Running Head: Business Performance Measures in Vodafone Group

Business Performance Measures in Vodafone Group

Toru Sekiguchi

August 8th, 2010

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 Perspective9 3.6 Business Process Perspective.. 9 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 Building a monitoring system.. 18 Continuously improving organizational performance.. 21 Conclusions.... 23 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 Vodafones 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 worlds 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 stakeholders 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.

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 organizations vision and strategy as shown in Figure 2.1. Pearce and Robinson (2008) analyzed four perspectives: 2

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 organizations 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).

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 organizations 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.

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 companys 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 Vodafones vision and strategy to find out the importance of the balanced performance.

Vodafone Groups 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 worlds 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. Vodafones 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 Groups 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). 6

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.
Perspective Strategic Objectives Drive operational performance through customer value enhancement Maximize the value of existing customer relationships Customer Maintain its strong success in key emerging markets Encourage more customers to come on to the network Target and its offers and services around the globe, not use the lower price than others Maintain appropriate investment in new and existing business and markets Drive shareholder return Create and launch new value-added services around the globe Learning and Growth One of three key areas for growth (mobile data use) One of three key areas for growth (broadband services) One of three key areas for growth (enterprise services) Maintain high performance benchmark for employee engagement Business Processes Two-year working capital reduction program Drive 1 billion cost reduction program Measures Customer delight index Churn rate Revenues from emerging markets Proportionate mobile customers EBITDA margin Free cash flow ROE ARPU Data Revenue Fixed revenue Enterprise mobile voice connections Employee turnover rate Working capital Operational efficiency ratio (subscribers / own employees) Category VF defined VF defined Proposed VF defined VF defined VF defined Proposed VF defined VF defined VF defined Proposed VF defined Proposed Proposed

Financial

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 7

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 Groups 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 shareholders 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.

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 Groups innovation in this research. Vodafone Group hasnt 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 9

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 organizations 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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142

Figure 4.1 Vodafone Group free cash flow

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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 Groups 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 Vodafones 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 Groups 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 13

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 Germany Churn rate (%) ARPU (EUR) Italy Churn rate (%) ARPU (EUR) Spain Total Contract Prepaid Total Contract Prepaid 30.3% 15.8% 32.0% 22.6 65.2 18.6 27.2% 17.3% 28.5% 21.6 65.4 17.2 27.0% 16.9% 28.3% 20.8 62.1 16.4 26.9% 19.8% 27.9% 21.3 60.6 16.8 29.3% 17.2% 31.2% 21.7 56.5 17.4 24.7% 23.3% 24.9% 21.5 56.0 17.0 23.4% 22.8% 23.5% 20.8 51.7 16.6 24.4% 25.3% 24.3% 22.0 50.9 17.9 Total Contract Prepaid Total Contract Prepaid 18.9% 15.6% 21.5% 19.4 35.3 6.1 28.8% 15.2% 39.4% 17.9 33.1 5.5 28.9% 15.3% 39.9% 16.9 32.0 5.0 27.9% 16.0% 37.8% 17.0 32.4 4.8 28.6% 16.0% 39.3% 16.8 32.4 4.6 29.7% 17.8% 40.2% 16.2 31.2 4.4 26.5% 15.4% 36.2% 15.7 29.6 4.2 25.1% 16.9% 32.2% 15.5 28.8 4.3 Q3 08/09 Q4 08/09 Q1 09/10 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11

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Churn rate (%) ARPU (EUR) UK Churn rate (%) ARPU (EUR) India Churn rate (%) ARPU (EUR)

Total Contract Prepaid Total Contract Prepaid Total Contract Prepaid Total Contract Prepaid Total Contract Prepaid Total Contract Prepaid

24.3% 16.1% 36.0% 33.3 45.9 14.6 38.5% 17.5% 52.9% 26.4 48.6 10.6 32.2% 30.8% 32.3% 5.0 14.3 4.1

25.3% 18.3% 35.6% 30.3 41.7 13.2 34.6% 17.3% 46.8% 25.8 47.0 10.2 28.8% 29.7% 28.7% 4.9 13.9 4.0

24.1% 18.3% 32.5% 28.0 39.0 11.5 41.0% 21.9% 54.7% 25.0 45.5 9.8 25.2% 27.2% 25.0% 4.5 13.4 3.8

25.9% 19.9% 34.6% 28.3 39.9 11.2 41.1% 18.0% 57.9% 25.0 46.1 9.1 26.3% 25.3% 26.4% 4.0 13.2 3.3

27.9% 20.6% 38.5% 29.3 41.1 11.7 42.8% 18.5% 61.2% 24.7 45.1 9.0 33.3% 24.5% 33.9% 3.6 13.0 3.0

29.7% 21.7% 41.9% 27.3 38.0 10.6 36.9% 18.1% 51.7% 24.5 44.4 8.8 38.1% 26.0% 38.9% 3.4 12.9 2.8

37.9% 21.2% 64.1% 25.8 36.2 9.3 38.5% 16.2% 56.5% 24.0 43.9 8.2 38.8% 25.9% 39.6% 3.2 12.5 2.6

28.2% 18.9% 43.7% 26.5 36.5 9.8 40.1% 15.5% 61.3% 24.7 44.0 8.0 38.8% 24.8% 39.6% 3.1 12.7 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 Regression Residual Total 1 118 119 SS 11578.38582 18671.7169 30250.10272 Standard Error 3.343486705 10.56637914 MS 11578.38582 158.234889 F 73.17214232 Significance F 5.06932E-14

Coefficients Intercept Churn 48.93659413 -90.38556457

t Stat 14.63639561 -8.554071681

P-value 0.0000 0.0000

Table 4.2 Summary output of regression analysis

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Churn rate

ARPU

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, = .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, = .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.

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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 Regression Residual Total 1 62 63 Coefficients Intercept X Variable 1 56.76813157 -96.49464129 SS 3390.7785 7646.6644 11037.443 Standard Error 4.6536 18.403213 MS 3390.7785 123.3333 F 27.492806 Significance F 0.0000

t Stat 12.198756 5.2433583

P-value 3.985E-18 2.017E-06

Table 4.3 Summary output of regression analysis

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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. 2. 3. 4. 5. 6. Understanding the issue for monitoring Determining monitoring questions Developing a theory for monitoring flow Developing measures for monitoring Determining data collection methods 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? 18

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 isnt 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. Its 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. Its 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.

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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 crossfunctionally, 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.

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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 companys objectives (Pearce and Robinson, 2008, p. 3). They also argued nine critical tasks included in the strategic management: 1. Formulate the companys mission, including broad statements about its purpose, philosophy, and goals. 2. Conduct an analysis that reflects the companys internal conditions and capabilities. 3. Assess the companys external environment, including both the competitive and the general contextual factors. 4. Analyze the companys options by matching its resources with the external environment. 5. Identify the most desirable options by evaluating each option in light of the companys 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 peoples performance and potential, diversity and inclusion, and development of high potential employees. Vodafone Group had, 21

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).

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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 Vodafones 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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8. Bibliography Balanced Scorecard Institute. (2010). What is the Balanced Scorecard. Retrieved August 1st, 2010 from http://www.balancedscorecard.org/ EFM Software (2009). Case: Vodafone. Retrieved August 1st, 2010 from http://www.efmsoftware.nl/totalqualitymanagement/casesvodafone/?lang=en Kotler, P., & Keller, K. L. (2008). Marketing Management (13th ed.). Upper Saddle River, NJ: Prentice Hall. Naagarazan, R. S., & Arivalagar, A. A. (2009). Total Quality Management. New Delhi, India: New Age International. Obiodu, E. (2010). HIS Global Insight Report: Vodafone Group (Telecoms) Company Strategy. Lexington, MA: HIS Global Insight. Parmenter, D. (2010). Key Performance Indicators (KPIs): Developing, Implementing, and Using Winning KPIs. Hoboken, NJ: John Wiley and Sons. Pearce, J.A., & Robinson, R. B. (2008) Formulation, Implementation and Control of Competitive Strategy (10th ed.). New York, NY: McGraw-Hill. Pinterits, A. (2009). Coordinating Internet Sales with Other Channels: A Performance Measurement Model. Wiesbaden, Germany: Gabler Verlag. Pointon, D. (2005). An interview with Grahame Maher Vodafone Australia: People before Profits. Retrieved August 1st, 2010 from http://www.fastmeetings.com.au/case-studies/vodafone-maher-interview.htm Rasmussen, N. H., Bansal, M., & Chen, C. Y. (2009). Business Dashboards: A Visual Catalogue for Design and Development. Hoboken, NJ: John Wiley and Sons. Smith, D. A. (2008). Implementing Metrics for IT Service Management. LK Zaltbommel, Netherlands: Van Haren Publishing. Stainthorpe, A. (2009). Mobile Churn and Loyalty Strategies: How to retain valuable customers (2nd ed.). London, UK: Informa UK. Strategy Analytics. (2009). Wireless Operator Performance Benchmarking Q3 2009. Santa Fe, NM: Strategy Analytics. Supply Chain Standard. (2006). Winner: Vodafone. Retrieved August 1st, 2010 from http://www.supplychainstandard.com/Articles/1206/Winner+Vodafone.html 24

TeleManagement Forum. (2010). Business Process Framework (eTOM) Addendum P: A Business Process Framework Primer. Morristown, NJ: TeleManagement Forum. Vodafone. (2008). Interim Management Statement for the Quarter Ended 31 December 2008. Retrieved August-7, 2010 from http://www.vodafone.com/start/media_relations/news/group_press_releases/2009/ims_q3.html Vodafone. (2010a). Vodafone Group Plc: Annual Report for the year ended 31 March 2010. Retrieved June-25, 2010 from http://www.vodafone.com/static/annual_report10/downloads/vf_ar2010.pdf/ Vodafone. (2010b). Customers. Retrieved August-7, 2010 from http://www.vodafone.com/start/responsibility_uk/customers.html Vodafone. (2010c). Learning for the long term. Retrieved August-7, 2010 from http://www.vodafone.com/working_nation/the_skills_of_work/learning_for_the_long.html Volitich, D. (2008). IBM Cognos 8 Business Intelligence: The Official Guide. New York, NY: McGraw-Hill. Wang, X. (2009). Performance analysis for public and nonprofit organizations. Sudbury, MA: Jones & Bartlett Learning.

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