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Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
Verizon - A Case Study
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Verizon - A Case Study

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A case study to analyze Verizon

A case study to analyze Verizon

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  • 1. Verizon Communications, Inc - A Case Study p presented by y Ajay Kr. Dhamija N-1 Alok Garg N-3 Abhay Joshi N-7 Binay Kr. Singh N-14 Chandra Prakash Saraf N-15 N 15 Deepak Gupta N-16
  • 2. Agenda g A Comprehensive Strategic Management Model Perform Feedback External Audit Generate, Establish Establish Measure Develop Evaluate, Long- Policies and Allocate and Mission and term Annual Resources Evaluate Statement Select Objectives Objectives Performance Strategies Perform Internal Audit Feedback Strategy Formulation Strategy Implementation Strategy Evaluation Source : Strategic Management:Concepts and Cases – Fred R David 2 Verizon Communications, Inc 8/26/2008
  • 3. Verizon Profile Formed by merger of Bell Atlantic and GTE in June 2000 Largest US wireline & broadband carrier Second largest US wireless service provider Leading print & online directory company Fortune 500 Company – Rank 12 $67.8b - 2003 Revenue - from four business segments: – Domestic Telecom –Fiber Optic Network Fiber – Domestic Wireless – 69m customers nationwide – Information Services – International 228,600 + employees , Revenue $93.5b (2008) Acquired MCI(2005) , Rural cellular C A i d R l ll l Corp. (A(Aug 2008) – Integration , Consolidation & Bundling Awards : Carrier of the year (2008), Customer satisfaction(2008), call Quality(2007), Most reliable & responsive(2006), loyalty leader(2005) Major Competitors: Alltell, SBC 32.5 Million customers In 49 of the top 50 US markets Spent 12 billion in 2002 to build out fiber plant (DSL) 3 Verizon Communications, Inc 8/26/2008
  • 4. Case Setting g Case Analysis is done as per 2003 data (as provided in the case) Accordingly strategies suggested is relevant to that period Along with this Actual strategies followed by Verizon is given and compared USD 49 Bn debt Wireless – growing profits, Others - drop in profits 4 Verizon Communications, Inc 8/26/2008
  • 5. Mission* & Vision Well defined goals and values in lieu of the traditional mission and vision statements – To be market leader in delivering innovative,integrated communications solutions to customers at home,at work and on the go – To mobilize and empower the millions of individuals and organizations- employees,retirees,customers and non-profits – To promote employee volunteerism through matching gift programs that recognize contributions of money & time – Making sure that people have the fundamental skills – like literacy and access to technology Customers, Products & Services, Markets, technology, Concern for survival, survival growth and profitability, Philosophy Self-Concept Concern profitability Philosophy, Self-Concept, for public image, Concern for employee * firms using mission statements have a 30% higher return on certain financial measures than those without such statements." (David , 2007) 5 Verizon Communications, Inc 8/26/2008
  • 6. Mission & Vision (recommended) ( ) Mission: – To be the global market leader in delivering innovative, integrated communications solutions to customers at i t t d i ti l ti t t t home, at work and on the go. – To mobilize and empower the millions of individuals and organizations —employees, retirees, customers g p y , , and nonprofits —that comprise the Verizon community – To promote employee and community volunteerism through matching incentives that recognize their dedication and time. – To build a strong and lasting infrastructure – To optimize returns for shareholders by leading a competitive integrated communications process that focuses on continuous improvement in service, f ti i ti i quality, technology, process and costs. Vision: To be a customer-valued, world class, strategic and integrated communications provider that continually enhances Verizon's competitive position globally. 6 Verizon Communications, Inc 8/26/2008
  • 7. Internal Assessment : Financial y ratio Analysis 2001,2002 2003 Industry Strength 2006 Industry Liquidity Ratios Current Ratio 0.61,0.79 0.68 0.7 N 0.7 0.72 Quick Ratio 0.55,0.73 0.64 0.5 S 0.65 0.53 Leverage Ratios Debt-to-Total-Assets Ratio 0.37,0.31 0.27 N/A N/A 0.20 0.27 Debt to Total Equity Debt-to-Total-Equity Ratio 1.97,1.63 1.35 0.86( 0.5) 0.86(<0.5) W 0.79 1.47 Long-term Debt-to-Equity Ratio 1.40,1.35 1.17 N/A N/A 0.59 Times-Interest-Earned Ratio 3.42,4.79 2.7 N/A(>1.5) N/A 5.69 Activity Ratios Inventory Turn-over 21.6,11.5 16.9 37.1 S 23.32 10.4 Fixed Assets Turnover 0.9,0.91 0.9 N/A N/A 1.07 Total Assets Turnover 0.4,0.39 0.4 0.4 N 0.46 .5 Accounts Receivable Turnover 7.7 8.1 S 8.6 8.6 Leveraged company but current ratio and quick ratio are comfortable S – STRENGTH , W – WEAKNESS , N – NEUTRAL , N/A – NOT AVAILABLE 7 Verizon Communications, Inc 8/26/2008
  • 8. Internal Assessment : Financial y ratio Analysis 2001,2002 2003 Industry Strength 2006 Industry Profitability Ratios Gross Profit Margin 0.38.0.7 0.67 0.59 S 0.59 0.59 Operating Profit Margin 0.17,0.22 0.11 N/A N/A 0.15 Net Profit Margin 0.006,0.06 0.05 0.07 N 0.07 0.11 Return on Total Assets (ROA) 0.002,0.024 0.018 0.045(>5%) W 0.032 0.054 ROE 0.012,0.125 0.091 0.149( 5%) 0.149(>5%) W 0.127 0.123 Earnings Per Share (EPS) 0.143,1.49 1.11 0.58 S 0.49 0.55 Price-earnings Ratio 9.8 15.4 W 17.1 18.2 Growth Ratios Sales 0.001 0.006 0.005 N 0.27 0.48 Net Income 9.48 0.24 0.22 N -0.16 0.11 Earnings Per Share 16.41 -1.65 N/A N/A Dividends Per Share -.17 3.41 W financial health is positive, but questionable •$67 billion annual revenues, but $4 billion in net income (flat growth but Op exp increased from 2002 to 2003) •2005->2006->2007 : Sales increased but Net income decreased as operating income increased despite acquisition of MCI S – STRENGTH , W – WEAKNESS , N – NEUTRAL , N/A – NOT AVAILABLE 8 Verizon Communications, Inc 8/26/2008
  • 9. Internal Assessment : The IFE ( (Internal Factor Evaluation) matrix ) KEY INTERNAL FACTORS WEIGHTS RATING SCORE Strengths 1. Employee satisfaction .05 3 .15 2. Well positioned with Strong brand recognition,equity .10 3 .30 3. Profitable and willing to invest .10 3 .30 4. Offering fiber-optic lines .10 4 .40 5. Largest directory publisher (in US & 13 others) .05 4 .20 6. Top in the industry for cell phone subscribers (49/50) .15 4 .60 7. Largest provider of local,long distance,data and broadband .05 3 .15 services to 2/3 of top 100 markets in US Weaknesses 1. $49b long term debt .10 1 .10 2. Not much emphasis on R&D .05 1 .05 3. 3 Global coverage .05 05 2 .10 10 4. Technological competencies .05 2 .10 5. Lack of Internet services .10 1 .10 6. Lack of Cable services .05 1 .05 TOTAL 1.00 1 00 2.60 2 60 Above average in its overall internal strength 9 Verizon Communications, Inc 8/26/2008
  • 10. External Assessment : Porter five forces Model Industry Competition (H) • Industry growth (H) Entry Barrier (H) • Diversity of competitors (M) • Economies of scale (H) • Product Differentiation (M) P d t Diff ti ti • Proprietary product Differences (L) • Brand identity (H) • Brand Equity (H) • Cost Condition ( Fixed / variable cost ) (M) • Capital requirement (H) • Government Policy (M) • Concentration and Balance (H) • Expected Retaliation (H) p ( ) Bargaining Power of Buyers (H) • Buyers Co ce t at o ( ) uye s Concentration (H) • Buyers Volume (H) Bargaining Power of Suppliers • Buyers switching Cost (L) • Buyer’s information level (M) (M) • Differentiation of input (L) • • Switching Cost of suppliers and firms (L) Presence of substitute input (H) Threat of S b tit t (M) Th t f Substitutes • Relative Power performance of Substitute (H) • Importance of Volume to suppliers (L) • Switching Cost (H) • Threat of forward integration relative to threat of • Buyers propensity to substitute (L) backward integration by the firms in the industry (M) Highly competitive Industry H – High , M- Medium , L- Low 10 Verizon Communications, Inc 8/26/2008
  • 11. External Assessment : External Factor Evaluation (EFE) matrix ( ) KEY EXTERNAL FACTORS WEIGHTS RATING SCORE Opportunities 1. Increasing usage of wireless service .15 3 .45 2. Acquisition of smaller companies like MCI .10 3 .30 3. Growth in income of households .10 2 .20 4. Strengthening of foreign currency vs. dollar .10 2 .20 5. Increased desire for high speed internet globally .10 4 .40 Threats 1. Price pressures in the industry .10 3 .30 2. Declining tariff of long distance services g g .10 2 .20 3. Decline of fixed line services .05 2 .10 4. Increasing overlap of telecom territories .05 3 .15 5. Number portability (regulatory body) .15 1 .15 TOTAL 1.00 1 00 2.45 2 45 Below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats 11 Verizon Communications, Inc 8/26/2008
  • 12. External Assessment : Competitive Profile (CPM) matrix ( ) VERIZON Alltel SBC CRITICAL SUCCESS FACTOR WEIGHTS RATING SCORE RATING SCORE RATING SCORE 1. Market Share .20 4 .80 2 .40 1 .20 2. Financial Position .15 2 .30 3 .45 4 .60 3. Sales .10 2 .20 4 .40 1 .10 4. Product Range .10 3 .30 3 .30 4 .40 5. Price Competitiveness .15 3 .45 4 .60 2 .30 6. Consumer Loyalty .20 2 .40 3 .60 3 .60 7. Brand Awareness .10 4 .40 3 .30 3 .30 TOTAL 1.00 2.85 3.05 2.90 VERIZON acquired MCI (2005) , AT&T (S C acquired AT&T C O C ( ) & (SBC & Corp in 2005, merged with Bellsouth(2006),acquired Cingular wireless & YELLOPAGES.COM) THE FIRM HAS STRONG COMPETETORS 12 Verizon Communications, Inc 8/26/2008
  • 13. Generate,Evaluate & Select Strategies : Matching : SWOT matrix g g STRENGTHS WEAKNESSES S1. Employee satisfaction (HR) W1. $49b long term debt (F) S2. Well positioned with Strong brand recognition, W2. Not much emphasis on R&D (R&D) equity(MK,MG) W3. Global coverage (MK,MG) S3. Profitable and willing to invest (MG,F) W4. Technological competencies (MG,R&D) S4. Offering fiber-optic lines (MG) W5. Lack of Internet services (MK,MG,R&D) S5. Largest directory publisher (in US & 13 others) (MK) W6. Lack of Cable services (MK,MG,R&D) S6. Top in industry for cell phone subscribers(49/50) (MK ) S7. Largest provider of local,long distance,data and broadband services to 2/3 of top 100 markets in US*(MK) OPPORTUNITIES SO STRATEGIES WO STRATEGIES O1 : Increasing usage of wireless (MK, SO1: Promote more heavily to target small WO1: Offer services to foreign countries for R&D, O) businesses for wireless and Internet bundle increased revenues by taking advantage of O2: Acquisition of smaller companies like services with higher investment in wireless strong foreign currency (W1, W3, O2, O4, MCI (F, MG) ( , ) sector (S2, S3, O1, O2) O5)) O3: Growth in income of households (MK) SO2: Provide family plans for wireless and Internet WO2: Takeover of international wireless O4: Strengthening of foreign currency vs. (high-speed) services (S2, S4, S5, S6, S7, O3, providers and R&D Center (W3, W4, W5, Dollar (F, MG) O5) O1, O2, O3, O4) O5: Increased desire for high speed SO3: Acquire small domestic wireless providers such WO3: Provide more household bundles such as Internet globally (MG, MK) as MCL, Powertel, Ariel (S3, S6, O1, O2) wireless, internet and cable services (W3, SO4: Expand high speed internet services in foreign W4, W5, W6, O1, O2, O3), O5 countries (S3, S5, O1, O4, O5) SO5: SO5 Invest capital in fibre-optic cable to compete I i l i fib i bl with cable companies (S3, S4, O5) THREATS ST STRATEGIES WT STRATEGIES T1: Price pressures in the industry (R&D , ST1: Offer bundled plans that include merging WT1: Liquidate fixed line telecom services to MG) of wireless and home phone plans (2 for reduce long term debt (W1, T3) T2: Declining tariff of long distance services 1) (S2, S3, S4, S6, T1, T2, T3) WT2: Expand suite of services to foreign (MG) ST2: Consider acquisition of related firms to q markets (W3, T2, T4) T3: Decline of fixed line services (MG) offer bundled services (S3, S5, T1, T3, T5) T4: Increasing overlap of telecom territories ST3: Development of new service products (MG) through employee motivation (3M T5: Number portability (MK) culture) (S1, S3, T1, T3, T5) MK – Marketing , MG – Management , F – Finance , O – Operations , R&D – Research & Development 13 Verizon Communications, Inc 8/26/2008
  • 14. Generate,Evaluate & Select Strategies : Matching : SPACE matrix g g m Conservative Aggressive (2, 4) Defensive Competitive Aggressive Strategy : Market penetration,development,Product Development 14 Verizon Communications, Inc 8/26/2008
  • 15. Generate,Evaluate & Select Strategies : Matching : BCG matrix g g High Relative Market Share Position Medium Low Intensive Strategies High +20 1.0 Star .50 Question Mark 0.0 for Wireless: Wireless Penetration by 30% increase in Sales person 70% Advertising Industry Sales Promotions Growth Medium 0 Cash Cow Dog Rate (Percentage) Bundling Telecom 30% Development by Enter new markets like Europe, UK, Canada 70% and developing Low -20 countries 15 Verizon Communications, Inc 8/26/2008
  • 16. Generate,Evaluate & Select Strategies : Matching : IE matrix g g The Total IFE We ighted Score s Strong Average Weak 4.0 to 3.0 2.99 to 2.0 1.99 to 1.0 4.0 I II III High 3.0 IV V VI Grow & Build The Hold & Maintain 30% EFE 30% Total Medium 70% Weighte d Score s Wi rel ess 70% Ve riz on Tel ecom 2.0 VII VIII IX Low 1.0 16 Verizon Communications, Inc 8/26/2008
  • 17. Generate,Evaluate & Select Strategies : Matching : GS matrix g g RAPID MARKET GROWTH QUADRANT II QUADRANT I VERIZON WEAK STRONG COMPETITIVE COMPETITIVE POSITION POSITION • Market Penetration • Market development QUADRANT III QUADRANT IV • Product Development SLOW MARKET • Forward Integration GROWTH • Backward Integration • Horizontal Integration • Concentric Diversification 17 Verizon Communications, Inc 8/26/2008
  • 18. Recommended Strategies g - Expand Fiber network to increase domestic sales opportunities - Enter into Foreign markets - Wireless - High Speed Internet g p - Acquire smaller (& profitable) wireless service providers to grow in Domestic as well as foreign markets eg MCI - Strategic alliance with large providers for Wireless 18 Verizon Communications, Inc 8/26/2008
  • 19. Generate,Evaluate & Select Strategies : Decision : QSPM Matrix g Q Invest in Fibre Take over MCI Network for bundling KEY EXTERNAL FACTORS WEIGHTS AS TAS AS TAS Opportunities 1. Increasing usage of wireless service .15 1 .15 4 .60 2. Acquisition of smaller companies like MCI .10 1 .10 4 .40 3. Growth in income of households 3 G th i i f h h ld .10 10 2 .20 20 3 .30 30 4. Strengthening of foreign currency vs. dollar .10 - - - - 5. Increased desire for high speed internet globally .10 4 .40 1 .40 Threats 1. Price pressures in the industry .10 1 .10 3 .30 2. Declining tariff of long distance services .10 -- -- -- -- 3. Decline of fixed line services .05 -- -- -- -- 4. Increasing overlap of telecom territories .05 -- -- -- -- 5. Number portability (regulatory body) .15 -- -- -- -- SUB-TOTAL 0.95 2.00 19 Verizon Communications, Inc 8/26/2008
  • 20. Generate,Evaluate & Select Strategies : Decision : QSPM Matrix g Invest in Fibre Take over MCI Network for bundling KEY INTERNAL FACTORS WEIGHTS AS TAS As TAS Strengths 1. Employee satisfaction .05 -- -- -- -- 2. Well positioned with Strong brand recognition,equity .10 2 .20 3 .30 3. Profitable and willing to invest .10 4 .40 4 .40 4. Offering fiber-optic lines .10 4 .40 1 .10 5. Largest directory publisher (in US & 13 others) .05 -- -- -- -- 6. Top in the industry for cell phone subscribers (49/50) .15 1 .15 4 .60 7. Largest provider of local,long distance,data and broadband .05 3 .15 2 .10 services to 2/3 of top 100 markets in US p Weaknesses 1. $49b long term debt .10 3 .30 3 .30 2. Not much emphasis on R&D .05 -- -- -- -- 3. Global coverage .05 1 .05 2 .10 4. Technological competencies .05 2 .10 3 .15 5. Lack of Internet services .10 4 .40 1 .10 6. Lack of Cable services .05 4 .20 1 .05 SUB-TOTAL 3.30 4.20 20 Verizon Communications, Inc 8/26/2008
  • 21. Decision Primary – Grow US wireless market by Taking over MCI for bundling of services Alternatives – Buy smaller wireless providers – Move in Foreign Markets g – Increase Optical Fiber capacity 21 Verizon Communications, Inc 8/26/2008
  • 22. Implementing Strategies - Issues p g g Marketing Market Segmentation Shift the advertising emphasis from Wireline to Wireless, Standalone to Bundled Services Services are bundled as per regional customer requirements / preferences Product Positioning Using Conjoint analysis and Multi Dimensional Scaling Make effective online distribution channel Finance Amount Needed : $10b = MCI valued at $5.3b + $2b for buying smaller firms + $1b for Enlarging Fiber network + $2b for moving $ g g $ g to foreign markets 22 Verizon Communications, Inc 8/26/2008
  • 23. Implementing Strategies - Issues p g g 23 Verizon Communications, Inc 8/26/2008
  • 24. Implementing Strategies - Issues p g g 24 Verizon Communications, Inc 8/26/2008
  • 25. Comparison p We suggested – Primary Grow US wireless market by Taking over MCI for bundling of services – Alternatives Buy smaller wireless providers Move i Foreign Markets M in F i M k t Increase Optical Fiber capacity Verizon actually followed all these four strategies Financed through contributed capital + debt Sales and net income increased in 2004 and 2005 2006 operating income increased but operating expenses increased to a greater extent (cost of services & sales + Selling general & admin expenses + Minority interest) : Net result decrease in net income 25 Verizon Communications, Inc 8/26/2008
  • 26. Strategy Evaluation Framework gy Revised IFE & EFE Compare Planned to Actual progress toward meeting stated objectives bj ti Corrective Action Balanced Scorecard 26 Verizon Communications, Inc 8/26/2008
  • 27. THANK YOU

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