Inside Vodafone’s insourced model to increase efficiency and growth

Differentiating your brand in the telecommunications market is hard—just ask Vodafone’s CDIOScott Petty.

Despite the British multinational telco’s continued investments in fibre and 5G, and growing consumption of broadband and cellular services, intense price competition, rising energy prices, market regulation and economic headwinds have made for an industry where single-digit revenue growth is difficult to find.

But with a new insourced operating model and a ‘mixed matrix’ team—which gives autonomy centrally and to local markets—Petty believes Vodafone is on a journey to become a next-gen telco.

Vodafone’s digital transformation strategy

Over the last three years, Vodafone has used digital transformation as a centrepiece for how it unlocks efficiencies and new growth opportunities.

Underpinned by its 2025 tech strategy—which commits to building in-house scaled platforms, launching products and services to market faster, building a talent pipeline, and establishing Vodafone as a gigabit broadband leader—the firm’s digital transformation strategy has three pillars.

• Operational efficiency: The company is leveraging automation and observability tools to improve efficiency, as well as data analytics, machine learning (ML) and AI through Google Cloud Platform to make better decisions and find incremental savings. An example of the latter is its use of ML and AI to overlay data—such as customer movements from social media as well as profitability—to find out where to deploy new base stations. Dubbed ‘smart capex’, Petty says Vodafone has found a 15% efficiency and £500m in cost savings through this since 2019.
• Digital channels: Petty says digital channels enable Vodafone to “sell more, service better and reduce costs”. The company app, chatbots and websites have all driven opportunities to better serve customers, particularly through retail-specific events, such as the launch of Apple’s iPhone 14, where web traffic can grow 500% within an hour.
• New platform businesses: Created in parallel to its legacy connectivity business, new platform businesses aim to drive revenue growth. Vodafone now has an IoT platform connecting 150 million devices, including connected cars, smart meters and smart home monitoring systems. In Africa, it claims to run the largest payment platform, while it’s adding new financial servicing in Europe—such as handset insurance—to wrap around standard tariffs. Petty says that 10% of total company revenue is now coming from these platform businesses.

New operating model, a mixed matrix team

The key to achieving transformation at scale, and delivering better products and services for customers, has been the creation of a European digital and IT organisation that combines the expertise of local markets with the breadth and scale of centralisation.

Last April, Vodafone Technology created a pan-European digital & IT organisation with nearly 17,000 employees led by Petty, bringing together IT functions from 12 European markets to work as one team.

Formerly CTO for Vodafone UK, Petty says Vodafone previously operated independent sets within countries, so each market was responsible for their region, with shared services for data centres and platforms, such as ERP. But this up and down model made code reuse difficult. Historically, scaling across markets was also complicated, with many overlapping projects, high expenditure and limitations in how many projects Vodafone could run simultaneously.

Vodafone didn’t move to centralisation—a model where you don’t have “proximity to the local market”—but rather to a ‘mixed matrix’ model, where each operational local CIO had a broader technology role for the organisation in addition to their local jurisdiction.

“Our UK CIO runs everything in the UK, but also digital engineering for all of Europe,” says Petty. “Our Spanish CIO runs digital channels and the Spanish technology. That model is replicated down into the organisation, so everyone has an operational function close to the markets they operate in, and a domain function, which is trying to execute our strategy. That creates interlocks between each other.” He also highlights that, for instance, the Italian CIO responsible across Europe for data and analytics needs analytics to run well in the UK, and to have a close working relationship with his UK counterpart to ensure digital engineering operates effectively in Italy.

Insourcing and reuse in engineering

A key component of this strategy was Vodafone’s approach to insourcing. Petty says the telecom provider was previously 30% insourced, and 70% outsourced, with a heavy reliance on system integrators and third parties. He says that model isn’t effective and doesn’t scale, with system integrators not incentivised to build replicable platforms.

“Our belief is you have to have a significant portion of your own engineering,” he told CIO.com. “There will always be a role for systems integrators, but integrating into our platforms and standards, not a free-for-all.”

Petty also says that investing in in-house engineering has an upfront benefit as its cheaper, but that it also gives the organisation the technical and engineering talent to build “horizontal scale”.

Vodafone, which has 13,000 software engineers with ambitions to reach 16,000 by 2025, sees a greater willingness for teams to share and reuse through this same model.

“They are more open to sharing and reusing,” he says. “And as they replicate that model in their teams, you just create the connections. Ultimately, culture is about humans and how they interact.”

Petty says staff across the European markets will volunteer their time for projects, such as building APIs for new cloud platforms, sensing the opportunity to do interesting work and develop their core skills. It’s this collaborative approach that’s also improving efficiency. He contrasts the new approach with how the Vodafone UK team once operated. Spending approximately £80 million each year on digital investments, and with 1,000 engineers developing capabilities in Spotify-style squads, the company experienced more defects, cybersecurity issues and slower business speed as the number of projects increased.

The new operating model and team restructure saw technology squads split into technical functions, such as cloud engineering and economics, with these squads responsible for service maintenance, cybersecurity quality and achieving performance across the various European markets.

“Taking this approach dramatically improved our velocity,” says Petty. “Our biggest supporter of hyper-scaling is our CFO because he sees that the more money he pours into engineering, it comes back as increased velocity and capacity. The business can go faster.”

Petty gives the example of Vodafone’s rewards app. Previously, the mere difference between a latte in the UK and café con leche in Spain would have meant the two regions building separate solutions. Under the new reuse model, the rewards platform was developed 100% in-house in Turkey, then launched in Portugal inside three months. The next market, Germany, took just one sprint to bring it to market.

He says the cost difference is significant too, explaining that while the first market spends 110% of their capacity (10% more to make the platform reusable), the payback comes as each subsequent market adopter spends significantly less.

“You start to get a flywheel effect on creating that reuse across your platforms.”

CDIO becomes CTO

Despite progress, there are hurdles ahead for Petty. He admits the skills shortage remains a critical issue, particularly in data science, and there’s the migration of on-premise platforms to Google Cloud Platform (GCP), through which Vodafone hopes to unlock more data and release new capability. Investment must continue on fibre and 5G through recession, too, while Vodafone has started exploring quantum-safe cybersecurity with IBM.

There are deeper changes in the boardroom as well. In early December, Vodafone announced its CEO of nearly 20 years, Nick Read, would be stepping down with finance director Margherita Della Valle taking over as an interim replacement. And with global CTO Johan Wibergh retiring in December 2022, a new role beckons for Petty, too, as he starts as the new CTO in early 2023. Together with Alberto Ripepi, the new Chief Network Officer, he will join the executive committee and expected to co-lead the Vodafone Technology group.

Petty says the hires were down in part to the success of the insourcing model, and a realisation that technology executives can challenge the business. “When we changed the operating model, we saw benefits for technology to challenge the business a little bit more,” he says. “You can work as a team to try and drive the right outcome.”