Vodafone, Out of Many, One.

Vodafone, Out of Many, One.

Introduction

Vodafone Group is a British Telecommunications company with multinational operations. It was started in 1982 as Britain’s first mobile telecommunications services provider and has gradually grown from strength to strength through a series of acquisitions and these have propelled it to being the world’s second largest mobile telecommunications provider by virtue of size as well as revenues it gets for its services. The headquarters of this international company are located in London but the operations span across a total of 70 countries, 30 of them having Vodafone networks while the other 40 having mobile networks that have partnered with Vodafone. In the United States for instance the biggest mobile service operator is Verizon Wireless, 45 % of this network is owned by Vodafone.

The name of the company was coined up through the combination of the words Voice, Data and Fone which were their initial products being provided to customers. This company was initially a subsidiary of Racal telecoms, a company that specialized in the provision of military communications hardware and software. Another testament to the success and might of Vodafone is the fact that it has been listed on both the London Stock Exchange as well as on NASDAQ as a secondary listing. As of 2005 Vodafone Group was the 11th most valuable company in the corporate world. It is one of the companies that make up the FTSE 100 and has been recorded as being the third largest company to ever get listed on the London Stock Exchange. This document will therefore seek to take a deeper look at the firm with regard to its operations so as to establish and illustrate the factors that have facilitated its sustained growth in size and revenues.

Application of the Value Chain Framework to analyse Vodafone’s capabilities and also the evaluation of its core competencies.

The purpose of the Value chain analysis being conducted on Vodafone is to clearly elaborate upon the manner in which the company adds value to its products on a daily basis. This will entail the analysis of Vodafone’s core activates as well as the support activities which complement the main ones.

Primary Activities of Vodafone Group

Voice

Vodafone’s core business is the provision of Telecommunications services to its customers. Telecommunications services have evolved from being purely voice calls into a variety of products that comprise of both goods and services. These are in the form of handsets, internet telecommunications equipment and also the provision of internet services (Banzhaf et al, 2009).

For the better part of its operations, Vodafone’s key product to the market has been voice calls. Right from the inception of the company, the core business was facilitating voice calls through mobile devices owned by their customers. The factor that initially facilitated this provision of voice to mobile phone users in Britain was the military communications background that this firm had in from its operations as Racal and Milicom companies. As of 1987 Vodafone was the world’s largest mobile phone services provider. The voice product got a boost in 1992 when Vodafone introduced the roaming service to its customers following a deal that was struck with Finnish mobile company Finland Telcom and this allowed its UK subscribers to use their cell phones in Finland without the hassle of getting an alternative phone line.

In 1997, Vodafone became the first mobile telecommunications service provider in the United Kingdom to give its customers the option of prepaid services. The benefit of this was that the  company’s subscribers now had the option of enjoying mobile communications services without the constant need to get into long-term contracts with the company obliging them to pay up for the usage costs they had incurred.

A change in management saw a surge in Vodafone’s push toward the international market and this saw the signing of at least 100 roaming agreements with companies located in other countries.  This outward movement to the global voice market was further boosted through a merger with air-touch communications which was an American company thus furthering its international clientele. By this time, Vodafone had operations in at least 24 countries across all the major continents. The provision of voice services to existing and emerging markets was boosted by the prior existence of infrastructure and market segments for the mobile telecommunication firms that were joining the Flagship of Vodafone. The effect if this sustained and well calculated growth strategy has been the continued provision of high quality voice calls to all of its subscribers across the world. It was observed by the company’s market analysts that reductions in the price of mobile voice calls coupled with an increase in the quality of voice services made customers gradually shift from fixed lines to mobile and this is a clear indication that the voice services department at Vodafone were providing a superior product (Banzhaf et al, 2009).

Data

Other than voice, Vodafone has also involved itself in the provision of mobile data. This refers to internet services that are supplied to mobile phones as well as other mobile devices such as laptops and desktop computers through modems. From the onset of Vodafone as it is known today, data was to be one of the core products alongside voice and mobile telephony. The system through which Vodafone supplies mobile data is highly dependent on customer needs and preferences. Since the infrastructure used by the roaming services can also support mobile data, the reach of this service to customers is just as wide as that of voice. Mobile data had to transform to keep up with present technological advancements and this obliged the company to introduce products that would facilitate profitability rather than make losses due to obsolete technology.  Given the large number of providers that were offering voice calls to their customers, the level of competition in the market increased thus compelling Vodafone to introduce superior data in the form of 3G to its customers. When this reached the market, customers who subscribed to Vodafone’s data services enjoyed much faster access to the internet.

To support the growing demand for internet services, Vodafone introduced specific hardware to facilitate the access of mobile data being provided by the firm. Vodafone live and the mobile internet portal could be easily accessed by customers through a device known as the mobile connect card which gave customers an opportunity to browse the internet for emails and other services directly from their laptops. This effectively took the concept of mobile data to another level since the company’s scope had now gone beyond mobile handsets. As of 2005, Vodafone had embraced innovative technologies that further facilitate mobile data across a host of portable gadgets and the latest innovation that was being developed was WiMAX (Banzhaf et al, 2009).

Mobile Telecommunications Hardware

Other than the provision of mobile telephony services, Vodafone also engages in the supply of support hardware to enable the customers’ access to their services. Basic requirements that facilitate a customer’s access of mobile data include Vodafone – branded mobile phones and data cards for the laptops. The main way in which Vodafone has been dealing with handsets has been through getting into agreements with handset manufacturers who brand their products with the Vodafone logo, install proprietary Vodafone-preferred applications and also lock the phones to the Vodafone network.

Customer Care

Mobile telephony has always been a highly personal matter in that the services provided directly affect each customer in a different way. This is a key characteristic of the service industry where a similar product will be experienced differently due to the differences that the end-users may have. As of 2005 Vodafone’s total subscriber base was well over 100 million individuals across the globe. This then calls for a dedicated customer care initiative to maintain the market share and sustain further growth. Vodafone has managed to voice and data packages to customers in consideration of their lifestyles, budget and consequently their preferences. For this reason, Vodafone’s call centres operate in way that strives to gain the customer’s loyalty with each and every interaction. At the same time, the products of voice and data are maintained at a superior quality level since this is what the customers actually pay for (Banzhaf et al, 2009).

Human Resources

The wide scope of operations with regard to customers and far flung markets also demand that Vodafone employ a workable Human Resource Management strategy. This ranges from those involved in the technical element of operations to those who work in customer care both at call centres and in person at the premises accessible to customers. To accomplish this, Vodafone’s Human Resource department is supported by an IT framework that facilitates the central coordination of the group’s personnel. Another aspect of Vodafone’s Human Resource management structure is the reliance upon knowledge sharing. This facilitates the spread of work-related information as well as the strengthening of the corporate culture across the board through the passing on of ethical information. This must also aid in the training initiatives for new recruits as well as those who need refreshers. Information relevant to customer service also flows through the communication channels that exist in the Vodafone’s HR framework. The training programs that are in existence are also transmitted through Vodafone’s internal intranet as well as on the internet. For its new managers, Vodafone does not look very far as it has a fast-track program that aims to identify workers who have the potential of being effective managerial staff. These are then trained and prepared for the management posts that avail themselves. These workers are then prepared for work in the company through a series of training exercises that include their exposure to international operations of Vodafone in other countries (Banzhaf et al, 2009).

Branding

In some quarters, this will fit into the category of secondary competencies or support activities. For the mobile telephony industry however, branding is a core competency for any firm’s survival in the highly competitive market. During the firm’s formative years branding was not a particularly prioritized activity as the main objective was ensuring that there is a sufficient infrastructure to support mobile communications. As time moved on however, more players joined the local and international markets while customer tastes and preferences too evolved with technological advancements. The combination of these factors compelled Vodafone group to formulate measures of overcoming the competition. Being in the service industry meant that they had to work extra hard on their branding efforts as they greatly aid in marketing and sales. To complicate matters further, the company has over the years been involved in the take – over of several mobile companies outside Britain. A lot of resources have been put into creating a unique identity for Vodafone in which the products and pricing mechanisms would stand out from the rest of the market.

While some of the acquired brands retained their original names and logos for as much as three years, others were literally changed overnight to Vodafone with the addition of the country’s name to specify the market and provider. Another challenge that Vodafone has had to overcome are compatibility issues with regard to the network format and product offering. Dealing with each acquired or merging company subjectively and employing the most appropriate branding strategy has enabled Vodafone to harmonize the operations and products of the other firms (Banzhaf et al, 2009).

Since its primary product has been data, Vodafone opted to change its traditional logo from being a bold print of the company’s name to the use of a speech mark as its logo. This was also to make the products more market-oriented.  The importance of having a global brand for Vodafone has been to aid the existing and prospective customers in associating the brand they are presented with to the high standards of mobile telecommunications. Following the harmonization of the international operations, Vodafone embarked on a brand awareness exercise across its markets and the aim of this was for the audiences to associate the brand with market-friendly attributes such as quality voice and data, innovative products and also value for their money. This was successful and resulted in brand preference in the markets thus greatly boosting growth (Banzhaf et al, 2009).

A major component of branding involves the pricing element. This is due to the customer centric nature of the mobile communications industry. Customers are highly mindful of the amounts they spend and this then demands action on the part of Vodafone. Since price wars are common in this area, the company has a mechanism that is followed whenever the market rates fall beyond the limit set by the company. This way the firm will lower its prices in a reasonable manner rather than joining in on the random reduction in prices which threatens both profitability and perceived quality in the eyes of the customers. As a policy however, Vodafone prefers to go for value creation rather than the use of lower prices to gain market share.

A factor that has made sure there is coordination between the core competencies of Vodafone group in its operations is an effective management team which has ultimately strove to steer the firm towards value creation. There is no raw material per se as mobile telephony is technology dependent. This team of individuals have however come up with executive decisions on the order of business at Vodafone right from its formative years all the way through to 2005 and beyond. Being an innovator in that this was the first mobile service provider in Britain could have created many loopholes that allowed the competition to outdo them. This however did not happen as Vodafone has remained relevant to its customers at home and on the global market where it expanded its operations to. This required tactful harmonization of operations with the new mobile service providers that Vodafone was merging with or acquiring. As the paper will demonstrate below, the management of Vodafone took a ‘one case at a time’ approach in which each market was handled subjectively due to its unique position in the existing market. This diligence by the management made the integration of the new comers into Vodafone seamless (Banzhaf et al, 2009).

Deployment of the above Core competencies to support Vodafone’s Competitive Strategy

The purpose of having the above core competencies surpasses merely serving the market through the provision of voice and data to mobile subscribers of Vodafone. These core competencies are launched in a specific manner that then facilitates then makes it possible for Vodafone Group Company to be a competitive company in a market as dynamic as global mobile telecommunications provision.

When it comes to the provision of its key service products of voice and data, Vodafone has greatly relied upon research and development of better ways of facilitating transmission of the same across the network. A key part of this has been the harmonizing of the billing system applied on its customers. This is a huge task given the fact that Vodafone is dealing with millions of subscribers both at home and internationally. The main theme that has helped the company to manage this feat is through harmonization of its operations through a program known as ‘One Vodafone.’ The One Vodafone initiative has eight major components that have been running concurrently and they are Networks, Information-Technology, Service platforms, Roaming, Customer, Handset portfolio, MNC accounts and Retail.

This program basically covers most of the other competencies that have been mentioned above given the fact that the core competencies are inseparable from the firm’s spread to global markets.  The Networks Component is concerned with five activities namely design of products, coordination of Vodafone’s operations, Procurement of the relevant supplies, Supplying the market with products and also consolidating the resources that Vodafone group has at its disposal (Banzhaf et al, 2009).

Information Technology primarily covers the back office operations that are coordinated to support the telecommunications giant’s operations in the market. The activities that fall into this category include the design of and coordination of programs that aid in billing, Human Resource coordination and also general data management for the group.

Service Platforms are  the various formats in which data and voice are supplied to Vodafone’s customers. This arm of the operations therefore concerns itself with the different ways customers use the company’s communication solutions and this takes into account mobile phone users as well as those who use the data provided to laptops. A key objective here is to ensure the various platforms are operating in an efficient and sustainable manner (Banzhaf et al, 2009).

Roaming as mentioned in the introductory paragraphs is a system that allows users to continue using their Vodafone lines seamlessly when they are in other countries where Vodafone services do not cover. This makes it possible for Vodafone’s customers to remain accessible regardless of the places they travel to. This makes the services of the company particularly attractive to business customers and holiday makers who travel a lot. This service gives Vodafone a foot print that its competitors can scarcely reach thus granting the company dominance in international calls.

Customer Service is the action of catering to customer needs whether it is their queries, complaints, compliments and also requests. This is primarily carried out through call centres that are accessible 24 hours a day. The company takes this as an opportunity to improve the services it provides to its customers and thus boosting customer loyalty. Part of customer services include the continued creation and development of product offerings that suite the customer needs instead of the alternative where customers have to adjust to whatever is being offered by the company. To ensure that its customer services are superior, Vodafone benchmarks with the biggest or best performing mobile telecommunications network so as to ensure it deals with the customers in an acceptable and competitive manner. This has been particularly lucrative in the new markets where Vodafone has acquired existing mobile service providers (Banzhaf et al, 2009).

The Handset portfolio is the arm of the company that deals with the handsets and cards that are retailed by Vodafone. Though the company does not produce its own customized mobile handsets, it sells those that are branded with the company logo and bundled with software that facilitates the customers’ easy access of Vodafone’s online portal and other web-based services. These handsets are sold at outlets owned by Vodafone as well as those which are affiliated to Vodafone. Despite being a telecommunications provider, the retail operations of Vodafone had propelled it to being the eighth largest retailer of mobile phones globally. This not only diversifies their product but also allows them to supply to the market gadgets that will facilitate maximum usage of their other voice as well as data service offerings (Banzhaf et al, 2009).

An Analysis of Vodafone’s Acquisition Strategy

As at 2005, Vodafone’s international reach was the envy of most mobile telecommunications providers and this has mainly resulted from the acquisition strategy that it has been using to do so. The magnitude of growth that has resulted from Vodafone’s strategy is unlike many others which only contribute modestly to the portfolios of the companies that conduct them. It appears that the best bet for the survival of a mobile telecommunications company is through active acquisitions of other companies lest it gets swallowed up by a more aggressive one.

First of all, unlike most existing mobile telephony companies, Vodafone’s core business from its inception has always been mobile service provision. Other companies that are in existence started off as trading companies that had no particular industry of specialization. This seems to boost the brand once Vodafone acquires it thus making it a win-win situation (Banzhaf et al, 2009).

As far as the pre-acquisition strategy of Vodafone Group goes, there seems to be a preference for mobile telecommunication companies that have the goodwill of the market segment they command at the time of the take-overs. The advantage of acquiring such companies is that it saves Vodafone the cost that would be incurred if it set up a company in a foreign market from scratch. Other than this, the acquisitions also guarantee Vodafone access to the company’s distribution networks thus links with suppliers and outlets. Another pre acquisition condition that is seriously considered by Vodafone prior to the acquisition of a company is the core business that the firm engages in. this determines the way in which the absorbed company will be used by Vodafone. The cost of the company to be acquired by Vodafone is another major factor that is considered prior to an acquisition by Vodafone. This is first because it has to be within the budget and at the same time, this is a business that seeks to make a profit. As a result the cost which will be incurred by Vodafone should be greatly outweighed by the potential benefit that the company stands to gain. A case in point to illustrate this is the landmark acquisition of Germany’s then largest mobile service provider Mannesmann (Banzhaf et al, 2009).

Since Vodafone’s core business is the provision of Voice and Data to mobile subscribers, it occasionally takes over companies that have fixed lines as part of their operations. In such instances, the purchase is usually for future resale or for the purpose of cannibalizing the operations of another fixed line operator and pave the way for mobile communications offered by Vodafone to fill the subsequent void that will have been created in the market.

Market needs are another factor that plays a significant role in the rationale followed by Vodafone’s management before they decide on a company to acquire. This is because the Vodafone brand has a specific set of services and products that require a ready market for them to thrive. Evidence of this can be seen in the manner in which Vodafone’s subscribers grew tremendously in some instances even doubling within a short period of the acquisition. This is because following the acquisition; the company takes maximum advantage of the opportunities that exist in the new market (Banzhaf et al, 2009).

Last but not least, the Vodafone team also have to take into consideration the share value of the company soon to be acquired. One of the strategies that they use in acquisitions is purchasing a company through shares rather than cash as is the norm in the industry. This strategy to a large extent insulated Vodafone from the debt crisis that severely affected telecommunications companies.

The ownership of the target company has been an all important factor that determined whether Vodafone had interest in a mobile company or not. One of the categories of companies that Vodafone has been avoiding are State owned monopolistic networks such as T-Mobile which is a subsidiary of Germany’s Deutsche Telekom. The preference has always been for entrepreneurial firms such as Germany’s Mannesmann D2 which are perceived to be more flexible and less prone to bureaucratic procedures and operations characteristic of government owned ventures.

The Effectiveness of Vodafone’s Post-Acquisition Integration Strategy

This analysis will be conducted in light of the Haspeslagh and Jemison model which considers the intensity of both strategic interdependence and the need for organizational Autonomy. In the several take overs that Vodafone has engaged in, the acquired companies have been handled in a subjective manner. This is to say that each of the companies have received treatment different from the rest. The aim of this treatment has however been geared towards the harmonization of the new company with the larger Vodafone in terms of brand and operations (Banzhaf et al, 2009).

In instances where Vodafone has taken over firms which have a weaker brand, the transformation of the company into Vodafone in as far as branding and operations are concerned remained the most important issue. In some cases such as the acquisition of New Zealand’s Bellsouth and Portugal’s Telecell. This is because the brands of these companies were relatively weak and would thus benefit from the change. When it came to Germany’s D2 however the process of transformation took about two years to complete because this was a very strong brand that needed to be integrated gradually so as to maintain stability both within and in the local market where the company had been operating. In all instances, the need for autonomy in the acquired company was low according to Vodafone. At the same time, the requirement for interdependence was high. A combination of these two factors calls for absorption according to Haspeslagh and Jemison’s Acquisition Integration approaches. This is the essence of the One Vodafone program that was being used as a guideline for integrating the acquired firms.

This strategy has been immensely successful for the company because it has facilitated harmonization of operations and at the same time resulted in great increments in the number of customers that the telecommunications company has.  The benefit of this has been greater revenues and thus higher profits for the company. The acquisition strategy employed by Vodafone also benefits the company since it takes into account the skills and networks that had been built by the original company. Absorption of the companies means that Vodafone also absorbs into its flagship the skills of the employees of the companies and this is a great plus since it aids in cutting costs that would have been incurred had Vodafone opted to train new workers or bring in expatriates (Banzhaf et al, 2009).

Vodafone profited from some acquisitions in terms of the positioning that resulted. In some instances, Vodafone used its position in a new market to size up and analyse the prospect of taking over other firms that were operating within these markets. This then made future take overs relatively easier due to insights on the markets which had been gathered first hand.

Another way in which the acquisitions have been beneficial to Vodafone is that they have provided the company with an ample opportunity to relaunch their products in new markets where they previously had little access to.  The goodwill of the market segment previously controlled by the original telecommunications company is also gained by Vodafone. This is because of the strategy of branding which the firm employs in the new markets. Despite the fact that there is bound to be some degree of resistance, Vodafone managers carefully study market trends and behaviours before deciding on the best way to rebrand. This way, Vodafone has always succeeded on deploying the most practical strategy and in instances of rapid take over as well as the more gradual ones, this company has emerged victorious.

In terms of competitiveness, this strategy has helped Vodafone to have a one of the larger international footprints when it comes to comparing the network coverage of mobile telecommunications giants. This has then endeared them to the business clients who greatly make use of such services while at the same time tend to spend much more than private subscribers who operate on smaller budgets. In a nutshell, Vodafone’s growth from its inception until 2005 owes most of the successes that have been realized to the acquisition strategy of absorption (Banzhaf et al, 2009).

The International Acquisition Strategy Choice being implemented by Vodafone

The international Acquisition strategy that Vodafone has been implementing in the take overs that it has been involved can be termed as the global acquisition strategy. This is because ever since it started the process of acquiring mobile telecommunications companies, the main aim has been to make them affiliates of the Mother Company and later on fully part of the company. In the foreground this is the strategy that is maintained but background operations indicate that the acquired company is already fully owned by Vodafone (Banzhaf et al, 2009).

The one Vodafone program was described by Alan Harper as a sustained effort of creating an international brand under which all the subsidiaries would operate. The headquarters of these branches of Vodafone would be maintained at the original home of the company, Newbury London. The global strategy implies that the employees of the incumbent mobile telecommunications companies that Vodafone acquired would be reporting directly to Vodafone’s headquarters in the UK. This fact however was cited by critics as a possible avenue for dissented voices in the companies in instances where the staff would feel that the acquisition washed away the fruits of their labour in bringing up the companies. The practice of creating a Vodafone identity in the new markets has been replicated severally in the company’s recent past. Examples of this rebranding to create a company that reflected the ideals and values of the larger group include the conversion of New Zealand’s Bellsouth to Vodafone, Portugal’s Telecell to Vodafone, Germany’s Mannesmann D2 into Vodafone and also Italy’s Omnitel into Vodafone among others. The fact that they have all been transformed from individual entities into part of Vodafone’s flagship brand in different parts of the world is testament to Vodafone’s use of the global acquisition strategy (Banzhaf et al, 2009).

Reference

Banzhaf, Johannes and Som, Ashok, (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

 

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