Strat Mgmt - Individual Case 4

Running head: VERIZON COMMUNICATIONS

Individual Case #4: Verizon Communications Amy Piersanti Siena Heights University

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Individual Case #4: Verizon Communications Introduction Verizon Communications (“Verizon”), a prominent communication technology organization, was established in 2000 through a massive “merger of Bell Atlantic Corp, and GTE Corp.”, two mature telecommunication companies (Verizon Communications, 2016). Through this notable merger, Verizon has become a leader in the industry, providing wireless communication service to “millions of customers every day” (Verizon Communications, n.d.). They are committed to being pioneers in this digital era and purpose to innovate and deliver every step of the way. This paper will explore more areas of who the organization is, and its position in the industry, relative to competitors and other industry factors. Case Statement Verizon is confronted with a highly competitive market and runs the risk of losing its market share in the coming years due to high bargaining power of customers and a high threat of substitutions. Decreasing brand loyalty within the telecommunications industry, paired with rapid change in technology, threatens the industry position that Verizon currently holds. Vision Statement “Verizon’s goal is to operate our business with the highest level of integrity, respect, performance excellence and accountability” (David, 2012, pg. 157). Mission Statement Verizon does not specifically mention a mission statement, however they do provide their Credo, broken down into sections, which is provided below.

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We are Verizon. We have work because our customers value our high-quality communication services. We believe integrity is at the core of who we are. We focus outward on the customer, not inward. We know that bigness is not our strength, best is our strength. We know teamwork enables us to serve our customers better and faster. Everything we do is built on the strong foundation of our corporate values (Verizon Communication, 2019). Mission Statement Component Evaluation

Customers

Product or Services

Market

No

Yes

No

Technology

Concern for Survival, Profitability & Growth

Philosophy

Self-Concept

Concern for Public Image

Concern for Employees

No

No

Yes

Yes

Yes

Yes

Rationale for Included & Excluded Mission Statement Components Through an assessment process on the components included within Verizon’s mission statement, the determination was made that five of the nine components are addressed. This determination reveals a moderate strength for the mission statement, but leaves much room for improvement on specificity and inclusion of additional components. By enhancing the mission statement, Verizon would be better positioned to steer management decisions, educate employees and inform consumers of Verizon’s core values and their purpose for conducting business. The customer or consumer, while mentioned in the mission statement as being a part of Verizon’s focus, is not clearly identified as to who they are, or who Verizon’s target market is. With such a diverse demographic and increasing accessibility to products and companies, it is important for organizations to have a clear understanding of who their customer is, and who they want to attract. By including this component in their mission statement, they would provide

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valuable information internally to employees, but also to consumers who are considering them as a service provider. Products and services are addressed within the mission statement, as it mentions communication services that it provides. While this could be expounded on, to provide information on what those communication services include, it does narrow down the product and service options to communication services. This provides consumers with enough information to have a quick understanding of who they are. The market is not discussed in Verizon’s mission statement, and it does not provide clear parameters around the communities serviced or geographic location in which they operate. Inclusion of this type of information could increase Verizon’s strategic management position by communicating to the public who they are working for and potentially where they intend to expand to. There is no indication of whether they are an international organization, providing service on a global scale, or whether they are a local operation, more confined geographically. While the type of industry is identified as communication services, and lends itself to suggest Verizon remains technologically relevant, there is no additional information regarding the technological advancements or aspects involved in their business. There is no information provided about the inclusions or focus of technology in their company, or any indication of their continued commitment to technological innovation. As technology is an integral part of nearly every industry and every organization, identifying how an organization is remaining current, is a valuable way to help instill confidence in employees, customers and potential consumers. Another area that could be improved upon in Verizon’s mission statement is the mention of how they intend to grow and remain profitable in an economic environment that is increasing

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in competition. Shareholder and stakeholder confidence is important, so addressing profitability and growth as a major focus, would help to provide the sense of stability and show awareness of the importance of shareholder value. Verizon’s mission statement does reference their commitment to operating a business built upon integrity. Integrity is a powerful word that encompasses many characteristics of morality, and affirms a position of honesty. In their mission statement, Verizon claims integrity as a core value, and portrays the message of honest and upright business practices. With increased accessibility to products and company options, consumers are looking for organizations they can stand behind and buy into. Providing customers with a sense of affirmation in terms of ethical practices will help to increase brand loyalty. Self-concept is also an element discussed in Verizon’s mission statement, as they mention that being the biggest communication provider will not give them the competitive advantage over others, but rather being the best will give them that edge. That sends the message to consumers that they are committed to not only profits or growth, but instead, remain committed to providing superior service that raises them above their competitors. Attention and concern for their public image is addressed in a sidebar manner, as Verizon makes the statement that they are centered around, and built upon, a set of corporate values, of which include corporate social responsibilities. They demonstrate a commitment to the community and social world around them, and have many efforts geared towards their sustainability efforts and commitments to leading an environmentally friendly organization. While loosely mentioned in the mission statement by way of corporate values, they do possess a strong approach to their corporate social responsibilities efforts.

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Finally, Verizon’s mission statement does demonstrate a concern for their employees, and recognition of the role they play within their organization, by discussing the importance of the teamwork approach in reaching their goals of providing superior service to their customers. Verizon acknowledges that through their employees and their collaborative efforts, they are able to reach their customers faster than competitors, while providing service that outperforms others. Milestones Verizon was created on June 30th, 2000 through one of the largest “mergers of Bell Atlantic Corp. and GTE Corp.” (Verizon Communications, 2016). These merging organizations were well established, and boasted a combined revenue of $58 billion in 1999, the year leading up to this merger (Verizon Communications, 2016). Verizon has undergone 26 different acquisitions, and has made many advancements to make it a leader in the industry (Verizon Communications, 2019). Today, because of the “unparalleled national scale in landline and wireless networks and a significant global presence, Verizon delivers the benefits of communications – voice, high-speed data, internet access, and wireless – to millions of customers every day (Reference for Business, n.d.). Year 2000

2002

2004 2006

Corporate Milestone Verizon Communications was formed from one of the largest mergers between Bell Atlantic Corp. and GTE Corp, in a deal worth over $52 billion (Verizon Communications, 2019) Verizon launches their 3G (Third Generation) wireless telephone network, which gives their consumers the ability to access the internet with high speed connection on their mobile devices (CNN, 2002) Verizon is added to the Dow Jones Industrial Average (Verizon Communications, 2016) Verizon acquires MCI Corp., and by doing so, becomes a “leading provider of advanced communications and information technology solutions to large-business and government customers worldwide” (Verizon Communications, 2016).

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2010

2012

2015

2016

2019

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Verizon acquires Rural Cellular Corp. for $2.67 billion cash and assumed debt, to help service the rural customers in the U.S. (Gross, 2007) Verizon becomes the “largest wireless service provider in the U.S., as measured by the total number of customers”, with their acquisition of Alltel Corp. (Verizon Communications, 2016) Verizon announces the launch of their 4G LTE network, which is the “fastest and most advanced network” with speeds up to “10 times faster than the company’s 3G network” (Verizon Communications, 2010) Verizon announces agreements with Advanced Wireless Spectrum to purchase licenses that account for 93% of the U.S. population (Verizon Communications, 2016) Verizon pursues its goal of becoming “the #1 global media technology company for creators, advertisers, and consumers on a mobile-first network platform”, with their acquisition of AOL Inc. (Verizon Communications, 2016) Verizon acquires XO Communications’ fibre optic network business in an effort to continue to strengthen their position (Verizon Communications, 2016) Verizon will be “first to market in the U.S. with both fixed and mobile versions of 5G technology”, with plans to expand the deployment of mobile 5G service (Verizon Communications, 2019)

Verizon continues to demonstrate a commitment to superior service, growth and technological advancement. They have shown a consistently aggressive approach to growth with their acquisitions of companies that enhance their market share. Through the development of their 3G, 4G LTE and now their 5G networks, they are displaying innovation and a keen sense of consumer wants and needs. They respond quickly to those consumer demands, and pioneer the efforts that continue to propel this industry forward. External Factor Evaluation This external factor evaluation allows for an organization, namely Verizon, to be assessed through the lens of key opportunities and threats that exist within the telecommunications industry. It provides a list of key factors that could impact all companies within the industry, and

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identifies where Verizon might be able to further mitigate risk of threats or capitalize on potential opportunities.

Key External Factors Opportunities 1. Increase in consumer use of mobile devices, internet use, and overall demands for connectivity 2. High demand for quality customer service and experience, in addition to product quality 3. Strong position regarding ethical practices and sustainability efforts 4. Globalization and expansion opportunities outside of the U.S. 5. Technological innovation that spurs on development opportunities for companies and overall diversification of product offerings 6. Introduction of 5G network and 5G related service options Threats 1. Increase in competition within the telecommunications industry 2. Decrease of brand loyalty within the telecommunications industry, and therefore a higher threat of substitutions 3. Rise in security threats with network and technology based companies and therefore increased government intervention and regulation 4. Environmental factors that could damage existing infrastructure 5. Globalization issues including currency, government regulations, etc. 6. Rapid change and innovation of technology TOTAL

Weight

Rating

Weighted Score

0.2

3

0.6

0.1

3

0.15

0.05

3

0.15

0.1

2

0.2

0.05

2

0.1

0.15

4

0.8

0.15

3

0.45

0.05

3

0.15

0.05

2

0.1

0.01

2

0.02

0.04

2

0.08

0.05

3

0.15

1.00

-

2.95

There is a tremendous increase in overall online activity, mobile device usage and demand for continuous connectivity. In fact, recent data suggests that “global mobile data traffic is projected to increase nearly sevenfold between 2016 and 2020”, with early 2018 data showing a global mobile population of 3.7 billion users (Statista, 2018). As this trend continues, and consumers become more proficient and consistent with their internet use, a significant opportunity is presented for organizations within related industries. Due to this significant

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increase and the trajectory of trend, this external factor was weighted the highest at 0.2, identifying it as a major external factor affecting the industry. Verizon has recognized this trend and has focused efforts on continuing to improve their mobile device service, currently working on their 5G network. As such, they were rated 3 in terms of their response to this external factor, signaling an above average response. As company and product options continue to increase due to connectivity and globalization efforts, the need for organizations to provide superior customer service also increases. Consumers are now looking for a total customer experience. “Everything a brand does – the way it does its marketing, research, advertising and more – all play a role in shaping the customer’s experience” (Hyken, 2018). It was reported that in 2018, “89% of companies compete primarily on the basis of customer experience – up from just 36% in 2010” (Hyken, 2018). For this reason, customer service and experience was weighted at 0.1, identifying it as a highly influential external factor for organizations to consider. Verizon was rated at above average (rate of 3) in their response initiatives to address this factor, as they have invested time and resources into revamping their customer service processes. In 2014-2015, Verizon launched their “Simple.Smart.Connected customer service initiative” (Solomon, 2015), which essentially focused efforts on improving their customer service processes, with a goal of exceeding industry standards and norms. This initiative included “Service Elite” training that all employees were to undergo, the creation of customer service tools such as “Rep Guidance”, and the introduction of “real time feedback loops” to help with real time data (Solomon, 2015). Closely related to the customer service experience factor is increased emphasis on ethical practices and sustainability efforts. Due to increased product options, consumers have become more focused on sustainability and corporate social responsibility behaviors. Consumers are not

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only looking for quality products, but also an organization that shares their values, that they can stand behind. This trend is seen through the resources being allocated to sustainability initiatives, and also through the increased awareness consumers are showing on the values an organization is built upon. For this reason, sustainability, ethical business practices and corporate social responsibility was weighted 0.05, indicating it to be an average factor to consider. Verizon has not taken this factor lightly, and has many different sustainability initiatives in place, which is why they were rated an above average response (rate of 3) for this factor. Their corporate website states, “throughout our operations, we have adopted strategies to minimize Verizon’s environmental impact and drive greater efficiency” (Verizon Communications, 2019). These initiatives include carbon emissions reduction, investment into green energy, recycling efforts, and reducing water consumption (Verizon Communications, 2019). Like most industries, globalization and expansion are critical to overall success and company stability. In a landscape where market share is essential, finding new opportunities for growth is always key. Globalization and expansion was weighted 0.1, showing an average concern for this factor and potential opportunity. While Verizon has goals of becoming one of the global service providers, their response for international expansion has not well exceeded the performance of industry competitors, thus, they were rated an average rate (rate of 2) for response. Technological advancement and innovation is quickly becoming a key component of most industries. This technological era reaches nearly all companies, in all types of industries, which is especially true for companies such as Verizon. The rapid pace of technological change means that before a product reaches the market, new developments are already being created to

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replace it. If an organization does not continually push to innovate and remain current, they will quickly be left behind in terms of technological relevance. For this reason, changing technology was weighted 0.05. Despite the slightly lower weight compared to other factors, it still remains an important factor for consideration. While Verizon does have multiple business units, the diversification of product offerings is not immense, so Verizon was rated a 2, depicting an average response to this external factor. Improvement possibilities exist for Verizon to diversify their product lines to reduce their risk and exposure, and potentially add value to the organization. Specific to the telecommunication industry, is the introduction of the 5G network. This expected launch is critical to an organization’s success, and to ensure they remain at the forefront of the industry. Once one company launches this network, it is imperative that the other companies follow, or they run the risk of loss of market share, as customers could potentially leave. It is because of this influence that this factor was weighted 0.15, showing a high concern for addressing this opportunity. Verizon has recognized the importance of this development, and is on the front lines of product release. “5G is the fifth generation of wireless technology … that means quicker downloads, outstanding network reliability and a spectacular impact on how we live, work and play” (Verizon Communications, 2019). They have worked this network to respond to their consumers’ demands for more connectivity, faster response, and overall technological improvements. With this focus in mind, Verizon was rated a 4, identifying their efforts as a superior response, due to their pioneering efforts to provide this service. One major threat that all organizations deal with is competition. There has been increased competition within the telecommunications industry, as products, sales, margins and overall performance differences narrow. Whether a company maintains its competitive

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advantage will greatly determine its success and longevity within the industry, and as such, competition was weighted 0.15, showing great impact of this threat. For Verizon specifically, two main competitors are narrowing the gaps in performance, namely AT&T and T-Mobile. That being said, Verizon is still maintaining its position, and in April 2017, “was ranked the largest company in the USA with the highest number of subscribers (146 million)”, with AT&T the next closest at 134.2 million subscribers (Rotich, 2017). For this reason, Verizon was rated above average (rate of 3) for their response to this threat. Decrease in brand loyalty, and subsequently threat of substitutions is quite high within the telecommunications sector, because consumers are able to quickly and affordably switch service providers if they are dissatisfied with anything. Due to this sensitivity within the industry to consumer satisfaction, this threat was weighted 0.05. Verizon has done a good job at meeting the needs of its customer base, and has been able to keep their customer numbers strong, despite competing companies challenging their position, and was determined to have a rating of 3, representing above average response to this industry threat. Security threats continue to be a major concern for organizations that are centered on network connectivity and built upon complex technological infrastructure. With increased sharing also comes increased risk and security threats, which is a major concern for consumers. With this consideration in mind, security threats and an organization’s ability to navigate those waters was weighted 0.05, showing average concern for this threat in relation to an organization’s success. Verizon is constantly working towards protecting its consumers, and was identified as having an average response to this threat (rate of 2). In late 2018, Verizon “acquired the PrecisionAccess solution and other Software Defined Perimeter (SDP) related assets” from Vidder Inc., in efforts to “protect application infrastructure against cyber threats”

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(Varettoni & Perrin, 2018). Efforts such as this merit the average rating of 2 for Verizon’s response to this exterior threat. With industries such as the telecommunications industry, the infrastructure is quite extensive, and therefore, a common threat is that environmental disasters, etc. could damage or destroy this infrastructure. The resources needed to initially setup, and then maintain telecommunications infrastructure is quite substantial, let alone having to make repairs or replacements on damaged equipment due to natural causes. For this reason, damage due to environmental causes was weighted as 0.01. Despite it being the lowest weight, it does still signify that some concern is carried for such an occurrence. Verizon was rated an average score of 2, as they remain on par with industry competitors in their efforts to avoid such threats. When globalization and expansion efforts are in play, external issues must be accommodated, including currency differences, government intervention and regulation issues and even cultural norms and expectations. While the economy calls for most organizations to aggressively pursue globalization in order to stay afloat, globalization was weighted 0.04 for the telecommunications industry, because while it is still important, it has not been the primary action seen within the industry. Verizon has remained aware of this need to grow and expand, but has not performed significantly ahead of industry competitors in this area, and therefore was rated an average score of 2 for this threat response. Finally, as mentioned above, the need to not only adjust to, but actually pre-empt the technological changes, is becoming increasingly important to an organization’s success. Within the realm of telecommunications, this factor becomes even more important, as the organization relies heavily on the development of new technology to keep it at the forefront of industry competition. It is because of this reliance on development that this factor was weighted 0.05,

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showing adequate concern for this threat. Verizon is currently leading the charge with its 5G network rollout, and is constantly finding new ways to advance their technology, and therefore, they were rated an above industry average rating of 3, to account for the resources dedicated to remaining relevant with their technology, products and initiatives. A total weighted score of 2.95 for Verizon indicates that it is responding above average to the external factors within the industry. While this total weighted score suggests that Verizon is adequately mitigating potential loss from the external threats and capitalizing on the potential opportunities, there is still room for improvement in both areas. The potential areas for improvement can be identified within the threats and opportunities listed in the matrix above.

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Internal Factor Evaluation This internal factor evaluation provides insight into Verizon’s internal situation and directly identifies key strengths and weaknesses that can be attributed to the organization’s overall success within the industry. This assessment helps to show areas that can continue to be strengthened and also areas that may need to be improved upon.

Key Internal Factors Strengths 1. Healthy brand image, with a strong base of loyal customers 2. Leading telecommunications provider in the US with largest market share 3. Strong marketing campaigns, such as “Can you hear me now?” 4. Multiple business units which helps them service a greater number of customers 5. Industry leader in the launch of 5G network and related services 6. Maintain a highly skilled and well trained employee base 7. Steady increase in net operating cash flow for the previous three years 8. Consistent increase in dividend payouts year after year Weaknesses 1. Limited range and variance of product offerings and segments 2. Declining gross profit margin over the past five years 3. Higher prices than industry competitors, however, closing gaps could potentially reduce margins 4. Customer base erosion due to the direct campaigns of competitors 5. Decline in the ROE over the previous three years 6. National brand and is reliant on the US market share alone TOTAL

Weight

Rating

Weighted Score

0.1

4

0.4

0.2

4

0.8

0.05

3

0.15

0.05

3

0.15

0.15

4

0.6

0.05

3

0.15

0.05

3

0.15

0.05

3

0.15

0.05

2

0.1

0.05

1

0.05

0.025

2

0.05

0.05

2

0.1

0.025

2

0.05

0.1

1

0.1

1.00

-

3.0

In today’s competitive market, it is important for a company to have a clear and defined brand, that the company understands and the consumers support. More than ever, organizations

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need to create a brand that resonates with consumers to ensure they do not get lost within mediocrity. Brand image is essential because it creates an impression, ensures recognition, shows organization and uniformity, and instills credibility (Thimothy, 2016). As such, brand image was weighted 0.1, identifying it as one of the top strengths for Verizon. Due to their commitment to customer satisfaction with their brand, and ensuring they continue to have brand recognition, Verizon was rated a 4, showing it is a major strength for them. Market share is critically important for companies, as it provides influence and resources to further establish, develop and grow the organization. Due to the importance of market share for profitability and continued traction for expansion, market share was identified as the most important internal strength, and thus was given a weight of 0.2. Recently, Verizon was said to be the “nation’s largest consumer wireless carrier” in the United States, boasting recognition for “reliability, speed, data connections, and calling” (Pressman, 2018). It is evident that market share is one of Verizon’s major strengths, and therefore a rating of 4 was given. As mentioned above, brand recognition is important for an organization, but this cannot be accomplished without strong advertising strategies. It is irrelevant how good a company’s product or service is, if no one finds out about the company. Therefore, strong advertising campaigns was given a weight of 0.05. This is an area that Verizon has done an exceptional job at, with advertising campaigns such as “Can you hear me now?”. This is a campaign that resonated with many consumers, as it is a struggle that all consumers have had to deal with from time to time. By addressing an obvious consumer concern, and showing customers how Verizon was able to fix it, this campaign was a great success. As such, this was identified as a minor strength and contributing factor to Verizon’s overall success.

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Multiple business units, in any organization, helps to distribute risk and potentially reach more consumers, which is why this strength was weighted 0.05. Multiple business units can better address specific wants and demands for that area, and can also help to ensure that if one area of the business is struggling, another can help keep it afloat until further decisions can be made. Verizon has done a great job at this and was given a rating of 3 because it has done just that, by having different business units including Verizon Wireless (wireless connectivity), Verizon Fios (fiber cable connectivity), Verizon High Speed Internet (internet and phone for homes and offices), and finally Verizon Enterprise (enterprise solutions for large companies) (Verizon Communications, 2019). First to market is always an advantage that companies want. While there may be increased risk associated with it, being able to pioneer new products or services, gives an advantage to that company. Being the first to market with the 5G network and related services is a massive advantage for Verizon, and was therefore given a weight of 0.15, one of the top factors, and was also given a rating of 4, as it is a major strength for the company. Verizon has invested resources into the continuous development of their product, and essentially will be one of the leaders in the industry for the launch of this network, which is to continue to revolutionize the entire network experience. Success for an organization begins on the inside and is greatly tied to the employees that represent the company. A well-trained, educated and highly-skilled team can mean the difference between corporate success or failure. For this reason, the factor related to employee base was given a weight of 0.05. Verizon has acknowledged the importance of well-trained staff, and has launched many initiatives to help ensure their continued development and knowledge base, such as their “Service Elite” training program, devoted to helping them in the

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area of customer service. Due to their continued commitment to their staff, Verizon was rated 3 in this category, identifying it as a minor strength of the company. Company financial statements are very telling to the overall health and financial stability of an organization. As such, operating cash flow was identified as an important strength for a company, and was weighted 0.05 to denote this importance. Over the previous three years, Verizon has seen a steady increase in the overall operating cash flow, which is important as it suggests the organization is in a healthy position where it is able to continue to grow its operations. Verizon has seen an increase from $22.72 billion in 2016 to $25.31 billion in 2017, and finally to $34.34 billion in 2018 (Market Watch, 2019). As such, this factor was identified as a minor strength for Verizon (rating of 3). Another important financial factor is dividend payouts, as they are indicative of the financial health of the organization. A steady increase in the dividend payout is even more telling to the state of the organization and its overall profitability. With this in mind, the continuous dividend payout increase that Verizon has experienced year after year, was given a weight of 0.05 and a rating of 3. This represents the value of this factor as a strength of Verizon and a contributing factor or identifier to its overall success. With strengths of an organization also come weaknesses, and potential areas for improvement. One such weakness for Verizon is the lack of product variance. While Verizon does have multiple business units, the general product offering has little variability. Verizon is a telecommunications company that, simply put, provides wireless products and services. Should something happen to this industry, or technology be created that surpasses the services of Verizon and transforms the telecommunication world as we know it, Verizon would not have a

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product to carry it through. This lack of product variance was given a weight of 0.05 and a rating of 2, identifying it as a minor weakness. Another indicator of vulnerability for Verizon is the decline in gross profit margin over the previous five years. Gross profit margin is a valuable profitability ratio, as it “measures how much profit remains out of each sales dollar after the cost of goods sold is subtracted”, which essentially “shows how well a firm generates revenue compared with its cost of goods sold” (Gallagher, 2016, pg. 82). Verizon has experienced a continuous decline in its gross profit margin over the previous five years, from 60.71% in 2014 to 57.58% in 2018. While this percent change may seem minor, it could be indicative of potential financial problems. As such, this weakness was given a weight of 0.05 and identified as a major weakness (rating of 1). Price point is always an area of discussion for companies, as it will greatly determine whether consumers choose to purchase products and services from an organization or through a competitor. Verizon has been known to have premium prices, higher than those of their competitors. While it has not prevented consumers from choosing their high quality service options, it has accounted for increased margins over competitors. As this gap continues to narrow, and competitors gain more market share, and subsequently increase their prices, the better margins experienced by Verizon will mean less in terms of advantage over competition. This is viewed as a minor potential weakness with a rating of 2, and weighted as 0.025, in relation to other internal factors. As previously discussed, customer loyalty is exponentially more important in industries where threat of substitution is high. Consumers are able to easily switch between telecommunication companies, and that is often used as a technique to poach clients from one company to another. This is a minor weakness (rating of 2) for Verizon, with a weight of 0.05,

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as competitors, namely AT&T and T-Mobile, are actively trying to poach Verizon’s customer base through direct advertisements and campaigns. This could potentially lead to customer base erosion and have significant impact on its market share. A profitability factor important to the owner’s of a company is the return on equity ratio. This “measures the average return on the firm’s capital contributions from its owners”, and “indicates how many dollars of income were produced for each dollar invested by the common stockholders” (Gallagher, 2016, pg. 84). This is another area that Verizon has experienced decline over the previous three years, from 60.45% in 2016 down to 28.66% in 2018 (Macrotrends, 2019). As this could cause some concern for the owners and stockholders of Verizon, affecting future capabilities of raising capital, this weakness was given a weight of 0.025 and a rating of 2, identifying is a minor weakness at this point in time. Finally, the last weakness for Verizon that was identified is the national brand status and reliance on the US market. Despite recovery from the 2008 financial crisis, reliance upon one market is cause for concern. That means an organization is relying on one sole economy and market to sustain it. Due to this vulnerability and heavy dependence on the US market, this weakness was given a weight of 0.1 and a major weakness status with a rating of 1. Until Verizon is able to break into more markets, this remains a cause for potential concern. The total weighted score of 3.0 indicates that despite some weaknesses and areas for improvement, Verizon is relatively strong internally. This means they are taking advantage of the areas of strength, while protecting their potential areas of weakness. Verizon is showing a relatively strong internal position within the telecommunications industry.

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SWOT Analysis Conclusion Overall, Verizon Communications appears to be in a relatively strong position within the industry, based upon both the internal and external factors. Two major opportunities that Verizon is capitalizing on is the increased number of internet and mobile device users, as well as introducing new products and services before competitors. Verizon is responding to the increase of internet and mobile device users by creating networks and services that support this type of technology and centering future business on this trend. To further support this, they are also developing new products and services, such as the launch of their 5G network, ahead of industry competitors. They are capitalizing on the opportunity to be first to market with product developments, which will help to continue their expansion efforts. In terms of potential external threats, Verizon is doing an exceptional job mitigating any issues that could arise from two potential threats, increased competition and increased bargaining power from consumers due to substitutions. As with any industry, competition can be fierce, so it is important to gain competitive advantage over competitors. Verizon has been able to gain and maintain the largest market share by offering superior products and customer service. By continually developing their products, they are securing their spot as an industry leader. The other major threat they are working against is the risk of substitutions and increased consumer bargaining power. Due to the ease of switching between companies, Verizon runs the risk of losing loyal customers to its competitors. They have managed to find ways to make their brand stand out and keep that loyal customer base strong, despite the constant threat of substitutions. Verizon’s major strengths involve its healthy brand image and the market share they have subsequently gained because of it. Brand image is critically important to standing out above competitors, and Verizon has consistently done this through its superior products and services, as

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well as its strategic advertising campaigns. As a result of this brand image and superior service, Verizon has been able to be a leader in the telecommunications industry, providing more opportunity and resources for further expansion and dominance. Finally, despite the presence of some weaknesses, Verizon has been able to find ways to protect itself from those vulnerable areas. One major weak point is the lack of diversification in the product offerings, as well as the reliance upon one market. While Verizon has multiple business units, those business units fall under one similar category, and therefore, they have limited product variance. This increases risk as there is little diversification of product. In addition to this vulnerable point, Verizon also remains a national brand, leading to sole reliance on one market. This is an area for concern, as the organization relies on the success and stability of one market, and therefore, is completely at its mercy. Despite the varying internal and external factors, Verizon Communications proves to be a reliable and stable organization, one that is leading the way within the telecommunications industry. Industry Analysis - Porter’s Five Forces Model Telecommunication companies like Verizon are often considered to be in a highly competitive and volatile market. “According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces”, and are identified as “rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers”, and “bargaining power of consumers” (David, 2012, p. 75). This analysis helps to assess the external landscape and environment of the industry, and gain perspective on the competitive elements that exist.

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Rivalry Among Competing Firms Often regarded as one of the most influential factors of the competitive forces, rivalry among competing forces is a critical analysis to complete in an attempt to assess Verizon’s position within the industry and its related strategic approaches (David, 2012). Gaining and maintaining market share is always crucial for organizations, and this is exceptionally true for companies in the telecommunications industry. As such, this is considered to be a strong force to contend with. In the Forbe’s Global 2000 list for 2018, their “annual list of the world’s most powerful public companies, ranked by sales, profits, assets and market value”, there was a total of “54 telecommunications companies” that made the cut, claiming “more than $3.4 trillion in assets and totaled nearly $1.5 trillion in revenue last year” (Ponciano, 2018). These telecommunication companies are obviously a major threat to the market share and competitive advantage that Verizon could hold. At present, there are two major competitors that Verizon is battling against, namely AT&T and T-Mobile. Market capitalization, “the most commonly used method of measuring the size of a publicly traded company”, revealed that as of February 2019, Verizon still remained the largest telecom provider in the United States, with a market capitalization of $234.96B, with AT&T a close second at $191.23B, followed up by T-Mobile at $62.24B (Macrotrends, 2019). As these competitors continue to establish their own market share, there remains a significant threat of challenging the position of Verizon and its customer base. Due to the nature of the telecommunications industry, consumers are able to easily and affordably switch between providers, a technique used by telecommunication companies to

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poach customers from one company and bring them to their own. This tactic highly increases the competitive nature between companies as well. To compound this factor is the relatively low product differentiation between products, services and packages. With little to distinguish itself over competitors, Verizon is highly susceptible to this external force. Overall, competition remains one of Verizon’s fiercest external factors to monitor. Potential Entry of New Competitors While the entrance of new competitors is always a factor to consider, this is deemed a weaker force specifically working against Verizon. The main reason for this is because of the high costs to enter this industry. The infrastructure needed to start new telecommunications companies equates to a high amount of capital requirements to even offer services, let alone finding ways to gain market share and a competitive advantage over those companies that are already established. It is reported that the “average estimate for cell tower construction can be anywhere from $100,000.00 to $350,000.00 depending on materials construction, labor, etc.” (Foster, 2015). In addition to the substantial start-up costs, the competitiveness within this industry is also very intense, which significantly complicates the potential of new competitors and their ability to succeed. As of 2018, Verizon, with a market share of 35% and AT&T, with a market share of 34%, dominate such a significant part of the industry, that competing with these forces would be extremely difficult (Depersio, 2018). For these reasons, it was determined that the potential entry of new competitors was relatively low, and therefore was a weaker force in this industry as compared to others. Potential Development of Substitute Products

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The threat of substitutions is a very crucial external force for many companies, and Verizon is no different. As a common technique for acquiring customers in the telecommunications industry is the poaching from one company to another, this factor is considered a strong force to contend with. “The chasm is narrowing between Verizon’s network and those offered by competitors, and lower prices are a constant looming temptation for Verizon customers” (Depersio, 2018). As consumers seek to find the best deals that satisfy their desire for more coverage and unlimited data, the potential for quality substitutes increases and pose a great risk for Verizon. Bargaining Power of Suppliers Suppliers can carry a great deal of influence over a company as they are able to determine price points, availability and overall quality of their products (David, 2012), which can have significant impact on supply chain expenses and overall efficiency. Despite the potential impact suppliers can have on a company, bargaining power of suppliers has been determined to be a weak to moderate force for Verizon. Due to Verizon’s market share of 35% and overall position within the industry, they maintain more power over some of their smaller competitors (Depersio, 2018). In addition to Verizon’s size and purchasing power, there appears to be many supply options for them to choose from. While there is many telecommunication companies within the United States and worldwide, many do not hold the same leverage that Verizon does in terms of sheer size and dominance. Bargaining Power of Consumers

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“The bargaining power of consumers can be the most important force affecting competitive advantage” (David, 2012, p. 78), and in the case of Verizon, is a moderate to strong external force. As mobile device and internet use continues to increase, consumers are looking for plans that suit their demand for higher data limits (Deloitte, n.d.). As consumers can easily and inexpensively change service providers at any moment, they hold significant bargaining power. Verizon’s competitors are well aware of the bargaining power that the consumers hold, and make frequent attacks against Verizon, in an attempt to erode more of their customer base. As gaps in service continue to get smaller and smaller, Verizon’s higher price point may also come into question, and consumers may begin to opt for the cheaper bundle plans being offered by competitors. Competitive Strategies – Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix “Strategy is sometimes defined as the match an organization makes between its internal resources and skills and the opportunities and risks created by its external factors” (David, 2012, p. 175). For this reason, it is important for an organization to fully understand where they excel and where they can improve, to better develop the strategies needed for success. In the SWOT Matrix, four different strategies can be developed including SO Strategies (strengthsopportunities), WO Strategies (weaknesses-opportunities), ST Strategies (strengths-threats), and finally WT Strategies (weaknesses-threats) (David, 2012).

1. 2.

Strengths Healthy brand image with a strong base of loyal customers Leading telecommunications provider in the US, with largest market share

1. 2. 3.

Weaknesses Limited range and variance of product offerings and segments Declining gross profit margin over the past five years Higher prices than industry competitors, however, closing

VERIZON COMMUNICATIONS 3.

4.

5.

6. 7.

8.

1.

2.

3.

4. 5.

6.

1.

2.

3.

4.

Opportunities Increase in consumer use of mobile devices, internet use, and overall demands for connectivity High demand for quality customer service and experience, in additional to product quality Strong position regarding ethical practices and sustainability efforts Globalization and expansion opportunities outside of the US Technological innovation that spurs on development opportunities for companies and overall diversification of product offerings Introduction of 5G network and 5G related service options

Threats Increase in competition within the telecommunications industry Decrease of brand loyalty within the telecommunications industry, and therefore a higher threat of substitutions Rise in security threats with network and technology based companies, and therefore increased government intervention and regulation Environmental factors that could damage existing infrastructure

1.

2.

3.

4.

1.

2.

3.

27 Strong marketing campaigns, such as “Can you hear me now?” Multiple business units which helps them service a greater number of customers Industry leader in the launch of 5G network and related services Maintain a highly skilled and well-trained employee base Steady increase in net operating cash flow for the previous three years Consistent increase in dividend payouts year after year SO Strategies Launch nation-wide campaign promoting the release of 5G network and how it will meet the needs and demands for mobile use and connectivity (S5, O1) Add specific customer service training programs to the roster, and run employee contests regarding customer service reviews, etc. (S6, O2) Develop and run a marketing campaign regarding the environmental and sustainability efforts currently and in the near future (S3, O4) Distribute a brochure to all Verizon business units clients with information on product diversification and service options as a result of their 5G network launch (S4, O5) ST Strategies Incorporate security training for employees, and provide a news release reporting efforts to shareholders and consumers (S6,T3) Run loyalty rewards program for customers who have long service history with company (S1, S2, T1, T2) Marketing campaign regarding the first to market launch of 5G network and related services (S5, T1, T6)

4.

5. 6.

1.

2.

3.

1.

2.

gaps could potentially reduce margins Customer base erosion due to the direct campaigns of competitors Decline in ROE over the previous three years National brand and is reliant on the US market share alone

WO Strategies Run company-wide program with an incentive for the employee that submits the most creative new product or service offering, and commit additional resources to R&D for new products (W1, O5) Launch a marketing campaign about the release of 5G network, with personalized promotion options for signing a new contract (W4, O6) Put together a committee that is focused on potential international expansion opportunities, acquisitions or mergers (W6, O4)

WT Strategies Launch rebuttal advertisement highlighting areas that the companies excels at (W4, T2) Hold a consumer survey/forum regarding products and services they would like to have (W1, T1, T2)

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6.

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Globalization issues including currency, government regulations, etc. Rapid change and innovation of technology

SWOT Matrix Analysis The SWOT matrix above provides a concise visual of the strengths, weaknesses, opportunities and threats that are present for Verizon. It provides an overview of key internal and external factors that should be considered when developing and implementing future strategic plans for the company. These strategies will help to further capitalize on opportunities in the market using their strengths and even weaknesses, and will also help to mitigate any potential damage caused by threats. Strength-Opportunity (SO) Strategies The first strength-opportunity (SO) strategy discussed is the launch of a nation-wide campaign regarding the first to market release of Verizon’s 5G network and any associated services that might be available. “There portends a promising future for mobile internet usage, as global mobile data traffic is projected to increase nearly sevenfold between 2016 and 2021”, with “the global mobile population amounting to 3.7 billion unique users” in January 2018 (Statista, 2018). As mobile device use increases, consumers are becoming more adamant about what their provider capabilities are and the services they receive. By launching an advertisement campaign highlighting these new features, features that are not currently offered by competitors, it showcases them and confirms a consumer’s decision to use Verizon, a leader in the telecommunications industry. This strength of being the leader in the launch of the 5G network,

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paired with the opportunity to capitalize on mobile use increases, helps to solidify Verizon’s position in the market. Another SO strategy identified was the addition of employee training programs that specifically target different areas of customer service, with concurrent employee contests focused on the targeted training areas. In 2012, Verizon was “ranked No. 1 on Training magazine’s Top 125 list of companies that have the best training programs for their employees” (Verizon, 2012). As Verizon has shown to pride itself on maintaining a well-trained team of employees, there is an opportunity to use that training to better an area that is generating much attention, customer experience and satisfaction. By providing training, it equips employees with knowledge to better meet the needs of consumers, and meets the demands of the consumers to have quality products and service. Running concurrent employee contests provide incentive for employees to put into action the information they are learning, and also pushes them to outperform the competition in the area of customer service. As the accessibility to product and company options increases, an opportunity exists for reaching consumers through shared values. Corporate social responsibility (CSR) and sustainability efforts are becoming major topics of discussion for consumers, as they search for organizations they can support. The third SO strategy suggested was the development of marketing campaign that is directly focused on Verizon’s CSR initiatives and sustainability efforts. This steps outside the logical factors such as product or service, and provides an emotional element for consumer buy-in. The final SO strategy recommended is distribution of information brochures to the clients of the different business units, discussing new product diversification options and services that are offered, as a direct result of the launch of Verizon’s 5G network. This helps to broaden the

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scope of thinking of consumers, enhancing the perception of product diversification, while highlighting the strength of being a leader in the development of the 5G network. Weakness-Opportunity (WO) Strategies The first WO strategy discussed was running a company-wide program with incentives for the employee that provides the most creative, and feasible, new product or service. Employees are a wealth of knowledge, expertise and ideas, so tapping into that resource is essential for success. As employees share ideas about products or services they would like to see, it spurs on innovation to create new products, which helps to deal with the weakness of limited product variance, and capitalizes on the opportunity of developing technology. The company can further allocate additional resources to this specific research and development project, involving and engaging employees every step of the way. Another WO strategy put forward was launching a marketing campaign regarding the release of the 5G network, and running consecutive personalized promotion options for current and new customers who are willing to sign a new contract. This output of information regarding the strength of being first to market the 5G network will help to mitigate any negative effects on customer erosion due to competitor advertisements and campaigns. By providing personalized promotion options to customers in exchange for a contract extension, it helps to solidify that customer base while keeping the consumers happy with their promotion. The final WO strategy mentioned was the creation of a committee that is focused on finding potential international expansion opportunities, whether through acquisitions, partnerships, etc. There is a definite weakness that exists regarding the national brand status, so finding ways to further take advantage of globalization potential, could greatly benefit Verizon.

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It will obviously take a significant amount of resources to cross borders, but finding smaller scale opportunities can help to create bridges and relationships that will serve beneficial when the time comes to continue expansion. Strength-Threat (ST) Strategies As mentioned previously, Verizon has prided itself on having well-trained employees and teams. Security threat is becoming increasingly more frequent and serious in nature, causing great concern for the company as well as the customers. While a large portion of the security efforts may reach outside of the employee base, there are basic security measures that could be taught and utilized by all employees. The first ST strategy discussed is the employee training on basic security measures, which will mutually benefit the employees, corporation and its customers. It would be most beneficial for a news release to be provided that gives information on what training has been implemented, and how that proves beneficial to the customers, as internal efforts and initiatives do not necessarily reach the public. Another ST strategy suggested is the implementation of a rewards or consumer perks program that acknowledges a long history with Verizon. As the threat of increased competition and decreased consumer loyalty is present, adding a rewards program will help to maintain a strong loyalty base and encourage new customers to switch to Verizon as well. With the product and service gaps getting smaller between Verizon and its competitors, they need to be looking for new ways to engage with customers and maintain loyalty despite outside factors. The final ST strategy discussed is a campaign focused on first to market innovations, such as their 5G network. As consumers value product development and additional service options, running a marketing initiative that is solely focused on sharing how Verizon is a leader

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in the industry, will help instill confidence in the minds of the consumers that Verizon will continue to pioneer new technological efforts. This will encourage them to stay with Verizon if they would like to ensure they remain on the forefront of technological releases. Weakness-Threat (WT) Strategies As the product and service gaps continue to narrow between Verizon and the competitors, negative advertisement campaigns from competitors can greatly impact Verizon. As such, the first WT strategy recommended was rebuttal advertisements that directly highlight areas that Verizon still remains the top choice for telecommunication providers. This will help to remediate potential impacts from customer erosion and competition related issues. The last WT strategy was the utilization of consumer surveys or forums, to gather valuable information on products and services they would like to see. As competition continues to increase and companies face decreased brand loyalty, it is important to have products and services that consumers want. While the product and service offerings are not overly diverse, it would be beneficial to have targeted information about minor ways Verizon can better serve its consumer base. In addition to the information itself, engaging with consumers and giving them a voice, helps to ensure they feel valued and understood, and that their wants and needs are being met. Matching Tool Selection It was determined that the SWOT analysis would be most useful in this assessment, as it provides more thorough information regarding all criteria used in the strategy recommendations. It provides a complete overview of the internal and external factors identified for Verizon, and provides clear links and support as to why the particular strategies were selected.

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By using this matching technique, it also provided information regarding potential overlaps and ways to consolidate strategies to accomplish more strategic objectives with less expense. While different matching techniques would prove beneficial also, the SWOT analysis seemed to provide the best correlation of the internal and external factors of strengths, weaknesses, opportunities and threats, to ensure the strategy recommendations would see the best results for the organization.

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Ratio Analysis of Verizon including financial reports from 2015, 2016, and 2017 periods Year Ended December 31

Ratios

Verizon Communications 2018

2017

2016

Liquidity Current Ratio Quick Ratio

0.91 0.88

0.91 0.87

0.87 0.83

Leverage Debt-to-Total Assets Ratio Debt-to-Equity Ratio Long-Term Debt-to-Equity Ratio Times-Interest-Earned Ratio

0.79 2.07 1.94 5.06

0.83 2.62 2.54 5.35

0.9 4.50 4.39 5.8

Activity Ratios Inventory Turnover Fixed Assets Turnover Total Assets Turnover Accounts Receivable Turnover Average Collection Period

41.55 1.47 0.49 5.21 70

51.32 1.42 0.49 5.36 68

43.84 1.49 0.52 7.19 51

57.58% 17.02% 11.87% 5.86% 29.22% 3.76 14.76

59.09% 21.75% 23.88% 11.71% 69.85% 7.36 6.79

59.18% 21.48% 10.42% 5.38% 58.28% 3.21 14.93

3.83% (-48.41%) (-48.91%) 0.60

0.04% 129.31% 129.28% 0.59

(-4.26%) (-26.58%) (-26.54%) 0.58

Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets (ROA) Return on Stockholders' Equity (ROE) Earnings Per Share (EPS) Price-Earnings Ratio Growth Ratios Sales Net Income Earnings Per Share Dividends Per Share

Liquidity Ratios Liquidity ratios are extremely important when assessing the overall financial health of an organization because they “measure the ability of a firm to meet its short-term obligations” and provides valuable information regarding the investment choices of the organization (Gallagher,

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2016, p. 84). Verizon’s current ratio has held relatively constant for the previous three years, showing an element of stability. At present, Verizon has $0.91 of current assets for every dollar of their current liabilities. They have outperformed their top competitor, AT&T, two of the three previous years, who had a current ratio of 0.80 for year end 2018 (Macrotrends, 2019), despite falling below the industry average (TTM) of 1.07 (Reuters, 2019). The quick ratio is a similar measure to that of current ratio, but it does not include inventory in the current assets, so it is a more conservative approach to assessing liquidity (Gallagher, 2016). Verizon has consistently increased their quick ratio for the previous three years, which is a positive indication, as Verizon’s inventory is not extremely liquid. Verizon’s quick ratio was 0.83 in 2016, increasing to 0.87 in 2017, following another increase in 2018 to 0.88. This fell just short of the industry quick ratio average (TTM) of 0.95 (Reuters, 2019). Leverage (Debt) Ratios Debt ratios are used to “assess the relative size of a firm’s debt load and the firm’s ability to pay off the debt” (Gallagher, 2016, p. 86). This is extremely important when a corporation is attempting to raise capital, as lender risk increases as these ratios increase. Verizon’s debt-to-total assets ratio has consistently decreased over the previous three years, showing that they have reduced the percentage of assets that are financed through debt. Since 2016, their debt-to-total assets has decreased from 90% to 79% by year end of 2018 (Macrotrends, 2019). Despite the trend of a diminishing debt-to-total assets ratio, Verizon continues to have a higher percentage of assets that are financed through debt over their main competitor, AT&T (Macrotrends, 2019). This could prove problematic for Verizon if lenders become concerned about Verizon’s debt load, and increased risk involved.

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“The debt-to-equity ratio shows the proportion of equity and debt a company is using to finance its assets and the extent to which shareholder’s equity can fulfill obligations to creditors” (Folger, 2019). Similar to the trend seen in Verizon’s debt-to-total assets ratio, their debt-to equity ratio has also seen quite substantial reductions in the previous three years, from 4.50 in 2016 down to 2.07 by year end 2018 (Macrotrends, 2019). Despite this significant drop, they still remain well above their main competitor, AT&T, who were at 0.91 by year end 2018 (Macrotrends, 2019). Once again, this could be cause for concern if creditors interpret Verizon’s leveraged state as a potential risk and indicator of financial health issues. Another leverage ratio to consider is the long-term-debt-to-equity ratio, which is often used as a comparative tool. “When the ratio is comparatively high, it implies that a business is at greater risk of bankruptcy, since it may not be able to pay for the interest expense on the debt if its cash flows decline” (Bragg, 2018). There was a significant decrease in the long-term debt to equity ratio between 2016 and 2017, with the numbers being 4.39 and 2.54 respectively. A more subtle change occurred by year end 2018, with a value of 1.94 (Macrotrends, 2019). Like the other leverage ratios, Verizon maintains a higher risk in this area than its competitors. The final leverage ratio to consider is the times-interest-earned ratio. “The times interest earned ratio is often used to assess a company’s ability to service the interest on its debt with operating income from the current period” (Gallagher, 2016, p. 86). Verizon maintained a consistent position and ability to cover the interest expense it incurred. While they did experience a decrease in this ratio over the previous three years, at year end 2018, Verizon was still earning $5.06 of operating income to each dollar of interest expense that it incurred. Activity Ratios

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Activity ratios are useful in assessing how well an organization utilizes its assets. One activity ratio that proves beneficial is the inventory turnover ratio. Inventory turnover essentially helps to assess how efficiently a company can turn its inventory into actual sales. Verizon has an exceptionally high inventory turnover rate of 41.55 in 2018, 51.32 in 2017 and 43.84 in 2016. High inventory turnover rates typically “implies either strong sales or insufficient inventory, which leads to lost business” (Hargrave, 2019). Verizon’s inventory turnover rate outperforms the industry average (TTM) of 34.75 (Reuters, 2019) showing their high numbers are likely due to strong sales. Fixed assets turnover is an “efficiency ratio” that “compares net sales (income statement) to fixed assets (balance sheet) and measures a company’s ability to generate net sales from its fixed investments, namely property, plant and equipment” (Kenton, 2019). Due to the nature of the telecommunications industry, there is a definite requirement for fixed assets, so this ratio can be a beneficial tool in assessing the company’s use and ability to utilize these assets to generate income. Verizon has had a relatively steady fixed asset turnover for the previous three years of 1.49 in 2016, decreasing to 1.42 in 2017, followed by an increase to 1.47 in 2018, and has maintained a stronger ratio than its main competitor (Macrotrends, 2019). This indicates more efficient management of fixed assets over competitors. Similar to fixed assets turnover ratio, the total asset turnover ratio can be used as an efficiency ratio to measure “the value of a company’s sales or revenues relative to the value of its assets” (Kenton & Hayes, 2019). Verizon has maintained a steady total asset turnover ratio for the previous three years, at 0.49 in 2018, 0.49 in 2017 and 0.52 in 2016, representing that Verizon’s sales were at least 49% of its total assets for all three years. These numbers

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outperform AT&T each year, whose numbers are 0.32 in 2018, 0.36 in 2017 and 0.41 in 2016 (Stock Analysis on Net, n.d.). “Accounts receivable turnover ratio is an accounting measure used to quantify a company’s effectiveness in collecting its receivables or money owed by clients”, which essentially tells “how well a company uses and manages the credit it extends to customers (Kenton & Murphy, 2019). Verizon has shown consistent performance with their accounts receivable turnover, indicating its continued ability to collect on the credit it extends to its customers. In 2016, Verizon’s accounts receivable turnover was 7.19, decreasing to 5.36 in 2017, and again to 5.21 in 2018 (Macrotrends, 2019). Despite strong turnover ratios, Verizon has not seen as strong turnover ratios as AT&T, who had accounts receivable ratios of 6.45 in 2018, 9.72 in 2017 and 9.75 in 2016 (Stock Analysis on Net, n.d.), or compared to the industry average (TTM) of 9.37 (Reuters, 2019). The final activity ratio for consideration is the average collection period that a company has. Average collection period ratios “measure how many days, on average, the company’s credit customers take to pay their accounts” (Gallagher, 20126, p.87). Verizon has noticeably longer average collection periods over competitor, AT&T, exceeding their collection periods by 13 days in 2018, 30 days in 2017 and 14 days in 2016 (Stock Analysis on Net, n.d.). Profitability Ratios Profitability ratios are understandably important to stockholders because “profit ultimately leads to cash flow, a primary source of value for a firm” (Gallagher, 2016, p. 82). One profitability ratio used is the gross profit margin, which shows the profit remaining from sales once the cost of goods sold has been taken out. Verizon has experienced a slight decline in

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the gross profit margin for the previous three years, decreasing from 59.18% in 2016 to 59.09% in 2017, and finally to 57.58% in 2018. This number indicates that of Verizon’s total sales, they retain nearly 60% of sales to use once the cost of goods sold has been accounted for. Despite the decrease in gross profit margin, Verizon has still outperformed competitor AT&T, who had a gross profit margin of 52.87% in 2016, 51.53% in 2017 and 53.49% in 2018 (Macrotrends, 2019). Industry average (TTM) shows gross margin at 71.3%, which is above the margins experienced by Verizon (Reuters, 2019). Operating profit margins are also a valuable tool to assess profitability as it measures the amount of profit remaining once all of the operating costs have been subtracted (Gallagher, 2016). While Verizon’s operating profit margins are not particularly high, they are still outperforming their competitors. In 2016, Verizon’s margin was 21.48%, increasing slightly in 2017 to 21.75%, followed by a noticeable decline in 2018 to 17.02% (Macrotrend, 2019), while AT&T’s margin was 14.37% in 2016, 12.44% in 2017 and finally 15.28% in 2018 (Macrotrend, 2019). Profitability ratios also take into consideration the net profit margin of an organization, which represents the remaining profit once operating expenses, interest expense and income tax expense have been subtracted from the total sales (Gallagher, 2016). Once again, while the net profit margin for Verizon is not a particularly high percentage, nor did it follow a particular trend over the previous three years, it did follow a similar path to that of their competitors. In 2016, Verizon had a net profit margin of 10.42%, while AT&T’s margin was slightly lower at 7.92%. Both companies saw a significant increase in 2017, with Verizon’s margin jumping to 23.88%, and AT&T increasing to 18.34%. Following the significant increase, both companies

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experienced a sizable decrease in 2018, with Verizon dropping to 11.87% and AT&T decreasing to 11.34% (Macrotrend, 2019). Return on total assets, or ROA, is a profitability tool that assesses the average income generation from every dollar of assets, and “shows whether the business is employing its assets effectively” (Gallagher, 2016, p. 84).

This tool is most beneficial in terms of comparative

analysis. Verizon more than doubled their ROA between 2016 and 2017, with values of 5.38% and 11.71%, respectively. A significant decrease occurred between 2017 and their year end ROA value in 2018 of 6.06% (Stock Analysis on Net, n.d). Despite this recent decrease, Verizon has outperformed their competitor, AT&T, who saw ROA values of 3.30% in 2016, 6.72% in 2017 and 3.75% in 2018 (Macrotrends, 2019). Return on stockholders’ equity, also known as ROE, “measures the average return on the firm’s capital contributions from its owners” (Gallagher, 2016, p. 84), or its stockholders. Verizon has exceptionally high ROE values for the previous three years of 58.28% in 2016, 69.85% in 2017 and 29.22% in 2018. Despite the significant decrease between 2017 and 2018, these numbers still outperform competitors by a substantial amount. Industry average (TTM) is 26.77%, which is significantly under that of the Verizon (Reuters, 2019). Earnings per share (EPS) is a profitability tool that allows for the comparison of earnings between different organizations by interpreting the data in a per capital way, which is important to stockholders as it essentially drives stock prices (Investopedia Staff, 2018). Like many other profitability ratios, EPS followed a similar trend over the previous three years of a significant increase from 2016 to 2017, followed by a significant decrease between 2017 and 2018. In 2016, Verizon’s EPS was $3.21 but increased by 129.28% in 2017 to $7.36. This value then declined by 48.91% in 2018 to $3.76.

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The last profitability ratio assessed is the price-earnings ratio (PE ratio), which “measures the market price of a company’s stock relative to its corporate earnings, which can then be compared with other companies” (Investopedia Staff, 2017). Verizon, with a PE ratio of 14.93 in 2016, experienced a decline in 2017 to 6.79, followed by an increase to 14.76 in 2018. While industry competitors also followed a similar trend, Verizon saw a greater increase from 2017 to 2018 over other companies (Macrotrends, 2019). Growth Ratios “Growth ratios measure the firm’s ability to maintain its economic position in the growth of the economy and industry” (David, 2012, p. 112). This is extremely important for shareholders, as it provides predictive information about where the company is heading within the industry landscape. Verizon sales (revenue) have seen consistent increases between 2016 and 2018. In 2016, revenue was $125.98 billion, which increased 0.04% in 2017 to $126.034 billion, followed by a larger increase in 2018 of 3.83% to $130.863 billion (Macrotrends, 2019). This trend shows that Verizon, despite competition or other industry challenges, is still able to not only maintain its revenue numbers, but increase it. Verizon’s 5-year growth rate for sales (revenue) is 2.59%, compared to the industry average of 11.38% (Reuters, 2019). Net income is the amount remaining after “all operating expenses, financing expenses, and taxes from revenues” (Gallagher, 2016, p. 60) have been subtracted. Net income saw a dramatic increase of 129.31% between 2016 and 2017, with values of $13.127 billion to $30.101 billion. Following this however, net income experienced a 48.41% decline over the previous two years from the $30.101 billion in 2017 down to $15.52 billion in 2018.

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Earnings per share (EPS) growth has been inconsistent over the previous three years, with a significant increase in EPS of 129.28% from $3.21 in 2016 to $7.36 in 2017. Following that spike, EPS declined by 48.91% in 2018 to $3.76 (Macrotrends, 2019). The industry five-year growth rate was 14.78% (Reuters, 2019). The last growth ratio assessed is the dividends per share. Dividends have steadily increased from 0.58 in 2016, to 0.59 in 2017 and finally 0.60 in 2018 (Macrotrends, 2019). Verizon’s five-year growth rate for dividends is 2.98, compared to the industry average of 18.13 (Reuters, 2019). Financial Strengths and Weaknesses One area of strength for Verizon has been their consistent growth in sales (revenue). Verizon’s five-year growth rate for sales is 2.59%, and although it is below the industry average, is still a positive indicator for Verizon (Reuters, 2019). Another strength for Verizon has been the activity ratios. Verizon has an exceptionally high inventory turnover rate of 41.55 at year end 2018, which is well above competition (Macrotrends, 2019). Verizon has also seen a steady total asset turnover ratio of 0.49, which outperforms major competitor, AT&T (Macrotrends, 2019). One areas of weakness for Verizon is noticeably longer average collection periods over their competitors. In 2018, Verizon took an average of 13 days longer than their competitor, AT&T, which was already a significant improvement from the previous year, in which Verizon was 30 days longer than their competition. Another potential area of concern is Verizon’s slightly heavier debt load compared to competition, which is seen in the debt-to-total assets ratio, as well as the debt-to-equity ratios.

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Ability to Raise Short-Term and Long-Term Capital Verizon is in a position to be able to acquire capital in the short and long term. “Financial analysts use debt ratios to assess the relative size of a firm’s debt load and the firm’s ability to pay off the debt” (Gallagher, 2016, p. 86). For the previous three years, Verizon has seen decreases in their debt-to-total assets ratio, their debt-to-equity ratio, their long-term-debtto-equity-ratio, as well as their times-interest-earned ratio. All of these decreases suggest that Verizon is capable of paying of their debt, which increases confidence in lenders to provide the required capital. Another area of consideration is Verizon’s return on equity (ROE) ratio. Despite the fluctuation seen in the ROE, stockholders’ still experienced a minimum of 29.22% return on every dollar they invested in Verizon over the previous three years, and received as much as 69.85% (Macrotrends, 2019). There has also been a consistent increase in dividend payouts over the previous three years, all of which instill confidence in potential lenders. Working Capital Working capital assesses the short-term financial health of an organization, liquidity, as well as operational efficiency, which is important as it represents growth potential opportunities (Kenton, 2019). Verizon’s 2018 current assets were $34,636 (in millions) and the current liabilities were $37,930 (in millions), showing a net working capital of -$3,294 (in millions) (Macrotrends, 2019). Despite a negative working capital, Verizon is in a better position than competitor AT&T, who had a 2018 working capital of -$12,993 (in millions) (Macrotrends, 2019). Capital Budgeting Procedures

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Capital budgeting refers to the “allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization” and is required to successfully implement corporate strategies (David, 2012, p. 109). Two of the major financial tools used to make this determination is the debt-to-equity ratio and the debt-to-total assets ratio. Verizon has seen consistent decreases in both of these ratios over the previous three years, however, they still remain above industry competitors, such as AT&T. Dividend Payout Policies Verizon has provided consistent dividend payouts, which have continuously increased. Over the previous five years, dividend payouts have increased from 0.515 in 2013 up to 0.603 in 2018 (Nasdaq, 2019). Even with the payouts that Verizon boasts, “the company’s strong cash flow has supported the dividend, even with large capital expenditures” (Strauss, 2018). Financial Managers Despite some fluctuations in the overall market and industry, Verizon has maintained a strong financial position and market share. “At least once a year, the board conducts a strategic planning session with management, at which time a lot is discussed, including: organizational needs, competitive challenges, the potential of key managers, planning for future development, and emergency situations” (David, 2012, p. 158). Management appears to continue to make effective financial decisions to help maintain its competitive advantage within the industry. Strategy Selection: Quantitative Strategic Planning Matrix (QSPM) The QSPM “is the only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions” (David, 2012, pg. 191). This ultimately helps to determine what strategies will provide the most effective return for the organization.

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45 STRATEGIC ALTERNATIVES 1

2

Develop marketing campaign schedule (launch of 5G network, CSR initiatives, etc.) Key Factors Opportunities 1. Increase in consumer use of mobile devices, internet use, & overall demands for connectivity 2. High demand for quality customer service and experience, in addition to product quality 3. Strong position regarding ethical practices & sustainability efforts 4. Globalization & expansion opportunities outside the U.S. 5. Technological innovation that spurs on development opportunities for companies & overall diversification of product offerings 6. Introduction of 5G network & 5G related service options Threats 1. Increase in competition within the telecommunications industry 2. Decrease of brand loyalty within the telecommunications industry, and therefore a higher threat of substitution 3. Rise in security threats with network and technology based companies, and therefore increase government intervention and regulation 4. Environmental factors that could damage existing infrastructure 5. Globalization issues including currency, government regulations, etc. 6. Rapid change and innovation of technology TOTAL Strengths 1. Healthy brand image, with a strong base of loyal customers 2. Leading telecommunications provider in the U.S. with largest market share 3. Strong marketing campaigns ("Can you hear me now?") 4. Multiple business units which helps to serve a greater number of customers 5. Industry leader in the launch of 5G network and related services 6. Maintain a highly skilled and well-trained employee base 7. Steady increase in net operating cash flow for the previous three years 8. Consistent increase in dividend payouts year after year Weaknesses 1. Limited range and variance of product offerings and segments 2. Declining gross profit margin over the past five years 3. Higher price than industry competitors, however, closing gaps could potentially reduce margins 4. Customer base erosion due to the direct campaigns of competitors 5. Decline in the ROE over the previous three years 6. National brand and is reliant on the U.S. market share TOTAL

3

Develop employee Customer & Employee training program, inclusive survey and program to of customer service, gather new product and security training, etc. service ideas

Weight

AS

TAS

AS

TAS

AS

TAS

0.2

4

0.8

2

0.4

3

0.6

0.1

2

0.2

4

0.4

2

0.2

0.05

3

0.15

1

0.05

1

0.05

0.1

-

0.05

2

0.1

1

0.05

4

0.2

0.15

4

0.6

2

0.3

1

0.15

0.15

4

0.6

4

0.45

4

0.6

0.05

3

0.15

3

0.15

3

0.15

0.05

1

0.05

4

0.2

1

0.05

0.01

-

-

-

0.04

-

-

-

0.05 1.00

3

0.15

3

0.15

4

0.2

0.1

3

0.3

2

0.2

2

0.2

0.2

3

0.6

2

0.4

2

0.4

0.05

3

0.15

1

0.05

2

0.1

0.05

2

0.1

2

0.1

2

0.1

0.15

4

0.6

3

0.45

1

0.15

0.05

1

0.05

4

0.2

2

0.1

0.05

-

-

-

0.05

-

-

-

0.05

2

-

0.1

1

-

0.05

4

-

0.2

0.05

-

0.025

4

0.1

1

0.025

2

0.05

0.05

4

0.2

2

0.1

3

0.15

0.025 0.1 1.00

1

0.1 5.1

1

-

0.1 3.825

2

0.2 3.85

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Recommendation: Strategy Selection Based upon the information provided in the QSPM, there are two recommendations for strategy implementation. The first recommendation is to prepare an in-depth marketing campaign schedule by which the organization is able to promote aspects of the company, highlight areas in which the company excels, such as first to market with products and services, and inform customers of different products and initiatives that merit the maintenance of their competitive advantage. Specifically for Verizon, these campaigns could highlight different areas such as their pioneering efforts of the 5G network, or their extensive sustainability and CSR efforts. The second recommendation is the creation of an employee and customer innovation program. This program will essentially tap in to the extensive resource that Verizon’s people offer. Employees and customers will be encouraged to share their innovative product and service ideas with the management team, in hopes of those efforts being integrated and funded by the company. This could be accomplished through an online interactive platform, or through routine surveys to customers and employees. This will help to enhance employee and customer engagement, and help spur on the development of products and services that Verizon’s people desire. Long-term objectives are an important part of strategic planning as they “represent the results expected from pursuing certain strategies” (David, 2012, p. 132). These long-term “objectives should be quantitative, measurable, understandable, challenging, hierarchical, obtainable, and congruent among organizational units” (David, 2012, p. 133). As Verizon is the leader within the telecommunications industry, maintaining that competitive advantage in the wake of increased competition and industry volatility, is of the utmost importance.

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As such, the two primary strategy recommendations for Verizon are the implementation of a comprehensive marketing campaign schedule, as well as the creation of an employee and customer innovation program. These two recommendations will essentially attempt to maximize the awareness and buy-in to current technologies and initiatives, while promoting the continuous innovation of new products and services. Based upon these two recommendations, the following long-term objectives are suggested for each organizational level: Recommendation: Marketing Campaign Schedule Organizational Level Corporate

Division Function

Objective * Identify top 5 strengths for two year window * Prepare campaign material and messaging requirements * Prepare budget for each individual campain * Prepare a rollout schedule for campaign initiatives * Provide department specific support information for initiatives * Create a department timeline for material creation and distribution * Complete material preparation

Recommendation: Employee & Customer Innovation Program Organizational Level Corporate

Division Function

Objective * Prepare schedule and timeline for initiatives * Create survey and initative strategy * Prepare resource allocation for potential projects * Schedule regular team meetings for brainstorming events * Distribute regular survey distribution pushes to customers * Create departement action items with associate timelines * Each employee completes survey with recommendations

By utilizing these two recommendations, Verizon will continue to differentiate itself from other competitors in the industry. According to Michael Porter’s Five Generic Strategies, differentiation refers to “a strategy aimed at producing products and services considered unique

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industrywide and directed at consumers who are relatively price-insensitive” (David, 2012, p. 149). Historically, Verizon has maintained premium prices compared to their competitors, and has not set out to offer their products at the lowest price, but rather to simply offer the best products and services possible. By implementing a marketing campaign schedule to really target some of the areas in which Verizon is superior to their competitors, they further differentiate themselves from competitors, and inform their consumers of their products and services and ultimately, why they should be their telecommunications company of choice. The second recommendation is regarding the implementation of an employee/customer innovation program. This is an initiative to encourage the sharing, brainstorming and innovation from Verizon’s most valuable resources, their employees and consumers. This encouragement to create and innovate will help to ensure Verizon continues to create products and services that are demanded by their consumers. This involvement in the creation process allows the company to again, differentiate themselves from their competitors, through both process and product. As Verizon is faced with an increasingly competitive market and is susceptible to decreased brand loyalty and increased bargaining power of consumers, the implementation of these recommendations will help to ensure Verizon is able to maintain its market share. The sharing of information through the marketing campaign, will help to ensure consumers know why Verizon is the superior company to all competitors. It provides an outlet to help connect with consumers on a personal level, as they promote aspects of the organization beyond the basic product. Finally, by involving the employees and customers in the innovation process, it increases engagement, buy-in and loyalty to the company, while encouraging development.

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Ethical Impacts of Strategy Ethical business practice and maintaining integrity are important aspects of Verizon’s credo (Verizon Communications, 2019). When evaluating the five approaches set forth by the Markkula Center for Applied Ethics, it is evident that Verizon strives to support ethical business practice in all areas of their business, and this strategy is no different. Utility, by definition, seeks to assess whether the best outcome is achieved for everyone that is involved (Markkula Center for Applied Ethics, n.d.). This strategy does meet that requirement, as it is highlighting the superior products and services that Verizon offers, and reinforcing their CSR and sustainability efforts. These initiatives all try to best serve the people involved. While rights and justice do not really come into play in this strategy, virtue and common good are also upheld with this strategy (Markkula Center for Applied Ethics, n.d.). Verizon strives to operate with integrity, and this strategy plays to that strength by continuing to develop quality products and community friendly initiatives. This strategy does not counter that in any way, but rather seeks to find new ways to highlight their efforts, therefore, not breaching any parameters of virtue or common good. Implementation Plan Strategy implementation is categorically important to the success of an organization, as even the most effective strategy is useless if it is poorly executed. The implementation of a particular strategy is not the responsibility of a sole department, but rather impacts all departments, employees, managers and leaders (David, 2012). The following section outlines

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action items for the recommended strategies, along with the associated timelines and costs for each department. Management / Executive Department The management team is the overarching authority that monitors the implementation process. It is management’s responsibility to ensure the timely, effective and budget compliant results for the entire organization on each strategy. All of these actions will have an immediate action date and will require ongoing attention as needed. •

Create a steering committee, comprised of representatives from all departments, that will oversee the efforts of the implementation of the individual strategies

•

Prepare corporate communication to be distributed to the employees regarding the upcoming strategy efforts and initiatives

Marketing Department As the basis of the recommended strategy is the utilization of targeted marketing campaigns, there is a significant number of action items for the marketing department. •

Create the media content for the television advertisement that will coincide with the release of their 5G network and associated services Timeline: Immediate – This advertisement needs to be created immediately to be aired in conjunction with the launch of the 5G network. Cost: The average nationally aired 30-second television advertisement costs between $200 and $1,500 per showing (Aland, 2017). As such, this advertisement has been allocated a budget of $100,000 which accounts for $1,000 per advertisement slot, playing once daily for

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the 3-month period surrounding the launch of Verizon’s 5G network. It also accounts for resources needed to create and produce the content for the advertisement. •

Create the media content for the television advertisement that will promote the CSR and sustainability efforts to run at directed times Timeline: To be done following the completion of the 5G network television advertisement. These television advertisements for CSR and sustainability efforts should be created and run intermittently throughout the year, aiming at one per quarter unless another initiative is being promoted. Cost: Following the same cost framework discussed above for television advertisements, this has been allocated $300,000, to produce and air 3 different commercials to be aired following the 5G launch advertisement. This will cover the expenses associated with the campaign for the remainder of the year.

•

Create an online interactive platform that will focus on the different campaigns to encourage discussion about the current efforts and initiatives Timeline: Immediate – To be constantly updated with the present campaign efforts. Cost: An annual amount of $25,000 has been allocated for the creation, setup, hosting, maintenance and updating of an interactive platform for employees and consumers.

•

Manage the website content to reflect the current product/service releases, sustainability efforts, etc. Timeline: Immediate and ongoing, as it should reflect the current information for corporate products, services, launches and initiatives. Cost: A conservative annual amount of $5,000 has been allocated for the website update of current initiatives, launches, events and efforts. This amount has been conservatively

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budgeted as it will be added to the responsibilities of the existing marketing and IT department. •

Prepare a CSR calendar of events that correspond to city-based initiatives to capitalize on the attendants to other events that share common values to the corporate initiatives Timeline: Immediate and ongoing, to capitalize on current events, holidays, etc. around the geographic locations. Cost: An annual amount of $1,000 has been allocated to this effort for any subscriptions, association fees, etc. that might be required to be informed of current city-wide events.

•

Plan, organization, communicate and facilitate consumer events throughout the year that support CSR, sustainability or corporate values Timeline: As needed, as they will likely coincide with already scheduled city-wide events and specific actions of the corporation. Cost: An annual amount of $100,000 has been allocated for these consumer events, to cover the costs of materials, corporate giveaways, information brochures, staff and other expenses related to the events.

•

Prepare and distribute feedback surveys to randomly selected customers to gauge the responsiveness, opinions, recommendations, etc. to the campaign efforts Timeline: Ongoing, in response to launched campaigns Cost: The premier subscription price for the use of SurveyMonkey is $99 per month, which allows for an unlimited number of surveys, replies, etc. (Orencia, 2017), so an annual amount of $1,200 has been allocated for this action.

Operations Department

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It is important for the operations department to be involved in the strategy implementation, as they provide valuable information regarding the daily occurrences and best practices for each action. •

Prepare a timeline and calendar for product and service rollouts, which will require specific campaign efforts Timeline: Immediate and ongoing, to be prepared at the beginning of each calendar year for the coming 12-month period. Cost: There is no additional budget required for this action

•

Coordinate with corporate office locations, retail locations, etc. to ensure each campaign has the required information, material, content, representation, etc. needed Timeline: As needed Cost: There is no additional budget required for this action

•

Organize price promotions that correspond with specific product and service launches, or corporate initiative events Timeline: Immediate and ongoing, with the first promotion to be for the launch of 5G Cost: Variable costs associated with these promotions

Finance Department As the majority of all strategies require capital in order to execute the actions, the finance department is needed to assist with the budgeting and financing aspects of the strategy implementation. •

Develop and monitor the budget by each department for the implementation of the strategies and associated actions

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Timeline: Immediate, this initial budget is required before any other action can occur Cost: There is no additional budget required for this action •

Evaluate financing options and acquire the needed capital for these strategies Timeline: Immediate, this capital is required prior to the completion of other department actions. Cost: There is no additional budget required for this action

Functional Impacts This strategy of implementing a schedule of continuous campaigns geared towards products and services as well as CSR and sustainability efforts, will not only support the bottom line of the organization, but also deepens the organizational culture, and strengthens the organization’s CSR position within the industry. Verizon has intentionally created a culture that supports values such as being the best, operating with integrity and giving back to the community. By creating campaigns that directly address those topics, Verizon will inadvertently be deepening the message of their culture to both their employees as well as their customers. By continuously bringing these values to the forefront of operations, it provides the reminders to all involved about the type of business that Verizon is running. In addition to deepening the culture of the organization, these campaigns will also help to strengthen Verizon’s CSR position. Corporate social responsibility is a subject that has garnered much attention over recent years, so by highlighting Verizon’s efforts in these areas, they will not only be educating people that share common values, but again, reinforcing these values amongst the employees.

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As the recommended strategy does not involve a massive reorganization, expansion plan or product differentiation, functional areas such as Human Resources, Research and Development, or MIS are not heavily impacted. Cost Breakdown The following is a breakdown of the costs associated with the implementation of the recommended strategies, which are predominately facilitated by the marketing department.

Department

Action

Budgeted Amount

Marketing Marketing Marketing Marketing & IT

Television advertisement for the 5G network launch Television advertisement for the CSR & sustainability initiatives Creation, maintenance & hosting of an online, interactive platform Website content and management to reflect current efforts Prepare a calendar of consumer events to coincide with city-wide events, holidays and initiatives Host consumer events that relate to city-wide events, launches, initiatives, etc. Creation of employee and consumer feedback surveys Price promotions to coincide with launches, events, etc. Miscellaneous Expenses

$100,000 $300,000 $25,000 $5,000

Marketing Marketing Marketing Operations -

Annual Budget

$1,000 $100,000 $1,200 Undetermined $67,800 $600,000

Pro-Forma Income Statement “Projected financial statement analysis is a central strategy-implementation technique because it allows an organization to examine the expected results of various actions and approaches” (David, 2012, p. 264). Below is a pro-forma income statement for Verizon for the upcoming 2019 financial year.

VERIZON COMMUNICATIONS (In Millions)

PROJECTED INCOME STATEMENT Sales Cost of Goods Sold Gross Profit SG&A Expenses Depreciation & Amortization Expense Oath Goodwill Impairment Earnings Before Interest & Taxes Interest Earnings Before Taxes Net Income Dividends Retained Earnings

56

Prior Year 2018 ($)

Projected Year 2019 ($)

Remarks

130,863 55,508 75,355 31,083 17,403 4,591 22,278 4,833 17,445 15,528 2,490 13,038

134,789 57,177 77,611 32,012 17,403 4,591 23,605 4,833 18,772 16,872 2,490 14,382

Based upon a 3.0% increase in sales 42.42% of sales 23.75% of sales

EPS / EBIT Analysis Once a strategy has been selected and a budget created, it is important to determine how to acquire the capital needed to implement the recommended strategy. “The purpose of EPS/EBIT analysis is to determine whether All Debt, or All stock, or some combination of debt and stock yields the highest EPS values for the firm”, and “is widely used in making the capital acquisition decision” (David, 2012, p. 262). Based upon the EPS/EBIT analysis below, it was determined that the best way for Verizon to acquire the capital needed to implement the recommended strategy, is 100% Common Stock Financing, as it yields the largest EPS values when compared to the other financing options.

VERIZON COMMUNICATIONS Amount Needed: EBIT Range: Interest Rate: Tax Rate: Stock Price: # of Shares Outstanding:

57

$600,000 $25M to $35M 4.24% 18.26% $60.88 4.132B

EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal Boom 25,000,000 30,000,000 35,000,000 0 0 0 25,000,000 30,000,000 35,000,000 4,565,000 5,478,000 6,391,000 20,435,000 24,522,000 28,609,000 4,132,009,856 4,132,009,856 4,132,009,856 0.004946 0.005935 0.006924

Recession 25,000,000 $25,440 24,974,560 4,560,355 20,414,205 4,132,000,000 0.004941

EBIT Interest EBT Taxes EAT # Shares EPS

Recession 25,000,000 7,632 24,992,368 4,563,606 20,428,762 4,132,006,900 0.004944

70% Stock - 30% Debt Normal Boom 30,000,000 35,000,000 7,632 7,632 29,992,368 34,992,368 5,476,606 6,389,606 24,515,762 28,602,762 4,132,006,900 4,132,006,900 0.005933 0.006922

Recession 25,000,000 17,808 24,982,192 4,561,748 20,420,444 4,132,002,957 0.004942

Debt Financing Normal 30,000,000 $25,440 29,974,560 5,473,355 24,501,205 4,132,000,000 0.005930

Boom 35,000,000 $25,440 34,974,560 6,386,355 28,588,205 4,132,000,000 0.006919

70% Debt - 30% Stock Normal Boom 30,000,000 35,000,000 17,808 17,808 29,982,192 34,982,192 5,474,748 6,387,748 24,507,444 28,594,444 4,132,002,957 4,132,002,957 0.005931 0.006920

Conclusion Verizon Communications is the leader in the telecommunications industry, dominating market share and outperforming competitors. Despite its solid position within the industry, Verizon operates in a highly competitive industry and needs to be intentional about maintaining its competitive advantage. By implementing a targeted campaign strategy, whereby they are able to promote their first-to-market products and services, and better align themselves with potential consumers that share similar values, Verizon will be able to mitigate more issues relating to substitution threats, decreasing brand loyalty and concerns about changing technology. These intentional efforts, focused on connecting with the consumer, will help to ensure that Verizon Communications is able to continue to be the leader in the telecommunications industry.

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58 References

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Thimothy, S. (2016). Why brand image matters more than you think. Retrieved from https://www.forbes.com/sites/forbesagencycouncil/2016/10/31/why-brand-imagematters-more-than-you-think/#46e0506710b8. Varettoni, B. & Perrin, J. (2018). Verizon acquires software defined perimeter assets from vidder to enhance enterprise virtualized secure networking services. Retrieved from https://www.verizon.com/about/news/verizon-acquires-software-defined-perimeterassets-vidder-enhance-enterprise-virtualized-secure. Verizon Communications. (2010). Verizon wireless launches the world’s largest 4g lte wireless network on dec. 5. Retrieved from https://www.verizon.com/about/news/vzw/2010/12/pr2010-11-30a. Verizon Communications. (2012). Verizon’s employee training programs ranked tops in the u.s. Retrieved from https://www.verizon.com/about/news/press-releases/verizons-employeetraining-programs-ranked-tops-us. Verizon Communications. (2016). Verizon communications history. Retrieved from https://www.verizon.com/about/sites/default/files/Verizon_History_0916.pdf. Verizon Communications. (2019). About us. Retrieved from https://www.verizon.com/about/. Verizon Communications. (2019). 5G technology. Retrieved from https://www.verizon.com/about/news-tag/5g-technology. Verizon Communications. (n.d.). How we got to where we are today. Retrieved from https://www.verizon.com/about/our-company/history-and-timeline.