i

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

iii

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.

1

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

10

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

14

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

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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?

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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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