Strategic Management at Vodafone - Assignment Example

Strategic management (Authors name) (Institutional affiliation) Question 1 A firm can be able to identify the primary and secondary activities that add value to its final product by conducting a value chain analysis. The value chain analysis describe the activities a firm undertakes in an endeavor to transform its inputs into outputs. The analysis aims at recognizing the activities within the firm that are most profitable and the ones which could be leveraged to offer competitive advantage. In other words the analysis is used to identify the firm’s strengths and weaknesses. The analysis is comprised of primary activities and support activities. Primary activities add value directly to the firm’s final product while secondary activities add value indirectly. In order to be able to understand the value chain of a mobile service operator it is equally important to note that no single company alone has the capability to establish an online digital economy. Success of a single company requires inputs from diverse industries. The direct effect of this is exhibited in co-operation, collaboration and consolidation of different complimentary companies. Major players in this include companies involved in telecommunications, computer hardware and software, entertainment, creative content, news distribution and financial services (Frost & Sullivan 2006). These companies have seized the opportunity of this huge market by working together through mergers and acquisitions, Infrastructure and service can be identified as the primary activities of the company and include mobile transport, mobile service and delivery support and marketing. Secondary activities of the company include Human resource management, firm infrastructure, procurement and technology. Figure 1.1 The year 2005 saw Vodafone’s internal strategy change significantly as Mr.Sarin took over from Chris Gent as the C.E.O. The firm had suffered a loss $40 billion most of which was paid off to overvalued acquisitions and paying 3G service licenses. Vodafone needed a new strategy as investors were demanding for improved bottom-line performance and an increase in the share holders returns. Mr. Sarin therefore made structural changes in its primary and secondary activities that saw Vodafone strengthen its core competencies and capabilities. 1. Mobile transport This describes the basic structures that facilitate communication between customers. The main players involved in adding value are the Infrastructure equipment vendors and the mobile service providers. By 2005 Vodafone boasted over 150 million customers worldwide making it the leading mobile phone operator. This large customer base enabled Vodafone to create a convenient medium for content service. The vast customer base also had a positive effect as it saw Vodafone become the eleventh most valuable company in the world. It had a market capitalization of US$ 165.7 billion. Vodafone was able to amass such a huge customer base throughout the years by investing heavily in stock and through acquisitions and mergers in over 26 countries, 16 of which it controlled mobile operations meanwhile it owned minority stakes in companies in 10 countries. Its acquisition strategy involved identifying the leading mobile operator that was not linked to a state owned operator. Vodafone would then after, assess the quality of the partner which would enable it to set takeover targets as well. 2. Mobile Service and delivery Support This is the ability of platforms to deliver services. Vodafone in the early years was able to achieve this in 1992 when it was the first company to sign a “roaming agreement” with Telecom Finland that would see its users being able to use their phone on different networks. Four years later it signed its 100th roaming agreement. In 2005 Vodafone upgraded its platform to 3G service. This would enable it to easily integrate its operations all over the world. This was part of the “One Vodafone” initiative that also saw the integration of service platforms and improvements in roaming. Other important aspects of the platforms include payment systems and security. Vodafone was able to employ various branding techniques and one was through its pricing techniques. In its early years Vodafone was the first mobile operator to offer pre-paid services to its users. These moves saw Vodafone’s customer base grow drastically boasting approximately 31 million customers worldwide by 1999. Vodafone however, did not believe in low prices instead it ventured into introducing into the market new value added products that enticed customers to sign up, such as it introduced a tariff that enabled users to call across the globe on a special per minute rate. Vodafone however, was also a victim of price wars between mobile operating companies. Its huge finances however enabled it to survive through the turmoil. Vodafone in 2005 integrated billing platform and could now use eight billing services across the globe. 3. Marketing The appointment of David Haynes, a former Coca-Cola brand manager saw Vodafone follow a robust strategy in marketing. Vodafone’s aim was to strengthen its brand across the globe. This was evident in its branding and unique pricing models. Vodafone’s mission was to create its own identity in the market. It launched a major rebranding campaign under the “One Vodafone” umbrella. For example in New Zealand when it acquired Bellsouth it swiftly changed it to Vodafone New Zealand, whereas in Italy Omnitel was changed to Omnitel Vodafone and its green and white colors changed to the Vodafone red color. In order to further extend its popularity within the masses Vodafone sponsored two globally recognized brands i.e. Manchester United football club and the Ferrari Formula 1. Vodafone was also able to launch its first ever communications campaign in 2001 that was intended to strengthen its brand identity by creating brand awareness. Under Sarin leadership there Marketing department had a mandate to include a new multinational unit that would serve its diverse cooperate. This new department’s responsibilities also included the procurement of global handsets. A differentiation approach that was adopted by Vodafone also led to the integration of marketing practices by the various subsidiaries. Mr. Sarin also made significant changes to the company’s structural activities. This was aimed at convincing investors that Vodafone could benefit from its global network and achieves economies of scale through centralization of its activities. 4. Human resource management In 2005 Vodafone was able to change its human resource management practices. With the aim of bringing together national operations and having more direct control to the firm Mr.Sarin instructed that all the heads of its large regional operations report directly to him. The head of the marketing at each national operator on the other hand would now report to the group head of marketing and this was the case in all the other departments. This initiative was referred to as “One Vodafone”. Mr. Sarin also constituted two committees whose core mandates were to focus on the strategies set by the main board. The committees comprised of the management committee whose core focus was on financial structures and organizational developments and the integrations and operations committee who were tasked with setting up operational plans, budgeting and managing the shared resources across the globe. A program referred to as the Global Leadership Programme was introduced by the human resource department. It involved rotating high potential managers across the various business functions with an aim of instilling multicultural skills to them. 5. Technology Formation of the Global Technology and Business Integration unit saw Vodafone grow significantly in technology. Its core mandate was to standardize technology and network systems on a global basis. Vodafone thus invested in a single technological platform that offered them the ability to test handsets and services in one market and deploy them in all the other markets. It simplified its structure by laying the foundation for the 3G service. The service offered opportunities for a wider global reach and the introduction of new services such as mobile internet access. Developing and integrating an application interface for the user is critical. This simply means developing mobile solutions that satisfy the various user needs. The major players here include application developers and mobile device vendors. The technology platform vendors are tasked with providing operating systems and micro-browsers that have reduced functionality customized to the mobile device (Lussanet 2004). These browsers perform functions similar to those of the web a popular one is opera mini that has been designed specifically for the mobile environment. Vodafone increasingly succeeded in offering specially designed phones such as the thriving Vodafone live multimedia service that was launched on sharp GX-10 handsets. This simply innovation increased its purchasing power to a point where other mobile handsets producers would be forced to cater to Vodafone’s needs. Vodafone later in 2005 set up high 3G standards for their handsets as part of their “One Vodafone” initiative. This compelled mobile handset makers who were in business with Vodafone to adopt the service. Core competencies Core competencies are defined as the strategic advantages and strengths of a company. Vodafone through its primary and secondary activities has developed and improved on several key core competencies that are unmatched; they include its vast global presence. Vodafone via acquisitions is present in over 26 countries all over the world. It controls the mobile operations in 16 of these countries and has minority share holdings in mobile operators in 10 countries. Vodafone’s goal is to be the leading mobile operator in these economies. A centralized management through the consolidation of management practices of all its subsidiaries can also be considered as a core competency by its facilitation of knowledge management. Knowledge management refers to the development of long term organizational responsibilities such as management systems and employee training. For example Vodafone’s Global Leadership Programme that equips top managers with multi-cultural skills by rotating them all over the world is part of their employee training program. Vodafone’s brand strength that was enhanced by its effective marketing practices has also enabled it to maintain its vast customer base. Under the “One Vodafone” initiative it conducted a brand awareness where it rebranded all subsidiary companies to its red color and logo which is similar all over the world. Standardized technology across the globe is also a core competency for Vodafone. Adoption of the 3G service has enabled Vodafone to use a single network design throughout the world. The company has also established a single network platform that has greatly facilitated ease in roaming by its customers. Question 2 Generic competitive strategy Generic strategy can be defined as the strategy a company employs in order to have a strong competitive advantage over its competitors. There are two types of generic strategies which are cost leadership strategy and differentiation strategy. Cost leadership strategy uses price as its core strategic tool. Companies that use this strategy offer the lowest price for their products in order to increase their market share (Gamble 2010). In relation to the primary and secondary activities discussed above it is evident to say that Vodafone generic competitive strategy is differentiation. Differentiation strategy requires that a company develop a product that is unique in the market and that easily and conveniently satisfies the customer’s needs. This strategy is focused more on branding and marketing, service delivery and product developments. Vodafone has been able to differentiate its services and products in order to successfully compete with other mobile network companies. Vodafone possess distinctive resources and capabilities that have enabled it to satisfy the needs of its customers. For example availability of a single network platform has enabled customers to be able to roam in over 26 countries with reduced prices. Vodafone despite being a profit oriented company has initiated activities that are more customers centric with the aim of offering their customers the best mobile services in the market. Successful differentiation can be attributed to the efforts Vodafone has made towards its marketing activities. The Group Marketing unit was formed to effectively market services that are specific to the needs of global coordination. For example the unit reviewed the company’s pricing and introduced special rates for international calls on the network. Customers also benefit from a special tariff that allows them to roam around the world on a special per minute rate. Vodafone under the “One Vodafone” initiative has encouraged customer focused initiatives such as improved customer service, standardized billing and technology platforms across the globe. The introduction of portals such as Vodafone Live has enhanced the sharing of knowledge thus enabling it to accommodate all the best cultures around the globe. Employee training practices initiated by the human resource management Department have been keen on instilling multi-cultural skills to its employees all in a move to increase consumer satisfaction in its services and products. Question 3 Pre-Acquisition rationale Due to the very competitive nature of the mobile industry a company can increase its capabilities through increasing its resources. There are two ways through which a company can acquire additional resources either it can buy them or build them. The speed by which a company acquires a resource is crucial because it affects the time by which a competitive advantage can be utilized (Grant 2007). The process of gaining the resource however is dependent on the ease and speed of transactions between the companies. Vodafone was able to acquire its resources via acquisitions. The term acquisition can be referred to as any form of overtaking of an organization. Vodafone under the leadership of Chris Grent in 1997 embarked on massive acquisition all around the globe. It ventured into both vertical expansion and horizontal expansion. Vertical expansion is the acquisition of an organization that transacted with the Vodafone as either a buyer or seller. Horizontal expansion on the other hand is the acquisition of an organization that produces a similar product for example the acquisition of Telecom in Japan, Airtouch in the U.S and Mannesmann in Germany. The main aim of these strategies was to realize synergies. A synergy simply implies that two companies can be more productive than a single company working alone. There are two pre-acquisition strategies that Vodafone employed, they include a) Strategic fit The parent company i.e. Vodafone uses the strategic fit to determine how well the acquired organizations strategies correlate to its strategies. It is very important for the acquired company to posses the vital resources and capabilities that compliment the strategies of the parent company. Combined resources of the two companies helps to drive high profits. Vodafone thus targeted companies with similar strategies to its own in order to achieve the highest potential synergies. This is evident by the high performance of the companies acquired by Vodafone. However the biggest motivating factor for acquisitions by companies mainly in competitive environments such as Vodafone is to increase its market share. Acquisition of Airtouch by Vodafone in 1999 in a $61 billion deal saw increase its customer base drastically from approximately 10 million customers to 31 million customers worldwide. The company in that same year had a market capitalization of 90 billion Pounds. Vodafone acquired 45 percent stake on a new entity in Northern America referred to as Verizon Wireless which by 2003 was the leading mobile operator. Verizon wireless afterwards boasted 36 million users and a 24 percent market share in North America. Vodafone in 1999 offered Mannesmann 100 billion Euros for its business in what was described as the largest take over in Germany. The German company was reluctant but eventually accepted 190 billion Euros paid in stocks. This move had diverse effects as it saw Vodafone customer base double and market share increase significantly. The company was rebranded to Vodafone Germany and it saw Vodafone become the tenth largest company in the world. The year 2002 marked a slow growth of Vodafone, however through acquisition of Ireland’s Ericell and Spanish AirTel Movil Vodafone was able to add approximately 20 million new users. Vodafone aimed to be the leading market share holder in the countries it conducted acquisitions. In Germany for example its large market share hold saw the demise of Deutsche Telekom. In 2005 Vodafone had more than 150 million users and was present in 26 countries. b) Organizational fit. Organizational fit is used to identify companies that share the same culture, personnel and practices as that of the parent company. Basically Vodafone targeted companies that would have considerable ease in integration to its activities. It is important to note that a high organizational fit is also associated with high levels of success. The successful integration of the “One Vodafone” initiative indicates that Vodafone carefully selected companies that would present fewer problems in integration. The successful implementation of Vodafone live also indicates that the subsidiary companies shared the same culture and practices. The exit of Vodafone from Japan, the Netherlands, Belgium, Switzerland and Sweden highlights the importance of the ability of the parent and the acquired company to integrate their services. Vodafone exited these markets as it was unable to integrate them to their global network. Post-acquisition strategy These define the strategies that follow suit after an acquisition. They basically encompass the integration process that takes place before any tangible results can be realized from the acquisition. The success of the integration process is influenced by factors that include the quality of the organizations integration, the quality of physical integration and information and communication. a) Quality of Organizational integration This focuses on the human resource side of the acquisition. It aims to solve the arising issues depicted by employees after an acquisition. This aspect is very important because it determines whether the acquisition is successful or not. Under the leadership of Chris Grent in 1997 Vodafone gave its subsidiaries autonomy. This meant that the subsidiary companies could run their operations independently thus there was minimal employee resistance. During Mr. Sarin’s tenure at Vodafone he centralized the management of all the subsidiaries therefore enabling him to have more control over the company and thus he was able to solve any arising management and employee issues. b) Quality of physical integration This aspect focuses on the integration of both the organizations resources and products. This aspect is equally important because it determines the productivity of the acquisition. Vodafone was able to integrate its resources with those of the subsidiary companies by developing a single network platform that allows its customers to easily roam around the globe at reduced rates. Vodafone also adopted the superior wireless 3G service that is used across the globe by its subsidiaries and customers as well. Moreover, Vodafone through progressive marketing strategies was able to increase its brand strength. The success of this aspect is evident by large market share Vodafone controls through its subsidiaries. c) Information and communication Communication and information are very important during acquisitions. Lack of or insufficient information can result to the failure of an acquisition process. In order to facilitate information between the management of the different subsidiaries, Vodafone introduced the “Vodafone Live” platform that enabled managers and employees as well to share information via the internet. This greatly reduces the information barrier that was present amongst subsidiaries. Different post-acquisition frameworks exist; Haspeslagh & Jemison (1991) developed a framework that highlights the dependence of integration on two factors; the degree of the strategic interdependence of the two companies and the need for achieving organizational autonomy. Based on this factors they concluded that there are four types of integration; absorption, symbiotic, protection and holdings. Integration through absorption occurs when the parent company’s aim is to realize complete control of the operations, structures and culture. Symbiotic integration attempts to create a balance between the parent company and the acquired company without disrupting the organizational autonomy of the acquired company. This approach tends to change the cultures and operational practices of the companies. The acquired company goes through a total transformation of its values and operations so as to facilitate its integration with the parent company (Fanlkner 2003). Integration through preservation on the other hand is characterized by a high degree of autonomy of the acquired company. The newly acquired company is allowed to run its operations independently. Holding approach entails that the acquired company only functions as a holding company with no prior intention of integrating with the parent company. Each integration approach however has its cons; absorption approach faces the threat of resistance amongst the acquired company’s employees. Symbiotic approach is disadvantaged by a destructive cooperative atmosphere due to structural changes. Preservation approach faces the obstacle of both the companies being unable to maintain clear border lines. Conclusion Vodafone through absorption has been able to facilitate successful acquisitions. It has managed this through successfully integrating its strategies with those of its subsidiaries. Vodafone’s success is shown by its huge market share in the subsidiary economies and also its vast presence all over the world. Its huge customer base of over 150 million users has enabled it to get high returns throughout the year. Question 4 International strategy International strategy can be defined as an initiative that aims at adding value to a company by transferring valuable skills, services and products to foreign markets where the competing companies lack those capabilities. An international strategy therefore is successful if the company possesses core competencies that are unmatched by the indigenous competing companies. Integration responsiveness grid The integration responsive grid is designed to help a firm maintain the pressures that arise from integration of its global network. These pressures include global integration and local responsiveness pressures. Figure 1.2 The three basic strategies that arise from integration responsive strategy include; multi-domestic strategy, global strategy and transnational strategy. Multi-domestic strategy is used in situations where the company is facing high pressures in local responsiveness and relatively low pressures in cost reductions. Companies that pursue this strategy are geared towards attaining maximum local responsiveness. The companies differentiate their products and services to the needs of the different national markets. Due to this the companies experience high cost structures. The major disadvantage to this strategy is that it decentralizes operations thus creating a situation where subsidiary companies function in an autonomous manner. A global strategy is pursued by firms that are focused on cost reductions in order to increase profitability. The companies concentrate their production, marketing and R&D services in a few selected locations that are favorable to them. Global companies are able to reduce their costs and attain maximum benefits from economies of scale by developing and marketing a single standardized product globally. Global companies however, face challenges practicing this strategy where there is great demand local responsiveness is high. Transnational strategy which is currently being pursued by Vodafone is practiced where the company is experiencing a competitive market environment. The company faces both high pressures for cost reductions and local responsiveness. Pursuing this strategy however raises conflicting demands to the firm; this is so because local responsiveness means differentiating products according to the market needs of the subsidiary company which raises costs. Costs reduction strategy thus becomes difficult to implement. In order to successfully implement this strategy a company should have the capability to transfer core competencies within firms at the same time being able to maintain and reduce the pressures asserted by local responsiveness. Transitional strategy therefore requires a two way flow of a company’s skills and products. Skills and products should flow from the local company to the subsidiary company, from subsidiary company to subsidiary company and from the subsidiary company to the local company as well. In 1997 under the leadership of Chris Gent pursued a multi-dimensional international strategy. The company did not face cost reduction pressures as evident by the rapid succession of acquisitions. Lack of local responsiveness pressures saw Vodafone give autonomy to the subsidiary companies. However Vodafone gave a mission to the subsidiary companies of a challenger company, for example in France Vodafone with its subsidiary SFR challenged France Telkom, and in the United Kingdom British Telkom faced a stiff challenge from Vodafone U.K. Gent aimed at nurturing entrepreneurial skills to the subsidiary companies. Vodafone at that time had no intentions to of integrating its subsidiary companies. it transferred its operating and marketing practices and price structure to the subsidiary company. Vodafone on the other hand shared the competitive strategy of setting acquisition targets and developing its acquisitions. The company faced many challenges in 2000-2001 it spent over $30 billion in acquiring 3G licenses for all its subsidiary companies for example it spent $9.5 billion for a license in the U.K. From 2001-2004 Vodafone’s net loss totaled to $45 billion. Most of these losses were due to the cost of the 3G license and write-offs that were written to overpriced acquisitions. Arun Sarin replaced Gent in 2003 and this saw Vodafone’s strategy change substantially. Vodafone under Sarin pursued a transnational strategy. Sarin launched the “One Vodafone” program that was aimed at unifying its global network in order to derive value from its empire. Vodafone faced pressure from investors to cut costs as they argued that there was little benefit derived from acquisitions. Sarin identified the potential of the 3G platform to derive value from its subsidiaries and reduce costs. The service enabled Vodafone to use a single technology throughout the world. This significantly reduced costs as it enabled Vodafone to develop a new service and launch it all over the globe. A single technology structure also accorded its customers with the ability of international roaming. In order to unify its global entity Sarin restructured its management to a more centralized one. The heads of all subsidiaries answered directly to him. This gave Sarin the capability of having control of the company’s operations. Other departments also followed a similar structure for example the heads of marketing of all its subsidiaries answered to the overall marketing head. The “One Vodafone” initiative facilitated better integration between Vodafone and its subsidiaries. The strategy involved the strengthening of global functions, the marketing team would now serve global cooperate customers while technology would be tasked with developing standardized network designs. In order to achieve the overall strategy set by the company two committees chaired by the C.E.O Sarin were formed; the executive committee which specialized on financial structures and organizational development and the integrations and operations committee which focused on operations and budgetary planning and the development of products and services. The “One Vodafone” mission was to integrate its range of activities, for example in 2005 the company had made progress in integrating its billing services across the globe by operate with only eight different billing systems. This international strategy however faced different obstacles. Differences in wireless technologies were one of the major problems. Vodafone used the GSM technology that differed with Japan’s and the U.S technology. Verizon Wireless used the CDMA technology that was incompatible with GSM. This restricted Vodafone from deriving any benefits from integration of U.S and its other subsidiaries. Vodafone in its quest for single global network was also disadvantaged in Franc as it held minority stake of 44%. It was unable to integrate France SFR to its global network. Due to the challenges it faced in integration in Japan in March 2006 it finally exited the market. It sold its stake in Japan Telkom to a Tokyo based soft bank for $15.4 billion. Sweden, Netherlands, Belgium and Switzerland were the next markets that Vodafone exited. Vodafone’s exit of the Japan market clearly illustrated the risk of pursuing a global approach in wireless technology. References M. De Lussanet (2004), Mobilizing Content for 3G Delivery, Forrester, London, Frost & Sullivan. (2006). World mobile commerce markets, Frost & Sullivan Ltd. London Grant, Robert M. (2007) Contemporary Strategy Analysis: Concepts, Techniques, Applications, 6th edition, Wiley-Blackwell Fanlkner & Cambell, A (2003) The Oxford Handbook of Strategy. Vol II: Corporate Strategy. Oxford University Press  Gamble, Arthur A. Thompson, Jr., A.J. Strickland III, John E. (2010). Crafting and executing strategy, the quest for competitive advantage: concepts and cases. McGraw-Hill/Irwin: Boston. Read More