vodafone business performance measures
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Running Head: Business Performance Measures in Vodafone Group
Business Performance Measures in Vodafone Group
Toru Sekiguchi
August 8th
, 2010
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Table of Contents
Title Page…………………………………………………………………………………............ i
Table of Contents…………………………………………………………………….................. ii
Abstract…………………………………………………………………………….................... iii
1. Introduction…………………………………………………………………………………. 1
2. Building a coherent set of performance measures………………………………………... 2
2.1 Performance Measures………………………………………………………….... 2
2.2 Balanced Scorecard………………………………………………………………. 2
2.3 Key Performance Indicators……………………………………………………... 3
3 Application of measures of performance………………………………………………….. 5
3.1 Balanced Scorecard Approach in Vodafone Group ………………… ………….. 5
3.2 The application of the Balanced Scorecard to Vodafone Group ………………... 5
3.3 Customer Perspective…………………………………………………………….. 7
3.4 Financial Perspective…………………………………………………………….. 8
3.5 Learning and Growth Perspective…………………………………………………9
3.6 Business Process Perspective………………..…………………………………… 9
4 Analyzing and Interpreting results………………………………………………………. 11
4.1 Balanced Scorecard Analysis………………………………………………….... 11
4.2 An Actual Value versus a Target Value …………..………………....………… 11
4.3 An Actual Value versus a Series of the Previous Values of the same KPI…….. 13
4.4 The Actual Values versus Industry Norms……………………………………... 13
4.5 Regression analysis……………………………………………………………... 14
5 Building a monitoring system…………………………………………………………….. 18
6 Continuously improving organizational performance………………………………….. 21
7 Conclusions……………………………………………………………………………….... 23
8 Bibliography………………………………………………………………………….......... 24
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Abstract
A business performance measure is a critical function that provides strategic, steering, and
operational management with business intelligence in order to make better decision. It can also
help an organization to immediately find and address critical issues on the important business
aspects. While business performance measure is widely perceived as a key lever for each
organization to achieve the vision and strategy, the implementation steps definitely vary from
company to company.
Vodafone Group has already implemented the business scorecard approach to manage both
financial and non-financial perspectives due to the inevitable increase in complexity of systems
and organizational structures and continuously changing external factors while rapidly expanding
its business globally through acquisitions, joint-ventures, and partnerships. Its key four strategies
are clearly developed in line with the vision and its own environments, and they are definitely
decomposed into each of strategic objectives. Relevant KPIs have been subsequently defined and
reported both internally and externally. However, most of measures are associated with the
financial perspective and also the absolute values and some other KPIs like ratios should be
developed as proposed in this research. In addition, most of strategic KPIs are strongly aligned
with global and company-wide strategies and Vodafone should clearly define the level of local
stakeholder involvement in the performance measurement. For example, strategic KPIs are only
aligned with global and company-wide strategies but tactical KPIs that strategic KPIs can be
translated into should be developed in line with local specific business environments.
The best practice of Vodafone‟s performance measures is a comprehensive performance
management system, Global Supply Chain Management System. The system has been developed
and implemented by fully leveraging global scale and scope. All internal and external
stakeholders in the SCM community have high visibility to the end-to-end supply chain
management process, and Vodafone Group can find, analyze and optimize performance
degradation immediately with all stakeholders beyond Vodafone Group.
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1. Introduction
A business performance measure is a critical function that provides strategic, steering, and
operational management with business intelligence in order to make better decision. It can also
help them to immediately find and address critical issues on the important business aspects.
While business performance measure is widely perceived as a key lever for each organization to
achieve the vision and strategy, the implementation steps definitely vary from company to
company.
Vodafone Group is the world‟s leading mobile operator with a significant presence in Europe,
Asia Pacific, United States, and the Middle East. Vodafone Group has a truly international
customer base with “341 million proportionate customer base” (Vodafone, 2010a, p. 8).
Vodafone Group has implemented its growth strategy that it expands its business globally
through its subsidiaries, joint-ventures, and strategic alliances. While improving cost and
operational efficiency and maintaining competitive advantages by leveraging global scale and
scope, its strategies and strategic objectives must be greatly complicated in line with both
domestic and global perspectives and also completely different from those of domestic operators.
The objective of this research is to analyze how effectively Vodafone has implemented and
managed performance measures to achieve its objectives while managing both global and local
stakeholder‟s expectations. Building a coherent set of performance measures, application of
measures of performance, analyzing and interpreting results, building monitoring systems and
finally continuously improving organizational performance are discussed in this research.
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2. Building a coherent set of performance measures
2.1 Performance Measures
A performance management is referred to as both corporate performance management and
business performance management. Business performance management is “a framework for
organizing, automating, and analyzing the business methodologies, metrics, processes, and
systems that drive business performance” (Volitich, 2008, p4.).
A performance measure is a critical function that provides strategic, steering, and operational
management with business intelligence. To make better decision, it definitely helps them identify
an impact on their strategies, strengthens and weaknesses, and the bottleneck to successful
strategy formulation and implementation, determine the effectiveness of those strategies, and
monitor and assess the performance against the business strategies and targets. Meanwhile, it is
obviously difficult for management to see what results can be anticipated and what results are
actually achieved without using performance measures. According to Pinterits (2009),
“performance measurement can be defined as the process of qualifying the efficiency and
effectiveness of an action”, and “a performance measure can be defined as a metric used to
qualify the efficiency and/or effectiveness of an action” (p. 29).
The objectives and the degree of sophistication of performance measurements greatly vary
from company to company and each company has developed and adopted different performance
measurement systems in line with each own strategy and strategic objectives. In manufacturing
companies, one of the objectives of performance measurements is to monitor the manufacturing
process to reduce recurring manufacturing problems and maintain high quality standards. In
financial service businesses, performance measurement is a key task of performance and risk
management activities and is used to assess the result of the investment.
Although there are various performance measurement models, an organization should
understand the benefits, risks and critical success factors when it implements the models. Wang
(2009) summarized four key steps in developing the proper performance measures.
Understanding the measurement objective
Adopting a measurement framework
Developing a specific performance measures
Checking a goodness of a measure
2.2 Balanced Scorecard
The balanced scorecard is a coherent set of performance measures that are directly linked to
the vision and strategy, and strategic objectives. It was developed by “Robert S. Kaplan and
David P. Norton, it directs a company to link its own long-term strategy with tangible goals and
actions” (Pearce and Robinson, 2008, p. 202). An organization is viewed from four perspectives
as financial, customer, internal business process, and learning and growth, and each perspective
contains the objectives, measures, targets, and initiatives which are tailored to organization‟s
vision and strategy as shown in Figure 2.1. Pearce and Robinson (2008) analyzed four
perspectives:
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The learning and growth perspective focuses on how well an organization is continuously
improving and creating values. The scorecard insists on measures related to innovation and
organizational learning to gauge performance on this dimension.
The business process perspective focuses on an organization‟s core competences and areas of
operational excellence.
The customer perspective focuses on customer satisfaction that typically adds measures
related to defect levels, on-time delivery, warranty support and product development that
come from direct customer input and are liked to specific customer activities.
The financial perspective focuses on how an organization is doing well for its shareholders.
A financial performance perspective typically uses measures such as cash flow, return on
equity, sales, and income growth.
The balanced score card methodology enables strategic objectives to be linked with
shareholder value maximization while it is balanced between short term and long term measures,
financial and non financial measures, internal and external performance perspectives.
Performance measurement begins with the definition of KPIs (Key Performance Indicators).
Figure 2.1: Balanced Scorecard
Note: from http://www.balancedscorecard.org/
2.3 Key Performance Indicators
Key Performance Indicators (KPIs) are a set of metrics that regularly assess the health of
each business activity against the strategic and operational objectives. KPIs represent “a set of
measures focusing on those aspects of organizational performance that are the most critical for
the current and future success of the organization” (Parmenter, 2010, p.3).
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The actual KPI values are compared to the target KPI values in the balanced scorecard on a
regular basis while KPIs have changed in response to the business environment changes. The
better the actual KPIs are compared to the target KPIs, the higher the scores in most cases. KPIs
provide an objective feedback and facilitate the objective setting for future performance.
KPIs can be divided into the strategic, tactical, and operational levels. Strategic KPIs can be
directly translated into tactical KPIs and subsequently into operational KPIs, and they are
logically tied with each other through a set of cascading dashboards. “Dashboards can be
configured and personalized to provide strategic, operational and tactical views of the
organization, processes, services, and activities” (Smith, 2008, p.30) in line with each decision
making level.
According to Rasmussen, Bansal and Chen (2009), there are ten steps to use plan a KPI
design project:
Build the team.
Clarify and agree to the organization‟s strategies and tactics.
Decide on dashboard categories and prioritize.
Choose organizational deployment.
Create a list of KPIs and metrics for each strategic objective.
Test KPIs against framework.
Select top KPIs.
Choose presentation method and interactivity for each KPI.
Document decisions and get sign-off.
Design architecture and dashboards based on document.
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3. Application of measures of performance
3.1 Balanced Scorecard methodology in Vodafone Group
Vodafone Group has already implemented the balanced scorecard methodology that is not
only focuses on the financial perspective but also customer, business process, and learning and
growth perspectives. The approach has helped Vodafone Group create additional values.
According to EFM Software (2009), there are several reasons why Vodafone Group decided
to use the balanced scorecard and eventually developed eighty and even up to one hundred
indicators:
There was a need for operational performance measurement and feedback.
The increasing complexity of systems and organization as a consequence of its rapid growth
led to decreasing coherence between different management reports.
The business dynamics cause continuously changing external factors which in turn influence
the decision making.
In the interview conducted by Pointon (2005), the former CEO at Vodafone Australia,
Grahame Maher mentioned the values of the balanced scorecard:
As for the BSC the beauty of that theory is that everything in the business should be
measured and not just the accepted financial measures. The BSC has a natural flow which
says the flow is PEOPLE then PROCESS then CUSTOMER and then finally FINANCIAL
measures as they are just outcomes of the other stuffs. This is completely consistent with the
Values based approach which puts people as the most important focus (p.1).
In another the interview conducted by Supply Chain Standard (2006), the head of services at
Vodafone Global Supply Chain explained the values of the balanced scorecard as “in terms of
building the community to maximize performance, we are well down the track on structuring an
integrated SCM organization and are to implement a balanced scorecard reflecting not just
savings but the total value add to Vodafone of the SCM function” (p. 1).
In addition to internal performance management objective, Vodafone Group has externally
reported some of its KPIs in its interim management statement on a regular basis. Actual and
target values of EBITDA margins, service revenue growth, free cash flow, net debt, adjusted
operating profit, and data traffic growth are included in the statement.
3.2 The Application of the Balanced Scorecard to Vodafone Group
Pearce and Robinson (2008) argued that the balanced scorecard contains “a concise
definition of the company‟s vision and strategy. Surrounding the vision and strategy are four
additional boxes; each box contains objectives, measures, targets, and initiatives for one of four
perspectives” (p. 202). Strategic objectives, measures, targets, and initiatives of four perspectives
are developed in accordance with Vodafone‟s vision and strategy to find out the importance of
the balanced performance.
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Vodafone Group‟s vision is “to be the communications leader in an increasingly connected
world” (Vodafone, 2010a, p. 2). The company was established in 1982, and now is one of the
world‟s largest mobile operators managing the ultra large-scale mobile networks in 25 countries
and has a presence through partnerships in another 39 countries. In addition to its core mobile
communications business growth, it has expanded fixed broadband customer base to “5.6 million
at 31 March 2010 from 2.1 million in March 2007” (Vodafone, 2010a. p. 5) to be a total
communications provider. Vodafone‟s continuous innovation to adapt new technologies and its
geographic diversity are allowing its customers to lead their lives more efficiently and
pleasurably while staying connected to the people and the information around the globe.
In the annual report 2010 (Vodafone, 2010a), Vittorio Colao, Chief Executive at Vodafone
stated the four strategies:
Drive operational performance.
Pursue growth opportunities in total communications.
Execute in emerging markets.
Strengthen capital discipline to drive shareholder returns.
To drive operational performance, Vodafone Group intends to enhance customer values in
order to maximize the value of existing customer relationships. Vodafone Group has not used the
lower price than other competitors to attract new customers and retain existing customers and it
rather focuses on creating and launching new value-added services to increase the average
revenue per user („ARPU‟) while effectively targeting its offers and services around the globe.
Employees are perceived as a source of competitive advantages to improve existing customer
relationships and Vodafone Group has maintained high performance benchmark for employee
engagement.
To pursue growth opportunities in total communications, Vodafone Group has targeted
“three key areas for growth – mobile data use, broadband, and enterprise services” (Obiodu,
2010, p. 7). Vodafone Group‟s successful smartphone penetration growth ensures that its
smartphone users have paid more for data services than its traditional phone users. It has
aggressively launched mobile broadband offering across its key markers through the mergers and
acquisitions, and “data revenue grew by 19.3% and is now over £4 billion” (Vodafone, 2010a,
p.7). In the enterprise markets, it also intends to increase the penetration of data devices, deliver
its broadband service, and strengthen its core mobile services.
To execute in emerging markets, Vodafone Group focuses more on expansion within the
markets while executing mergers and acquisitions in key emerging markets. India, Africa, and
the Middle East are now key areas for growth. It improves business success in these markets “by
selling own-branded, low-cost handsets, reducing the cost of entry for mobile communications
and encouraging more customers to come on to the network” (Obiodu, 2010, p. 7).
To strengthen capital discipline to drive shareholder returns, Vodafone Group has focused on
its free cash flow generation to maintain an appropriate investment in new and existing business
and markets. While launching new and value-added services around the globe in order to
improve existing customer satisfaction and increase ARPU and decrease churn rate, it has
“divested loss-making units in Japan, Sweden, Belgium, and Switzerland” (Obiodu, 2010, p. 7).
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It also has already achieved £ 1 billion cost reduction program a year ahead of schedule but
initiated further £ 1 billion cost reduction program by the 2013 financial year by leveraging its
global scale and scope. In addition, the two-year working capital reduction program, and the
outsourcing IT functions and network sharing agreement are included as a part of cost efficiency
programs.
Those four strategies are now decomposed into strategic objectives, and performance
measures are developed for each of the strategic objectives, as shown in Figure 3.1. In the annual
report for the year ended 31 March 2010, Vodafone reported the a number of KPIs used by The
Board and the Executive Committee “to monitor Group and regional performance against
budgets and forecasts as well as to measure progress against our strategic objectives” (Vodafone,
2010a, p. 24). Those KPIs are categorized as „VF defined‟ in Figure 3.1. To completely align
with each of strategic objectives, a total of five KPIs are relatively proposed, and categorized as
„Proposed‟ in Figure 3.1.
Figure 3.1: Suggested balanced scorecard for Vodafone Group
3.3 Customer Perspective
The customer delight index, churn rate, and revenues from emerging markets, and the
number of proportionate mobile subscribers are developed in line with each of strategic
objectives in the customer perspective.
Mobile technologies have evolved and its customers use their mobile phones not only to call
but also access the internet, watch television, play music and take pictures. Vodafone Groups has
focused on customer value enhancement to maintain their loyalty and trust. According to
Perspective Strategic Objectives Measures Category
Customer
Drive operational performance through customer value
enhancement Customer delight index VF defined
Maximize the value of existing customer relationships Churn rate VF defined
Maintain its strong success in key emerging markets Revenues from emerging
markets Proposed
Encourage more customers to come on to the network Proportionate mobile customers VF defined
Financial
Target and its offers and services around the globe, not use
the lower price than others EBITDA margin VF defined
Maintain appropriate investment in new and existing
business and markets Free cash flow VF defined
Drive shareholder return ROE Proposed
Learning
and Growth
Create and launch new value-added services around the
globe ARPU VF defined
One of three key areas for growth (mobile data use) Data Revenue VF defined
One of three key areas for growth (broadband services) Fixed revenue VF defined
One of three key areas for growth (enterprise services) Enterprise mobile voice
connections Proposed
Business
Processes
Maintain high performance benchmark for employee
engagement Employee turnover rate VF defined
Two-year working capital reduction program Working capital Proposed
Drive £ 1 billion cost reduction program Operational efficiency ratio
(subscribers / own employees) Proposed
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Vodafone (2010b), the Customer Delight Index measures the levels of satisfaction and
dissatisfaction:
Our Customer Delight Index (CDI) measures levels of satisfaction and dissatisfaction among
consumer and business customers. It helps us to monitor our progress against our goal to
‘delight our customers’. The CDI results are reviewed quarterly at board level to identify
priorities for improvement. In addition, a Customer Experience Committee meets monthly to
review issues affecting customer satisfaction and put action plans in place. Employee
incentive programs are partly dependent on meeting customer satisfaction targets.
Churn rate is especially crucial for Vodafone Group that still heavily relies on saturated
European markets “where competition is fierce and where net acquisition costs of customers can
be high, including both direct and indirect marketing costs and other costs such as customer
equipment study” (Stainthorpe, 2009, p. 2). While Vodafone Group has implemented „smart
growth‟ strategy and not offered lower price than other competitors to attract new customers and
retain existing customers around the globe, the churn rate is one of the key measures to assess the
actual performance against the strategy.
The strategy „execute in emerging markets‟ represents that while Vodafone Groups has been
maintaining its strong presence, it focuses on expansion within the market. Revenues from
emerging markets are key measures to directly evaluate their actual achievements in those
markets against its strategy.
Finally, the number of proportionate mobile customers is the high-level measure to ensure
that Vodafone Group has encouraged more customers to come on to its network globally.
3.4 Financial Perspective
EBITDA margin, free cash flow, and return on common equity („ROE‟) are developed in
accordance with each of strategic objectives in the financial perspective.
A robust network infrastructure is a source of competitive advantages for Vodafone Group
but it generally reports large losses due to hugely spending capital expenditure to construct the
infrastructure. EBITDA margin enables to analyze the profitability of core business operations
while deducting the huge amount of interest, taxes, and capital expenditures.
Free cash flow generation is a critical source of Vodafone Group‟s growth while establishing
its entities through the acquisition, joint-venture, and strategic alliance globally. In addition, free
cash flow can support higher dividends and in turn contribute to maximizing shareholder‟s
values.
ROE is the most important bottom line accounting ratio that represents the actual return
earned by shareholders and is the best measure to directly assess its actual performance against
the strategic objectives „drive shareholder return‟.
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3.5 Learning and Growth Perspective
ARPU, data revenue, fixed revenue, and the number of enterprise mobile voice connections
are developed in accordance with each of strategic objectives in the learning and growth
perspective. Most of those measures are typically categorized into the financial perspective.
However, not tactical and operations KPIs but strategic KPIs are analyzed in this research and
therefore those measures are considered as a reflection of Vodafone Group‟s innovation in this
research.
Vodafone Group hasn‟t implemented the cost leadership strategy to gain a competitive
advantages but it relatively focuses on creating and launching new value-added services to
increase ARPU. ARPU can be therefore considered as one of the key measures of its innovation.
While traditional voice and messaging services has captured more than 75% of its service
revenues, data service is targeted as one of three key areas for growth, and therefore the data
revenue is a key measure to directly evaluate its growth objective.
Vodafone Group has expanded fixed broadband customer base to be a total communications
provider. It has only fixed broadband services in its fixed service portfolio, and the broadband is
also perceived as one of three key areas for growth. Fixed revenue represents the growth
objective and is considered as a key measure.
The last one of three key areas for growth is the enterprise services. While the enterprise
service revenues are not independently reported in the annual report, the main enterprise service
is an enterprise voice service and therefore the number of enterprise mobile voice connections
can be considered as a key measure of its growth objective.
3.6 Business Processes Perspective
The employee turnover rate, annual capital expenditure, and operational efficiency ratio are
developed in accordance with each of strategic objectives in the business process perspective.
Vodafone stated that “We rely on our people to maintain and build on our success and to
deliver excellent service to our customers”, and “we aim to attract, develop and retain the best
people and to realize their full potential” (Vodafone, 2010a, p .22). The employee turnover rate
is one of the key measures to evaluate its performance against the strategic objective „maintain
high performance benchmark for employee engagement‟.
As a part of cost efficiency programs, the two-year working capital reduction program is
executed and the working capital itself is the best measure to directly evaluate the actual
performance against the targeted working capital.
While the £1 billion cost reduction program has already been delivered, Vodafone has
extended this program to a further £1 billion cost saving by 2013. £1 billion includes both the
capital and operating expenditures and it might be difficult to focus on either capital or operating
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expenditure. However, the objective of the cost reduction program is to improve its operational
efficiency and, the number of subscribers versus the number of own employees‟ ratio can
alternatively used.
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4. Analyzing and Interpreting Results
4.1 Balanced Scorecard Analysis
Both the absolute values and ratios are generally developed as measures in line with the
strategic objectives and presented in the balanced scorecard, and they can be analyzed in several
ways. The balanced scorecard analysis involves:
Comparing an actual value of a KPI to a target value of the same KPI in order to assess
whether the strategic objective is being met,
Comparing an actual value of a KPI to a series of the previous values of the same KPI in
order to ensure how the strategic objective has an impact on financial and non financial
positions, and evaluate trends over time, and
Comparing the actual values of a KPI to those of other firms in the same industry in order to
understand an organization‟s place in the world.
Regression analysis to develop and evaluate a prediction equation.
Some of key measures are analyzed separately in each way in this chapter.
4.2 An Actual Value versus a Target Value
Vodafone has generally stated the guidance for its expectations for coming quarters or fiscal
year and values released in the guidance can be considered as its target values. Vodafone (2008)
stated the guidance as “free cash flow in the range of £5.5 billion to £6.0 billion, an increase of
£0.3 billion” (Vodafone, 2008, p. 1). Free cash flow generation has been considered as a critical
source of its growth through the acquisition, joint-venture, and strategic alliance globally.
Consequently, the actual value was between £5.5 billion to £6.0 billion, and Vodafone Group
achieved only the minimum target, a total of £ 5.5, as shown in Figure 4.1.
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Figure 4.1 Vodafone Group free cash flow
142
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4.3 An Actual Value versus a Series of the Previous Values of the same KPI
The comparison of an actual value of a KPI to a series of the previous values of the same KPI
can help an organization ensure how the strategic objective has an impact on financial and non
financial positions, and evaluate trends over time. ARPU is a key measure of Vodafone Group‟s
innovation to evaluate whether it has focused on creating and launching new value-added
services while not offering lower price in the fierce competitive market. While new value-added
services are considered as a lever to increase ARPU, ARPU in all European countries have been
slightly decreasing. ARPU includes both voice and data revenues and a decrease in voice
revenues have subsequently had a great impact on a decrease in ARPU.
Although Vodafone‟s data revenues have increased, its voice revenues have decrease much
quicker than data revenues. European markets have been saturated with significantly higher
mobile phone penetration rate with more than 150% in some countries, and one of the four key
Vodafone Group‟s strategies, „Execute in emerging markets‟ might come from the fierce
competition in European markets as shown in Figure 4.2.
Figure 4.2 Vodafone ARPU in European Markets
4.4 The Actual Values versus Industry Norms
The comparison of the actual values of a KPI to those of other firms in the same industry can
help an organization understand the relative position in the industry. Ratios analysis enables an
organization to compare to other companies, regardless of the size of companies. Although
telecommunications industry is one of the capital-intensive industries, EBITDA margin can help
analyze the profitability of core business operations while deducting the huge amount of interest,
taxes, and capital expenditures. The EBITDA margin is calculated by dividing EBITDA by sales
revenue. The EBITDA margin ratio of Vodafone Group are stable but lower than the industry
norm due to the impact of acquisitions and disposals and foreign exchange that are associated
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with its international expansion strategy, as shown in Figure 4.3. The global average EBITDA
margin is cited from Strategy Analytics‟ wireless operator performance benchmarking (2009).
Figure 4.3 Vodafone Group and Global Average EBITDA margin
4.5 Regression Analysis
According to Kotler and Keller (2008), “acquiring new customers can cost five times more
than satisfying and retaining current customers”, and “it requires a great deal of effort to induce
satisfied customer to switch away from their current supplier” (p. 138). To drive operational
performance, Vodafone Group has not used the lower price than other competitors to retain
existing customers and it rather focuses on creating and launching new value-added services to
increase ARPU. Therefore, a decrease in ARPU would have negative impact on churn rate,
higher churn rate. The ARPU and Churn rate in five countries for the eight-quarter periods are
quoted from the annual report as shown in Table 4.1. The summary output of regression analysis
in Microsoft Excel is shown in Table 4.2.
Q2 08/09 Q3 08/09 Q4 08/09 Q1 09/10 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11
Germany
Churn
rate
(%)
Total 18.9% 28.8% 28.9% 27.9% 28.6% 29.7% 26.5% 25.1%
Contract 15.6% 15.2% 15.3% 16.0% 16.0% 17.8% 15.4% 16.9%
Prepaid 21.5% 39.4% 39.9% 37.8% 39.3% 40.2% 36.2% 32.2%
ARPU
(EUR)
Total 19.4 17.9 16.9 17.0 16.8 16.2 15.7 15.5
Contract 35.3 33.1 32.0 32.4 32.4 31.2 29.6 28.8
Prepaid 6.1 5.5 5.0 4.8 4.6 4.4 4.2 4.3
Italy
Churn
rate
(%)
Total 30.3% 27.2% 27.0% 26.9% 29.3% 24.7% 23.4% 24.4%
Contract 15.8% 17.3% 16.9% 19.8% 17.2% 23.3% 22.8% 25.3%
Prepaid 32.0% 28.5% 28.3% 27.9% 31.2% 24.9% 23.5% 24.3%
ARPU
(EUR)
Total 22.6 21.6 20.8 21.3 21.7 21.5 20.8 22.0
Contract 65.2 65.4 62.1 60.6 56.5 56.0 51.7 50.9
Prepaid 18.6 17.2 16.4 16.8 17.4 17.0 16.6 17.9
Spain
15
Churn
rate
(%)
Total 24.3% 25.3% 24.1% 25.9% 27.9% 29.7% 37.9% 28.2%
Contract 16.1% 18.3% 18.3% 19.9% 20.6% 21.7% 21.2% 18.9%
Prepaid 36.0% 35.6% 32.5% 34.6% 38.5% 41.9% 64.1% 43.7%
ARPU
(EUR)
Total 33.3 30.3 28.0 28.3 29.3 27.3 25.8 26.5
Contract 45.9 41.7 39.0 39.9 41.1 38.0 36.2 36.5
Prepaid 14.6 13.2 11.5 11.2 11.7 10.6 9.3 9.8
UK
Churn
rate
(%)
Total 38.5% 34.6% 41.0% 41.1% 42.8% 36.9% 38.5% 40.1%
Contract 17.5% 17.3% 21.9% 18.0% 18.5% 18.1% 16.2% 15.5%
Prepaid 52.9% 46.8% 54.7% 57.9% 61.2% 51.7% 56.5% 61.3%
ARPU
(EUR)
Total 26.4 25.8 25.0 25.0 24.7 24.5 24.0 24.7
Contract 48.6 47.0 45.5 46.1 45.1 44.4 43.9 44.0
Prepaid 10.6 10.2 9.8 9.1 9.0 8.8 8.2 8.0
India
Churn
rate
(%)
Total 32.2% 28.8% 25.2% 26.3% 33.3% 38.1% 38.8% 38.8%
Contract 30.8% 29.7% 27.2% 25.3% 24.5% 26.0% 25.9% 24.8%
Prepaid 32.3% 28.7% 25.0% 26.4% 33.9% 38.9% 39.6% 39.6%
ARPU
(EUR)
Total 5.0 4.9 4.5 4.0 3.6 3.4 3.2 3.1
Contract 14.3 13.9 13.4 13.2 13.0 12.9 12.5 12.7
Prepaid 4.1 4.0 3.8 3.3 3.0 2.8 2.6 2.6
Table 4.1 Vodafone Group ARPU and Churn Rate in five countries
SUMMARY
OUTPUT
Regression Statistics
Multiple R 0.618672172
R Square 0.382755256
Adjusted R Square 0.377524369
Standard Error 12.579145
Observations 120
ANOVA
df SS MS F Significance F
Regression 1 11578.38582 11578.38582 73.17214232 5.06932E-14
Residual 118 18671.7169 158.234889
Total 119 30250.10272
Coefficients Standard
Error t Stat P-value
Intercept 48.93659413 3.343486705
14.63639561 0.0000
Churn -90.38556457 10.56637914 -8.554071681 0.0000
Table 4.2 Summary output of regression analysis
16
Figure 4.4 Vodafone Group ARPU and Churn Rate
The intercept, 48.9 refers to ARPU (euro) with 0% customer churn but it is not interpretable.
An increase in 1% customer churn would have negative impact on a decrease in 0.9 euro. With
d.f.1 = 1, α = .05, d.f.2 = 120 alternatively, because d.f.2 = 118 is not on the Percentage Points of
the F distribution Table, the tabled F value, 3.92 is directly read from the table. The computed F
statistic, 73.17, is much greater than the critical F value, 3.92. Although the p-value is less than
0.0000, the coefficient of determination is 0.382, less than 0.5.
The scatter plot, shown in Figure 4.4 interprets the relationship between ARPU and churn
rate. Most of outliers are seen between ARPU 0 to 20 euro that generally come from prepaid
subscribers or subscribers in India while the mean ARPU of European non-prepaid subscribers is
33.5 and therefore, the further regression analysis excluding pre-paid subscribers in four
countries, excluding India, is executed as shown in Table 4.3 and Figure 4.5. As the results, the
intercept, an increase in 1% customer churn would have negative impact on a decrease in 0.96
euro, equivalent to the previous analysis including pre-paid subscribers in all five countries and
all subscribers in India. With d.f.1 = 1, α = .05, d.f.2 = 60 alternatively, because d.f.2 = 62 is not
on the Percentage Points of the F distribution Table, the tabled F value, 4.00 is directly read from
the table. The computed F statistic, 27.5, is much greater than the critical F value, 4.00. Although
the p-value is less than 0.0000, the coefficient of determination is 0.307, less than 0.5.
Consequently, both analyses conclude that the effect of the interaction between ARPU and
churn rate in Vodafone Group can be considered as not so statistically significant.
Churn rate
ARPU
17
Figure 4.5 Vodafone Group ARPU and Churn Rate in European markets
SUMMARY
OUTPUT
Regression Statistics
Multiple R 0.554262471
R Square 0.307206887
Adjusted R Square 0.296032804
Standard Error 11.10555252
Observations 64
ANOVA
df SS MS F Significance
F
Regression 1 3390.7785 3390.7785 27.492806 0.0000
Residual 62 7646.6644 123.3333
Total 63 11037.443
Coefficients Standard
Error t Stat P-value
Intercept 56.76813157 4.6536 12.198756 3.985E-18
X Variable 1 -96.49464129 18.403213 -
5.2433583 2.017E-06
Table 4.3 Summary output of regression analysis
18
5. Building a monitoring system
Once strategic objectives and measures have been developed, monitoring performance is a
critical task to ensure the strategic objectives are being met. While continuously tracking a large
amount of dairy operations, the importance of each measure is completely different, and
therefore some critical shortcomings of the important measures should be immediately perceived
and subsequently addressed by an organization but the other shortcomings relatively not.
While starting addressing the shortcomings, each response time should be also accurately
measured and evaluated against the targeted performance levels on a real-time basis in some
case. For example, each time to create trouble ticket, to create work order, to accept, to travel, to
resolve work order, to close trouble ticket, and to repair are accurately measured on a real-time
basis respectively once a fault has been acknowledged in a telecommunications network
operations center. On the other hand, each mean time to create trouble ticket, to create work
order, to accept, to travel, to resolve work order, to close trouble ticket, and to repair are also
measured but those mean times are reported on a regular basis and immediate actions are
typically not needed once the report has been issued there.
Wang (2009) argued several steps in the development of a performance monitoring system:
1. Understanding the issue for monitoring
2. Determining monitoring questions
3. Developing a theory for monitoring flow
4. Developing measures for monitoring
5. Determining data collection methods
6. Conducting performance monitoring and writing the monitoring report
To understand the issues for monitoring, the first step is to identify “monitoring needs”,
determine the “monitoring goal(s): what you want to achieve in the monitoring” and finally
determine “monitoring subject(s): what should be monitored" (Wang, 2009, p. 94). Performance
monitoring can help an organization create performance reports, identify shortcomings, and find,
analyze and optimize performance degradation immediately before larger performance
degradation occurs. Therefore, there are typically multiple goals and subjects to monitor
performance.
To determine monitoring questions, Wang (2009) argued that there are generic forms of
performance monitoring questions, although each performance monitoring should have its
specific questions:
Are performance goals being met?
Has the performance plan been implemented effectively?
Have operations been implemented according to the plan?
Are the intended services being delivered to the intended clients?
How good is my performance compared with others‟ performances, my previous
performance, and the performance standard?
Are there any signs of underperformance?
19
Is there any room for performance improvement?
Is my performance usually poor, compared with data in the past?
To develop a theory for monitoring flow, the “monitoring flow” (Wang, 2009, p. 96) should
be created from inputs, process, outputs and outcomes in performance monitoring. Obviously,
well-developed monitoring flows can help specify monitoring subject and its role in the
monitoring process, and “monitoring inputs and the process may provide clues on how to
develop proper strategies to improve the output and outcomes” (Wang, 2009, p. 96).
To develop measures for monitoring, the appropriate number of measures should be selected
in line with the monitoring needs and goals although several measures are available for each
monitoring subject. Monitoring all measures is too expensive and time-consuming.
To determine data collection methods, “monitoring frequency” (Wang, 2009, p.97) in data
collection should be decided. The monitoring frequency identifies how often performance data is
collected and the frequency should be decided in accordance with the monitoring goals and its
costs. Only monthly or quarterly data is sufficient in some cases but dairy or hourly data is
needed in other cases. If the monitoring goal is to improve daily operational efficiency, the
relevant data should be collected at least once a day as far as the dairy monitoring isn‟t so costly.
To conduct performance monitoring and write the monitoring report, performance
monitoring tools should be selected to monitor performance in order to create performance
reports, identify shortcomings, and find, analyze and optimize performance degradation.
Performance monitoring tools are classified into “tools in monitoring against performance
standards, tools in monitoring performance variation, and tools in monitoring standardized
performance” (Wang, 2009, p. 98). Once performance monitoring has been completed by the
selected tools, the results should be presented in performance monitoring reports on a regular
basis, regardless of the number of key findings.
It‟s relatively easy for an organization to build a monitoring system to collect data
independently within a functional or vertical organization but in most of cases, cross-functional
or horizontal processes are comprised of a part of the end-to-end. A goal of performance
monitoring is typically to improve operational efficiencies for the functional management but a
goal of that is to improve operational effectiveness from the process management viewpoint.
Frequently, each participant in the end-to-end process can only understand its own process like
„Order Handling‟ box in „Fulfillment‟. A s a result, nobody is responsible for the end-to-end
business process like „Customer Interface Management‟ box among „Fulfillment‟, ‟Assurance‟,
and ‟Billing‟, and associated end-to-end performance monitoring, as shown in Figure 5.1. It‟s a
good starting to visualize the end-to-end business process and then use it as a common language
among stakeholders such as TeleManagement Forum enhanced Telecom Operations Map, as
shown in Figure 5.1. Once the consensus among stakeholders has been achieved, monitoring
both functional and end-to-end process metrics should be conducted to achieve both goals to
improve operational efficiencies for the functional management and operational effectiveness for
the process owner respectively.
20
Figure 5.1: TeleManagement Forum enhanced Telecom Operations Map (eTOM)
Note: from “Level 2 Operations (OPS) Processes,” 2010, TeleManagement Forum, p. 14.
Vodafone Group has already implemented the balanced scorecard methodology to monitor
organizational performance along with predefined KPIs that are associated with not only the
financial perspective but also the other three perspectives at the strategic level. Vodafone Group
has built performance monitoring systems locally and globally, functionally and cross-
functionally, and internally and externally.
The best practice of the performance monitoring system is Vodafone Global Supply Chain
Management System implemented globally, cross-functionally, and both internally and
externally. Vodafone has “put in the infrastructure and built the global SCM community”
(Supply Chain Standard, 2006, p. 1), while leveraging its scale and scope. The infrastructure
with common processes and data established with a group-wide platform can help Vodafone
simplify the end-to-end SCM process, establish commonality in performance analysis, and
implement group-wide visibility to its performance. The community enables all stakeholders in
the supply chain process, regardless of organizations, to have a common language to improve
operational effectiveness. In addition, Vodafone Group has implemented the end-to-end visibility
to its performance beyond Vodafone Group, and as a result, Vodafone Group can create
performance reports including the end-to-end aspects, identify shortcoming throughout the SCM
processes even beyond Vodafone Group, and find, analyze and optimize performance
degradation immediately with all internal and external stakeholders.
21
6. Continuously improving organizational performance
Once an organization has built a coherent set of performance measures, applied measures of
performance, and built a monitoring system, the final step is to continuously improve
organizational performance. There are several approaches to continuously improving
organizational performance such as strategic management and total quality management
(„TQM‟).
Strategic management is “a set of decisions and actions that result in the formulation and
implementation of plans designed to achieve a company‟s objectives” (Pearce and Robinson,
2008, p. 3). They also argued nine critical tasks included in the strategic management:
1. Formulate the company‟s mission, including broad statements about its purpose, philosophy,
and goals.
2. Conduct an analysis that reflects the company‟s internal conditions and capabilities.
3. Assess the company‟s external environment, including both the competitive and the general
contextual factors.
4. Analyze the company‟s options by matching its resources with the external environment.
5. Identify the most desirable options by evaluating each option in light of the company‟s
mission.
6. Select a set of long-term objectives and grand strategies that will achieve the most desirable
options.
7. Develop annual objectives and short-term strategies that are compatible with the selected set
of long-term objectives and grand strategies.
8. Implement the strategic choices by means of budgeted resource allocations in which the
matching of tasks, people, structures, technologies, and reward system is emphasized.
9. Evaluate the success of the strategic process as an input for future decision making.
TQM is a management concept that stresses continuous improvement through people
involvement and measurements to focus on customer satisfaction, and is the application of
human resources and quantitative methods in order to improve all the processes within an
organization. Naagarazan and Arivalagar (2009) argued five core concepts of TQM:
1. A committed management which ensures long term organizational support.
2. The focus on the internal and external customers.
3. Involvement and utilization of the entire human resource.
4. Continuous improvement of the activities.
5. Treating suppliers and customers as partners.
6. Determine the performance metrics for the activities.
Vodafone Group has been implemented TQM to continuously improve organizational
performance. Skills and competence development is considered as a key source of competitive
advantages to continuously improve organizational performance and it is of considerable value to
continuously invest in people and organizational structures through continuous focus on efficient
and effective organizational structures, regular review of people‟s performance and potential,
diversity and inclusion, and development of high potential employees. Vodafone Group had,
22
however, introduced the discipline of Kaizen and other continuous improvement initiatives and
they had had a great impact on quality and business performance improvement but it had been
“frustrated with not being able to make the next leap in quality levels” and “to accelerate
performance to the next level, we needed to look at attitude, competences and skills” (Vodafone,
2010c, p. 1). In 2000, while introducing Six Sigma processes widely in Vodafone Group, it
developed a “Training Road Map, which we still use today, which aligns our strategic objectives
with the competences that we need to get there” (Vodafone, 2010c, p. 1).
23
7. Conclusions
A performance measure is a critical function that provides strategic, steering, and operational
management with business intelligence in order to make better decision. The objectives and the
degree of sophistication of performance measurements greatly vary from company to company
and each company has developed and adopted different performance measurement systems in
line with each own strategy and strategic objectives.
Vodafone Group has already implemented the balanced scorecard methodology to manage
both financial and non-financial perspectives due to the inevitable increase in complexity of
systems and organizational structures and continuously changing external factors while rapidly
expanding its business globally through acquisitions, joint-ventures, and partnerships. Its key
four strategies are clearly developed in line with the vision and its own environments, and they
are definitely decomposed into each of strategic objectives. Relevant KPIs have been
subsequently defined and reported both internally and externally. However, most of measures are
associated with the financial perspective and also the absolute values and some other KPIs like
ratios should be developed as proposed in this research. In addition, most of strategic KPIs are
strongly aligned with global and company-wide strategies and Vodafone should clearly define
the level of local stakeholder involvement in the performance measurement. For example,
strategic KPIs are only aligned with global and company-wide strategies but tactical KPIs that
strategic KPIs can be translated into should be developed in line with local specific business
environments.
The best practice of Vodafone‟s performance measures is a comprehensive performance
management system, Global Supply Chain Management System. The system has been developed
and implemented by fully leveraging global scale and scope. All internal and external
stakeholders in the SCM community have high visibility to the end-to-end supply chain
management process, and Vodafone Group can find, analyze and optimize performance
degradation immediately with all stakeholders beyond Vodafone Group.
24
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