Introduction
Vodafone Inc. is a multinational Company that operates in the telecommunication industry. It is one of the leading companies in the global telecommunication industry in terms of market share and asset capitalization. The company was started in 1984 as a subsidiary of Racal Electronics Plc. and it became an independent company in 1991.
Since then, the company has experienced growth and expansion. The vision of the company is “to be a world leader in responding to public concerns regarding mobile phones, masts and health by demonstrating leading edge practices and encouraging others to follow” (Vodafone, 2011, p. 1).
Vodafone Group Inc. is present in 31 countries across five continents and its market capitalization was estimated at 71.2 billion pounds as at November 2009. The company operates in Europe, Middle East, Africa, Asia Pacific and the United States through subsidiaries, joint ventures and other forms of investment.
The company has partnerships with more than 40 networks in the world. The strategic position of the company can be analyzed in three steps that include the past strategic position, current strategic position and the future strategic direction.
The key success factors for the company are effective and continuous research and development, innovation and customer satisfaction focus. The company continually conducts research and development in order to understand the market requirements and employ use of innovation in order to satisfy the market.
The company has also invested heavily in technology and the other key success factor is the presence in both enterprise markets in large corporate as well as in the small and medium sized business markets. Generally, Vodafone Group Inc.pursues strategies which are focused on driving operational efficiency, pursuing growth opportunities in the communications industry, enhancing strong capital orientation and taking advantage of new and emerging markets. The company slogan is “make the most out of now” (Vesa, 2005, p. 201).
Investment in Industries and products
The company has invested in the telecommunications industry in the Europe and other continents. The major products of the company are calls, text messages and other advanced services such as Vodafone at Home and Vodafone Office, Vodafone passport, Vodafone Live, Vodafone 3G, Vodafone Mobile Connect data cards and other Mobile applications.
Vodafone at Home and Vodafone Office are fixed line services that deliver customer’s communication needs to their homes or offices. Vodafone passport enables customers to travel to other countries with their home tariffs while Vodafone Live offers communication and multimedia options for mobile phones.
The 3G product provides customers with the ability to transfer both voice data and non-voice data at the same time. The connect data cards and mobile applications make use of email, internet and other integrated services easy and secure to use(Hill & Jones, 2009, p. 67).
Structure, leadership and Culture established
The company has headquarters in Newbury, Berkshire, England and it is managed through regional managers who report to the CEO. The company operates in more than 30 countries and has over 270 million subscribers. Vodafone Group Inc. is organized and managed through two geographic regions, which are Europe and EMAPA.
EMAPA stands for Eastern Europe, Middle East, Africa and Asia, Pacific and Affiliates. The Europe region covers the major subsidiaries of Vodafone in the U.K., Germany, Spain, Portugal, Netherlands, Malta, Greece, Ireland and Albania. The EMAPA region covers all the subsidiaries in other countries where Vodafone has subsidiaries and they are not part of the Europe region.
The Europe region is mature compared to the EMAPA region and the company derives almost 79% of its revenue from the Europe region (Vodafone, 2011, p. 1). The organization structure for the company is a centralized structure. The Chief Executive Officer and a board of directors drawn from professionals and players in other industries across the world lead it.
The company has national and regional branches headed by managers who report directly to the CEO. The company has established and maintained a culture of hard work, integrity and innovation.
Strategies in the Recent Past
The Company has been pursuing growth and expansion over the recent past. The major goal for the company has been to become the leading mobile services provider in the world. The company sought to expand into international markets through acquisitions of mobile service providers in various countries.
For instance, Vodafone Group Inc. acquired Air touch, Mannesmann and Japan Telecom in the U.S., Germany and Japan respectively. Those are just but examples of the largest takeovers that Vodafone Group Inc. completed in its expansion scheme (Sutton, 1980).
In the years 2006 to 2009, the company adopted a contraction strategy. Over this period, Vodafone Group Inc. sold off many subsidiaries. However, the company acquired Hutchison Essar in India in 2007, Ghana Telecom in Ghana and more shares in Vodafone South Africa. In this period, divestment was the only option for companies since the effects of the 2000s financial crisis was starting to be felt.
Some of the subsidiaries that Vodafone disposed off between 2006 and 2009 were Vodafone Sweden, 25% interest in Bolgacom Mobile S.A. and Wisdom Mobile AG in Belgium and Switzerland respectively and 5.6% shareholding of Bharti Airtel in India. These measures were to fight the global financial crisis that was threatening the existence of multinational companies (Porter, 1998).
During this time, Vodafone Group Inc. was operating under pressure from the investors. The investors pressurized the company to give them more returns for their investments. These were mainly the institutional investors. The company thus formulated strategies to take advantage of the global network to improve on its performance and profitability.
In this time, there were new opportunities, which were brought by the invention of 3G. This gave Vodafone Group Inc. as well as the competitors an opportunity to roll out new mobile internet access services (Porter, 1980). Vodafone Group Inc. formulated and implemented various strategies when Mr. Arun Sarin was the Chief Executive officer.
In 2006, Vodafone Inc. developed a five point strategic plan, which according to me helped the company to maintain its competitiveness for more than two years. This plan made the company to gain in market share compared to the market share of the main competitors of the company. The plan also helped Vodafone Inc. to achieve its targets in terms of costs, increased the revenue, and achieved market growth.
Despite these achievements brought by the five-point plan, there were some challenges over that period and these are attributed to the business environment (Warren, 2002, p. 78). In 2005, Vodafone Group Inc. underwent restructuring with the aim of consolidation the operations of the company. Under the restructuring, various regional operators affiliated to Vodafone would report directly to the CEO.
These were subsidiaries operating in countries like the U. K., Germany, Italy, Asia-Pacific, South Africa, France and China among other countries. Under the new structure, all functional departments were required to report directly to the CEO. This was necessary to enable the company have a complete global approach in its operations.
The company would now produce standardized products and services and use the same marketing strategies to market the products globally. Two management committees were also formed after restructuring to guide the strategic direction taken by the company. The focus of the executive committee would be financial structure, organizational developments and strategy.
The operations committee was charged with the operations and budgeting functions of the company. Both committees were to be chaired by the CEO. Over the past and even today, elasticity on major voice and messaging services remains below one, which means that the company cannot transfer the costs to end users effectively.
Another challenge is strong regulation on the communication industry. Another challenge is that some market expectations are unrealistic and unattainable and this is a major setback in the strategic review of the company (Grant, 2005, p. 89). The focus of the strategies for Vodafone Group Inc. in the past was consolidation of the market.
The company had shifted its attention from the traditional growth strategies to focus and consolidate powers over the markets it had gained. The company also wanted to achieve top-line growth in some markets. This is the reason why the company adopted some aggressive and bold strategic decisions in order to consolidate itself and to achieve top-line growth in new and emerging markets.
These strategies taken by Vodafone Inc. in this period worked for the company. The company had realized that in order to gain from the wide global market coverage, it had to integrate its activities to enhance synergy and coordination. The Strategy was well implemented since it respected the autonomy of the local operators and their ability to respond to the local customer needs.
Macro environment trends
The PEST analysis is a tool that is used to understand the market and the industry in which a company operates. This technique involves looking and evaluating different environmental variables in order to understand the market fully. PEST analysis refers to the analysis of the Political, Economic, Sociological and Technological factors of the environment.
PEST analysis is an important task in formulation of strategy because in strategy formulation and implementation, a good understanding of the environmental variables is required (Walker, 2004, p. 56). PEST factors affect to a great extend the way business operate, make decisions and formulate their strategies (Spulber, 2007, p. 123). It helps businesses and organization to conduct their business in readiness of the changes brought by dynamics in the environment.
The analysis helps a business to determine what to produce, how to produce, when to produce and for whom to produce. Political factors: Political factors refer to the regulations and policies that affect the conduct of business in an industry or market. They include labor laws, taxation laws, environmental conservation laws, trade barriers, tariffs and general political condition of the countries in which a company operates (Warren, 2002, p. 82).
Most countries who are members of the European Union have implemented the E.U. Regulatory Framework for the communications sector whose aim was to encourage competition in the sector, improve functioning of the single market and ensure basic customer interests are safeguarded. This regulation forced Vodafone to reduce its phone termination charges significantly.
Another regulation is the spectrum liberalization reforms commissioned by the European Union in 2005. These reforms aim to allow holders to a trade spectrum to effect harmonization of brands with effect from 2010. There are other regulations, which seek to protect the consumer such as the E.U. Roaming Regulation, which was enacted in 2007.
Economic factors refer to the general economic condition of the market and they include gross domestic product (GDP), interest rates, exchange rates, economic growth, inflation rates and Consumer Price Index (CPI) among other factors (Porter 1998, p. 151). The GDP for most economies has been growing and this means good business environment for Vodafone.
However, due to the economic downturn in 2007-2008, the growth in the global economy experienced deceleration and this means that business environment is not good for Vodafone Group Inc. as well as other companies. Social factors are the cultural aspects and their impact on business. They include population and population growth, distribution of age, health consciousness, safety requirements and other religious considerations.
According to recent population surveys in most countries, people are living longer and they are leading healthier lives than before. There is however, a drop in fertility hence the E.U. population is growing old. The population growth is slowing in most countries (Porter, 2008, p.23).
The Technological factors are the research and development activities, automation, innovation, rate of technological advancements and general improvement in environmental aspects (Day, Reibstein & Gunther, 2004, p. 83). A look at the intensity of Research and Development in most countries show that most economies are investing heavily in research and development. Some countries where Gross Domestic Expenditure on Research and Development was found to be high are in the U.S, Japan and most countries in the European Union.
Industry and Market structure for the Telecommunications
The porter’s five forces of competition model are used to analyze an industry and determine the level of competition hence its attractiveness. The five forces are buyers bargaining power, bargaining power of sellers, threat from new entrants, threat from existing players and threat from substitute products.
There is a notable increase in subscriber base for mobile services, which means that the buyers for the products in this industry are many. This has been observed especially in the developing and underdeveloped countries. However, the buyers are becoming more complicated in terms of demands and companies must move with speed to keep pace (Porter, 1980, p. 73).
There is rivalry between existing firms since the telecommunications industry has more players. The competition is however, regulated and emerging markets favor Vodafone. The main competitors of Vodafone Group Inc. are the T-Mobile, Orange and Telefonica O2. These competitors have substantial presence in most countries and they have a competitive subscriber base.
Threats from substitute products remains low since the use of fixed lines is reducing in most countries. In the future, it can be expected that there will be no substitute products because there would be no fixed lines in use (Barney, 1991, p. 103). New entrants in the industry are not a threat since the industry is highly regulated.
This combined with the existence of well-established multinational companies in the industry lower the probability of entrance and survival of new companies. The suppliers to this industry include software developers, providers of network infrastructure and other digital devices. Well establishing companies like Vodafone have high bargaining power over the suppliers hence supplier’ bargaining power is not a threat (Walker, 2004, p. 106).
Strategic resources, Capabilities and core competencies
SWOT means the Strengths, Weaknesses, Opportunities and Threats of a business. These are formulated after an understanding of the market and the general business environment. An organization should match its strengths opportunities to overcome the weaknesses and threats. Thus, SWOT analysis is an important process in formulation of strategies for a company (Pahl & Richter, 2009, p. 102-103).
The strengths of Vodafone Inc. are the good reputation the company has had in the market and a strong orientation towards meeting customer needs. Other strengths are up-to date technology that the company has, global brand strength and general geographical presence.
The major weakness of the company is shortage of materials needed for production or purchasing of expensive material for production in various countries of operation. Another weakness in failure to meet the customer’s demand since it is high and it increases every time. The company also has a highly centralized system of control, which reduces flexibility in decision-making.
The opportunities available for the company are ample political climates in most countries and opportunities for growth brought by improvement in market for mobile data, enterprise and broadband. Another opportunity is the existence of strategic alliances with other companies. The major threats are existence of major competitors, high market saturation in the Europe and emergence of new low-cost brands in some markets (Bohm, 2009, p.23).
Business Partners, Alliances and important networks
The company has various strategic alliances with some companies. In total, the company has partnerships with more than 38 networks in the world. The notable strategic alliances, which Vodafone Group Inc. has, are alliances with Citigroup, with Jersey Airtel, with DSG international in the U.K., partnerships with Dell, Acer, Hp and Lenovo among other alliances
Synopsis of Current Strategies
When Mr. Arun Sarin left, Mr. Vittorio Colao became the chief executive officer for Vodafone Group Inc. and unveiled his strategies for the company in 2008. According to Colao, the reasons for the change of strategy were changes in the business environment and other factors of operation. This was true and necessary since the new CEO was faced with economic pressures and regulatory changes.
Due to the worsening economic condition, the strategic direction of the company shifted to cutting costs and attaining efficiencies. The most important aspect of the company today is to reduce costs. The company is targeting to reduce costs by 1 billion pounds by the year 2010-11. The costs could be reduced further depending on the economic condition.
This strategy is necessary and appropriate since the global economy is yet to recover from the 2010 financial crisis. This crisis affected the performance of many companies and firms that reduce their costs would survive the financial difficulties. Consolidation of existing markets is not left out of the current strategies of the company. Vodafone seeks to consolidate its activities in some parts especially in Europe.
This strategy is important since there are many competitors in those markets who are making Vodafone to lose its market share. The strategy is to buy some competitors in order to reduce the competition. The company intends to finance such acquisitions through disposal of other subsidiaries, which are not strategic to the success of the company.
Another strategy that is being pursued by Vodafone Group Inc. is organizational restructuring in order to bring nationalization of systems. These activities do not appear in the headlines but this does not mean they are not taking place. It is now the priority of the management to bring together the national affiliates of Vodafone Group Inc. in order to enable them to use the same technology.
This is a sure way to cut costs as it enables the company to develop a new product or service and then introduce it to many markets at the same time. The management was restructured in such a way that the managers of regional operations report directly to the chief executive officer. Regional heads of departments should now report directly to the overall head of that department for the company rather than reporting to the regional manager.
This was implemented in order to bring together the regional operators and give the management more direct control over the operations of the company. According to the management, this is a simplification of the organization structure of the company and it would help the company to take advantage of its economies of scale (Porter, 2008. p. 91).
There are some inadequacies in the current business strategies for Vodafone Group Inc. one of the shortcomings includes the failure to capitalize on the growing semi-urban markets. In addition, I feel that Vodafone Group is not well positioned to address the issue of mobile number portability. Since the implementation of mobile number portability in most companies, there are new entrants in the market who pose a threat to the company.
I would therefore recommend the company to formulate a strategy that would tackle the issue of mobile number portability and thus retain the company’s market share (Porter, 2008. p. 91). The cost cutting strategies could not have come at any better time than now for Vodafone Group Inc. The company has been pursuing aggressive expansion strategies over the past and with the current economic depression, such strategies would leave the company financial crippled.
The company has already penetrated more markets than any other player in the telecommunications industry has, and therefore what it needs to do is to formulate strategies that will help it capitalize on the wide market coverage. This could be achieved through cross-border integration and the company viewing itself as a portfolio composed of many mobile operators who have the same aim in business (Leontiades, 1987, p. 53).
Future strategic direction for the company
The main goal for a company is to maximize the shareholder value and sustain it. All the strategies developed must have aimed at achieving this main goal. The strategies for Vodafone Group Inc.for the future must therefore be aimed at considering the opportunities that exist in the markets and exploiting the opportunities to maximize shareholder returns.
It is good to appreciate the fact that the business environment is changing and becoming complex hence the need to be careful in coming up with strategies for the future. For Vodafone Group Inc., competition is on the rise from the existing mobile telephone services providers and also from small national service providers, the regulatory environment is changing rapidly, the growth in the European market is becoming slower and other challenges.
These are challenges that put pressure on the performance of the company and they must be put in consideration when formulating future strategies (Andersen, 2006, p.53). After a careful consideration of trends in the telecommunications industry worldwide, I would suggest that Vodafone Group Inc. should formulate strategies that capitalize on rural markets since there is increasing use of phones in the rural areas.
The company should also move towards infrastructure sharing with other companies because this will cut on cost, increase efficiency and help the company to enter new markets easily. Mobile phone use in the rural areas is increasing hence it is a good opportunity for the Vodafone Group to increase its revenue (Dransfield, 2001, p.43).
Due to increased competition, Vodafone should shift its attention from customer acquisition to customer retention. The company should formulate strategies to stimulate additional voice usage and substitute fixed lines for mobile phone services. The company should shift its strategies from the traditional unit pricing and unit based tariffs to pricing strategies, which provide the customers more value for their commitment.
The new pricing strategy will ensure a balance in the commercial costs for customers and generally offer value to the customers while at the same time safeguarding the financial position of the company. The company should position itself to take advantage of core voice and messaging services through larger data bundle. These measures will ensure more revenue despite the slow growth in the telecommunications industry especially in Europe (Pahl & Richter, 2009, p. 117).
Innovation in the company should be emphasized. Vodafone should ensure that it develops new products and continually improves on the existing products. Research and development should be continuously conducted to understand the customer requirements and then focus on delivering the customer requirements.
For instance, customers would like to have high-speed internet access, VoIP and instant messaging, integrated personal computer offerings and other services. Vodafone should use innovation and technology to increase usage of non-voice services and this will boost the revenues for the company. The other strategic issue that will take the forefront in product improvement is to make use of more enhanced voice services.
In the future, the company will make use of alternative radio spectrum bands; make use of UHF (between 450 MHz and 1 GHz) in Europe; use of WiMax (2.6 GHz) in Malta and use WCDMA (900 MHz) in New Zealand. These product developments are underway and they are in the trial stage (McGee, Thomas & Wilson, 2005, p. 152).
The company should continue to seek growth from the emerging markets. These are the developing countries whose GDP is increasing. Such countries are mostly less penetrated in terms of telecommunications hence they are a good business for the Vodafone Company. The company should understand that getting new customers depends on quality of services and satisfaction of customers hence this should also be a major area of focus.
The company should also consider selling non-profitable subsidiaries, which are mainly cost-centers instead of being revenue-centers. This would be a good move to boost the financial performance of the company (Porter, 2008, p. 88). Cost reduction for the company should remain a matter of strategic plan.
This is because competition in the telecommunications industry is getting stiff year by year and this need financial discipline in order for an organization to survive in the industry. The world is still recuperating from the financial crisis whose peak was 2007-2009 and therefore Vodafone group Inc should cut down on costs to avoid financial strains.
Another strategy that Vodafone could consider is to adopt a push marketing strategy, which would boost the revenues of the company. Under this strategy, the company should influence more people to buy phones that connect to the internet and to influence more companies to purchase telecom services. Growth should not be completely left out of the strategic direction of the company.
Vodafone Group Inc should aim at expanding into developing economies (Pahl & Richter, 2009). In the future, I can see the company the personal computer components to mobile handsets. This is because the users now demand handsets with Google maps, yahoo, Microsoft, search engines and other components.
With the direction technology is taking, it is clear that Vodafone Group Inc will have no alternative other than to integrate these services in handsets. The company would also continue to expand into the emerging markets to tap new market potentials. In the next few years, the company will target countries with increasing penetration of mobile phone use and with rising per capita income and this will increase the revenue for the company (Spulber, 2007, p. 211).
We also expect to see more partnerships between Vodafone Group Inc and other investors in various markets. This is an attempt to take advantage of the wide global market coverage to boost the revenues for the company. The notable strategic alliances whose progress are in advanced stages are with Citigroup, with Jersey Airtel, with DSG international in UK, partnerships with Dell, Acer, Hp and Lenovo among other alliances (Johnson, Scholes & Whittington, 2008).
For these strategic directions to be effective, the company needs to align its organizational structure to keep in line with the dynamic business environment. The managers and top employees hired by the company should have a clear vision and should be well motivated to drive the company towards achieving its strategies. Communication within the company should be fast and reliable to ensure that the employees understand the goals and objectives of the company.
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