German University in Cairo Fall Semester 2004/2005

Management & Technology Department To hand in in the beginning of the last

Operations Management I tutorial, week 15th to 20th January 2005

Final AssignmentOperations Management I

Tutorial Group: 3M1

Vodafone Egypt

Team-members: First Name, Last Name responsible for chapter

Appl.-No.

1526 Nadine Sami 3

311 Sara Sadek 4

314 Amena El-Deeb 5

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Introduction

I. Basic Overview:

In February 1998, Vodafone Group, showed interest in acquiring their first GSM

license in the Middle East and North Africa Region. Vodafone Group chose to invest its

experience and resources in the Egyptian telecommunications market as it hosted the

most prominent telecommunications environment in the region. Since then, Vodafone

Egypt has invested over LE 3 billion in the construction of its existing network. The

Company has grown rapidly to its current customer base of over 2.5 million subscribers.

This success has been built on the collaboration between the Company’s majority

shareholders, Vodafone Group, representing the world’s largest mobile community,

Egyptian partners Alkan, Banque du Caire and MSI International who operates in several

African markets.

Vodafone Egypt is considered to be the largest mobile communications company in

Egypt in terms of net profit and the second largest in terms of revenue and market share.

The Company’s GSM and GPRS networks cover approximately 98.5% of the total

Egyptian population. In addition to its national coverage, the Company also has GSM

roaming agreements with more than 270 mobile telecommunications operators in over

109 countries in 6 continents.

II. Departments:

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Vodafone has 8 main departments which are:

1-Customer operations department

a. Complaints management

b. Call center

i. MIS

ii. Planning

2-Technology department

a. Technology management (IT) systems/Analysis

i. Operations

b. Technology development

c. Procurement

3-Human resources

a. Taxation of salaries

b. Training

4-Marketing

5-Sales

a. Retailers

b. Dealers

6-Finance

7-Facilities and properties

a. Buying new branches

b. Procurement

8-Legal department

a. Regulatory affairs

III. Service:

Vodafone is definitely a service provider given the fact that its core business is to provide

its customers (businesses, families, individuals) with the full suite of mobile

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communications services appropriate to their needs. Services provided range from basic

voice connectivity within Egypt to international data roaming using GPRS technology.

IV. Competitors :

Vodafone’s main competitor is Mobinil which was granted the first private mobile

operator license in Egypt. Mobinil serves some 2.7 million customers and has a market

share of approximately 52%.

However, Vodafone has two other indirect competitors which are telecom Egypt and

payphone companies (Menatel and Ringo)

Telecom Egypt is Government owned, monopoly provider of all fixed line and

international voice traffic; owner but not operator of a third mobile license. Currently

serves approximately 8.4 million landline customers owning 10.9 fixed lines. Telecom

Egypt is the only external supplier of connectivity to both mobile operators.

While Payphone companies offer the customer voice connectivity through prepay cards

that are used in public phone booths.

V. Vodafone’s Mission:

The Vodafone Egypt mission statement “To be Egypt’s mobile communications leader,

enriching customers' lives, helping individuals, businesses and communities be more

connected in a mobile world”

Underpinning this vision lie four values (passions) that are again consistent across the

Vodafone Group which describe how employees live their lives to achieve the vision.

These values are embodied in ‘Passion for Customers’, ‘Passion for People’, ‘Passion for

Results’, and ‘Passion for the World around Us’. Vodafone Egypt blends local values and

culture into the four passions giving them an Egyptian flavor.

Also in order to attain their vision Vodafone tries to achieve six strategic goals which are:

Delight their customer

Build the best global Vodafone team

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Leverage global scale and scope

Expand market boundaries

Be a responsible business

Provide superior shareholder returns

VI. Strategies:

Vodafone Egypt strategies are designed to work towards their vision. In particular:

• To provide their customers with affordable, high quality basic services enhanced by the

rich experience of leading edge value added services (e.g. Vodafone Live).

• To develop local products, distribution channels, customer care services and tariff plans

that encourage their customers to use mobile communications.

• To assist their business customers develop their business communications with the

provision of leading edge services (e.g. ‘Mobile Office from Vodafone’).

• To apply the global benefits of the Vodafone brand, products and services on a local

basis.

• To co-operate with relevant Ministries to develop the communication industry to the

benefit of the community.

• To contribute to the general well being of the community through the charitable and

developmental work of the Vodafone Foundation

VII. Productivity:

Finally, Vodafone measures its productivity in terms of Network availability or in other

words having the network running in a normal efficient way with no interruptions and a

point worthy of mentioning is that Vodafone has a productivity ( network availability) of

approximately 99.5%.

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Chapter 3

Forecasting:

Now, I’m going to discuss Vodafone’s forecasting techniques and methods. First, I

would like start with a quick overview of the chapter. A forecast is a statement about the

future value of a variable interest. There are standard features that should be available in

all forecasts, such as being rarely perfect, that what happened on the past will exist in the

future, forecast accuracy decreases as time period increases….etc. A good forecast should

be timely, accurate, reliable, expressed in meaningful units, written, simple to understand

and use, and finally, cost-effective.

There are two general approaches to forecasting: qualitative and quantitative.

Qualitative methods are subjective inputs, which often defy precise numerical

description; they permit inclusion of soft information for example: human factors,

personal opinions….etc. Vodafone applies judgmental forecasting method only, we were

not told anything about time-series forecasts or associative model. Whereas quantitative

methods involve either the projection of historical data, or development of associative

models that attempt to utilize causal variables to make a forecast. They mainly consist of

analyzing objective or hard data. It avoids personal biases that sometimes contaminate

qualitative methods.

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From our interview, we knew that Vodafone uses both forecasting approaches

mentioned above. In qualitative forecasting, Vodafone relies heavily on judgmental

forecasts which are those forecasts using subjective data inputs such as opinions from

consumer surveys, sales staff, managers, executives and experts. Vodafone also applies

the Delphi method, where managers and staff complete a series of questionnaires, each

developed from the previous one, to achieve a consensus forecast. This method reduces

the risk of employees being biased or prevailing of opinions because results are kept

anonymous. Another forecasting method Vodafone uses internally is launching new

products to Vodafone’s employees first, this enables Vodafone to measure the service’s

utility and get a quick, reliable feedback about it before it is launched publicly to

customers. Since the relation between Vodafone and their customers is sometimes

indirect, which means through dealers, and that Vodafone really cares about customers’

satisfaction and fulfilling their needs, therefore one of the most important forecasting

methods Vodafone uses is giving out questionnaires to dealers responsible for

Vodafone’s distributions to fill out, asking them about their opinion in the new service

that will be launched and whether it will appeal to customers or not. Vodafone also takes

into consideration the society’s perception, or in other words, how the society will

respond to that new product, for example: will it suit the Egyptian customers? Previous

experience showed that exactly the same services which are Vodafone offer all around

the world achieve goals bringing a lot of revenue in some countries, and on the other

hand, fail in other countries.

That was all for the qualitative approach. Concerning the quantitative forecasting,

Vodafone computes some statistics relating the brand new service with similar or actually

the same one abroad so it can try to estimate the sales and revenues that could be

obtained from that service during for example the first three months or first year after

launching the new service.

Computers play a very important role in preparing Vodafone’s forecasts based on

quantitative data. This helps the managers to develop and revise the forecast, quickly and

efficiently, eliminating the risk of errors without the burden of manual computations.

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Vodafone use computer matrices to calculate the expected number of subscribers. This

calculation is based on previous geographical statistics.

Most forecasts are not 100% accurate, in other words, it is very rare to have a perfect

one. Therefore, there are a lot of errors that occur; errors are the rule rather than

exception. There are mainly two classifications of errors, either overestimation, or

underestimation. An example of overestimation that occurred in Vodafone Egypt is that

when they first launched the “Ringback tone” service (a service that allows subscribers to

place a piece of any song they choose or a part of a play, to be played to the caller instead

of the traditional sounds displaying whether a call is busy or ringing), it was estimated in

the forecast that it will bring revenues of 10,000 L.E three months after its launch. But

surprisingly what actually happened is that that amount was achieved only two days after

the launch. This false estimation was due to forecasting according to what happened

previously in other countries such as Germany and Korea, where that service didn’t work

at all. This reflects what was mentioned above about considering customers’ needs, or in

other words, looking at it from the society’s perception because consumers’ behavior

really differs from one place to the other. As a result, sometimes employees are afraid of

giving high estimations for sales because they can not take the risk of not achieving that

forecast which might get them into trouble. Concerning underestimation, which means

estimating for example a forecast of specific amount of sales or revenues of 100,000

subscribers, and unluckily failing to achieve it. At this point, Vodafone has to react to

what had happened and deal with it and what were the reasons, it also enables them to

know people’s trend of whether they will continue using that service in the future or not.

They analyze the case by giving out questionnaires to customers asking them why didn’t

they use it and what are their recommendations to improve it…etc. If the reason turned

out to be that people were not aware yet of the service, hence Vodafone has to stress

more on advertising and promoting its new service. Customers might not be also well

educated to understand such a service if it requires for example awareness of new

technologies.

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Chapter four

Product and Service Design:

Vodafone is a service company so mainly I will discuss the parts related to a service

rather than a product.

First to begin with, the definition of a service a service is something done to or for a

customer. There is difference between the service design and the product design mainly

the service design with choice of a service strategy, which determines the nature and the

focus of the service, and the target market. Services are generally intangible but products

are tangible ,also a service is created and delivered at the same time which means it's not

easy to discover errors and correct them before it reaches the customers ,services cant be

stored and services needs high customer contact and it's highly visible to them so it must

be designed with that in mind.

Taking Vodafone our example when they design a service for their service package ,they

consider first what suites the society and what really satisfy the customers as all the

services in Vodafone is tailored to satisfy the customers. To design a service a market

research is carried out to find out what is missing to add to Vodafone package of services.

Vodafone designs sometimes need to be redesigned as the nature of the culture lead to

difficulties that result in unexpected results of the service offered for example the GPRS

service and this is the service that enable you to be connected to the internet from any

place, this service was very successful globally but it didn’t perform well in Egypt and

very few people are using it on the other hand, the ring back tone service was applied in

Germany ,china and Korea but didn’t show a lot of success ironically, it was very

successful in Egypt so not all the services design work as expected it depends on the

nature of the society and the unexpected behavior of the people.

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Standardization is the extent to which there is absence of variety in a product, service or

process. Vodafone is considered somehow to have standardized service as if you go any

place in the world you will find Vodafone offering the same services with the same

features. This standardization has both advantages and disadvantages.

The advantages of standardization to Vodafone:

1) They are the market leader in technology.

2) It help to support any upgrades

3) Help them increase their capacity

4) Buying in bulk which reduces the costs

The disadvantages of standardization:

The main disadvantage is that some services are not very successful and are not

generating profits but they are still operated which lead to high costs charged on

Vodafone.

Vodafone also have guideline were they designer have to follow for example as the

following:

The service designs have to meet the company's goal and it has to be offering

the highest quality.

The service designs have to give the customer the value they expect.

Consider potential harm to the environment.

Vodafone work hard on the legal, environment and ethical issues, Vodafone have

legal teams that go through a channel to review the legal terms of any process also

Vodafone have an ISO certificate . They are very concerned about the environment and

the process of recycling which is the process of recovering of materials for future use.

Also they make charities that help the community that people are not aware of it.

Vodafone is considered to be in the growth stage in the product life cycle but this for

Vodafone Egypt but for the global Vodafone it is considered to be in the maturity stage.

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Vodafone tries to increase the reliability of their service which is the measure of the

ability of a product, part, or system to perform its intended function under a prescribed

set of conditions. Vodafone increase their reliability by improving their minitrade and

trying to fix the problems that arise suddenly that cause failing of the network. Vodafone

tries to provide their customers with the highest quality service without failure and the

term failure is used to describe a situation in which an item doesn’t perform as intended.

The potential ways to improve their reliability are:

1) Improve component design.

2) Improve testing the service.

3) Use backups.

4) Improve system designs

5) Improve user education

Vodafone tries always to innovate and generate new ideas for their service they have like

chat rooms that are connected with the branches of Vodafone all over the world; they

measure the new services and try to find what suites the society.

There are a number of characteristic of well designed service systems. They can serve as

guidelines in developing a service system. They include:

Being consistent with the organization mission.

Being user friendly.

Being easy to sustain.

Being cost effective.

Having value that is obvious to customers

Having design features and checks that will ensure service that is reliable

and high quality.

Vodafone tries always to match its service design with it's mission and objective but at

the end so they are seeking profits to provide their shareholders with a superior returns so

they try to be the leaders in technology and satisfy their customers

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Chapter Five

Strategic Capacity Planning for Products and Services:

Before discussing capacity planning in Vodafone, first I would like to start by defining

the word capacity. Capacity refers to the upper limit or ceiling on the load that an

operating unit can handle. In any organization capacity decisions are regarded as vital

ones because they are closely linked to changes in demand, in technology, in the

environment as well as in the perceived threats and opportunities. They are also

considered as strategic decisions because they a major determinant of an organization 's

ability to meet future demand , they affect its initial and operating costs, they require

significant financial resources and greatly affect an organization's competitiveness that is

why an organization should take carefully plan its capacity and always aim at meeting its

long term demand.

Capacity has many aspects, but since we are developing our report from the

operations point of view I will talk about the capacity of Vodafone's network in Egypt.

Vodafone' current network has a design capacity, which is the maximum rate of output

achieved under ideal conditions, that can support more than 3 million subscribers and

covers approximately 98.5% of the total Egyptian population. Vodafone has high

capacity utilization since it has a current customer base of over 2.5 million subscribers. In

our interview we knew that Vodafone's technical department has a technical development

team which is responsible for dimensioning and planning Vodafone's network

capabilities depending on forecasts. Vodafone has a core network which is technically

designed to support and provide coverage for the next 2 years; it is also designed

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according to the latest worldwide technologies and in a way that allows its upgrading in

order to be able to incorporate any new technological updates.

This leads us to another important point which is the fact that Vodafone designs

flexibility into its network and that is because it is aware of the high growth rate of the

mobile market and the necessity of taking provision for future expansion into account, it

is also aware of the high rate of technological advances. An example of Vodafone's

flexible network design is when it recently increased the operational capacity of the

"Ringback tone” service in response to the great demand.

It is worth mentioning that designing flexibility in the network is quite costly however

Vodafone considers it a well justified investment that reduces its costs on the long run

given the fact that their network is designed in a way that allows it to support the latest

versions and technological updates .Moreover, we knew in our interview that Vodafone

always keeps an amount of capacity in excess or a "capacity cushion " sometimes even to

the point of "freezing" or in other words not selling any new phone lines in order to

prevent any high network traffic that would affect the network quality. That emphasizes

the fact that they are always keen to function within the scope of their operations strategy

which focuses on achieving and maintaining the highest mobile network quality as a

fundamental driver of customer satisfaction. This capacity cushion also shows how

Vodafone is taking into account the fact that it is in the growth stage which is a period of

increasing demand, so it is preparing itself to meet that demand.

Moreover thanks to the close link between marketing and operations, any new service is

never launched before considering the capacity of operations in advance and deciding

whether it will be able to develop the platforms and support systems necessary to host

this new service or not.

Now I move to another important point which is whether Vodafone outsourcers or

not. We were informed that all of Vodafone's network and computer related equipment

are obtained from outside vendors whether local or international. Also Vodafone

negotiates a number of supply agreements on a global scale. This enables Vodafone to

influence the product specifications and the price of key technologies. Moreover this

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outsourcing provides Vodafone with a means of controlling costs and expenditure, it

enable it select and benefit from the quality and expertise of these specialized firms. An

example of outsourcing is when Vodafone signed Ericsson as a global Multimedia

Messaging Supplier (MMS). (MMS is an evolution of SMS, allowing customers to send

and receive messages using text, pictures, audio and video.).Some of Vodafone' hubs are

connected to base station controllers (BSC) using leased links running over Telecom

Egypt's fiber network. Traffic between mobile switching centers and interconnections

with other operators also uses leased links on Telecom Egypt's fiber network Vodafone

also contracts out the services of the Tarek Nour advertising agency.

Finally, a point worth mentioning is that Vodafone is operating at economies of scale

which means that average unit costs are decreasing as the number of subscribers is

increasing and that is because fixed costs are spread over more units and this definitely

allows Vodafone to gain more profits.

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