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Managing Organisation Effectiveness within Vodafone Europe The ‘Organisation Efficiency Review’

Managing Organisation Effectiveness within Vodafone Europe The ‘Organisation Efficiency Review’. CRF Presentation. 2 March 2011. Overview. Vodafone Context - The origins of the ‘Organisation Effectiveness Review’ (OER) The ‘OER’ structure

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Managing Organisation Effectiveness within Vodafone Europe The ‘Organisation Efficiency Review’

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  1. Managing Organisation Effectiveness within Vodafone Europe The ‘Organisation Efficiency Review’ CRF Presentation 2 March 2011

  2. Overview • Vodafone Context - The origins of the ‘Organisation Effectiveness Review’ (OER) • The ‘OER’ structure (I) Review against the Vodafone Organisation Design principles (II) Management efficiency KPI’s (III) General ‘Organisation efficiency’ KPI’s (IV) The Opco ‘Organisation health template’ 3. So how does the overall process work ? 4. Benefits so far 5. Key learnings

  3. Vodafone in context… • Established in 1985, now Global leader in mobile telecommunications - c.£45bn annual service revenue - c.35% operating profit - c.90,000 global workforce • Global footprint split into 2 Regions: • Emerging Markets Region: India, South Africa, Egypt, Australia, NZ • Europe Region: Still represents c.75% of global revenue/assets • The VF Europe Region comprises 14 Operating Companies in national markets across Central and Western Europe. • The ‘big four’:UK, Germany, Italy, Spain (SR £5-7bn) • W Europe Medium: Portugal, Ireland, NL, Greece (SR c.£1bn) • E Europe Medium:Turkey (£3bn) Czech, Hungary, Rumania (£600m-1bn) • Small:Malta, Albania ( £300m)

  4. The origins of the ‘Organisation Efficiency Review’ • Europe now a very mature market still in recession - Mobile telco market reduced by c.10% over past 3 years - Vodafone Service Revenue reduced in line, leading to a strong focus on Operating Expenditure to sustain profitability • Employment cost typically represents c.40% of overall OPEX - Initially headcount/FTE’s became the classic target, but unsophisticated and unfair, given our varying opco sourcing models • Led to the creation of the OER process, the aim of which was to; • Evaluate all Europe opcos against a common suite of organisation efficiency/effectiveness indicators • Establish relative internal best practice and give it visibility • Create organisation efficiency targets/actions bespoke to each opco to drive year on year operational efficiency improvement -

  5. Organisation Effectiveness Review (OER) structure (I) Organisation design review - Review Opco structure against the ’mature market OD principles’ (II) Review of management organisation efficiency - Opco Management Spans and Layers - Management Ratios (III) Review of General organisation efficiency/effectiveness KPI’s - OPEX as % Service Revenue - Total Employment Costs as % OPEX - Total Employment Costs as % Service Revenue - Distribution of Employment Costs across the organisation - Opco Sourcing model: In house versus outsourcing …..Narrowed down from a list of thousands ! (IV) Completion of the overall Opco ‘Organisation health’ template NB: Employment Costs = Payroll, Contractors and Outsourced people costs

  6. (I) The Organisation Design Review

  7. 2007 “Mature Market” Organisation Design Principles Commercial • Consumer and Enterprise Business Units will have full P&L accountability and report directly to the CEO • Customer Operations should be a shared service function residing outside of CBU and EBU • Online and all directly owned resources should report direct to the CEO • Terminals should have dotted line into CBU with a solid line to Group Terminals and provide services across both CBU/ EBU • Brand lead should either sit as direct report to CEO or CBU Technology • Hub CTO has a dotted line into CEO with a solid line into the Group CTO, Spoke CTO has a dotted line into CEO with a solid line into Hub CTO Support Functions • Corporate Affairs and Legal and Regulatory should be stand alone functions reporting to the CEO • A combined Strategy, Wholesale and Business Improvement Function should exist as a single unit reporting to the CEO • Where the CEO has a large span of control, the Strategy, Wholesale and BI function could be combined as a single unit with Legal, Regulatory and FRS • The HR function should hold responsibility for Internal Communications, Health Safety & Wellbeing, and Property • Finance should have dotted line responsibility for Internal Audit and SCM with a solid line to Group SCM/Audit General • For every group programme, there must be an identifiable single contact within the Local Market organisation reporting directly into a Local Market SLT member e.g. CVM,

  8. 2007 ‘Mature Market’ Management Team OD principles Europe CEO CTO (Hub/Spoke Online • P+L for Cons business • Cons product roadmap • Go to market marketing • Cons sales channels (retail etc.) • Brand and Customer Experience • P+L for Ent business • Ent product roadmap • Go to market marketing • Ent sales channels • Customer Operations • Customer Value Management • Strategy • Wholesale/ MVNO • Business Improvement • HR • Internal Comms • Property • HS&W • Network • IS • Decision Support • Finance Operations • Commercial Law • Regulatory • FRS • External Comms • CSR • Online • VIS if not CBU • Internal Audit • SCM • VIS • Terminals Solid line reporting into Group

  9. (II) The Management Organisation Review- Local Market Management Spans and Layers - Management Ratios

  10. Vodafone Management Spans and layers policy guidelines Generic principles Governance/Support Functions Technology Commercial and Customer Operations Management Spans (Average span of control) Target = 6 Min = 4 Max = 8 Target = 8 Min = 6 Max =10 Target = 10 Min = 8 Max 15 No “one on one” or “two on one” reporting 6 layers Management Layers (maximum no. inc. CEO) 7 layers 6 layers Banding Ratios (A-F Band roles as %of total roles. 5-7% target) c.7% c.30% c.5% Single Contributors No A-D single contributors, E Band by exception

  11. Opco A Opco B Opco C Opco D Management ‘Layers’ by function: Europe large markets • Layers: Observations • Technology: Opco’s A and B have 7 layers, against 6 in Opco’s D and C. Main driver for a 7th layer is the number of FTEs in the area. • Consumer: Opco’s A, B, C have reduced one layer. 7th layer in Opco D associated to the high number of own shops. • Business: Opco D the only country with 7 layers, plan in place to adhere layers to the target, upon full integration of a recent acquisition. • Customer Operations: plans to reduce 7th layer in Opco D (Enterprise Customer Services) by June 2011. • Support: in general, Support Functions have 5 layers. Finance Planning and Control generates a 6th layer in Finance. 7th layer in Opco B located in HR, under the Training Unit.

  12. Opco A Opco B Opco C Opco D Management ‘spans’ by function: Europe large markets • Spans: Observations • Average Manager Span within lean organisation guidelines for all large local markets • All improved average manager spans since OER Nov09 with the exception of Opco C with a slight decrease • Remarkable improvement in Opco D previously under guidelines in several areas • Outstanding improvement in Opco A having reduced significantly the population of managers in bands F and G in Technology, Consumer and Customer Operations.

  13. Management ratios as % workforce: all Europe markets …target range 5-6% but sourcing model impacts • Large Markets • Highest percentage of A-F population in Opco C with 10,9%, lowest in Opco D with 4.6% • E band: highest number in Opco B with 141, lowest in Opco D with 76 • F Band: highest number in Opco A with 489, lowest in Opco D with 307 • Medium Markets • Highest percentage of A-F population in Opco F with 10,0%, lowest in Opco J with 4,5% • E band: highest number in Opco L with 44, lowest in Opco F with 25 • F Band: highest number in Opco G with 179, lowest in Opco K with 58 • Notes: • Includes verticals

  14. Opco A Opco B Opco C Opco D Opco E Opco F Opco G Opco H Opco I Opco J Opco K Opco L Opco M Opco N Opco A Opco B Opco C Opco D Opco E Opco F Opco G Opco H Opco I Opco J Opco K Opco L Opco M Opco N F Opco A Opco B Opco C Opco D Opco E Opco F Opco G Opco H Opco I Opco J Opco K Opco L Opco M Opco N Management ratios: all Europe markets shown another way… • Notes: • Includes verticals

  15. (III) General ‘Organisation efficiency’ KPI’s - OPEX as % Service Revenue - Employment Costs as % OPEX - Employment Costs as % service Revenue - Distribution of Employment Costs - Opco Sourcing model

  16. Op Ex % of Service Revenue 40.0% 36.5% 32.8% 31.2% 30.5% 29.6% 29.2% 30.0% 28.8% 27.9% 26.2% 26.2% 26.2% 25.5% 25.1% 24.8% 24.3% 24.1% 23.3% 22.9% 22.3% 21.2% 20.8% 20.5% 20.6% 20.1% 20.1% 20.2% 19.6% 18.9% 20.0% 10.0% 0.0% Opex as % of Service Revenue Opco N Opco A Opco F Opco B Opco C Opco E Opco M Opco D Opco I Opco K Opco J Opco L Opco G Opco H 5+7 FY11 Actual FY10 • Large markets: all keep a stable ratio around 20%. • Medium markets: in the case of Opco’s E, J and K, percentage around 30% due to a significant decrease in Service Revenues. Opco I is in expansion phase with high expenditures in network and commercial. Opco G best performer, has been able to adequate cost structure while improve revenues significantly.

  17. Employment Costs % of Op Ex 60.0% 54.8% 52.5% 49.2% 50.0% 47.5% 47.2% 45.0% 44.5% 43.9% 43.7% 42.2% 42.1% 42.0% 41.3% 41.1% 40.6% 40.8% 40.6% 39.5% 38.9% 39.4% 40.0% 35.4% 33.4% 33.6% 30.7% 29.3% 30.0% 27.8% 19.1% 18.9% 20.0% 10.0% 0.0% Opco N Opco A Opco B Opco F Opco C Opco E Opco D Opco I Opco M Opco K Opco G Opco J Opco L Opco H 5+7 FY11 Actual FY10 Employment Costs as % of OPEX • Overall Europe average of EC as % OPEX 45% driven by predominantly by Opco A ratio • Large markets: High correlation with EC as % SR • Medium markets: Opco’s E and I low. Opco’s G, H, J and K over 40%, the first two decreasing and the last two increasing against YE09/10

  18. Employment Costs % of Service Revenue 14.0% 12.9% 12.9% 12.4% 12.0% 11.7% 11.7% 12.0% 11.2% 11.0% 11.0% 10.8% 10.4% 10.2% 10.2% 9.9% 9.6% 10.0% 9.4% 9.4% 9.2% 9.1% 8.8% 8.6% 8.5% 8.3% 8.3% 8.2% 7.8% 8.0% 6.0% 4.6% 4.0% 4.0% 2.0% - Opco N Opco A Opco B Opco F Opco C Opco E Opco D Opco I Opco M Opco K Opco G Opco J Opco L Opco H 5+7 FY11 Actual FY10 Employment Cost as % of Service Revenue by Opco • Employments Costs as % of Service Revenue 9.2% • Large markets: Scale typically helps. Opco D and Opco A highest reduction against YE09-10 (0,8% and 0,7% respectively) • Medium markets: Opco G best performing with 0,9% reduction. Opco’s J,K, and N worst performing. Deterioration in Opco’s J, E, L, and K.

  19. Opco N Opco A Opco B Opco F Opco C Opco E Opco D Opco I Opco M Opco K Opco G Opco J Opco L Opco H EC as a % SR excluding Sales and Distribution Costs Employment Costs % of Service Revenue (Excluding Sales & Distribution) 12.0% 10.8% 10.5% 9.8% 9.8% 9.7% 10.0% 9.4% 9.2% 8.9% 8.8% 8.7% 8.5% 8.4% 7.9% 7.8% 8.0% 7.6% 7.4% 7.3% 7.2% 7.0% 6.7% 6.5% 6.5% 6.4% 6.0% 5.9% 6.0% 5.2% 3.9% 4.0% 3.5% 2.0% - Employee cost (excl S&D) % Service Revenue 5+7 FY11 Employee cost (excl S&D) % Service Revenue Actual FY10 • Large markets: overall relative performance similar but Opco A and Opco D close the gap with Opco B and Opco C significantly • Medium markets: Opco’s J and K closer to other medium Opco’s. Opco H increases gap with the other medium.

  20. Technology Employment Costs % Total Employment Costs 55.0% 50.0% 47.5% 47.0% 45.0% 39.8% 40.0% 37.1% 34.4% 35.0% 33.0% 32.3% 31.9% 31.7% 30.1% 29.1% 28.9% 28.8% 30.0% 28.1% 27.6% 27.2% 27.4% 26.9% 26.7% 26.1% 26.1% 25.7% 24.8% 24.8% 24.6% 25.0% 21.7% 21.2% 20.0% 20.0% 15.0% 10.0% 5.0% 0.0% 5+7 FY11 Actual FY10 Support Function Employment Costs % of Total Employment Costs 30.0% 26.8% 24.3% 25.0% 23.7% 22.8% 20.6% 20.0% 17.6% 17.2% 17.0% 16.7% 16.6% 16.3% 14.9% 14.4% 15.0% 13.6% 12.7% 12.6% 12.5% 12.5% 12.1% 11.9% 11.6% 11.4% 9.8% 9.5% 9.3% 10.0% 9.0% 7.5% 4.6% 5.0% 0.0% Distribution of Employment Costs Commercial Employment Costs % of Total Employment Costs 80.0% 69.9% 67.9% 70.0% 66.8% 62.7% 61.5% 60.5% 59.9% 59.8% 59.8% 59.5% 57.7% 60.0% 56.9% 56.5% 56.7% 53.8% 52.9% 51.7% 52.1% 49.7% 49.6% 50.0% 45.3% 43.1% 43.2% 41.9% 40.7% 40.6% 40.0% 33.3% 32.9% 30.0% 20.0% 10.0% 0.0% Opco E Opco D Opco F Opco I Opco E Opco A Opco N Opco M Opco D Opco F Opco I Opco C Opco B Opco H Opco A Opco K Opco N Opco G Opco L Opco J Opco M Opco C Opco B Opco H Opco K Opco G Opco L Opco J 5+7 FY11 Actual FY10 • Overall Europe balance driving future targets… • Commercial – 59.9% • Technology – 28.8% • Support Functions – 11.3%.... • Large markets: • - Opco’s C, D better overall profiles than Opco’s A, B • Medium markets: • - Technology costs in Opco’s I and K % high • - Support function costs Opco’s I, E and K high. Opco E Opco D Opco F Opco I Opco A Opco N Opco M Opco C Opco B Opco H Opco K Opco G Opco L Opco J 5+7 FY11 Actual FY10

  21. Local Employment Costs Distribution 5+7 FY11 (£m) Opco O - - 11 0 72 154 50 Opco P 16 44 63 23 Opco I 3 128 163 43 5 2 2 2 0 19 17 7 1 4 2 2 0 13 16 - - 13 10 5 - 38 26 13 2 47 25 15 4 53 28 15 4 44 23 10 1 489 277 77 16 41 17 11 3 56 26 13 2 377 174 60 20 82 36 16 3 36 16 7 2 287 99 58 13 278 88 39 11 0% 25% 50% 75% 100% Distribution of Employment costs shown another way… Opco Q Opco M Opco K Opco N * Opco R Opco S Opco T Opco E Opco H Opco J Opco A Egypt Opco F Opco B Opco G Opco L Opco D Opco C Commercial Technology Support Functions Share Based Payments

  22. Insourcing / Outsourcing 100.0% 3.5% 0.3% 4.1% 8.0% 8.4% 8.4% 12.2% 12.8% 15.1% 15.4% 90.0% 26.7% 29.1% 35.0% 80.0% 43.4% 70.0% 60.0% 50.0% 99.7% 96.5% 95.9% 92.0% 91.6% 91.6% 87.8% 87.2% 84.9% 84.6% 40.0% 73.3% 70.9% 65.0% 30.0% 56.6% 20.0% 10.0% 0.0% 5+7 FY11 Insourced 5+7 FY11 Outsourced Opco Sourcing models Opco A Opco L Opco F Opco I Opco B Opco C Opco E Opco D Opco K Opco J Opco M Opco H Opco N Opco G • Overall 22.3% of Vodafone Europe Employment Costs are outsourced • Large markets: strong correlation between extent of outsourcing and overall EC performance • Medium markets: large variation in sourcing models driven by maturity of outsourcing options.

  23. (IV) The Local Market ‘Health assessment’ template

  24. Example: Local Market “Health Assessment” template: Opco A 11/12 Budget Considerations Strengths • Organisation Model broadly aligned to the ‘mature market OD principles’ • On track to deliver 10/11 Employment cost reduction target • On track to deliver FTE reduction target • Field Maintenance outsourcing completed • 100 civil servants transferred out of the company • Forced/managed attritionprogramme on track • Fixed Line integration brought significant management cost savings: • Management A-F is now 5.3% of population • Reduction of 110 band A-F since last OER exercise • Good progress on spans and layers • Continue traction on EC savings to achieve another reduction of c. ?m by YE 11/12 • Explore and define actions to target the internal FTE number to ? by YE 11/12 Weaknesses • Still the highest Employment Costs as % Service Revenue of the large markets at 11.0%, although 0,7% reduction 5+7 vs YE10 • Employment costs as % Opex increased in 2.7% 5+7 vs YE10 • Distribution of Employment Cost lowest Commercial focus and highest Technology focus of the big four • Still further FTE efficiency opportunities • EC and FTE’s in Finance and HR still high • Technology still looks heavy • Customer Operations costs still high. 100% outbound and 75% inbound calls outsourced, but still 3,650 internal FTE’s

  25. 3. So how does the overall process work ?

  26. Organisation Effectiveness Review: the overall process OCTOBER - DECEMBER JANUARY- MARCH PHASE 2 PHASE 1 PHASE 3 “Baking targets into budgets and People Plans” “Data review and action planning” “Data collection and analysis” OPCO ‘OER’ TEMPLATES COMPLETED OPCO OER’S (x14) Europe CEO / HRD with Opco CEO / HRD “DB” ANNUAL BUDGET CREATION • OD alignment • Review KPI’s • Agree action planning • “Initial” EC targets inserted in Opco pre- budget guidance • Opco DB submissions (including EC and FTE targets) reviewed and approved REGIONAL CONSOLIDATION OF OPCO OER DATA GROUP CEO OER Group CEO / HRD With Europe CEO/ HRD OPCO ANNUAL PEOPLE PLANNING • KPI analysis with Europe wide results transparency • OER actions baked into overall Opco “People Plans” within the “Organisation and Change touch point” • Visibility of Opco actions • Regional / global actions • Establish “Initial” DB employment cost targets

  27. 4. OER outcomes to date…

  28. Qualitative benefits so far… • Drives alignment to the Vodafone OD Principles • Eliminating organisational complexity • Clearer line of sight between Vodafone Group organisation and the Operating Companies • Provides internal reference point for OE benchmarking and OD practice sharing which is enabling efficiency improvement. • Enables intelligent OE target setting rather than ‘FTE focused’ targets • Provides a platform for HR to drive the OD and organisational efficiency agenda. • Positive effect on line management mindset on organisational efficiency

  29. Quantitative benefits so far… Employment costs and FTEs • Annual employment costs reduced by c. £275m over 2 years • Employment Costs as a % of Service Revenue improved from 10.1% to 9.2% • FTE’s reduced by 12% Management efficiency gains • Management to workforce ratio improved by 1.5% to 6.2% • Layers: 5/6 layers now the norm from CEO to frontline staff • Spans: Almost complete compliance against our span guidelines • Single contributors: All A-E Band single contributors eliminated

  30. 5. Key learnings…

  31. Key learnings… • Gaining Group CEO advocacy really helped ! • Opco Comparability drives tool ‘usefulness’ • Results transparency drives best practice…avoiding judgements a key enabler • Tool development • Fewer more impactful measures • Inclusive approach to tool development • Institutionalise the process • Must be linked to business outcomes and consequences • HR capability key and develops with experience/depth of knowledge ...as does that of the line managers and their HR input/support expectations ! • The process provokes questions and inevitably further OD interventions e.g. Outsourcing review, Support Functions structure review, COP’s role expansion ?

  32. Questions/discussion…

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