Verizon - A Case Study

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

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

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

Strategies : Matching : SPACE matrix
g g
m

Conservative Aggressive

(2, 4)

Defensive Competitive

Aggressive Strategy : Market penetration,development,Product Development

14
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

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
8/26/2008

p g g

23
8/26/2008

p g g

24
8/26/2008

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
8/26/2008

Strategy Evaluation Framework
gy
Revised IFE & EFE
Compare Planned to Actual progress toward meeting stated
objectives
bj ti
Corrective Action
Balanced Scorecard

26
8/26/2008

Verizon - A Case Study

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