Executive Summary
Vodafone Hutchison Australia (VHA) recently undertook organisational restructuring in an effort to achieve operational efficiency and improve customer experience. One of the strategies that the firm implemented in its restructuring process included downsizing its operations. However, the firm experienced challenges in its restructuring efforts. This report analyses the challenges facing the firm after the organisational restructuring. The report draws insight into the possible causes of failure during the restructuring exercise.
The data for analysis has been gathered from various secondary and primary sources. Some of the secondary sources considered include academic journals and various online sources such as news articles from credible sources. On the other hand, the primary source of data includes an interview with VHA’s senior managers. The analysis has mainly concentrated on the sales and marketing departments. The issues encountered after the post-restructuring are also evaluated using the contingency and systems theories. Furthermore, a number of recommendations that the firm should have considered avoiding negative outcome during its restricting processes are proposed.
Introduction
Corporate restructuring is an essential element in organisational theory coupled with finance and strategic management. Tsai et al. (2006) affirm that organisations’ management teams initiate corporate restructuring processes in their quest to enhance optimal organisational performance. The decision to restructure may be instigated by internal or external pressures. However, available literature shows that corporate restructuring is a complex issue, as evidenced by the numerous organisational restructuring efforts that have failed during the implementation process, hence destroying the shareholders’ values. Conversely, some organisations have succeeded in their restructuring process (Tsai et al. 2006).
This research report will assess the corporate restructuring efforts by VHA. The report will assess the steps undertaken by the company’s management team during the restructuring process and the outcome of the organisational changes implemented. The evaluation will be based on two main perspectives, which include the systems and the contingency theory. Moreover, some recommendations will be provided on how the firm should deal with the change management issues faced.
Background
In 2012, VHA announced its decision to restructure its internal operations in an effort to revitalise its performance. The restructuring involved reorganising some of the firm’s internal structures. Some of the departments that were affected by the organisational restructuring process include the marketing and sales departments, which were to be combined into one unit. The restructuring affected the internal communication structure whereby the new department formed would report to one director.
The executive management team was of the view that the restructuring would improve the firm’s operational efficiency. Subsequently, the firm would become highly responsive to customers in addition to being cost-effective in its operation. The restructuring made some middle-level managers such as the Director of Communications and Corporate Affairs [Tanya Bowes] and Chief Marketing Officer [John Casey] redundant (Vodafone 2014).
For a period of three years, Vodafone had experienced a significant reduction of its brand reputation due to technical problems such as poor coverage in its network dropouts and outages. Between 2011 and 2012, the firm lost over 700,000 customers (Cameron 2013). Despite its commitment to upgrade its network by investing in new radio equipment and the promotion campaigns undertaken, VHA continued to experience a significant loss of brand reputation (Mcduling 2013). Currently, the firm’s customer base is estimated to be 4.96 million subscribers having lost over 1 million subscribers over the past three years (Ramli 2014).
VHA provides mobile services to over 4.9 million consumers in Australia. The firm is a subsidiary of Vodafone Group Public Limited Company, which is the leading mobile telecommunication firm in the world. The firm was established through a 50/50 merger between Hutchison Whampoa Limited and Vodafone Group in 2009 (Vodafone 2014). VHA is the third largest telecommunication company in Australia. The firm’s human resource base is estimated to be 4,500 employees (Ramli 2014). The restructuring efforts aimed at reducing customer attrition and improving VHA’s brand image, hence regaining consumer trust. During its restructuring process, the firm appointed a new executive team, which was charged with the responsibility of reviving the firm’s market performance.
The continued loss of customers depicts VHA’s incapacity to improve its brand reputation over the past three years. The appointed senior executives overlooked some core management aspects. First, the firm overemphasised restructuring its internal operations and ignored the external components that affect its brand reputation (Mcduling 2013).
The trend in loss of customer base should have provided insight to VHA to adopt a broader perspective in its brand management processes. However, the firm only focused on the internal dimensions by downsizing its internal operations. The firm laid-off over 500 employees in office role positions. The firm adopted the downsizing strategic in an effort to eliminate ‘non-essential costs’.
According to the firm’s Chief Executive, Bill Morrow, the firm would become leaner, effective, and attain long-term customer focus (Janda 2012). However, the firm’s failure to take into account the external perspective made the restructuring efforts ineffective. VHA’s success in resuscitating its performance depended on its commitment to fostering effective engagement with its customers. Thus, the firm failed in establishing a balance between the internal and the external components in its restructuring efforts.
Change is inescapable in organisations’ operations due to diverse macro and micro environmental forces. Thus, it is imperative for organisational leaders to restructure their operations in order to cope with change. Moreover, organisational leaders must ensure that the change management efforts made culminate in positive results. This report seeks to evaluate and analyse the issues faced by VHA in its restructuring efforts and apply management and organisation theories to it.
Approach
The report analyses the organisational problem faced by VHA through the contingency and systems theory perspectives. The first step in undertaking the study entailed gathering essential information from corporate documents available on the Internet, academic journals, media articles, books, and interviews in business newspapers. Prior to conducting the study, the researcher sought approval from VHA’s senior management.
The report analyses how contingency and systems theory are applicable to this study using the data obtained from different sources. Furthermore, the report analyses the organisational restructuring procedure adopted by the firm and what contingency and systems theory postulate on how to undertake organisational restructuring. Finally, suggestions will be made on how VHA should address the problem faced.
The issue through contingency and systems theory
VHA managed to achieve remarkable success upon entry into the Australian telecommunication industry. The firm increased its customers to over 6 million subscribers. However, VHA has experienced a significant decline in its customer base over the past few years. Despite the efforts undertaken to restore its performance and brand reputation through organisational restructuring, VHA has not been utterly successful. The firm’s failure to restore consumer confidence can be explained by the transition between the contingency and systems theory and the tension between them.
The systems theory accentuates the complexity encountered in managing organisations. Moreover, the theory asserts that it is essential for organisational managers to adopt a broad perspective by going beyond the organisational boundaries (Dyck & Neubert 2010). Under the open system, managers should understand that organisational success is only attainable via considering the entire environment. Conversely, the closed system perceives an organisation as a self-sufficient unit.
Dyck and Neubert (2010, p. 45) assert that managers ‘who adopt an open systems view are more likely to achieve synergy, which occurs when two or more systems are more successful working together than they are working independently’. Moreover, Dyck and Neubert (2010, p. 45) assert that firms ‘that adopt a closed system tend to fail because of their inability to acquire the inputs and energy it requires to survive’.
Contingency theory was formulated in an effort to refine organisations’ decision-making and planning processes, which are critical components in executing managerial tasks (Dyck & Neubert 2010). However, Herbert Simon, a renowned management Nobel Prize winner, asserts that management decision-making processes are hindered by the managers’ cognitive ability and insufficient information (Dyck & Neubert 2010).
Other scholars have improved the contingency theory by stating that managerial success depends on organisation management teams’ ability to respond to the prevailing situation. Different perspectives have been formulated in an effort to explain the contingency theory. Some of these perspectives include the organic structure and mechanistic structure. However, the adoption of the respective view is determined by the prevailing situation. The mechanistic structure argues that organisations are guided by numerous procedures and rules. Furthermore, according to Dyck and Neubert (2010, p. 46), the theory asserts that authority ‘is concentrated at the top of the organisational hierarchy’.
On the other hand, the organisational structure emphasises that the structure adopted depends on the degree of environmental stability. Thus, firms should integrate mechanistic structure if the business environment is characterised by a high degree of stability. Conversely, the organic structure should be incorporated if the business environment is less stable. One of the most influential models formulated under the contingency theory is the strategic choice theory. According to the strategic choice theory, organisations have the power to determine and shape their environments (Stead 2012).
From the management perspective
In its restructuring process, VHA did not adopt a broad view of the forces affecting the firm. On the contrary, VHA adopted a narrow approach by emphasising on reforming its internal organisational structures without taking into account the customers’ interests. VHA invested in a comprehensive system upgrade, network expansion, and re-organisation of its internal management structure. During the firm’s restructuring period, VHA did not consider customers as one of the critical strategic management components. Subsequently, VHA did not appreciate seeking the customers’ input and opinions.
Organisations’ success in implementing change is subject to the environment as a critical input. Furthermore, Yi (2014, p. 7) notes that the open systems theory accentuates that the ‘interdependence of the firm and the components of its environment, such as customers’. The business environment is a fundamental source of information, raw materials, and energy, which are essential in the survival of a system. Despite the view that firms have established boundaries that guide their operations, the need for organisations’ management teams to expand these boundaries cannot be underestimated. Furthermore, managers should improve their organisations’ interaction with external stakeholders, such as customers in order to understand their objectives and preferences. Subsequently, the interaction will transform the firm into organic entities.
Similar to human capital, customers are increasingly being considered as a fundamental component in organisations’ pursuit to attain business excellence (Yi 2014). The adoption of an open management system improves the interaction between an organisation and its customers. Consequently, an organisation can develop an effective input-output model, which enhances an organisation’s ability to develop a value system.
Yi (2014) emphasises that an organisation’s value system is determined by the extent to which managers take into account its overall internal and external environment. The systems theory postulates that it is imperative for organisational leaders to take into account the external environment by appreciating the elements of people, purpose, information structure, and techniques (Amagoh 2008).
From the structure perspective
VHA has adopted a functional organisational structure. According to Lewis, Packard, and Lewis (2012), functional departments involve organising personnel in accordance with their functions. Some of the most common functions include the information systems, marketing, finance, and administrative support. One of the major benefits of functional departments is that it enables an organisation to eliminate duplication of duties, hence minimising the cost of operation (Parker, Parker & Craig 2013).
VHA restructured its operations by consolidating the marketing and sales departments in an effort to attain effective operations. Following the restructuring, the two departments would report to one director, hence making the organisational reporting structure more hierarchical. However, Lewis, Packard and Lewis (2012) assert that one of the major limitations of consolidating organisational departments it makes employees lose focus on the overall organisational goal.
Consolidating departments fragments an organisation’s interaction with its customers. Furthermore, consolidating departments leads to the centralisation of authority amongst a few top individuals, who develop a better understanding of the prevailing organisational situation. Therefore, the lower levels of management are cut-off from the organisation’s decision-making process. Such an action hinders collaboration amongst employees, which is an essential element in nurturing a knowledge-based enterprise.
VHA implemented an extensive organisational restructuring, which led to massive job losses. In its restructuring program, the firm did not provide an opportunity for voluntary turnover. However, the firm implemented the downsizing strategy without considering the employees’ reaction. Human capital is increasingly being regarded as a fundamental component in attaining business excellence. This trend has arisen from the recognition of employees as a fundamental source of managerial insight.
Thus, the significance of considering employees in an organisation’s decision-making and implementation processes cannot be ignored. Despite the view that a firm may be forced to adopt lean operational strategies, it is imperative for the management team to assess the most effective method of achieving lean operation. Some of the common lean management strategies such as downsizing negatively affect the employees’ commitment in their roles, and thus their productivity.
From the efficiency perspective
VHA experienced significant transition problems in its effort to restore its brand reputation, which indicates the firm’s inability to manage the restructuring process successfully. First, the firm’s focus on improving customer experience without understanding the exact market need explains why it failed in its major transition efforts. Previous studies conducted on service marketing have recognised the significance of customer value creation, which means that customers constitute the foundation of an organisation’s value creation process (Yi 2014).
This assertion means that customers are the value generator, but an organisation has a duty to interact with its customers, hence becoming a value generator. In this situation, VHA largely assumed the role of being the value creator and ignored the customers’ perspective on their market requirements. Yi (2014, p. 1) argues that theoretical research ‘holds that firms should focus on what customers actually do in the value creation process instead of what customers actually buy in the market’.
VHA failed to succeed in achieving operational efficiency, as evidenced by the decline in its profit level. In 2011, the firm reported that its profits declined by $78.2 million as compared to its $17.9 million profit level in 2010 (Lee 2011). The decline in profitability stimulated the firm to integrate cost-cutting measures through organisational downsizing.
Amagoh (2008) is of the opinion that organisations are complex systems. However, they have the capacity to adapt and self-organise. Additionally, Amagoh (2008, p. 7) argues that some ‘organisational systems or components can self-organise themselves rather than being imposed upon by centralised controls’. The self-organisation process occurs through the interaction of the various departments or system units.
On the other hand, adaptation refers to an organisation’s effort to respond and survive the prevailing environmental changes. However, the response undertaken by the organisational manager may affect the efficiency of the organisation adversely. Amagoh (2008, p. 7) emphasises that adaptive behaviour ‘occurs where there is enough stability to sustain existence and enough turbulence for creativity to overcome inertia’. In this situation, VHA faced a business environment characterised by significant instability.
From the continuity and convergence of positions perspectives
VHA adopted the downsizing strategy in an effort to become leaner. This aspect indicates that the firm does not consider human capital as a fundamental component in its operations. Kenton and Yarnall (2011) assert that employees are a critical element in achieving institutional sustainability, hence long-term survival. Human capital improves the effectiveness with which an organisation implements diverse strategies.
Thus, it is essential for organisational leaders to invest in effective people management. On the contrary, VHA over-emphasised on attaining financial sustainability by restoring its profitability at the expense of employees. However, the downsizing strategy had negative impact on motivation and commitment of the remaining employees. Amagoh (2008) asserts that downsizing adversely affects the employees’ morale due to an increment in the degree of uncertainty regarding their job security.
The employees left in the organisation experience high levels of work-related stress, and thus their operational efficiency is affected negatively. Therefore, the likelihood of attaining long-term survival and business continuity is limited due to the demoralisation of the employees’ creativity and innovation efforts. Downsizing affects an organisation’s reputation. Some employees perceive the organisation as an unstable entity, and thus they may contemplate leaving the firm (Sears 2009).
Under the contingency theory, managers have the discretion in making decision on how to guide their organisation to achieve optimal performance and maximise productivity. This goal can only be achieved through the integration of effective internal structures and systems (Dyck & Neubert 2010). Furthermore, the internal structure must enhance customer value creation. However, value creation cannot be attained if a firm ignores customers in their restructuring efforts. Therefore, organisational managers must expand the boundaries of their internal systems by considering the core external components such as customers. The restructuring strategy adopted by VHA may limit its ability to restore its brand image and market performance due to the ineffective value creation system within the firm.
Recommendations
Organisations in the modern business environment are operating in an environment undergoing remarkable evolution due to diverse macro environmental and micro environmental forces. Some of the market changes are beyond the firm’s ability to control. One of the major forces shaping the market entails change in consumer behaviour. Despite this aspect, organisational managers are faced with the duty of ensuring that their firms’ attain long-term sustainability. Consequently, they must implement the necessary organisational changes in order to align with the prevailing environment. Organisational restructuring is a challenging task and the outcome depends on the managerial competency. In a bid to be successful in its organisational restructuring efforts, VHA should have considered the following aspects.
Focusing on value creation and engagement
In its organisational restructuring process, VHA intended to attain operational efficiency by nurturing unique customer experience. The firm’s efforts to create customer value were limited to improving its operational efficiency through system upgrade. The firm did not gather market feedback, which shows that the restructuring process adopted a closed system. According to Yi (2014), it is imperative for an organisation to nurture optimal interaction with its external environment.
Market feedback is a critical source of market intelligence. Subsequently, an organisation can implement the most effective strategy to cope with the external market changes. Kenton and Yarnall (2011) argue that organisational change should adopt a ‘large-scale intervention’. Consequently, organisational managers should invite the views of diverse stakeholders within the organisational system to participate in the process of implementing change.
Previous studies have shown that organisations have the tendency of inviting customer views on certain issues. However, their input or opinions are ignored (Kenton & Yarnall 2011). VHA should have appreciated the importance of learning the customers’ opinion on its operations. However, the management team ignorance of the customers’ opinion reduced the effectiveness of the restructuring efforts.
In a bid to be successful in its value creation process, VHA should have considered three main dimensions of customer value. These dimensions include
- Value for customer
- Value by the customer
- Value of the customer
Yi (2014) asserts that the value of the customer underscores the value provided to the customers. On the other hand, the value of the customer emphasises the value that an organisation has attached to its customers, which is commonly referred to as the Customer Lifetime Value. VHA’s organisational restructuring efforts highlight the firm’s commitment to providing customers with unique mobile telecommunication experience. Thus, the effort shows that the firm values its customers. On the other hand, value by the customer refers an organisation’s commitment to derive value from the customers’ opinion and feedback.
The continued reduction in the firm’s customer base experienced by VHA over the past few three years shows a gap in its value creation process, which means that its customers are loosely attached to the firm. Yi (2014, p. 3) corroborates that customers ‘are highly attached to the service that they create, and hence firms should do their best to elicit value from customers’. In a bid to resuscitate its performance, it is imperative for VHA to perceive that customers are co-producers in its restructuring process rather than being passive audience. Thus, the firm should have emphasised on building its brand reputation from outside in rather than from inside out (Kenton & Yarnall 2011).
Incorporate employees in the downsizing strategy
Voluntary and involuntary employee turnover may adversely affect an organisation’s long-term competitiveness. Voluntary employee turnover occurs if an organisation makes some job roles redundant. Two main levels of factors motivate employees to adopt the downsizing strategy, viz. the macro-level and the micro-level factors. The macro-level factors relate to external environmental factors such as government policies, intense competition, and economic changes. Conversely, the micro-level factors are associated with the internal organisational environment, for example, financial losses, poor performance, budget constraints, and organisational reconstruction.
In this case, VHA was forced to adopt the downsizing strategy by the poor financial performance, hence the need to re-organise its internal job positions. The firm was of the view that merging some departments would assist the firm to cut a substantial amount in its payroll.
Despite the rationale associated with implementing the downsizing strategy, it is imperative for a firm to assess its long-term effects. First, laying-off employees negatively affects an organisation’s competitiveness in the labour market. Consequently, the likelihood of attracting effective human capital is affected. Moreover, laying-off employees may instigate voluntary employee turnover, which might affect employees in key job positions.
In order to avoid such occurrences, VHA should have educated all employees on the rationale behind the massive job cuts and the job positions to be affected prior to implementing the strategy. Adopting an effective internal communication strategy would have played a fundamental role in instilling the employees’ confidence, hence their identification with the organisation.
Furthermore, the firm should have ensured that the organisational restructuring process does not adversely affect the performance of employees left behind. One of the most likely impacts of downsizing is that the employees left in the organisation are subjected to performing additional tasks, which might affect their effectiveness and efficiency. In order to minimise such occurrence, VHA should have invested in a comprehensive employee-training program. The training should have focused on instilling requisite knowledge on how to perform the additional tasks.
One of the areas that the firm should have focused on in its employee-training program entails customer service training. The customer service training would have instilled additional knowledge amongst the employees left behind on the importance of being customer-focused in their duties. Furthermore, customer service training should have focused on establishing a mutual relationship between the firm and its customers. Thus, the likelihood of the customers understanding the benefits that they would gain from the upgraded telecommunication network would have increased.
Horizontal integration
VHA consolidated some the sales and marketing departments. Subsequently, the employees in the two departments were required to report to one director. This move might have adversely affected internal communication and knowledge sharing. Hierarchical organisational structure fragments internal communication. Furthermore, the likelihood of the new department experiencing bureaucratic tendencies in its communication processes is high. Such aspects hinder knowledge sharing and decision making amongst employees.
All the information must be communicated to the top leaders for ratification. Thus, it is imperative for the firm to foster communication across departments in order to foster a learning environment. Collaboration is a vital element in organisation’s effort to create value to customers (Yi 2014). This aspect arises from the view that it ensures that employees share relevant information that might enhance an organisation’s ability to deliver value to its target customers.
Conclusion
The study highlights the importance of organisational leaders adopting a broad perspective in their strategic management processes. Despite the firm’s commitment to improve its brand image and restore its financial performance through system upgrade, VHA continued to experience significant decline in its customer base. Subsequently, the firm was forced to adopt the downsizing strategy in order to cope with the cost of operation.
VHA’s failure in restoring its brand reputation can be explained by the management team’s failure to incorporate external stakeholders during the restructuring period. VHA adopted a closed system rather than an open system. The firm ignored that its long-term sustainability largely depends on the customers’ perception. The firm mainly relied on the contingency theory, which postulates that organisational managers have the discretion in deciding the determinants of effective organisational performance. However, the likelihood of overlooking critical elements in implementing change is high.
In this case, the firm’s management team ignored the external environment component. Therefore, the firm’s management team should have considered the firm as an open system and consider the customers’ opinion and perceptions during the decision making process. Customer involvement is a fundamental element in the contemporary strategic management practices. Currently, customers are considered as co-producers or value creators in organisations’ pursuit for optimal performance. Therefore, failure to take into account the customers’ opinion may hinder an organisation’s ability to attain the desired results.
The analysis shows that VHA has made numerous efforts to improve its brand image and financial performance. However, it is imperative for the firm to expand its boundaries in its restructuring process by appreciating the customers’ opinion. Recognising the significance of the customers will increase the likelihood of gathering market intelligence, which might improve the restructuring effort. Additionally, the firm should review the progress in its market performance continuously in order to ascertain the success in its restructuring effort.
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