Vodafone Comprehensive Strategic Management Model

  • 21,335 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
21,335
On Slideshare
0
From Embeds
0
Number of Embeds
2

Actions

Shares
Downloads
1,088
Comments
0
Likes
2

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Running Head: A comprehensive strategic management model for Vodafone Group A comprehensive strategic management model for Vodafone Group Toru Sekiguchi September 19th, 2010 i
  • 2. Table of ContentsTitle Page…………………………………………………………………………………............. iTable of Contents…………………………………………………………………….................... iiAbstract……………………………………………………………………………...................... iv1. Introduction…………………………………………………………………………………... 12. Vision and Mission………………………………………………………………………….. 2 2.1 The primary markets and customer groups…………………………………………... 2 2.2 The technology……………………………………………………………………….. 2 2.3 The fundamental concern through growth and profitability…………………………. 2 2.4 The fundamental philosophy…………………………………………………………. 2 2.5 The public image……………………………………………………………………... 2 2.6 The self-concept……………………………………………………………………… 23. The external environmental analysis……………………………………………………........ 2 3.1 Remote environment…………………………………………………………………. 3 3.1.1 Economic Factors…………………………………………………………... 3 3.1.2 Political Factors……………………………………………………………. 3 3.1.3 Technological Factors……………………………………………………… 3 3.2 Industry environment………………………………………………………………… 3 3.2.1 Threat of Entry……………………………………………………………... 4 3.2.2 Supplier Power……………………………………………………………... 4 3.2.3 Buyer Power………………………………………………………………... 4 3.2.4 Threat of Substitutes……………………………………………………….. 4 3.2.5 Rivalry……………………………………………………………………… 5 3.3 Operating environment………………………………………………………………. 5 3.3.1 Competitive Position……………………………………………………….. 5 3.3.2 Customer Profiles…………………………………....................................... 6 3.3.3 Human Resources………………………………………………………….. 64. Internal Analysis……………………………………………………………………………... 6 4.1 SWOT Analysis……………………………………………………………………… 6 4.1.1 Strengths…………………………………………………………………… 6 4.1.2 Weaknesses…………..…………………………………………………….. 7 4.1.3 Opportunities……………………………………………………………….. 7 4.1.4 Threats……………………………………………………………………… 8 4.2 Financial Analysis……………………………………………………………………. 9 4.2.1 Financial ratio analysis…………………………………………………….. 9 4.2.2 Liquidity ratio……………………………………………………………… 9 4.2.3 Profitability ratio…………………………………………………………… 9 4.2.4 Debt management ratio…………………………………………………… 10 4.2.5 Summary of financial ratio analysis……………………………………… 115. Internal Analysis……………………………………………………………………………. 11 5.1 Key seven areas........................................................................................................... 11 5.1.1 Profitability………………………………………………………………...11 5.1.2 Productivity……………………………………………………………….. 11 5.1.3 Competitive Position……………………………………………………… 12 5.1.4 Employee Development…………………………………………………... 12 ii
  • 3. 5.1.5 Employee Relations………………………………………………………. 12 5.1.6 Technology Leadership…………………………………………………… 12 5.1.7 Public Responsibility……………………………………………………... 126. Generic and grand strategies………………………………………………………………... 13 6.1 Generic strategies…………………………………………………………………… 13 6.2 Grand strategies…………………………………………………………………….. 13 6.2.1 Horizontal integration, joint ventures, and strategic alliances……………. 13 6.2.2 Turnaround………………………………………………………………... 137. Strategic Analysis…………………………………………………………………………... 148. Implementation……………………………………………………………………………... 14 8.1 Short-term objectives……………………………………………………………….. 14 8.1.1 Drive operational performance…………………………………………… 15 8.1.2 Pursue growth opportunities in total communications……………………. 15 8.1.3 Execute in emerging markets……………………………………………... 15 8.1.4 Strengthen capital discipline..…………………………………………...... 15 8.2 Outsourcing…………………………………………………………………………. 159. Implementation……………………………………………………………………………... 16 9.1 The balanced scorecard methodology………………………………………………. 16 9.1.1 The Application of the Balanced Scorecard to Vodafone Group………… 16 9.1.2 Customer Perspective……………………………………………………... 17 9.1.3 Financial Perspective……………………………………………………... 17 9.1.4 Learning and Growth Perspective………………………………………… 17 9.1.5 Business Process Perspective……………………………………………... 18 9.2 Balanced scorecard Analysis……………………………………………………….. 18 9.2.1 An actual versus target KPI values……………………………………….. 18 9.2.2 An actual value versus a series of the previous values of the same KPI…. 19 9.2.3 Actual KPI values versus the industry norm……………………………… 19 9.3 The best practice of performance monitoring system………………………………. 19 9.4 Continuous performance improvements……………………………………………. 1910. Conclusions…………………………………………………………………………………. 2011. Bibliography………………………………………………………………………………... 2112. Appendix……………………………………………………………………………………. 24 Appendix 7.1 Evaluating Vodafone Group‟s Differentiation Opportunities…………… 24 Appendix 8.1 Evaluating Vodafone Group „Customer focused locally, scaled globally‟ 25 Appendix 9.1 Vodafone Group balanced scorecard……………………………………. 26 Appendix 9.2 Vodafone Group ARPU in European market……………………………. 27 Appendix 9.3 Vodafone Group and Global Average EBITDA margin………………… 28 iii
  • 4. Abstract Vodafone Group, which was established in 1982, is the second largest mobilecommunications company globally that manages ultra large-scale mobile networks in 31countries and has a presence through partnerships in another 40 countries. The company is one ofthe most influential companies in mobile telecommunications industry with a significantpresence in Europe, Asia Pacific, United States, and the Middle East with “341 millionproportionate customer base” (Vodafone, 2010a, p. 8). While Vodafone Group has the largest geographic footprint in more than 70 countries, thecompany has been confronted with fiercer competition in both developed and emerging markets.Developed market growth is only projected at around 1% and mobile subscriber penetration inthe market is extremely higher than emerging markets. European market is the largest market forVodafone Group but its revenue and ARPU in the market are slightly decreasing. Indian marketis one of the highest growth mobile markets and Vodafone Group has more than 100 millioncustomers in the market, 30% of its total number of customers. Mobile subscriber penetration inthe market hasn‟t reached 50% yet. The market is expected to continuously grow and most multi-national mobile operators have recently focused more on Indian market and Vodafone Group isfacing extremely fierce price competition in the market. Value-added services are identified askey differentiators to maintain its customers and improve ARPU in developed market and toentice new customers in emerging markets. Its differentiation strategy represents that VodafoneGroup intends to maintain the technological leadership by enhancing its ability to adaptadvanced ICT and driving Group Technology initiatives in order to create value-added servicesto meet customers‟ total communications needs. Vodafone Group has expended its global geographic footprint through horizontal integration,joint ventures and strategic alliances by capitalizing on its superior brand recognition. However,the company has continuously increased the debt ratio due to its aggressive global geographicexpansion, and it has recently taken higher priority in investing in existing businesses to improveARPU from existing customer base and expanding its businesses to new markets where it canexpect immediate turnaround rather than high returns in the long term. The company has thusimplemented turnaround strategy and initiated One Vodafone program to achieve streamlinedcost effectiveness and efficiency by gaining economies of scale and scope globally to improvebottom line performance. Vodafone Groups has formulated and implemented those generic andgrand strategies deliberately in accordance with its vision and mission, and external and internalenvironments. The company has also implemented four main strategic objectives associated withthose strategies and the balanced score card methodology to disseminate the strategies widely,translate them into actions, and provide meaningful feedback in the strategic control process. Although Vodafone Group has implemented differentiation strategy, the company hasn‟tlaunched value-added services in both developed and emerging markets and it has thus facingfierce price competition. While expanding geographic global footprint and diversifying productsand services, the company needs to focus more resources on value-added services as keydifferentiators in order to maintain sustainable growth. iv
  • 5. 1. Introduction Vodafone Group, which was established in 1982, is the second largest mobilecommunications company globally that manages ultra large-scale mobile networks in 31countries and has a presence through partnerships in another 40 countries. The company is one ofthe most influential companies in mobile telecommunications industry with a significantpresence in Europe, Asia Pacific, United States, and the Middle East with “341 millionproportionate customer base” (Vodafone, 2010a, p. 8). Although Vodafone Group has beenconfronted with fiercer competition in both developed and emerging markets globally, thecompany hasn‟t implemented cost leadership but differentiation strategy to entice new andexisting customers. It has also implemented its grand strategies that the company expands itsbusiness globally through horizontal integration, joint ventures, and strategic alliances. Due to a fierce competition in global telecommunication industry, business acquisitions anddisposals, and foreign exchange rate, most of its financial ratios have been lower than theindustry norm. The company thus introduced turnaround strategy that it focused on bottom lineperformance improvements by leveraging economies of scale and scope globally in 2007. Thecompany has subsequently implemented „One Vodafone‟ program to achieve streamlined costeffectiveness and efficiency. The objective of this research is to assess Vodafone Group‟s strategic management model toformulate and implement the generic and grand strategies in line with its internal and externalenvironments. Its vision and mission, external and internal environmental analysis, long-termobjectives, generic and grand strategies, strategic analysis, implementation, and strategic controlare discussed in this research. 2. Vision and mission While Vodafone Group‟s vision states that the company will “be the communication leaderin an increasing connected world” (Vodafone, 2010a, p. 2), its mission statement isn‟t explicitlydefined. Pearce and Robinson (2009) argued that a firm‟s mission will state; The base type of product or service to be offered; the primary markets or customer groups to be served; the technology to be used in production or delivery, the firm’s fundamental concern through growth and profitability; the firm’s fundamental philosophy, the public image the firm seeks; and the self-concept those affiliated with the firm should have of it (p. 26). Vodafone Group‟s fundamental beliefs are discussed in this chapter.2.1 The primary markets and customer groups Vodafone Group operates in both developed and emerging markets with 7% share of theglobal mobile telecommunications market. Eastern Europe, Western Europe, and NorthAmericas are among the top three markets for the company by subscriber but growth has beenmore muted in those developed markets. In contrast, India and China are 4th and 5th largest 1
  • 6. regions respectively but growth prospect remains positive in those emerging markets. Thecompany is serving its fixed and mobile services to both enterprises and consumers around theworld.2.2 The technology The company uses both fixed and mobile network technologies, including customer devices,access and transmission network, core network, and other networks, to deliver products andservices including “voice, messaging, data and fix line solutions and devices to assist customersin meeting their total communications needs” (Vodafone, 2010a, p .14). The company has“continued to diversity and expand the services we provide to our customers to meet their totalcommunications needs” (Vodafone, 2010a, p. 16).2.3 The fundamental concern through growth and profitability The four main objectives reflect its intention to secure survival through growth andprofitability. The objectives includes driving operational performance, pursing growthopportunities in total communications, executing in emerging markets, and strengthening capitaldiscipline. These objectives are discussed in the chapter 8.2.4 The fundamental philosophy The company‟s philosophy is shown in its sustainability report as “Vodafone can help tobuild a sustainable future by delivering products and services that enable positive economic,social and environmental outcomes for our stakeholders worldwide” (Vodafone, 2010b, p. 5)2.5 The public image While Vodafone Group is perceived as the most recognizable global mobiletelecommunications operator, the company has continuously made efforts on maintaining andenhancing its reputation as a socially responsible company and it has reported the environmentaland social impacts of its businesses for ten years. The company aims to provide “balancedaccount of our performance on the socio-economic, ethical and environmental issues that aremost material to Vodafone” (Vodafone, 2010b, p. 1).2.6 The self-concept „The Vodafone Way‟ defines “a consistent set of values and behaviors for all Vodafoneemployees” (Vodafone, 2010a, p. 22). The performance and potential of the employees areassessed against the standards of The Vodafone Way. The program aims to be an admired,innovative and customer-focused company operating with speed, simplicity, and trust. 3. The external environmental analysis The external environments significantly have an impact on the company‟s strategicmanagement model. According to Pearce and Robinson (2009), the external environment “can bedivided into three interrelated subcategories: factors in the remote environment, factors in theindustry environment, and factors in the operating environment” (p. 94). These factors VodafoneGroup is facing are discussed in this chapter. 2
  • 7. 3.1 Remote environment3.1.1 Economic Factors Most companies have recently been confronted with slower growth than ever in the volatileand rapidly changing global markets. Vodafone Group is not the exception and it hasn‟t beensustainably growing in some markets. International Monetary Fund (2010) reported thatEuropean market growth is projected only at 1.0% and 1.3% in 2010 and 2011 respectively butVodafone Group has heavily relied on slower growth and saturated European market due toextremely higher mobile subscriber penetration with more than 150% in some countries. Itsrevenues from the market captured 67.3% of its total revenues in 2009 but ARPU (averagerevenue per user) in UK, Greece, Netherlands, Spain, Italy, Germany, and Portugal where thecompany is operating has been slightly decreasing. In contrast, IMF (2010) reported that Indianmarket growth is projected at 9.4% and 8.4% in 2010 and 2011 respectively. Vodafone Grouphas improved performance in emerging markets in 2009 and executing in emerging markets isone of the four main objectives. Service revenues in the market grew by 14.7% in 2009, andIndian mobile market, the second-largest market around the world after China, has beenperceived as its key market.3.1.2 Political factors Political factors are also a major consideration for Vodafone Group on formulating andimplementing its strategies in accordance with each country specific legal, regulatory and taxenvironments. The company also has to comply with an extensive range of requirements thatregulate and supervise the licensing and the allocation of frequency spectrum. Vodafone (2010a)stated “decision by regulators regarding the granting, amendment or renewal of licenses, to us orto third parties, could adversely affect our future operations” (p. 38). For instance, EU recentlyintroduced a multi-year spectrum policy program. India made regulations for the implementationof mobile number portability in 2009.3.1.3 Technological Factors Telecommunication operator‟s ability to adapt the advanced technologies has a great impacton innovative and differentiated products and services in response to the rapidly changingcustomer needs and market environments. Saxtoft (2008) argued that “competitive advantages inthe future convergent communications industry will be based on the organizational ability ofcommunications service providers to utilize the specific mix of network data, services data andcustomer data available to each of the players in the market” (p.71). With its ability tocontinuously adapt new ICT, the company has created value-added services like Vodafone 360and Cloud Computing services.3.2 Industry environment Most telecommunications operators in developed markets have been confronted with a fiercecompetition and declining revenues, and understating of competitive forces is greatly crucial tothrive and survive. Michael Porter‟s five competitive forces are discussed in this section.Vodafone Group hasn‟t experienced in the extremely steep declines in revenues while operatingin both developed and emerging markets and thus diversifying risks. 3
  • 8. 3.2.1 Threat of Entry Telecommunications industry is very capital-intensive business with a huge amount ofcapital to acquire and maintain its network infrastructure and technologies, and create newproducts and services. Although the huge capital requirements traditionally represents a moresignificant entry barrier to new entrants than some other industries, recent MVNO (mobilevirtual network operators) business model lowers the barrier and small companies withdifferentiated products and services has been identified as new entrants. In addition, whiletelecommunications operators have made significant efforts to redefine their value chains tocreate new value-added services, Google, Amazon and other online companies have attempted toredefine industry boundaries. These companies are perceived as new competitors intelecommunications industry.3.2.2 Supplier Power Vodafone Group‟s key suppliers are handset manufacturers like Samsung, Nokia andMotorola, and network equipment manufacturers like Ericsson, Alcatel-Lucent, and NokiaSiemens Networks. Those suppliers‟ bargaining powers have weakened due to lack of technicaladvantages and new Chinese entrants that extremely pursue cost leadership. In contrast,Vodafone Group has enhanced its bargaining power to key suppliers while focusing on „OneVodafone‟ program to integrate business activities to leverage economies of scale and scope.3.2.3 Buyer Power While Vodafone Group has been confronted with a fierce competition globally, its customerstend to be more price-sensitive in both developed and emerging markets. The company has stillrelied on European markets with significantly higher mobile subscriber penetration, and ARPUin all Vodafone operating countries in the markets have been decreasing. In Indian mobilemarket as its key market, ARPU continued to decline despite subscription growth.3.2.4 Threat of Substitutes Vodafone Group has continuously diversified its product and service portfolio includingtraditional mobile voice and messaging, data, fixed line solution and other services such asvalue-added services to meet its customers‟ total communications needs. Its mobile voice andmessaging services, data, fixed line solutions, and other services accounted for 67%, 11%, 10%,8% and 4% of total revenues respectively in 2009, and therefore substitutes for its mobile voiceand messaging services have a significant impact on its business. Although mobile voice serviceshave overtaken traditional fixed voice services, especially in emerging markets, VoIP (Voiceover IP) services are identified as its substitutes in addition to fixed voice services globally. Myers expected (2010) that VoIP product revenue will climb to $578 million in 2Q2011, a2.4% increase over 2Q2010. While there are still concerns on the reliability and quality over IPnetworks, more broadband customers become aware of the benefits of VoIP to “enjoy theflexibility and cost-savings by using their existing broadband connection for voice services(Myers, 2010, p. 37). Vodafone Group hasn‟t still ultimately embraced VoIP services but growthof VoIP services has a significant impact on a decrease in its voice ARPU. Vodafone Group hasfocused not on cost leadership to directly compete with VoIP services but on diversifying itsproduct and service portfolio and launching new value-added services. Its data services are 4
  • 9. mainly used to connect the Internet and its substitutes are broadband services and fixed Internetservices. Vodafone has embarked on fixed broadband service especially in developed markets tooffer fixed-mobile converged services to differentiate its services from other fixed or mobileoperators. In developing markets, fixed broadband services and Internet services are notidentified as substitutes for mobile Internet services any more since mobile Internet services haveovertaken fixed broadband services. Its fixed broadband services are identified ascomplementary services to deliver fixed-mobile converged services. The company has generallystarted with mobile services and then added fixed services in all market the company has enteredinto. According to Marvrakis and Saddi (2009), “the previously pure mobile operator is nowfollowing a total communications strategy which includes mobile (cellular), broadband (fixed)and wireless; it has been offering combined services, with fixed, mobile and broadband servicesunder a single bill” (p. 42).3.2.5 Rivalry Vodafone Group is operating its business in more than 70 countries and the generalcompetitive landscape differs in developed and emerging markets. However, the switching costis low in both markets and the differentiation strategy is essential for the company to keep itscustomers from rivals. European market, the largest markets for Vodafone Group, has been saturated due toextremely higher mobile subscriber penetration. Value-added services are identified as keydifferentiators and the company has launched Vodafone 360, and Cloud computing services inthe market. In contrast, Indian is one of the highest growth mobile markets globally and thecompany accounted for approximately 30% of its total number of subscribers globally. While themobile subscriber penetration in Indian markets hasn‟t reached 50%, Vodafone Group and othermobile communications companies are facing extremely fierce price competition due to lack ofdifferentiated services.3.3 Operating environment3.3.1 Competitive Position The company‟s geographic footprint in more than 70 countries affords its huge economies ofscale and scope and ensures that Vodafone Group has diversified revenue base to cope withrecent economical recession “as its emerging market operations helped cushion the poorperformance in Europe and Turkey” (Obiodu, 2010, p. 4). The Vodafone brand is perceived as one of the most recognizable global telecommunicationsbrands and the company has capitalized on the brand recognition to enter into new markets. Thecompany is also a market leader in developing products and services. It hasn‟t implemented costleadership but differentiation strategy while leveraging its strong brand recognition anddiversified geographic footprint. However, the company has faced fiercer competition acrossmost of global markets than ever. Its major multi-national competitors are France Telecom‟sOrange, Deutsche Telekom‟s T-Mobile, and Telefonica‟s O2. The company also has to competewith domestic mobile operators like TMN in Portugal and KPN in Netherlands in Europeanmarket. Its performance in European market is worse than its rivals especially in Germany, Italyand Spain. The company is also facing fierce price competition in Indian market. It presentlycomes third behind Bharti Airtel and Reliance. 5
  • 10. 3.3.2 Customer Profiles While diversifying its markets and product and service portfolio, it has expended its customerbase globally and served its products and services to both consumers and enterprises. Traditionalvoice and messing services have been already commoditized globally and they are affordableenough for most people living in the countries where Vodafone Groups is operating.3.3.3 Human Resources Vodafone Group employs around 85,000 people and its employees are identified as a sourceof competitive advantages to improve existing customer relationships locally. Vodafone Group(2010a) stated that “we rely on our people to maintain and build on our success and to deliverexcellent service to our customers”, and “we aim to attract, develop and retain the best peopleand to realize their full potential” (p .22). The Vodafone Way program can help all employeesalign with a common set of values and behaviors in order to be an admired, innovation andcustomer-focused company operating with speed, simplicity and trust. Employee turnover ratehas been stable at 13%, 13%, and 15.2% in 2010, 2009 and 2008 respectively. 4. Internal Analysis4.1 SWOT Analysis4.1.1 Strengths The largest geographic footprint Vodafone Group has the largest geographic footprint in more than 70 countries and it hasextremely gained economies of scale and scope to maximize cost efficiency and effectiveness. Inaddition, it can diversify business risks in response to the volatile and rapidly changingenvironments globally. European mobile telecommunications market has been saturated andmost European telecommunications operators have been confronted with significant challengesto thrive and survive due to the economic slowdown in the market. Vodafone Group is not theexception and EBITDA in European market declined by 2.0% in 2009. However, the companyhas improved performance in emerging markets and EBITDA in African and Indian mobilemarkets increased by 35.3% and 12.6% respectively in 2009. Ability to adapt the advanced ICT Vodafone Group‟s ability to continuously adapt advanced ICT ensures that its customers areable to “stay connected to the people and the information that are central to their lives – via voice,text, instant messaging, e-mail, music, communities, news, and applications both social and workrelated – whenever, wherever” (Read, 2009, p.12). The company thus created Vodafone 360 andCloud Computing services and it in turn can greatly improve customer experience, andeventually gain and maintain its competitive advantages. Vodafone 360 represents the newservice standard to take everything back in Vodafone and superimpose proprietary ownershipover all service aspects. It was the first time for a mobile communications company to create anexperience which can compete with Apple iPhone‟s excellence and superior user interface.Vodafone Group announced a strategic partnership with Decho Corporation to create a series of„Could Services‟ for both enterprise and consumer markets. 6
  • 11.  Group Technologies Vodafone Group has driven the Group Technology initiative to achieve time-to-market andmaintain cost efficiency. The company has managed and controlled group-wide projects toorchestrate the move toward significant coordination and identify and disseminate best practicesto focus on expansion of service capacity while replicating business models across a number ofcountries. Hitt, Ireland and Hoskisson (2008) argued that “the purpose of Group Technology willbe to lead the implementation of standardized architecture for business process, informationtechnology and network systems” (p. 345). The initiative has supported the third generation (3G)network rollout, the enhancement and expansion of Vodafone Live service to most of Europeancountries, and development of Vodafone Group‟s business offering on a global base. Strong brand recognition The Vodafone brand is perceived as one of the most recognizable global telecommunicationsbrands and the company has capitalized on the brand recognition to enter into new markets. Itmigrated many domestic mobile communications companies to a global brand, Vodafone (Vo –voice, da – data, and fone – phone). According to Schept (2010), Vodafone is ranked at 10thposition in BrandZ‟s top 100 most valuable global brand ranking, and its brand value is $44,404million in 2010. Vodafone has implemented “a dual branding strategy designed to give allconstitutes, employees, customers, and trade-partners a period of time so people canintellectually get it” (Capon, 2009, p. 169). In Germany, the company used D2/Vodafone, thenVodafone/D2, and it just dropped the D2 to become Vodafone while involving brand advertisingand sponsorships.4.1.2 Weaknesses Financial instability Most of key financial ratios including liquidity, profitability, and debt management arereported lower than the industry norm. The company has recently lost flexibility in its globalexpansion due to a continuous increase in long-term debt. Underperformance in key markets The company is seriously affected by the economic slowdown in the European marketswhich the company captured 67.3% of its total revenues in 2009. The market growth is projectedonly at 1.0% and 1.3% in 2010 and 2011 respectively and ARPU in most countries has beenslightly decreasing. Weak domestic position According to Kendall (2010), Vodafone UK has captured 23.3 % of UK domestic marketshare and has fallen behind O2 UK in 4Q2009. Orange UK and T-Mobile UK captured 20.1%and 20.9% in the same period respectively, and if the proposed merger between Orange and T-Mobile is occurred, Vodafone UK will fall into the third position in its domestic market.4.1.3 Opportunities Value added products and services Value-added products and services that can meet individual customer needs and widen thescope of its relationship with its customers are essential for telecommunications operators to 7
  • 12. reshape its competitive environments. Vodafone Group has focused on creating value-addedservices to improve ARPU from existing customers and simultaneously entice new customers. Fixed-mobile convergence Data services are expected to drive converged services rather than traditional voice andmessaging services. The company intends to move into the fixed voice and broadband markets. Ithas either acquired the Internet service providers in some countries or formed partnerships in theother countries where acquisitions are not feasible or not cost efficient. Mobile broadband The total global mobile broadband subscriber base will increase “eight-fold over the forecastperiod; at a CAGR of 50% from 186 million subscribers at the end of 2008 to 1.4 billion at theend of 2013” (Roberts, 2009, p. 11). The company has rolled out 3.6Mbps and 7.6Mbps HSDPAservices and planed to deploy LTE to launch much higher speed mobile broadband services inEuropean market. Emerging market growth The Indian mobile telecom industry is one of the highest growth industries globally. Whilemobile subscriber penetration in most of developed market has approached 100%, thepenetration in Indian market hasn‟t reached 50%. Gupta (2010) argues that “India will gainalmost 135 million new mobile connections in 2010” (p. 2).4.1.4 Threats Exposure to economic slowdown and maturing markets While the company has heavily relied on its revenues from the European market, the recenteconomic slowdown in the market has affected Vodafone Group. Its market growth is projectedonly at 1.0% and 1.3% in 2010 and 2011 respectively. Mobile subscriber penetration rate in mostof the market have already approached 100% and those markets have been saturated, and ARPUin most countries in the market have been slightly decreasing. Fierce competition While most mobile communications companies have been confronted with the impact on therecent economic slowdown and most of developed markets have been saturated, competition indeveloped markets is intensifying globally. Most multi-national operators have turned their focusto emerging markets and competition in the markets is also intensifying globally. Consequently,customers have been more price-sensitive in both markets and the company has faced significantpressure on its price globally. Regulation While expanding its business globally, Vodafone Group has to cope with each localregulation, some of which are not favorable to its operations. Obiodu (2010) argued that“mandated reductions in mobile termination rate (MTRs) have been a key irritant for Vodafoneand its peers”, and “there are also concerns on how regulators will interpret future developmentssuch as for VoIP or for future licenses” (p. 6). 8
  • 13. 4.2 Financial Analysis4.2.1 Financial ratio analysis Vodafone Group‟s financial performances are analyzed by utilizing the liquidity, profitabilityand debt management ratios, compared to the industry norm cited from Hoover‟s, StrategicAnalytics, and Ycharts.4.2.2 Liquidity ratio Current ratio Current assets normally are comprised of cash, accounts receivable, inventories, andmarketable securities. Current liabilities include accounts payable, short-term notes payable,current portion of long-term debt, accrued taxes, wage, and other accrued expenses. The currentratio indicates “the extent to which current liabilities are covered by those assets expected to beconverted to cash in the near future” (Brigham and Houston, 2009, p. 88). The current ratio iscalculated by dividing current assets by current liabilities. The current ratios of the companyhave been reported much lower than the industry norm, as shown in Table 4.1. Cash and cashequivalents only captured 37.4% and 19.4% of total current assets in 2009 and 2008 respectively.The company stated “our key sources of liquidity in the foreseeable future are likely to be cashgenerated from operations and borrowing through long term and Short-term issuances in thecapital markets as well as committed bank facilities” (Vodafone, 2010a, p. 38). While increasingnet cash flows from operating activities by 14.2%, short-term borrowings increased by 52.9% in2009. While current assets have increased by 33%, current liabilities have also increased by 25%in 2009. Current assets are rising faster than current liabilities, and the company thus has slowlyimproved the short-term liquidity. Account 31 March 2009 31 March 2008 31 March 2007 Hoover’s Current assets £13,029m £8,724m £12,813m N/A Current liabilities £27,947m £21,973m £18,946m N/A Current Ratio 0.47 0.40 0.68 0.89Table 4.1 Vodafone Group current ratio4.2.3 Profitability ratio EBITDA margin ratio EBITDA, Earnings before Interest, Taxes, Depreciation and Amortization, to sales ratio is ameasure of cash flows from the entity‟s operations. A robust network infrastructure is a source ofcompetitive advantages for mobile communications companies but they generally report largelosses due to hugely spending capital expenditures to construct the network infrastructure.EBITDA enables the companies to discuss their profitability of core business operations whilededucting the huge amount of interest, taxes, and capital expenses. EBITDA margin ratios arestable but relatively lower than the industry norm due to the impact of business acquisitions anddisposals, and foreign exchange associated with its global expansion, as show in Table 4.2. Account 31 March 2009 31 March 2008 31 March 2007 Strategy Analytics Revenue £41,017m £35,478m £31,104m N/A EBITDA £14,490m £13,178m £11,960m N/A 9
  • 14. EBITDA Margin 35.5% 37.1% 38.5% 41.0%Table 4.2 Vodafone Group EBITDA margin ratio Return on Common Equity (ROE) ratio DuPont analysis is used to conduct a deeper analysis of ROE ratios, and highlight theinfluence of the profit margin, total assets turnover, and the equity multiplier. ROE ratio has beenreported slightly lower mainly due to lower profit margin than the industry norm, as shown inTable 4.3. The lower profit margin in 2009 and 2007 came from the huge amount of the goodwillassociated with its operations and joint ventures, impaired by £5,900m and £11,600mrespectively. While continuously expanding its geographic footprint globally through horizontalintegration, joint ventures, and strategic alliances, it also has implemented „One Vodafone‟program to improve the bottom line performance. Account 31 March 2009 31 March 2008 31 March 2007 Hoover’s Revenue £41,017m £35,478m £31,104m N/A Net income £3,080m £6,756m (£5,222m) N/A Profit Margin 7.5% 19.0% -16.7% 15.8% Total Assets £152,699m £127,270m £109,617m N/A Total Assets Turnover 0.26 0.27 0.28 0.3 Total Equity £84,777m £76,471m £67,293m N/A Equity Multiplier 1.8 1.7 1.6 N/A ROE 3.5% 8.7% -7.5% 10.8%Table 4.3 Vodafone Group ROE ratio4.2.4 Debt management ratio The debt ratio measures the percentage of funds provided by noncurrent liabilities and equity.Ehrhardt and Brigham (2009) argued that “creditors prefer low debt ratios because the lower theratio, the greater the cushion against creditors‟ losses in the event of liquidation”, and“stockholders, on the other hand, may want more leverage because it magnifies expectedearnings” (p. 123). As shown in Table 4.4, the debt ratio of the company has increased due tobusiness acquisitions and disposals, and of foreign exchange rates since more than 50% of netdebt has been denominated in Euro in accordance with its global geographic expansion. Thecompany stated “our key sources of liquidity in the foreseeable future are likely to be cashgenerated from operations and borrowing through long term and Short-term issuances in thecapital markets as well as committed bank facilities” (Vodafone, 2010a, p. 38). Account 31 March 2009 31 March 2008 31 March 2007 Ycharts Noncurrent liabilities £39,875m £28,826m £23,378m N/ANoncurrent liabilities + Equity £124,752m £105,297m £90,671m N/A Debt Ratio 32.0% 27.4% 25.8% 17.2%Table 4.4 Vodafone Group debt management ratio 10
  • 15. 4.2.5 Summary of financial ratio analysis Most of financial ratios analyzed in this section are reported lower than the industry norm. Itsprofitability ratios are reported relatively lower than the industry norm generally due to theimpact of business acquisitions and disposals and foreign exchange associated with its globalgeographic expansion. An increase in short-term borrowings has been relatively higher than anincrease in the cash flows from operating activities, and its debt ratio has increased due tobusiness acquisitions and disposal, and foreign exchange rates. The company has acknowledgedits liquidity risks and it has subsequently implemented „One Vodafone‟ program to improve costeffectiveness and efficiency. The company, however, is facing further challenges in takinghigher priority in investing in existing businesses to improve ARPU from existing customer base,generating cash from its existing assets, and expanding its business to new countries whereVodafone Group can expect immediate turnaround rather than high returns in the long term. 5. Long-term objectives5.1 Key seven areas It is an ultimate goal for a for-profit organization to maximize the wealth of its shareholdersto achieve sustainable growth and profitability in the long-term rather than to maximize short-runprofit maximization. According to Pearce and Robinson (2009) “to achieve long-term prosperity,strategic planners commonly establish long-term objectives in seven areas” (p. 199). The sevenareas are discussed in this section.5.1.1 Profitability The ability to sustainably grow its business relies on attaining acceptable level of profits.Although Vodafone Group has been confronted with fierce price competition globally, it hasn‟toffered cheaper price than other competitors. It has relatively focused its resources on new value-added services to entice both new and existing customers.5.1.2 Productivity The „One Vodafone‟ program was targeted at achieving £2.5 billion of annual pre-taxoperating free cash flow improvements in Vodafone Group‟s controlled businesses. Thecompany transformed 16 core independent national operating companies into a united operation“with a high degree of similarity with regard to product, brand, position, advertising strategy,personality, packaging, and look and feel” (McLoughlin and Aaker, 2010, p. 251) in order toachieve significant economies of scale and scope. Global Supply Chain Management (GSCM)has identified the best practices across Vodafone Group‟s mobile operations globally in order toharmonize business process that contributes to further reduction of procurement costs. GSCM isbecoming a major contributor to significant cost reduction through a unified approach usingglobal price books, global framework agreements, a standardized approach to e-auctions, and theintroduction of low cost regional sourcing. The e-auction in Vodafone Turkey helped achieve42% of price reduction to deploy new network. As part of the introduction of low cost regionalsourcing, Vodafone Group established China Sourcing Center in March 2007 to have access toand accelerated development of low cost suppliers in order to build direct relationships with bestsuppliers around the world, and sourced a total of £200 million from China in fiscal year 2007and 2008. 11
  • 16. 5.1.3 Competitive Position Vodafone Group is the second largest mobile operators globally by subscriber base andrevenue behind China Mobile that focuses on its domestic Chinese market. While the companyhas maintained the largest or second largest position in most countries where the company isoperating, it hasn‟t clearly mentioned its plan to overcome China Mobile globally.5.1.4 Employee Development Although organizational structure has been continuously improved in response to marketenvironmental changes, the company is committed to helping all employees reach their fullpotential through ongoing training and development. Vodafone (2009) stated that it provided “anaggregate of 230,000 days of training, an average of three days per employee”, and “in our mostrecent people survey, 71% of employees rated their opportunities to develop their skills andknowledge as good or very good” (p. 23).5.1.5 Employee Relations Vodafone Group has embraced diverse workforce and offers equal opportunities for allaspects of employment and advancement, regardless of race, nationality, sex, age, marital status,disability, religious or political belief, to understand expectations of its diverse customersglobally and have required skills and competences to create the innovative and differentiatedproducts and services that can meet their expectations.5.1.6 Technology Leadership Vodafone Group has continuously improved its network and ICT capability to enhance itsproducts and services. Vodafone Group (2010a) stated that “to ensure we continue the bestpossible quality of service to our customers we are proactively evolving our infrastructurethrough a range of initiatives” (p. 19). The company is a pioneer in products and services toenhance customer choice and user experience. The company has intended to maintain thetechnological leadership position globally by enhancing its ability to adapt advanced ICT anddriving Group Technology initiatives.5.1.7 Public Responsibility Vodafone Group has continuously reported its environmental and social impacts since 2000.According to Vodafone Group‟s sustainability report (2010b), “Vodafone can help to build asustainable future by delivering products and services that enable positive economic, social andenvironmental outcomes for our stakeholders worldwide” (p. 5). Sustainability challenges areidentified as a key stimulus for innovation and the company has established dedicated businessunits to develop and promote products and services that enable more efficient and effectivehealthcare, access to basic services through mobile payment solutions, and machine-to-machineapplication to bring substantial carbon and energy cost savings. Many of those services aresignificantly visible in emerging markets. 12
  • 17. 6. Generic and grand strategies6.1 Generic strategies The general philosophy stated in the mission statement must “be translated into a holisticstatement of the firm‟s strategic orientation before it can be further defined in terms of a specificlong-term strategy” (Pearce and Robinson, 2009, p. 203). Generic strategies are core ideas andVodafone Group has implemented differentiation strategy. Differentiation strategy is designed“to appeal customers with a special sensitivity for a particular product attribute”, and “bystressing the attribute above other product qualities, the firm attempts to build customer loyalty”(Pearce and Robinson, 2009, p. 204). Although Vodafone Group has been confronted withfiercer competition in both developed and emerging markets, it has not implemented costleadership but differentiation strategy. The company has focused on creating new value-addedservices to diversify its business portfolio in order to entice new and existing customers.6.2 Grand strategies Grand strategies indicate “the time period over which long-range objectives are to beachieved”, and “a grand strategy can be defined as a comprehensive general approach that guidesa firm‟s major actions” (Pearce and Robinson, 2009, p. 211). Vodafone Group, involved withmultiple geographic locations, customer groups and services and product portfolio, has combinedseveral grand strategies: horizontal integration, joint venture, strategic alliance, and turnaround.6.2.1 Horizontal integration, joint ventures, and strategic alliances The company has expanded its global geographic footprint through horizontal integration,joint ventures, and strategic alliances in compliance with each local culture, norm, and regulatoryrequirements. The company has maintained a significant fixed and mobile presence globally inEurope, Africa and Central Europe, and Asia Pacific and Middle East. It has equity investments in 31 countries including a 65% stake in South Africa‟s VodacomGroup, and a 70% stake in Ghana Telecom. In 2000, Vodafone Group teamed up with VerizonCommunications to form a joint venture, Verizon Wireless, and the company owns 45% of theventure. In 2009, Vodafone Australia completed its merger with Hutchison 3G Australia andthey established a 50:50 joint venture. Vodafone Group has formed strategic alliances with bothtelecommunications and non-telecommunications businesses. The company built partnershipwith Jersey Airtel to launch mobile services on Jersey India under the brand name Airtel-Vodafone. The company also built strategic partnerships with Acer, Dell, HP, and Levnvo toincorporate in the manufacturing level to implement a built-in Vodafone SIM supportingHSDPA technology, with Citigroup to launch global mobile transfer service, and with Yahoo! todevelop mobile advertising solutions.6.2.2 Turnaround Turnaround is a strategy of “cost reduction and asset reduction by a company to survive andrecover from declining profits” (Pearce and Robinson, 2009, p. 224). The company hascontinuously increased the debt ratio due to its aggressive global geographic expansion, and ithas recently taken higher priority in investing in existing businesses to improve ARPU fromexisting customer base and expanding its businesses to new markets where it can expectimmediate turnaround rather than high returns in the long term. The company has thus 13
  • 18. implemented turnaround strategy and initiated One Vodafone program to achieve streamlinedcost effectiveness and efficiency to improve bottom line performance. 7. Strategic Analysis A company can achieve sustainable growth to thrive and survive its business when itpossesses competitive advantages against its competitors globally and locally. Pearce andRobinson (2009) argued that “the two most prominent sources of competitive advantages can befound in the business‟s cost structure and its ability to differentiate the business from competitor”(p. 246). Global telecommunications industry is greatly fragmented industry. The company hasimplemented differentiation strategy but it definitely requires sustainable advantages in order tocontinuously provide unique values to its subscribers. A company can gain competitiveadvantages by creating more values than its competitors in the value chain. Vodafone Group‟svalue chain activities are discussed in Appendix 7.1. While the company has relatively focused more on demand chains such as service, marketingand sales, and outbound logistic to provide buyers with “something uniquely value” (Pearce andRobinson, 2009, p. 250), the company has centralized supply chains to weaken the bargainingpower of suppliers to achieve cost and operational efficiency. The huge capital requirementstraditionally represented a more significant entry barrier to new entrants in telecommunicationsindustry but recent MVNO business model lowers the barrier and small companies withdifferentiated products and services have been identified as new entrants. Vodafone Group hasheavily invested in Group Technology and improvements of its ability to adapt the advancedtechnologies globally to create innovative and differentiated products and services. To diminishthe bargaining power of substitute products and services, the company has continued to diversifyits product and service portfolio and offered a wide range of products and services includingvalue-added services to meet its customers‟ total communications needs. 8. Implementation8.1 Short-term objectives Short-term objectives are “measurable outcomes achievable or intended to be achieved in oneyear or less”, and “specific, usually quantitative, results operating managers set out to achieve inthe immediate future” (Pearce and Robinson, 2009, p. 305). Short-term objectives helpimplement the generic and grand strategies while making long-term objectives become a reality,raising issues and potential conflicts within an organization, and assisting strategyimplementation by identifying measureable outcomes of action plans. In the annual report for theyear ended 31 March 2010, Vodafone Group (2010a) reported “four main objectives: driveoperational performance, pursue growth opportunities in total communications, execute inemerging markets, and strengthen capital discipline” (p. 8). Each short-term objective isdiscussed in this section. 14
  • 19. 8.1.1 Drive operational performance The company has intended to enhance customer values in order to maximize the value ofexisting customer relationships. The company has implemented not cost leadership butdifferentiation strategy and it focuses on creating new value-added services to entice bothexisting and new customers globally. Employees are identified as a source of competitiveadvantages to improve existing customer relationships locally and the company has maintainedhigh performance benchmark for employee engagement.8.1.2 Pursue growth opportunities in total communications Vodafone Group has targeted “three key areas for growth – mobile data use, broadband, andenterprise services” (Obiodu, 2010, p. 7). Vodafone Group‟s successful smart-phone penetrationgrowth ensures that its smart-phone users have paid more for data services than its traditionalphone users. It has aggressively launched mobile broadband offering across its key markers, and“data revenue grew by 19.3% and is now over £4 billion” (Vodafone, 2010a, p.7). In theenterprise markets, it also intends to increase the penetration of data devices, deliver itsbroadband service, and strengthen its core mobile services.8.1.3 Execute in emerging markets Vodafone Group focuses on selective expansion within the markets while executing mergersand acquisitions in key emerging markets. India, Africa, and the Middle East are now key areasfor growth. It improves business performance in these markets “by selling own-branded, low-cost handsets, reducing the cost of entry for mobile communications and encouraging morecustomers to come on to the network” (Obiodu, 2010, p. 7).8.1.4 Strengthen capital discipline Vodafone Group has focused on its free cash flow generation to maintain an appropriateinvestment in new and existing businesses and markets. While launching new and value-addedservices globally to improve existing customer satisfaction, increase ARPU, and decrease churnrate, it has “divested loss-making units in Japan, Sweden, Belgium, and Switzerland” (Obiodu,2010, p. 7). The company also has already achieved £ 1 billion cost reduction program a yearahead of schedule but it has initiated further £ 1 billion cost reduction program by the 2013financial year by leveraging its global scale and scope. Two-year working capital reduction,outsourcing IT functions and network sharing agreement are in place as a part of the program.8.2 Outsourcing The company has definitely identified its network infrastructure and its operations, IT, andsupply chain, data centers and other back office activities as non-core while customerrelationships as core business activities. While those non-core business activities are outsourcedto external parties or Vodafone Group headquarters to maximize cost effectiveness andefficiency by leveraging economies of scale and scope globally, it has focused their resources oncustomer relationship management locally, as shown in Appendix 8.1. Vodafone and Orangehave established their network joint venture in the UK to deploy and own their combined rationetwork. Their initial scope was limited to 3G network but they are expected to expand theirexisting network sharing deals to including the costs of engineering, maintenance, andtechnology, in a move which is expected to save Vodafone (and Orange presumably) aroundUS$1.45 billion a year” (Cellular-news, 2009, para. 1). 15
  • 20. 9. Strategic control9.1 The balanced scorecard methodology Vodafone Group has implemented the balanced scorecard methodology to create additionalvalues. EFM Software argued (2009), there are several reasons why the company decided to usethe balanced scorecard and eventually developed eighty and even up to one hundred keyperformance indicators: 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 (para.14). 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” (para. 2). In addition tointernal performance management objective, the company has externally reported some of itsKPIs in its interim management statement on a regular base.9.1.1 The Application of the Balanced Scorecard to Vodafone Group In Vodafone Group‟s report (2010a), Vittorio Colao, Chief Executive at Vodafone stated thefour main objectives: drive operational performance, pursue growth opportunities in totalcommunications, execute in emerging markets, and strengthen capital discipline to driveshareholder returns. The four main objectives are now decomposed into strategic objectives, and performancemeasures are created for each strategic objective, as shown in Appendix 9.1. In its annual reportfor the year ended 31 March 2010, Vodafone reported the a number of KPIs used by The Boardand the Executive Committee “to monitor Group and regional performance against budgets andforecasts as well as to measure progress against our strategic objectives” (Vodafone, 2010a, p.24). Those KPIs are categorized as „VF defined‟ in Appendix 9.1. To completely align with eachstrategic objective, a total of five KPIs are relatively proposed, and categorized as „Proposed‟ inAppendix 9.1. 16
  • 21. 9.1.2 Customer Perspective The customer delight index, churn rate, and revenues from emerging markets, and thenumber of proportionate mobile subscribers are identified in line with each strategic objective inthe customer perspective. Mobile technologies have evolved and its customers use their mobilephones not only to call but also connect the Internet, watch television, play music and takepictures. The company has focused on customer value enhancement to maintain their loyalty andtrust. According to Vodafone (2010d), the Customer Delight Index measures the levels ofcustomer satisfaction: 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 (para. 4). Churn rate is especially crucial for the company that has heavily relied on saturated Europeanmarket “where competition is fierce and where net acquisition costs of customers can be high,including both direct and indirect marketing costs and other costs such as customer equipmentstudy” (Stainthorpe, 2009, p. 2). The churn rate is one of the key measures to assess the actualperformance against the strategic objective. The objective „execute in emerging markets‟represents that while the company has maintained its strong presence, it focuses on expansionwithin the market. Revenues from emerging markets are key measures to definitely evaluate theiractual achievements in the markets against the objective. Finally, the number of proportionatemobile customers is the high-level measure to ensure that the company has encouraged morecustomers to come on to its network globally.9.1.3 Financial Perspective EBITDA margin, free cash flow, and return on common equity („ROE‟) are identified inaccordance with each strategic objective in the financial perspective. A company intelecommunications industry generally reports large losses due to hugely spending capitalexpenditure to construct the infrastructure. EBITDA margin enables to analyze the profitabilityof core business operations while deducting the huge amount of interest, taxes, and capitalexpenditures. Free cash flow generation is a critical source of its growth while establishing itsentities through horizontal integration, joint ventures, and strategic alliances globally. In addition,free cash flow can support higher dividends and in turn contribute to maximizing shareholder‟svalues. ROE represents the actual return earned by shareholders and is the best measure todirectly assess its actual performance against the strategic objective „drive shareholder return‟ asan ultimate goal for the company.9.1.4 Learning and Growth Perspective ARPU, data revenue, fixed revenue, and the number of enterprise mobile voice connectionsare identified in accordance with each strategic objective in the learning and growth perspective.Vodafone Group has implemented differentiation strategy that it focuses on creating new value-added services to increase ARPU. ARPU can be therefore considered as one of the key measuresof its innovation. While traditional voice and messaging services captured more than 75% of its 17
  • 22. service revenues in 2009, data service is targeted as one of three key areas for growth, andtherefore the data revenue is a key measure to directly evaluate its growth objective. Thecompany has expanded fixed broadband customer base to meet their total communications needs.It has only fixed broadband services in its fixed service portfolio, and it is also identified as oneof three key areas for growth. Fixed revenue represents the growth objective and is considered asa key measure. The last one of three key areas for growth is the enterprise services. While theenterprise service revenues are not independently reported in the annual report, the mainenterprise service is an enterprise voice service and the number of enterprise mobile voiceconnections can be thus considered as a key measure of its growth objective.9.1.5 Business Processes Perspective The employee turnover rate, annual capital expenditure, and operational efficiency ratio areidentified in accordance with each strategic objective in the business process perspective. Thecompany stated that “we rely on our people to maintain and build on our success and to deliverexcellent service to our customers”, and “we aim to attract, develop and retain the best peopleand to realize their full potential” (Vodafone, 2010a, p .22). The employee turnover rate is one ofthe key measures to evaluate its performance against the strategic objective „maintain highperformance benchmark for employee engagement‟. As a part of cost reduction programs, thetwo-year working capital reduction program is initiated and the working capital itself is the bestmeasure to directly evaluate the actual performance against the targeted working capital.Although the company has extended the cost reduction programs to a further £1 billion costsaving by 2013, £1 billion includes both the capital and operating expenditures and it is difficultto focus on either capital or operating expenditure. However, the objective of the cost reductionprogram is to improve its operational efficiency and, the number of subscribers versus thenumber of own employees‟ ratio can be used alternatively.9.2 Balanced Scorecard Analysis Both the absolute values and ratios are generally identified as measures associated 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 the industry norm to understand the relative position in the industry. Some of key measures are analyzed in each way in this section.9.2.1 An actual versus target KPI values 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 critical 18
  • 23. source of its growth through the mergers and acquisitions, joint ventures, and strategic alliancesglobally. Consequently, the actual value was £5.72 billion, between £5.5 billion to £6.0 billion,and the company achieved only the minimum target, a total of £ 5.5 billion.9.2.2 An actual value versus a series of the previous values of the same KPI While new value-added services are considered as a lever to increase ARPU, ARPU in allEuropean countries where Vodafone Group is operating have been slightly decreasing as shownin Appendix 9.2. ARPU includes both voice and data revenues and a decrease in voice revenueshave subsequently had a great impact on a decrease in ARPU. Although its data revenues haveincreased, its voice revenues have decreased much quicker than data revenues. „Execute inemerging markets‟ comes from the fierce competition in European market.9.2.3 Actual KPI values versus the industry norm EBITDA margin ratio of the company are stable but lower than the industry norm due to theimpact of business acquisitions and disposals and foreign exchange associated with its globalgeographic expansion strategy, as shown in Appendix 9.3. The global average EBITDA marginis cited from Strategy Analytics‟ wireless operator performance benchmarking (2009).9.3 The best practice of performance monitoring system Vodafone Group has already implemented the balanced scorecard methodology to monitorits performance against predefined KPIs in accordance with not only the financial perspectivebut also the other three perspectives. The company has built performance monitoring systemslocally 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. The company has put “in the infrastructure and built the global SCM community”(Supply Chain Standard, 2006, p. 1). The infrastructure with common processes and dataestablished with a group-wide platform can help the company simplify the end-to-end SCMprocess, establish commonality in performance analysis, and implement group-wide visibility toits performance. The community enables all stakeholders in the supply chain process, regardlessof organizations, to have a common language to improve operational effectiveness. In addition,Vodafone Group has implemented the end-to-end visibility to its performance beyond VodafoneGroup, and as a result, Vodafone Group can create performance reports including the end-to-endaspects, identify shortcomings throughout the SCM processes even beyond Vodafone Group, andfind, analyze and optimize performance degradation immediately with all internal and externalstakeholders.9.4 Continuous performance improvements Once an organization has built a coherent set of performance measures and monitoringsystems, the final step is to continuously improve organizational performance. TQM is amanagement concept that stresses continuous improvement through people involvement andmeasurements to focus on customer satisfaction, and is the application of human resources andquantitative methods to improve all the processes within an organization. 19
  • 24. Vodafone Group has implemented TQM to continuously improve organizationalperformance. Skills and competence development is considered as a key source of competitiveadvantages and it is of considerable value to continuously invest in people along with continuousfocus on efficient and effective organizational structures, regular review of people‟s performanceand potential, diversity and inclusion, and development of high potential employees. 10. Conclusions While Vodafone Group has the largest geographic footprint in more than 70 countries, thecompany has been confronted with fiercer competition in both developed and emerging markets.Developed market growth is only projected at around 1% and mobile subscriber penetration inthe market is extremely higher than emerging markets. European market is the largest market forVodafone Group but its revenue and ARPU in the market are slightly decreasing. Indian marketis one of the highest growth mobile markets and Vodafone Group has more than 100 millioncustomers in the market, 30% of its total number of customers. Mobile subscriber penetration inthe market hasn‟t reached 50% yet. The market is expected to continuously grow and most multi-national mobile operators have recently focused more on Indian market and Vodafone Group isfacing extremely fierce price competition in the market. Value-added services are identified askey differentiators to maintain its customers and improve ARPU in developed market and toentice new customers in emerging markets. Its differentiation strategy represents that VodafoneGroup intends to maintain the technological leadership by enhancing its ability to adaptadvanced ICT and driving Group Technology initiatives in order to create value-added servicesto meet customers‟ total communications needs. Vodafone Group has expended its global geographic footprint through horizontal integration,joint ventures and strategic alliances by capitalizing on its superior brand recognition. However,the company has continuously increased the debt ratio due to its aggressive global geographicexpansion, and it has recently taken higher priority in investing in existing businesses to improveARPU from existing customer base and expanding its businesses to new markets where it canexpect immediate turnaround rather than high returns in the long term. The company has thusimplemented turnaround strategy and initiated One Vodafone program to achieve streamlinedcost effectiveness and efficiency by gaining economies of scale and scope globally to improvebottom line performance. Vodafone Groups has formulated and implemented those generic andgrand strategies deliberately in accordance with its vision and mission, and external and internalenvironments. The company has also implemented four main strategic objectives associated withthose strategies and the balanced score card methodology to disseminate the strategies widely,translate them into actions, and provide meaningful feedback in the strategic control process. Although Vodafone Group has implemented differentiation strategy, the company hasn‟tlaunched value-added services in both developed and emerging markets and it has thus facingfierce price competition. While expanding geographic global footprint and diversifying productsand services, the company needs to focus more resources on value-added services as keydifferentiators in order to maintain sustainable growth. 20
  • 25. 11. BibliographyBrigham, E. F., & Houston, J. F. (2009). Fundamentals of Finance Management, Concise Edition(with Thomson One – Business School Edition). Florence, KY: South-Western CollegePublishing.Capon, N. (2009). Capon‟s marketing framework. London, UK: Wessex Publishing.Cellular News. (2009). Orange and Vodafone to Expand Network Sharing Partnership. RetrievedMar-31, 2010 from http://www.cellular-news.com/story/35351.phpEFM Software (2009). Case: Vodafone. Retrieved August 1st, 2010 fromhttp://www.efmsoftware.nl/totalqualitymanagement/casesvodafone/?lang=enEhrhardt, M. C., & Brigham, E. F. (2009). Corporate Finance: A Focused on Approach. Florence,KY: Cengage Learning.Gupta, A. (2010). Trends in 2010: India telecom market. London, UK: Ovum.International Monetary Fund (2010, July 7). World Economic Outlook Update. RetrievedSeptember-14, 2010 from http://www.imf.org/external/pubs/ft/weo/2010/update/02/pdf/0710.pdfHitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2008). Strategic management: competitivenessand globalization. Florence, KY: Cengage Learning.Hoover‟s. (2010). Vodafone Group Plc: Comparison data. Retrieved May-14, 2010 fromhttp://www.hoovers.com/globaluk/sample/co/fin/comparison.xhtml?ID=ffffcksxttxssyjkxyKendall, P. (2010). Wireless Operator Performance Benchmarking Q4 2009. Santa Fe, NM:Strategy Analytics.Mavrakis, D., & Saddi, M. K. (2009). Mobile Network APIs: Enabling Web services, operatorapp stores and developer communities. London, UK: Informa UK.McLoughlin, D., & Aaker, D. A. (2010). Strategic Market Management: Global Perspectives.Hoboken, NJ: John Wiley and Sons.Myers, D. (2010). Service Provider VoIP Equipment and Subscribers: Quarterly Worldwide andRegional Market Share, Size, and Forecasts. Campbell, CA: Infonetics Research.Naagarazan, R. S., & Arivalagar, A. A. (2009). Total Quality Management. New Delhi, India:New Age Global.Obiodu, E. (2010). Vodafone. London, UK: Ovum. 21
  • 26. Pearce, J.A., & Robinson, R. B. (2009) Formulation, Implementation and Control of CompetitiveStrategy (10th ed.). New York, NY: McGraw-Hill.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.htmRead, T. J. (2009). The IT Value Network: From IT Investment to Stakeholder Value. Hoboken,NJ: John Wiley and Sons.Roberts, M. (2009). Future Mobile Broadband: HSPA & EV-DO to LTE Networks, Devices &Services (3rd ed.). London, UK. Informa UK.Saxtoft, C. (2008). Convergence: User Expectations, Communications Enablers and BusinessOpportunities. Hoboken, NJ: John Wiley and Sons.Schept, K. (2010). Top 100 most valuable global brands 2010. London, UK: BrandZ.Stainthorpe, A. (2009). Mobile Churn and Loyalty Strategies: How to retain valuable customers(2nd ed.). London, UK: Informa UK.Supply Chain Standard. (2006). Winner: Vodafone. Retrieved August 1st, 2010 fromhttp://www.supplychainstandard.com/Articles/1206/Winner+Vodafone.htmlVodafone. (2007). Vodafone Group Plc: Analyst and Investor Day. Retrieved September-13,2010 fromhttp://www.vodafone.com/etc/medialib/attachments/company_presentations/2007.Par.74819.File.dat/Germany_UK_Investor_Day_presentation_web.pdfVodafone. (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 September-13, 2010 fromhttp://www.vodafone.com/static/annual_report10/downloads/vf_ar2010.pdf/Vodafone. (2010b). Vodafone Group Plc: Sustainability Report for the year ending 31 March2010. Retrieved September-13, 2010 fromhttp://www.vodafone.com/etc/medialib/cr10/pdf.Par.17290.File.dat/vodafone_sustainability_report.pdfVodafone. (2010c). Learning for the long term. Retrieved September-18, 2010 fromhttp://www.vodafone.com/working_nation/the_skills_of_work/learning_for_the_long.htmlVodafone. (2010d). Corporate Responsibility: Customers. Retrieved September-18, 2010 from 22
  • 27. http://www.vodafone.com/start/responsbility_uk/customers. htmlYcharts. (2010). Wireless Communications Industry Stock Charts. Retrieved May-14, 2010 fromhttp://ycharts.com/industries/Wireless%20Communications/charts 23
  • 28. 12. AppendixAppendix 7.1 Evaluating Vodafone Group‟s Differentiation OpportunitiesTechnology Group Technology and agility to adapt the advanced technologies to create innovativeDevelopment and differentiated products and services.Human The Vodafone Way program to help all employees align with a common set of valuesResource and behaviors. Vodafones commitment to help them reach full potential throughManagement ongoing training and development.General The Vodafone Way program to increase customer focus with speed, simplicity, andAdministration trust. Awarded Global Supply Chain Management driving One SCM to leverage economies of scale and scope to significantly reduce procurement cost (global price book, globalProcurement framework agreement, standardized approach to e-auction, and low cost regional sourcing). One SCM to Better Multiple Focus its Locate a great centralize and Understanding customer resources on number of manage most of of the strategic interfaces to local own and Vodafone values of IT to deliver its customer branded Groups perform its products and relationship stores to relationships business services (web, management provide with its operations mail, (micro customer suppliers. more telephone and segmentation, services efficiently and self-service real-time (2,100 own A consistent effectively. portal). marketing, stores and supplier and direct 7,600 branded performance One Vodafone Vodafone 360 distribution stores management program to to deliver a plus aligned globally). process in place transform 16 superior partners). to assess operating integrated 24-by-7 financial companies into customer Leverage the customer stability, a united experience. most support technological operation. recognizable hotline and and commercial global door-to-door criteria, delivery telecommunic mobile phone and quality ations brand. replacement management in Germany. requirements Diversify its and corporate product and responsibility. service portfolio. Inbound Outbound Marketing Operations Services logistic logistics and Sales 24
  • 29. Appendix 8.1 Evaluating Vodafone Group „Customer focused locally, scaled globally‟Note: from http://www.vodafone.com/etc/medialib/attachments/company_presentations 25
  • 30. Appendix 9.1 Vodafone Group balanced scorecardPerspective Strategic Objectives Measures Category Drive operational performance Customer delight index VF defined through customer value enhancement Maximize the value of existing Churn rate VF defined customer relationshipsCustomer Maintain its strong success in key Revenues from emerging Proposed emerging markets markets Encourage more customers to come on Proportionate mobile VF defined to the network customers Target and its offers and services globally, not use the lower price than EBITDA margin VF defined othersFinancial Maintain appropriate investment in Free cash flow VF defined new and existing business and markets Drive shareholder return ROE Proposed Create new value-added services ARPU VF defined globally One of three key areas for growth Learning Data Revenue VF defined (mobile data use) and One of three key areas for growth Growth Fixed revenue VF defined (broadband services) One of three key areas for growth Enterprise mobile voice Proposed (enterprise services) connections Maintain high performance Employee turnover rate VF defined benchmark for employee engagement Two-year working capital reduction Working capital ProposedBusiness programProcesses Operational efficiency Drive £ 1 billion cost reduction ratio Proposed program (subscribers / own employees) 26
  • 31. Appendix 9.2 Vodafone Group ARPU in European market 27
  • 32. Appendix 9.3Vodafone Group and Global Average EBITDA margin 28