Vodafone Case Study
Criteria for Judging Strategic Performance
A strategy is one of the most important aspects of business. It helps to achieve goals set by the organization and also provides criteria for measuring the success of the strategy set. As a means of measuring strategic performance, there is need to have good standards for measuring performance. In setting the criteria, it is necessary to establish clear and understandable standards to enable investors and employees grasp the importance of the metrics set without the need for intricate explanation. One of the most common metrics for measuring strategic performance is SMART, an acronym for Specific, measurable, achievable, relevant and Time-specific. Establishing the criteria means that the metric should be able to measure the performance as long as the strategy is still in play.
In relation to SMART as a metric for measuring strategic performance, success is an important factor to consider. Success as a metric, therefore, involves setting strategic goals such as increasing profitability or giving the organization a competitive edge within the industry. Achieving the strategic goals within the specified time and with the resources allocated thus is an evidence of success. Relatedly, therefore, the bigger the success an organization achieves in relation to its strategic goals, the better the organizational performance. Using success as a criterion requires a clear definition of the performance the organization wishes to witness. For instance, to become the market leader in three years is a clear, measurable, achievable, relevant and time-specific strategic goal. Achieving the success, however, must also involve strategies. In setting the strategic goals, the organization must also lay down strategies that it intends to use in achieving the goals. The strategies, in this case, could include more advertisement and brand awareness, lower prices, improved quality and making use of organizational competitive advantages as measures to reign in on the competition.
Core competency is a rather new term in the business world. Essentially, core competencies refer to a set of skills and resources that an organization possesses, which enable the organization to distinguish itself from others in the marketplace. Through core competencies, organizations are capable of gaining access to a wider variety of markets, distinguishing themselves from other organizations operating within the same industry, and provide unparalleled benefit to the customers consuming the organization’s end product.
For Vodafone, acquisitions and takeovers is one of its core competencies. The competency allows the company to make inroads in different markets most of which are richly profitable. According to Banzhaf and Som (2006), Vodafone has had a long string of acquisitions, and it has successfully integrated the acquired firms. Vodafone’s acquisition and successful integration of Mannesmann, later branding it to Vodafone Germany, is one of the company’s success stories. Not only did the acquisition become the company’s most profitable venture, it also became Vodafone’s largest subsidiary (Banzhaf & Som, 2006). In its acquisitions, Vodafone uses shares rather than direct investment in the companies acquired, making it flexible and able to concentrate on growth as well as avoid crises in the industry.
Vodafone’s other competency is its unique marketing and technological capability. To enter markets where it does not have equity stakes, Vodafone enters into Partner Network Agreement, through which it cooperates with partners operating in such areas. Through the partnership, Vodafone not only markets its brand but also gains insights into new markets with minimal risk and identifies potential takeover targets (Banzhaf & Som, 2006). Further, even in its technological and marketing capability, Vodafone is careful in its marketing, ensuring that it focuses both on internal and external growth. The focus on internal growth is especially important as a means of protecting its good credit rating in the market.
Perhaps where Vodafone excels more, apart from acquisitions is in branding, identity, and pricing. Vodafone’s competency in branding, identity, and pricing is evident through the company’s ability to establish its brand after an acquisition. Vodafone is especially careful with the branding process, making careful consideration on the strength of the local brand, company culture and the fit between the acquired company and Vodafone’s general processes. The considerations enable the company to make judgment on whether to rebrand immediately or make slow adjustments that will be acceptable to the customers (Banzhaf & Som, 2006). For identity, Vodafone sponsored some of the most recognized global brands such as Manchester United Football Club and Ferrari’s Formula 1 team, moves that increased its global identity. On the other hand, instead of using low prices as a way of gaining new customers, Vodafone has been successful in using value-added services as a means of enticing customers to its services.
Given the nature of cut-throat competition in the mobile telephony industry, it is necessary for Vodafone to have competitive advantages. One of Vodafone’s competitive advantages is its expansion strategies through acquisition by equity stakes. According to Banzhaf and Som (2006), this mode of acquisition sets Vodafone apart as it is not a norm by many players in the industry. The strategy enabled Vodafone whether the telecom crisis, even as its competitors such as France Telecom, MMO2, and Deutsche Telekom struggled to reduce their debt burden (Banzhaf & Som, 2006).
Additionally, Vodafone has a good credit rating as well as a good market capitalization. Vodafone’s good credit rating is especially visible through the company’s use of its hard cash in increasing its holdings in its subsidiaries as a move to prevent watering down of its good credit rating (Banzhaf & Som, 2006). Moreover, even though the company was on an acquisition spree, it slowed down, focusing on internal growth, all in a bid to avoid compromising its good credit rating. For market capitalization, with a buying binge between 1999 and 2002, Vodafone grew its customer base, making the cream of the 10 largest companies in the world based on market capitalization (Banzhaf & Som, 2006).
Vodafone is a global brand that gives it advantage. In its acquisition spree of 1999-2002, the company’s acquisitions all ended up with the name ‘Vodafone.’ Bellsouth New Zealand changed to Vodafone. Similarly, Telecel in Portugal changed to Vodafone Portugal, and while it took some time to change Omnitel to Omnitel Vodafone in Italy and D2 to “Vodafone D2” in Germany, eventually the new acquisitions took Vodafone’s brand and identity given its recognition as a global brand.
External Environment Forces with Future Strategic Implications for Vodafone
Vodafone’s external environment has a great impact on its operations and its future strategies. One of the most significant of these forces is government regulations, particularly in its operations in the US. Vodafone’s “One Vodafone” strategy does not cover the US, where it has a minority stake in US’s Verizon Wireless. Moreover, Vodafone’s consumers cannot enjoy Vodafone on Verizon given the difference in standards between Verizon and Vodafone. Although Vodafone has the option of buying out Verizon, it could be a costly move unaffordable to Vodafone given the quoted $150 million buying out price (Banzhaf & Som, 2006). Although another option would be to buy out another company, government regulations prohibit more than 20 percent ownership of two competing operators at a time. Thus, if Vodafone still wants controlling stake in the US, it has to choose between selling part or all of its shares in Verizon that is doing well as the largest mobile service provider in the US to buy a controlling stake in another operator or remain as a minority shareholder in Verizon.
The economy is additionally a factor at play for future consideration for Vodafone. In the years before the year 2000, the mobile telephony industry had a boom. However, the industry’s bubble finally burst which saw shares of most telecom companies drop from major highs to extreme lows. It is worth noting that the economy has a great impact on companies’ performance and strategies given its effect on consumer spending. The economic boom of 2000 and its eventual burst put consumers at difficult financial positions, which meant most consumers had to cut their spending on unessential services such as telecommunication. Such reactions to the economy have far-reaching impacts on the operations, performances, and strategy execution and formulation of a company.
Vodafone’s Business Strategy as an Integrated and Coordinated Approach
Vodafone’s strategy has been one that focuses on international expansion through acquisitions. Through this strategy, the company has spread its operations across 26 countries in all the continents. Acquisitions and takeovers are among the core competencies of the company, through the purchase of equity stakes. By focusing on acquisitions as a strategy and as part of its core competency, Vodafone is indeed following an integrated approach as a mean of achieving its performance goals. As it looks to extend its leadership through the maximization of the benefits it acquires from scale and scope, Vodafone is capable of navigating the environment of government regulations. Acquisitions, therefore, help it extend its reach across the globe and continue in its position as the market leader, while at the same time working within government regulations.
After its acquisitions and takeovers, Vodafone uses its One Vodafone strategy. Through this strategy, the company integrates its operations across the global through branding, identity and marketing (Banzhaf & Som, 2006). The move integrates its core competencies and strategies into the company’s operations, which then guide its behavior towards achieving its performance goals. Some of the company’s goals are service differentiation, investment in the provision of Vodafone branded goods and services as well as ease of use for the customers (Banzhaf & Som, 2006). The company is able to achieve these performance goals through the integrated One Vodafone strategy, in an environment rife with competition and turbulent economy.
In its acquisition and takeovers, Vodafone has also focused on providing value-added services to its customers instead of going into price wars with its competitors. The mobile telephony industry is especially competitive for consumer base. Growing consumers is one of the goals of most players within the industry. However, rather than engage its competitors in price wars, Vodafone engages its One Vodafone strategy that integrates its worldwide operations looking to the strategy to grow its voice and data revenues from the high-quality customer base, which is part of the company’s performance goals (Banzhaf & Som, 2006).
Vodafone has always looked to expand to other markets across the world. The company’s traditional growth and expansion strategy have been through acquisition and takeovers. In most of its acquisitions, Vodafone aims at achieving a controlling stake of the acquired entities, a factor that then allows the company to execute its One Vodafone strategy. The One Vodafone strategy is the company’s attempt to integrate and streamline its operations across the world. In its acquisition, Vodafone looks to buy equity, a factor that has buoyed the company even when other mobile telephony companies were facing huge debts from operations and other costs.
Vodafone’s acquisition has followed a pattern where the company looks to gain entry into a market through equity purchase. Where the purchase of equity is impossible, the company forms partnerships through which it develops and markets global services through dual brand logos (Banzhaf & Som, 2006). Such partnerships accord Vodafone an avenue to establish the first foothold in the markets in addition to helping the company assess the potential of the market as well as identify possible takeover targets. Vodafone’s acquisition strategy has however been careful to avoid state-owned monopolies, given the bureaucracy that comes with such acquisitions. Instead, it has focused on the leading or second mobile phone operator within a national market.
After acquisitions, Vodafone has always focused on branding, identity creation, and marketing focusing on integrating the company’s brand across its operating markets. The integration processes go beyond using the company’s logo to the internal and external communication of the company. The communication spans the internet, intranet, training programs for employees across its global operations in addition to the company’s magazine. Further, the integration process also includes special initiation training for new employees as a way of initiating the employees into the Vodafone way, and in so doing completing the integration process.
Vodafone’s acquisition strategy is part of the company’s international strategy. The company has a global focus and thus uses its international strategy to achieve global operations. The most important in its international strategy is branding and identity creation to create awareness of its global reach. Thus, as a means of increasing its international awareness, Vodafone has used branding using the company’s logo and name, particularly after acquisitions. Although Vodafone may use the name of the company it has acquired, the focus is usually on establishing a global brand with the company’s logo and brand name at the core. Adjustments in branding are only in relation to the country of operation such as Vodafone Portugal and Vodafone New Zealand. The strategy has especially been a success for Vodafone, as apart from minimizing risky investment, it also allows the company to rebrand slowly the new acquisitions in such a way that customers do not see much of a difference in service provision. Moreover, slow rebranding allows the company to test the strength of national brands and ease customers’ adjustment to the company’s controlling stake in the new acquisition.
Aside from acquisitions, Vodafone has used alliances as part of its international strategy. The alliances, which the company calls Partner Network Agreements, allow the company to cooperate with its partners in developing and marketing global services under a dual logo arrangement (Banzhaf & Som, 2006). Vodafone has used alliances as part of its international strategy in markets that it does not hold an equity stake. Through the alliances, Vodafone has been able to extend its reach to other countries, gain new market insights with little risk, as well as assess the quality of the partner in its desire to identify potential acquisition targets.
Organizational Structure and Support for Company Strategy
Vodafone’s One Vodafone strategy has been one of the focuses of the company in rolling out a global brand with a global appeal. The company, therefore, initiated some changes to its organization structure as a means to serve its customers effectively; while at the same time have a global appeal. In the changes, the company has the CEO overseeing the entire global operations of the company. The new structure has the CEO at the helm of the company, while companies associated with the specific market will be making direct reports to the CEO. The first of the companies are the European Affiliates, which include operations in Belgium, France, Poland, Romania and New Zealand. Non-European affiliates including operation in China, Fiji, Kenya, South Africa and the US will all be under a single executive director, who reports to the CEO. Aside from the European and non-European affiliates are other clusters including EMEA subsidiaries and Asia Pacific. Each of these (EMEA and Asia Pacific) has an executive director who reports to the CEO. Germany, Italy and United Kingdom are specific countries with executive directors reporting directly to the CEO.
Aside from the operating structure are two governing structures—the Executive Committee and the Integration and Operations Committee. The executive committee is responsible for strategy, financial structure and planning, succession planning, organizational development and group-wide policies (Banzhaf & Som, 2006). The Integration and Operations Committee on the other hand, is responsible for budgets and forecasts, product and service development, operation plans and managing multi-market proposition among others (Banzhaf & Som, 2006). The new structure is especially effective in supporting the One Vodafone strategy as each of the committees is chaired by the CEO, even as the executive directors responsible for the different regions of operation report to the CEO. The central planning and strategy establishment by the Executive Committee and setting of operations plans, product and service development by the Integration and Operations Committee ensures that strategies, plans, products and service are developed from a central location and rolled down to the company’s international operations mitigating the risks of differences, while enhancing the One Vodafone strategy.
Vision and Efforts to Promote Strategic Partnership
Vodafone’s vision is to be “the world’s mobile communications leader—enriching customers’ lives, helping individuals, businesses and communities be more connected in a mobile world” (Banzhaf & Som, 2006). The vision espouses a desire by the company to provide high-quality mobile services to individuals, business and communities. The connected and mobile nature of the world today, in addition to quality-centric consumers means that the company has to work on its service quality to satisfy the consumers.
Although the company’s planning, products and services come from the two committees, the company’s structure should allow flexibility in operation, particularly to the executives in different regions to allow the develop region and country-specific products for their markets. The executive’s freedom in running their operations is important in infusing competition, innovation and entrepreneurship among the different global operations.
Banzhaf, J. & Som, A. (2006). Vodafone: Out of Many, One. ESSEC Business School