Corporate Governance

In many markets around the globe codes of governance are created for businesses to follow.  Although some of these codes are followed voluntarily, others must be followed in order to be in accordance with the law.  In The United States, the most widespread governance platform is the Sarbanes-Oxley Act of 2002.  In response to corporate scandals, The Sarbanes-Oxley Act of 2002 was signed into law in order to be able to ensure that firms are operating in an ethical and lawful manner.  All companies are required to file periodic reports with the Securities and Exchange Commission.  In response to this governance, Directv announced that they will be using the Approva Corporation to enhance visibility into internal activities. Firms that do not adhere to these controls receive severe penalties that have a dramatic effect on the profitability of the company and make the company appear to be corrupt in the public eye.  The last thing any business wants is their customers thinking that they operate using unethical practices.

Strategic Change

As firms evolve it is inevitable that they will go through some type strategic change.  Companies need to allow for this type of change in order to be able to meet changing demands, economic slowdowns, and technology innovation.  The strategic change process involves changing management, analyzing the situation, implementing an emergency action plan, stabilization, and returning to normal.  The first step and in my opinion the most important on is changing management.  If a firm fails to realize that a change in management is necessary, the firm is taking a risk on the firm continuing to do poorly.  At Directv the most crucial and most important change in management came when Mike White was named CEO in 2010 after leaving his chief executive officer position at Pepsi Co.  In two years Mr. White has been able to steer Directv into new ventures while keeping the company profitable for its shareholders.

Organizational structure at Directv

In order to reach goals, a firm must have an organized structure in place which allows for easy movements through system processes and provides management the knowledge of the activities of the different divisions within the firm.  In 2001, Directv completely revamped its organizational structure in order to become more flexible and focused in its daily operations while being able to pursue new ventures and reach new goals more rapidly.  The form of organizational structure that best fits Directv is the multidivisional structure.  A multidivisional structure is a form of organization where divisions are organized around product or geographic markets and are often self sufficient in terms of functional expertise.

Often firms will make remarks about how well they treat their employees even though upper management may never even meet people working in entry level positions.  When Mike White became CEO of Directv he wanted to connect with his employees at all levels of the business and find out how they actually felt about working for the satellite giant.  His avenue for accomplishing this was a television show called "Undercover Boss".  For the program, Mr. White would go undercover as an unemployed salesman in an entry level position in order to better understand the culture of the firm and to get a first hand look at how their employees thought they were being treated.  During his stint undercover Mr. White was able to get a better understanding of certain aspects within the business and how his employees deal with certain issues.  Mr White was even able to correct a few inventory and supply problems along the way.   

Acquisitions and divestiture

In addition to mergers and acquisitions, divestiture can be another strategic tool that management can use to increase shareholder's value.  In 2008, Directv gained $160 million by shedding its Puerto Rican operations. This decision was able to help offset some of the losses that shareholders had experienced that year.

A question comes to mind...Should Directv and Dish merge??  According to the FCC in 2002 a merger between the two companies would hurt consumers.  The deal was shot down by The Department of Justice but experts agree that this time around may be a different story.  A problem that I see in this merger is the cost that associated with it for both companies.  The key to these types of deals is that they are done quickly due to both the cost and the time value of money.  I feel that both companies will have to spend large amounts of time and money in litigation trying to get the deal approved by the government.  On the flip side a merger could make the digital cable broadcaster more profitable than they could be in the near future.    

Creating strategic alliances...

Companies create strategic alliances with other firms for a variety of reasons but most importantly to gain a mutual competitive advantage over their respective competitors.  Earlier this year in March Directv created an alliance with Invision to launch a sales system that will manage Directv's advertising sales for both linear and addressable television.  The program "Dealmaker", will improve the effectiveness and efficiency of Directv's sales operations.    When Directv acquired a rival Primestar in 1999 they were able to add almost 2.1 million subscribers as well as 11 high powered satellites.  Managers at Directv believed that this acquisition would enable them to be more competitive with their biggest rival, cable.  In the same quarter Directv also acquired US Satellite Broadcasting which was a premium multiple channel movie service.    

More recently, Directv's CEO Mike White is flirting with the idea of Acquiring Dish once again although he is sure that the deal will get shot down again.  Mr. White is also considering the idea of acquiring Netflix as well as Hulu which is a website where users can watch previously recorded television shows.  Not only would the Netflix and Hulu deals provide   stronger diversification, it would also provide shareholders piece of mind since Directv has seen its profits start to marginalize.  It seems that the only thing holding Mr. White back is The Department of Justice.  Directv must be on the right path to more successful ventures in the future because Warren Buffet's company, Berkshire Hathaway, bought over 4 million shares in 2011.  This is significant because Buffet has typically steered clear of tech stocks...  

Directv's international strategy is focused on becoming a major service provider in Latin and South America. Directv realizes that these markets have huge potential. Directv has taken the first steps to integrate DVR's Latin and South America.  We all know that Directv has had incredible success with their NFL Sunday Ticket package in the United States and we know that Directv has built a reputation for providing customers with crystal clear digital high-definition signals.  Now Directv will try to incorporate both of these services into Latin and South America.  It is no secret that most of the world watches soccer religiously.  It is by far the world's most popular sport and it is no different south of the border. In many areas, Directv has the rights to FIFA's World Cup games and is vying for the rights to provide broadcasting for many of the soccer leagues such as the Spanish League and other local leagues.  Directv will provide all of these soccer matches in HD which will set them apart from their competitors.  Although Brazil is by far Directv's biggest market in Latin America, the firm has seen substantial growth in Mexico and  the Caribbean as well.  The only downside to all of this growth is that countries like Brazil have changed laws which will allow for competition to enter the marketplace.  However, it will be a long time before a Brazilian company will actually be able to damage Directv's profits significantly.  

Diversification at Directv

When a firm is diversified they are conducting business in more than one area or particular market.  Being diversified means that a company stands to become more profitable and reduce the risk being driven out of a market by competition or other factors such as economic slowdown.  Since programming costs are constantly rising, which is paid for by the customer and service provider, Directv has decided to offset some of their shrinking margins by doing more than just providing digital cable.  Directv has decided to venture into original programming with their debut series "Rouge".  According to the experts, Directv is trying to either create profits or create a unique selling proposition.  A unique selling proposition is something that sets a firm apart from its competitors.  Most recently, Directv has done this with their NFL Sunday Ticket package.  No other firm offers broadcasting of all the NFL's games.  Now Directv will try to compete with major media conglomerates such as Time Warner.  Directv is experiencing a period of decline in their gross profit margin so now is as good a time of any to venture into new grounds.

http://www.forbes.com/sites/greatspeculations/2012/06/12/directv-tries-its-hand-at-original-programming/ 

Would they want people to skip their commercials???

I feel that a firm's ability to react quickly to changes in the marketplace is an important strategy for all businesses.  The speed of change directly relates to how well a company can keep up with their competitors.   In the broadcasting sector, this is especially crucial because there are many options available for consumers to choose which company they want to use for cable television.  In a market where innovations in technology are always present, Directv must be able to foresee which technology will be used by their competitors.  In one of my earlier posts I touched on the fact that Directv has acquired technology that will allow its customers to skip television commercials.  Although it appears that this type of ad-skipping service would draw vast amounts of customers, Directv has held off using this technology until sees what kind of litigation Dish will deal with regarding certain networks.  Even though Directv possesses this technology, I feel that this strategic decision of "wait and see" was the right one to make for Directv.  

Strategic positioning or diseconomies of scale???

Directv has always strived to be an innovator in digital television broadcasting and has been able to so so by differentiating the services that it offers.  Directv has been able to compete with the likes of Dish and local cable providers due to its superb HD quality and its contracts that it holds with sports organizations such as the NFL.  Now Directv is starting to develop the position strategy of focused differentation in the market place.  Directv will accomplish this by offering an Ultra HD service to its customers.  Although the implementation of this new technology may be several years into the future, Ultra HD will keep Directv a step ahead of rivals like Dish and local providers like Time Warner and Comcast.  By keeping up with the latest technological advances in digital broadcasting, Directv will be able to maintain a large customer base and provide avenues for growth in the future. 

One area that concerns me with Directv trying to gain market share in areas of the world such as Latin America and South America is that they will experience diseconomies of scale.  As they become a major player in these markets I believe their total costs will definately increase as they provide more digital services to these less industrialized countries.  The fact of the matter is that customers in these areas will not be able to pay the same rates as people in the US.  I believe as they expand in these types of markets, higher costs will be placed on their customers that can afford it, such as the US customers, in order to make up for the lost profits.

Good luck new incumbents...

One of the most crucial factors concerning Directv, in relation to Michael Porter's five forces model, is the rivalry that exists in the industry.  Dish and Directv are by far the largest digital cable providers who are constantly competing to gain a larger market share.  Although there are new companies emerging on the scene, such as U-Verse, none are considered rivals of Directv just yet.  The fact that Directv and Dish have such a large market share of digital cable broadcasting makes the barriers to entry extremely difficult for new companies to emerge.  In light of this, Directv has a metaphorical shield that protects their share in the marketplace.  The threat of entry keeps profitability high for Directv and Dish while making their rivalry more intense.  Until digital broadcasting companies can develop new technologies, strategies, or a better business model it seems clear that the likes of Directv and Dish will continue to dominate the market.

Not asking for help can be a problem

In every industry, growth and profitability are reliant on how a firm manages and allocates its resources.  Top and middle level managers are often the people responsible for ensuring that their particular firm remains competitive and profitable for its shareholders.  Sometimes the best resources a firm can attain comes from outside help.  Of course everyone has heard of outsourcing and how the use of it can make a company more profitable by having goods or services produced outside of the firm.  

Another way a firm can use outside sources is by acquiring new business models from companies who operate in the same types of industries.  This is exactly what Directv did in order to be able to meet customer    demands as well as sustain growth for the future.  Directv partnered with CSC in order to develop this new business model.  CSC is a global consulting group that helps companies develop technology-enabled solutions to help companies meet their specific goals and needs.  With the help of CSC, Directv was able to introduce a new business model regarding their supply chain that would lower costs and allow Directv to install and fulfill customer orders in a shorter response time.  According to Michael Bek, a senior manager in CSC's supply chain division,

                      "Directv's order fulfillment volume increased 300 percent with only a single-digit personnel increase. Recovery and repair costs dropped by more than 10 percent, and processing time for customer credits decreased by 85 percent. Directv also began redeploying refurbished hardware back into distribution channels, saving millions of dollars in deferred purchases of new hardware."

Into the future...

Directv strives to be an innovator in the technology that provides its customers with the best possible television experience.  In the past, they have done this by providing users with the highest quality satellites available in the market and supplying the clearest premium and local HD channels.  Since we are living in a growing mobile society Directv plans to improve their mobile telephone application by allowing users to use voice recognition software to change channels or search for particular programming.  This is one way Directv is trying to stay ahead of its major competition in the future.

In 2007, Directv acquired technology that would allow its users to skip television commercials, however they have not decided to implement it to date.  Directv's CEO, Michael White, is showing great leadership for the company by not implementing the technology until lawsuits play out stemming from Dish using the technology as a negotiation tactic in order to gain cheaper prices from programmers.  Mr. White plans to keep Directv out of the legal ramifications associated with the technology while also letting Dish test the consumer market.  Directv and Mr. White are basically letting the competition do all of its dirty work for them while they sit idly by ready to pounce.  
 

Directv is an American digital television service provider that broadcasts to almost 20 million customers in the United States and Latin America.  Its major competitors are Dish and local cable television providers.  Directv has always tried to differentiate itself from its competition by offering the best digital programming available in the marketplace.  One way that Directv stands out from its competition is by offering the most HD channels and by offering premier sports packages such as NFL Sunday Ticket.  From a corporate standpoint, Directv has been involved with mergers and acquisitions since its inception.  Most notably, in 2002, Directv's merger with rival Dish was shot down by the FCC and Department of Justice because the government thought that this merger would be unfair for market competition.  Directv's business strategy has always been formulated around retaining customers while gaining new ones through promotions on programming packages.  Last year NFL Sunday Ticket was offered free for new customers while returning customers had to pay $299 in order to have Sunday Ticket for the second year.  This year, Directv is trying to regain some of the former Sunday Ticket patrons by offering a "lite" or "diet" version of the special sports package.  The "lite" version will be offered to customers for $199 but will not include the Redzone channel or certain mobile features.  By the end of September of this year we will be able to see if this strategy has worked or not...