Vodafone International Strategic Development - Essay Example

? Vodafone international strategic development   Introduction Vodafone Group PLC was the leading cell phone service provider in the world in 2006. It had over 150 million customers worldwide in 26 different countries and employed around 67 000 people (Johannes and Ashok, 2009, P.271). This paper analyses Vodafone's growth through acquisition and integration of acquired units with a focus on how it coordinates its business strategy on a global scale. Pre-acquisition rationale of vodafone Vodafone targeted companies that would fit its acquisition strategy this was achieved by targeting companies that were already established in its domain of telecommunications (Risberg, 1999, P.75). The initial acquisition move of the company was a merger with AirTouch Communications Inc. of the United States in a $61 million deal. The company briefly renamed itself as Vodafone AirTouch in a gradual move towards aligning AirTouch to its global strategy (Johannes and Ashok, 2009, P.263). The company’s North American branch was integrated into a new entity branded Verizon Wireless together with Bell Atlantic’s mobile business with the company retaining 45% stake in the new venture. Verizon wireless was the largest mobile phone operator in the North American market with 36 million customers and 24% market share in 2003. The targeting of large firms is in line with literature that suggests that large scale acquisitions provide potential scale economies and are expected to outperform small scale acquisitions (Risberg, 1999, P.76). The targeting of large firms is also observed in the acquisition of Mannesmann in a deal that helped it own D2 mobile phone business, which was the private market leader in Germany. This deal made Vodafone one of the 10 largest companies in the world helping it achieve scale and scope economies (Johannes and Ashok, 2009, P.264). Vodafone branded Mannesmann Vodafone Germany, and this was the company’s most profitable venture with an EBIT of over ?2 billion and its largest subsidiary (Johannes and Ashok, 2009, P.264). Acquisition Strategy The company had adopted a mobile based multi-market strategy as mobile based firms strategically fit its capability transfer acquisition strategy. This was a good strategy as mobile companies shared some similarities with Vodafone in capabilities and were likely to exhibit some level of homogeneity with its structure. Such acquisitions also helped Vodafone secure a platform for acquiring the existing business position (Risberg, 1999, P.82). Unlike its competitors, the company used shares for its acquisitions. This strategy helped the company emerge from the telecom crisis relatively early so that it could concentrate on growth while virtually all of its competitors were preoccupied with debt reduction (Johannes and Ashok, 2009, P.264). The company had acquired other businesses along with the mobile phone business as was the case of Japan Telecom and Mannesmann where it owned fixed line operations. Vodafone had an explicit desire to concentrate on its core business of mobile telecommunications, and this made it look for ways to dispose of the other non-core businesses. Vodafone insisted that it was mobile focused and intended to stick to that strategy in all of its acquisitions and subsidiaries. The emphasis on only retaining those operations in the acquired firm that were core to its expansion strategy is in line with literature that suggests that strategic fit is important in creating shareholder value (Risberg, 1999, P.81). Vodafone’s strategy was to increase revenue growth and margin improvement by providing enhanced services to its customer base. This principle had three tenets. The company would increase voice and data revenues through increased marketing focus on its established high-quality customer base. It intended to extend its operational leadership of the mobile industry through maximizing the benefits of scale and scope by using partner network agreements, increasing equity investments in firms where the Group had shareholdings, and by promoting the Vodafone brand. To extend service differentiation, the company would invest in delivering Vodafone branded easy to use, customer services and products for mobile voice and data. Finally, where appropriate and the circumstances were right, the company would make further acquisitions or disposals of businesses (Johannes and Ashok, 2009, P.264). The principles articulated by Vodafone in its acquisition strategy are well supported by Haspeslagh & Jemison who argue that value is only created when firms come together. Further integration makes more effective use of existing capabilities as the acquiring firm can utilize economies of scale by reducing unit costs of production, integrating similar departments and sharing forces (Risberg, 1999, P.87). The integration process has several stages; physical integration involves the integration of product lines and production technologies. In this stage, some assets become redundant and need to be re-deployed or disposed (Risberg, 1999, P.80). For instance, Vodafone sold Japan Telecom’s fixed line operations while, at the same time, it reinforced its long-term commitment to Japan in 2005 by further investing ?2.6 billion in the country. In essence, the disinvestment of non-core businesses helped simplify the structure and enabled the company to deliver changes needed to improve its position in a particular market. On the other hand, the company found it wise to retain Arcor in Vodafone Germany as it would serve as a strategic weapon to cannibalize on the incumbent Deutsche Telecom’s fixed line business (Johannes and Ashok, 2009, P.271). The retention of Arcor is supported by Haspeslagh & Jemison who advise acquiring firms to take into account the acquired company’s capabilities when integration is being implemented. The company also made Partner Network Agreements with network operators in regions where it did not hold an equity stake. In this case, Vodafone cooperated with its partners in developing and marketing its global services under dual brand logos. Such agreements achieved a win-win situation as the company did not only gain new markets, but also it was able to evaluate the value of the partner in order to identify possible takeover targets. The partner on its part benefited from Vodafone’s unique marketing and technological capabilities (Johannes and Ashok, 2009, P.266). Acquiring companies are advised to look for firms that are not only strategic fit but also culturally fit. Vodafone attained cultural fitness by targeting national competitors who were not state owned. Furthermore, avoiding bureaucratic inertia increased the speed of integration which research has associated with positive acquisition outcomes (Risberg, 1999, P.89). For instance, the company avoided Orange which was a business unit of State Corporation, France Telecom. This was done to guard against bureaucratic inertia associated with state corporations, and focus on more flexible, entrepreneurial minded challengers. Harper explains that the company’s vision was to gain scale, and scope benefits, minimize response time in the market, and ensure effective service delivery to customers. This was achieved by acquiring national companies and giving them a challenger mission in each of the national markets. In addition to the challenger mindset, the company nurtured and instilled an entrepreneurial spirit inside its group of companies (Johannes and Ashok, 2009, P.263). The company also culturally aligned the employees of Vodafone and its subsidiaries in order to sustain the challenger and entrepreneurial spirit. To focus on this cultural alignment, the company gave autonomy to the local entity and reiterated that the acquired company did not join a global company. The local company worked in a matrix structure while maintaining the challenger mindset on the fixed line telephony and other incumbents. It challenged the status quo and evolved by being the local entrepreneur (Johannes and Ashok, 2009, P.264). The effectiveness of its post acquisition integration efforts (using the Haspeslagh and Jemison framework) Vodafone adopted elements of both absorption and symbiosis in its integration strategy. After successful acquisition, Vodafone followed a diverse strategy of branding, creating identity and adopting its own pricing models. The model adopted depended on factors like the strength of the national brand, the existing company culture, and the strategic fit between Vodafone’s processes and the acquired business’s processes (Risberg, 1999, P.89). This strategy is supported by Risberg who argues that managers of acquiring firms should pay attention to cultural compatibility and establish leadership styles and administrative procedures that are consistent with national values. Consciousness of national differences helps anticipate cultural problems in the acquired company (Risberg, 1999, P.89). Research indicates that in times of anxiety, employees actually welcome strong central control because it crystallizes a need to restore coherence in a destabilized social process. Fast integration is also supported by literature as a source of competitive advantage as it prevents competitors from exploiting the confusion and anxiety occasioned by an acquisition (Risberg, 1999, P.89). Vodafone adopted immediate absorption in some cases like Bellsouth, which was immediately changed to Vodafone New Zealand, and Telecel of Portugal to Vodafone Portugal. In other cases, the absorption took time, for instance, it took 2.5 years to change Omnitel of Italy to Omnitel Vodafone. However, too much control can be inhibiting, and people in the acquired company should be left some level of autonomy. Vodafone applies this principle by restrained from changing Omnitel’s colors of Green and White to Vodafone Red immediately. This is because Omnitel had a strong brand image requiring cautious treatment during the transition (Risberg, 1999, P.89). The management’s judgement of fast or slow rebranding turned on the customer and the organizational response of the acquired market and acquired company. The national brand of the acquired company was kept alive until a time that the process of takeover had been completed. The company then engaged on a phased rebranding campaign to bring the new subsidiary under the Vodafone umbrella (Johannes and Ashok, 2009, P.267). In the case of D2, It first became D2 Vodafone then the company modified the logo to its typical red colour. Afterwards, the company changed the order of the company’s name from D2 Vodafone to Vodafone D2. In the final phase, the original brand name was fully eliminated, and only the Vodafone brand and logo remained. This process sometimes took several years with the intention of gradually accustoming customers to the new logo through extensive branding campaigns. Branding was sometimes accompanied by the launching of a new global product, like Vodafone’s Mobile Connect Card, or service. For example, Vodafone Omnitel followed this pattern to become a single brand in 2003(Johannes and Ashok, 2009, P.269). International strategy The company launched the first global communications campaign in 2001 to reinforce its brand awareness and global identity. The campaign was an effort to move towards a single global brand. The brand was synonymous with great service, value and great innovation, such attributes help achieve brand preference and as a result, the market share increases (Johannes and Ashok, 2009, P.264). Literature on absorption indicates that it aims to realize complete consolidation of operations, structures and cultures of two companies. The strategy involves a substantial degree of change in the acquired company thus its implementation must be executed in a predefined, consistent and fast manner in order to minimize possible disorders and uncertainties. This quality is apparent in the case of Vodafone where the company focused on creating markets and new services that induced customers to sign up. To this end, the company increased opportunities for customer interaction in order to win loyalty. At the same time, Vodafone raised the standards and quality of customer care in its call centres, stores and networks. In essence, the company’s strategy was to deliver superior voice and data services according to different customer needs. By transferring the most strategic capabilities to the subsidiaries Vodafone was able to achieve scale and scope economies. Integration into One Vodafone Acquiring firms should communicate with the acquired personnel throughout the merger process. Providing information shows concern for the newly acquired company. Employees highly value honesty and appreciate both positive and negative news. Vodafone realized that real business integration transcends the careful rebranding policy. Therefore, it addressed the needs and concerns of employees. The employees had to be acculturated to adjust to the fact that though they were national challengers with an instilled entrepreneurial spirit, they were also part of the family of the global Vodafone Corporation. It was perceived that most employees were proud of having contributed to the success of challenging the incumbent, and were reluctant to be incorporated into a larger and distant corporation. Winning over the employees and attaining cultural alignment was the biggest barrier to integration (Johannes and Ashok, 2009, P.265). Research suggests that managers of acquired firms must be effectively and fairly appraised otherwise they leave to avoid uncertainty, risk of demotion or getting laid off. Vodafone addressed this concern by selecting senior managers with a distinct international background. This was attributed to past acquisitions and pragmatic integration of the subsidiaries into the group which ensured that many skilled non-British managers had been retained during the integration process, and had since joined the board. There was a need to balance coordination and synergies while encouraging local initiatives (Johannes and Ashok, 2009, P.267). The One Vodafone program was a business integration campaign of gradually integrating the company’s business architecture. For example, the company was replacing a real-time billing system with an integrated system for 28 million customers. The company would eventually integrate national operating units across footprints in an effort to leverage scale and scope while trying to retain the local autonomy and responsiveness of the challenger national units (Johannes and Ashok, 2009, P.268). In symbiosis, the integration process involves fundamental changes in the culture and operative practices of both firms. In this cases, both companies are disbanded this form of combining operations is known as transformational approach. The new organisation is created with a set of values and a new way of operating. This aspect of symbiosis is observed in the case of Vodafone where the company undertook changes in organizational structure in order to simplify integration issues in terms of brand strength and integrating local culture and processes. To this end, the company centralized all its marketing efforts, branding and product development. It also standardized technology and coordinated network design. The best practices were bench-marked by advanced services such as service platforms and portals. Knowledge was shared through HQ, HR, strategy and marketing departments through lateral processes including governance processes. The company also encouraged local initiatives such as customer services, sales, network billing and IT systems. Essentially, the company encouraged some form of symbiotic integration by incorporating the best of all cultures and thereby transformed Vodafone UK into a new Vodafone (Pablo and Javidan, 2004, P106). Communication is identified as important in the acquisition process especially during integration and change. It reduces ambiguity during the process. When nothing is communicated about the future, employees are left with a lot of uncertainty and employees seek answers which come in the form of rumors and informal communication; rumours only fuel anxiety intstead of reducing it (Pablo and Javidan, 2004, P106). The One Vodafone initiative was clearly communicated across the company via the internet, intranet, training programs as well as a monthly employee magazine. The HR department prepared special initiation training programs to acquaint new employees to the Vodafone way. This initiative improved people processes within the organisation. In essence, the company aimed to develop, recruit and retain people who would lead the organisation into a new world in line with the expanding business and evolving corporate environment. The company wanted to make sure that employees had the necessary skills and knowledge to anticipate customers’ needs. The employee learning was aimed at sharing the best values of the organisation on a global scale. The benefits of a motivated team with a strong customer service culture would help earn a reputation for Vodafone that was unrivaled (Johannes and Ashok, 2009, P.270). The company’s HR department set up a fast-track career path for high-potential managers, rotating them across business functions and countries, and equipping them with crucial multicultural skills. Despite the integration and standardization efforts, the corporate headquarters had to reserve some level of independence for individual country subsidiaries to account for differing business models and customer expectations. For instance, 48% of Vodafone customers in Germany had a contract while 92% of Italian customers were prepaid customers (Johannes and Ashok, 2009, P.269). To promote greater coordination as well as identify and disseminate best practices, the group created two new central functions. The two functions were Group Marketing to drive revenue growth and Group technology and Business Integration to drive costs and scale benefits. The company then created the Integration and Operations Committee in an attempt to integrate past acquisitions into the new company strategy. This committee was responsible for setting operational plans, budgets and forecasts, products and services development, customer segmentation, and managing shared resources across geographies (Johannes and Ashok, 2009, P.270). More elements of transformation were adopted in the implementation of the new strategy by creating new positions; for example, Harper’s job title changed to Group Strategy and Business Integration director. The company also restructured itself at the corporate level to include two new functions which reported to the COO Julian Horn-Smith. Thomas Geitner was appointed head of the new unit Group Technology & Business Integration as chief technology officer (Johannes and Ashok, 2009, P.272). Peter Bamford was appointed Chief Marketing Officer and head of Group Marketing department. He was responsible for providing leadership and coordination across the full range of marketing and commercial activities including brand, product development, content management, partner networks and global accounts. To derive customer benefits from Vodafone’s increasingly global reach and to drive top-line growth, the company needed to leverage using and integrating the technology across its different subsidiaries. The evolution and growth of the company could help it differentiate services for its customers. This was to be achieved by offering customers the best services in the market and focusing on customer delight. This would be achieved through better execution and shifting of competencies (Johannes and Ashok, 2009, P.275). Haspeslagh & Jemison assert that companies should focus on pre-acquisition decision making and post acquisition integration. The process should focus on the drivers that cause positive results, which are transfer of capabilities that lead to competitive advantage. The company in line with the above objectives started creating service offerings and product packages directly leveraging Vodafone’s network and delivering tangible value to customers. For instance, the company created a tariff that empowered customers to roam the globe at a special rate on the same network with low interconnection fees and similar technical standards. A new unit within Group Marketing was created to develop and market services specifically tailored to the needs of global coordination such as seamless wireless access to corporate infomation systems and special rates for international calls on the company’s network. The global service offering served as a differentiating factor to competitors that could not match Vodafone’s global footprint (Johannes and Ashok, 2009, P.276). Conclusion on the success of its acquisition strategy over the period of the case. The acquisition strategy will be analyzed in relation to acquisition theory, and the practical processes observed over the period. In relation to acquisition theory, acquisitions are meant to act as strategic renewal devices, and this is observed in the One Vodafone program where the company reinvents itself through consolidation and integration. The company centralized processes such as marketing and branding so as to gain from economies of scale and scope. This corresponds to the transfer of capabilities through integration proposed by Haspeslagh and Jemison, and which delivers competitive advantage (Capasso, 2005, P.313). Vodafone had experience in acquisitions; in addition, it targeted large national telecoms and this delivered economies of scale. Literature supports the idea of targeting the top national competitors as acquiring such firms provides economies of scale as evidenced by the acquisition of Mannesmann’s D2, which was its largest subsidiary. The direct consequence of this acquisition was the increase in customer base (Dunning, 1993, P.361). In relation to the type of acquisition preferred by the company, the company chose companies that would strategically fit into its vision by selecting national telecoms and further disposing of units that were not core to its business strategy. For instance, it disposed the fixed line unit in most of the subsidiaries it acquired so as to fit the subsidiary into its global strategy and shape it as a local innovator challenging the monopoly of state owned corporations (John and Allen, 1998, P.176). The company adopted different strategies when integrating acquired firms into the global entity. Where the national brand was strong, the company adopted a gradual integration strategy while, in other cases, the integration was immediate. The gradual integration process aided the adoption of the company’s brand in new markets and prevented loss of customers to competitors (Segal-Horn and Faulkner, 1999 P.121). Finally, the company adopted an effective communication system of the integration process by communicating it through the internet, intranet and through the company magazine. Communication vacuums have been highlighted by several researchers as the main cause of stress and anxiety among employees of acquired firms. Therefore, Vodafone's system of communication helped it reduce anxiety and ambiguities associated with acquisitions, and aided in achieving the expected outcome, which is value creation (Buono and Bowditch, 2003, P.174). Vodafone’s international strategy choice Vodafone adopted a transnational international strategy. This is because the company sought to leverage scale and scope benefits in order to reduce response time in the market and ensure effective service delivery to customers. The company implemented the transnational strategy by adopting a local strategy in its national subsidiary where it was given a challenger role in the national market. The challenger was already adapted to local conditions, but Vodafone instilled it with an entrepreneurial spirit (Root and Visudtibhan, 1992, P111). The employees working in national subsidiaries were aligned culturally to give them autonomy in order to pursue a challenger and entrepreneurial mind-set. The company emphasized that local entities are autonomous as regards the implementation of the challenger culture and were free to experiment with tactics that promoted this strategy at the national level. The challenger worked in a matrix structure maintaining the challenger mindset and evolving as local entrepreneurs. To be responsive to local needs, the company’s management adopted different models of creating Vodafone’s identity in the market. This depended on several factors such as the strength of the local subsidiary, the prevailing company culture in the country or region and the general fit between Vodafone’s processes and acquired business processes (Root and Visudtibhan, 1992, P124). At the same time, the company engaged in global standardization campaigns. For instance, from 2001 the company launched its first global communications campaign to reinforce brand awareness and to establish global brand identity. Therefore, the global standardization strategy in marketing was observed in its brand promotion strategy. The strategy was even more evident in the selection of the globally recognized brands of Manchester United and Ferrari Formula 1 to improve brand awareness (Root and Visudtibhan, 1992, P117). The other aspect of a global strategy was integrating employees into the global culture. While employees had to act as national challengers and drivers of local innovation, they had to be conscious to the global nature of the organisation. After acquisitions, the company’s management had to find innovative ways of integrating national subsidies into the global entity. The corporation had a board of directors with a distinct international background. Through acquisitions and integration of acquired units into the group, many skilled foreign managers were retained and later joined the board. This is a quality inherent to global corporations (Root and Visudtibhan, 1992, P111). The One Vodafone program To coordinate and integrate different systems, the company launched the One Vodafone initiative. This initiative aimed at integrating its technology and customer service to the designated global standards. At the same time, the restructuring program was to balance the need for coordination and synergies while encouraging local initiatives. With respect to capabilities, the One Vodafone program was a process of gradual integration of the company’s business architecture. This project aimed at standardizing 8 different programs into an integrated system. These programs were network design, coordination and consolidation initiatives, IT programs, service platforms, roaming, retailing and customer service. The basic concept of the program was to integrate national operational units across footprints and leveraging on scale and scope while retaining local autonomy and responsiveness of the challenger national units (Bartlett and Ghoshal, 2002, P.155). The company’s internationalization process involved change in the organizational structure of the group. While it retained the matrix structure, all the marketing projects were centralized, as was the case with branding and product development. Technology was standardized, and network design was coordinated. To enhance the sharing of best practices, they were benchmarked by Advance Services such as service platforms and portals. Organizational knowledge was shared through HQ, HR, strategy, and marketing departments through lateral processes. At the same time, the company encouraged local initiatives such as customer service, sales, network billing and IT systems. This was done in an attempt to adopt the best of all the cultures to the maximum extent possible, thereby transforming Vodafone UK into a new Vodafone (Bartlett and Ghoshal, 2002, P.155). As evidenced by the organizational structure reforms of 2005, the company decided to centralize its organizational structure with existing regional managers in major countries and business areas reporting to the Chief Executive. In addition, the first-line management functions in the Operating Companies were required to report to the respective functions at Group level. In line with the centralization program, Marketing, Technology and Business Development functions of the company were to report directly to the CEO. The HR department was mandated with the responsibility of fast-tracking the career path of high potential managers, rotating them across business functions and equipping them with crucial multicultural skills in line with creating a uniform talent pool familiar with the company’s vision (Segal-Horn and Faulkner, 1999 P.125). Despite the integration and standardization programs, the corporate headquarters ensured that individual country subsidiaries had a certain level of independence in order to take into account differing business models and customer expectations. To ensure greater coordination as well as identify and disseminate best practices, the company created two new central functions of Group Marketing, Group Technology and Business Integration. To communicate Vodafone’s new focus on integrating past acquisitions, the Integration and Operations Committee was instituted with its staff made up of members of the executive board. The committee was responsible for performing centralized tasks such as setting operational plans, budget and forecasts, products and service development, customer segmentation and managing shared resources across borders (Risberg, 1999, P.87). New functions core to the global standardization strategy were formed. The Group Technology unit, for instance, was to lead the implementation of a standardized system of business processes, information technology and network systems. Its other functions were to manage and control group-wide projects in relation the rollout of system wide development of company offerings such as the 3G network (Risberg, 1999, P.88). The Group Marketing department was mandated to provide leadership and coordination across the full range of marketing and commercial activities including branding, product development, content management and global accounts. This new function helped create new products enjoyed by customers globally such as international calls on the network offered at special rates (Risberg, 1999, P.89). Conclusion Vodafone successfully implemented its global strategy through acquisitions by exploiting its strong position in the market and targeting firms that were strategically fit for its desired profile. It succeeded by targeting national firms competing with state corporations so as to pose as challengers challenging the status quo through innovation. The One Vodafone program transformed the company into a global company by centralizing strategic functions in order to exploit economies of scale and scope while benchmarking the best practices and standardizing them in all its subsidiaries. Where necessary, the company allowed local innovations to thrive by granting autonomy to subsidiaries.   Bibliography: Risberg, A., (1999). Ambiguities Thereafter – An interpretive approach to acquisitions. Malmo Sweden: Lund University Press. Johannes, B., and Ashok, S., (2009). "Case 22: Vodafone: Out of Many, One" from Ireland, R.Duane; Hoskisson, Robert E. & Hitt, Michael A. Hitt., The management of strategy: concepts & cases.pp.263-279, Mason, Ohio: South-Western Cengage Root, F. and Visudtibhan, K., (1992). International Strategic Management: Challenges and Opportunities. London: Taylor and Francis Bartlett, C. and Ghoshal, S., (2002). Managing across borders: the transnational solution. Boston: Harvard Business School Segal-Horn, S. and Faulkner, D., (1999). The dynamics of international strategy [...] XA-DE. London [u.a.] International Thomson Business Press John, R. and Allen, M., (1998). Global business strategy. London [u.a.]: Thomson Dunning, J., (1993). The Theory of Transnational Corporations. London: Routledge Capasso, A. (2005). Strategic capabilities and knowledge transfer within and between organizations: new perspectives from acquisitions, networks, learning and evolution. Cheltenham [u.a.]: Elgar Pablo, A. and Javidan, M., (2004). Mergers and Acquisitions: Creating Integrative Knowledge. Oxford: Blackwell Pub Buono, A. and Bowditch, J., (2003). The human side of mergers and acquisitions: managing collisions between people, cultures, and organizations. Washington, DC: Beard Books           Read More