The language of choice

As chief financial officer of Vodafone Group, one of the world’s largest telecommunications companies, Nick Read plays a key role in ensuring that its finance department is run effectively. He also has a big say in the strategic direction of the group, which is one of the world’s most valuable brands.

Owning and operating networks in 26 countries, as well as having partner networks in almost twice that number, gives the group expansive market power – especially when you factor in telecoms and IT corporate clients in 150 countries. But that reach, valuing Vodafone at more than €60 billion, also creates significant potential for disruption of its business.

Vodafone has, therefore, developed a dynamic business model that addresses the challenges brought by disruptors as well as other changing factors within its sector, ensuring it can continue to create value across its global business.

“Over the past five years, Vodafone has faced many challenges to its business model – regulation, competition, macro economic conditions, and tech disruptors,” Read says.

“Focusing on the tech disruptors, the largest impact has been felt in text messaging from players such as WhatsApp, Facebook, Apple, and Google. At its peak a few years ago, text messaging was a standalone revenue stream of €6 billion, so clearly this was critical to the company.

“When facing a disruptor, it’s important to get real-time operational/customer data, as a lot of these disruptors work on a social network effect – so their impacts are fast and exponential. You need to identify the trends quickly and respond decisively,” says Read.

“The worst thing you can do is remain in denial and wait to see if it takes off. In Vodafone’s case, we moved from charging customers a metered cost per text message, to supplying large bundles of messages for a set cost, to unlimited text messages as part of a wider package in a relatively short window.

“We had to disrupt our own business model, cannibalising our own revenue, to protect our long-term relevance with the customer. We then did the same with voice calls, given Skype and other free voice services.

“Today, our core price plans are unlimited voice, unlimited text, and a range of data allowances,” he adds. As revenues came under pressure, Vodafone had to revise its operating model and cost structure to ensure protection of the group’s margins and its ability to continue to reinvest in future services.

“Ultimately, it was a redesign of our business model,” explains Read. “With the relentless nature of technology and disruptors, you have to be constantly scanning externally, questioning and challenging everything both internal and external to ensure you remain agile and make the appropriate course corrections on your business model in a dynamic manner.”

One of the key ways of implementing a dynamic business model is the development of a culture of innovation that is enabled by rapid technological advancement, says Read. “Technology can offer large companies like Vodafone opportunities to move into new spaces or optimise its cost base for competitive advantage,” he says.

“Over the past four years, we have spent approximately €23 billion acquiring large cable companies or building next-generation fixed networks to offer superior high-speed broadband to homes versus the copper-based experience they get from their incumbent telecoms provider.

“We have also invested organically, spending nearly €50 billion in high-speed mobile networks, spectrum, and IT to give a superior mobile experience across our footprint. We have also invested in a unique platform to become the global leader in enterprise internet of things, with particularly strong focus on the automotive, health care, and utilities sectors.

“Our innovation comes from a combination of platform development (unique or collaborative), big bets on step-change infrastructure, and a spirit of co-creation with leading providers. To do the latter, we have centres of excellence around the world, innovation hubs, and we develop strategic alliances with our major suppliers.”

That approach to innovation is key to fulfilling customer expectations. To this end, Read says Vodafone is working on three types of innovation.

• “Firstly, we see pain points in the customer experience on a service or product being supplied today. We focus on innovative solutions to remove these and improve the customer journey.
• “Secondly, we work on product/service road maps over our planning cycle, enriching the functionality, building on the customer’s wish list of what is possible.
• “And finally, we work with leading innovators/ tech companies around the world to define five- to ten-year global industry standards. An example of this is the future of autonomous cars and how will they interact with the infrastructure around us. We are shaping/envisioning this and many other future possibilities,” he asserts.

To give a sense of how the group has employed a rapidly changing approach to its business model, Read explains how the composition of the business has completely changed.

“Just over ten years ago, Vodafone was a metered by minute/text/MB of data, [with its] mobile business focused mainly on Europe,” he says. “Today, nearly half our revenues come from fixed next-generation high-speed communications and high growth emerging markets.”

Read says this high degree of business model evolution has been achieved as a result of several factors. He says Vodafone has been maintaining a global radar on market developments and has been commercially dynamic.

He also says there has been a willingness to lead market consolidation to gain scale, becoming number one or number two “wherever we chose to play, so we have the right economics to compete and earn an acceptable long-term return”.

Another factor described by Read is bold investments into new areas that the group believes have the ability to scale up. “There is also a zero-based budgeting mindset in every aspect of the business, in a world of constrained resources, where we take resources from non-productive areas and redeploy into productive future opportunities,” he adds.

Finance and the CFO play a key role in this approach, says Read, who sits on the CGMA advisory panel that has been discussing the Business Model Framework consultation paper.

“Given our complete 360 view of the business, we are uniquely placed among our colleagues to articulate our business model and how value is created,” says Read. “It is critical we communicate this to everyone in the business, aligning metrics/reporting/ remuneration to drive the optimal outcomes, and create the ability to reinvest for future growth.”

Read adds that this approach requires finance to own the data standards and definitions, to embrace the digital agenda so the company can deliver the best customer experience at the lowest unit cost, and to constantly benchmark and challenge all areas of the business to obtain excellence.

“This year, I was extremely proud that Vodafone Finance, having been assessed by the Hackett Group, was awarded the world-class level – the first telecoms company globally to be awarded that status,” he says. “I have a great team; one of the keys to their success is their desire to learn, to innovate and break new ground.

“As an example, we have more than 50 robots/artificial intelligence systems in pilot in our shared services today, delivering three times the productivity of one person for half the cost with a higher-quality output. We plan to expand in routine process areas, whilst working to retrain our teams to focus on the higher-value-add activities,” he says.

Read says that, historically, Vodafone’s finance and CFOs have strongly influenced the group’s business model and direction of the company. “I personally think the VUCA [volatile, uncertain, complex, and ambiguous] world we face requires CFOs to step up to an even higher level. “Our goal should be to dynamically shape the business model to ensure the company remains market relevant today, whilst articulating the investments required to have a bright future tomorrow,” he says.

Nick Read

Read became Vodafone Group CFO and a board member of the Vodafone Group Plc in April 2014. Since joining Vodafone he has held a number of senior roles, including CFO, CCO, and CEO of Vodafone Ltd, the group’s UK operating company. Before being made Group CFO, he was the regional CEO for Vodafone’s Africa, Middle East, and Asia Pacific business for five years and was also a board member of several subsidiaries, including India and Egypt, and Vodafone’s joint venture in Australia. He previously held senior finance roles at United Business Media and Federal Express Worldwide.