Free «Contemporary Management» Essay Sample
The chosen case revolves around one of the world’s leading providers of mobile telecommunications services: Vodafone Group (Vodafone). The group, which employes 85,000 employees around the world (namely in Europe, the Middle East, Asia Pacific, Africa, and the United States), is in the busines of offering mobile voice/data communication services to both firms and households. In 2010, Vodafone recorded revenues of 70,992.4 million USD; this marked an 8.4% increase in revenue from 2009. There was a 6.9% increase in operating profit (reaching15,133.3 million USD in 2010), and a 180% increase in net profit (as it went from $4,913.5 million USD in 2009 to $13,800.4 million USD in 2010).
Based on the aforementioned figures, Vodafone is a company that manages to compete efficiently and productively in the global telecommunications market (and naturally, in the United Kingdom’s telecommunications market). This owes largely to the success that the company has had in consolidating its market position in the different areas in which it operates. These prominent market positions have given Vodafone a competitive advantage over competitors in past years, but it is equally true that competition in the telecommunications industry is likely to intensify in coming years. This will ultimately affect Vodafone’s market position, as well as its market share and revenue growth.
Today Vodafone is a major player in the telecommunications industry. In 2009 its marketshare of the global telecommunications market stood at 7%; by the end of FY2010 the company’s customers exceeded 340 million. Countries in which the company’s market share is particularly strong include the following: Germany (32%); Italy (33.5%); Spain (31.2%); Romania (33.1%); Turkey (24.5%); United Kingdom (23.4%). Furthermore, in 2010 the company managed to increase its customer base in India, reaching 111 million, raising its market share to 17%, which currently makes the company the second largest telecommunications company in the country.
Having a prominent market position is a great advantage for the company, given that it can focus more on differentiatint and enhancing its operating performance (instead of having to focus on expanding market share). Another major strength that has potentiated the company’s success in recent years is its extensive reach and diversified revenue base. The company holds “equity interests in over 30 countries and partners in more than 40 countries” (Datamonitor, 2010). In terms of its diversified base of revenue, it is important to point out that the bulk of the company’s revenue does not come from one particular market. Instead, there are several market that account for the bulk of the company’s revenue, including Germany, the United Kingdom, and India, which contributed 18%, 11.2%, and 7% of the company’s revenues in 2010 respectively. Thirdly, the company has been able to harness success because of its brand image, Vodafone, which is currently ranked as “number 10 in the Brandz Top 100 global brands list in 2010, published by Millward Brown, with an estimated value attributable to the brand of $44,404 million. It is the top brank in the UK and the second largest mobile operator brand worldwide” (Datamonitor, 2010).
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Of course, despite the company’s various strengths, there are also weaknesses that management must cope with and overcome in order to further enhance the company’s succes in coming years. First and foremost, management must deal with legal proceeding (all of them related to tax issues). One of the company’s subsidiaries, Vodafone 2, currently responds to an enquiry made “with regard to the UK tax treatment of its Luxembourg holding company, Vodafone Investments Luxembourg SARL, under the Controlled Foreign Companies section of the UK’s Income and Corporation Taxes Act 1988” (Datamonitor, 2010). The enquiry focuses on irregular tax filings in 2001, which could result in potential liabilities in excess of 3.5 billion USD. A similar situation developed in India in 2007; this case might signifiy liabilities in excess of 2 billion USD. The way in which the company handles its tax filings has been problematic; it is a weakness the company must overcome given that it not only hurts its finances (via fines and forced backpayment), but also its brand image.
The aforementioned weakness can hinder the company’s future growth, development, and continued success in the telecommunications market. Due to this it becomes quintessential that management manages to overcome this significantly costly weakness, and that it manages to capitalize on all of the opportunities that the market offers. The first opportunity that Vodafone has to continue growing is in mobile advertising, a market segment that “is expected to grow at a compounded annual growth rate (CAGR) of about 40% until 2014” (Datamonitor, 2010). This significant growth owes largely to the expected increase mobile phone usage around the world. Vodafone recognizes the potential of mobile advertising; Vodafone Marketing Solutions runs more than 2,000 campaigns across its operating markets per year.
Other opportunities for sustained growth are found in increased 3G penetration, M2M solutions, mobile money transfers, and the growth of the Indian telecommunications market. First, 3G technology allows telecommunication providers to offer a wider variety of services to consumers without sacrificing profit margins; the technology offers stable tariffs and this helps the company harness its base of revenue. Second, Machine to Machine (M2M) solutions are in high demand in the telecommunications market, because it offers more efficient service provision at decreased costs. Furthermore, M2M related operator revenue is expected to reach 13 billion USD by the end of 2012 (up from just 4 billion USD in 2008).
Third, mobile money transfer services are a good growth opportunity as this segment of the market is expected to reach revenues in excess of 62 billon USD by 2014. Vodafone management is aware of this opportunity and so have developed and launched the M-PESA servicef (Vodafone’s money transfer service), “which allows customers in engaging money transfer, airtime top-up and bill payments using their mobile phones” (Datamonitor, 2010). Finally,Vodafone stands to gain greatly from its strong market positioning in the Indian telecommunications market.India is one of the least penetrated markets when it comes to telecommunications services. At present India has more than 600 million registered subscribers (making it the second largest market following China). By 2015 estimates place total subscriber figures at one billion. Being the country’s second largest telecommunication services provider, Vodafone finds itself in a privileged position to capitalize on this highly attractive opportunity.
Finally, this initial assessment of Vodafone’s current market situation must also take into account the potential threats that it faces. The first major threat lies, of course, in the market’s increasingly intense competition. The telecommunications market is highly competitive given that technology is rapidly evolving, and that the focus changes just as rapidly (as companies must rapidly shift from customer acquisition to customer retention). Today the company faces significant competition from other major providers in each of its operating market, including the following: AT&T (United States); Deutsch Telekom (Germany); France Telecom (France); Telefonica (Spain). As well, it is worth noting that the increased competition has resulted in lesser profit margins given the steady decline in average airtime prices.
A second major threat that management must address has to do with the market’s regulatory environment. Each market has its own set of regulations, and Vodafone is obliged to comply with each market’s regulations in full. This constitutes a threat for Vodafone’s ambitions given that sudden changes in regulation may very well affect pricing strategies, sales, operations, etc. Thirdly, there is also the problem of matured markets. Even though markets such as India have a massive penetration potential (which stands to increase company revenues significantly), the same is not the case for other markets where Vodafone has a strong presence, especially in Europe. 67% of the company’s revenue comes from mature markets with high market penetrations, which means that there are limited growth prospects in such markets (InfoCom, 2007). The only way for the ocmpany to continue growing in such markets is to differentiate its services, which may ultimately increase development and operations costs, as well as decrease revenues and profits.
Having completed a succinct assessment of Vodafone’s current situation (highlighting its strengths, weaknesses, opportunities, and threats), it is necessary to discuss the organization and management structures that have allowed the company to rise to the top of the global telecommunications market. Following this line of thought, the first thing that must be said is that the company has historically been characterized by following a hierarchical structure. In hierarchichal organizations, all of the organization’s entities (departments or groups) are subordinate to one higher entity that is subordinate to no one. Looking at Vodafone Group’s organization structure (presented below) it becomes clear that the company is organized following a hierarchical structure (as all o the company’s groups are subordinate to the group’s CEO, which in this case is Vittorio Colao).
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Vodafone Organization Structure (Vodafone Group, 2012)
Looking at the company’s organizational chart, it can be seen that group’s CEO is in command of all other dependencies. Furthermore, it becomes clear that there is only one dependencies that handles all business operations in Europe, and one that handles all business operations in Africa, the Middle East, and Asia Pacific. It seems clear that the company is structured in a way that ensures accountability (thus promoting efficiency); all groups are accountable to the company’s Chief of Staff & Internal Communications, and to the group’s CEO (including the Chief of Staff).
Following a hierarchical structure has proven quite successful for Vodafone throughout its history, but in recent years it becomes evident that the company has pursued a flatter organizational structure. In order to foment efficiency, management has attempted to level the company’s structure so that all employee’s have enhanced access to management. In other words, within the company efforts have been exerted in equalling all levels so that communications can be enhanced internally, thus promoting efficiency, productivity, economy, growth, and development (Bratianu & Orzea, 2011). The organizational chart evidences this tendency by the fact that all national operations (meaning all of Vodafone’s offices) have been grouped into single level units (as is the case with Europe on the one side, and of Africa, the Middle East, and Asia Pacific on the other).
Management still pursues a structure that allows for accountability, but in recent years the need for flexibility in the company’s structure has become evident. In order to compete, the company must be more flexible, and it must engage its employees (across all levels) to become more committed to the company’s goals and objectives. Specifically, top level management has focused on developing a structure (and accompanying strategy) that is directed at developing its interests in the emerging markets (primarily in Asia Pacific, the Middle East, and Africa). Vodafone Group begins to realize (as it was mentioned earlier) that even though Europe is at present its primary source of revenue, the European markets are mature and the potential for enhanced future growth is greatly limited. This is why decisions were made to split operations management between two majoor blocks: Europe; Africa, Middle East, and Asia Pacific.
Analyzing the changes that Vodafone’s management has realized in trying to enhance efficiency, productivity, and growth, it appears that the company has shifted from a plain hierarchical structure and is becoming to articulate more of a divisional organizational structure. Under such an organizational structure, an organization is divided into several teams or groups, each focusing on a single product or area. Such kind of structure is advantageous given that it allows for labor specialization, thus harnessning maximum efficiency without sacrificing leadership (given that the structure does contemplate a leadership structure that supports major strategic objectives, just like in hierarchical structures) (Bombaci, n.d.). Vodafone’s organizational structure has been divided into nine areas: Europe; Africa, Middle East, & Asia Pacific; Strategy & Business Development; Group Technology; Group Finance; Group HR; Group Legal; Group External Affairs. Each of these areas functions independently, but they are all subjected to the leadership provided by the Chief of Staff, and ultimately, the CEO. This approach to reorganizing the company’s organizational structure has proven quite successful, insomuch it has allowed the company to develop independent strategies to increase market penetration in emerging markets (particularly in Asia), as well as to enhance technological research and development (in order to offer better services that are more appealing to customers, including 3G technology and the company’s money transfer service).
A third important factor that must be considered when making an assessment of Vodafone’s management and how it has contributed to enhancing the company’ success in recent years is the company’s value chain. Simply stated, a value chain involves a “number of players in a chain of value adding activities that terminates with the customer” (Barnes, 2002). In other words, a value chain is a group of activities, each of them performed by a different player/party (company/organization) that performs a gien task that creates value. Vodafone is heavily involved in the mobile commerce value chain, and in analyzing this value chain there are two major components that must be explained: infrastructure/services and content. First, when talking about infrastructure/services, there are three elements that must be considered: mobile transport; mobile services and delivery support; mobile interfase and applications. Second, when talking about content, there are three additional elements that must be considered: content creation; content packaging; market making.
These six elements are all part of the mobile commerce value chain of which Vodafone is a player/participant. Of course, upon analyzing these elements and the activities that Vodafone carries out in order to offer its telecommunication services throughout the globe, it becomes clear that it is heavily involved with each one. First, mobile transport refers to mobile communications technolgogies (including GSM and 3G technolgies that Vodafone uses and develops). Second, when talking about mobile services and delivery support, reference is being made to all mobile services that allow for enhanced communications and other such applications that facilitate user’s daily lives. A great example of such a service would be Vodafone’s money transfer service. Third, when talking about Mobile interfase and applications reference is being made directly to the mobile phone technologies that the company works with (eg. Samsung, Nokia, Apple, etc.). This equipment is quintessential for the company’s operations, and even though the company does not directly fabricate it (but actually distributes it), it is a fundamental element in Vodafone’s operations.
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Fourth, when talking about content creation, reference is being made to all content that is exclusive to Vodafone users (for example, daily horoscope, jokes, news updates, etc.). Content packaging refers to all of the content that is ultimately included in the telecommunications services offered by Vodafone to its customers around the globe. Naturally, the services offered in India will not be exactly the same as those offered in Spain, or like those offered in the United Kingdom. Each of the company’s markets will have its own content needs and wants, and so the company strives to deliver on those needs and wants. Finally, when talking about market making, reference is being made to the end services that are offered to final customers. In Vodafone’s case, this refers mostly to mobile communications (cellular phone technolgies), including two trademark services (mobile money transfers and mobile healthcare).
It becomes clear that in Vodafone’s value chain IT solutions rapidly gain in terms of importance and need. In order to remain competitive, the company relies on its ability to enhance IT solutions into its products, so as to enhance communications and offer complementary IT services that appeal to customers around the globe. The company recognizes this trend, and so in recent years management has strived to harness IT solutions technology in the deliverance of a more advanced, comprehensive, and user friendly service. This can be seen by the fact that the company has focused on expanding its 3G penetration around the globe, and by the fact that in recent years complementary IT services such as money transfer and mobile healthcare have been developed.
Based on all that has been throughout this paper, it becomes clear that the Vodafone Group is a storng company that throughout continuous innovation and enhancementss (both in organization structure and value chain analysis) has managed to firmly establish itself in all of the markets it operates in. Today the company is one of the leaders of the global telecommunciations markets, but as it was seen, increasing competition forces the company to continue its research, innovation, and commitment to efficiency. This is the only way in which the Vodafone Group will manage to harness growth and development in upcoming years.
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