Lesson Transcript

Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community

colleges and in the for profit sector.

This lesson will explain the economic concept of utility and the two ways it is
measured. The usefulness of utility in the theoretical derivation of demand
curves is also explained.

Definition of Utility
When Marie makes her weekly trip to the grocery store, she'll be making many
quick decisions about what she buys. She probably has a number in her head
that is the most she wants to spend on this trip. That means her objective will be
to get the most happiness or satisfaction from every dollar she is going to spend.

We all know that the concept of happiness is impossible to quantify or put into
numerical terms, but economists will try anyway! That brings us to the economic
concept of utility. Utility is the amount of satisfaction that you will get from the
consumption of a product or service.

Economists use an abstract measure for the amount of satisfaction you receive
from something; it is called a 'util'. A util is an abstraction because it isn't
something in the physical world like an inch or a pound. It is something inside
your head, it represents one unit of satisfaction or happiness. You might get 25
utils of satisfaction from eating a bowl of ice cream while someone else would
only get 5 utils of satisfaction.

Cardinal Utility
So how is Marie going to maximize her satisfaction on that grocery store trip?
First she knows that she does not want to spend over $100. That means lots of
choices about the combination of grocery items that she puts in her cart that
will give her the most satisfaction and doesn't go over $100. She never studied
economics and has no idea what utility is, but that is exactly what she is going
to use to solve her puzzle!

Utility can be measured in two ways; one is called cardinal. It's based on the
cardinal counting numbers like 1, 2, 3, 4. When Marie uses cardinal utility, she
will subjectively place a value on the grocery items in the store by assigning a
numerical value to them that represents the amount of satisfaction or happiness
she will get when she eats it. Her numbers might look like this:

 Roast beef slices: 40 utils

 Fish fillets: 60 utils

  Chicken breasts: 75 utils

She is going to choose the chicken because it will provide the most utility. She
will also be willing to pay more for chicken than she would for fish or beef.

Ordinal Utility
Now, it would be very unusual to find someone scribbling down measures of
utility in a grocery store. It is far more likely that she would use the other
measure of utility: ordinal.

Ordinal utility means ranking items under consideration from most satisfaction
to the least. Many economists believe that consumers do this in their heads
when they make purchase decisions. Once Marie has enough items in her cart to
cover the main courses for her meals, it's time for the fun part: that's when she
gets to buy the desserts and snacks!

She loves ice cream. She love fudge swirl the most, followed by chocolate, then
strawberry. This will determine how much she is willing to pay for these flavors
as such:

What is the utility function and how is it calculated?

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BY ANDRIY BLOKHIN

Updated Mar 27, 2018

In economics, utility function is an important concept that measures preferences

over a set of goods and services. Utility is measured in units called utils, which
represent the welfare or satisfaction of a consumer from consuming a certain
number of goods. Because satisfaction, happiness or welfare is a highly abstract
concept, economists measure utility in terms of revealed preferences by
observing consumer choices and creating an ordering of consumption baskets
from least desired to the most preferred.
Economists create a parametric functional form for the utility based on the
assumption of observed consumer behavior, with a number of goods as variables
and certain fixed parameters. After that, utility is calculated by substituting certain
numerical values for the consumption of goods in the utility function. (For related
reading, see "The Concept of Utility.")
In economics, the utility function measures the welfare or satisfaction of a
consumer as a function of consumption of real goods such as food, clothing
and composite goods rather than nominal goods measured in nominal terms.
Utility function is widely used in the rational choice theory to analyze human
behavior.
To postulate the utility function, economists typically make assumptions about the
human preferences for different goods. For example, in certain situations, tea
and coffee can be considered perfect substitutes for each other, and the
appropriate utility function must reflect such preferences with a utility form of u(c,
t) = c + t, where "u" denotes the utility function and "c" and "t" denote coffee and
tea. A consumer who consumes one pound of coffee and no tea derives a utility
of 1 util. (For related reading, see "Economics Basics: Utility.")

Utility: Meaning, Characteristics

and Types | Economics
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Let us make an in-depth study of utility:- 1. Meaning of

Utility 2. Definition of Utility 3. Characteristics 4. Types 5.
Measurement 6. Kinds.
Meaning of Utility:
The simple meaning of ‘utility’ is ‘usefulness’. In economics utility is
the capacity of a commodity to satisfy human wants.

Utility is the quality in goods to satisfy human wants. Thus, it is said

that “Wants satisfying capacity of goods or services is called
Utility.”
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In this way utility is measured in terms of money and it is relative.
There is difference between utility and usefulness. A useful commodity
may not here utility of goods depend upon the intensity of wants.

A consumer buys or demands a particular commodity he derives some

benefit from its use. He feels that his given want is satisfied by the use
or consumption of the commodity purchased. Utility is the basis of
consumer demand. A consumer thinks about his demand for a
commodity on the basis of utility derived from the commodity.

Utility depends upon the intensity of want. When a want is unsatisfied

or more intense, there is a greater urge to demand a particular
commodity which satisfies a given want. In modern time utility has
been called as ‘expected satisfaction.’ Expected satisfaction may be less
or equal to or more than the real satisfaction.

Definition of Utility:
Various economists have defined utility as follows:
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1. According to Prof. Waugh:

“Utility is the power of commodity to satisfy human wants.”

2. According to Fraser:
“On the whole in recent years the wider definition is preferred and
utility is identified, with desireness rather than with satisfyingness.”

Characteristics of Utility:
The following are the important characteristic features of
utility:
1. Utility has no Ethical or Moral Significance:
A commodity which satisfies any type of want, whether moral or
immoral, socially desirable or undesirable, has utility, i.e., a knife has
utility as a household appliance to a housewife, but it has also a utility
to a killer for stabbing some body.
2. Utility is Psychological:
Utility of a commodity depends on a consumer’s mental attitude and
assessment regarding its power to satisfy his particular want. Thus,
utility of a commodity may differ from person to person.
Psychologically, every consumer has his likes and dislikes and
everyone determines his own level of satisfaction.

For instance:
A consumer who is fond of apples may find a high utility in apples in
comparison to the consumer who has no liking for apples. Similarly a
strictly vegetarian person has no utility for mutton or chicken.

3. Utility is always Individual and Relative:

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Utility of a commodity varies in different situations in relation to time

and place. Even the same consumer may derive a higher or lower
utility for the same commodity at different times and different places.
For example—a person may find more utility in woolen clothes during
the winter than in summer or at Kashmir than at Mumbai.

4. Utility is not Necessarily Equated with Usefulness:

Utility simply means the ability to satisfy a want. A commodity may
have utility but it may not be useful to the consumer. For instance—A
cigarette has utility to the smoker but it is injurious to his health.
However, demand for a commodity depends on its utility rather than
its usefulness. Thus many commodities like opium liquor, cigarettes
etc. have demand because of utility, even though, they are harmful to
human beings.

5. Utility cannot be Measured Objectively:

Utility being a subjective phenomenon or feeling of a consumer cannot
be expressed in numerical terms. So utility cannot be measured
cardinally or numerically. It cannot be measured directly in a precise
manner. Professor Marshall has however, unrealistically assumed
cardinal measurement of utility in his analysis of demand.

6. Utility Depends on the Intensity of Want:

Utility is the function of intensity of want. A want which is unsatisfied
and greatly intense will imply a high utility for the commodity
concerned to a person. But when a wan is satisfied in the process of
consumption it tends to experience a lesser utility of the commodity
than before. Such an experience is very common and it is described as
a tendency of diminishing utility experienced with an increase in
consumption of a commodity. In other words, the more of a thing we
have, the less we want it.

7. Utility is Different from Pleasure:

A commodity may have utility but its consumption may not give any
pleasure to the consumer, e.g., medicine or an injection. An injection
or medicinal tablet gives no pleasure, but it is necessary for the
patient.

8. Utility is also Distinct from Satisfaction:

Utility and satisfaction, both are though inter-related but they have
not been considered as the same in a strict sense.

Different Types of Utility:

In economics, production refers to the creation of utilities in several
ways.

Thus, there are following types of utility:

1. Form Utility:
This utility is created by changing the form or shape of the materials.
For example—A cabinet turned out from steel furniture made of wood
and so on. Basically, from utility is created by the manufacturing of
goods.
2. Place Utility:
This utility is created by transporting goods from one place to another.
Thus, in marketing goods from the factory to the market place, place
utility is created. Similarly, when food-grains are shifted from farms to
the city market by the grain merchants, place utility is created.

Transport services are basically involved in the creation of place

utility. In retail trade or distribution services too, place utility is
created. Similarly, fisheries and mining also imply the creation of
place utility. Place utility of a commodity is always more in an area of
scarcity than in an area of scarcity than in an area of abundance e.g.,
Kashmir apples are more popular and fetch higher prices in Pune than
in Srinagar on account of such place utility

3. Time Utility:
Storing, hoarding and preserving certain goods over a period of time
may lead to the creation of time utility for such goods e.g., by hoarding
or storing food-grains at the time of a bumper harvest and releasing
their stocks for sale at the time of scarcity, traders derive the
advantage of time utility and thereby fetch higher prices for food-
grains. Utility of a commodity is always more at the time of scarcity.
Trading essentially involves the creation of time utility.

4. Service Utility:
This utility is created in rendering personal services to the customers
by various professionals, such as lawyers, doctors, teachers, bankers,
actors etc.

Can Utility be Measured?

Utility is a psychological concept. This is different for different people.
Therefore, it cannot be measured directly. Professor Marshall has said
that “Utility can be measured and its measuring rod is ‘money. The
price which we are ready to pay for an article is practically its price.
Nobody will be prepared to pay more than the utility which we derive
from the article.

For example:
If I am ready to pay Rs. 1500 for a watch and Rs. 2,000 for a Radio.
Then I can say that I derive utility from that watch up to the value of
Rs. 1500; and from Radio up to the value of Rs. 2,000. “The inference
which we can draw from the above example is that the price which we
pay for any article is the utility which we derive from that article.” But
Prof. Hicks, Allen and Pareto have not supported Marshall’s view of
measuring utility.

They are of this opinion that measuring of utility is not

possible because of the following reasons:
(i) Utility is personal, psychological and abstract view which cannot be
measured like goods.

(ii) Utility is different for different people. Utility is always changeable

and it changes according to time and place. Therefore, it is difficult to
measure such thing who is of changeable nature.

(iii) Further, measuring material ‘money is not static. Value of money

always changes, therefore, correct measurement is not possible.

Kinds of Utility:
Utility are of three kinds:
(i) Marginal Utility,

(ii) Total Utility,

(iii) Average Utility

(i) Marginal Utility:

Definition:
Marginal utility is the utility derived from the last or marginal unit of
consumption. It refers to the additional utility derived from an extra
unit of the given commodity purchased, acquired or consumed by the
consumer.

It is the net addition to total utility made by the utility of the

additional or extra units of the commodity in its total stock. It has
been said—as the last unit in the given total stock of a commodity.

According to Prof. Boulding—”The marginal utility of any quantity of a

commodity is the increase in total utility which results from a unit
increase in its consumption.”

For example:
Suppose Mr. Shanker is consuming bread and he takes five breads. By
taking first unit he derives utility up to 20; second unit 16; third unit
12; fourth unit 8 and from fifth 2. In this example the marginal unit is
fifth bread and the marginal utility derived is 2. If we will consume
only four bread then the marginal unit will be fourth bread and utility
will be 8.

Kinds of Marginal Utility—Marginal utility is of three kinds:

(i) Positive Marginal Utility,

(ii) Zero Marginal Utility,

(iii) Negative Marginal Utility.

It is a matter of general experience that if a man is consuming a

particular goods, then receiving of next unit of goods reduces the
utilities of the goods and ultimately a situation comes when the utility
given by the goods become zero and if the use of the goods still
continues, then the next unit will give dis-utility. In other words it can
be said that we will derive “negative utility”.

This can be studied better by the following table:

From the table given above it is clear that up to the consumption of the
fifth bread we receive positive utility; 6th unit is the unit of full
satisfaction i.e., Utility derive from that unit is zero. From 7th unit the
utility received will be negative utility. The table can be represented in
shape of diagram as follows: In diagram No. 1 OX axis (line) shows
unit of bread and OY line shows the Marginal Utility received. From
the figure it is clear that from the first unit of bread utility received are
20 which has been shown on the top of the line.

Similarly 2, 3, 4, 5 Unit of bread’s utility is 16, 12, 8, 4 respectively All

these have been shown on OX line which shows positive marginal
utility. Utility of the sixth bread is zero and that of the seventh bread is
negative and negative rectangle has been shown below OX line.

Zero Utility:
When the consumption of a unit of a commodity makes no addition to
the total utility, then it is the point of Zero Utility. In our table the total
utility, after the 6th unit is consumed. This is the point of Zero Utility.
It is thus seen that the total utility is maximum when the Marginal
Utility is zero.

Negative Utility:
Negative Utility is that utility where if the consumption of a
commodity is carried to excess, then instead of giving any satisfaction,
it may cause dis-satisfaction. The utility is such cases is negative. In
the table given above the marginal utility of the 7th unit is negative.

(ii) Total Utility:

Total Utility is the utility from all units of consumption. According to
Mayers—”Total Utility is the sum of the marginal utilities associated
with the consumption of the successive units.”

For example:
Suppose, a man consumes five breads at a time. He derives from first
bread 20 units of satisfaction from 16, from third 12, from fourth 8
and from fifth 4 i.e., total 60 units.

This can be shown by the following table:

(iii) Average Utility:

Average Utility is that utility in which the total unit of consumption of
goods is divided by number of Total Units. The Quotient is known as
Average Utility. For example—If the Total Utility of 4 bread is 40, then
the average utility of 3 bread will be 12 if the Total Utility of 3 bread is
36 i.e., (36 ÷ 3 = 12).

The following table will explain the point clearly:

It is clear from the above table that by the increasing use of any article
Marginal and Average Utility reduces gradually and Total Utility
increases only up to that point where the Marginal Utility comes to
zero.

Relation between Total Utility and Marginal Utility:

There is a close relationship between Total Utility and Marginal
Utility. As there is increase in the unit of a particular commodity, the
Marginal Utility goes on diminishing and Total Utility goes on
increasing. Total Utility goes on increasing up to that extent till the
Marginal Utility becomes Zero. When Marginal Utility is zero Total
Utility is maximum.

After Zero Marginal Utility comes to negative and the result

is that Total Utility starts reducing relationship between
Total Utility and Marginal Utility can be started as follows:
(i) When Marginal Utility is reducing, the Total Utility will increase so
long Marginal Utility does not become zero.

(ii) When Marginal Utility becomes zero; Total Utility will be

maximum.

(iii) After zero when Marginal Utility is negative then there is

reduction in Total Utility.
Relationship between Marginal Utility and Total Utility can
be studied from the following:

From the above table it is clear that up to fourth bread Marginal Utility
is positive and there is no regular increase in the Total Utility. And on
fifth bread the Marginal Utility is zero and on this point the increase in
Total Utility stops. This is point of safety. As Prof. Bounding has said
that “Point of full satisfaction and point of full safety is that point
where consumption increases but there is no increase in Total Utility.”
If after fifth bread, extra bread is consumed then there will be dis-
utility and Marginal Utility will be negative. Sixth and seventh bread
shows dis-utility.

The relationship between Marginal Utility and Total Utility

will be shown by diagram as follows:

In both the diagrams OX line shows bread. In diagram No. 1 OY line

shows Marginal Utility and is diagram No. 2 OY line shows Total
Utility. As the number of bread increases Marginal Utility goes on
diminishing and Total Utility goes on increasing—To remember:

(1) Marginal Utility goes on diminishing with the consumption of

every additional unit of bread.

(2) Total Utility goes on increasing with the consumption of every

additional unit but at a diminishing rate.

(3) Marginal Utility is equal to the increase in the Total Utility. Total
Utility is the sum total of the Marginal Utilities derived from all the
units consumed.

(4) When Marginal Utility becomes 0, total utility does not increase.

(5) When Marginal Utility becomes negative, Total Utility decreases.

(6) Increase in Total Utility depends on Marginal Utility.

(7) Since Marginal Utility diminishes, Total Utility increases at a

diminishing rate.

(8) When Marginal Utility is Zero, Total Utility is maximum.

(9) When Marginal Utility is negative, Total Utility declines.

What are Barriers to Entry?
Barriers to entry are the obstacles or hindrances that make it difficult to enter
a given market. These may include technology challenges, government
regulation and patents, start-up costs, or education and licensing
requirements.
American economist Joe S. Bain gave the definition of barriers to entry as “an
advantage of established sellers in an industry over potential entrant sellers,
which is reflected in the extent to which established sellers can persistently
raise their prices above competitive levels without attracting new entrants to
enter the industry.” Another American economist, George J. Stigler, defined a
barrier to entry as “a cost of producing that must be borne by a firm which
seeks to enter an industry but is not borne by firms already in the industry.”

A primary barrier to entry is the cost that constitutes an economic barrier to

entry on its own. An ancillary barrier to entry refers to the cost that does not
include a barrier to entry by itself but reinforces other barriers to entry if they
are present.

An antitrust barrier to entry is the cost that delays entry and thereby reduces
social welfare relative to immediate but equally costly entry. All barriers to
entry are antitrust barriers to entry, but the converse is not true.

Types of Barriers to Entry

There are two types of barriers:

#1 Natural (Structural) Barriers to Entry

 Economies of scale: If a market has significant economies of scale that

have already been exploited by the existing firms to a large extent, new
entrants are deterred.

 Network effect: It refers to the effect that multiple users have on the
value of a product or service to other users. If a strong network already
exists, it might limit the chances of new entrants to gain a sufficient
number of users.

 High research and development costs: When firms spend huge

amounts on research and development, it is often a signal to the new
entrants that they have large financial reserves. In order to compete,
new entrants would also have to match or exceed this level of spending.
  High set-up costs: Many of these costs are sunk costs that cannot be
recovered when a firm leaves a market such as advertising and
marketing costs and other fixed costs.

 Ownership of key resources or raw material: Having control over

scarce resources, which other firms could have used, creates a very
strong barrier to entry.

#2 Artificial (Strategic) Barriers to Entry

 Predatory pricing as well as an acquisition: A firm may deliberately

lower prices to force rivals out of the market. Also, firms might take over
a potential rival by purchasing sufficient shares to gain a controlling
interest.

 Limit pricing: When existing firms set a low price and a high output so
that potential entrants cannot make a profit at that price.

 Advertising: It is also a sunken cost. The higher the amount spent by

incumbent firms, the greater the deterrent to new entrants.

 Brand: A strong brand value creates loyalty of customers and hence,

discourages new firms.

 Contracts, patents, and licenses: It becomes difficult for new firms to

enter the market when the existing firms own the license or patent.

 Loyalty schemes: Special schemes and services help oligopolists retain

customer loyalty and discourage new entrants who wish to gain market
share.

 Switching costs: These are the costs incurred by a customer when

trying to switch suppliers. It involves the cost of purchasing or installing
new equipment, loss of service during the period of change, the efforts
involved in searching for a new supplier or learning a new system. These
 are exploited by suppliers to a large extent in order to discourage
potential entrants.

Barriers to Entry in Different Market Structures

Conclusion
Barriers to entry generally operate on the principle of asymmetry, where
different firms have different strategies, assets, capabilities, access, etc. If all
firms were symmetrical, then there would be nothing to choose between and
competition would not exist. Therefore, barriers are very crucial in creating a
market and fostering competition. Barriers become inadequate, as well as
dysfunctional when they are so high that incumbents can keep out virtually all
competitors, giving rise to monopoly or oligopoly.
Regulation issues come up frequently. The government has one idea how
telecoms should be handled. The people have another.

Wifi and internet are a daily part of life. Customers wish the government
to acknowledge the internet as a basic human right. It’s required for
education and many careers. Even applying to a job is an online
experience; going to a company website and uploading a resume on their
servers is essential.

A battle for and against net neutrality is raging. Customers believe

internet and data should be treated the same by service providers and
the government. Net neutrality would prevent, for example, service
providers from throttling internet and data speeds.
This is a big political fight between government, service providers, and
the people.

Economical factors
Interest rates, inflation, and taxes affect the telecommunication industry.
Expenses affect the pricing per plan offered to customers too. It’s
expensive to build towers and resources in rural areas. Customers who
don’t live in big cities are affected.

As more houses are built, the need for telecommunication resources

increase. This can drive prices (plus revenue) up depending on location,
amount of customers in an area, and the need for telecommunication
services.

Growth is dependent on the market (customers) and technological

advancements. Businesses are using the internet and mobile phones for
marketing. They create social media pages, advertisements on sites, and
digital marketing campaigns to reach customers around the world.

For this reasoning, jobs are opening up and increasing in the

telecommunication industry.

Customer service representatives are hired to solve problems via website

live chat. Marketers, writers, and media managers handle online
marketing and campaigns. Graphic designers and programmers are
necessary to create websites for computers and mobile users.

The need for everything to be available and accessible 24/7 is growing

rapidly.

Social factors
Telecommunications horizontal growth is limited. Specifically, it’s
difficult (and expensive) to expand in rural regions. Customers are left
with less than a handful of options when it comes to buying internet,
mobile, and television packages.

Because telecommunication corporations are monopolies, they’re in

charge of both internet and mobile carriers. Customers need these
packages to communicate with friends, partake in social media
challenges, buy products online, find stable careers and more.
Telecommunication has become a vastly important aspect of the daily life
of the average person.

Technological factors
Both needs and requirements for telecom services are advancing. For
example, telephone companies install fiber wire in their builds over
copper now. Phones are becoming more compact, moving the telecom
business into a primarily wireless business.

Basic needs in smartphones, like voicemail, caller ID, and messaging are
covered. Now people want internet access on the go. So, data is added to
mobile plans. Wifi has been built into buses and cars too.

This ‘need’ leads to more investments in companies who hold a strong

influence over telecom developments in computers, smartphones, and
laptops.

Legal factors
The telecommunication industry is often impacted by legislation issues.
Particularly issues with the government, monopolies, and customers. But
the industry has allowed importing and exporting of telecom products
(international smartphones, for example). Allowing more development in
telecom tech devices.

Environment factors
Climate changes and global warming can affect how telecommunication
products reach customers. In terms of employment, with technology
advancing, employees need to adapt to changes.

Products come and go, often replaced by something ‘better’ (depending

on who is asked, customer or company). The previous version becomes
redundant or unnecessary. Which means people who worked on a
previous version may now be unemployed.

Customers demand and telecom companies are expected to deliver. But

with needs in the telecom industry changing often, it’s not guaranteed
which technology will stay, be advanced, or discarded.
  major provider of telecommunications services in the Philippines

 PLDT as its major competitor

Key External Factors

Competition

 fully saturated

 decline in revenues due to price competition

Political Environment

 "Philippines have tainted its history with political, social and military
instability"

Technological Advancement

 sms centers, mms centers

 2G and 3G

Economic Environment
  slow or negative growth, high inflation and volatility in exchange rates due to
recession

Internal and External Analysis

Financial Statement Analysis
Matching
QSPM
Recommendation
Review and Evaluation
Balanced Scorecard
Slow Market Growth
SWOT Matrix
Rapid Market Growth
Weak Competitive Position
Globe Telecom Inc.
Strong Competitive Position
PLDT
BCG Matrix
IE Matrix
Grand Strategy Matrix
3 Alternatives QSPM Scores
-Market Development 2.04
-Product Development 2.39
Globe Telecom Case Study Solution &
Analysis
Harvard Case Studies
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Harvard Business Case Studies Solutions –

Assignment Help
In most courses studied at Harvard Business schools, students are provided with a case study.
Major HBR cases concerns on a whole industry, a whole organization or some part of organization;
profitable or non-profitable organizations. Student’s role is to analyze the case and diagnose the
situation, identify the problem and then give appropriate recommendations and steps to be taken.
To make a detailed case analysis, student should follow these steps:
STEP 1: Reading Up Harvard Case Study Method
Guide:
Case study method guide is provided to students which determine the aspects of problem needed to
be considered while analyzing a case study. It is very important to have a thorough reading and
understanding of guidelines provided. However, poor guide reading will lead to misunderstanding of
case and failure of analyses. It is recommended to read guidelines before and after reading the case
to understand what is asked and how the questions are to be answered. Therefore, in-depth
understanding f case guidelines is very important.
 Harvard Case Study Solutions

STEP 2: Reading The Globe Telecom Harvard

Case Study:
To have a complete understanding of the case, one should focus on case reading. It is said that case
should be read two times. Initially, fast reading without taking notes and underlines should be done.
Initial reading is to get a rough idea of what information is provided for the analyses. Then, a very
careful reading should be done at second time reading of the case. This time, highlighting the
important point and mark the necessary information provided in the case. In addition, the quantitative
data in case, and its relations with other quantitative or qualitative variables should be given more
importance. Also, manipulating different data and combining with other information available will give
a new insight. However, all of the information provided is not reliable and relevant.
When having a fast reading, following points should be noted:
 Nature of organization
 Nature if industry in which organization operates.
 External environment that is effecting organization
 Problems being faced by management
 Identification of communication strategies.
 Any relevant strategy that can be added.
 Control and out-of-control situations.
When reading the case for second time, following points should be considered:
 Decisions needed to be made and the responsible Person to make decision.
 Objectives of the organization and key players in this case.
 The compatibility of objectives. if not, their reconciliations and necessary redefinition.
 Sources and constraints of organization from meeting its objectives.
After reading the case and guidelines thoroughly, reader should go forward and start the analyses of
the case.
STEP 3: Doing The Case Analysis Of Globe
Telecom:
To make an appropriate case analyses, firstly, reader should mark the important problems that are
happening in the organization. There may be multiple problems that can be faced by any
organization. Secondly, after identifying problems in the company, identify the most concerned and
important problem that needed to be focused.
Firstly, the introduction is written. After having a clear idea of what is defined in the case, we deliver it
to the reader. It is better to start the introduction from any historical or social context. The challenging
diagnosis for Globe Telecom and the management of information is needed to be provided.
However, introduction should not be longer than 6-7 lines in a paragraph. As the most important
objective is to convey the most important message for to the reader.
After introduction, problem statement is defined. In the problem statement, the company’s most
important problem and constraints to solve these problems should be define clearly. However, the
 problem should be concisely define in no more than a paragraph. After defining the problems and
constraints, analysis of the case study is begin.
STEP 4: SWOT Analysis of the Globe Telecom
HBR Case Solution:
SWOT analysis helps the business to identify its strengths and weaknesses, as well as
understanding of opportunity that can be availed and the threat that the company is facing. SWOT
for Globe Telecom is a powerful tool of analysis as it provide a thought to uncover and exploit the
opportunities that can be used to increase and enhance company’s operations. In addition, it also
identifies the weaknesses of the organization that will help to be eliminated and manage the threats
that would catch the attention of the management.
This strategy helps the company to make any strategy that would differentiate the company from
competitors, so that the organization can compete successfully in the industry. The strengths and
weaknesses are obtained from internal organization. Whereas, the opportunities and threats are
generally related from external environment of organization. Moreover, it is also called Internal-
External Analysis.
STRENGTHS:
In the strengths, management should identify the following points exists in the organization:
 Advantages of the organization
 Activities of the company better than competitors.
 Unique resources and low cost resources company have.
 Activities and resources market sees as the company’s strength.
 Unique selling proposition of the company.
WEAKNESSES:
 Improvement that could be done.
 Activities that can be avoided for Globe Telecom.
 Activities that can be determined as your weakness in the market.
 Factors that can reduce the sales.
 Competitor’s activities that can be seen as your weakness.
OPPORTUNITIES:
 Good opportunities that can be spotted.
 Interesting trends of industry.
 Opportunities for Globe Telecom can be obtained from things such as:
 Change in technology and market strategies
 Government policy changes that is related to the company’s field
 Changes in social patterns and lifestyles.
 Local events.
THREATS:
Following points can be identified as a threat to company:
 Company’s facing obstacles.
 Activities of competitors.
 Product and services quality standards
 Threat from changing technologies
 Financial/cash flow problems
 Weakness that threaten the business.
Following points should be considered when applying SWOT to the analysis:
 Precise and verifiable phrases should be sued.
 Prioritize the points under each head, so that management can identify which step has to be
taken first.
 Apply the analyses at proposed level. Clear yourself first that on what basis you have to
apply SWOT matrix.
 Make sure that points identified should carry itself with strategy formulation process.
 Use particular terms (like USP, Core Competencies Analyses etc.) to get a comprehensive
picture of analyses.
STEP 5: PESTEL/ PEST Analysis of Globe
Telecom Case Solution:
Pest analyses is a widely used tool to analyze the Political, Economic, Socio-cultural, Technological,
Environmental and legal situations which can provide great and new opportunities to the company
as well as these factors can also threat the company, to be dangerous in future.
Pest analysis is very important and informative. It is used for the purpose of identifying business
opportunities and advance threat warning. Moreover, it also helps to the extent to which change is
useful for the company and also guide the direction for the change. In addition, it also helps to avoid
activities and actions that will be harmful for the company in future, including projects and strategies.
To analyze the business objective and its opportunities and threats, following steps should be
followed:
 Brainstorm and assumption the changes that should be made to organization. Answer the
necessary questions that are related to specific needs of organization
 Analyze the opportunities that would be happen due to the change.
 Analyze the threats and issues that would be caused due to change.
 Perform cost benefit analyses and take the appropriate action.
 Pest analysis

PEST FACTORS:
POLITICAL:
 Next political elections and changes that will happen in the country due to these elections
 Strong and powerful political person, his point of view on business policies and their effect on
the organization.
 Strength of property rights and law rules. And its ratio with corruption and organized crimes.
Changes in these situation and its effects.
 Change in Legislation and taxation effects on the company
 Trend of regulations and deregulations. Effects of change in business regulations
 Timescale of legislative change.
 Other political factors likely to change for Globe Telecom.
ECONOMICAL:
 Position and current economy trend i.e. growing, stagnant or declining.
 Exchange rates fluctuations and its relation with company.
 Change in Level of customer’s disposable income and its effect.
 Fluctuation in unemployment rate and its effect on hiring of skilled employees
 Access to credit and loans. And its effects on company
 Effect of globalization on economic environment
 Considerations on other economic factors
SOCIO-CULTURAL:
 Change in population growth rate and age factors, and its impacts on organization.
 Effect on organization due to Change in attitudes and generational shifts.
 Standards of health, education and social mobility levels. Its changes and effects on
company.
 Employment patterns, job market trend and attitude towards work according to different age
groups.

case study solutions

 Social attitudes and social trends, change in socio culture an dits effects.
 Religious believers and life styles and its effects on organization
 Other socio culture factors and its impacts.
TECHNOLOGICAL:
 Any new technology that company is using
 Any new technology in market that could affect the work, organization or industry
 Access of competitors to the new technologies and its impact on their product
development/better services.
 Research areas of government and education institutes in which the company can make any
efforts
 Changes in infra-structure and its effects on work flow
 Existing technology that can facilitate the company
 Other technological factors and their impacts on company and industry
These headings and analyses would help the company to consider these factors and make a “big
picture” of company’s characteristics. This will help the manager to take the decision and drawing
conclusion about the forces that would create a big impact on company and its resources.
STEP 6: Porter’s Five Forces/ Strategic Analysis
Of The Globe Telecom Case Study:
To analyze the structure of a company and its corporate strategy, Porter’s five forces model is used.
In this model, five forces have been identified which play an important part in shaping the market
and industry. These forces are used to measure competition intensity and profitability of an industry
and market.
 porter’s five forces model
These forces refers to micro environment and the company ability to serve its customers and make a
profit. These five forces includes three forces from horizontal competition and two forces from
vertical competition. The five forces are discussed below:
 THREAT OF NEW ENTRANTS:
 as the industry have high profits, many new entrants will try to enter into the market.
However, the new entrants will eventually cause decrease in overall industry profits. Therefore, it is
necessary to block the new entrants in the industry. following factors is describing the level of threat
to new entrants:
 Barriers to entry that includes copy rights and patents.
 High capital requirement
 Government restricted policies
 Switching cost
 Access to suppliers and distributions
 Customer loyalty to established brands.
 THREAT OF SUBSTITUTES:
 this describes the threat to company. If the goods and services are not up to the standard,
consumers can use substitutes and alternatives that do not need any extra effort and do not make a
major difference. For example, using Aquafina in substitution of tap water, Pepsi in alternative of
Coca Cola. The potential factors that made customer shift to substitutes are as follows:
 Price performance of substitute
 Switching costs of buyer
 Products substitute available in the market
 Reduction of quality
 Close substitution are available
 DEGREE OF INDUSTRY RIVALRY:
 the lesser money and resources are required to enter into any industry, the higher there will
be new competitors and be an effective competitor. It will also weaken the company’s position.
Following are the potential factors that will influence the company’s competition:
 Competitive advantage
 Continuous innovation
 Sustainable position in competitive advantage
 Level of advertising
 Competitive strategy
 BARGAINING POWER OF BUYERS:
 it deals with the ability of customers to take down the prices. It mainly consists the
importance of a customer and the level of cost if a customer will switch from one product to another.
The buyer power is high if there are too many alternatives available. And the buyer power is low if
there are lesser options of alternatives and switching. Following factors will influence the buying
power of customers:
 Bargaining leverage
 Switching cost of a buyer
 Buyer price sensitivity
 Competitive advantage of company’s product
 BARGAINING POWER OF SUPPLIERS:
 this refers to the supplier’s ability of increasing and decreasing prices. If there are few
alternatives o supplier available, this will threat the company and it would have to purchase its raw
material in supplier’s terms. However, if there are many suppliers alternative, suppliers have low
bargaining power and company do not have to face high switching cost. The potential factors that
effects bargaining power of suppliers are the following:
 Input differentiation
 Impact of cost on differentiation
 Strength of distribution centers
 Input substitute’s availability.

STEP 7: VRIO Analysis of Globe Telecom:

Vrio analysis for Globe Telecom case study identified the four main attributes which helps the
organization to gain a competitive advantages. The author of this theory suggests that firm must be
valuable, rare, imperfectly imitable and perfectly non sustainable. Therefore there must be some
resources and capabilities in an organization that can facilitate the competitive advantage to
company. The four components of VRIO analysis are described below:
VALUABLE: the company must have some resources or strategies that can exploit opportunities and
defend the company from major threats. If the company holds some value then answer is yes.
Resources are also valuable if they provide customer satisfaction and increase customer value. This
value may create by increasing differentiation in existing product or decrease its price. Is these
conditions are not met, company may lead to competitive disadvantage. Therefore, it is necessary to
continually review the Globe Telecom company’s activities and resources values.
RARE: the resources of the Globe Telecom company that are not used by any other company are
known as rare. Rare and valuable resources grant much competitive advantages to the firm.
However, when more than one few companies uses the same resources and provide competitive
parity are also known as rare resources. Even, the competitive parity is not desired position, but the
company should not lose its valuable resources, even they are common.
COSTLY TO IMITATE: the resources are costly to imitate, if other organizations cannot imitate it.
 However, imitation is done in two ways. One is duplicating that is direct imitation and the other one is
substituting that is indirect imitation.
Any firm who has valuable and rare resources, and these resources are costly to imitate, have
achieved their competitive advantage. However, resources should also be perfectly non sustainable.
The reasons that resource imitation is costly are historical conditions, casual ambiguity and social
complexity.
ORGANIZED TO CAPTURE VALUE: resources, itself, cannot provide advantages to organization
until it is organized and exploit to do so. A firm (like Globe Telecom) must organize its management
systems, processes, policies and strategies to fully utilize the resource’s potential to be valuable,
rare and costly to imitate.
STEP 8: Generating Alternatives For Globe
Telecom Case Solution:
After completing the analyses of the company, its opportunities and threats, it is important to
generate a solution of the problem and the alternatives a company can apply in order to solve its
problems. To generate the alternative of problem, following things must to be kept in mind:
 Realistic solution should be identified that can be operated in the company, with all its
constraints and opportunities.
 as the problem and its solution cannot occur at the same time, it should be described as
mutually exclusive
 it is not possible for a company to not to take any action, therefore, the alternative of doing
nothing is not viable.
 Student should provide more than one decent solution. Providing two undesirable
alternatives to make the other one attractive is not acceptable.
Once the alternatives have been generated, student should evaluate the options and select the
appropriate and viable solution for the company.
STEP 9: Selection Of Alternatives For Globe
Telecom Case Solution:
It is very important to select the alternatives and then evaluate the best one as the company have
limited choices and constraints. Therefore to select the best alternative, there are many factors that
is needed to be kept in mind. The criteria’s on which business decisions are to be selected areas
under:
 Improve profitability
 Increase sales, market shares, return on investments
 Customer satisfaction
 Brand image
 Corporate mission, vision and strategy
 Resources and capabilities
Alternatives should be measures that which alternative will perform better than other one and the
valid reasons. In addition, alternatives should be related to the problem statements and issues
described in the case study.
STEP 10: Evaluation Of Alternatives For Globe
Telecom Case Solution:
If the selected alternative is fulfilling the above criteria, the decision should be taken
straightforwardly. Best alternative should be selected must be the best when evaluating it on the
decision criteria. Another method used to evaluate the alternatives are the list of pros and cons of
each alternative and one who has more pros than cons and can be workable under organizational
constraints.
STEP 11: Recommendations For Globe Telecom
Case Study (Solution):
There should be only one recommendation to enhance the company’s operations and its growth or
solving its problems. The decision that is being taken should be justified and viable for solving the
problems.