Embed Size (px)
DESCRIPTION
Citation preview
i
Running Head: A comprehensive strategic management model for Vodafone Group
A comprehensive strategic management model for Vodafone Group
Toru Sekiguchi
September 19th
, 2010
ii
Table of Contents
Title Page…………………………………………………………………………………............. i
Table of Contents…………………………………………………………………….................... ii
Abstract……………………………………………………………………………...................... iv
1. Introduction…………………………………………………………………………………... 1
2. 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……………………………………………………………………… 2
3. 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………………………………………………………….. 6
4. 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……………………………………… 11
5. 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
iii
5.1.5 Employee Relations………………………………………………………. 12
5.1.6 Technology Leadership…………………………………………………… 12
5.1.7 Public Responsibility……………………………………………………... 12
6. 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………………………………………………………………... 13
7. Strategic Analysis…………………………………………………………………………... 14
8. 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…………………………………………………………………………. 15
9. 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……………………………………………. 19
10. Conclusions…………………………………………………………………………………. 20
11. Bibliography………………………………………………………………………………... 21
12. 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
iv
Abstract
Vodafone Group, which was established in 1982, is the second largest mobile
communications company globally that manages ultra large-scale mobile networks in 31
countries and has a presence through partnerships in another 40 countries. The company is one of
the most influential companies in mobile telecommunications industry with a significant
presence in Europe, Asia Pacific, United States, and the Middle East with “341 million
proportionate customer base” (Vodafone, 2010a, p. 8).
While Vodafone Group has the largest geographic footprint in more than 70 countries, the
company 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 in
the market is extremely higher than emerging markets. European market is the largest market for
Vodafone Group but its revenue and ARPU in the market are slightly decreasing. Indian market
is one of the highest growth mobile markets and Vodafone Group has more than 100 million
customers in the market, 30% of its total number of customers. Mobile subscriber penetration in
the 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 is
facing extremely fierce price competition in the market. Value-added services are identified as
key differentiators to maintain its customers and improve ARPU in developed market and to
entice new customers in emerging markets. Its differentiation strategy represents that Vodafone
Group intends to maintain the technological leadership by enhancing its ability to adapt
advanced ICT and driving Group Technology initiatives in order to create value-added services
to 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 geographic
expansion, and it has recently taken higher priority in investing in existing businesses to improve
ARPU from existing customer base and expanding its businesses to new markets where it can
expect immediate turnaround rather than high returns in the long term. The company has thus
implemented turnaround strategy and initiated One Vodafone program to achieve streamlined
cost effectiveness and efficiency by gaining economies of scale and scope globally to improve
bottom line performance. Vodafone Groups has formulated and implemented those generic and
grand strategies deliberately in accordance with its vision and mission, and external and internal
environments. The company has also implemented four main strategic objectives associated with
those 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‟t
launched value-added services in both developed and emerging markets and it has thus facing
fierce price competition. While expanding geographic global footprint and diversifying products
and services, the company needs to focus more resources on value-added services as key
differentiators in order to maintain sustainable growth.
1
1. Introduction
Vodafone Group, which was established in 1982, is the second largest mobile
communications company globally that manages ultra large-scale mobile networks in 31
countries and has a presence through partnerships in another 40 countries. The company is one of
the most influential companies in mobile telecommunications industry with a significant
presence in Europe, Asia Pacific, United States, and the Middle East with “341 million
proportionate customer base” (Vodafone, 2010a, p. 8). Although Vodafone Group has been
confronted with fiercer competition in both developed and emerging markets globally, the
company hasn‟t implemented cost leadership but differentiation strategy to entice new and
existing customers. It has also implemented its grand strategies that the company expands its
business globally through horizontal integration, joint ventures, and strategic alliances.
Due to a fierce competition in global telecommunication industry, business acquisitions and
disposals, and foreign exchange rate, most of its financial ratios have been lower than the
industry norm. The company thus introduced turnaround strategy that it focused on bottom line
performance improvements by leveraging economies of scale and scope globally in 2007. The
company has subsequently implemented „One Vodafone‟ program to achieve streamlined cost
effectiveness and efficiency.
The objective of this research is to assess Vodafone Group‟s strategic management model to
formulate and implement the generic and grand strategies in line with its internal and external
environments. Its vision and mission, external and internal environmental analysis, long-term
objectives, generic and grand strategies, strategic analysis, implementation, and strategic control
are discussed in this research.
2. Vision and mission
While Vodafone Group‟s vision states that the company will “be the communication leader
in an increasing connected world” (Vodafone, 2010a, p. 2), its mission statement isn‟t explicitly
defined. 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 the
global mobile telecommunications market. Eastern Europe, Western Europe, and North
Americas are among the top three markets for the company by subscriber but growth has been
more muted in those developed markets. In contrast, India and China are 4th
and 5th
largest
2
regions respectively but growth prospect remains positive in those emerging markets. The
company is serving its fixed and mobile services to both enterprises and consumers around the
world.
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 and
services including “voice, messaging, data and fix line solutions and devices to assist customers
in 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 total
communications 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 and
profitability. The objectives includes driving operational performance, pursing growth
opportunities in total communications, executing in emerging markets, and strengthening capital
discipline. 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 to
build 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 mobile
telecommunications operator, the company has continuously made efforts on maintaining and
enhancing its reputation as a socially responsible company and it has reported the environmental
and social impacts of its businesses for ten years. The company aims to provide “balanced
account of our performance on the socio-economic, ethical and environmental issues that are
most 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 Vodafone
employees” (Vodafone, 2010a, p. 22). The performance and potential of the employees are
assessed 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 strategic
management model. According to Pearce and Robinson (2009), the external environment “can be
divided into three interrelated subcategories: factors in the remote environment, factors in the
industry environment, and factors in the operating environment” (p. 94). These factors Vodafone
Group is facing are discussed in this chapter.
3
3.1 Remote environment
3.1.1 Economic Factors
Most companies have recently been confronted with slower growth than ever in the volatile
and rapidly changing global markets. Vodafone Group is not the exception and it hasn‟t been
sustainably growing in some markets. International Monetary Fund (2010) reported that
European market growth is projected only at 1.0% and 1.3% in 2010 and 2011 respectively but
Vodafone Group has heavily relied on slower growth and saturated European market due to
extremely higher mobile subscriber penetration with more than 150% in some countries. Its
revenues from the market captured 67.3% of its total revenues in 2009 but ARPU (average
revenue per user) in UK, Greece, Netherlands, Spain, Italy, Germany, and Portugal where the
company is operating has been slightly decreasing. In contrast, IMF (2010) reported that Indian
market growth is projected at 9.4% and 8.4% in 2010 and 2011 respectively. Vodafone Group
has improved performance in emerging markets in 2009 and executing in emerging markets is
one of the four main objectives. Service revenues in the market grew by 14.7% in 2009, and
Indian mobile market, the second-largest market around the world after China, has been
perceived as its key market.
3.1.2 Political factors
Political factors are also a major consideration for Vodafone Group on formulating and
implementing its strategies in accordance with each country specific legal, regulatory and tax
environments. The company also has to comply with an extensive range of requirements that
regulate 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 or
to third parties, could adversely affect our future operations” (p. 38). For instance, EU recently
introduced a multi-year spectrum policy program. India made regulations for the implementation
of mobile number portability in 2009.
3.1.3 Technological Factors
Telecommunication operator‟s ability to adapt the advanced technologies has a great impact
on innovative and differentiated products and services in response to the rapidly changing
customer needs and market environments. Saxtoft (2008) argued that “competitive advantages in
the future convergent communications industry will be based on the organizational ability of
communications service providers to utilize the specific mix of network data, services data and
customer data available to each of the players in the market” (p.71). With its ability to
continuously adapt new ICT, the company has created value-added services like Vodafone 360
and Cloud Computing services.
3.2 Industry environment
Most telecommunications operators in developed markets have been confronted with a fierce
competition and declining revenues, and understating of competitive forces is greatly crucial to
thrive 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 operating
in both developed and emerging markets and thus diversifying risks.
4
3.2.1 Threat of Entry
Telecommunications industry is very capital-intensive business with a huge amount of
capital to acquire and maintain its network infrastructure and technologies, and create new
products and services. Although the huge capital requirements traditionally represents a more
significant entry barrier to new entrants than some other industries, recent MVNO (mobile
virtual network operators) business model lowers the barrier and small companies with
differentiated products and services has been identified as new entrants. In addition, while
telecommunications operators have made significant efforts to redefine their value chains to
create new value-added services, Google, Amazon and other online companies have attempted to
redefine industry boundaries. These companies are perceived as new competitors in
telecommunications industry.
3.2.2 Supplier Power
Vodafone Group‟s key suppliers are handset manufacturers like Samsung, Nokia and
Motorola, and network equipment manufacturers like Ericsson, Alcatel-Lucent, and Nokia
Siemens Networks. Those suppliers‟ bargaining powers have weakened due to lack of technical
advantages and new Chinese entrants that extremely pursue cost leadership. In contrast,
Vodafone Group has enhanced its bargaining power to key suppliers while focusing on „One
Vodafone‟ 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 customers
tend to be more price-sensitive in both developed and emerging markets. The company has still
relied on European markets with significantly higher mobile subscriber penetration, and ARPU
in all Vodafone operating countries in the markets have been decreasing. In Indian mobile
market 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 including
traditional mobile voice and messaging, data, fixed line solution and other services such as
value-added services to meet its customers‟ total communications needs. Its mobile voice and
messaging 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 voice
and messaging services have a significant impact on its business. Although mobile voice services
have overtaken traditional fixed voice services, especially in emerging markets, VoIP (Voice
over 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, a
2.4% increase over 2Q2010. While there are still concerns on the reliability and quality over IP
networks, more broadband customers become aware of the benefits of VoIP to “enjoy the
flexibility 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 growth
of VoIP services has a significant impact on a decrease in its voice ARPU. Vodafone Group has
focused not on cost leadership to directly compete with VoIP services but on diversifying its
product and service portfolio and launching new value-added services. Its data services are
5
mainly used to connect the Internet and its substitutes are broadband services and fixed Internet
services. Vodafone has embarked on fixed broadband service especially in developed markets to
offer fixed-mobile converged services to differentiate its services from other fixed or mobile
operators. In developing markets, fixed broadband services and Internet services are not
identified as substitutes for mobile Internet services any more since mobile Internet services have
overtaken fixed broadband services. Its fixed broadband services are identified as
complementary services to deliver fixed-mobile converged services. The company has generally
started with mobile services and then added fixed services in all market the company has entered
into. According to Marvrakis and Saddi (2009), “the previously pure mobile operator is now
following a total communications strategy which includes mobile (cellular), broadband (fixed)
and wireless; it has been offering combined services, with fixed, mobile and broadband services
under a single bill” (p. 42).
3.2.5 Rivalry
Vodafone Group is operating its business in more than 70 countries and the general
competitive landscape differs in developed and emerging markets. However, the switching cost
is low in both markets and the differentiation strategy is essential for the company to keep its
customers from rivals.
European market, the largest markets for Vodafone Group, has been saturated due to
extremely higher mobile subscriber penetration. Value-added services are identified as key
differentiators and the company has launched Vodafone 360, and Cloud computing services in
the market. In contrast, Indian is one of the highest growth mobile markets globally and the
company accounted for approximately 30% of its total number of subscribers globally. While the
mobile subscriber penetration in Indian markets hasn‟t reached 50%, Vodafone Group and other
mobile communications companies are facing extremely fierce price competition due to lack of
differentiated services.
3.3 Operating environment
3.3.1 Competitive Position
The company‟s geographic footprint in more than 70 countries affords its huge economies of
scale and scope and ensures that Vodafone Group has diversified revenue base to cope with
recent economical recession “as its emerging market operations helped cushion the poor
performance in Europe and Turkey” (Obiodu, 2010, p. 4).
The Vodafone brand is perceived as one of the most recognizable global telecommunications
brands and the company has capitalized on the brand recognition to enter into new markets. The
company is also a market leader in developing products and services. It hasn‟t implemented cost
leadership but differentiation strategy while leveraging its strong brand recognition and
diversified geographic footprint. However, the company has faced fiercer competition across
most of global markets than ever. Its major multi-national competitors are France Telecom‟s
Orange, Deutsche Telekom‟s T-Mobile, and Telefonica‟s O2. The company also has to compete
with domestic mobile operators like TMN in Portugal and KPN in Netherlands in European
market. Its performance in European market is worse than its rivals especially in Germany, Italy
and Spain. The company is also facing fierce price competition in Indian market. It presently
comes third behind Bharti Airtel and Reliance.
6
3.3.2 Customer Profiles
While diversifying its markets and product and service portfolio, it has expended its customer
base globally and served its products and services to both consumers and enterprises. Traditional
voice and messing services have been already commoditized globally and they are affordable
enough 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 source
of 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 deliver
excellent service to our customers”, and “we aim to attract, develop and retain the best people
and to realize their full potential” (p .22). The Vodafone Way program can help all employees
align with a common set of values and behaviors in order to be an admired, innovation and
customer-focused company operating with speed, simplicity and trust. Employee turnover rate
has been stable at 13%, 13%, and 15.2% in 2010, 2009 and 2008 respectively.
4. Internal Analysis
4.1 SWOT Analysis
4.1.1 Strengths
The largest geographic footprint
Vodafone Group has the largest geographic footprint in more than 70 countries and it has
extremely gained economies of scale and scope to maximize cost efficiency and effectiveness. In
addition, it can diversify business risks in response to the volatile and rapidly changing
environments globally. European mobile telecommunications market has been saturated and
most European telecommunications operators have been confronted with significant challenges
to thrive and survive due to the economic slowdown in the market. Vodafone Group is not the
exception and EBITDA in European market declined by 2.0% in 2009. However, the company
has improved performance in emerging markets and EBITDA in African and Indian mobile
markets 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 are
able 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 work
related – whenever, wherever” (Read, 2009, p.12). The company thus created Vodafone 360 and
Cloud Computing services and it in turn can greatly improve customer experience, and
eventually gain and maintain its competitive advantages. Vodafone 360 represents the new
service standard to take everything back in Vodafone and superimpose proprietary ownership
over all service aspects. It was the first time for a mobile communications company to create an
experience 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.
7
Group Technologies
Vodafone Group has driven the Group Technology initiative to achieve time-to-market and
maintain cost efficiency. The company has managed and controlled group-wide projects to
orchestrate the move toward significant coordination and identify and disseminate best practices
to focus on expansion of service capacity while replicating business models across a number of
countries. Hitt, Ireland and Hoskisson (2008) argued that “the purpose of Group Technology will
be to lead the implementation of standardized architecture for business process, information
technology 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 European
countries, 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 telecommunications
brands and the company has capitalized on the brand recognition to enter into new markets. It
migrated 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 10th
position in BrandZ‟s top 100 most valuable global brand ranking, and its brand value is $44,404
million in 2010. Vodafone has implemented “a dual branding strategy designed to give all
constitutes, employees, customers, and trade-partners a period of time so people can
intellectually get it” (Capon, 2009, p. 169). In Germany, the company used D2/Vodafone, then
Vodafone/D2, and it just dropped the D2 to become Vodafone while involving brand advertising
and sponsorships.
4.1.2 Weaknesses
Financial instability
Most of key financial ratios including liquidity, profitability, and debt management are
reported lower than the industry norm. The company has recently lost flexibility in its global
expansion 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 markets
which the company captured 67.3% of its total revenues in 2009. The market growth is projected
only at 1.0% and 1.3% in 2010 and 2011 respectively and ARPU in most countries has been
slightly decreasing.
Weak domestic position
According to Kendall (2010), Vodafone UK has captured 23.3 % of UK domestic market
share 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 the
scope of its relationship with its customers are essential for telecommunications operators to
8
reshape its competitive environments. Vodafone Group has focused on creating value-added
services 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 and
messaging services. The company intends to move into the fixed voice and broadband markets. It
has either acquired the Internet service providers in some countries or formed partnerships in the
other 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 forecast
period; at a CAGR of 50% from 186 million subscribers at the end of 2008 to 1.4 billion at the
end of 2013” (Roberts, 2009, p. 11). The company has rolled out 3.6Mbps and 7.6Mbps HSDPA
services and planed to deploy LTE to launch much higher speed mobile broadband services in
European market.
Emerging market growth
The Indian mobile telecom industry is one of the highest growth industries globally. While
mobile subscriber penetration in most of developed market has approached 100%, the
penetration in Indian market hasn‟t reached 50%. Gupta (2010) argues that “India will gain
almost 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 recent
economic slowdown in the market has affected Vodafone Group. Its market growth is projected
only at 1.0% and 1.3% in 2010 and 2011 respectively. Mobile subscriber penetration rate in most
of the market have already approached 100% and those markets have been saturated, and ARPU
in most countries in the market have been slightly decreasing.
Fierce competition
While most mobile communications companies have been confronted with the impact on the
recent economic slowdown and most of developed markets have been saturated, competition in
developed markets is intensifying globally. Most multi-national operators have turned their focus
to 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 significant
pressure on its price globally.
Regulation
While expanding its business globally, Vodafone Group has to cope with each local
regulation, 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 Vodafone
and its peers”, and “there are also concerns on how regulators will interpret future developments
such as for VoIP or for future licenses” (p. 6).
9
4.2 Financial Analysis
4.2.1 Financial ratio analysis
Vodafone Group‟s financial performances are analyzed by utilizing the liquidity, profitability
and debt management ratios, compared to the industry norm cited from Hoover‟s, Strategic
Analytics, and Ycharts.
4.2.2 Liquidity ratio
Current ratio
Current assets normally are comprised of cash, accounts receivable, inventories, and
marketable securities. Current liabilities include accounts payable, short-term notes payable,
current portion of long-term debt, accrued taxes, wage, and other accrued expenses. The current
ratio indicates “the extent to which current liabilities are covered by those assets expected to be
converted to cash in the near future” (Brigham and Houston, 2009, p. 88). The current ratio is
calculated by dividing current assets by current liabilities. The current ratios of the company
have been reported much lower than the industry norm, as shown in Table 4.1. Cash and cash
equivalents 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 cash
generated from operations and borrowing through long term and Short-term issuances in the
capital markets as well as committed bank facilities” (Vodafone, 2010a, p. 38). While increasing
net cash flows from operating activities by 14.2%, short-term borrowings increased by 52.9% in
2009. 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 slowly
improved 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 0.89
Table 4.1 Vodafone Group current ratio
4.2.3 Profitability ratio
EBITDA margin ratio
EBITDA, Earnings before Interest, Taxes, Depreciation and Amortization, to sales ratio is a
measure of cash flows from the entity‟s operations. A robust network infrastructure is a source of
competitive advantages for mobile communications companies but they generally report large
losses due to hugely spending capital expenditures to construct the network infrastructure.
EBITDA enables the companies to discuss their profitability of core business operations while
deducting the huge amount of interest, taxes, and capital expenses. EBITDA margin ratios are
stable but relatively lower than the industry norm due to the impact of business acquisitions and
disposals, 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
10
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 the
influence of the profit margin, total assets turnover, and the equity multiplier. ROE ratio has been
reported slightly lower mainly due to lower profit margin than the industry norm, as shown in
Table 4.3. The lower profit margin in 2009 and 2007 came from the huge amount of the goodwill
associated with its operations and joint ventures, impaired by £5,900m and £11,600m
respectively. While continuously expanding its geographic footprint globally through horizontal
integration, 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 ratio
4.2.4 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 the
ratio, 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 expected
earnings” (p. 123). As shown in Table 4.4, the debt ratio of the company has increased due to
business acquisitions and disposals, and of foreign exchange rates since more than 50% of net
debt has been denominated in Euro in accordance with its global geographic expansion. The
company stated “our key sources of liquidity in the foreseeable future are likely to be cash
generated from operations and borrowing through long term and Short-term issuances in the
capital 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/A
Noncurrent 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
11
4.2.5 Summary of financial ratio analysis
Most of financial ratios analyzed in this section are reported lower than the industry norm. Its
profitability ratios are reported relatively lower than the industry norm generally due to the
impact of business acquisitions and disposals and foreign exchange associated with its global
geographic expansion. An increase in short-term borrowings has been relatively higher than an
increase in the cash flows from operating activities, and its debt ratio has increased due to
business acquisitions and disposal, and foreign exchange rates. The company has acknowledged
its liquidity risks and it has subsequently implemented „One Vodafone‟ program to improve cost
effectiveness and efficiency. The company, however, is facing further challenges in taking
higher 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 where
Vodafone Group can expect immediate turnaround rather than high returns in the long term.
5. Long-term objectives
5.1 Key seven areas
It is an ultimate goal for a for-profit organization to maximize the wealth of its shareholders
to achieve sustainable growth and profitability in the long-term rather than to maximize short-run
profit 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 seven
areas 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‟t
offered 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-tax
operating free cash flow improvements in Vodafone Group‟s controlled businesses. The
company 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 to
achieve 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 to
harmonize business process that contributes to further reduction of procurement costs. GSCM is
becoming a major contributor to significant cost reduction through a unified approach using
global price books, global framework agreements, a standardized approach to e-auctions, and the
introduction of low cost regional sourcing. The e-auction in Vodafone Turkey helped achieve
42% of price reduction to deploy new network. As part of the introduction of low cost regional
sourcing, Vodafone Group established China Sourcing Center in March 2007 to have access to
and accelerated development of low cost suppliers in order to build direct relationships with best
suppliers around the world, and sourced a total of £200 million from China in fiscal year 2007
and 2008.
12
5.1.3 Competitive Position
Vodafone Group is the second largest mobile operators globally by subscriber base and
revenue behind China Mobile that focuses on its domestic Chinese market. While the company
has maintained the largest or second largest position in most countries where the company is
operating, 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 market
environmental changes, the company is committed to helping all employees reach their full
potential through ongoing training and development. Vodafone (2009) stated that it provided “an
aggregate of 230,000 days of training, an average of three days per employee”, and “in our most
recent people survey, 71% of employees rated their opportunities to develop their skills and
knowledge as good or very good” (p. 23).
5.1.5 Employee Relations Vodafone Group has embraced diverse workforce and offers equal opportunities for all
aspects of employment and advancement, regardless of race, nationality, sex, age, marital status,
disability, religious or political belief, to understand expectations of its diverse customers
globally and have required skills and competences to create the innovative and differentiated
products and services that can meet their expectations.
5.1.6 Technology Leadership
Vodafone Group has continuously improved its network and ICT capability to enhance its
products and services. Vodafone Group (2010a) stated that “to ensure we continue the best
possible quality of service to our customers we are proactively evolving our infrastructure
through a range of initiatives” (p. 19). The company is a pioneer in products and services to
enhance customer choice and user experience. The company has intended to maintain the
technological leadership position globally by enhancing its ability to adapt advanced ICT and
driving 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 a
sustainable future by delivering products and services that enable positive economic, social and
environmental outcomes for our stakeholders worldwide” (p. 5). Sustainability challenges are
identified as a key stimulus for innovation and the company has established dedicated business
units to develop and promote products and services that enable more efficient and effective
healthcare, access to basic services through mobile payment solutions, and machine-to-machine
application to bring substantial carbon and energy cost savings. Many of those services are
significantly visible in emerging markets.
13
6. Generic and grand strategies
6.1 Generic strategies
The general philosophy stated in the mission statement must “be translated into a holistic
statement of the firm‟s strategic orientation before it can be further defined in terms of a specific
long-term strategy” (Pearce and Robinson, 2009, p. 203). Generic strategies are core ideas and
Vodafone Group has implemented differentiation strategy. Differentiation strategy is designed
“to appeal customers with a special sensitivity for a particular product attribute”, and “by
stressing 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 with
fiercer competition in both developed and emerging markets, it has not implemented cost
leadership but differentiation strategy. The company has focused on creating new value-added
services 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 be
achieved”, and “a grand strategy can be defined as a comprehensive general approach that guides
a firm‟s major actions” (Pearce and Robinson, 2009, p. 211). Vodafone Group, involved with
multiple geographic locations, customer groups and services and product portfolio, has combined
several 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 regulatory
requirements. The company has maintained a significant fixed and mobile presence globally in
Europe, 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 Vodacom
Group, and a 70% stake in Ghana Telecom. In 2000, Vodafone Group teamed up with Verizon
Communications to form a joint venture, Verizon Wireless, and the company owns 45% of the
venture. In 2009, Vodafone Australia completed its merger with Hutchison 3G Australia and
they established a 50:50 joint venture. Vodafone Group has formed strategic alliances with both
telecommunications and non-telecommunications businesses. The company built partnership
with 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 to
incorporate in the manufacturing level to implement a built-in Vodafone SIM supporting
HSDPA technology, with Citigroup to launch global mobile transfer service, and with Yahoo! to
develop mobile advertising solutions.
6.2.2 Turnaround
Turnaround is a strategy of “cost reduction and asset reduction by a company to survive and
recover from declining profits” (Pearce and Robinson, 2009, p. 224). The company has
continuously increased the debt ratio due to its aggressive global geographic expansion, and it
has recently taken higher priority in investing in existing businesses to improve ARPU from
existing customer base and expanding its businesses to new markets where it can expect
immediate turnaround rather than high returns in the long term. The company has thus
14
implemented turnaround strategy and initiated One Vodafone program to achieve streamlined
cost effectiveness and efficiency to improve bottom line performance.
7. Strategic Analysis
A company can achieve sustainable growth to thrive and survive its business when it
possesses competitive advantages against its competitors globally and locally. Pearce and
Robinson (2009) argued that “the two most prominent sources of competitive advantages can be
found 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 has
implemented differentiation strategy but it definitely requires sustainable advantages in order to
continuously provide unique values to its subscribers. A company can gain competitive
advantages by creating more values than its competitors in the value chain. Vodafone Group‟s
value chain activities are discussed in Appendix 7.1.
While the company has relatively focused more on demand chains such as service, marketing
and sales, and outbound logistic to provide buyers with “something uniquely value” (Pearce and
Robinson, 2009, p. 250), the company has centralized supply chains to weaken the bargaining
power of suppliers to achieve cost and operational efficiency. The huge capital requirements
traditionally represented a more significant entry barrier to new entrants in telecommunications
industry but recent MVNO business model lowers the barrier and small companies with
differentiated products and services have been identified as new entrants. Vodafone Group has
heavily invested in Group Technology and improvements of its ability to adapt the advanced
technologies globally to create innovative and differentiated products and services. To diminish
the bargaining power of substitute products and services, the company has continued to diversify
its product and service portfolio and offered a wide range of products and services including
value-added services to meet its customers‟ total communications needs.
8. Implementation
8.1 Short-term objectives
Short-term objectives are “measurable outcomes achievable or intended to be achieved in one
year or less”, and “specific, usually quantitative, results operating managers set out to achieve in
the immediate future” (Pearce and Robinson, 2009, p. 305). Short-term objectives help
implement the generic and grand strategies while making long-term objectives become a reality,
raising issues and potential conflicts within an organization, and assisting strategy
implementation by identifying measureable outcomes of action plans. In the annual report for the
year ended 31 March 2010, Vodafone Group (2010a) reported “four main objectives: drive
operational performance, pursue growth opportunities in total communications, execute in
emerging markets, and strengthen capital discipline” (p. 8). Each short-term objective is
discussed in this section.
15
8.1.1 Drive operational performance
The company has intended to enhance customer values in order to maximize the value of
existing customer relationships. The company has implemented not cost leadership but
differentiation strategy and it focuses on creating new value-added services to entice both
existing and new customers globally. Employees are identified as a source of competitive
advantages to improve existing customer relationships locally and the company has maintained
high 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, and
enterprise services” (Obiodu, 2010, p. 7). Vodafone Group‟s successful smart-phone penetration
growth ensures that its smart-phone users have paid more for data services than its traditional
phone 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 the
enterprise markets, it also intends to increase the penetration of data devices, deliver its
broadband 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 mergers
and acquisitions in key emerging markets. India, Africa, and the Middle East are now key areas
for 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 more
customers 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 appropriate
investment in new and existing businesses and markets. While launching new and value-added
services globally to improve existing customer satisfaction, increase ARPU, and decrease churn
rate, 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 year
ahead of schedule but it has initiated further £ 1 billion cost reduction program by the 2013
financial 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, and
supply chain, data centers and other back office activities as non-core while customer
relationships as core business activities. While those non-core business activities are outsourced
to external parties or Vodafone Group headquarters to maximize cost effectiveness and
efficiency by leveraging economies of scale and scope globally, it has focused their resources on
customer relationship management locally, as shown in Appendix 8.1. Vodafone and Orange
have established their network joint venture in the UK to deploy and own their combined ratio
network. Their initial scope was limited to 3G network but they are expected to expand their
existing network sharing deals to including the costs of engineering, maintenance, and
technology, in a move which is expected to save Vodafone (and Orange presumably) around
US$1.45 billion a year” (Cellular-news, 2009, para. 1).
16
9. Strategic control
9.1 The balanced scorecard methodology
Vodafone Group has implemented the balanced scorecard methodology to create additional
values. EFM Software argued (2009), there are several reasons why the company decided to use
the balanced scorecard and eventually developed eighty and even up to one hundred key
performance 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 at
Vodafone Global Supply Chain explained the values of the balanced scorecard as “in terms of
building the community to maximize performance, we are well down the track on structuring an
integrated SCM organization and are to implement a balanced scorecard reflecting not just
savings but the total value add to Vodafone of the SCM function” (para. 2). In addition to
internal performance management objective, the company has externally reported some of its
KPIs 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 the
four main objectives: drive operational performance, pursue growth opportunities in total
communications, execute in emerging markets, and strengthen capital discipline to drive
shareholder returns.
The four main objectives are now decomposed into strategic objectives, and performance
measures are created for each strategic objective, as shown in Appendix 9.1. In its annual report
for the year ended 31 March 2010, Vodafone reported the a number of KPIs used by The Board
and the Executive Committee “to monitor Group and regional performance against budgets and
forecasts 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 each
strategic objective, a total of five KPIs are relatively proposed, and categorized as „Proposed‟ in
Appendix 9.1.
17
9.1.2 Customer Perspective
The customer delight index, churn rate, and revenues from emerging markets, and the
number of proportionate mobile subscribers are identified in line with each strategic objective in
the customer perspective. Mobile technologies have evolved and its customers use their mobile
phones not only to call but also connect the Internet, watch television, play music and take
pictures. The company has focused on customer value enhancement to maintain their loyalty and
trust. According to Vodafone (2010d), the Customer Delight Index measures the levels of
customer 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 European
market “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 equipment
study” (Stainthorpe, 2009, p. 2). The churn rate is one of the key measures to assess the actual
performance against the strategic objective. The objective „execute in emerging markets‟
represents that while the company has maintained its strong presence, it focuses on expansion
within the market. Revenues from emerging markets are key measures to definitely evaluate their
actual achievements in the markets against the objective. Finally, the number of proportionate
mobile customers is the high-level measure to ensure that the company has encouraged more
customers 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 in
accordance with each strategic objective in the financial perspective. A company in
telecommunications industry generally reports large losses due to hugely spending capital
expenditure to construct the infrastructure. EBITDA margin enables to analyze the profitability
of core business operations while deducting the huge amount of interest, taxes, and capital
expenditures. Free cash flow generation is a critical source of its growth while establishing its
entities 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‟s
values. ROE represents the actual return earned by shareholders and is the best measure to
directly assess its actual performance against the strategic objective „drive shareholder return‟ as
an ultimate goal for the company.
9.1.4 Learning and Growth Perspective
ARPU, data revenue, fixed revenue, and the number of enterprise mobile voice connections
are 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 measures
of its innovation. While traditional voice and messaging services captured more than 75% of its
18
service revenues in 2009, data service is targeted as one of three key areas for growth, and
therefore the data revenue is a key measure to directly evaluate its growth objective. The
company 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 one
of three key areas for growth. Fixed revenue represents the growth objective and is considered as
a key measure. The last one of three key areas for growth is the enterprise services. While the
enterprise service revenues are not independently reported in the annual report, the main
enterprise service is an enterprise voice service and the number of enterprise mobile voice
connections 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 are
identified in accordance with each strategic objective in the business process perspective. The
company stated that “we rely on our people to maintain and build on our success and to deliver
excellent service to our customers”, and “we aim to attract, develop and retain the best people
and to realize their full potential” (Vodafone, 2010a, p .22). The employee turnover rate is one of
the key measures to evaluate its performance against the strategic objective „maintain high
performance benchmark for employee engagement‟. As a part of cost reduction programs, the
two-year working capital reduction program is initiated and the working capital itself is the best
measure 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 cost
saving by 2013, £1 billion includes both the capital and operating expenditures and it is difficult
to focus on either capital or operating expenditure. However, the objective of the cost reduction
program is to improve its operational efficiency and, the number of subscribers versus the
number 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 the
strategic objectives and presented in the balanced scorecard, and they can be analyzed in several
ways. 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 fiscal
year 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
19
source of its growth through the mergers and acquisitions, joint ventures, and strategic alliances
globally. 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 all
European countries where Vodafone Group is operating have been slightly decreasing as shown
in Appendix 9.2. ARPU includes both voice and data revenues and a decrease in voice revenues
have subsequently had a great impact on a decrease in ARPU. Although its data revenues have
increased, its voice revenues have decreased much quicker than data revenues. „Execute in
emerging 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 the
impact of business acquisitions and disposals and foreign exchange associated with its global
geographic expansion strategy, as shown in Appendix 9.3. The global average EBITDA margin
is 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 monitor
its performance against predefined KPIs in accordance with not only the financial perspective
but also the other three perspectives. The company has 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 Chain
Management System implemented globally, cross-functionally, and both internally and
externally. 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 data
established with a group-wide platform can help the company simplify the end-to-end SCM
process, establish commonality in performance analysis, and implement group-wide visibility to
its performance. The community enables all stakeholders in the supply chain process, regardless
of 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 Vodafone
Group, and as a result, Vodafone Group can create performance reports including the end-to-end
aspects, identify shortcomings throughout the SCM processes even beyond Vodafone Group, and
find, analyze and optimize performance degradation immediately with all internal and external
stakeholders.
9.4 Continuous performance improvements
Once an organization has built a coherent set of performance measures and monitoring
systems, the final step is to continuously improve organizational performance. TQM is a
management concept that stresses continuous improvement through people involvement and
measurements to focus on customer satisfaction, and is the application of human resources and
quantitative methods to improve all the processes within an organization.
20
Vodafone Group has implemented TQM to continuously improve organizational
performance. Skills and competence development is considered as a key source of competitive
advantages and it is of considerable value to continuously invest in people along with continuous
focus on efficient and effective organizational structures, regular review of people‟s performance
and 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, the
company 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 in
the market is extremely higher than emerging markets. European market is the largest market for
Vodafone Group but its revenue and ARPU in the market are slightly decreasing. Indian market
is one of the highest growth mobile markets and Vodafone Group has more than 100 million
customers in the market, 30% of its total number of customers. Mobile subscriber penetration in
the 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 is
facing extremely fierce price competition in the market. Value-added services are identified as
key differentiators to maintain its customers and improve ARPU in developed market and to
entice new customers in emerging markets. Its differentiation strategy represents that Vodafone
Group intends to maintain the technological leadership by enhancing its ability to adapt
advanced ICT and driving Group Technology initiatives in order to create value-added services
to 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 geographic
expansion, and it has recently taken higher priority in investing in existing businesses to improve
ARPU from existing customer base and expanding its businesses to new markets where it can
expect immediate turnaround rather than high returns in the long term. The company has thus
implemented turnaround strategy and initiated One Vodafone program to achieve streamlined
cost effectiveness and efficiency by gaining economies of scale and scope globally to improve
bottom line performance. Vodafone Groups has formulated and implemented those generic and
grand strategies deliberately in accordance with its vision and mission, and external and internal
environments. The company has also implemented four main strategic objectives associated with
those 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‟t
launched value-added services in both developed and emerging markets and it has thus facing
fierce price competition. While expanding geographic global footprint and diversifying products
and services, the company needs to focus more resources on value-added services as key
differentiators in order to maintain sustainable growth.
21
11. Bibliography
Brigham, E. F., & Houston, J. F. (2009). Fundamentals of Finance Management, Concise Edition
(with Thomson One – Business School Edition). Florence, KY: South-Western College
Publishing.
Capon, N. (2009). Capon‟s marketing framework. London, UK: Wessex Publishing.
Cellular News. (2009). Orange and Vodafone to Expand Network Sharing Partnership. Retrieved
Mar-31, 2010 from http://www.cellular-news.com/story/35351.php
EFM Software (2009). Case: Vodafone. Retrieved August 1st, 2010 from
http://www.efmsoftware.nl/totalqualitymanagement/casesvodafone/?lang=en
Ehrhardt, 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. Retrieved
September-14, 2010 from http://www.imf.org/external/pubs/ft/weo/2010/update/02/pdf/0710.pdf
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2008). Strategic management: competitiveness
and globalization. Florence, KY: Cengage Learning.
Hoover‟s. (2010). Vodafone Group Plc: Comparison data. Retrieved May-14, 2010 from
http://www.hoovers.com/globaluk/sample/co/fin/comparison.xhtml?ID=ffffcksxttxssyjkxy
Kendall, 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, operator
app 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 and
Regional 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.
22
Pearce, J.A., & Robinson, R. B. (2009) Formulation, Implementation and Control of Competitive
Strategy (10th
ed.). New York, NY: McGraw-Hill.
Pointon, D. (2005). An interview with Grahame Maher – Vodafone Australia: People before
Profits. Retrieved August 1st, 2010 from
http://www.fastmeetings.com.au/case-studies/vodafone-maher-interview.htm
Read, 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 Business
Opportunities. 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 from
http://www.supplychainstandard.com/Articles/1206/Winner+Vodafone.html
Vodafone. (2007). Vodafone Group Plc: Analyst and Investor Day. Retrieved September-13,
2010 from
http://www.vodafone.com/etc/medialib/attachments/company_presentations/2007.Par.74819.File
.dat/Germany_UK_Investor_Day_presentation_web.pdf
Vodafone. (2008). Interim Management Statement for the Quarter Ended 31 December 2008.
Retrieved August-7, 2010 from
http://www.vodafone.com/start/media_relations/news/group_press_releases/2009/ims_q3.html
Vodafone. (2010a). Vodafone Group Plc: Annual Report for the year ended 31 March 2010.
Retrieved September-13, 2010 from
http://www.vodafone.com/static/annual_report10/downloads/vf_ar2010.pdf/
Vodafone. (2010b). Vodafone Group Plc: Sustainability Report for the year ending 31 March
2010. Retrieved September-13, 2010 from
http://www.vodafone.com/etc/medialib/cr10/pdf.Par.17290.File.dat/vodafone_sustainability_rep
ort.pdf
Vodafone. (2010c). Learning for the long term. Retrieved September-18, 2010 from
http://www.vodafone.com/working_nation/the_skills_of_work/learning_for_the_long.html
Vodafone. (2010d). Corporate Responsibility: Customers. Retrieved September-18, 2010 from
23
http://www.vodafone.com/start/responsbility_uk/customers. html
Ycharts. (2010). Wireless Communications Industry Stock Charts. Retrieved May-14, 2010 from
http://ycharts.com/industries/Wireless%20Communications/charts
24
12. Appendix
Appendix 7.1 Evaluating Vodafone Group‟s Differentiation Opportunities
Technology
Development
Group Technology and agility to adapt the advanced technologies to create innovative
and differentiated products and services.
Human
Resource
Management
The Vodafone Way program to help all employees align with a common set of values
and behaviors. Vodafone's commitment to help them reach full potential through
ongoing training and development.
General
Administration
The Vodafone Way program to increase customer focus with speed, simplicity, and
trust.
Procurement
Awarded Global Supply Chain Management driving One SCM to leverage economies
of scale and scope to significantly reduce procurement cost (global price book, global
framework agreement, standardized approach to e-auction, and low cost regional
sourcing).
One SCM to
centralize and
manage most of
Vodafone
Group's
relationships
with its
suppliers.
A consistent
supplier
performance
management
process in place
to assess
financial
stability,
technological
and commercial
criteria, delivery
and quality
management
requirements
and corporate
responsibility.
Better
Understanding
of the strategic
values of IT to
perform its
business
operations
more
efficiently and
effectively.
One Vodafone
program to
transform 16
operating
companies into
a united
operation.
Multiple
customer
interfaces to
deliver its
products and
services (web,
mail,
telephone and
self-service
portal).
Vodafone 360
to deliver a
superior
integrated
customer
experience.
Focus its
resources on
local
customer
relationship
management
(micro
segmentation,
real-time
marketing,
and direct
distribution
plus aligned
partners).
Leverage the
most
recognizable
global
telecommunic
ations brand.
Diversify its
product and
service
portfolio.
Locate a great
number of
own and
branded
stores to
provide
customer
services
(2,100 own
stores and
7,600 branded
stores
globally).
24-by-7
customer
support
hotline and
door-to-door
mobile phone
replacement
in Germany.
Inbound
logistic Operations
Outbound
logistics
Marketing
and Sales Services
25
Appendix 8.1 Evaluating Vodafone Group „Customer focused locally, scaled globally‟
Note: from http://www.vodafone.com/etc/medialib/attachments/company_presentations
26
Appendix 9.1 Vodafone Group balanced scorecard
Perspective Strategic Objectives Measures Category
Customer
Drive operational performance
through customer value enhancement Customer delight index VF defined
Maximize the value of existing
customer relationships Churn rate VF defined
Maintain its strong success in key
emerging markets
Revenues from emerging
markets Proposed
Encourage more customers to come on
to the network
Proportionate mobile
customers VF defined
Financial
Target and its offers and services
globally, not use the lower price than
others
EBITDA margin VF defined
Maintain appropriate investment in
new and existing business and markets Free cash flow VF defined
Drive shareholder return ROE Proposed
Learning
and
Growth
Create new value-added services
globally ARPU VF defined
One of three key areas for growth
(mobile data use) Data Revenue VF defined
One of three key areas for growth
(broadband services) Fixed revenue VF defined
One of three key areas for growth
(enterprise services)
Enterprise mobile voice
connections Proposed
Business
Processes
Maintain high performance
benchmark for employee engagement Employee turnover rate VF defined
Two-year working capital reduction
program Working capital Proposed
Drive £ 1 billion cost reduction
program
Operational efficiency
ratio
(subscribers / own
employees)
Proposed
27
Appendix 9.2 Vodafone Group ARPU in European market
28
Appendix 9.3Vodafone Group and Global Average EBITDA margin
