Strategic Analysis of Vodafone australia.

3.2 The Industry

The longevity and profitability of Vodafone Australia is reliant on the industry’s competitiveness, emerging issues and lifecycle. Using Porter’s Model of Competitive forces (see appendix 1) to view industry competitiveness, it can be said that the threat of new entrants is relatively low. This is due to the many entry barriers such as the need for high capital expenditures to establish network infrastructure and facilities. In the case of Vodafone, an investment of $2.7 billion was required to setup its operations. Furthermore, there are high overhead costs like administration and customer service staff. Finally, competitors need a global presence to generate synergies and provide extensive coverage for consumers.

The second competitive force looks at industry rivalry. At present, the industry is dominated by a few firms (Telstra, Optus and Vodafone). These firms are all large in terms of cash flow, global presence and customer base. Moreover, the technologies and services they offer are comparable. Hence, all three are intensely competitive in a bid to increase market share. Indeed, price wars have become commonplace with the high handset subsidization and the continued repackaging of services at cheaper rates reaching unsustainable levels.      

As seen in appendix 2, there are three main services, which act as telecommunications substitutes. Vodafone operates predominantly in the mobile sector with some dealings in data services, while both Telstra and Optus operate in all three areas.  Another threat from substitutes arises as competitors provide consumers with mobile phone plans as a service offering while Vodafone offers a "no plan” alternative.

The bargaining power of customers is relatively high due to the availability of similar products and services from other major carriers. In addition, the telecommunications consumer market in known to be price sensitive, being easily swayed by lowering prices and increasing handset subsidies while also being hesitant to adopt new services and products given the higher cost of new technology. Meanwhile, the bargaining power of suppliers is low given the fact that the major carriers own their own network infrastructure and supply their own services.

Finally, there is a medium influence from regulators. Since 1997, telecommunications became a deregulated industry. However, carriers are still held accountable by groups like the Australian Competition and Consumer Commission (ACCC) which has been concerned over monopolistic behaviour, and the Australian Communications Authority which has the authority to fine carriers $1 million a day for system breakdowns. Finally, the government continues to intervene on issues such as the role of carriers in the fight against mobile phone crime. Consequently, the industry faces a medium level of regulation from many interest groups.  

The culmination of these six factors suggests that the industry is highly competitive. These also indicate that the industry is in the mature stage of its lifecycle (as depicted in appendix 3) with this explaining two observed trends.  The first is its consolidated state, meaning it is dominated by a few firms who struggle to differentiate their offerings. The latter is evident given the already stated similarities between Telstra, Optus and Vodafone. The second trend is the declining rate of sales growth, a probable plateau effect from the industry’s high market penetration with 63% of all Australians owning a mobile phone. Thus, the industry’s high competitiveness and mature state has possible negative implications on Vodafone’s profitability and market share. In order to combat this, an assessment of emerging issues must be made to ensure that Vodafone’s corrective actions are concentrated on important areas.

The issues priority matrix  (appendix 4) shows that Vodafone and the telecommunications industry face several major issues. The increasing use of wireless applications is of particular importance to Vodafone given the fact that the company specialises in this field. As one article states, wireless services appeal more to business clients who can use it as a faster and more convenient solution to business operations. However, Telstra currently targets large business clients and as such the small to medium business market is a source of opportunity for Vodafone. Other important issues include the high turnover of customers due to their price sensitivity and the emergence of 3G technologies, which may cause existing network infrastructure to become obsolete.

3.3. The Company’s Suitability to its Environment

The analysis of the company, its objectives and external environment reveals a conflict between Vodafone’s objectives and its business setting. As stated previously, its objective to pursue market share places the company in direct competition with the industry leaders, Telstra and Optus. However, given the already high level of market penetration and the saturated nature of the industry, it is unlikely that Vodafone’s market share will rise. Furthermore, Vodafone’s strengths lie in providing expertise services and technologies to smaller niche markets and it is in this light that another contrast can be seen between it and its pursuit of broader market share. Thus, a change is needed in Vodafone’s objectives and strategies to ensure that its strengths are aligned with any potential market opportunities.

 

4. Conclusion

It can be seen that the firm’s future profitability is jeopardized given its current poor performance. Corrective actions must be taken to combat rivalry and improve its competitive position in terms of market share and revenues. Upon looking at the major issues facing the industry, a possible course for this corrective action has been identified with wireless business solutions targeted at the small to medium business niche (see appendix 5). The importance of this business niche is compounded by high levels of rivalry and the maturing markets, both of which lead to possible price wars. In this situation, Vodafone does not have the cash flow or market share to sustain its competitive position and thus benefits from pursuing markets not covered by either Telstra or Optus.

5. Recommendation

5.1. Two-Pronged Strategy 

The BCG growth matrix (appendix 5) shows that wireless applications possess ‘Star’ potential with a high competitive position and an ability to generate enough revenue to maintain its market share. The matrix also shows that mobile services fall under the ‘cash cow’ category as a valuable source of revenue for Vodafone, but with little chance for future growth. Thus, it is suggested that Vodafone pursue a two- pronged corporate growth strategy, which seeks to develop the small to medium business niche with wireless technology as well as build brand loyalty amongst existing consumer mobile services markets. The objective for the former is to provide innovative solutions for the mobile office and to make wireless applications the predominant product of choice within this niche. Meanwhile, the objective for the latter is to build long-term customer relationships and is measured through increases in revenue per client.

The benefit of wireless technology is that it allows for telecommunications without the burden of cable infrastructure or using wires and chords. The latest use of such technology is called “Bluetooth” which forms a data connection between electronic devices such as a mobile phone and a computer through a short- range radio link. However, there are obstacles to overcome in the development of such applications. Firstly, the technology and service behind it needs to be more user friendly so that consumers can switch from landlines to wireless services with greater ease. Secondly, there have been concerns over data security with the potential for outside parties to access confidential information while it is in transmission. These shortcomings must be monitored and dealt with by Vodafone’s product innovation teams.

On a business level, the two- pronged strategy requires Vodafone to engage in competitive behaviour, targeting its business niche with a focused differentiation approach and the consumer markets with a differentiation approach. Focused differentiation involves concentrating on meeting the needs of the businesses and creating a sense of uniqueness through offering their expertise in wireless technology. Here, bypass attack tactics can be employed to boost the perceived benefits of wireless services while simultaneously rendering competitor’s offerings as unnecessary and obsolete. On the other hand, differentiation aims for Vodafone to appear unique from its competitors with the suggested use of guerilla tactics to achieve this. This tactic enables Vodafone to intermittently attack competitors, saving the company financial resources compared to a continuous attack.

5.2. Strategy Implementation

The realisation of the above-described two-pronged strategy involves installing and completing programs, budgets and procedures. These three activities must involve open communications at Vodafone and integrating efforts between senior and middle management as well as staff members to ensure the success of the strategy.  

Three programs have been devised based upon the identification of crucial activities needed for strategy implementation. The first is a restructuring program to establish a wireless business division, which services and monitors the business target market. This division needs to be given a high level of priority and be integrated into the company structure as one of its core business units. The division should be focused on continued analysis of market needs, generating wireless innovations to meet these needs and superior service to assist in solving business problems. The second is an advertising and promotional program to a) heavily position wireless technology as superior to landlines in terms of its benefits to the business sector and b) appeal to existing retail consumers to build brand loyalty. The third is a training program aimed at educating staff on wireless technology and how to best cater to the needs of business consumers. This training program should be regularly conducted, updated and given to all levels of company members.  

The establishment of these programs must take budget constraints into consideration. Given the large size and cash flow availability of Vodafone, it can be said that the budgets here allow for the best avenue for strategy implementation to be pursued. Nonetheless, consideration needs to be given in regards to the costs of setting up wireless infrastructure, setting up a new wireless business division, training staff and advertising and promotions. These costs then need to be compared against expected revenues to generate a forecast on returns of investment. One method for obtaining expected revenue figures is to look at the pricing levels and performance of US or UK wireless technology firms. A budget can then be established by dividing the costs and revenues over the 3-year life span of this strategic plan to look at how resources will be distributed for each of the programs. The budget should take into consideration here the higher start up costs expected in the first year of the plan and the lowered costs towards its end due to company synergies and progression along a learning curve.

Finally, procedures need to be formally written to ensure that the day-to-day operations of the company are in accord with the strategy. Firstly, procedures need to focus on how the continued monitoring of the target market will be done. Here, it is recommended that regular surveys be conducted; feedback from sales and service staff are recorded and that consumer complaints are noted and acted upon. Secondly, issues surrounding how business consumers will be serviced need to be addressed. To ensure superior service, it is recommended that clients be served by the same staff member/s each time, an information system is setup to record client details, timely check ups on clients are conducted and that an online troubleshooting service be initiated. Thirdly, procedures for the carrying out of advertising and promotional activities are needed. A time line for these activities must be drawn so that deadlines can be seen.

5.3. Strategy Control and Evaluation

The evaluation and control process will ensure that Vodafone achieves its strategic objectives. Strategic control will alleviate the current mismatch between Vodafone’s strategy and environment, allow sharper focusing on objectives and provide early warning of problems. The evaluation and control process, as it applies to Vodafone, is set out below.

1. Determine what to measure – the implementation process and results will be monitored and evaluated. This includes the implementation progress and performance of the new wireless business unit, how effective the new advertising campaigns are, revenue per customer, ROI (return on investment), new signups – both consumer and business, and customer turnover.
2. Establish standards of performance – measures of performance that are acceptable to Vodafone strategic objectives. Both behavioral and output controls should be used.
3. Measure actual performance – measurements must be made at predetermined times. In the early stages of the strategy, this should be done every six months.
4. Compare actual performance with the standard and if actual results are within the desired tolerance range, the measurement process stops here.
5. Take corrective action if the actual results fall outside the desired tolerance range. The reasons for the deviation must also be assessed.

While setting controls Vodafone it is essential that not only short-term measures are used, but also long term measures, such as customer turnover, to reduce or remove short-term orientation at the expense of the long-term viability of the firm. As well as financial measures, non-financial measures should also be used, as suggested by Kaplan and Norton, in a balanced scorecard approach that uses financial, customer, internal business perspective as well as innovation and learning as key performance measures. For Vodafone, further performance indicators should include market share, percentage of new sales coming from new products and time to develop new, innovative products. The board of directors could also use management audits in evaluating management’s handling of corporate activities and their meeting of goals and strategic objectives. Vodafone should also use benchmarking against firms such as Telstra, Optus and other wireless data firms, provided that there is an accessible set of available information against which to benchmark.

6. Reference List

Author not available (2002), ‘Take picture with mobile’, p80, Adelaide Advertiser, 3rd Sept

Author not available (2002), ‘Vodafone linked to ring-in streakers’, p1-2, Timaru Herald, 6th Sept

Author not available (2002), ‘Poor service signaled’, p5, Manly Daily, 25th Aug

Author not available (2002), ‘Telstra hails 5-to-1 win ratio, p88, The Daily Telegraph, 5th Aug

Author not available (2002), ‘Competition for MMS innovation’, p29, The Australian,,  27th Sept

Booth, M (2002), “$1.3bn Taken Off Vodafone’s Bill”, Adelaide Advertiser, May 29th.

“Company History”, , accessed September 2002.

 

Elliot, G (2002), ‘Trim Vodafone still caught in pincer: analysts’, p27, The Australian, 29th May

Elliot, G (2002), “Vodafone Flounders, Vows to Sail on”, The Australian, January 31st.

Gale, G (1999), “Australian Government Wants Answers on Mobile Phone Theft”, Newsbytes News Network,  Government…on Mobile phone theft.findarticles.com/cf_dls/mONE.html

 

Lester, L (2001) , “The Big Guys Will Fight to Defend Market Share”, Australian Financial Review, September 19.

Moloany, D (1998), “Australian Users Toughen Up as Regulation Kick in”, Communications Week International,

Osman, R (2002), “Price of MMS Handsets May Bar Quick Uptake”, Australian Financial Review, June 9th, p.27.

“Vodafone Returns to its Core Business”, Australian Business Intelligence, , accessed 16/9/02.

Wheelan, T & Hunger, J.D (2000), Strategic Management: Business Policy 7th Edition, Prentice-Hall: New Jersey

Wood, A (2002), “Vodafone Calls Up Wireless Growth”, Sydney Daily Telegraph, July 19

7. Appendices

Appendix 1: Porter’s Model of Competitive Forces

Appendix 2:

Adapted from: Australian Bureau of Statistics (1999) “Telecommunications Services”

Appendix 3: Australian Telecommunications Industry Lifecyle

Appendix 4: Telecommunications Issues Priority Matrix

Probable Impact on Vodafone

Appendix 5: BCG Growth-Share Matrix

Appendix 7: Letter to Vodafone Australia.

To whom it may concern,

We are final year commerce students from University of Adelaide. We are currently undertaking a Strategic Management research project involving your company. As such, we have several questions we would like to ask regarding your company. Your prompt response would be greatly appreciated.

These questions are as follows: (we were unable to find references to these on the websites)

1. What are your organizational mission objectives and strategies? ( e.g. Is your strategy to increase market share, revenue, or develop new markets…etc…)
2. How are you targeting your Australian market specifically? Are there any cultural barriers that you have encountered in Australia?
3. It appears that you are focusing on the youth market. Is this a major organizational strategy? How important is this market, and how are you targeting this market within Australia?
4. Recently, Vodafone Australia has divested its infrastructure divisions. Why was this so? Was this part of a larger corporate strategy?
5. How did the de-regulations in the Australian telecommunications industry affect Vodafone’s company structure and its operations?
6. What is your organizational structure i.e. how are divisions set up and managed?
7.  How effective do you think is your sponsorship are in relation to company image, target market positioning, and corporate strategies?
8. What plans have been made to directly combat competition from major industry players such as Telstra and Optus?

Thank you for the time taken to answer these questions regarding the internal operations of your company.

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