UNIVERSITY OF PRETORIA RESEARCH PROPOSAL

An Evaluation of the Role of Channel Management Function

NME804: Individual Assignment

Innocent Pereira 11171236
13/05/2011

TABLE OF CONTENTS CONTENTS Proposal 1 Background and Overview 2 Reason for research 3 Purpose of the study 4 Sub Problems 5 Scope and limitations 6 Research methodology 7 Theoretical Overview 8 Activities of Channel Management Function 9 Implementation Models of Channel Management 10 Advantages of Channel Management 11 Risks associated with the Channel Management Function 12 Branded Channel Overview: MTN 13 Proposal layout of the Report 14 References 2 5 6 6 7 7 9 11 11 12 12 13 15 16 PAGE (S)

1. Background and overview According to Rangan and Bell (2006) Channel Management is a strategic challenge demanding top-level managements attention. Business functions role redefinition and the trend towards value-added services are reshaping the channel management environment (Gatton 1998). The environment of business on a global basis is becoming extremely complex and has been experiencing unprecedented continuous, rapid change (Burnes, 1998). This rate of change is experienced in South Africa as well. Traditional methods of channel management are now challenged with a need to deliver a consistent customer experience, guided by a strategic channel operating model. Competition today is increasingly being portrayed as competition among business channel networks. There is a growing need for go-to-market strategies that refine channel strategies and managing distribution relationships (Gorchels, West, Marien, 2004). The market in which companies operate is characterized by non-owned (outsourced) and a hybrid of owned (Vertical integrated) combined with non-owned channel formats. Many firms recognize that all offer significant opportunities to gain more value from sales and distribution perspective. Traditionally firms specialised in performing some activities and depended on others providing complementary activities including suppliers, distributors, service providers, and consumers. The challenge is greatly how it is going to develop and manage its relations with other channel member firms on whom it depends for various product and services (Gatton, 1998). However, channel management has evolved as an effective way of keeping costs down and improving efficiency, and carry out marketing and distribution work through both owned and non-owned channels. One way to meet this challenge is for companies to take a broad view of the field of inter-firm relations and networks, as well as consumer experience expectations, and set up a robust strategic channel management model. According to Gatton (1998), by restructuring their channels companies have attempted to capture several opportunities, lead by top management whom have adopted a

strategic approach to lead the migration to the new channel vision. The advances in technology have also significantly enhanced the firms to provide what the consumer needs, sometimes has even before the the consumer supply know it themselves. Faster those communication between Supplier, manufacturers, distributors, and retail channel members vastly improved chain management within environments. Gorchels, et al (2004) asserts that today most innovative corporations are literally rewriting the rules of channel management and redesigning their distribution strategies to take full advantage of the changes in technological and operational innovations. Senior management understanding and support of an evolving framework approach to channel management and supply chain is necessary (de Koster, de Koster, & Delfman, 2007). Despite its importance, channel management discipline receives fewer attempts to be adopted as a strategic issue by senior executive than they do other functions in the business environment such as production, finance, marketing, etc. Due to lack of managements full understanding of channel management as it evolves, they tend to create roles and channel functions that are not linked to the environmental dynamics. Therefore Management is unable to set a strategic tone towards: Persuade channel participants to act in concert, Identify and share critical data, and redefine their relationships with channel members To asses and apportioning investment, risk and reward Also to manage complex decisions to design and implement a channel network that crosses multiple functions and business units. De Koster, et al (2007) asserts that for any company to be highly competitive at a global level, it needs to have the best technologies and business processes at the lowest possible cost. An efficient channel has the potential to deliver on this. The strategic opportunities that may accrue from a good channel management structure are: Greater cost efficiency - Cost savings and economies of scale through leveraging technology has dramatically reduced sales cost (e.g. in transaction processing) 4

Broader customer base channel models have the ability to meet the needs of techno-friendly buyer segments at the same time reducing distribution costs. Deeper Customer relationships Channel networks will improve the customer relationship through a seamless consumer experience. Loyal consumers are worth a lot.

Information and intelligence captured through the network of customer-supplier relationship, which facilitates the development of new ideas for products, services, and process accomplishments

Channel Management can be practiced through a firms owned or non-owned, or a hybrid of channel participants. Channel management is characterized by strategic decision on the following business decisions: Channel network design Defining the roles of network participants Bringing the network members together Measuring and rewarding network members Building the supporting infrastructure

According to Rolnicki (1998) active cooperation is necessary to ensure all points of view are taken into consideration. Cooperation requires mutual direction and definition of process, enabling the collective associations or operating units to develop together. Effective Channel Management The American Management Associations (2009) asserts that an effective channel Management function will be informed by trends within Channel Management and Their Impact on Decision Making. These trends are trend are easily understood through the keeping a view and understanding of:

Effect Mergers and Acquisitions Have on Channel Management The Role of Channel Partner and different Channel Partner Options The Current Channel Flow of Goods and Services of Participants

Options That Are Available to Managers

The association further asserts that once these trends are understood, then an effective channel management function can be put in place through taking informed and calculated decision in: Channel Partner Selection The Needs of Your Channel Partner Policies and Procedures Training and Motivating Your Channel Partner Legal Considerations

This study attempts to evaluate the role of Channel Management function of the Branded Channel a case study of MTN Service provider in South Africa. Through understanding what makes an effective channel, the following points will be explored: Why channel networks are structured the way they are? This includes understanding the reasons for particular structures existing at different times and places, the reasons for activities being divided up among them and the nature of the relations or connections among the organizations and activities. To what extent and how are the activities of different structures in a network are coordinated, managed and controlled? How and why does the structure and coordination of a network change over time, i.e. how does it develop and evolve? How do we identify and create optimal or better performing channel networks? How do individual organizations in a network deal with their relations with others in the channel network? .2. Reason for research Channel Management in South Africa is becoming a critical function in business to ensure a seamless consumer interaction with products and brands. The researchers reason for choosing the topic is to draw business managers and senior managements

attention towards the strategic roles and functions of Channel Management into gaining a sustainable competitive advantage within a maturing South African consumer market context. 3. Purpose of the Study The purpose of this research is to evaluate the Channel Management function through conducting a case study of MTNs Consumer Branded Channel past and present and future activities in developing effective channel strategies to access a broader base of consumers and offer them better products and service. Thereafter, its also to offer recommendations for a channel strategy in the face of growing market complexity based on; evolving South African consumer market, trading partner dynamics, new options for interacting with consumers and the changing regulatory environment. 4. Sub-Problems In order to attract senior managements attention to the imperative of formulating a channel strategy and master complex channel dynamics, the following sub-problems were identified: 1. What is the past, current and future functions of channel management? 2. What is the definitive characteristic of the future Channel management function, and what qualities make the channel distinct and what does the operational content look like? 3. What is the most appropriate and profitable implementation, and what are the sources of financial value propositions for the channel? 4. What are the pros and cons that channel management function brings into the entire business and its future strategic relevance to sustainability and in gaining future competitive advantage? These sub-problems will serve to guide the researcher in developing future strategic intent for the Channel Management function.

5. Scope and Limitations With Channel Management only recently becoming a critical function in business to focus on ensuring a seamless consumer experience and interaction with products and brands in South Africa, there is limited readily available information. Therefore knowledge and understanding of channel management may be restricted to the few managers and units who have adopted the concept. Limited timelines is another limiting factor; it would have been ideal to embark on full comprehensive evaluation of the channel management function in the whole consumer market in South Africa. This however is not possible and therefore it has been decided to focus on MTN South Africa only. 6. Research Methodology This study attempts to evaluate the Channel Management function through conducting a case study of MTNs Consumer Branded Channel. The Research Design for this dissertation will therefore be in the form of a case study. Case study research is a methodologically flexible approach to research design that focuses on a particular case (Rosenberg & Yates, 2007). This will involve an empirical evaluation of the channel management functions. According to Robson in Saunders et al, (2007) a case study is the development of detailed, intensive knowledge about a single case, or a small number related cases He further states that the case study approach has considerable ability to generate answers to the question why? as well as the what? and how? questions. The researcher will carry out qualitative research in order to get sound information regarding this case study. Creswell in Leedy, (1997) states that the researcher collects data using a variety of data collection methods such as, interviews, observations and documentary analysis and it is done during a sustained period of time. The methodology to be followed by the author will be Qualitative research.

Qualitative Research is a research that describes the phenomena in its totality. This research consists of the understanding of social and cultural problems and is directed on interactive processes to collect subjective information. This information in mostly interactive with people is of great importance when conducting qualitative research. (Cooper & Schindler, 2008) Yin (2003) asserts that through established correct operational measures for the concepts being studied one can meet the test of construct validity. The researcher will use multiple sources of evidence, create a case study database (notes, documents, and tabular material) and maintain a chain of evidence. Saunders et al (2007). Methods of data collection have different advantages and disadvantages and, given this fact, it would seem to make sense to try and achieve a balance and consistency. Measuring Instrument The measuring instruments will include open ended questionnaires, Structured and semi-structured interviews, documents, and records from organisations channel leadership within MTN and four other companies that practice or have previously practiced channel management. The researcher will conduct structured and semi structured interviews with the Senior Managers, middle managers of the business unit at Head office. To assure internal validity, researchers have to establish casual relationship where certain conditions are shown to lead to other conditions. Sample Size and Characteristics. The researcher has chosen to follow a Qualitative methodology, and a non-probability sampling. Coopers and Schindler (2008) describes three types of non-probability sampling approach; Purposive, Snowball sampling, and convenience sampling available. Sampling techniques considered by the researchers have been divided into two types:

Probability/representative sampling Non-probability/purposive sampling

With probability sampling, the chances of each case being selected from the population are known and are usually equal for all cases. Consequently, the technique is often associated with survey and to a lesser extent experiment research. With non-probability sampling, this criterion is not meet and should be used with caution Saunders et al (2007). The researchers method of sampling will be purposive sampling; a non-probability sampling procedure which chooses the sample based on who is thought would be appropriate for the study. This is used primarily when there is a limited number of people that have expertise in the area being researched. The population size to target in this case study comprises of MTN Sales and Service functional areas. The target population will be sub divided into three namely:

Exec Members, responsible leadership of the channel function Middle managers/operational managers, Junior frontline manager Sales staff members.

7. Theoretical Overview From an operational standpoint a channel is the path a product or service takes as it moves from the manufacturer to its end user or consumer (Rolnicki, 1998). According to MTNs branded channel strategy (2008), the key task of the channel was to ensure a seamless customer experience in all branded point of consumer contact (sub-channels). Rangan and Bell, (2006) asserts that channel management first and foremost responsibility is to achieve demand generation and fulfillment. Senior managers of most companies involved in moving goods from suppliers to end user would agree: their distribution channels are outdated and unwieldy, serving neither customer nor channel members as well as they should be (Rangan and Bell, 2006).

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In reviewing some channel management material participants agree on problems but solutions have been hard to pin down. Rangan and Bell (2006) notes that channel issues are overshadowed by the fact that: Channel decisions involve a lot of parties and are influenced by a host of factors such as legal, relationships and entrenched customer behavior. Channels often lack a strategic home, often viewed as tactical As a result of the two above, channels lack in strategic leadership and are often then viewed as a primary vehicle to just reach consumers. This trend has created within corporations the need for a new approach to channel management, one that addresses consumers needs as well as drive profitability of all channel players guided by sound governance. Selecting a channel for high-tech products requires the combination of three distinct sub-channels; sales channel, delivery channel and service channel (Gorchels, et al 2004). According to The Report South Africa publication (2008), there has been a great uptake in the mobile phone industry. It also notes that the industry remains remarkably unchanged, characterized by complains regarding high prices, uncompetitive fees and poor service. Research Surveys (2006), asserts that with the market having three major players; MTN and Vodacom licensed 1993, and Cell C licensed 1993, there are already signs of the market rapidly getting saturated. More than 50% of the people in major towns have cell phones. The survey by Research Surveys (2006) further reveals that 53% of South Africans already use mobile phones. Looking into these indicators, the market is most likely shifting from a consumer acquisition market to a consumer retention market as there will soon be less and less unconnected individuals. The independent communications Authority of South Africa (ICASA) introduced number portability in November 2006. Dr Tracy Cohen (ICASA), asserts that there is a move from regulating a duopoly to a system of managed liberalization for a more competitive market. Currently, according to the MTN 2008 strategy document, market share split (after removing unused sim cards) stands at Vodacom 49%, MTN 41%, and Cell C at

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10%. These players will all start to build capability to aggressively defend this market share and churn from each other via portability whenever possible. Channel management will be at the centre of this strategy execution. 8. Activities of Channel Management Function A channel Management function is typically a way on which a company chooses to go to the market of potential consumers and fulfillment of any orders that are placed (Weitz and Wensley, 2002). According to Anderson and Coughlan in The Hand Book for Marketing, (2002), Channel Management is concerned with three broad categories: Channel structure Strategic choices such as how many player and in what form (to own or to have independent channel players) Channel Governance the framework that ensures orderly pursuit, through contracts, use of incentives, and monitoring Channel relationship management (Including consumer relations) actions that frame the daily environment of the channel operations, through accumulation of and use of power, and relational norms In short the management of channel activities has a great potential for developing a competitive advantage. And the advantage accrued from good channel management is strategic as it is often durable, complex, difficult to put in place, and often difficult to imitate (Leedy, 1997). Rolnicki (1998) asserts that being a channel executive today is more challenging as channels change in the blink of an eye, and channel conflicts lurks everywhere, but so does opportunity for success. 9. Implementation Models of Channel Management Function A channel function is unique to the companys circumstances. It can vary as to the activities performed by a particular company, which include the sophistication of the end consumer channel members and as well as other factors. The major implementation models:

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Outsource model By implementing this model, a company use independent parties as part of the channel members, while maintaining them under minimal corporate control

Vertical integrate model - In this model, a company aggressively increases channel control through owning the channel Hybrid model combines both models

The market coverage and service levels strategy that you choose to pursue often dictates the model of channel management function that you pursue (Rolnicki, 1998). The executives choice is determined by the complexity of the products and how much customer support, training and other forms of support it requires. For instance if your product is of a complex nature, you may need to pursue a specialized strategic channel approach. Gorchels et al (2004) argues that Channel design decisions could be influenced by: According to desired control over the distribution network According to the size of the market to be serviced According to the cost of distribution network According to the flexibility of the network

10. Advantages of Channel Management Function Much of the early work in channels focused on identifying the functions of channels and explaining when and why these functions have utility (Anderson 1965) Increase Service Quality provides a customer service model Reduced Operating Cost through lean operational models, systems and processes improvement, quality measurement, and people efficiency. More focus on strategic issues

11. Risks Associated with Channel Management Some risks faced by companies in their Channel Management function include the following:

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A bureaucratic structure Channels can create an unnecessary bureaucratic process, frustrating the core process of servicing the consumer. Channel Member recruitment- finding a working model of selection Disruption in Operation The continuous implementation of change process can disrupt business processes and lead to human resource concerns such as lower morale, confusion and loss of workers.

Monitoring and governance lack of capacity to monitor and execute the channel governance role. Channel power base inability to manage the power base and losing it to the independent/outsourced channel member. A possibility of conflict as a consequence of power.

Lack of clarity of the form of strategic channel leadership risk of the function being misplaced for leadership.

12. MTN Branded Channel According to the MTN Distribution and optimization strategy, MTN, established in 1994 and operating in 21 countries, is a major player in the mobile phone industry in South Africa, focused in servicing the individual, corporate, commercial and international markets. Products include the following: Voice Data VOIP Hand set gadgets and accessories

These products are offered through the following mediums:

Dealer owned direct store network MTN owned Call Centre Network Virtual/Electronic retailing Corporate account managers

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MTNs approach to the market is geared towards the following view of serviceable segments: Corporate Clients SME Clients High Value Individuals (Consumer) Youth Consumer Mass Market Consumer Bottom of pyramid consumer

With increasing competition in the telecommunications market, customer winning battles increasing in volatility to frequent occurrence of customer churn, lead to the Branded Channel Function being created in January 2008.The channel consolidates the then fragmented channels known as independent dealers channel and, service centers channel, functions that were previously performed by the different divisions under Consumer Sales Operations. As the telecommunications market gradually becomes saturated and increment of new customers slowing down, maintaining and retaining customers has become the focus of attention more than ever. The challenge is how to actively develop new customers and at the same time reduce churn rate on old customers. One of the key mandates of the Branded channel is to come up with a superior customer experience and a system that allows for: Improved channel distribution Customer churn predictions Thriving churn predictions model Customer detainment strategy (retention) Operationalisation of the supply chain strategy (Business Plan Vs Sales forecast) Value innovations for customer satisfaction (right combination of value offerings for new business)

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13. Proposed Layout of the Research Report Chapter 1 Background and overview This chapter presents a brief background to the subject-matter, discussing the reasons for embarking on this research. Also providing an overview of the MTN Channel Management Function, it details the purpose of the research, including a synopsis of each chapter in this paper. Chapter 2 - Literature Review and Channel Management Framework at MTN This provides a theoretical foundation for the research from various secondary sources, introducing the various concepts and frameworks used. Also, present the result of an extensive review of literature conducted over the course of this study. The definition for the term channel management, the MTN Branded Channel frame work, which underpins this paper, is introduced in this chapter. Chapter 3- Research methodology used This Chapter will discuss the various techniques and tools used to acquire, analyze and present the data. The research strategy and methods used to conduct the primary research will be explained. Chapter 4 -Findings and Results The responses to questionnaires, result of interviews conducted will be analyzed in this chapter. The results and findings of the primary research will be presented in this chapter. Chapter 5 Recommendations and conclusion This chapter concludes the dissertation by providing recommendations to senior management of MTN and creating awareness to the strategic challenge of the Branded Channel at MTN.

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References: American Management Seminars. 2009, Effective Channel Management, Seminar No. 05590, Site: http://www.tregistry.com/ama5590.htm Visited 20 April 2011 Burnes, B., Dale., B. (1998): Working in partnership; Best Practice in Customer Supplier relations, Gower Publishing, Aldershort, England Creswell, J.W. (2003): Research Design: Qualitative, Quantitative, and Mixed Method Approaches, Sage Publishing, second edition, London Cooper, R.D., Schindler P.S. (2008) Business Research Methods. MagrawHill, New York. De Koster, M.B., De Koster, R., Delfmann, W. (2007) Managing supply Chain: Challenges and Opportunities, Copenhagen Business School Gattorna, J. (1998): Strategic Chain Allignment; Best Practice in Supply chain Management, Gower Pubishing Aldershot, sixth edition Gerring, J., McDermott, J. (2007). An Experimental Template for Case Study Research. American Journal of Political Science, Vol. 51 Issue 3, p688-701 Gorchels, L., West, C., Marien, E.J. (2004): The managers Guide to Distribution Channels, Magrowhill Professional ICASA Publishes number portability regulation,

www.info.gov.za/speeches/2005/05100712151004.htm. Visited 13 April 2011 Leedy, P.D., (1997): Practical research planning and design, Sixth edition, Merrill, an imprint of prentice hall, Inc.

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MTN Finance, Distribution and Optimization Strategic Direction 2008 - 2012, October 2007 presentation. Rangan, V.K., Bell, M. (2006): Transforming Your Go-to-market Strategy: The Three Disciplines of Channel Management, Harvard Business Press, USA Rolnicki, K. (1998) Managing Channels of Distribution, AMACOM, Broadway, New York Rosenberg, J., Yates, P. (2007) Schematic representation of case study research designs, Journal of Advanced Nursing, Vol. 60 Issue 4, p447-452. Saunders, M, Lewis, P, Thornhill, A., (2007): Research methods for business studies, Pearson education, Fourth edition. Weitz, B.A., Wensley, R. (2002): Handbook of Marketing, Sage Publishing, London. Yin, R.K. (2003): Case Study Research: Design and Methods, Sage publishing, second edition.

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