MGT 496 DISH Final Project
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Transcript of MGT 496 DISH Final Project
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Executive Summary
DISH Network Executives,
This strategic audit provides insight into the management and operations of your company. We
have made recommendations that we think will provide a foundation for future financial and
operational success. However, these are recommendations only, and do not guarantee the
occurrence of any of the forecasts or projections as seen in the paper or appendices.
DISH Network’s current strategies have changed recently, especially with the acquisition of
Blockbuster, Inc. These new strategies address numerous opportunities for growth in market
share and profitability. Beginning with the formation of a mission and vision statement to guide
the company, and continuing with a reorganization of your company’s management structure,
these operational improvements will lay a foundation for managerial success.
The company’s financial position is stable, however, DISH is not the market leader and the
company’s Altman Z-score is in the “unknown area” and does not indicate that DISH is 97%
safe from declaring bankruptcy in the next year. Our recommendations, including expanding
Blockbuster Express kiosks, numerous company acquisitions, new subscriber acquisitions, and
cost savings reformations will allow DISH to capitalize on the current opportunities you are
faced with. The following matrices show the improved position and market share your company
is expected to experience after successful implementation of the following recommendations.
Sincerely,
Avid Consulting
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Dish Networks Past and Current Strategies (Appendix A)
Past Strategies
In 2007, DISH Network created a plan to increase market share and expand the
company’s objectives, growth, and vision. As part of this plan for growth, DISH Network
decided to distribute its technology for expansion creating a separation between its infrastructure
assets and their technologically based “set-top box business.” This created two separate
publically traded companies, EchoStar Corporation, and Dish Network. Along with his plan,
DISH Network has set forth a series of objectives such as: high quality products, outstanding
customer service, great value, and provide new and emerging technologies.
Current Strategies
As of 2011, DISH Network completed the acquisition of Blockbuster, Inc. This
acquisition has caused DISH Network to set forth new focus areas which are now included as
part of their strategic plan. The first area of focus is to be the best provider of video services in
the United States. In addition, Dish Network focuses on outstanding customer service and great
value for customers. In order to obtain these objectives, DISH Network is dedicated to training
employees in customer satisfaction strategies. Along with customer satisfactions, Dish Network
emphasis their ability to produce high-quality, reasonably priced television programming
services.
Mission and Vision
DISH Network did not have a current vision statement but their current mission can be
found in Figure 1. The new mission and vision statement provide more specificity of the
business operations that DISH Network engages in and the routes to profitability and success.
These goals will lead DISH to become the market leader in entertainment services.
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SWOT and Environmental Analysis (Appendix B)
DISH Networks SWOT Analysis (Figure 3)
DISH Network has many strengths such as: the hopper, numerous programming options,
wide selection of movie titles, superior customer satisfaction, and offers the ability to watch live
television anywhere. Along with these strengths, DISH strives to provide outstanding customer
service by improving the quality of the initial installation of subscriber equipment, improving the
reliability of our equipment, better educating customers about products and services, and
resolving customer problems promptly and effectively when they arise.
DISH Network’s SWOT Matrix (Table 1)
This SWOT Matrix was developed to help strategize potential key initiatives for the
company by identifying the strengths, weaknesses, opportunities, and threats. The strategies will
help DISH Network maintain and increase market share by knowing where the company stands
compared to its competitors. Some of the strategies that were developed from this tool were to
grow Blockbuster Express to decrease brick and mortar dependence, renegotiate programming
costs to help with competition from low cost competitors, continue to provide great customer
satisfaction to gain customers despite recession, and increase programming options available
online
DIRECTV SWOT Matrix (Table 2)
DIRECTV has many strengths including: a wide coverage network, diverse transmission
satellites, and additional services. These strengths are what make DIRECTV one of DISH
Networks greatest competitors. Because DISH and DIRECTV are closely related, they share
many of the same threats such as those coming from digital recording online, streaming, and
network contract renewals. Two of DIRECTV’s weaknesses are their high capital expenditures
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and satellite costs. DISH could take advantage of these weaknesses by lowering their
expenditures and increasing market share through lower cost alternatives.
Netflix SWOT Matrix (Table 3)
Netflix has many strengths because they were the first to infiltrate this certain segment of
their industry. Because of this, they still retain a large market share for online movie rentals.
Netflix has very competitive prices, is convenient, and is equipped with efficient streaming
capability. Your company can take advantage of our Netflix analysis by offering more streaming
services at a discounted price.
Charter SWOT Matrix (Table 4)
Charter has strengths including the bundle package, DVR recording, On Demand, and
Charter Business. Along with these strengths, they have capitalized on a few opportunities such
as the growing demand for 3D viewing and the Optimum West acquisition. Charters biggest
threats are 3G and 4G cellular network internet services, direct broadcast satellites, and new
entrants into the “MDU” market. DISH Network can take advantage of these opportunities and
threats by increasing their direct broadcast satellite services.
Coinstar SWOT Matrix (Table 5)
Through low costs rentals, convenience kiosks, a partnership with Verizon, and
integration with app stores, Coinstar has a wide range of strengths that make it a vital competitor
for DISH. Coinstar is limited though by the threats of piracy of videos and the large selection
from competitors. Along with their physical limitations, Coinstar is limited on the availability of
new releases. DISH network is not limited on the timeframe of new releases and could offer
these videos to the customer before Coinstar can, enabling them to gain new customers.
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Organizational Chart (Appendix C)
The current organizational structure of DISH Network is a combination between
functional and small business unit structures. Currently they have C-level executives for
different functions in the company, but DISH also has a Blockbuster small business unit
President. We presume this position is remaining in the organization because of the acquisition a
few years ago. However, we do not feel that this structure is the best format for the company.
We recommend transforming the organizational structure into a functional type. The President
and CEO should oversee the following officers: COO, CMO, CFO, CTO, and General Counsel.
Below these C-level officers should be Executive Vice Presidents of each operational
department. When acquisitions occur, an analysis of employee positions would need to be
addressed and another organizational reformation will be necessary.
The Board of Directors is Sarbanes-Oxley compliant, although we suggest making some
slight changes to the Board members. Charles Ergen is the Chairman of the Board (and has held
this position or CEO since the company’s founding), but he is also the Chairman of EchoStar
Corporation. DISH does a lot of business with EchoStar, as they are DISH’s supplier for
hardware. We recommend replacing Mr. Ergen as Chairman due to this close business
relationship with EchoStar and the fact that his wife is also on the board. The other members
may remain on the Board, as they are all experienced and are not current executives of the
company.
Key Success Factors and Value Chain Analysis (Appendix D)
The five key success factors for DISH Network are the quality of service and products,
the variety of their services, technological skills, financial resources, and brand recognition.
DISH Network frequently ranks as having one of the best customer service departments in the
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industry and the company has superior programming and satellite quality. The company offers a
variety of services including pay-TV, movie streaming, movie rentals, internet provision, etc.
The company also has great technological skills, as a result of the close relationship with
EchoStar Corp. The financial resources of DISH are also excellent, including a net worth
analysis of over $8 billion and large amounts of cash on hand. The brand recognition of DISH
Network is widespread, as it is one of the top two pay-TV satellite providers.
An analysis of the company’s value chain shows that improvements can be made in all
primary areas of operations. Our strategy to vertically integrate and acquire suppliers Qwest and
EchoStar will increase inbound logistics value by lowering costs and increasing internal
efficiencies. This integration will also improve distribution, as it will decrease customer wait
time for satellite and hardware delivery and installation. Marketing and sales will improve with
our new subscribe acquisition and increase in advertising efforts. The value obtained through
service operations will drastically increase with our recommendation to outsource call centers to
save money. DISH will have to closely supervise the service these outsourced centers provide to
ensure maintaining quality customer service. Overall, operations will drastically improve with
the implementation of our recommendations.
The only distinctive core competency DISH currently has is the close relationship with
EchoStar. We recommend acquiring EchoStar and expanding this distinctive core competency.
Also, acquiring Qwest will increase vertical integration and create an even more distinctive core
competency that primary competitors will not be able to duplicate.
Market and Competitor Analysis (Appendix E-L)
DISH Network’s primary competitor in the pay-TV, satellite industry is DIRECTV. This
company has approximately 20,000,000 subscribers while DISH has about 14,000,000. Other
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competitors that you face are Charter (cable pay-TV industry), Netflix (online streaming), and
Coinstar (Redbox’s kiosk movie rental). All of these competitors are shown on market analysis
matrices.
Porter’s Analysis (Appendix E)
DISH Network corporation operates within the CATV industry. However, it has
subsidiaries in the home entertainment/online streaming industry such as Blockbuster. This is a
rapidly changing industry from new entrants, changing technology and customer preferences
being a couple of dominating factors pushing this rapid change. An analysis shows that rivalry is
high, and both new entrants and supplier power are medium-high on this model. Rivalry is high
from the mix of competitors, primarily DIRECTV and pricing. New entrants competing with
DISH are plentiful in the home entertainment industry. The advances in technology and changing
customer preferences allow current satellite and cable companies to expand their services to
customers.
Supplier power is a factor because companies must create relationships with TV networks
and movie/production companies to receive their content. This can be difficult primarily for new
releases. Movie companies are not eager to give their new releases out before they do. Substitute
products are plentiful but do not have a dominating impact. Customer’s choices between movie
theaters and non-subscriber TV are the primary options here. Both provide an option for the
customer but this is changing due to customer preference for at home entertainment.
In regards to Porter's Five Generic Strategies DISH Network pursues a cost leadership
strategy. This strategy is crucial in the market of online movie and television streaming because
competitors such as Netflix and Red Box already provide low cost alternatives. Their ability to
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do this is in part due to the type of company they are. They are quite different from DISH
because they are not a Cable TV network with multiple cost structures.
IE Analysis (Appendix F)
DISH’s pre strategy implementation IFE and EFE places the company in the hold and
maintain cell of the IE Matrix. However, our strategies will improve internal strengths, decrease
internal weaknesses, and allow the company to capitalize on external opportunities. Increased
competitiveness with low-cost alternatives from Blockbuster Express expansion will turn DISH’s
weakness into strength. Also, increasing engagement in online streaming will improve the EFE
score. DISH Network’s average weighted IFE score increased from 2.48(pre) to 2.85(post) and
their average weighted EFE score went up from 2.32(pre) to 3.15(post). Expanding Blockbuster
Express locations will allow customers access to a wider selection of movie titles and closing the
remaining retail Blockbuster locations will reduce dependence on brick and mortar movie rental
store demand. These will increase the IFE score. As a result, the company will increase market
share and move into the grow and build cells of the IE Matrix.
BCG Matrix (Appendix G)
DISH has high relative market share as it is the second leader in the industry. Relative to
DIRECTV, DISH has 0.7 or 70% of their market share. We found that the satellite pay-TV
industry has a 5% expected growth rate between 2010 and 2015. As a result, DISH and
DIRECTV are in the star performers quadrant of the BCG Matrix. Engaging in online streaming
and movie rental kiosk industries, which are very high growth, will allow for increased market
growth and market share. After our recommended strategies are implemented, the company
should be the market leader and continue to be a star performer.
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DISH's Pre BCG Matrix shows high market share relative to Netflix, Coinstar (Redbox)
and Charter but lower in relation to DIRECTV. Netflix and Charter are in the question mark
quadrant while Coinstar is in the Dog quadrant.
Company Life Cycle (Appendix H)
When looking at DISH alone, a trend of hyper growth existed the past 10 years.
However, when looking at a direct competitor, DIRECTV, DISH is not growing fast enough. As
a result, we recommend inorganic growth with multiple company acquisitions. The DISH
company life cycle shows the trend for past growth and the pro forma growth after our
recommendations.
SPACE Matrix (Appendix I)
The company’s competitive advantage has an average of -2 and the Industry Strength has
an average of 3.5. This leaves the company in the right side of the matrix at 1.5. This means
that DISH is in a strong industry and needs to capitalize on this success. Along the y-axis, DISH
has an average financial strength of 2.5 and an average Environmental Stability of -2.75. This
equals a -0.25 position on the y-axis and DISH is in the bottom right quadrant of the SPACE
Matrix. This quadrant is labeled the Competitive quadrant. They are in this position for several
reasons including strength in brand recognition, customer loyalty, and high barriers to entry.
Because these numbers are arbitrarily chosen, and -0.25 is an especially small number, we
examined strategies in both the aggressive and competitive quadrants. Strategies we addressed
for our recommendations include capitalizing on the strong industry while improving financial
strength. To address this opportunity, we suggest acquiring numerous companies to increase
revenues and cut costs by vertical integration. Also, we suggest increasing brand recognition
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through expansion of Blockbuster Express kiosks and expanding low-cost online streaming
services.
GE McKinsey 9 Cell Matrix (Appendix J)
The pre strategic analysis 9 cell matrix shows DISH in between the grow and invest cells.
DISH Network has a Pre CSA of 7.15 and Post CSA of 8.20. As a result, we recommend the
company engages in inorganic growth through company acquisitions and investing in
Blockbuster Express opportunities and online streaming possibilities. We also suggest growing
by acquiring new subscribers such as gyms, hospitals, and sports bars. This will lead to
improved market share, possibly overtaking DIRECTV, and a move to the invest cell.
Continuous investment in new business opportunities and a reevaluation of long-term company
strategy will contribute to the continued presence as market leader.
Strategic and Financial Group Maps (Appendix K and L)
The variables that we chose for the strategic group maps include customer service,
geographic coverage, Price/Quality, number of services or packages offered, number of channels
in the basic package, and number of movie titles available. We chose price/quality because our
strategies will increase the quality of products. Also, the increase in Blockbuster Express kiosks
will increase geographic coverage. The titles, packages, and channels offered represent customer
satisfaction and convenience. Customer service scores are based on reviews and awards for
service. All of these represent qualitative rankings of operational success of the companies.
Your company will increase in market share, quality, customer satisfaction, and competitiveness
after our recommendations are implemented.
We chose five different comparisons when analyzing your company’s competitive
position on the financial group maps. The first, Net Income/Revenues versus Subscriber
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Acquisition Costs/Revenues, shows that pre-recommendations DIRECTV has slightly higher
Costs/Revenues but much higher Net Income/Revenues. After our recommendations, DISH
should move to a more comparable position with DIRECTV, overtaking them in market share.
DISH also has a much higher Net Income ratio than the other three competitors. The next,
Accounts Receivable/Revenues and LT Debt/Revenues, shows slightly higher LT Debt ratios but
a lower AR than DIRECTV. Our recommendations of providing discount credit terms will allow
a strengthening of this advantage over DIRECTV. The third, Net Income/Revenues and ROA,
shows that DIRECTV has a much higher ROA than DISH. The increase in acquisitions and net
income should alter DISH to a more competitive position while gaining market share. The
fourth shows the amount of money spent on acquiring customers versus the ROA. And the final
map shows G&A expenses versus ROA. Our strategies will decrease G&A and increase ROA.
On all maps, DISH is operating in a more advantageous area than Charter, Coinstar, and Netflix,
and is moving to a more competitive position with DIRECTV, gaining market share in the
process.
Financial Analysis (Appendix M)
Edward Altman’s Z-score is a model that predicts, within 97%, whether or not the
company will need to file bankruptcy. Although the Altman Z-score we used was for
manufacturing companies, the formula for publicly traded nonmanufacturing companies should
not be significantly different. The Z-score for DISH resulted in 2.0583 which places DISH in the
range of 2.98 to 1.82, also known as the “ignorance area,” whereby the Z-score cannot provide a
more conclusive answer as to the probability of filing bankruptcy in the next year. DISH must
achieve a Z-score of 2.99 or greater to enter the “no immediate danger range” and will have to do
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so by improving its balance sheet makeup or significantly improving one of its Z-score
components.
Looking at the comparative balance sheet, DISH has experienced significant growth in
the last five years. On the asset side, current assets have increased 141.72% from the end of
12/31/2011 to 12/31/2012. The largest components of this increase in current assets can be traced
to an increase in cash and cash equivalents (in thousands) from $609,108 to $3,606,140 and an
increase in marketable investment securities from $1,431,745 to $3,631,637. These large sums of
cash and near cash equivalents amount to more than $7 billion putting DISH in an excellent
position for future acquisitions.
In long-term assets the only significant change can be seen in 2012 whereby FCC
authorizations increased from $1,391,441 to $3,296,665. This large increase is a result of an FCC
authorization that grants DISH the exclusive right to broadcast a new wireless broadband
spectrum. With this new right granted by FCC, this has essentially increased DISH long term
assets by $2 billion which DISH could use to partner with a wireless carrier and stream
broadband video service. Such a partnership would allow DISH to broadcast its service to
smartphone users and would significantly increase coverage and market share.
There are no significant changes in current liabilities and equity over the last five years.
Long term liabilities however, increased by 54.39% in 2012. One of the accounts that had a
major impact on long term liabilities is long term debt that increased from $7,458,134 to
$11,350,399 in 2012. Deferred tax liabilities also increased from $974,414 to $1,662,732 in
2012. Together these two accounts help explain why the company has such a major increase in
cash and near cash equivalents in 2012. Since a large portion of DISH’s cash is financed using
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long term debt, it will have to invest this money into expansions or acquisitions in the near future
in order to achieve a positive NPV on whatever projects it decides to pursue.
On the comparative income statement, DISH has experienced a positive net income for
the last five years. When DISH acquired Blockbuster in April, 2011, DISH experienced a
significant increase in general and administrative expenses of 105.24% in 2011. Revenue
generated from equipment and merchandise sales in 2011 from Blockbuster was more than
enough to cover the increase in expenses from Blockbuster and helped contribute to the bottom
line. Although total revenue increased by $218 million in 2012, total cost and expenses increased
by almost $2 billion in 2012. The two major sources of why increases in expenses exceeded
increases in revenue by nearly $1.8 billion can be traced to subscriber acquisition and litigation
expenses. Subscriber acquisition and advertising costs increased by 329.52% in 2012 while the
TiVo litigation expense went from ($316,949) a gain, to$730,457 expenditure in 2012. A $200
million increase in revenue does not justify a $1 billion increase in subscriber acquisition and
advertising expenses. Your company will need to focus on more profitable subscriber acquisition
methods.
The accounts identified in the comparative balance sheet and comparative income
statement is also visible on the comparative cash flow statement. Net income declined by -
58.71% in 2012 from what was largely due to excess spending on advertising and subscriber
acquisition costs. Proceeds from issuance of long-term debt were $4.4 billion in 2012 which
complies with the substantial amount in cash. Looking at these financial statements it is safe to
conclude that DISH must invest its loan of $4.4 billion in projects that will generate positive
NPVs in the near future as interest expenses are expected to increase substantially in 2013. In
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addition, we recommend finding a way to make its advertising and subscriber acquisition more
efficient by increasing revenues and lowering expenses.
Recommendations and Implementation (Appendix N-S)
Note: Appendices N and O are relevant to the following text
We created many strategies for DISH Network to gain market share and increase
profitability. We recommend selling services via contract to airline companies. This will offer
in-flight entertainment where DISH can offer movies and TV shows that they acquired with the
Blockbuster segment. This will cause about a 5% increase in programming and administrative
expenses, or about $75,000,000 total. Also, DISH should partner with sports bars to offer cable
services for customer viewing. The usual cost per subscriber addition was derived from the
annual report. Total subscriber acquisition costs in 2012 were $1,687,327,000 and they acquired
89,000 customers. This equates to about $20,000 total cost per new subscriber. We advise
acquiring 10,000 restaurants which would be a cost of $200,000,000 (increase in subscriber
acquisition costs). In addition to sports bars, we recommend partnering with school districts to
provide the educational videos they watch. The usual cost per subscriber addition is about
$20,000 total cost per new subscriber. However, the new service fees would increase revenues
(average monthly revenue per customer of $77.10 so $77.10*12*1000 = 900,000). We
recommend acquiring 1,000 school districts at total cost of ($20,000,000 – $900,000 in new
revenues =) $19,100,000 in the first year but $15,500,000 costs over 5 years total. Also, we
recommend partnering with hospitals to provide their television services. The usual cost per
subscriber addition is about $20,000 total cost per new subscriber. However, the new service
fees would increase revenues 900,000. We also recommend acquiring 1,000 hospitals at total
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cost of $19,100,000 in the first year but 15,500,000 costs over 5 years total. In addition to
hospitals, we recommend partnering with gyms to provide their television services. The usual
cost per subscriber addition is about $20,000 total cost per new subscriber. However, the new
service fees would increase revenues 900,000. We suggest acquiring 1,000 gyms at total cost
$19,100,000 in the first year but 15,500,000 costs over 5 years total.
We also suggest increasing advertising efforts to gain market share. Currently DISH spends
$1,420,194,000. We suggest increasing this by 20% to $1,704,232,800 for a total increase in
costs of $284,038,800. We also recommend obtaining new and renewing old programming
contracts with networks. This will cause about a 10% increase in programming costs, or about
$100,000,000. To reduce the rising trend in accounts receivables, we recommend providing
discounts. There was a sharp increase in the last year from $778,443,000 to $842,905,000. We
suggest offering discount terms to increase the payments, perhaps 2- 10 - Net 30. We assume
50% will take advantage so it would cost $8,000,000. Also, we recommend selling off
remaining blockbuster stores (500 left to close as of 12/31/12). According to Kim Peterson of
MSN Money, there is $500,000 profit for all 500 stores. The reduction associated costs with this
unrelated diversification closure in the stores will provide the company with a net savings of
about $1.5M. Also, we recommend expanding the number of Blockbuster Express kiosks to
compete with Redbox (owned by Coinstar). We suggest opening 1,000 kiosks at $15,000 each
(according to GuruFocus). Once the remaining Blockbuster stores are closed, we recommend
liquidate retail inventory from the closed stores. Assuming about 30% of current inventories are
in the retail stores so liquidation of this would increase cash by (.3*$623,720,000) =
$187,116,000.
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The Grand Strategy Matrix (Appendix N) we derived shows DISH in Quadrant I which
reflects rapid market growth and a strong competitive position. The strategies for a company in
this quadrant include integration methods, which DISH will do with Qwest and EchoStar, and
market penetration, which will happen with the acquisition of other companies. We recommend
acquiring a small company like Hulu (segment of News Corp.) for online streaming competition.
We assume that Hulu has 40% of the value of Netflix. Based on our net worth analysis of
Netflix (Appendix O), a Hulu segment acquisition cost would be $2,169,737,833. To compete
with DIRECTV and use vertical integration strategies, we recommend acquiring DRECTV’s
supplier Qwest. This would require purchasing Qwest from its owner, Centurylink. Although
the net worth analysis suggests a price of $6B, the large net assets value and the recent
acquisition price suggest higher. We recommend purchasing for $20B. We also recommend
acquiring Netflix. The net worth of Netflix is $5,424,344,582 so this would be our purchase
offer. We also recommend reacquiring EchoStar. These two companies used to be one
organization and we suggest reacquiring them to cut out middleman fees. Based on the Net
Worth Analysis of EchoStar, the purchase price will be $2,653,510,095. We suggest acquiring
Coinstar and turning all Redbox machines into Blockbuster Express machines. According to
Coinstar’s Net Worth Analysis, the purchase price is $1,136,948,796. A transformation of these
locations would cost about (42,000 locations transformed to Blockbuster Express at half the cost
of manufacturing new kiosk – $7,500) = $315,000,000 + $1,136,948,796 = $1,451,948,796. We
acknowledge that anti-trust concerns may be present with these acquisitions and this would have
to be addressed when the time came to actually acquire the companies.
As for cost saving recommendations, we suggest outsourcing DISH Network’s call
centers. Outsourcing call centers can save approximately 20-40% of operations costs. We
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assume the call centers account for 20% of G&A expenses so this is $270,000,000. As a result,
outsourcing would save between $50,000,000 and $80,000,000 (let’s say $60,000,000 for the
GANTT chart – Appendix Q).
Some of the non-financial recommendations we made include replacing Charles Ergen as
chairman of the board. His wife is also on the board and he has been Chairman or President
since the founding of DISH. He is also the Chairman of EchoStar so he can retain that position,
unless DISH acquires EchoStar. We also suggest reorganizing the management structure. Also,
DISH needs to create a new vision statement, as we did in Appendix A. Before DISH installs the
new Blockbuster Express kiosks, we suggest reviving Blockbuster’s image with a new logo.
QSPM (Appendix P)
After consulting all of our recommendations, we feel that the strongest three are to close
all remaining Blockbuster stores, expand the Blockbuster Express kiosks to compete with
Redbox, and to outsource the call centers. Using the QSPM to choose the strongest
recommendation, the best strategy to pursue is expanding the Blockbuster Express kiosks to
compete with Redbox.
EBIT Analysis (Appendix R)
According to the EPS/EBIT analysis, for all of our projects that have costs included on
the GANTT chart, we suggest DISH chooses common stock financing in both a recession and
normal times but they should use combination financing (50/50) in a boom. Based on the
GANTT chart, the total cost of all of the above recommendations would be approximately
$33,000,000,000. An analysis of DISH Network’s Net Worth post strategy implementation
shows an increase in company valuation from about $9,000,000,000 to about $53,000,000,000.
Fishbone Diagram (Appendix S)
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All of these strategies address the problem and possible solutions listed in our fishbone
diagram. The balanced scorecard analysis also shows how strategic objectives affect the
financial, customer, and internal aspects of DISH Network (figure 32).
Pro Forma Income and Cash Flow (Appendix T)
The Pro Forma Income Statement shows where the company was on 12/31/2012 and
where we project it will be on 12/31/2013. After our strategies are implemented, we assume
there will be an initial, first year spike in revenues of about 3%. We expect this number to rise as
the strategies continue being successful. Many of our recommendations require increases in
subscriber acquisition costs of about 25%. However, our cost savings methods should decrease
G&A by about 5%, annually. Overall, we expect about an 8-10% decrease in expenses, although
not all categories are shown on this pro-forma. Based on the average 5.5% interest rate and 33%
tax rate, we expect net income to more than double.
At the end of 2012, DISH had over $3 billion in cash on hand. Our strategies provide
excellent uses for this cash. However, the acquisitions we have planned for the company are
scheduled to occur after the next fiscal year. As a result, we will build up more cash to use for
these acquisitions in 2014 and 2015. We expect about a 10% increase in operating activities cash
flows and we expect a $1 billion increase in investing expenditures due to the implementation of
our short-term recommendations. Due to the large amounts of cash on hand, we do not need to
finance any projects in the next fiscal year. Instead, we recommend a 25% decrease by paying
off some long-term debts. Including all of these plans, DISH should see a net increase in cash of
just over $1B, leaving the figure at almost $5 billion. After 2013, this cash can be used to
expand on already successful strategies or to implement our acquisition and vertical integration
plans.
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Sources of Resistance
There are a few sources of resistance that may occur with DISH Network’s strategies.
Current chairman Charles Ergen is the man who founded Echo Star, along with his wife, Candy
McAdam, and friend Jim DeFranco. When DIRECTV launched a new, small satellite in the
1980’s, Ergen followed suit, and did the same as his competitors. Although Ergen gave up his
CEO title in 2011 after 30 years, he still remains the chairman of both DISH as well as EchoStar.
Because Ergen has been there since the start of the company, he might not be so fond of the idea
of change. Also, because he is the founder, he may have a unique vision for this company that
may not coincide with our recommended strategies. Although, after seeing the data that has been
put together by our team of analysts, he might be open to our suggested changes. There might be
other sources of resistance from C-levels of management and/or the Board of Directors. Many of
these individuals have been with the company for many years and may not recognize the need
for a new strategy implementation.
Contingency Plans
A risk assessment of the likelihood for failure is analyzed to better assist in the final
choice that will be implemented for your company. One of the many strategies that were
suggested was to mimic our competitor, Redbox, and penetrate the market with more of the
already existing express Blockbuster Express kiosks. This is a risky move, since there is already
a market for the Redbox and customers might want to stick to what they already know and are
familiar with. The increase in advertising expense, and the relatively low switching costs
customers face, may be enough to overcome this issue. A merger with Qwest was another
strategy that our team of analysts came up with. Qwest is a supplier and business partner of
DIRECTV. However, this company has had some organizational and reputation issues in recent
20
years. Management staff would have to ensure that these problems are resolved and that the two
different companies’ cultures can come together smoothly. Finally, customer service quality is a
strength of the company. If the strategy to outsource all of the call centers were to be
implemented, this may risk the quality of service. DISH Network employees would have to
closely watch the call centers and ensure that quality was not sacrificed to save these costs.
Epilogue
Our recommendations will transform DISH through acquisitions, cost savings, market
penetration, and increases in profitability. Rather than focusing on the pay-TV portion of the
industry, we recommend increasing the emphasis and strategy on the online streaming and movie
rental kiosks. The acquisition of Blockbuster has helped gain access to the movie rental industry
and the on demand movie service. We suggest capitalizing on this acquisition by expanding
kiosks and continuing to close retail locations. Retail movie rental locations are not consistent
with the mission or vision, so this segment needs to be abandoned. Expansion into markets that
are not currently a focus, such as the online streaming and movie rental kiosks, will increase
operational efficiency and profitability. DISH is already equipped with the resources and
capabilities to competitively engage in these markets and not doing so will result in a slowing of
growth and loss of market share. These recommendations are not guaranteed methods of
achieving success. However, proper implementation and organization of these new
recommendations will help DISH Network move towards the market leader position.
Assumptions
Note: all assumptions are listed in the relevant section of the paper or appendices.
21
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