Vodafone Business Performance Measures

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Vodafone Business Performance Measures

  1. 1. Running Head: Business Performance Measures in Vodafone Group Business Performance Measures in Vodafone Group Toru Sekiguchi August 8th, 2010 i
  2. 2. Table of ContentsTitle Page…………………………………………………………………………………............ iTable of Contents…………………………………………………………………….................. iiAbstract…………………………………………………………………………….................... iii1. Introduction…………………………………………………………………………………. 12. Building a coherent set of performance measures………………………………………... 2 2.1 Performance Measures………………………………………………………….... 2 2.2 Balanced Scorecard………………………………………………………………. 2 2.3 Key Performance Indicators……………………………………………………... 33 Application of measures of performance………………………………………………….. 5 3.1 Balanced Scorecard Approach in Vodafone Group ………………… ………….. 5 3.2 The application of the Balanced Scorecard to Vodafone Group ………………... 5 3.3 Customer Perspective…………………………………………………………….. 7 3.4 Financial Perspective…………………………………………………………….. 8 3.5 Learning and Growth Perspective…………………………………………………9 3.6 Business Process Perspective………………..…………………………………… 94 Analyzing and Interpreting results………………………………………………………. 11 4.1 Balanced Scorecard Analysis………………………………………………….... 11 4.2 An Actual Value versus a Target Value …………..………………....………… 11 4.3 An Actual Value versus a Series of the Previous Values of the same KPI…….. 13 4.4 The Actual Values versus Industry Norms……………………………………... 13 4.5 Regression analysis……………………………………………………………... 145 Building a monitoring system…………………………………………………………….. 186 Continuously improving organizational performance………………………………….. 217 Conclusions……………………………………………………………………………….... 238 Bibliography………………………………………………………………………….......... 24 ii
  3. 3. Abstract A business performance measure is a critical function that provides strategic, steering, andoperational management with business intelligence in order to make better decision. It can alsohelp an organization to immediately find and address critical issues on the important businessaspects. While business performance measure is widely perceived as a key lever for eachorganization to achieve the vision and strategy, the implementation steps definitely vary fromcompany to company. Vodafone Group has already implemented the business scorecard approach to manage bothfinancial and non-financial perspectives due to the inevitable increase in complexity of systemsand organizational structures and continuously changing external factors while rapidly expandingits business globally through acquisitions, joint-ventures, and partnerships. Its key four strategiesare clearly developed in line with the vision and its own environments, and they are definitelydecomposed into each of strategic objectives. Relevant KPIs have been subsequently defined andreported both internally and externally. However, most of measures are associated with thefinancial perspective and also the absolute values and some other KPIs like ratios should bedeveloped as proposed in this research. In addition, most of strategic KPIs are strongly alignedwith global and company-wide strategies and Vodafone should clearly define the level of localstakeholder involvement in the performance measurement. For example, strategic KPIs are onlyaligned with global and company-wide strategies but tactical KPIs that strategic KPIs can betranslated into should be developed in line with local specific business environments. The best practice of Vodafone‟s performance measures is a comprehensive performancemanagement system, Global Supply Chain Management System. The system has been developedand implemented by fully leveraging global scale and scope. All internal and externalstakeholders in the SCM community have high visibility to the end-to-end supply chainmanagement process, and Vodafone Group can find, analyze and optimize performancedegradation immediately with all stakeholders beyond Vodafone Group. iii
  4. 4. 1. Introduction A business performance measure is a critical function that provides strategic, steering, andoperational management with business intelligence in order to make better decision. It can alsohelp them to immediately find and address critical issues on the important business aspects.While business performance measure is widely perceived as a key lever for each organization toachieve the vision and strategy, the implementation steps definitely vary from company tocompany. Vodafone Group is the world‟s leading mobile operator with a significant presence in Europe,Asia Pacific, United States, and the Middle East. Vodafone Group has a truly internationalcustomer base with “341 million proportionate customer base” (Vodafone, 2010a, p. 8).Vodafone Group has implemented its growth strategy that it expands its business globallythrough its subsidiaries, joint-ventures, and strategic alliances. While improving cost andoperational efficiency and maintaining competitive advantages by leveraging global scale andscope, its strategies and strategic objectives must be greatly complicated in line with bothdomestic and global perspectives and also completely different from those of domestic operators. The objective of this research is to analyze how effectively Vodafone has implemented andmanaged performance measures to achieve its objectives while managing both global and localstakeholder‟s expectations. Building a coherent set of performance measures, application ofmeasures of performance, analyzing and interpreting results, building monitoring systems andfinally continuously improving organizational performance are discussed in this research. 1
  5. 5. 2. Building a coherent set of performance measures2.1 Performance Measures A performance management is referred to as both corporate performance management andbusiness performance management. Business performance management is “a framework fororganizing, automating, and analyzing the business methodologies, metrics, processes, andsystems that drive business performance” (Volitich, 2008, p4.). A performance measure is a critical function that provides strategic, steering, and operationalmanagement with business intelligence. To make better decision, it definitely helps them identifyan impact on their strategies, strengthens and weaknesses, and the bottleneck to successfulstrategy formulation and implementation, determine the effectiveness of those strategies, andmonitor and assess the performance against the business strategies and targets. Meanwhile, it isobviously difficult for management to see what results can be anticipated and what results areactually achieved without using performance measures. According to Pinterits (2009),“performance measurement can be defined as the process of qualifying the efficiency andeffectiveness of an action”, and “a performance measure can be defined as a metric used toqualify the efficiency and/or effectiveness of an action” (p. 29). The objectives and the degree of sophistication of performance measurements greatly varyfrom company to company and each company has developed and adopted different performancemeasurement systems in line with each own strategy and strategic objectives. In manufacturingcompanies, one of the objectives of performance measurements is to monitor the manufacturingprocess to reduce recurring manufacturing problems and maintain high quality standards. Infinancial service businesses, performance measurement is a key task of performance and riskmanagement activities and is used to assess the result of the investment. Although there are various performance measurement models, an organization shouldunderstand the benefits, risks and critical success factors when it implements the models. Wang(2009) summarized four key steps in developing the proper performance measures. Understanding the measurement objective Adopting a measurement framework Developing a specific performance measures Checking a goodness of a measure2.2 Balanced Scorecard The balanced scorecard is a coherent set of performance measures that are directly linked tothe vision and strategy, and strategic objectives. It was developed by “Robert S. Kaplan andDavid P. Norton, it directs a company to link its own long-term strategy with tangible goals andactions” (Pearce and Robinson, 2008, p. 202). An organization is viewed from four perspectivesas financial, customer, internal business process, and learning and growth, and each perspectivecontains the objectives, measures, targets, and initiatives which are tailored to organization‟svision and strategy as shown in Figure 2.1. Pearce and Robinson (2008) analyzed fourperspectives: 2
  6. 6.  The learning and growth perspective focuses on how well an organization is continuously improving and creating values. The scorecard insists on measures related to innovation and organizational learning to gauge performance on this dimension. The business process perspective focuses on an organization‟s core competences and areas of operational excellence. The customer perspective focuses on customer satisfaction that typically adds measures related to defect levels, on-time delivery, warranty support and product development that come from direct customer input and are liked to specific customer activities. The financial perspective focuses on how an organization is doing well for its shareholders. A financial performance perspective typically uses measures such as cash flow, return on equity, sales, and income growth. The balanced score card methodology enables strategic objectives to be linked withshareholder value maximization while it is balanced between short term and long term measures,financial and non financial measures, internal and external performance perspectives.Performance measurement begins with the definition of KPIs (Key Performance Indicators).Figure 2.1: Balanced ScorecardNote: from http://www.balancedscorecard.org/2.3 Key Performance Indicators Key Performance Indicators (KPIs) are a set of metrics that regularly assess the health ofeach business activity against the strategic and operational objectives. KPIs represent “a set ofmeasures focusing on those aspects of organizational performance that are the most critical forthe current and future success of the organization” (Parmenter, 2010, p.3). 3
  7. 7. The actual KPI values are compared to the target KPI values in the balanced scorecard on aregular basis while KPIs have changed in response to the business environment changes. Thebetter the actual KPIs are compared to the target KPIs, the higher the scores in most cases. KPIsprovide an objective feedback and facilitate the objective setting for future performance. KPIs can be divided into the strategic, tactical, and operational levels. Strategic KPIs can bedirectly translated into tactical KPIs and subsequently into operational KPIs, and they arelogically tied with each other through a set of cascading dashboards. “Dashboards can beconfigured and personalized to provide strategic, operational and tactical views of theorganization, processes, services, and activities” (Smith, 2008, p.30) in line with each decisionmaking level. According to Rasmussen, Bansal and Chen (2009), there are ten steps to use plan a KPIdesign project: Build the team. Clarify and agree to the organization‟s strategies and tactics. Decide on dashboard categories and prioritize. Choose organizational deployment. Create a list of KPIs and metrics for each strategic objective. Test KPIs against framework. Select top KPIs. Choose presentation method and interactivity for each KPI. Document decisions and get sign-off. Design architecture and dashboards based on document. 4
  8. 8. 3. Application of measures of performance3.1 Balanced Scorecard methodology in Vodafone Group Vodafone Group has already implemented the balanced scorecard methodology that is notonly focuses on the financial perspective but also customer, business process, and learning andgrowth perspectives. The approach has helped Vodafone Group create additional values. According to EFM Software (2009), there are several reasons why Vodafone Group decidedto use the balanced scorecard and eventually developed eighty and even up to one hundredindicators: There was a need for operational performance measurement and feedback. The increasing complexity of systems and organization as a consequence of its rapid growth led to decreasing coherence between different management reports. The business dynamics cause continuously changing external factors which in turn influence the decision making. In the interview conducted by Pointon (2005), the former CEO at Vodafone Australia,Grahame Maher mentioned the values of the balanced scorecard: As for the BSC the beauty of that theory is that everything in the business should be measured and not just the accepted financial measures. The BSC has a natural flow which says the flow is PEOPLE then PROCESS then CUSTOMER and then finally FINANCIAL measures as they are just outcomes of the other stuffs. This is completely consistent with the Values based approach which puts people as the most important focus (p.1). In another the interview conducted by Supply Chain Standard (2006), the head of services atVodafone Global Supply Chain explained the values of the balanced scorecard as “in terms ofbuilding the community to maximize performance, we are well down the track on structuring anintegrated SCM organization and are to implement a balanced scorecard reflecting not justsavings but the total value add to Vodafone of the SCM function” (p. 1). In addition to internal performance management objective, Vodafone Group has externallyreported some of its KPIs in its interim management statement on a regular basis. Actual andtarget values of EBITDA margins, service revenue growth, free cash flow, net debt, adjustedoperating profit, and data traffic growth are included in the statement.3.2 The Application of the Balanced Scorecard to Vodafone Group Pearce and Robinson (2008) argued that the balanced scorecard contains “a concisedefinition of the company‟s vision and strategy. Surrounding the vision and strategy are fouradditional boxes; each box contains objectives, measures, targets, and initiatives for one of fourperspectives” (p. 202). Strategic objectives, measures, targets, and initiatives of four perspectivesare developed in accordance with Vodafone‟s vision and strategy to find out the importance ofthe balanced performance. 5
  9. 9. Vodafone Group‟s vision is “to be the communications leader in an increasingly connectedworld” (Vodafone, 2010a, p. 2). The company was established in 1982, and now is one of theworld‟s largest mobile operators managing the ultra large-scale mobile networks in 25 countriesand has a presence through partnerships in another 39 countries. In addition to its core mobilecommunications business growth, it has expanded fixed broadband customer base to “5.6 millionat 31 March 2010 from 2.1 million in March 2007” (Vodafone, 2010a. p. 5) to be a totalcommunications provider. Vodafone‟s continuous innovation to adapt new technologies and itsgeographic diversity are allowing its customers to lead their lives more efficiently andpleasurably while staying connected to the people and the information around the globe. In the annual report 2010 (Vodafone, 2010a), Vittorio Colao, Chief Executive at Vodafonestated the four strategies:  Drive operational performance.  Pursue growth opportunities in total communications.  Execute in emerging markets.  Strengthen capital discipline to drive shareholder returns. To drive operational performance, Vodafone Group intends to enhance customer values inorder to maximize the value of existing customer relationships. Vodafone Group has not used thelower price than other competitors to attract new customers and retain existing customers and itrather focuses on creating and launching new value-added services to increase the averagerevenue per user („ARPU‟) while effectively targeting its offers and services around the globe.Employees are perceived as a source of competitive advantages to improve existing customerrelationships and Vodafone Group has maintained high performance benchmark for employeeengagement. To pursue growth opportunities in total communications, Vodafone Group has targeted“three key areas for growth – mobile data use, broadband, and enterprise services” (Obiodu,2010, p. 7). Vodafone Group‟s successful smartphone penetration growth ensures that itssmartphone users have paid more for data services than its traditional phone users. It hasaggressively launched mobile broadband offering across its key markers through the mergers andacquisitions, and “data revenue grew by 19.3% and is now over £4 billion” (Vodafone, 2010a,p.7). In the enterprise markets, it also intends to increase the penetration of data devices, deliverits broadband service, and strengthen its core mobile services. To execute in emerging markets, Vodafone Group focuses more on expansion within themarkets while executing mergers and acquisitions in key emerging markets. India, Africa, andthe Middle East are now key areas for growth. It improves business success in these markets “byselling own-branded, low-cost handsets, reducing the cost of entry for mobile communicationsand encouraging more customers to come on to the network” (Obiodu, 2010, p. 7). To strengthen capital discipline to drive shareholder returns, Vodafone Group has focused onits free cash flow generation to maintain an appropriate investment in new and existing businessand markets. While launching new and value-added services around the globe in order toimprove existing customer satisfaction and increase ARPU and decrease churn rate, it has“divested loss-making units in Japan, Sweden, Belgium, and Switzerland” (Obiodu, 2010, p. 7). 6
  10. 10. It also has already achieved £ 1 billion cost reduction program a year ahead of schedule butinitiated further £ 1 billion cost reduction program by the 2013 financial year by leveraging itsglobal scale and scope. In addition, the two-year working capital reduction program, and theoutsourcing IT functions and network sharing agreement are included as a part of cost efficiencyprograms. Those four strategies are now decomposed into strategic objectives, and performancemeasures are developed for each of the strategic objectives, as shown in Figure 3.1. In the annualreport for the year ended 31 March 2010, Vodafone reported the a number of KPIs used by TheBoard and the Executive Committee “to monitor Group and regional performance againstbudgets and forecasts as well as to measure progress against our strategic objectives” (Vodafone,2010a, p. 24). Those KPIs are categorized as „VF defined‟ in Figure 3.1. To completely alignwith each of strategic objectives, a total of five KPIs are relatively proposed, and categorized as„Proposed‟ in Figure 3.1. Perspective Strategic Objectives Measures Category Drive operational performance through customer value Customer delight index VF defined enhancement Maximize the value of existing customer relationships Churn rate VF defined Customer Revenues from emerging Maintain its strong success in key emerging markets Proposed markets Encourage more customers to come on to the network Proportionate mobile customers VF defined Target and its offers and services around the globe, not use EBITDA margin VF defined the lower price than others Financial Maintain appropriate investment in new and existing Free cash flow VF defined business and markets Drive shareholder return ROE Proposed Create and launch new value-added services around the ARPU VF defined globe Learning One of three key areas for growth (mobile data use) Data Revenue VF defined and Growth One of three key areas for growth (broadband services) Fixed revenue VF defined Enterprise mobile voice One of three key areas for growth (enterprise services) Proposed connections Maintain high performance benchmark for employee Employee turnover rate VF defined engagement Business Two-year working capital reduction program Working capital Proposed Processes Operational efficiency ratio Drive £ 1 billion cost reduction program Proposed (subscribers / own employees)Figure 3.1: Suggested balanced scorecard for Vodafone Group3.3 Customer Perspective The customer delight index, churn rate, and revenues from emerging markets, and thenumber of proportionate mobile subscribers are developed in line with each of strategicobjectives in the customer perspective. Mobile technologies have evolved and its customers use their mobile phones not only to callbut also access the internet, watch television, play music and take pictures. Vodafone Groups hasfocused on customer value enhancement to maintain their loyalty and trust. According to 7
  11. 11. Vodafone (2010b), the Customer Delight Index measures the levels of satisfaction anddissatisfaction: Our Customer Delight Index (CDI) measures levels of satisfaction and dissatisfaction among consumer and business customers. It helps us to monitor our progress against our goal to ‘delight our customers’. The CDI results are reviewed quarterly at board level to identify priorities for improvement. In addition, a Customer Experience Committee meets monthly to review issues affecting customer satisfaction and put action plans in place. Employee incentive programs are partly dependent on meeting customer satisfaction targets. Churn rate is especially crucial for Vodafone Group that still heavily relies on saturatedEuropean markets “where competition is fierce and where net acquisition costs of customers canbe high, including both direct and indirect marketing costs and other costs such as customerequipment study” (Stainthorpe, 2009, p. 2). While Vodafone Group has implemented „smartgrowth‟ strategy and not offered lower price than other competitors to attract new customers andretain existing customers around the globe, the churn rate is one of the key measures to assess theactual performance against the strategy. The strategy „execute in emerging markets‟ represents that while Vodafone Groups has beenmaintaining its strong presence, it focuses on expansion within the market. Revenues fromemerging markets are key measures to directly evaluate their actual achievements in thosemarkets against its strategy. Finally, the number of proportionate mobile customers is the high-level measure to ensurethat Vodafone Group has encouraged more customers to come on to its network globally.3.4 Financial Perspective EBITDA margin, free cash flow, and return on common equity („ROE‟) are developed inaccordance with each of strategic objectives in the financial perspective. A robust network infrastructure is a source of competitive advantages for Vodafone Groupbut it generally reports large losses due to hugely spending capital expenditure to construct theinfrastructure. EBITDA margin enables to analyze the profitability of core business operationswhile deducting the huge amount of interest, taxes, and capital expenditures. Free cash flow generation is a critical source of Vodafone Group‟s growth while establishingits entities through the acquisition, joint-venture, and strategic alliance globally. In addition, freecash flow can support higher dividends and in turn contribute to maximizing shareholder‟svalues. ROE is the most important bottom line accounting ratio that represents the actual returnearned by shareholders and is the best measure to directly assess its actual performance againstthe strategic objectives „drive shareholder return‟. 8
  12. 12. 3.5 Learning and Growth Perspective ARPU, data revenue, fixed revenue, and the number of enterprise mobile voice connectionsare developed in accordance with each of strategic objectives in the learning and growthperspective. Most of those measures are typically categorized into the financial perspective.However, not tactical and operations KPIs but strategic KPIs are analyzed in this research andtherefore those measures are considered as a reflection of Vodafone Group‟s innovation in thisresearch. Vodafone Group hasn‟t implemented the cost leadership strategy to gain a competitiveadvantages but it relatively focuses on creating and launching new value-added services toincrease ARPU. ARPU can be therefore considered as one of the key measures of its innovation. While traditional voice and messaging services has captured more than 75% of its servicerevenues, data service is targeted as one of three key areas for growth, and therefore the datarevenue is a key measure to directly evaluate its growth objective. Vodafone Group has expanded fixed broadband customer base to be a total communicationsprovider. It has only fixed broadband services in its fixed service portfolio, and the broadband isalso perceived as one of three key areas for growth. Fixed revenue represents the growthobjective and is considered as a key measure. The last one of three key areas for growth is the enterprise services. While the enterpriseservice revenues are not independently reported in the annual report, the main enterprise serviceis an enterprise voice service and therefore the number of enterprise mobile voice connectionscan be considered as a key measure of its growth objective.3.6 Business Processes Perspective The employee turnover rate, annual capital expenditure, and operational efficiency ratio aredeveloped in accordance with each of strategic objectives in the business process perspective. Vodafone stated that “We rely on our people to maintain and build on our success and todeliver excellent service to our customers”, and “we aim to attract, develop and retain the bestpeople and to realize their full potential” (Vodafone, 2010a, p .22). The employee turnover rateis one of the key measures to evaluate its performance against the strategic objective „maintainhigh performance benchmark for employee engagement‟. As a part of cost efficiency programs, the two-year working capital reduction program isexecuted and the working capital itself is the best measure to directly evaluate the actualperformance against the targeted working capital. While the £1 billion cost reduction program has already been delivered, Vodafone hasextended this program to a further £1 billion cost saving by 2013. £1 billion includes both thecapital and operating expenditures and it might be difficult to focus on either capital or operating 9
  13. 13. expenditure. However, the objective of the cost reduction program is to improve its operationalefficiency and, the number of subscribers versus the number of own employees‟ ratio canalternatively used. 10
  14. 14. 4. Analyzing and Interpreting Results4.1 Balanced Scorecard Analysis Both the absolute values and ratios are generally developed as measures in line with thestrategic objectives and presented in the balanced scorecard, and they can be analyzed in severalways. The balanced scorecard analysis involves: Comparing an actual value of a KPI to a target value of the same KPI in order to assess whether the strategic objective is being met, Comparing an actual value of a KPI to a series of the previous values of the same KPI in order to ensure how the strategic objective has an impact on financial and non financial positions, and evaluate trends over time, and Comparing the actual values of a KPI to those of other firms in the same industry in order to understand an organization‟s place in the world. Regression analysis to develop and evaluate a prediction equation. Some of key measures are analyzed separately in each way in this chapter.4.2 An Actual Value versus a Target Value Vodafone has generally stated the guidance for its expectations for coming quarters or fiscalyear and values released in the guidance can be considered as its target values. Vodafone (2008)stated the guidance as “free cash flow in the range of £5.5 billion to £6.0 billion, an increase of£0.3 billion” (Vodafone, 2008, p. 1). Free cash flow generation has been considered as a criticalsource of its growth through the acquisition, joint-venture, and strategic alliance globally.Consequently, the actual value was between £5.5 billion to £6.0 billion, and Vodafone Groupachieved only the minimum target, a total of £ 5.5, as shown in Figure 4.1. 11
  15. 15. 142Figure 4.1 Vodafone Group free cash flow 12
  16. 16. 4.3 An Actual Value versus a Series of the Previous Values of the same KPI The comparison of an actual value of a KPI to a series of the previous values of the same KPIcan help an organization ensure how the strategic objective has an impact on financial and nonfinancial positions, and evaluate trends over time. ARPU is a key measure of Vodafone Group‟sinnovation to evaluate whether it has focused on creating and launching new value-addedservices while not offering lower price in the fierce competitive market. While new value-addedservices are considered as a lever to increase ARPU, ARPU in all European countries have beenslightly decreasing. ARPU includes both voice and data revenues and a decrease in voicerevenues have subsequently had a great impact on a decrease in ARPU. Although Vodafone‟s data revenues have increased, its voice revenues have decrease muchquicker than data revenues. European markets have been saturated with significantly highermobile phone penetration rate with more than 150% in some countries, and one of the four keyVodafone Group‟s strategies, „Execute in emerging markets‟ might come from the fiercecompetition in European markets as shown in Figure 4.2. Figure 4.2 Vodafone ARPU in European Markets4.4 The Actual Values versus Industry Norms The comparison of the actual values of a KPI to those of other firms in the same industry canhelp an organization understand the relative position in the industry. Ratios analysis enables anorganization to compare to other companies, regardless of the size of companies. Althoughtelecommunications industry is one of the capital-intensive industries, EBITDA margin can helpanalyze the profitability of core business operations while deducting the huge amount of interest,taxes, and capital expenditures. The EBITDA margin is calculated by dividing EBITDA by salesrevenue. The EBITDA margin ratio of Vodafone Group are stable but lower than the industrynorm due to the impact of acquisitions and disposals and foreign exchange that are associated 13
  17. 17. with its international expansion strategy, as shown in Figure 4.3. The global average EBITDAmargin is cited from Strategy Analytics‟ wireless operator performance benchmarking (2009).Figure 4.3 Vodafone Group and Global Average EBITDA margin4.5 Regression Analysis According to Kotler and Keller (2008), “acquiring new customers can cost five times morethan satisfying and retaining current customers”, and “it requires a great deal of effort to inducesatisfied customer to switch away from their current supplier” (p. 138). To drive operationalperformance, Vodafone Group has not used the lower price than other competitors to retainexisting customers and it rather focuses on creating and launching new value-added services toincrease ARPU. Therefore, a decrease in ARPU would have negative impact on churn rate,higher churn rate. The ARPU and Churn rate in five countries for the eight-quarter periods arequoted from the annual report as shown in Table 4.1. The summary output of regression analysisin Microsoft Excel is shown in Table 4.2. Q2 08/09 Q3 08/09 Q4 08/09 Q1 09/10 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Germany Total 18.9% 28.8% 28.9% 27.9% 28.6% 29.7% 26.5% 25.1% Churn rate Contract 15.6% 15.2% 15.3% 16.0% 16.0% 17.8% 15.4% 16.9% (%) Prepaid 21.5% 39.4% 39.9% 37.8% 39.3% 40.2% 36.2% 32.2% Total 19.4 17.9 16.9 17.0 16.8 16.2 15.7 15.5 ARPU Contract (EUR) 35.3 33.1 32.0 32.4 32.4 31.2 29.6 28.8 Prepaid 6.1 5.5 5.0 4.8 4.6 4.4 4.2 4.3 Italy Total 30.3% 27.2% 27.0% 26.9% 29.3% 24.7% 23.4% 24.4% Churn rate Contract 15.8% 17.3% 16.9% 19.8% 17.2% 23.3% 22.8% 25.3% (%) Prepaid 32.0% 28.5% 28.3% 27.9% 31.2% 24.9% 23.5% 24.3% Total 22.6 21.6 20.8 21.3 21.7 21.5 20.8 22.0 ARPU Contract (EUR) 65.2 65.4 62.1 60.6 56.5 56.0 51.7 50.9 Prepaid 18.6 17.2 16.4 16.8 17.4 17.0 16.6 17.9 Spain 14
  18. 18. Total 24.3% 25.3% 24.1% 25.9% 27.9% 29.7% 37.9% 28.2% Churn rate Contract 16.1% 18.3% 18.3% 19.9% 20.6% 21.7% 21.2% 18.9% (%) Prepaid 36.0% 35.6% 32.5% 34.6% 38.5% 41.9% 64.1% 43.7% Total 33.3 30.3 28.0 28.3 29.3 27.3 25.8 26.5 ARPU Contract (EUR) 45.9 41.7 39.0 39.9 41.1 38.0 36.2 36.5 Prepaid 14.6 13.2 11.5 11.2 11.7 10.6 9.3 9.8UK Total 38.5% 34.6% 41.0% 41.1% 42.8% 36.9% 38.5% 40.1% Churn rate Contract 17.5% 17.3% 21.9% 18.0% 18.5% 18.1% 16.2% 15.5% (%) Prepaid 52.9% 46.8% 54.7% 57.9% 61.2% 51.7% 56.5% 61.3% Total 26.4 25.8 25.0 25.0 24.7 24.5 24.0 24.7 ARPU (EUR) Contract 48.6 47.0 45.5 46.1 45.1 44.4 43.9 44.0 Prepaid 10.6 10.2 9.8 9.1 9.0 8.8 8.2 8.0India Total 32.2% 28.8% 25.2% 26.3% 33.3% 38.1% 38.8% 38.8% Churn rate Contract 30.8% 29.7% 27.2% 25.3% 24.5% 26.0% 25.9% 24.8% (%) Prepaid 32.3% 28.7% 25.0% 26.4% 33.9% 38.9% 39.6% 39.6% Total 5.0 4.9 4.5 4.0 3.6 3.4 3.2 3.1 ARPU Contract 14.3 13.9 13.4 13.2 13.0 12.9 12.5 12.7 (EUR) Prepaid 4.1 4.0 3.8 3.3 3.0 2.8 2.6 2.6Table 4.1 Vodafone Group ARPU and Churn Rate in five countriesSUMMARYOUTPUT Regression StatisticsMultiple R 0.618672172R Square 0.382755256Adjusted R Square 0.377524369Standard Error 12.579145Observations 120ANOVA df SS MS F Significance FRegression 1 11578.38582 11578.38582 73.17214232 5.06932E-14Residual 118 18671.7169 158.234889Total 119 30250.10272 Standard Coefficients t Stat P-value ErrorIntercept 48.93659413 3.343486705 0.0000 14.63639561Churn -90.38556457 10.56637914 -8.554071681 0.0000Table 4.2 Summary output of regression analysis 15
  19. 19. Churn rate ARPU Figure 4.4 Vodafone Group ARPU and Churn Rate The intercept, 48.9 refers to ARPU (euro) with 0% customer churn but it is not interpretable.An increase in 1% customer churn would have negative impact on a decrease in 0.9 euro. Withd.f.1 = 1, α = .05, d.f.2 = 120 alternatively, because d.f.2 = 118 is not on the Percentage Points ofthe F distribution Table, the tabled F value, 3.92 is directly read from the table. The computed Fstatistic, 73.17, is much greater than the critical F value, 3.92. Although the p-value is less than0.0000, the coefficient of determination is 0.382, less than 0.5. The scatter plot, shown in Figure 4.4 interprets the relationship between ARPU and churnrate. Most of outliers are seen between ARPU 0 to 20 euro that generally come from prepaidsubscribers or subscribers in India while the mean ARPU of European non-prepaid subscribers is33.5 and therefore, the further regression analysis excluding pre-paid subscribers in fourcountries, excluding India, is executed as shown in Table 4.3 and Figure 4.5. As the results, theintercept, an increase in 1% customer churn would have negative impact on a decrease in 0.96euro, equivalent to the previous analysis including pre-paid subscribers in all five countries andall subscribers in India. With d.f.1 = 1, α = .05, d.f.2 = 60 alternatively, because d.f.2 = 62 is noton the Percentage Points of the F distribution Table, the tabled F value, 4.00 is directly read fromthe table. The computed F statistic, 27.5, is much greater than the critical F value, 4.00. Althoughthe p-value is less than 0.0000, the coefficient of determination is 0.307, less than 0.5. Consequently, both analyses conclude that the effect of the interaction between ARPU andchurn rate in Vodafone Group can be considered as not so statistically significant. 16
  20. 20. Figure 4.5 Vodafone Group ARPU and Churn Rate in European markets SUMMARY OUTPUT Regression Statistics Multiple R 0.554262471 R Square 0.307206887 Adjusted R Square 0.296032804 Standard Error 11.10555252 Observations 64 ANOVA Significance df SS MS F F Regression 1 3390.7785 3390.7785 27.492806 0.0000 Residual 62 7646.6644 123.3333 Total 63 11037.443 Standard Coefficients t Stat P-value Error Intercept 56.76813157 4.6536 12.198756 3.985E-18 - X Variable 1 -96.49464129 18.403213 2.017E-06 5.2433583Table 4.3 Summary output of regression analysis 17
  21. 21. 5. Building a monitoring system Once strategic objectives and measures have been developed, monitoring performance is acritical task to ensure the strategic objectives are being met. While continuously tracking a largeamount of dairy operations, the importance of each measure is completely different, andtherefore some critical shortcomings of the important measures should be immediately perceivedand subsequently addressed by an organization but the other shortcomings relatively not. While starting addressing the shortcomings, each response time should be also accuratelymeasured and evaluated against the targeted performance levels on a real-time basis in somecase. For example, each time to create trouble ticket, to create work order, to accept, to travel, toresolve work order, to close trouble ticket, and to repair are accurately measured on a real-timebasis respectively once a fault has been acknowledged in a telecommunications networkoperations center. On the other hand, each mean time to create trouble ticket, to create workorder, to accept, to travel, to resolve work order, to close trouble ticket, and to repair are alsomeasured but those mean times are reported on a regular basis and immediate actions aretypically not needed once the report has been issued there. Wang (2009) argued several steps in the development of a performance monitoring system: 1. Understanding the issue for monitoring 2. Determining monitoring questions 3. Developing a theory for monitoring flow 4. Developing measures for monitoring 5. Determining data collection methods 6. Conducting performance monitoring and writing the monitoring report To understand the issues for monitoring, the first step is to identify “monitoring needs”,determine the “monitoring goal(s): what you want to achieve in the monitoring” and finallydetermine “monitoring subject(s): what should be monitored" (Wang, 2009, p. 94). Performancemonitoring can help an organization create performance reports, identify shortcomings, and find,analyze and optimize performance degradation immediately before larger performancedegradation occurs. Therefore, there are typically multiple goals and subjects to monitorperformance. To determine monitoring questions, Wang (2009) argued that there are generic forms ofperformance monitoring questions, although each performance monitoring should have itsspecific questions:  Are performance goals being met?  Has the performance plan been implemented effectively?  Have operations been implemented according to the plan?  Are the intended services being delivered to the intended clients?  How good is my performance compared with others‟ performances, my previous performance, and the performance standard?  Are there any signs of underperformance? 18
  22. 22.  Is there any room for performance improvement?  Is my performance usually poor, compared with data in the past? To develop a theory for monitoring flow, the “monitoring flow” (Wang, 2009, p. 96) shouldbe created from inputs, process, outputs and outcomes in performance monitoring. Obviously,well-developed monitoring flows can help specify monitoring subject and its role in themonitoring process, and “monitoring inputs and the process may provide clues on how todevelop proper strategies to improve the output and outcomes” (Wang, 2009, p. 96). To develop measures for monitoring, the appropriate number of measures should be selectedin line with the monitoring needs and goals although several measures are available for eachmonitoring subject. Monitoring all measures is too expensive and time-consuming. To determine data collection methods, “monitoring frequency” (Wang, 2009, p.97) in datacollection should be decided. The monitoring frequency identifies how often performance data iscollected and the frequency should be decided in accordance with the monitoring goals and itscosts. Only monthly or quarterly data is sufficient in some cases but dairy or hourly data isneeded in other cases. If the monitoring goal is to improve daily operational efficiency, therelevant data should be collected at least once a day as far as the dairy monitoring isn‟t so costly. To conduct performance monitoring and write the monitoring report, performancemonitoring tools should be selected to monitor performance in order to create performancereports, identify shortcomings, and find, analyze and optimize performance degradation.Performance monitoring tools are classified into “tools in monitoring against performancestandards, tools in monitoring performance variation, and tools in monitoring standardizedperformance” (Wang, 2009, p. 98). Once performance monitoring has been completed by theselected tools, the results should be presented in performance monitoring reports on a regularbasis, regardless of the number of key findings. It‟s relatively easy for an organization to build a monitoring system to collect dataindependently within a functional or vertical organization but in most of cases, cross-functionalor horizontal processes are comprised of a part of the end-to-end. A goal of performancemonitoring is typically to improve operational efficiencies for the functional management but agoal of that is to improve operational effectiveness from the process management viewpoint.Frequently, each participant in the end-to-end process can only understand its own process like„Order Handling‟ box in „Fulfillment‟. A s a result, nobody is responsible for the end-to-endbusiness process like „Customer Interface Management‟ box among „Fulfillment‟, ‟Assurance‟,and ‟Billing‟, and associated end-to-end performance monitoring, as shown in Figure 5.1. It‟s agood starting to visualize the end-to-end business process and then use it as a common languageamong stakeholders such as TeleManagement Forum enhanced Telecom Operations Map, asshown in Figure 5.1. Once the consensus among stakeholders has been achieved, monitoringboth functional and end-to-end process metrics should be conducted to achieve both goals toimprove operational efficiencies for the functional management and operational effectiveness forthe process owner respectively. 19
  23. 23. Figure 5.1: TeleManagement Forum enhanced Telecom Operations Map (eTOM)Note: from “Level 2 Operations (OPS) Processes,” 2010, TeleManagement Forum, p. 14. Vodafone Group has already implemented the balanced scorecard methodology to monitororganizational performance along with predefined KPIs that are associated with not only thefinancial perspective but also the other three perspectives at the strategic level. Vodafone Grouphas built performance monitoring systems locally and globally, functionally and cross-functionally, and internally and externally. The best practice of the performance monitoring system is Vodafone Global Supply ChainManagement System implemented globally, cross-functionally, and both internally andexternally. Vodafone has “put in the infrastructure and built the global SCM community”(Supply Chain Standard, 2006, p. 1), while leveraging its scale and scope. The infrastructurewith common processes and data established with a group-wide platform can help Vodafonesimplify the end-to-end SCM process, establish commonality in performance analysis, andimplement group-wide visibility to its performance. The community enables all stakeholders inthe supply chain process, regardless of organizations, to have a common language to improveoperational effectiveness. In addition, Vodafone Group has implemented the end-to-end visibilityto its performance beyond Vodafone Group, and as a result, Vodafone Group can createperformance reports including the end-to-end aspects, identify shortcoming throughout the SCMprocesses even beyond Vodafone Group, and find, analyze and optimize performancedegradation immediately with all internal and external stakeholders. 20
  24. 24. 6. Continuously improving organizational performance Once an organization has built a coherent set of performance measures, applied measures ofperformance, and built a monitoring system, the final step is to continuously improveorganizational performance. There are several approaches to continuously improvingorganizational performance such as strategic management and total quality management(„TQM‟). Strategic management is “a set of decisions and actions that result in the formulation andimplementation of plans designed to achieve a company‟s objectives” (Pearce and Robinson,2008, p. 3). They also argued nine critical tasks included in the strategic management:1. Formulate the company‟s mission, including broad statements about its purpose, philosophy,and goals.2. Conduct an analysis that reflects the company‟s internal conditions and capabilities.3. Assess the company‟s external environment, including both the competitive and the generalcontextual factors.4. Analyze the company‟s options by matching its resources with the external environment.5. Identify the most desirable options by evaluating each option in light of the company‟smission.6. Select a set of long-term objectives and grand strategies that will achieve the most desirableoptions.7. Develop annual objectives and short-term strategies that are compatible with the selected setof long-term objectives and grand strategies.8. Implement the strategic choices by means of budgeted resource allocations in which thematching of tasks, people, structures, technologies, and reward system is emphasized.9. Evaluate the success of the strategic process as an input for future decision making. TQM is a management concept that stresses continuous improvement through peopleinvolvement and measurements to focus on customer satisfaction, and is the application ofhuman resources and quantitative methods in order to improve all the processes within anorganization. Naagarazan and Arivalagar (2009) argued five core concepts of TQM:1. A committed management which ensures long term organizational support.2. The focus on the internal and external customers.3. Involvement and utilization of the entire human resource.4. Continuous improvement of the activities.5. Treating suppliers and customers as partners.6. Determine the performance metrics for the activities. Vodafone Group has been implemented TQM to continuously improve organizationalperformance. Skills and competence development is considered as a key source of competitiveadvantages to continuously improve organizational performance and it is of considerable value tocontinuously invest in people and organizational structures through continuous focus on efficientand effective organizational structures, regular review of people‟s performance and potential,diversity and inclusion, and development of high potential employees. Vodafone Group had, 21
  25. 25. however, introduced the discipline of Kaizen and other continuous improvement initiatives andthey had had a great impact on quality and business performance improvement but it had been“frustrated with not being able to make the next leap in quality levels” and “to accelerateperformance to the next level, we needed to look at attitude, competences and skills” (Vodafone,2010c, p. 1). In 2000, while introducing Six Sigma processes widely in Vodafone Group, itdeveloped a “Training Road Map, which we still use today, which aligns our strategic objectiveswith the competences that we need to get there” (Vodafone, 2010c, p. 1). 22
  26. 26. 7. Conclusions A performance measure is a critical function that provides strategic, steering, and operationalmanagement with business intelligence in order to make better decision. The objectives and thedegree of sophistication of performance measurements greatly vary from company to companyand each company has developed and adopted different performance measurement systems inline with each own strategy and strategic objectives. Vodafone Group has already implemented the balanced scorecard methodology to manageboth financial and non-financial perspectives due to the inevitable increase in complexity ofsystems and organizational structures and continuously changing external factors while rapidlyexpanding its business globally through acquisitions, joint-ventures, and partnerships. Its keyfour strategies are clearly developed in line with the vision and its own environments, and theyare definitely decomposed into each of strategic objectives. Relevant KPIs have beensubsequently defined and reported both internally and externally. However, most of measures areassociated with the financial perspective and also the absolute values and some other KPIs likeratios should be developed as proposed in this research. In addition, most of strategic KPIs arestrongly aligned with global and company-wide strategies and Vodafone should clearly definethe level of local stakeholder involvement in the performance measurement. For example,strategic KPIs are only aligned with global and company-wide strategies but tactical KPIs thatstrategic KPIs can be translated into should be developed in line with local specific businessenvironments. The best practice of Vodafone‟s performance measures is a comprehensive performancemanagement system, Global Supply Chain Management System. The system has been developedand implemented by fully leveraging global scale and scope. All internal and externalstakeholders in the SCM community have high visibility to the end-to-end supply chainmanagement process, and Vodafone Group can find, analyze and optimize performancedegradation immediately with all stakeholders beyond Vodafone Group. 23
  27. 27. 8. BibliographyBalanced Scorecard Institute. (2010). What is the Balanced Scorecard. Retrieved August 1st,2010 fromhttp://www.balancedscorecard.org/EFM Software (2009). Case: Vodafone. Retrieved August 1st, 2010 fromhttp://www.efmsoftware.nl/totalqualitymanagement/casesvodafone/?lang=enKotler, P., & Keller, K. L. (2008). Marketing Management (13th ed.). Upper Saddle River, NJ:Prentice Hall.Naagarazan, R. S., & Arivalagar, A. A. (2009). Total Quality Management. New Delhi, India:New Age International.Obiodu, E. (2010). HIS Global Insight Report: Vodafone Group (Telecoms) Company Strategy.Lexington, MA: HIS Global Insight.Parmenter, D. (2010). Key Performance Indicators (KPIs): Developing, Implementing, andUsing Winning KPIs. Hoboken, NJ: John Wiley and Sons.Pearce, J.A., & Robinson, R. B. (2008) Formulation, Implementation and Control of CompetitiveStrategy (10th ed.). New York, NY: McGraw-Hill.Pinterits, A. (2009). Coordinating Internet Sales with Other Channels: A PerformanceMeasurement Model. Wiesbaden, Germany: Gabler Verlag.Pointon, D. (2005). An interview with Grahame Maher – Vodafone Australia: People beforeProfits. Retrieved August 1st, 2010 fromhttp://www.fastmeetings.com.au/case-studies/vodafone-maher-interview.htmRasmussen, N. H., Bansal, M., & Chen, C. Y. (2009). Business Dashboards: A Visual Cataloguefor Design and Development. Hoboken, NJ: John Wiley and Sons.Smith, D. A. (2008). Implementing Metrics for IT Service Management. LK Zaltbommel,Netherlands: Van Haren Publishing.Stainthorpe, A. (2009). Mobile Churn and Loyalty Strategies: How to retain valuable customers(2nd ed.). London, UK: Informa UK.Strategy Analytics. (2009). Wireless Operator Performance Benchmarking Q3 2009. Santa Fe,NM: Strategy Analytics.Supply Chain Standard. (2006). Winner: Vodafone. Retrieved August 1st, 2010 fromhttp://www.supplychainstandard.com/Articles/1206/Winner+Vodafone.html 24
  28. 28. TeleManagement Forum. (2010). Business Process Framework (eTOM) Addendum P: ABusiness Process Framework Primer. Morristown, NJ: TeleManagement Forum.Vodafone. (2008). Interim Management Statement for the Quarter Ended 31 December 2008.Retrieved August-7, 2010 fromhttp://www.vodafone.com/start/media_relations/news/group_press_releases/2009/ims_q3.htmlVodafone. (2010a). Vodafone Group Plc: Annual Report for the year ended 31 March 2010.Retrieved June-25, 2010 fromhttp://www.vodafone.com/static/annual_report10/downloads/vf_ar2010.pdf/Vodafone. (2010b). Customers. Retrieved August-7, 2010 fromhttp://www.vodafone.com/start/responsibility_uk/customers.htmlVodafone. (2010c). Learning for the long term. Retrieved August-7, 2010 fromhttp://www.vodafone.com/working_nation/the_skills_of_work/learning_for_the_long.htmlVolitich, D. (2008). IBM Cognos 8 Business Intelligence: The Official Guide. New York, NY:McGraw-Hill.Wang, X. (2009). Performance analysis for public and nonprofit organizations. Sudbury, MA:Jones & Bartlett Learning. 25

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