Strategic Analysis Of Vodafone UK's Telecom Industry Essay.

The external environment. You are to analyse the impact and influence the macro environment has on your chosen organisation and its business strategies. In your answer you are to use;

i. PESTLE model for environmental analysis

ii. Ansoff’s growth vector matrix to analyse the organisation’s strategic positioning

The internal environment and organisation capabilities. Continuing with your chosen organisation, conduct an assessment of the organisation’s internal environment and its capabilities. In your answer you will need to;

i. Explain what strategic capability means

ii. Apply the ‘VRIO/VRIN’ model to determine the strategic capabilities possessed by your chosen organisation

iii. Identify the organisation’s strengths and weaknesses

You will need to build on your answer to P2 by critically evaluating the strengths and weaknesses of an organisation’s internal capabilities, structure and skill set.

Analysing the telecommunications sector. For this task you are to evaluate the competitiveness of UK’s telecommunications sector using Porter’s five forces model. Your answer should show clearly analyse; a. Bargaining power of buyers

b. Bargaining power of suppliers

c. Threats of new entrants

d. Threats of substitutes

e. Rivalry within the market

Understanding and interpreting strategic direction Using Bowman’s strategy clock model, analyse the strategic direction and options available for your chosen organisation.
 

PESTLE analysis of UK Telecom Industry

This report focuses on UK’s telecom industry. The analysis of Vodafone has been done in order to understand the strategic analysis components. The report initiates with the discussion of PESTLE analysis and Ansoff matrix analysis of the company and followed with VRIO/VRIN framework to analyse the strategic capabilities of the company. Next task focuses on five forces analysis to identify the industry attractiveness and the last part throws light on Bowman’s Str. Clock model.

PESTLE analysis

Political factors: political factors play a very significant role in determining the factors that affect the telecom industry. As far as UK is considered, it has been analysed that there are many political factors that affect the company’s condition and strategies to operate. UK regulatory body is another factor that affects the UK telecom sector. It has been analysed that OfCom is the regulatory body of telecom services in UK (Freeman, 2010). It is the authority that regulates the activities that occur in the telecom industry at UK. The major work of the association is to control the commercial behaviour of the telecom leaders. Thus Vodafone cannot make their decision alone but they have to interact with Ofcom in order to perform any of the activities as Ofcom is the governmental association. In current scenario, taxation rates and inflation has impacted on the Vodafone plc. Due to these factors, the operating expenses of the company have been enhanced (Vodafone, 2017). Apart from this BREXIT is the main factor that has resulted in change in the terms and conditions for telecom industry under new government and regulatory framework (Telegraph, 2018). The EU roaming regulations were also the political factor which has decreased the prices of mobile phone at abroad level. If any further changes also take place in the industry in terms of politics, than it would directly hamper the market share and the position of the company.

Economic factors: in order to make use of the vernacular telecom industry, most of the Britishers have voted to leave EU (Hitt, Ireland and Hoskisson, 2012). As far as the financial market is concerned, it has been analysed that the immediate panic has resulted in fluctuation in the market and resulted in wiping off some of the trillion dollars from the UK economy. The major economic factors that affect the telecom sector are inflation rate, tax rates and economic growth of the country. As far as UK is considered it has been analysed that in the year of 2016, UK and Germany were the countries with great economies by the year of 2017 but in the year of 2017, it has been realised that UK slips down in the ranking because of slower growth rate (Hill, Jones and Schilling, 2014). The growth rate of the company has been slower due to global financial issues and the economy position of the industry. the current economical changes have impacted the revenue of the company as well.

Ansoff Matrix Analysis of Vodafone

Social factors

In terms of social factors, it has been analysed that it is the factor that deals with demographic changes. As far as UK is considered, it has been identified that the young generation is very much fond of making use of the technological things (Ambrosini and Bowman, 2009). If any further changes also take place in the industry in terms of social factors, than it would directly hamper the corporate social responsibilities of the company which leads to the loss in market price of the company (Angwin and Cummings, 2017).

 

(Source: Ft.com. 2018). 

54% of the overall household expending of the people in UK is for mobile services and thus it has been suggested that the people are attracted towards this industry and make use of the telecom services frequently (Ft.com. 2018).

Technological

UK is the country that is technologically very active in nature. As far as the technological environment of telecom sector is considered, it has been analysed that it is the major part of this field. VODAFONE is the company that is making use of the same effectively. The company provides overall UK with the most advanced services of 5G and 4G (Grünewald and Torriti, 2013). The technology has impacted on the industry and the company positively which could be seen in the speed of the network of the company. If any further changes also take place in the industry’s technology, than it would enhance the performance and the quality of the services of the company.

Legal factors

As far as the legal factors are considered, it has been analysed that other than Ofcom, there is another regulatory body that is Telecommunications Ombudsman that deals with legal and lawful provision of telephone and other related services like internet (Friederiszick, 2008). Otelo is the regulation that focuses on providing services to the customers and act as the mediator between service providers and customers in case of disagreements. the legal factors have affected the company negatively in various cases such as less payment to the employees of the company, leakage of innovative ideas etc. It is required for the company to maintain the legal perspective to save itself from various penalties (Cardoso, 2017). If any further changes also take place in the industry in terms of legal factors, than the company would have to pay extra penalties and it would affect the financial and non financial position of the company as well. 

Strategic Capabilities of Vodafone using VRIO/VRIN framework

Environmental factors

Environmental factors include the factors related to climatic conditions, weather etc. at the place. As far as the telecom industry is considered, it has been analysed that UK is the place with pleasant environment but this hardly affect to the telecom sector of the industry and thus Vodafone plc has not been affected from the environmental factor. Though, every customer wants their favourite brand to be socially responsible which helps the company to enhance the level of customers of the company (Guedes et al, 2018). If any further changes also take place in the environment position of the industry than the customer’s loyalty towards the company would be hampered.

Ansoff growth matrix

The Ansoff matrix is the approach that includes different point of view and some of the options that can be used by the firms in order to grow in the market (Berg, Jiang and Lin, 2012). This is the approach that does not focus on profitability of the sales of the products or the service but focuses on different strategies that the company use in order to expand in the market. There are majorly four approaches that can be used by the companies:

Market penetration: market penetration is the strategy that deals with the approach in which existing products are being marketed to the existing market (Osibanjo, Nnorom and Ogbonna, 2008). As far as VODAFONE is considered, it has been analysed that the company is making use of this strategy by improving their customer service in the existing market so that they can satisfy the existing customers to the next level. The company has made the aim that till March 17, it has to answer 90% of the total queries that reach the customer service.

Product development: Product development is the strategy that deals with developing new products in order to attract the existing market or the customers. VODAFONE has turned up to be a multi bran company that serves the customers with TV services, internet services, mobile services etc. (Freeman, 2010).

Market development: it is the strategy that deals with expanding to the new market with the already existing products. The company like VODAFONE serves worldwide and thus serves the overall market with the similar products.

Diversification: It is the toughest strategy in which the company used to develop new products and expands in the new market simultaneously. In terms of VODAFONE, it has been realised that VODAFONE has invested in this area as well by serving the new markets with newer services such as TV services, internet etc.  (Friederiszick, 2008).

Industry Attractiveness using Porter's Five Forces

Strategic capability:

Strategic capability can be defined as the business ability of the company to successfully employ some of the competitive resources of the firm and through which the company can avail more value in the market  (Freeman, 2010). It does not focus on the strategies that the company uses in order to achieve the set targets but focuses on the assets and the resources that the company owns and the position of the firm in the market. This is because these things provide the capability and strength to the company to employ the strategies and make use of the same effectively. This also helps in deciding the future capabilities of the company to withstand the market situations. The companies have to keep the track on their own strategic capabilities but simultaneously, it’s required to keep the track on the capabilities of the competitors so that the market analysis can be conducted. It is one of the major components that need to be analysed so that the company can attain the value in the market and can also improve. 

VRIO framework

VRIO is the framework that helps in analysing the internet strategic capabilities of the company. The analysis of these capabilities results in identifying whether the capabilities are providing competitive edge to the company or not.

Value: this is the question that asks about the value of the resource available to the company.

Rare: this deals with the unique qualities of the organization.

Imitability: do the firms without this resource face the cost disadvantage?

Organisation: this is the question that deals with the fact that whether the resource is organised to support the above factors. Below is the summary table of the Vodafone VRIO analysis:

(Al-Atiqi and Mumen, 2014)

Financial resources

As Vodafone is the listed company, this it each revenues and capital by selling their own securities. The firm is enjoying enough financial capabilities in the recent years. As far as the cash and cash equivalent of the company is considered. It has been analysed that the company has higher than 6bn GBP every year (Vodafone, 2017). This suggests that company has strong financial resources that can help the company to avail the opportunities in future. This resource cannot be termed as rare because some of the other competitors like British Telecom in UK are also having strong financial resources.

Physical assets

This is the resource that includes the capabilities such as buildings, plants, properties, machinery etc. As Vodafone is the company that operates in many countries thus it has many offices and buildings that accounts for physical assets of the company. The company also owns many base stations and customer care offices. All the other competitors also have the office building thus it is again not a rare resources that the company owns.

Bowman's Strategy Clock Model

Global footprint

Another capability of the company that can be considered as the advantage for the firm is its presence in global market. Vodafone is one of the few companies in the telecom sector that has such a large geographic reach. The company operates in around 27 countries and also have partners and 50 other countries.

Human resources

Vodafone is the company that focuses on its employees and claims that their employees are fundamental for their success. Thousands of employees each year when t to Vodafone training academy for training in sales and retail sector. The company is consistently growing in this area by employing more and more employees because of more umber of service centres opening in different areas of the world.

Innovation: the company focuses on developing new products and serve the market with the same (Hammond and Waldron, 2008). The innovation of Vodafone wallet was one of the inventions. After the invention of cloud computing, Vodafone has also improved its technological capabilities by offering cloud services. Company has also offered the 5g internet services in the market which made rapid changes into the telecommunication industry.

Brand: the brand name of the company is very valuable. This is because it is the company that serves the market with great services and is one of the best services in the overall market of telecom.

Organisational capabilities

Standardization and cost efficiency:

The company focuses on being cost efficient all the time by reducing its cost. The firm has entered into various sharing agreements for customer service or HR services.

Centralised procurement and customer service: In 2008, Vodafone created the Vodafone Procurement Company (VPC), the group’s centralized strategic procurement function based in Luxembourg. Vodafone is very much aware of the dynamic nature of the customers and thus make efforts in providing great customer service experience to the customers.

The HR policies of the company brings competitive advantages to the company as the employee turnover of the company is lower as well as the employee of the organization are highly motivated. The technological factors and the marketing factors of the company are also competitive and bring innovation into the company. It makes the company more strong in the market. 

One of the market leaders: as discussed that the company has equity interest in around 27 countries and partners in another 50 countries thus this company is considered as one of the leading telecom firm sin UK as well as in the world market (Brooks, Button and Frimpong, 2009).

Strong network: the major thing that needs to be best is the nitwit in case of telecom firm. It has been analysed that Vodafone is the best in its networks. It has around 260,000 base stations that make its network very strong.

Other factors: Further, technological factors of the company are also strong. Company has launched the 5 network which has enhanced the customer base of the company (annual report, 2017). Further, the market value of the company is also strong which attracts the more investors to invest into the market.

Weakness

The major weakness for the company is the high tax impairment for the telecom industry. The company faces many tax disputes (Santos and Soares, 2013). Standardization can also act as the weakness for the company in some sense because it does not allow the firm to provide localised products or services to the local market. There are various other cons of thee company as well such as the marketing factors of the company are not much competitive. Company is following the same concept from a long time to advertise the services and the products of the company. the performance of the company. The customer base of the company has also been dropped due to  less brand valuation  in the market (Freeman, 2010).

Porter’s five forces

This is the strategic tool that helps in analysing the characteristics and the situation of the industry in which the company operates in. This helps in analysing the degree of impact various factors on the working of the company (Porter, 2008).

Buyer’s power

As far as the telecom company is considered, it has been analysed that there are two types of customers that are individual and corporate customers. When the individual customer is considered, the braining power of the buyer is very low as Vodafone is the company with around 434 million buyers. However, if the buyers are in large population and the big corporate customers then it becomes the situation with high bargaining power of the buyers. This is because any step by large number of people and corporate customers can affect the revenue of the company all over.

Supplier’s power

There are many suppliers to the telecom company. One is the handset providers that provide mobile phones and support the network connections (Myllymäki et al.  2007). Another supplier is network infrastructure services that all support the industry of telecom and the last one is government and OfCom in case of UK (Bergman and Kapanen, Nokia Oy 008). This is because it is the regulatory framework that regulates the all activities of the telecom industry. It has been analysed that the supplier power is moderate in nature as it varies with situation to situation. Vodafone is the market leader thus it faces les issues with the supplier.  

Threat to substitute: the major substitute for mobile telecom is the fixed line phones. It has been analysed that fixed lines for are the medium that allow the users to connect with their friends and relatives only through voice calls and thus it is not that much effective in substituting the services that the mobile telecom can serve the market with. This can be concluded from the above discussion that thereat of substitutes from Vodafone is very low in nature. Other than this, the Voice over internet Protocol is another major substitute that can take over the place of the telecom services. This is because the price of VoIP is comparatively lower than the telecom calls and data helps the customers to make calls even at international networks with very less price. In this case the threat of substitute is very high in nature (O'neil and Crisp, 2010). On the basis of the evaluation, it has been found that the threat of suppliers of the company is quite lower and thus company is not required to make huge investment to save itself from the substitute issues.

Threat to rivalry

As far as competition and rivalry is considered, it has been analysed that rivalry depends on the geographic region where the companies operates. In case of mobile telecom company Vodafone, it has been analysed that UK is the place where the company faces very high competition. This is because the telecom industry and the market of UK are very much saturated. The major competitor for Vodafone UK is British Telecom. This is because the share almost equal market shares in UK (Markets.ft.com. 2018). Both of these companies have high strategic capabilities and also have presence in the market worldwide.  As the world market is considered, it has been identified that the telecom industry is experiencing lower growth year after year and thus the companies working in this industry like Vodafone opt the strategy of diversification o that they can provides another related services to the customers as well (Vodafone.co.uk. 2018)

Threat to new entrants

Threat of new entrants refers to the threat that the companies have to face because of the new players in the industry. It has been analysed that telecom is the sector where the threat of new entrants is very low. The reason being the high capital required to set the networks and enter the industry. To winner in this industry, it is required by the companies to arrange a high amount of capital to invest (Vcol.co.uk. 2018). This acts as the great barrier for the companies to foray into the telecom industry. It is the industry that can provide profit to the company in case of economies of scale. Thus, it is required by the company to set the operations to a great level. The companies who are looking for entering this industry can make use of acquiring the firms with already existing network otherwise, it is not an easy task. On the basis of the evaluation, it has been found that the threat of new entrant of the company is quite lower and thus company is not required to make huge investment to save itself from the new entrants. 

New technologies: in order to attain the competitive advantage, it has been analysed that the company should invest in research and develop area so that it can come up in the market with most innovative technologies earlier that its competitors (Christopher Williams 2018). Innovation is the biggest and the most important strategy that can helps the company to have competitive edge over the other companies in the industry.

Collaboration with the handset companies: Vodafone can use this opportunity or the strategy to penetrate into the market. Collaborating with the other mobile companies can help the company to sell their network connections along with the most popular mobile phones in the country. Collaborating with the handset company’s results in reduction in the marketing cost of the company and thus the process for the customers can be reduced (Porter, 2008). As Vodafone is the company that beliefs in cost reduction strategy thus reducing cost in one of its functions can help the company to cut the process down so that it can also compete with the lower prices connection that are not that strong in networks but the people buy the same because of their low prices (Brooks, Button and Frimpong, 2009).

Bowman’s str. Clock model:

This is the model that helps the company to explore the strategic positioning of the company. This is the tool that allows the company to analyse the position of the product in the market. The purpose of Bowman's Strategic clock is to illustrate that a business will have a variety of options of how to position a product based on two dimensions of price and perceived value (Hitt, Ireland and Hoskisson, 2012).

 

Source: (Hill, Jones and Schilling, 2014)

This clock involves total eight strategies that are sued by the companies to have competitive advantage. These eight strategies are grouped together in three categories that are differentiation strategies, low price strategies and risk strategies.

As far as the differentiation group is considered, it includes two strategies that are hybrid and differentiation strategies.

Hybrid is the strategy that deals with reducing the cost in the production. This helps the company to constantly offer very low prices. The profits that have gained by the cost reduction can be used in differentiation.

Differentiation is another strategy that offers the consumer with an added value. This value can be gained from the design of the products or the service, functionality of the service, attributes that are added to the service etc. the companies that are focused in differentiation target the one specific segment. The differentiation and added values in turn increased the prices of the products or the service automatically. Thus, the differentiation for the particular segment results in luxurious offerings.

The next groups of strategies are related to risk failure.

The increased price/value market is practices and performed in the market with no competition or the market with monopolistic nature. This is the situation where only the single market leader that can charge high prices even when the added values are very low in nature. The risk here is that the new company can easily copy the flow and enter the industry by similar offerings at low or competitive prices (Hill, Jones and Schilling, 2014). The next strategy is increased price/standard value position. Here the company does not follow what the competitor’s follow and this creates the risk of losing the market. In the position where the price is standard and the value is low¸ organisation definitely lose the market share.

The final group of this clock is low price target. In this segment the companies tends to offer the service in the market with lower prices in comparison to the competitors. This is so because they want to be in the market and compete. This strategy is also risky in nature as the margins are very low in low rice strategy. The company cannot earn high amount of revenue and thus cannot spent the same in innovation and improvisation of the services (Hammond and Waldron, 2008). The next is the no frills strategy where the demand of the products benefits is very low amongst the consumers. This strategy allows the companies to offer the basic products or offerings in low prices where the customers are not concerned with the products quality and the value added services.

As far as Vodafone is considered, it has been analysed that it uses differentiation strategy. It is the strategy in which the company used to incest in innovation and research and development area to be differentiated from the over competitors (Vodafone.co.uk. 2018). Vodafone has always tries to convince the customers that it is the best company. The company has make initiatives in improving its customer’s service and the major target was to answer 90% of the queries of the customers. It has also been analyzed that the company has the market share all over the world and thus it is difficult to be localized with the market. Thus, the company uses standardized services and strategies all over the market including UK (Vodafone.com. 2018). Vodafone is the company that differentiated its offerings by coming up with distinction scheme when they launched I phone service, even though they were bear downing their client more than their rivals but they still got the border over others by offering free Vodafone to Vodafone calls for life clip calls and better web strength compared to other rivals.

The company does not use the differentiated focused strategy because it is not targeting the niche market and serving the market all over.

Conclusion:

It has been concluded from the report that Vodafone is the firm that penetrates in telecom industry in UK and serves many countries. It is one of the market leaders and thus has many capabilities. The strategic analysis of the company suggests that it is the firm that is affected by different factors such as political, economic, environmental, legal, etc. the Ofcom is the regulatory framework or the organisation that regulates the activities of telecom companies in UK. As far as the Ansoff matrix of the company is considered, the company make use of all the four strategies at different points to cater the market. It is a very big firm and thus has strengths such as market leadership and high financial capability. The overall analysis of the company suggests that it has the opportunity to collaborate with the handset companies to make more revenues and attain more market share. 

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