Virgin Mobiles Operations Management Strategy Marketing Essay

Clarification of the scope of analysis

To be able to evaluate the operations management strategy of Virgin Mobile (VM), the first step should be answering the question “What is operations management strategy?” Clarifying the definition helps establish common understanding as well as define the scope of analysis. According to A. Slack et al., 2007), operation management strategy is “the pattern of strategic decisions and actions which set the role, objectives and activities of operations.” With this definition, the operations management strategy acts as a linkage between firm’s business strategy and its operations, how to transform inputs of labour, raw materials and energy into outputs that have value to customers. Here, it is very crucial that company’s business strategy as well as its operation be explored and understood before the answer to the question “What is VM’s operation management strategy?” can be reached.

Figure 1 The relationship of operations strategy with company’s strategy and its operation

The report will proceed from this point by, first, exploring the operation aspects of the VM. Then, company’s business strategy, the long-term policy of the company, will be examined. The operations management strategy will be drawn as the linkage between these two elements after which, in the last section, the evaluation of how appropriate of VM’s operation management strategy to competitive challenges will be reflected.

Operations of Virgin Mobile

Figure 2 Involved parties in mobile phone industry (Weiss 2009)

The mobile phone industry is subject to restriction by government. The regulator normally limits the number of mobile network licenses. For example in UK, government accredited the license to only five companies, Vodafone, O2, Orange, Three, and T-Mobile (KeyNote 2010). VM is not of these network companies. It could not provide mobile phone signal or wireless radio spectrum to its customers. VM needs to purchase network/spectrum service from these network (platform) vendors. VM is also not a manufacturer. It does not produce the phone itself but rather purchases the mobile phones from manufacturer such as Samsung, Nokia, and Motorola (Anderson, J. & M. Kupp, 2009). So what does VM do? According to its annual report (2009), VM defines itself as “a company that offers wide ranges of mobile communication products and services, including mobile voice, SMS, MMS, games, news, music, and mobile internet services” (Virgin Media 2009). According to the scope of its operation, VM should best be classified as “Operator” (see figure 2 above). The operator, basically, is a “service” provider. This clarification and understanding that VM is more about “services” rather than “manufacturing” will be very crucial and will pave way for later analysis that VM has to focus on customer contact as well as quality which is very intangible and subtle under customer perception (Mondragon: Lecture 1, p.8).

Figure 3 Transformational model

Under operator hat, VM’s job is to provide customers workable mobile phone. According to the transformational model (Figure 3), the inputs of VM are the phone and the network signal. Both VM and its competitors are very likely to sell the same model of mobile phones. And again, VM’s competitors, to operate as a service provider, must also obtain a license from one of the network providers. With the like-for-like phone model and network, this barely gives VM any differentiation or distinction from its competitors. What gives VM competitive advantage over competitors?

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The answer is the configuration of its operation through both value chain and value network (as shown in figure 4 below). The operation of VM is not about having the network or distribution channel since competitors can also obtain those as well. Competitive advantage can only be gained through “how well” it can manage and ensure the quality of the linkage across these value networks. Looking at VM’s operation through value chain also helps demonstrate that “Customer Care” and “Marketing and Sales” are the cores operation activities of VM that will provide competitive advantage over its competitors.

Figure 4 VM’s Operation as value-chain and value network

Virgin-mobile business strategy

The market for mobile phone these days is concentrated. To obtain a place in the mind of a consumer, Virgin mobile need to devise its strategy to distinct its position from the competitors. What is current VM’s business strategy?

Strategy is the direction and scope of an organisation over the long-term, which achieves competitive advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations (Johnson et al. 2010). According VM’s Annual reports (2009, 2010), the company’s directions that match with the definition of “strategy” are

More focus on high- usage retail, contract phone (previously VM’s target customers are prepaid).

Emphasise on brand building.

Shift focus from inexpensive handsets to smart-phones.

Increasing convergence offerings – bundling offers of products and services; for example, internet, application, game, music download, etc.

Strengthening relationship with its supplier and distributors.

Virgin Mobile’s operations management strategy

After the operations aspect and the business strategy are explored, it is possible to draw the link between these two important elements to derive VM’s operation management strategy as shown in the figure 5 next page.

Figure 5 Derivation of operations management strategy

This method of derivation that helps determine the company’s operations management strategy has two major advantages. First, when company’s reports hardly state about its operation strategy, through this derivation, operations strategy can be formulated by looking at company’s operation and its business strategy. Second, it helps capture the essence of the definition better. The operation strategy, through this derivation, represents the objectives and activities of operations, which are to satisfy company business strategies. The operation strategy now is more understandable from operation perspective and can be used as to guide, align and link business strategy with the operations.

Does Virgin mobile’s operation management strategy likely to be appropriate over time?

Definition and framework

To assess whether VM’s operation strategy will be appropriate over the years, the issue of competitive advantage and its sustainability should be considered. According to Hayes & Wheelwright’s Four-stage model (1984), at stage four, the operational function provides the basis of competitive advantage for the organization. If combined that view with Barney’s (1991), to have potential of sustainable, a firm competitive advantage must have four attributes:

Valuable

Rare

Difficult to Imitate

Difficult to Substitute

If VM’s operation strategy direct its operation to focus and provide competitive advantage and that competitive advantage has the characteristic of sustainable over the long-term, the operations management strategy is likely to be appropriate for the company in this dynamic, highly competitive environment.

Analysis of sustainability of VM’s operations strategy

Figure 6 VM’s operation managements strategy

Strengthening personnel through training, supplying more contents & applications for higher usage, and ensuring the stable/quality signal

VM’s operation strategy to strengthen its service through personnel training, to supply wider contents and applications, and to ensure the stable / quality signal can be considered together. The objective of these operations strategies is about providing quality as well as dependable services for customers. According to the Sandcone model of operation (see figure 7 below), achieving quality as well as dependability is the innermost layer that operation should be strived for. To build a stable Sandcone, Ferdows and De Meyer suggested, the first “layer” of improvement, and a precondition to all lasting improvement, is effort applied to quality performance (Ferdows & De Meyer 1990). Such focus is an appropriate move since this service is a core of company offering. Given the challenges of the even fiercer competition and nature of the business, this is a pivotal activities in value-chain that help distinct the company from other competitors.

Figure 7 Sandcone model

VM has won many recognitions and awards regarding quality, the key element that has been admired by its customers; For example, VM consistently received high ratings in the UK mobile market for its customer care and satisfaction. Actually, it received the highest rating for both categories in 2004 and 2005. VM also won Mobile Choice Consumer Awards in 2004, the fourth year in a row, for best customer service (Anderson & Kupp 2009). Today, many players have used price as a primary weapon to compete away market share. With higher degree of competition in the industry that drives general customers to be more and more sensitive to price, reputation in service quality is still considerably important for VM’s target customers. Quality is the competitive advantage that can help VM distinct itself from competitors. Considering “Valuable” aspect from Barney’s framework, service quality is significantly valuable. In addition, even though focusing on service may not sound rare nor inimitable, “good” service are. It requires VM’s commitment to help train employees and effort to ensure quality signal. This can be recognised as experience curve effect (Besanko et al. 2010). Moreover, the service quality is somewhat considered tacit knowledge, which can only be acquire through action and experience (Polanyi 1974). This makes it hard to find equivalent substitute.

Looking from outsourcing decision matrix also points out that VM’s operations strategy is appropriate. It chooses to keep these, intangible, critical and strategically important activities in-house. The quality of service that can hardly be seen from “physical” mobile phone perspective but can be perceived through customers’ experiences with company offerings is very crucial to the building VM brand as well as customers’ loyalty. This decision makes it is easier for VM to control and maintain the standard of its services at the highest level at which customers will be loyal to.

Figure 8 Outsourcing decision Matrix

Securing & expanding relationship with key suppliers & distribution network

VM’s success depends a lot on the relationship with suppliers as well as distributors. To be a service operator, VM must have the right to access mobile network and must have distribution channel, either through its own store or through contractual agreement with distributors. Partnership is so significantly valuable for VM. However, partnership with supplier or distribute is a must for or can easily be obtained by all the players. It is not the factor that distinguishes VM from competitors to help company earn higher than industry average. In this sense, without considering cost perspective, it is not rare, inimitable or non-substitutable; For example, competitors can always have distribution contract agreement to sell mobile phone with the same high street stores that already sells VM products (Virgin Media 2009).

Though suppliers and distributors are very critical in term of producing and providing the goods to customers, they are not strategically important because they are not unique from competition point of view. Considering the outsourcing decision matrix perspective, VM outsources (all or part) these operations (e.g. mobile phone, network spectrum, storefront) through its suppliers and distributors. This is not to say that these activities are not important enough to do it in-house. It is about focusing on operation processes that are the cores of company’s competitive advantage so that VM can concentrate its resources on the activities that it does best and are its competitive advantages, the services.

Putting it all together: Adapt to change

It is hard to justify how long VM’s operations strategy will continue to be appropriate. Innovation gives rise to new technology at a faster rate than ever before. To be successful and sustainable in this highly dynamic and competitive environment, VM must focus on preserving its core competitive advantage. Sales and service personnel are the key to understand its customers. Strengthen its partnerships with other involved parties to ensure constant and quality of the supply and distribution. There are many relationships as can be seen in value chain and value network. However, each different relationship has different degree of strategic importance. VM can use outsourcing decision metric to prioritise its decision that aligns with external environment. VM should ensure that the relationship with its suppliers who provide products that highly align with evolving customer expectation such as iPhone and Blackberry (currently, VM-UK does not sell iPhone, which is the one of the market leaders in smart-phones segment).

In hypercompetitive conditions, sustainable competitive advantage is difficult to achieve. Operation management strategy is to help sustain competitive advantage for success. VM must create dynamic capabilities, abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment (Johnson et al. 2010). This requires business to consciously realise that “nothing is certain as change.”