Reference no: EM131313792

Assignment

Part 1

Case Study 14- Safaricom

CASE STUDY INFO IS BELOW PART 2

Read the case study located in the section titled Case Studies in your textbook and prepare a 3- to 4-page report in a Microsoft Word document concerning the following situation:

The Safaricom case provides an excellent opportunity to apply strategic management concepts to a constantly growing and extremely competitive organization. Safaricom is the largest mobile service provider in Kenya. It offers not only means of mobile communication, but also is involved within the community. In addition, Safaricom sponsors athletic events such as Safaricom Sevens and a music festival, Niko naSafaricom Live.

The purpose of this case study is to examine the factors that are crucial to Safaricom's continued success and to propose strategic actions to sustain its competitive advantage. While Safaricom's community involvement enhances its brand image, the mobile service sector of Safaricom is the largest and main focus. Safaricom was formed in 1997 and has grown to be the largest mobile service provider in Kenya by implementing different strategies, including acquisitions.

The analysis should start with a scan of the general, industry, and competitive environments. How does the external environment in Kenya differ from anywhere else? The case also describes Safaricom's competitive advantage, and the effectiveness of its strategies against industry rivals should be examined. Safaricom offers different services such as prepaid mobile, voice and data services, and its voice packages are bundled with other services such as rewards programs, music, and games. Finally, the pressing strategic concerns, the effectiveness of Safaricom's leadership should also be considered to devise convincing recommendations.

This case is ideal for demonstrating the importance of the external environment, competitive rivalry, and strategic leadership. The following points are to guide a review and discussion of these important concepts.

Your report and overview should address the following key strategic issues:

• Describe the general environment that Safaricom faces. What are the segments in the general environment that relate to Safaricom's situation? What are the opportunities and threats derived from the factors from the general environment? What are the possible future implications of some of the external factors?

• Analyze the competitor environment and identify the competitors. Has Safaricom done enough to outperform its competitors?

• Evaluate Safaricom's CEO, Robert Collymore's strategic leadership. Has he been able to fulfill his responsibilities and continue to grow Safaricom as a company?

• Describe Safaricom's next move in terms of growth and expansion. Based on your analysis, what additional recommendations would you make to help Safaricom achieve its goals?

Part 2

Strategic Management and Competitiveness

In this assignment, you will decide on strategic management plans, a company's strategic competitiveness, and the best model for above-average returns.

In current market conditions, companies need to gain and then maintain a competitive edge over their competitors. They do this by employing a compelling and dynamic strategic management process to create a strategy that helps them achieve their goals before one of their competitors does.

Discuss the following questions in relation to strategic management:

• What factors make up this process?
• How important is it to change, and what criteria determine the changes in a strategic management plan?

Discuss the following questions in relation to strategic competitiveness:

• How would you describe the twenty-first century competitive landscape and the various challenges it brings to businesses?

• Why will a traditional mindset not lead a company to strategic competitiveness and what values must managers adopt to overcome these challenges?

Such companies also measure performance in terms of the degree and the speed of growth.

Discuss the following questions in relation to above-average returns:

• What are the differences between industrial organization (I/O) and resource-based models of above-average returns?
• Which is a more successful model?
• Which model will you use to help shape your strategic management plan and why?

Case Study Information

CASE 14: Safaricom: Innovative Telecom Solutions to Empower Kenyans

As the largest mobile provider in Kenya, Safaricom has touched the lives of Kenyans throughout the country, with products and services designed to empower people. Safaricom enjoys a 64.5% market share, 77.5% of voice traffic, and 72.6% of mobile data/internet subscribers. Safaricom facilitates community involvement through various organizations such as the M-PESA foundation, a charitable trust that seeks to advocate programs that improve health, environmental conservation, and education for the financial and social benefit of Kenyans, and the Safaricom Foundation, whose mission is to partner with the community to tackle environmental, economic, and social issues to bring about enduring and progressive change. Safaricom also serves society by sponsoring athletic events through Safaricom Sevens, the biggest rugby event in Kenya, and by sponsoring the music festival Niko naSafaricom Live, an event featuring local music talent and fostering national pride.

Safaricom Ltd. was formed as a private limited liability company (LLC) in 1997 and became a publically traded company in 2002. The original company was 60% owned by the Government of Kenya. In 2000 Vodafone acquired a large stake in the company through Vodafone Kenya Ltd, a locally owned subsidiary. In 2008 the Government of Kenya sold enough shares to the public to lose its majority interest. There are a total of 40 billion shares outstanding, which are owned by 698,863 different investors as of March 31, 2013. Of those shareholders, 61.2% own less than 1,000 shares. The top two shareholders, Vodafone Kenya Limited and Permanent Secretary - The Treasury, now own just over 75% of the company. As of October 18, 2013, 52 institutional investors owned only 2.3 million shares, or 5.86% of the remaining shares.

Safaricom has grown through a variety of strategies, including acqusitions. In 2008, Safaricom purchased a majority stake in One Communications Ltd. in order to gain access to its data services. The company has also made several other small acquisitions to enhance its services and market share.

Operating in Africa

According to KPMG, "Africa is the last great untapped telecommunications market." Market penetration in Africa is only 47%. GDP growth in sub-Saharan Africa remained strong in 2012 at 4.6% despite the global economic slowdown. Kenya is the third largest mobile market in Africa, behind Nigeria and South Africa. Kenya also boasts one of the fasting growing economies in the region. The number of mobile subscribers is expected to grow steadily in the medium to long term with an estimated 13 million new subscribers from 2011 to 2016. There is currently a pricing war going on between the four mobile service providers in Kenya.

Kenya

Kenya is located in East Africa and earned its independence from Great Britain in 1963. Since obtaining independence it has been relatively peaceful. The county is home to over 37 million people and official languages are English and Swahili, although various indigenous languages can be heard throughout Kenya. The currency is the Kenyan shilling (KSh). Its capital is Nairobi, with a population of over 3 million people. There are two heads of state, President MwaiKibaki and Prime Minister RailaOdinga. In 2010, Kenyan citizens voted to ratify a new constitution, which would decrease the president's power and establish a bicameral parliament. Kenya has a fairly significant but declining trade deficit. Key trading partners for exports are Uganda, Tanzania, Britain and Germany. Kenya exports a lot of legumes. Key trading partners for imports are Britain, Japan, Germany and the United Arab Emirates. The crime rate in Kenya is quite high, especially crimes of petty theft, armed robbery, burglary and fraud. Corruption is also The country is fortunate to have one of the most diversified economies in sub-Saharan Africa. Its main economic sectors are agriculture, manufacturing and services. Tourism and the export of coffee and tea serve as the two chief means for bringing in foreign funds. In addition to coffee and tea, other agricultural products include wheat, corn, sugarcane, fruit, vegetables, dairy products, beef, pork, poultry and eggs. Nominal gross domestic product (GDP) is 3,036 billion Ksh. growing at a rate of 5.7% annually (real) with inflation at 7.5%. The Kenyan government encourages foreign direct investment, and multinational companies make up a significant portion of Kenya's industry. The Nairobi Stock Exchange was established in 1954 and is the fourth largest in sub-Saharan Africa. There are 57 companies listed on the exchange, including Safaricom.

Beginning in 2008, Kenya experienced several events that hurt the economy, including a drought, rising fuel and food prices, and the global economic crisis that slowed growth in the country. Nonetheless, through economic policy changes, the country has curbed inflation and is on the way to cutting interest rates due to better-than-expected economic performance. Despite the challenges in the economy, the country shows vast potential for growth in technology.

Internet use continues to grow in Kenya, partly because of cheap access through mobile phones. Kenya's lack of fixed line internet infrastructure has forced consumers to access the web through mobile devices. The percentage of households with a mobile phone continues to increase.18 However, continued growth in this industry is somewhat constrained by low household incomes in Kenya.

On the Human Poverty Index, Kenya ranks 64th out of 103 countries, with around 50% of the population living below the poverty line. The unemployment rate for the country is roughly 40%, where 23% of the population lives on less than $1 per day, and 58% of the population lives on less than $2 per day. The average life expectancy at birth is about 57 years. The overall literacy rate is fairly high for Africa at 85.1%; however 90.6% of males can read and write, compared to only 79.7% of females.

While human rights in Kenya have improved, there are still instances of harassment, torture, and extrajudicial murders of citizens by the police. While the government pursues individuals accused of such crimes, often times these people are not convicted. The government has a poor record on issues such as invasion of privacy, freedom of speech, and the right to assemble.

Services

Safaricom has 19.4 million customers, and the company offers prepaid and postpaid mobile, voice, and data services. About 99% of customers are prepaid customers. Safaricom has over 2,900 base stations that provide 2G and 3G cell service to customers, and continues to invest in upgrading and building new base stations through the "Best Network in Kenya" program. 3G coverage is only available in the metropolitan areas of the country.

In the voice segment, the largest revenue segment for the company, Safaricom offers a wide range of pricing plans, which are often bundled with other services such as data. Services include: OkoaJahazi, an emergency credit based top-up service; Bonga, a customer loyalty rewards program; Skiza, a call ring-back service; Contacts, a backup service; and premium services including ring tones, wall paper, music, and games.

Within the data segment, Safaricom offers high-speed data for access to email and internet through fixed and mobile broadband. It also offers Sambaza Internet, which allows customers to transfer data airtime to another subscriber. Another program, Night Shift, gives customers cheaper data bundles at night. This incentivized better network utilization during off-peak hours.

Through the Enterprise Business Unit Safaricom provides businesses with data service and dedicated solutions for data storage, hosting, and security problems. In the messaging segment, Safaricom offers customers a wide variety of bundles for SMS, MMS, and video messaging.

Safaricom provides a competitive platform called AppStar for application developers to showcase and be recognized for new mobile applications. The company also introduced new services such as m-agriculture, which gives tips to farmers, m-health, which connects Safaricom customers to medical professionals via SMS to give advice on health issues, and e-learning, which allows mobile access to educational resources for Safaricom customers.

M-PESA, Safaricom's money transfer service, has over 17 million customers and is available in over 65,000 agent outlets, which include supermarkets, gas stations, selected banks, and other authorized Safaricom retailers, and over 2,000 payment partners which include registered businesses that accept M-PESA payments.23 M-PESA is a fast and affordable way to send and receive money via mobile devices. The service provides many Kenyans access to financial services that they would not normally have. In 2013, Safaricom launched M-Shwari through a partnership with the Commercial Bank of Africa. Customers can transfer funds from M-PESA to M-Shwari, allowing them to save money, earn interest, and even borrow small amounts of money through a "microloans" program. Customers can save as little as 1 Ksh ($0.012 USD) and borrow as little as Ksh 100 ($ 1.22 USD). There are no application forms, no ledger limits, no limits on the frequency of withdrawal, no minimum operating balances, and no charges for moving funds from M-PESA to M-Shwari and vice versa.

Safaricom has partnered with the Commercial Bank of Africa in order to add innovative solutions to the M-PESA service with M-Shwari. The Commercial Bank of Africa is the largest privately-owned bank in Kenya. It is one of 43 licensed commercial banks operating in the country. The Commercial Bank of Africa has operations in both Kenya and Tanzania, where the bank was originally founded. It has only been during the last few years that Safaricom's competition has followed suit by providing mobile banking services in Kenya. Safaricom will also continue to expand its M-PESA service and increase financial inclusion for Kenyans by expanding the distribution network, reducing system downtime, and ensuring geographic redundancy.

Financial Performance

Financially, the firm is performing quite well. Total revenue increased from 107 billion Kshs in fiscal year 2012 to 124.28 billion Kshs in fiscal year 2013. Revenue within the firm is broken into seven categories in two major segments, service revenue and other revenues. Service revenue includes Voice, Messaging, Mobile Data, Fixed Service, and M-PESA. Other revenue includes Handset, Acquisition, and Other Revenue.. Voice services provide the greatest percentage of revenue, followed by M-PESA revenue. In Handset revenue, smart phones currently account for 51% of product revenues, while standard cell phones account for only 32% of product revenue,

In addition to increasing revenue, Safaricom was able to decrease operating costs from 24% of total revenue to only 23% of total revenue during that same timeframe. These costs savings initiatives are focused in the areas of transmission, inventory, network operating costs (including fuel), and IT costs. Total capital expenditures amounted to 24.88 billion Kshs in FY 2013, of which 90% went to improvements in network quality, capacity, and coverage. Net income increased from 12.63 billion Kshs to 17.54 billion Kshs. Earnings per share increased from 0.32 in FY 2012 to 0.44 Kshs in FY 2013. Free cash flow saw a 55% improvement from 9.35 billion Kshs in FY 2012 to 14.51 billion Kshs in 2013. Safaricom's dividend policy pays out 85.5% of free cash flow in dividends. Pending shareholder approval, the total dividend for FY 2013 will be 12.4 billion Kshs, the largest dividend in Kenyan corporate history.

Training

Safaricom's experienced management team has worked to share its expertise with the entire organization. The Subject Matter Expert Program has been set up with 50 staff members in various disciplines who teach technology, finance, team building, and soft skills to other members in the organization. The goal is to ensure a high customer experience at all points of contact with the customer by providing employees with world-class programs and exposure to new technologies, professional development, and service offerings. In addition to internal training and professional growth opportunities, Safaricom expanded their Graduate Management Program in the second quarter of 2013. This program takes employees with high potential through a university program that equips them with functional and business skills. This year 25 employees are expected to complete this program.

Human Resources

Safaricom directly employs 3,254 people in the ranks of management and strives to promote from within the organization. Some of its key hiring practices include filling open positions 50% of the time with internal employees and hiring equal numbers of men and women. Safaricom has achieved female representation in 30% of G4 management level positions and above. A breakdown of the company's employment and headcount statistics is shown in Exhibit 10. A survey was recently completed to measure overall employee satisfaction and manager engagement. Both metrics have improved by over 10% since the inception of the program, which shows management's commitment to improving the working environment within the or

Distribution Channel

Safaricom manages a direct dealership network of 2,600 locations, which directly or indirectly employs over 22,000 people. Furthermore, there are over 250,000 retail outlets in Kenya that offer Safaricom products. To help stimulate the growth of these dealers, Safaricom has rolled out several initiatives to incentivize increased sales. These include training on data and data related products, offering short-term credit to ensure airtime can be sold at peak times (holidays or special events), introduction of an 8% commission on data used on lines sold by the specific dealer, and financial support on distribution tools such as motorbikes, used for advertising and promotion.

Sales and Advertising

In 2010 Safaricom sacrificed some operating profits by increasing sales and advertising expenses by 16.3% from fiscal year 2009 levels. This was a conscious decision made by the senior management team as they sought to reach and educate their diverse market. In 2011, to expand their marketing efforts, Safaricom focused on understanding the voice of the customer, improving the way the company communicates its messages, and aiming to become more intimately involved within the community. The "Niko naSafaricom" campaign was launched in November 2010 and gained traction in 2011. The campaign's goal is to stimulate customer loyalty and to reduce customer turnover. This campaign fortified the Safaricom brand by communicating a commitment to Kenya and its people, reminding the public they are a successful Kenyan company built and made up of the people of Kenya. Motivation segmentation took center stage as Safaricom strived to understand differing segments of their target market in hopes to align product development, communication, resources, and distribution strategies to meet diverse needs. In 2012, Safaricom was voted the most valuable brand in Kenya. As marketing activities continued to expand, 2013 saw the consolidation of all marketing functions across Safaricom, centralized into a single division led by Rita Okuthe, who was appointed Marketing Director in May 2013. Under her leadership the "Naweza" campaign was launched. This campaign was to further weave the Safaricom brand into the Kenyan culture. Safaricom now sponsors the largest sporting event in Kenya (seven-a-side rugby) called Safaricom Sevens, and launched Niko Na Safaricom Live to give local music talent the chance to perform on a world class platform.

Strategic Priorities

Safaricom has identified its intent to transform the lives of its customers, shareholders, business partners, staff, and the communities Safaricom serves. The company has defined the following strategic priorities:

• 1.Deliver the ‘Best Network in Kenya'
• 2.Grow mobile and fixed data
• 3.Deepen financial inclusion
• 4.Retain and reward the loyal customer base
• 5.Encourage further innovation.35

Under its "Best Network in Kenya" initiative, Safaricom has worked to increase 2G and 3G coverage, modernize the network in six key cities, roll-out fiber in 40% of sites in Nairobi, increase speeds, deliver value-based pricing, lower the pricing of 3G smartphones, and improve customer services. Other actions include: upgrading old cell sites, reducing the number of dropped calls, decreasing network downtime, and broadening the reach of their telecom services. Although improvements in network quality are a tremendous opportunity, there is some risk, including the risk of vandalism leading to service disruption, general security, especially in northeastern Kenya, energy availability and reliability, and M-PESA service delays. The instability of the Kenyan national energy grid and lack of energy grid availability in some rural or isolated parts of the country limits growth.

The Safaricom Foundation

The Safaricom Foundation was founded in 2003 and disbursed 416.8 Ksh million to 119 projects in 2012. The foundation is divided into ten areas, including Education, Health Education, Disaster Relief, Water, Economic Empowerment, Sport, Environment, World of Difference, M-PESA Foundation, and Other.37Safaricom recognizes "the continued need to invest in maternal and child health; as well as the important role that mobile communications technology plays in transforming lives in areas such as health, education, and economic empowerment."38 The Safaricom Foundation's "World of Difference" program is a multi-phase initiative that empowers the citizens of Kenya to make a difference in the areas of health, education, economics, access to clean water, disaster relief, environmental conservation, arts, culture, and spor.