The purpose of this report is to analyze and improve the business performance of Vodafone Australia and assess its future viability based on the company's current operating situation. At present, the firm is engaged in a turnaround strategy to rectify its poor performance, as evidenced by its stagnant market share and revenues as well as its large debt. As such, it has divested many of its retail stores, reduced capital expenditure, decreased operating expenditure and cut its workforce.
Through the evaluation of market factors, it has been determined that the likelihood of profit generation from the firm's current strategies is low given the industry's intensive competitiveness and its maturing lifecycle stage as well as the competitive strength of telecommunications leaders Telstra and Optus. Thus, a two-pronged strategy has been devised to combat these forces, which are based on Vodafone's competitive strength to meet market needs. The first part of the strategy will pursue growth through market development while simultaneously utilizing Vodafone's competitive advantage as an expert in wireless technology.
It involves bringing wireless solutions to the small to medium business niche, a market that has been overlooked by industry leaders. The second part of the strategy is to build brand loyalty amongst existing consumers with the aim of increasing revenues. Vodafone Australia has recently been plagued with negative headlines like "Vodafone in Dire Straits" and "Vodafone Still Takes on Opposition despite Job Cuts". This is in the midst of its poor financial performance over the past couple of years as it struggles to compete against Telstra and Optus, the two industry leaders.
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The company's substantial debt1, its revenue decline in 2001 and its stagnant market share2 has led to its pursuit of a turnaround strategy with the 30% reduction in staff3, the 25% decrease in operating costs4 and the divestment of its mobile phone retail outlets5. Thus, this report seeks to analyze and improve Vodafone's business performance and assess its future viability through analyzing its current internal and external environments. Here, the nature of Vodafone is probed in terms of its strengths, weakness and objectives.
These internal factors are then weighted against the firm's opportunities and threats, evaluating the suitability of the firm and its objectives to its external environment. In addition, the possible causes for its performance decline and the major issues facing the company are identified. In this instance, the issues of intense industry rivalry, market saturation and Vodafone's core competency in providing purely wireless solutions are given significant consideration in the devising of a two pronged strategy designed to enhance Vodafone's short term and long term situation in light of these market factors.
The information upon which this recommended strategy is based has been derived from secondary data research from the company's website, advertisements, newspaper, Internet and magazine articles. One of the limitations encountered during the formation of this report has been Vodafones' company policy to keep all firm related information confidential other than what is already presented on their website. Vodafone Australia's vision is based around understanding and providing the multiple benefits of mobile communications to consumers, such as the freedom and flexibility to communicate and access information anywhere at anytime.
In addition, Vodafone aims to lead the industry through innovative technology and service development and as such, its main objective is to increase its market share within the mobile and data services sectors of the telecommunications industry. The company is the third largest telecommunications carrier in Australia6, with its business predominantly in mobile retail and services with some dealings in data services. It is a subsidiary of the UK based parent firm, Vodafone Group Plc, and has had a presence within Australia since 1992 with a network investment worth over $2.
7 billion7. Headed by managing director, Grahame Maher, Vodafone Australia once boasted 12 000 retail points of sale8. Vodafone Australia's strengths include its ability to provide innovative products and its expertise in wireless technology, both of which are considered competitive advantages in such a dynamic industry9. In addition, it effectively uses widespread advertising to target different markets 10 and is the largest carrier in the world11 with operations in over 28 countries, meaning that is also possesses experience and skills in international settings (see appendix 6).
These organizational strengths allow the company to exploit potential business opportunities such as an expansion of wireless communications on a global scale (see appendix 6). Here, wireless office solutions provide mobile voice/data services to business customers who possess great revenue potential in the wake of increasing globalization so that even small and medium firms require more sophisticated communications systems to operate in international markets. Other opportunities include the emergence of new technologies, in particular the 3G networks, to provide new mobile telecommunications products and services.
However in spite of these opportunities, Vodafone is facing financial distress due to its company flaws and threats (see appendix 6). The major weakness of Vodafone is its poor financial position. This can be attributed to its flat revenues 12, low rates of new customer generation (in the March quarter 2002 only 24,000 new customers signed up compared to a budgeted 350,000 customers)13 and falling market share from 20% to 17% in the last 2 years14. Furthermore, attention has been given to its poor customer service15.
These factors make way for external threats to penetrate company operations. These include Mobile Number Portability (MNP) which lowers switching costs between carriers and as such decreases customer loyalty16 and the rivalry of existing competitors. The latter could counteract Vodafone's strength of providing continuous innovations, as competitors may also follow this strategy to make the benefits of introducing new products short lived17. Another threat comes from consumers becoming increasingly more price sensitive, as they are not willing to pay for the benefits of new technology18.
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