The Concepts of Strategic Fit and Strategic Drift - Case Study Example

STRATEGIC MANAGEMENT Name Institution Course Date of Submission Vodafone Strategic Capabilities Generic Strategies The new strategy of Vodafone group is to deliver a more valuable Vodafone. Generic strategies are the core ideas that a company can implement. Vodafone group has implemented the differentiation strategy. Vodafone is using this strategy with an aim of building customer loyalty. Although this company has been faced by stiff competition in both emerging and developed markets, it has implemented differentiation strategy but not cost leadership[Ala111]. It has focused on diversifying its business portfolio through creating new value-added services in order entice existing and new customers. Grand Strategies A grand strategy is a comprehensive general approach that directs a company’s principal actions. Vodafone group has combined a number of grand strategies due to its multiple geographic locations, services and products portfolio, and customer groups. The grand strategies employed by the company include turnaround, strategic alliance, joint venture, and horizontal integration. Vodafone group has expanded its global presence through strategic alliances, joint ventures and horizontal integration in compliance with each local regulatory, norm, and culture requirements. The company has formed strategic alliances with both non-telecommunications and telecommunications businesses. For instance, the company has developed strategic alliances or partnerships with Levnvo, HP, Dell, and Acer to incorporate in the manufacturing level so as to implement a built-in SIM supporting HSDPA technology (Brydon, 2009). The company is employing turnaround strategy by increasing the debt ratio as a result of its aggressive global expansion. Vodafone has also given investing in existing businesses higher priority so as to improve ARPU from existing customer base and it is also expanding it businesses to new markets that can deliver immediate turnaround instead of high returns in the long term. Therefore, the company has implemented turnaround strategy and initiated “one Vodafone program” to attain contoured cost efficiency and effectiveness as a way of improving the bottom line performance. PESTEL Analysis Any operating business is affected by factors which are either arising from within the organization (micro-environmental factors) or factors which may be arising from outside (macro-environmental factors)[Gil07]. Micro-environmental factors are categorized using the PESTEL model. They include the following; "Political, Economic, Social, Technological, Environmental, and Legal factors". PESTEL analysis will help in understanding of macro-environment which regulates the mobile operators industry in United Kingdom. Economic Factors Recently, most companies have been confronted with slower growth than ever in rapidly and volatile changing global markets. Vodafone group has also been hit by this, and it has not been sustainably growing in some markets. According to IMF (2010), the European market growth was projected at 1% and 1.3% in 2010 and 2011 respectively, but Vodafone group has highly relied on saturated and slower growth European market probably due to heavy mobile subscriber penetration with some countries having 150% penetration. The average revenue per user (ARPU) in most regions of its operation has been slightly decreasing. However, in some markets such as Indian, IMF (2010) projected the market growth at 9.4% and 8.4% in 2010 and 2011 respectively. As one of its four main objectives, Vodafone group has improved performance in emerging markets since 2009. In 2009, the service revenues in the market grew by 14.7%, and Indian mobile market, which is the second largest market in the world, is the key market for Vodafone group. Economic growth, interest and inflation rates have an influence on the mobile telephone operators industry. In cases where inflation is being experienced, normally a lot of money is used in chasing just a small quantity of goods or services. The employees are always out seeking for high salaries bringing to unfavorable business environment. Global recession made most of the companies in the industry raise their prices. UK economy has been put into deep recession by the global economic meltdown. Public finances in the UK have greatly been influenced by the global economic crisis. Policy makers and investors are worried by the increasing deficit ratio on GDP in UK which have reached 13%. National debt rate official reports states that it is about 68% of GDP and is accelerating at an alarming rate. Four years back the national debt ratio was only 38%, and it now seems it might exceed 100% in the next three years (Global Economic Crisis, 2010). Purchasing power of the general population has been lowered by the numerous job losses which are currently experienced in UK. Mobile telephone market will directly be influenced by such an economic scenario and its growth in the country will be adversely affected[GJa09]. Different companies will try to keep their competition alive by offering limited time offers. In fact, this is what happening with many companies in this industry. Deterioration and adverse macroeconomic conditions in global economic environment such as the slowdown in UK market is more likely to result to low level of demand for new and existing products and services[SAb10]. As a result of the difficult economic conditions, most consumers will reduce discretionary spending by decreasing their usage of Vodafone services and products or either by switching to low cost alternatives offered by other operators[Vod111]. Political Factors In formulating and implementing its strategies, Vodafone group has to consider political factors that may affect its operations in different regions. It has to comply with each country specific regulatory, tax and legal environments. Vodafone has also to abide by an extensive range of requirements that supervise and regulates the allocation and licensing of frequency spectrum. Vodafone (2010) argues that decisions by regulators concerning granting, renewal or amendment of licenses, to Vodafone or to third parties, might undesirably affect their future operations. For example, the multi-year spectrum policy program introduced by the EU recently might adversely affect Vodafone operations. These are the factors which are with the accordance of how the government is involved in the business activities. Government may want to control the products which may otherwise be dangerous in hands of ordinary citizens. Government should also be involved in the provision of services such social amenities. Government is also involved in subsidizing some products which are produced by individuals, in order minimize the production cost which will be reflected in the product or services offered prices. The political factors of mobile telephone operators industry are always that the government gets involved on the industry. There are always restrictions on the phone and tariffs that the industry can produce and all new technology must strictly follow set of government rules. Political conditions in the UK promote deregulation. Consequently, a lot of competition has developed in the market creating for choices for the buyers. Correspondingly, deregulation from European Union front will result to new competition in the UK market from leading mobile telephone operators in Europe (Bitchta, 2001). Vodafone value customer relationships a lot and due to this it is willing to change their approach of unit pricing and unit based tariffs to propositions that deliver much more value to customers[Ivy09]. They are focusing on this issue in order to attract customer royalty, incremental penetration of the account or balanced commercial costs. A more disciplined approach to commercial costs is therefore required in order to ensure that the company investment focuses on customers with higher lifetime value[Tel11]. Through this, Vodafone will be in a position to deliver more value added services to customers and in return have a better financial outcome. Social According to the latest figures, more than seventy mobile phones have now been registered with Vodafone leading in number of subscribers[Rob09]. These figures are showing an increasing trend each year making mobile and services provider companies to be offering the most successful consumer product ever. Use of mobile phones sometimes also contributes negatively to the society. For instance, mobile phone usage trigger a rise in crime, but service providers like Vodafone have implemented methods of preventing the usage of stolen phones again[Vod121]. Since Vodafone is offering this service, this will increase customer royalty as well as reducing mobile phone stealing cases as no one will be interested in stealing a device that will never be used. The following table indicates figures of Vodafone UK mobile subscribers and percentage quarterly change from 2007 to the second quarter of the year 2011: Fig 1: Number of Vodafone subscribers in UK Source: http://www.telecomsmarketresearch.com/resources/Vodafone_market_research.shtml Technology With its capability to adapt to new information and communication technologies (ICT), Vodafone has created value-added services such as cloud computing and Vodafone 360 services. Technological advances have led to the creation of new products and new services being offered to the market. Technology over the past years since the invention of the human intelligence and computers, it has been a very dynamic factor which influences the products produced or services rendered. Mobile telephone operators depend hugely on technology. Therefore, the development of new technologies influences the overall outlook of this industry. Consequently, companies operating in this industry employ new technology innovations to create a competitive advantage over their competitors. Therefore, it is necessary for all companies operating in the industry to be proactive in anticipating changes in technology for the company to endure in the market. Several changes in technology are expected to occur in this industry which will completely revolutionize this industry. For instance, internet speed is expected to change as the technology advances. Such changes will directly influence the market and operations of mobile telephone industry. CDMA technology is much far better than the GSM technology, and there are many reasons why it is considered to be the best choice for next generation digital wireless communication services and products. Some of the benefits of CDMA technology include outstanding call and voice quality; packet data; greatest coverage for lower cost; longer battery life, longer talk time and smaller phone; fewer dropped calls; improved privacy and security; greater capacity; reduced interference and background noise; rapid deployment; wide product selection; and continuing technology advances[Vod11]. Mobile networks providers in EU are not allowed to use CDMA despite the huge capabilities it possesses[Vod10]. Vodafone UK being one of the mobile network providers in EU it does not use CDMA and neither does it support CDMA roaming. The EU should reconsider this and allow mobile network providers to use this technology. Environmental Factors Mobile telephone operators industry is unlikely to be affected by environmental factors due to the fact that it does not directly or indirectly alter the environment. An issue that can be considered to be an environmental factor that affects this industry is the effect of environment on signal strength. Some environmental conditions weaken the signals received by mobile phone devices. As a mobile telephone operator industry, it is good to ensure that there are enough base stations (boosters) around the region of operation so that your signal is not affected adversely by the environmental conditions. Consumers will always go for an operator whose signal does not fluctuate a lot. Economies that rely mostly on agriculture will certainly be affected by environmental conditions. This is another environmental issue which will affect mobile telephone operators who are offering global operations. Economies that will be affected drastically be environmental conditions will contribute negatively to this industry. Therefore, it is recommended for companies offering services in such economies to be monitoring these trends and their impacts on their operations. Legal Legal factors are associated with the legal environment in which companies operate. They include deregulation measures adopted by the government. Such measure will directly affect many issues within the mobile telephone industry such as governing rules, company’s cost and demand. Furthermore, it will also influence the level of competition within the industry. According to Gallacci (2006), mobile telephone operators industry is expected to witness a lot deregulation in the coming years. Vodafone is intending to cut over 130 jobs from its workforce globally[Ger11]. Due to this, workers are threatening to take a legal action against them if they decide to retrench them. The legal action will definitely have an impact on all it companies worldwide including Vodafone UK. It might also kill employees’ morale since they will never be certain whether their job positions are secure[Ger11]. SWOT Analysis Operating Environment The company’s presence in more than 70 countries ensures that it has diversified revenue base to withstand current economic recession. The Vodafone brand is considered to be the most recognizable global telecommunications brands and the company takes advantage of the brand recognition to penetrate to new markets. Vodafone group is also a market leader in developing services and products. The company has employed differentiation strategy rather than cost leadership while leveraging its diversified geographic footprint and its brand recognition. Nonetheless, Vodafone has faced strong competition across global markets. Its major multi-national competitors include Telefonica’s O2, Deutsche Telekom’s T-Mobile, and France Telecom’s Orange. The company is also facing stiff competition in European markets from mobile operators such as KPN in Netherlands and TMN in Portugal. Its performance in European market is not good as compared to its rivals especially in Spain, Italy and Germany. The company is also facing stiff competition in its key Indian market where currently is ranked as third after Bharti Airtel and Reliance. The SWOT analysis of Vodafone can be summarized as follows: Strengths The largest geographic footprint The ability to adapt the advanced ICT Group technologies Strong brand recognition Weaknesses Financial instability Underperformance in key markets Weak domestic position Opportunities Value added products and services Fixed-mobile convergence Mobile broadband Emerging market growth Threats Exposure to the economic slowdown and maturing markets Stiff competition Regulation TWOS Matrix Opportunities (external) Threats (external) Research and development on new technologies like 4G and 3G Entry of new competitors in the market Focusing on flexible services such as email and data services (internet access) Volatile financial markets Strengths (internal) S-O Strategies S-T Strategies Entering UK’s iphone market and challenging price with competitors Using their strong network infrastructure to offer quality data services (high speed internet access) Product diversification; that is, focusing on unique products and services that will counter stiff competition. Network infrastructure and Strong in Cities Weaknesses (internal) W-O Strategies W-T Strategies No Network in Rural Areas Improve penetration of new technologies such as 3G to remedy its poor connectivity in rural areas Make use of advanced technologies to attract more users as they counter competition Less exposure to emerging technologies Porter 5 Forces Analysis a) The threat of the entry of new competitors Online companies such as Amazon, Google, among others, have attempted to redefine their industry boundaries; thus they, are perceived as new competitors in telecommunication. Threat of new entrants in English mobile telephone operators industry is significant because there is still potential growth in this industry. However, there are some factors which reduce the level of this threat. They include huge initial capital investment required to start a mobile telephone operators company, existing companies enjoy economies of scale, and customers are royal to the existing brands. b) The threat of substitute products or services Vodafone group has endlessly broadened their horizons by introducing new products and services so as to meet its customer’s communications needs. Some of the services which the company has diversified include fixed line solution, data, traditional mobile voice and messaging, and other value added services. These services have a significant impact on Vodafone business as they account for a higher percentage of the total revenues. VoIP (Voiceover IP) is considered to be a substitute for mobile voice services, but Vodafone group has not fully embraced the VoIP services. One reason attributed to decrease in its ARPU is the growth of VoIP which the company has not embraced. To compete with VoIP services, Vodafone has focused on diversifying its products and services portfolio as well as launching new value-added services rather than focusing on cost leadership. The threat of substitution is very high as a result of low switching costs, presence of similar products and services, and ease of access to product information. Nonetheless, companies make use of emerging technologies to create competitive advantage over their competitors. c) The bargaining power of customers Vodafone group customers tend to be more price-sensitive in both emerging and developed markets. The company continues to rely on European markets, which have higher mobile subscriber penetration, but ARPU in all the regions it operates has been decreasing. For instance, in Indian mobile market which is its key market, ARPU has continued to decrease in spite of subscription growth. Customers of the mobile telephone operators industry enjoy significant bargaining power. As a result of regulation nature of the industry, there is a stiff competition between rival firms. Customers benefits from this competition because they are offered different products and services at relative prices. d) The bargaining power of suppliers Key suppliers of Vodafone group are handset manufacturers like Motorola, Nokia and Samsung, and network equipment manufacturers like NokiaSiemens, Alcatel-Lucent and Ericsson networks. Chines entrants have reduced the bargaining power of these suppliers due to cost differences. To maintain its operation in good form, Vodafone group has enhanced its bargaining power to key suppliers while focusing on “one Vodafone” program to integrate business activities to leverage economies of scope and scale. Supplies of this industry include companies providing the mobile operators with technology infrastructure needed to establish mobile operations within the nation. Mobile telephone manufacturers are also suppliers for this industry. There are numerous suppliers of this industry; therefore, their bargaining power is moderate. e) The intensity of competitive rivalry The Vodafone group is experiencing high intensity of competition. Rival firms make use of non-priced and priced strategies to create competitive advantage over their rival firms. A clear indicator of stiff competition is the level of budgetary allocation for advertisement and marketing purposes. References List Ala111: , (Brydon, 2011), Gil07: , (Gillespie, 2007), GJa09: , (Jayalakshmi, 2009), SAb10: , (Abhijeet, 2010), Vod111: , (Vodafone Group, 2011), Ivy09: , (Ivy Thesis, 2009), Tel11: , (Telecomsmarket Research, 2011), Rob09: , (Abdul, 2009), Vod121: , (Vodafone Group, 2012), Vod11: , (Vodafone, 2011), Vod10: , (Vodafone Group, 2010), Ger11: , (Adams, 2011), Read More