Case Study #14 – SafaricomRead the Safari.com case study attached below.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 na Safaricom 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?Analyzed 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?case is in the document I am attached, and you need to answer2. Information Specialist. (Job B) (Provides the Background, Mission and Objectives and key issues discussed in the case.3. Stakeholder Analyst. (Job C) Identifies the primary and secondary stakeholders in the case. You will also discuss their “stakes” or claims. Which stakeholders have the most power? Are the claims legitimate? 6. Industry Analyst- (Job F) Discuss Porter’s five force model discussed in Chapter 2–relative to the industry of the company we are studying. . What are the Key Success Factors—product competencies, attributes, intangible assets, or competitive capabilities with the greatest impact on future success in the marketplace? Note: In addition to looking at special attributes (features) and intangible assets (patents) examine the following capabilities: Technology (expertise in technology), Manufacturing related KSF (i.e. access to sufficient supply of skilled labor), Distribution related KSF (i.e. Strong Network of wholesalers or retailers), Skills and capabilities-(expertise in design or short time delivery capability such as FedEx).
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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.1 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.2 Safaricom also serves society by
sponsoring athletic events through Safaricom Sevens, the biggest rugby event in Kenya,
and by sponsoring the music festival Niko na Safaricom Live, an event featuring local
music talent and fostering national pride.3
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.4 In 2000 Vodafone acquired a large stake in the company
through Vodafone Kenya Ltd, a locally owned subsidiary.5 In 2008 the Government of
Kenya sold enough shares to the public to lose its majority interest.6 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.7
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.8 The company has also made several other small
acquisitions to enhance its services and market share.9
Operating in Africa
According to KPMG, “Africa is the last great untapped telecommunications market.”10
Market penetration in Africa is only 47%.11 GDP growth in sub-Saharan Africa remained
strong in 2012 at 4.6% despite the global economic slowdown.12 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.13 A graph of market share for each of these firms
is shown in Exhibit 1.
Exhibit 1: Kenyan Mobile Operators by Market Share, March 2012
Source: Business Monitor International. 2013. M&A analysis – Analysis of Essar’s Kenya
exit plan. London, England: Business Monitor International.
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 Mwai Kibaki and Prime Minister Raila Odinga. 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
quite common.14
Written by Laura Beauchesne, Nick Dorion, Nathaniel Griggs, and Jeffrey S. Harrison at
the Robins School of Business, University of Richmond. Copyright © Jeffrey S. Harrison.
This case was written for the purpose of classroom discussion. It is not to be duplicated
or cited in any form without the copyright holder’s express permission. For permission to
reproduce or cite this case, contact Jeff Harrison at [email protected]. In your
message, state your name, affiliation and the intended use of the case. Permission for
classroom use will be granted free of charge. Other cases are available
at: http://robins.richmond.edu/centers/case-network.ht…
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.15
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.16 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.17 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.19
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.20
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.21
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. Safaricom’s growth in cell phone and wireless internet base stations
is shown in Exhibit 2.
Exhibit 2: Safaricom Base Stations
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited
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: Okoa Jahazi, 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.22
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.24
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.25 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.26 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.27
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. A
breakdown of these revenues for fiscal year 2012 and fiscal year 2013 is shown in
Exhibit 3. Voice services provide the greatest percentage of revenue, followed by MPESA revenue. In Handset revenue, smart phones currently account for 51% of product
revenues, while standard cell phones account for only 32% of product revenue, shown in
Exhibit 4.28
Exhibit 3A: Safaricom Revenue in 2013
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
Exhibit 3B: Safaricom Revenue in 2012
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
Exhibit 4: Product Revenue Contribution
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
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.29 Financial statements are prepared
according to the International Financial Reporting Standards and are shown in Exhibits 5
through 7.
Inside Safaricom
Management
Most of Safaricom’s senior management team has vast experience in
telecommunications. Leading the team is Robert (Bob) Collymore, who took on the
responsibilities of CEO in November of 2010. Bob Collymore replaced Michael Joseph,
who had held the position since 2000.30 The transition was amicable as Michael Joseph
was heading to retirement and wanted to wait until “a successor is in place”.31 Collymore
is also the Executive Director on Safaricom’s board of directors, leading with twenty-five
years of commercial work experience in the telecommunications sector. Collymore is
supported by CFO John Tombleson, who joined the company in November 2011 and has
a strong background in financing growth. Prior to Tombleson’s arrival at Safaricom, he
held executive positions at Vodafone Qatar, which captured 48% market share within two
years of its founding. Biographic information for the senior management team and top
members of the board of directors is shown in Exhibits 8 and 9.
Exhibit 8: Safaricom Senior Management Team
Robert Collymore – Chief Executive Officer and Executive Director
Robert (Bob) Collymore, who took on the responsibilities of CEO in November of 2010.
He is also the Executive Director on Safaricom’s board of directors leading with 25 years
of commercial work experience in the telecommunications sector. Collymore is also a
trustee for M-PESA in both Kenya and Tanzania.
John Tombleson – CFO
John Tombleson joined Safaricom as CFO in November 2011 from Vodafone Qatar and
has a background in financing growth. Tombleson first joined Vodafone in New Zealand
in 2003. After two years of being founded they captured 48% market share. Tombleson
also resides on the board of directors as the CFO.
Joseph Ogutu – Director Strategy & Innovation
Starting in October 2012 Joseph Ogutu was appointed as the Director, Strategy &
innovation. In his role Ogutu develops Safaricom’s position in the industry by formulating
strategic direction and driving innovation in their products and services. Mr. Ogutu also
has 25 years of experience in telecommunications and severs as the chairman of
Safaricom Foundation.
Rita Okuthe – Director, Marketing
Rita Okuthe joined Safaricom in August 2009 as the Head of Consumer Segments and
then was appointed as the Director, Marketing in May 2013. Okuthe has a Master’s
degree in Marketing and is known to drive revenues by having a great understanding of
consumer behaviors.
Sylvia Mulinge – General Manager Enterprise Business Unit
With over a decade of marketing experience, half of which was in the
telecommunications industry, Sylvia Mulinge joined Safaricom as the General Manager
Enterprise Business Unit in February of 2006. Coming from Unilever she and has a
honed skill in consumer marketing and brand activation.
Betty Mwangi – General Manager, Financial Services
Betty Mwangi-Thuo was appointed General Manager of Financial Services in March
2011. She has over 13 years of experience in the telecommunications industry and
manages the business unit that includes M-PESA. Mwangi was recognized by MCI in
June 2010 as one of the top 10 women in mobile globally.
Exhibit 9: Safaricom Board of Directors
Nicholas Nganga – Chairman
Nicholas Nganga joined Safaricom’s board of directors in May 2004 and was elected the
chairman January 2007. Mr. Nganga also holds positions at G4S Security (chairman) and
the University of Nairobi (Vice-chair of the Council).
Michael Joseph – Non-Executive Director
Michael Joseph was the previous CEO of Safaricom and has extensive international
experience in the implementation and operation of large wireless and wire line networks.
Mr. Joseph was elected to the board in September 2008, and has been a recipient of the
CEO of the Year award.
Robert Collymore – Executive Director
Bob Collymore is the current CEO of Safaricom and has more than 25 years of
commercial experience working in the telecommunications sector. Collymore is also a
trustee for M-PESA in both Kenya and Tanzania.
John Tombleson – CFO
John Tombleson joined Safaricom as CFO in November 2011 from Vodafone Qatar and
has a background in financing growth. Tombleson first joined Vodafone in New Zealand
in 2003.
Susan Mudhune – Non-Executive Director
Susan Mudhune is the former chairman of Kenya Commercial Bank and joined the
Safaricom board in May 2009. She also holds the position of Director at Kenya
Commercial Bank.
Nicholas Jonathan Read – Non-Executive Director
Nick Read joined Vodafone in 2001 and is responsible for operations in Africa, Middle
East, and Asia Pacific. Read joined the Safaricom board in January 2010.
Ahmed Essam – Non Executive Director
Ahmed Essam joined Vodafone Egypt in 1999 and now is responsible for the commercial
operations in Africa, Middle East and Asia Pacific. Essam joined the board in September
2012.
Sunil Sood – Non Executive Director
Sunil Sood is the COO for Vodafone India and joined the Safaricom board in September
2012. Sood has a diverse background and was originally the CEO of Pepsi in
Bangladesh, until building 12 years of telecom experience with Vodafone.
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 worldclass 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.32
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 mana …
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