

In 2016, Deutsche Telekom's CEO Tim Hottges was steering the 69 billion euro telecom incumbent in new directions and seeking to disrupt the industry from within. The company's tagline was "Life is For Sharing." Its goal was to be Europe's leading digital communication services company that was most trusted by consumers and business customers for safely sharing content. Hottges wanted to achieve this by having the best network, the best service, the best products, and the best customer experience. The company also aimed to be the preferred provider for business customers. A major part of Deutsche Telekom's strategy involved building up the company's core business-its network-by increasing infrastructure investment 20 percent. Hottges described this as his "big bet," saying the network was the basis for everything the company did. Even as it built out the network, an ongoing challenge was finding the right software talent to support the growing software IT components of the network infrastructure. With that in mind, Deutsche Telekom was also developing capabilities on top of network connectivity, such as security, device management, privacy, and global reach capability. While focusing its innovation on advanced network capabilities, Deutsche Telekom was shifting resources away from efforts to internally innovate in competition with Internet-based players. Instead, it was now intent on winning by partnering with companies like Microsoft, Spotify, and BMW to bring new capabilities, innovations, and services to customers. European and German regulations created significant constraints, and external competition remained fierce from both telecommunications companies and so-called "Over the Top" companies such as Google, Facebook, and WhatsApp. These companies had diverted billions of dollars away from traditional telecommunications companies, enabled by telco companies' infrastructures. To counter that, Deutsche Telekom needed to strongly align strategy and execution.

Authors :: Robert A. Burgelman, Debra Schifrin

Topics :: Strategy & Execution

Tags :: Customer service, Innovation, International business, Regulation, Technology, PESTEL Analysis, PEST / STEP Analysis

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Introduction to PESTEL / PEST Analysis of Deutsche Telekom in 2016: Driving Disruption from Within the Industry

To conduct PESTEL / PEST analysis of Deutsche Telekom in 2016: Driving Disruption from Within the Industry in the current macro environment, we have analyzed Political, Economic, Social, Technological, Environmental, and Legal factors that impact the business environment in which Deutsche Telekom in 2016: Driving Disruption from Within the Industry operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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Political Factors that impacts Deutsche Telekom in 2016: Driving Disruption from Within the Industry

What are Political Factors in Deutsche Telekom in 2016: Driving Disruption from Within the Industry PESTEL / PEST Analysis

The Political factors that influence Deutsche Telekom in 2016: Driving Disruption from Within the Industry macro business environment are -

Russia – Ukraine War

The Russian Ukrainian war has brought back geopolitics in front and centre of international business once again. A lot of major companies including – McDonalds, Nike, Starbucks, BP, Shell, IKEA, Toyota etc have already left Russian markets and it has put added pressure on other companies to leave the Russian market.

Increasing role of government

– Geostrategic uncertainty often lead to increasing role of governments in the business and financial world. For example most of the western companies have taken government lead to pull out of the Russian market. Secondly a lot of companies are hesitant to enter the Chinese government given the increasing geostrategic competition between United States and China.

Lockdowns in China

– As the Chinese government likely to continue its zero Covid policy well into 2023, Deutsche Hottges needs to have strategy not only regarding local lockdowns in the Chinese market but also its impact on its global supply chain. In the industry, Deutsche Hottges needs to have a diversified and nimble supply chain to meet the challenges of both upcoming US recession and supply chain disruptions oriented from China.

Decline of Hong Kong and Impact on access to Chinese market

– As China has completely taken Hong Kong in its orbit, the earlier advantages of Hong Kong as an independent, rule of law oriented financial hub has been questioned. This can lead to decline in Hong Kong and difficulties for the western companies such as Deutsche Hottges to have easy access to not only Hong Kong market but also the vast Chinese market.

Development of Quad

– The development of Quad Plus grouping in the Indo Pacific will disrupt the existing supply chains of not only companies such as Deutsche Hottges but also all its value chain partners in the region. This can lead to Cold War style grouping where Quad members such as US, Japan, India, and Australia , in collaboration of partners such as Singapore, Philippines, South Korea, Taiwan build its own supply chain ecosystem that competes with China. It will be both a geo-strategic disruption and geo-economic disruption.

Energy diversification

– European Union dependence on Russia for its gas and energy requirements has not only resulted in increasing heating costs for households but also has put German and EU countries industries in a perilous situation. This has led to an energy diversification drive not only in European Union but also in other parts of the world.

Supply Chain Constraints and Reset

– Covid 19 has exposed the world’s dependence on China and how dependent companies such as Deutsche Hottges are reliant on the Supply Chain oriented from China. Deutsche Hottges needs to diversify not only to other countries but also to other continents so that Supply Chain disruptions in one part of the world don’t impact the overall business of Deutsche Hottges in the industry.

Geo-political blocks and competition

– Geostrategic block will lead defragmentation of the existing supply chain networks and business environment. For example United States government is providing tax payers resources to companies to develop its own chips in the US rather than being overly dependent on the supply from Taiwanese companies. This will lead to more robustness in supply chain but also lead to less efficiency.

Weaponization currency and energy

– In response to the Russian invasion of Ukraine, most of the western governments has weaponized the currency system and international finance systems through sanctions and restrictions. It can have strong impact in the short term to weaken Russian government access to its resources, but it will also dilute the confidence in international financial system for various other countries. Countries will think twice about keeping their foreign exchange reserves in US dollars. The weaponization of energy by Russia will result in EU countries moving away from the Russian gas and oil, thus putting high pressure on energy prices. It will lead to not only high prices for customers in the developed market but also high level of inflation in the developing world.

Rule of law and WTO

– The emergence of rival factions with the West on one side and China and Russia on the other side, it could lead to deterioration of the Rule of Law in the business world. It can lead to the weakening of World Trade Organization rules and norms. Secondly it could lead to a geostrategic and geo-economic race that could not only jeopardize the global climate goals but also international cooperation.

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Economic Factors that impact Deutsche Telekom in 2016: Driving Disruption from Within the Industry
What are Economic Factors in PESTEL Analysis / PEST / Macro Environment Analysis

The Economic factors that influence the Macro environment of Deutsche Telekom in 2016: Driving Disruption from Within the Industry are -

High inflation and high employment

– The high inflation and high employment levels will put pressure on the wages and salaries, so impacting the overall profitability of the Deutsche Hottges in the current market conditions. High inflation will result in high costs and high employment in the economy will result in higher salary and wages cost structure for Deutsche Hottges in the industry.

Dangers of stagflation

– United States economy along with a number of EU economies are on the verge of stagflation, where there is rising cost of living crisis, at the same time slowing down economy. This will put more pressure on governments to provide more money to the end consumers. For example government of California is sending energy cost alleviation checks to the citizen, which in theory are designed to help the vulnerable section in the society.

Race to increase interest rates

– As the Federal Reserve has started raising interest rates, various other central banks have also started raising rates to avoid currency depreciation. One of the prime examples of this trend is the Swiss central bank that has increased the interest rates first time in more than 20 years in June 2022.

Monetary policy tightening

– The Fed Reserve has started the rate raising cycle which will impact not only liquidity in the wider market, but also increase the cost of capital for Deutsche Hottges in the industry. There are two things that managers at Deutsche Hottges needs to focus in this environment – efficient resource allocation, and avoiding broad based spending cuts that are not aligned with Deutsche Hottges strategy in the market.

Liquidity in the EU market

– As of July 2022, EU central bank has not started its monetary tightening cycle. This can result into flight of capital from Europe to US. Already the Euro has depreciated considerably in comparison to the dollar. The present liquidity in the EU markets is coming at the cost of currency depreciation. Sooner or later the EU central bank has to intervene. This will impact Deutsche Hottges European business.

Mortgage Rates Increase

– The mortgage rate increases of just 1.5% has increased the monthly payment by 50% on the 30 years mortgage in United States. This will not only increase the rate of foreclosure but also dampen the consumer spending purse. The increase in mortgage rates will not only impact the housing market but also will be reflected in the sales of automobile, consumer durables, and other big ticket products.

Consolidation in the industry

– During the economic downtrends, there is often consolidation in the various industries as inefficient players are gobbled up by the outperforming players in the sector. Deutsche Hottges needs to look for players that can complement their existing business model in the industry.

Gas and Energy Prices

– The gas prices has increased more than 5 gallon in most states in United States. It is contributing not only to the increasing inflation in the economy but also greater uncertainty in the society.

Bank of Japan yield curve management

– The Bank of Japan has decided not to increase the rates, but to manage the yield curve by providing more liquidity. With debt to GDP at more than 220%, Bank of Japan strategy may result in disruptions in the bond market and overall financial uncertainty.

Emerging markets balance sheet post Covid

– In the late 2019, everyone was looking towards emerging markets for growth. Covid has severely damaged the emerging economies balance sheet. Countries such as Turkey, Argentina, are having inflation in 60% range, almost 30 emerging countries are facing balance of payment crisis according to Bloomberg study, and high inflation is resulting into society wide protests from Albania, Sri Lanka to Colombia and Peru.

Crypto Meltdown

– The crypto meltdown in 2022 has wiped out more than 2 trillion USD out of the 3 trillion USD market size. According to Financial Times report the crypto meltdown has impacted the poorer section of the society most. This along with recession, rate hikes, and historically high rents will significantly reduce the purchasing power and consumer sentiments of not only US customers but also that of customers across all the developed economies.

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Social Factors that impact Deutsche Telekom in 2016: Driving Disruption from Within the Industry
What are Social Factors in PESTEL Analysis / PEST / Macro Environment Analysis

The Social factors that influence the Macro environment of Deutsche Telekom in 2016: Driving Disruption from Within the Industry are -

Social Unrest such as Sri Lanka

– The economic distress across various emerging and developed economies is rupturing the social fabric of these countries. Sri Lanka is a prime example where economic mismanagement and external factor lead to not only default but also economic hardships and protests. Like Arab Springs, this can be replicated in various other emerging and developed economies because of rising cost of living, higher fuel prices, food shortages, housing shortages, and rationing.

Polarization in politics

– The politics across the world has become polarized now then even five years ago. So we have US-China trade war in international arena, the Russian boycott after the invasion of Ukraine, Brexit fallouts in United Kingdom, and domestic pressures on politicians across the European Union. This polarization makes taking collective decisions difficult, resulting in short term decisions with long term consequences.

Hybrid workforce

– Increasing fuel prices and lockdown experience of past two years has resulted into greater emphasis on the hybrid work environment. A number of companies such as Twitter, Etsy etc have allowed employees to work in hybrid environment for next few years. This transformation in work place will have long term changes not only in the organizational culture but also on the wider society.

Gig economy impact

– The Uber Files reveals the fact that gig economy is leading not only to the dehumanization of the work force but also how these big tech companies are influencing the rules and regulations in the communities that they operate in. The gig economy business model is purely built on the exploitation of the work force. It will likely to face strong regulations in the coming years as more and more people will rise against the gig economy.

Food shortages

– The emerging economies are about to face a perfect storm – fragile balance sheets because of Covid, high inflation because of the supply side constraints, and food shortages because of the Russia – Ukraine war, as both these countries account for almost 25% of the total global wheat exports. Most of the wheat from Russia and Ukraine are exported to Middle Eastern countries and poor African countries.

Immigration

– As immigration in the last two years is down because of the pandemic, it has resulted into shortages of workforce across the board in the United States. Various industries are fast adopting technologies to replace the humans in the work places.

Increasing rents

– As the houses prices have sky rocketed because of lower supplies, and high inflation, the rents have gone up by 10-30% in various cities across the country. This can lead to higher rate of homelessness as according the Guardian report – more than 20% of the people are already late on their rental payment by May 2022.

Changing demography

– As the baby boomers are retiring fast, the changing demographic is resulting into higher pressure on not only social spending but also on working population. According to Wall Street Journal, 58% of the people over 80 in 2022 are living alone, which at present comprise just 4.7 million people at present. According to American Association of Retired Persons, this number will go up more than 10 million in next 15 years. It will result in market transformation across the board.

Dehumanization of workers

– According to a study published in Harvard Business Review, Dehumanization of the workers in the gig economy is not a bug but a feature of the business model of these companies. According to Professor Eric M. Anicich, gig economy work is designed to obliterate the uniqueness of work experience, future aspiration of the workers, and bring in insecurity through easy replacements.

Cultural wars

– The increasing level of polarization, narratives of cultural wars, and other social disruptions will soon spill over into the business world. One of the prime examples of it is the case of Disney in Florida, where the company is criticized by the state Governor for taking stands on LGBT rights.

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Technological Factors that impact Deutsche Telekom in 2016: Driving Disruption from Within the Industry
What are Technological Factors in PESTEL Analysis / PEST / Macro Environment Analysis

The Technological factors that influence the Macro environment of Deutsche Telekom in 2016: Driving Disruption from Within the Industry are -

Unravelling of the old growth model

– The old growth model was liquid markets, low cost of capital, growth focused, less focus on profitability has started to unravel as the cost of capital is increasing with Fed increase the base rates. The increase in cost of capital will lead to investor prioritizing profits and returns over long term growth. This may result in smaller and more focused investments rather than betting on companies such as Uber, Airbnb, Wework for long term returns.

Cost of acquisition

– As the liquidity in the market has dried up, startups which were worth billions are now trading at lot lower prices. This will create an environment where companies with cash in hand can buy great potential start ups at the fraction of the cost that they were trading last year. This lowering cost of acquisition for cash rich companies will lead to consolidation in various industries.

Increasing focus on profitability

– As the interest rates are increasing in broader economy, investors will focus on profitability. This will most impact the technology sector that is built on growth first profitability later model. The increasing focus on profitability will lead to – smaller investments, lower valuations, reduced risk appetite, and lower investment in speculative sectors.

Tiktok marketing

– As Tiktok now is the most used app in the world, companies can easily reach their customers using Tiktok marketing products. Tiktok advertisement costs are significantly lower than the marketing costs of other platforms such as Google Ads, Facebook Ads etc.

Growing role of social media and influencers

– Social media influencer marketing has taken off in the last three years. Companies can tap social media influencers not only to reach customers directly but also to build a community that can feed product ideas and trial runs.

Falling cost of Marketing

– With each digital advancement stage the cost of reaching the final customers is rapidly decreasing. The Google ads enabled small businesses to reach to the customers directly, the Facebook advertisement helped individual entrepreneurs to build online communities and reach out the customers in a social setting, now Tiktok is enabling brands to reach the customers at a far lower cost than both Google and Facebook, by making ads interesting and playful.

Developments in Artificial Intelligence

– The developments in artificial intelligence in the next decade will completely redefine the industry. Deutsche Hottges needs to invest in research and development to utilize artificial intelligence to build not only better products for the customers but also to provide a more immersive and comprehensive service network.

13. Netflix tie-up with Microsoft – As the biggest digital streaming platform is now open for advertisements; it will provide companies such as Deutsche Hottges new opportunities to reach to its final consumer.

EU online regulations

– The GDPR and other privacy related regulations coming from EU are now adopted in almost all parts of the world. This will increase not only the cost of doing business for various companies but also increase the risk of legal repercussions in case of data leaks and such cyber security infringements.

Blockchain evolution

– The crypto currency and NFT crash has left a lot of individual users a bankrupt. But companies such as Deutsche Hottges can use the underlying technology such as blockchain to build more customer relevant products and features. One of the areas where blockchain can help the organization in reducing piracy of the products and to keep better track of the supply chain.

Marketing in Metaverse

– As the previous examples of SIMS and other virtual environment have illustrated, there will be a lot of opportunities for companies such as Deutsche Hottges to have a comprehensive marketing strategy. It can help Deutsche Hottges to create more touchpoints, increase brand interaction, provide customers with more product options, provide immersive brand experience etc. Going by the current trends the marketing on the Metaverse will be comparatively cheaper on the digital platform.

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Environmental Factors that impact Deutsche Hottges
What are Environmental Factors in PESTEL Analysis / PEST / Macro Environment Analysis

The Environmental factors that influence the Macro environment of Deutsche Hottges are -

Paris Climate targets

- Climate targets that are set in Paris Climate summit are now almost out of the window for most countries because of both the increase in prices of oil and gas, and shortage of the inventory in the market. This has resulted into countries restarting shut down coal plants, boosting productions from fracking, holding huge inventories in stores given high uncertainty in geopolitical environment. This will impact the poorest countries the most.

Increasing regulations architecture

– As geopolitics challenges and environmental considerations grow among both the government agencies and wider consumers, there will be a growing call for government action in form of more and tighter regulations. This will increase the cost of doing business for companies especially operating in the environmental sensitive industries such as mining, fossil fuel etc.

Oil and Environment

– The shortage of gas and energy because of the Russian refusal to supply has made Germany go back to coal. Now there is less resistance among politicians to put more regulations on the fossil fuel players. In fact the fossil fuel players are the biggest beneficiaries of the Russia Ukraine war. The war has increased their profitability, reduced the threat of regulatory action, and brought back the companies on the decision making table.

ESG driven investing environment

– Three of the biggest investment companies - BlackRock, the Vanguard, and the UBS group are considering ESG strategies of organization for the purpose of investment in those companies. This will increase pressure on companies across the board to have more comprehensive strategies as the three companies have an investment portfolio of more than 23 trillion USD.

Climate Change

– Climate change is one of the biggest challenges that businesses across the world will face in coming decades. We have already started seeing impact of extreme weather on supply chains

Energy reduction in operation

– As countries have pledged aggressive carbon emissions target for the upcoming decade, corporations needs to not only reduce more energy efficient products but also to reduce energy requirements in operations and production processes.

Supreme court decision on environmental regulations

– The Supreme Court ruling that can reduce the capabilities of Environmental Protection Agency to regulate the emission of greenhouse gases can result into not only higher emissions but also challenges to other similar laws and regulatory bodies such as Clean Air Act, Clean Water Act etc.

Proliferation of diverse standards

– As the world is again entering into great power struggle between United States and China, we will have a world divided into blocks and various countries using different standards for products and services. This will not only increase cost of capital but also will limit the supply chain options for businesses.

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Legal Factors that impact Deutsche Telekom in 2016: Driving Disruption from Within the Industry
What are Legal Factors in PESTEL Analysis / PEST / Macro Environment Analysis

The Legal factors that influence the Macro environment of Deutsche Telekom in 2016: Driving Disruption from Within the Industry are -

Challenges to World Trade Organization

– As more and more western companies are pulling out of Russia, companies from other parts of the world will also face serious risk of secondary sanctions if found doing business with the Russian companies. This will lead to an environment where the current architecture of World Trade Organization and its rules will start crumbling on the edges.

Increase in Intellectual Property Rights thefts and piracy

– As the world divides into various power zones, there will be increasing attacks on the intellectual property rights and piracy because governments in one corner will have no regards for the intellectual property rights of the companies from the rival countries. This will lead to more trade protection, less innovation, and increasing legal battles among corporations.

Increasing challenges in emerging economy

– Emerging economies are facing not only after effects of the Russian war in Ukraine, but also the slowing growth in economies in post Covid environment. These two situations have not even played out completely, early data suggest that US economy is going into recessions which can lead to balance of payment and forex exchange crisis for the emerging economies as Foreign Institutional Investors will leave the emerging markets.

Rule of law in polarized world

– As the international rule based architecture is challenged by countries such as Russia and China, it will become increasingly difficult to set global standards, manage free trade, keep open seas, and build an environment of trust where everybody sees an interest in maintaining the current rule based system.

Regulating digital business models

– There are increasing legal challenges not only for the big tech firms but also for the new technologies that are coming up with new digital models. Most of these models are old fashioned Ponzi schemes masquerading as technology driven innovative solutions. Legislators across the world need to take actions to protect not only to protect the citizens from these global Ponzi schemes but also provide enough space for genuine innovative technologies to blossom so that they can create new knowledge base and jobs in the economy.

Decentralized currency and challenges

– Bitcoin and other decentralized currencies will pose new challenges to not only the current financial system but also to the wider geo-economics of the world. Countries such as El Salvador adopted Bitcoin as a legal tender, it was considered a next step in crypto currency adoption, but it has failed miserably. Post adoption Bitcoin has lost 70% from its top and jeopardize the financial stability of the whole country.

Anti-trust in tech industry

– As companies like Amazon, Apple, and Microsoft cross 1 trillion US valuation, there are increasing chances of emerging monopolies in various sectors. For example Amazon has now acquired players in grocery retail, healthcare, along with Prime Videos and its dominance in books. This provides it opportunities to use customer data collected from one business to dominate other business.

Destabilization of existing global order

– Russian invasion of Ukraine has dramatically destabilized the existing rule based global orders. In the new global orders, international institutions will have fewer levers to manage the actors in the international arena. For example United Nations has been unable to influence the behaviour of Russian authorities regarding food shortages in the Middle East and African countries. The weaponization of currency by the western players will undermine the current financial system too as developing countries looking for other options apart from US dollar reserves.

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