II.

Introduction

Dizz is an international mobile phone network operator. It operates by the transmission of mobile

phone calls, messages, and data by the handset sending a signal to a Dizz operated transmitter. It

has operations in 17 countries across Europe, Asia, and Africa. It doesnt have any operations in

the USA or in the Australian markets. It was established in the mid 1980s when it was first

launched in Europe. At first, it was a subsidiary of a landline telephony company. Since it

acquired a shareholding in a number of other mobile phone network operators, Dizz became a

listed company during the 1990s.

Just because the law prohibited owning 100% shareholdings in some countries, Dizz owns 100%

shareholdings in 3 European countries and also owns majority shareholdings in other European,

Asian, and African countries. Dizz has 214 million customers across its entire subsidiary and

fully owned companies.

Dizz has 12,600 employees in the companies which hold 100% shareholding and 6,500

employees in the companies that hold the majority of shareholdings.

Dizz provides the upgraded version of all data transmission in order to provide the changing

needs and wants of the customer in the mobile phone network industry. It also makes sure that

the research teams continue to look at the newest technologies and services for the customers.

2
Dizz devised a five year plan that will aim to achieve the following milestone:

Average revenue per user Increased by 2.04%

Total customer Increased by 121.5%

Average customer Increased by 121.39%

Net profit Increased by 180.01%

III. Strategic Analysis

a. Company Analysis
Dizz used the differentiation strategy which they replace the old transmitter with the latest

technology in order to be compatible to 3G standard and to meet its license requirements.

The market research teams continue to look at emerging technologies and new services in

order to provide the latest and improved telephony packages to the customers.

In order to increase the Average Revenue per User (ARPU), the company reduced the cost

of mobile phone calls made outside the home country by over 20% for the last 2 year. The

company integrates the IT systems in order to decrease its churn rate or the number of

customers disconnecting from the mobile network just because of its poor connection.

Those strategies of the company show the competitive advantage over the other companies.

It can also foster customer loyalty.

3
b. Industry Analysis

FIVE FORCES

Buyer Power (Moderate): In despite of its few differentiating factors such as easy to

switch operators, some of the small customers with exclusive contracts are

experiencing difficulty in switching products.

Supplier Power (Moderate): The high authority power of the government in licensing

increases the consumers trust to the product. Although the company has some

stronger handset providers, the company has only 10 handset providers which is few

and some supplier power are low.

Intensity of Rivalry among Firms (High): Although the company has few

differentiating factors, theres little to be benefited from reducing prices. Lots of

strong and significant price competition pushes the firm to strategize.

Threats of
new
entrants
(LOW)

Intensity of Threats of
Buyer rivalry among New
Power firms Substitute
(MODERAT
(HIGH) (LOW)
E)

Supplier
power
(MODERATE
)

4
 c. SWOT Analysis

SWOT AnalysisT Analysis

Strengths Weakness
-Positive cash flow for future projects - Outdated transmitter
-Employee focused - Future debt limit
- Effective marketing - 5-year plan that is vulnerable to the changing
- Excellent customer service and wide coverage environment
- Excellent quality and product range
-Integrated IT system
Opportunities Threats
- Expansion to the markets of Asia and Africa - Worldwide recession
- Penetrates new market - Change in regulation
- Greater usage from existing customer - Highly competitive market
- Fast technological change
- Currency changes

IV. Financial Analysis

Profitability and Operation Management

Ratios 2008 2007

Return on Asset (ROA) 2.87%
Return on Equity (ROE) 51.14%
NOPAT Margin 14.21% 14.21%
Current Cash Debt Coverage Ratio 2.34
Cash Debt Coverage Ratio 0.31
Cash Flow Margin 34.11%

Dizzs ROA ratio indicates that there is a low profitability in its operations but its ROE ratios

mainly contributed by its operation. The 14% NOPAT Margin indicates that the Dizz performed

well in its operations. The Current Cash Debt Coverage Ratio is more than 1 so it indicates that

the company can pay off its current debt through the use of cash from operating activities. The

Cash Debt Coverage Ratio is less than 1 so it indicates that even though they can pay off its

current debt, the company cant pay off all of its liabilities through the use of cash from

5
operating activities. The high cash flow margin shows that the company could translate its sale

into cash in order to provide the short term obligations.

Investment Management

Ratios 2008 2007

Working Capital - 485m 1,800
Working Capital Turnover -107.22 6.40

In 2007, the company has enough short-term assets to cover its short-term debt but in 2008, the

company will be experiencing cash flow problems just because of the negative working capital.

The working capital in 2007 can cover up the negative working capital of 2008; therefore, it can

be offset.

Financial Management

Ratios 2008 2007

Current Ratio 0.93
Solvency Ratio 26.37%
Debt Ratio 26.77% 23.94%
Equity Ratio 73.23% 76.61%
Debt to Equity Ratio 36.56% 30.54%
Capital Intensity Ratio 4.13 4.40

In 2008, the company will be experiencing short-term liquidity problems because the current

ratio is less than 1. Most of the asset of the company was finance by the investor rather than the

debt. Although the company is highly efficient in generating sales through the employment of

resources, there is a decrease in capital intensity ratio from 2007 to 2008.

V. Issues Analysis and Recommendation

Prioritization of Issue

There are 4 main issues that might threaten the business in terms of its competitive advantage:

Issues that Plans to Add the

Threaten the Core 6 Competitive
Business Advantage
 Possible Global Introducing
Financial Crisis Designed

Risk of IT System
Shortage in Integration

Given the impact that could threaten the core business in terms of its profitability, the team has

chosen to prioritize that issue over adding up to its competitive advantage. Within the issues that

threaten the core business, possible global financial crisis possess greater risk because it might

not attain the goal of its 5-year plan and also it can contribute to its losses. The risk of shortage in

money also adds up to its threats because the company needs to raise finance for its capital

expenditures.

In the plans of adding up the competitive advantage of the business, introducing of designed

handset takes the first priority because we believe that providing the improved handset can help

the consumer in providing their needs and want. There is the possibility that this proposal could

be rejected if the contract among 2 suppliers namely Mre and Fre expire within 3 months and 5

months respectively if there are no certain negotiations among Dizz and its 2 suppliers. IT

system integration should also be in the priority list in order to be compatible with the 3G

standards and to save administrative cost. IT system can also provide the changing needs and

wants of the customers. The possible capital expenditures for IT system integration of 1,500

million Euros should be budgeted and funded if this proposal is effective in cost reduction and

optimizing qualities.

7
a. Issues that Threatens the Core Business

a.1. Possible Financial Crisis

Financial Impact

Just because of the optimism of the 5-year plan, the goal might not be achieve due to its
Those strategies of the company show the competitive advantage over the other
financial crisis. This possible financial crisis is wide spreading across many countries. It
companies. It can also foster customer loyalty.
might lead to the recession of the company if actions will not be taken immediately.
Assessment to the Potential Solutions
Strategic Impact
Improving the market image
The financial crisis can affect Dizz mobile services. They tend to cut cost of training
Through the use of advertising campaigns, the customer might be enticed to subscribe to
and development to the employees, cancel sponsorship contracts in Europe and going to
the Dizz mobile telephony. Creating flexible pricing through the handsets also attracts
the large scale advertising instead, limit the activities involved for the sake of
the distributors to buy more like making discounts in bulk orders. Making the product
community development, and reduce the cost of outsourcing. This strategy might divert
visible to the internet can attract the internet users to buy mobile and increase its ARPU.
from differentiation strategy to the cost leadership strategy. It might be the threat of the
Also focusing on customer services make the customer satisfy about the product,
company to be imitated by its competitor.
therefore; it decreases its churn rate.
Reputational Impact
Recommendations
Just because of the following adjustments made by the company, the churn rate might be
Short-term
increasing because of the poor customer services due to the decreasing motivation of the
In order to be prepared in the upcoming crisis, the company should maintain the
employees towards work and reduction of the cost of outsourcing. Lack of community
differentiation strategy by improving the quality of the phone and its connections.
involvement might be the threat of the company to be not known to the other countries.
Improving such quality can maintain the demand of the customer or if possible, it can
If this churn rate will be possibly increasing, the ARPU will be decreasing.
slightly increase its sales. Its revenue could be decrease in improving its transmission.

Having a commitment to the community can increase the awareness of the Dizz mobile

to the public, therefore; it can increase its marketability. It can foster the government

sponsorship to our product, therefore; it could be a great help in increasing its

marketability to the costumers.

Long-term
8
Improving connections in Asia and Africa could be a great help in saturating the market

and increasing our revenue. This will help our company to attain the 5-year plan if possi-
ble. Making marketing strategies in Asia and Africa such as making internet

advertisements and promotions can boost the sales of the Dizz mobile. Making product

awareness of the Dizz Mobile to Asia and Africa can increase its sales such as

encouraging people to love their families and stay connected wherever they are.
9
a.2. Risk of Shortage in Money

Financial Impact

The risk of lacking money through the proposals can be the threat of financing capital

expenditures. It might not meet its need for the certain project. Lack of money has a

threat of its liquidity and solvency thats why the company has a difficulty in meeting

obligations.
Assessment to the Possible Solutions
Strategic Impact
Financing cash flows
Lack of money hasfinance,
the threat
the in making should
productcut
differentiation.
the dividend Differentiation strategy
In order to raise company to 10% of profit at first
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the increasing of the churn rate.and acquire the
strategy, attract investors to invest
Reputational Impact
sharing rights of the company.
Just because of its lack of differentiation, the product can be easily imitated by its
Recommendation
competitors.
Short-term The customer might be disconnected because of the inferior quality of the
customer service,
rightsits connection, and the handset
flowprovided by the
the rights
DIzz Mobile Network.of
Generating issue can improve its cash by having of the majority
The
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this can
Ifmitigate
this will the
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risk ofit might decreaseinitsmoney
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money will be use in capital

expenditures for the improvement of its sales.

Long-term

Having a debt restructuring can decrease its liabilities in the exchange of the idle or

slightly used assets, therefore; it could improve its liquidity. We believe that having a

debt restructuring can mitigate the risk of further losses in cash flows. The downside of

it is the decrease of the utilization of the assets for the certain projects. The aim of this
10
debt restructuring is to decrease losses in cash flows and decrease its liabilities that will

add up in case of crisis.

 Background

In order to attain competitive advantage to the other competitors, the company

introduced the handset to the different countries especially in Asia market; the designed

handsets become a good way to grab big markets in different continents.

Factors Proposal Intends to Achieve

Exclusive Handsets for the Exclusive Customers gfghfghfghfghfghfhgfhfhfghgfhgfhgh

The Dizz mobile phone was exclusively introduced the handset with the greater quality

to the customers of the Dizz mobile networking. It is mainly introduced to the Asian

market where the style and taste are quickly changing and the cost of the mobile phone

can be passed to the customers. Just because of that, the company would reduce the cost

of production by doing such.

Meeting the forecasted ARPU

Just because of the additional handset provided by the Dizz mobile, it can retain the

customer loyalty if the quality of the products and customer services are differentiated
b. Plans to Add Competitive Advantages
well.
b.1. Introducing
Expected ValueDesigned Handset
of the Proposal

Due to the high costs of development and the licensing costs payable to global brands,

the range of price charged by manufacturer is based on the volume of ordering

11
Order Quantity (In Price per Percentage assumed Expected Price (In
millions)* handset (In to claim (out of 300 million Euros)
Euros)* stores)**
5 200 20% 60,000
10 200 18% 108,000
15 180 17% 137,700
20 160 15% 144,000
25 140 15% 157,500
30 120 10% 108,000

12
35 80 5% 42,000
*In bulk order, the team assumed that the bulk order in always in 5 million. The more you order the handset, the
cheaper it will become
**Assumed by the team
Acceptability of the Proposal

If the handset generates the revenue of 757,200 million Euros which is more than its

expenditure, it can be enough to accept this proposal. Offering handsets can possibly

generate higher revenue. Since the handset business involve 10% cash basis, 90%

accrual basis and 15% uncollectivity, therefore; the company will incur the cash flow

from the operating activity of 75,720 million Euros, receivables of 579,258 million

Euros, and bad debts of 102,222 million Euros. This proposal should be accepted

because we believe that the cash flow from operating activities can cover up the its

capital expenditures in the 5-year plan.

b.2. IT System Integration

Background

Through the integration of the IT Systems in the Dizz mobile phone, the following

competitive advantages will be obtained:

Increase the number of customers

Saves the administrative costs
Decreases the churn rates and drop-off rates
Difficult accessibility of the unauthorized hackers

The Dizz mobile uses the latest technology in developing integrated IT system in order

to change the outdated transmitter.

Risk and Cost factors

The integration of the IT System requires the capital expenditures of 1,500 million

Euros. This might be the threat of the company in terms of its cash flow. It could also be
13
vulnerable to the losses if there will be a sudden global financial crisis in this event.
 Feasibility Assessment

Since the company will generate 75,720 million Euros in selling handsets to the

customers and the addition capital expenditure for the IT system integration will incur

1,500 million Euros, we believe that the company will still incur profitability and they

can cope up with the global crisis and for its long term uses.

Recommendation

This proposal should also be accepted because it can have those following benefits in the

long-run. Hiring experts and technicians will be also a differentiating factor of the

company in terms of improving its IT system.

VI. Ethical Issues

Ethical Issues Recommendations

Public Relation problems such as allegations of Install security system in the office, proper

unsafe and irresponsible practices by the punishment act for the unethical employees,

company. and provide a clean and safe workplace for

employees
Allegations of fraud, bribery, or corruption Daily audit of resources, make the compliance

against the company and the staff of the employees purposive, communicate the

risk of non-compliance, and communicate its

benefits
Infringement of Dizzs CSR commitments Plan and prepare for its research for patents

and copyrights, read terms and conditions of

the contract, and ask for a lawyer

Issues affecting the safety of customers, Install temperature control sites, wear them

14
employees, or contractors safety clothes, provide them insurance in case

of accidents, and communicate with them the

awareness of the surroundings.

VII. Achievability of the 5-year Plan

This 5-year plan ensures the accountability of the company from 2008 to the 2014.This 5-year

plan can be possible if such crisis is inexistent. The weakness of this 5-year plan is they tend to

be erroneous and misleading when the financial crisis are there.

To increase the objectivity in 5-year plan, the team adjusted the 5-year plan in accordance to the

incoming financial crisis in some countries. Some changes in the 5-year plan are following by

such:

Europe a decrease number of the average number of customer from planned 118

million to only 110 million in year 2010 with the reduced growth of 5 million per year

thereafter, this is accompanied with the significant fall in network revenue growth rate to

approximately 5% per year based on the confirmed forecast figure for financial year

ended 30th June 2009

Asia a slightly decrease in average number of customer, from the planned 106 million

to 104 million in 2010 with a forecasted growth rate of 20% per year until 2014, while

the growth rate in Network revenue is also adjusted down by 2% upon the original

planning in year 2010 and 2011, while the growth rate in the Network revenue in the rest

three years still keeps as originally planned.

The operating cost was reducing into half in order to save for the cost of training and

development and cost of outsourcing.

15
VIII. Summary of Issues and Recommendation

Order of Problems Short-term decision Long-term Decision

Priority
1 Possible Improve the connection Improving the connections and

Financial Crisis service and having an marketing strategies to the Africa

involvement to the and owning more shareholdings.

government
2 Risk of Having the rights issue to Having a debt restructuring in

Shortage of the shareholders in order to order to extinguish debt and

Money increase cash flows exchanging some assets

3 Ethical Issues Daily audit of resources Consult to the lawyers about the

and improve the security patents and copyrights

system inside the company

Order of Proposals Accept or Reject

Priority
4 Introducing Designed Handset Accept, profitable

5 IT System Integration Accept

The group put the possible financial crisis as its first priority because it can be a way to

cope up with its objective which is the attainment of 5-Year Plan. Raising of the revenue

helps the company to attain the 5-Year Plan that will be use to accomplish its

accountability and maintain good image among its stakeholders. Its vital to solve the

financial crisis first because it will be a worst factor that will bankrupt the company. The

16
 group put the risk of shortage in money as the second priority because of its problems in

liquidity but its liquidity problem is little less vital than possible financial crisis. If actions

dont take immediately, it would be resulting to further debts or worse, bankruptcy. The

third priority is ethical issues because according to the various researches, ethical issues

especially fraud cases will always lead to its bankruptcy especially to the fraud within the

management. The fourth and fifth priority is improving handset and IT System

integration because the one of the strengths stated there is the increasing customers

loyalty and good IT system, therefore; the business will be still maintain good image

because of the good quality of product. Improving such products would further enhance

its marketability but the problem there is the market in Europe is saturated and the market

in Asia is moderately saturated. The company should focus on preventing problems rather

than increasing its sales in order to maintain its stability.

IX. Appendices

a. Extracts of the 5-year plan

Financial data Actual Latest Plan

(All data for 2008 Full Note: All figures shown in the financial data below
financial Year are based on 2009 prices
Years ended 30 Forec 2010 2011 2012
June ast 2013 2014
2009
million million million
Network million millio million million
revenue: n
Europe* 35,530 42,106 44,211 46,422
Africa 6,100 40,101 48,422 51,180
Asia* 7,660 7,039 8,041 9,186 10,494
9,861 11,988 13,696
12,385 15,475 19,438 4,025
29,695

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Total
Network 49,290 57,001 62,532 68,872 76,354
revenue 2,810 3,420 84,756 94,571
Other revenue: 3,950 4,526 5,152
5,860 6,680
Total revenue 52,100 60,421 66,482 73,398 81,506
Operating (38,200 (44,51 90,616 101,251
costs* ) 0) (25,669) (29,186) (65,905)
(74,310) (84,013)
Operating 13,900 15,911 40,813 44,212 65,905
profit 16,306 17,238
Profit for the 7,405 8,725 25,546 27,018 9,334
period 9,936 10,723
1,575 1,866
Minority 5,578 5,836 (2016)
interests (2146) (2316)
Profit
attributable to 5,830 6,859 20,028 21,182 7,318
the owners of 7,790 8,407
the
parent
Capital 24,985 13,100 12,800 15,000 18,400
expenditure* 19,600 24,500
Total loans- end 50,000 50,000 52,000 52,000 56,000
year 56,000 56,000

b. Expected possible customers and its ARPU

18
Business statistics Actual Latest Plan
(All data for Full Note: All figures shown in the financial data below are
financial 2008 Year based on 2009 prices
Years ended 30 Forecas 2010 2011 2012 2013
June t 2014
2009
Customers: (as millio million million million million
at end June n million million
each year) 113
Europe 103 39 123 133 143 153
Africa 35 96 163
Asia 76 44 49 55 62
69
117 140 168 202
242
Total customers 214 248 284 322 366 417
474
Customers:
(Average for
year) 99 108 110 123 133 143
Europe 33 37 153
Africa 69 86 42 47 52 58
Asia 65
104 125 150 180
216
Total customers 201 231 256 295 335 381
434
ARPU per year
Europe 359 371
Africa 185 190 383 359 349 340
Asia 111 115 334
191 195 202 207
211
119 124 130 133
137

Overall ARPU 245 247 248 226 227 227

231

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