Analysis of Vodafone and its competitive environment - Essay Example

? An individual essay that carries out an analysis of Vodafone and its competitive environment. Table of contents Introduction 3 2. Overview 3 3. Industry analysis 4 3.1 Porter’s five forces 4 4. Internal analysis 5 4.1 Resources and capabilities of Vodafone over the past five years 5 4.2 The key business strategies of the company over the past five years - Porter’s generic strategies 7 4.3 To what extent the company has aligned its resources and capabilities to its business strategies 8 4.4 Value Chain Analysis 9 5. Conclusion 10 5.1 Summary 10 5.2 Final analysis 10 5.3 Conclusion 11 5.4 SWOT 11 References 12 Appendix 13 1. Introduction The continuous increase of competition in all industries worldwide is one of the major challenges that modern organizations have to face. The ability of a particular firm, Vodafone, to secure its market position is reviewed in this paper. Particular emphasis is given on the competitive environment of the organization but also on the firm’s current strategies for competing its rivals. The report aims to show the potentials of the organization to increase its competitiveness; at the same time, effort is made to show whether there are any factors, in the firm’s internal or external environment, that could threaten the organization’s performance, either in the short or the long term. A series of theories and frameworks are employed in order to explore the issues described above: the Porter’s Five Forces and the Life Cycle Analysis are used for analysing the industry in which the firm operates; the analysis of the industry in which the firm operates is included in the first part of the paper. The analysis of the firm’s internal environment has been also considered as necessary; the specific analysis, which is developed in the second part of the paper, is based on Porter’s generic strategies framework and the Value Chain analysis. In the context of the internal analysis of the organization two additional issues are explored: the firm’s existing strategies for managing its resources and the level at which the firm has aligned its resources and capabilities to its strategies. The third part of the paper includes the Conclusion where a summary of the paper is provided; in this section also, a SWOT analysis is incorporated, as a tool for evaluating the firm’s potentials to overcome industry barriers and problems in its internal environment. 2. Overview Competition in the UK telecommunications industry is strong. The findings of the industry analysis and of the internal analysis lead to the assumption that Vodafone has developed appropriate strategies for securing its market share in UK. Despite its significant performance, Vodafone needs to identify strategies that would help to the standardization of the firm’s performance in the future. The firm’s existing strategies seem to be quite satisfactory, in terms of their value in supporting the organization’s competitiveness. Still, there are certain issues related to the firm’s internal and external environment that need to be addressed appropriately, aiming to improve the firm’s position towards its competitors. 3. Industry analysis 3.1 Porter’s five forces Porter’s five forces model aims to help the identification of industries, which are highly offered for organizational growth, since the risks involved are limited (Barney 1991); thus, the operations of a firm that would decide to enter such industry would not be threatened. Another important characteristic of the particular model (Figure 4, Appendix) is the following one: it helps to understand the effects of ‘a firm’s attributes on its environment’ (Barney 1991, p.100). After identifying the conditions in a firm’s environment, it would be easier to check whether the firm has achieved ‘to establish a value created strategy which is quite difficult for competitors to duplicate’ (Barney 1991, p.102), i.e. whether it has a ‘sustained competitive advantage’ (Barney 1991, p.102) or not. In order to understand the potentials and the current performance of Vodadone in the UK market it would be necessary to refer to the characteristics of the industry in which the firm operates. The use of Porter’s five forces model in this case would be valuable for identifying the actual position of the organization towards its competitors. In the context of Porter’s five forces model, Vodafone has to face five different forces: a) Competition; b) New entrants; c) Customers; d) Suppliers; e) Substitute products. These forces would be analysed as follows: a) Competition; the performance of the telecommunications industry of UK is significant. In fact, for 2010, the total revenue of the firms operating in this industry has been estimated to ? 40.5 bn; the industry’s performance is a bit lower, compared to 2009, where the revenues of the industry’s firms were estimated to ? 41.2 bn, also decreased from 2008 when the revenues of this sector reached the level of ? 42.5 bn; it is assumed that in the particular industry the competition is high, an issue that Vodafone should appropriately address; b) New entrants; the share of firms in the UK mobile industry seems to remain stable for the last 5 years (Figures 2 & 3, Appendix); new entrants would not have many chances to threaten the performance of existing industry’s competitors, since the latter are always well established in the UK market; c) Customers; the performance of mobile industry in UK is high with a trend for continuous growth (Figure 1, Appendix); customers have to choose among specific firms (Figure 2, Appendix); customers could not press towards the update/ change of the firm’s current strategies; d) Suppliers; components of products available in the particular industry are rather easy to be identified; the suppliers of the organization could not ask for increase of the prices of their products since the firm would easily identify new suppliers for supporting its operations, e) Substitute products; mobile phones are based on advanced technology; in fact, the continuous update of technology used in the specific devices has resulted to the need for replacing these devises periodically; on the other hand, the prices of the mobile phones available in the UK market are of a high range, covering the needs and the financial status of all customers; substitute products would have no prospects in the UK mobile industry. 4. Internal analysis 4.1 Resources and capabilities of Vodafone over the past five years In order to understand the quality and the status of Vodafone’s resources and capabilities, it would be necessary to refer primarily to the characteristics of the above organizational elements, as described in the literature. According to Barney (1991) the resources of a particular organization include ‘all assets, capabilities, organizational processes, firm attributes, information and knowledge’ (Barney 1991, p.101). Resources, as part of the organizational environment, need to be critically evaluated in order to explain the ability or not of a specific organization to respond to the demands of its industry and to compete its rivals. The review of the status of resources of a specific organization is also critical in order to understand the level at which these resources add value in the organization, i.e. whether they reach their expected level of performance (Barney 1991). Furthermore, this fact would help to check whether a firm’s existing strategies, those related to the management of resources, are effective or not (White 1986). The Dynamic Capabilities framework could be used for evaluating the firm’s current strategies focusing on the support of organization’s operations so that zero profit is avoided. In the context of the above framework, emphasis is given on the strategies currently employed by the organization especially in regard to the issue whether these strategies can increase the organization’s profits or not. For Vodafone, the Dynamic Capabilities Framework, could be analysed as follows: a) the organization has introduced a unique system for measuring its performance; in fact, there are specific performance indicators that the firm employs in regard to its operations worldwide, including UK; these indicators are presented in Figure 6 (Appendix), b) the firm has also developed partner markets, that help towards the expansion of the organization’s activities. In the context of the above strategy, the firm ‘develops cooperation agreement with a local mobile operator’ (Annual Report 2010, p.4) so that the firm’s products are promoted through the particular operator; the firm’s partner markets are currently estimated to 40, contributing significantly in the increase of the firm’s profits worldwide, c) the firm has introduced ‘a high range of channels through which customers can access its products’ (Annual Report 2010, p.3); in this way, the competitiveness of the firm towards its rivals is increased. 4.2 The key business strategies of the company over the past five years - Porter’s generic strategies The firm’s performance over the past five years, as presented above, can be evaluated by using the generic strategies theory of Porter. According to Murray (1988) generic strategies concept is particularly valuable since it promotes the involvement of empirical findings in the development of strategies, i.e. it is not a purely theoretical framework; such framework would not help to fully understand the strategic choices of organizations within their industry (Murray 1988). According to Porter (1991) strategy is a key element of organizational environment, which can, however, severely harm the firm’s stability in case that it is not appropriately planned and monitored. For this reason, it is noted that strategy reflects the interaction of different organizational sectors for achieving a target, which is aligned with the organization’s goals (Porter 1996); in other word, the successful development and promotions of strategies within modern organizations is highly depended on the level of support provided by the firm’s internal and external environment. Moreover, Porter (1991) noted that there are just two strategies that can effectively support organizational growth: effective cost management and establishment of innovative practices that differentiate the firm’s products/ services from those of its competitors. The framework of Porter’s generic strategies theory is presented in Figure 5 (Appendix). The key element of the particular theory of Porter seems to be the following one: a firm can achieve a significant growth only by reducing its costs without decreasing investment on innovation, since innovation is considered as a necessary prerequisite for introducing in the market products/ services that are highly differentiated from those of the rivals. Indeed, in 2010 Vodafone has established ‘two shared service centres in India’ (Annual Report 2010, p. 25), a strategy that resulted to the limitation of the firm’s operational costs in Europe by ?140 m. According to the firm’s Annual Report, similar initiatives will be developed by the organization in the near future to help towards the further decrease of organizational costs. 4.3 To what extent the company has aligned its resources and capabilities to its business strategies The development of the organization during the last five years has been mainly achieved because of the emphasis given on certain organizational sectors, such as the management of resources and capabilities. The firm has developed an effective framework for managing its resources and capabilities; the scenario on which the firm’s re-development was based is not standardized; rather, it is reviewed periodically, aiming to keep its relevance with the firm’s existing strategies and capabilities (Roxburgh 2009). It should be noted that the strategies chosen by the organization for managing its resources may not be standardized, at the level that dynamic capabilities Framework, as explained earlier, refers to the continuous change of organizational strategies so that the uniqueness of a firm’s products/ services towards its rivals is achieved (Winter 2002). However, under certain terms, dynamic capabilities can be developed without continuously promoting change, as Teece et al. (1997) note. According to the issues discussed above, the firm has managed to align its resources to its strategies using the following plan: the increase of the firm’s value has been set as a priority (Annual Report 2010, p.12). The specific plan is named ‘Delivering a more Valuable Vodafone’ (Annual Report 2010, p.12), and incorporates initiatives, such as: a) focusing on areas where the chances of growth are significant (for example: the emerging markets), b) using outsourcing for delivering value (for example: the firm’s ‘shared service centres in India for supporting its operations across Europe’ (Annual Report 2010, p.25), c) efforts ‘to increase liquidity from non-controlled interests’ (Annual Report 2010, p.12) and d) reviewing carefully investment decisions by applying appropriate capital discipline (Annual Report 2010, p.25). 4.4 Value Chain Analysis The Value Chain Analysis refers to the evaluation of the firm’s internal processes, as related to all its activities. The most common elements of a value chain, as developed within modern organizations are the following ones: the primary and the support services; the former include key organizational sectors, such as inbound logistics and operations, while the latter refer to organizational sectors of secondary value, such as HRM and technology. In Vodafone, not all elements of value chain are equally developed; in fact, since the organization is not a manufacturing industry, the value of its Research and Development department is rather low. On the other hand, production, the next element of the Value Chain (as of primary activities) is also of non-significance for Vodafone. However, the organization highly focuses on marketing and customer services, which are the other two critical parts of the value chain, in terms of primary services. Vodafone’s efforts in regard to the promotion of its production and the customer service are significant, as revealed through the organization’s annual report of 2011. Moreover, the quality and the performance of the firm’s secondary sources need also to be evaluated. The firm’s support services, meaning especially the human resources and finance (secondary resources) are of high quality; the firm tries to support its employees and to invest on innovative products/ services. As noted in the firm’s annual report, from November 2010, the following plan is promoted: ‘to make the organization more valuable’ (Annual Report 2010, p.1). In this context, most of the firm’s employees work in its customer services department, about a percentage of 49% (Annual Report 2010, p.2), a fact that indicates the firm’s emphasis on the specific sector. 5. Conclusion 5.1 Summary Vodafone has a key position in the UK mobile industry. The ability of the organization to face its rivals seems to be significant. However, certain changes would be required for the standardization of the firm’s performance in the long term. The development of strategic alliances, possible in the same line as in the case of Everything Everywhere, would help the organization to increase its market share improving also its profits (Figures 2 & 3, Appendix). 5.2 Final analysis Firms in the mobile industry of UK have to face a series of important challenges. Through the last 5 years, Vodafone has managed to keep its profits and its share in the UK market stable, as revealed through the Figures 2 & 3 (Appendix section). This target has been achieved because of the following facts: a) pressures in the UK mobile industry are significant but not multi-dimensional; in fact, as revealed through the Five forces model of Porter, the force that the firm currently has to face in its industry is the following one: Competition. Also, in its internal environment, the firm’s performance can be characterized as quite important; conflicts within the organization are effectively controlled while strategies are aligned with the goals of the organization. Therefore, the growth of the organization in the long term can be characterized as secured, under the terms that the firm will keep its efforts for promoting innovation and for improving its customer services sector. 5.3 Conclusion The performance of Vodafone within the UK mobile industry can be characterized as satisfactory. The analysis of the specific industry, as presented above, has led to the assumption that the industry’s prospects are many, especially since the ability of external forces to affect the performance of the firm’s competitors is limited. Still, Vodafone could proceed to the improvement of certain of its strategies, aligning them with the similar strategies of its competitors, which have a higher market share; reference is made especially to the need for strategic alliances, a practice that helped Orange and T-mobile to increase their competitiveness. 5.4 SWOT According to the issues discussed above, Vodafone, as a key competitor in the UK mobile industry can be characterized as having many prospects, a fact that it is made clear through the SWOT analysis, which can be described as follows: a) Strengths: high revenues, continuous increase of profits; b) Weaknesses: strong competition; the market is rather fragmented (Figures 2 & 3); c) Opportunities; innovative products are always welcomed by customers in this industry; the demand for mobile phones seem to be continuously increased in the UK market (Figure 1, Appendix); d) Threats; downturns in the UK economy are continuous; in the context of the continuous increase of costs, customers may consider in using fixed lines instead; in the above sector, the firm’s operations are limited; customers seem to prefer other providers of fixed line services (Annual Report 2010, p.3). 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University of Pennsylvania Appendix Figure 1 – Mobile volumes and revenues in UK (Source: OFCOM 2011 Communications market report, p.265) Figure 2 – UK telecommunications industry, market share (Source: OFCOM 2011 Communications market report, p.280) Figure 3 – UK telecommunications industry, profits of competitors (Source: OFCOM 2011 Communications market report, p.289) Figure 4 – Porter’s Five Forces on industry competition (Source: Porter 2008, p.27) Figure 5 – Porter – generic strategies (Porter 1985) Figure 6 – Performance Indicators of Vodafone (Source: Annual Report 2010, p.13) Read More