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In its FY 2005 Performance and Accountability Report_ the FCC

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					                                                                       Team 4 Paper on The Goal:
                                                                      Jenn Dismukes, Fran Meyer,
                                                                      Hiro Suetake, and Dasa York
                                                                                           IST 614
                                                                            Professor Bill Gibbons
                                                                                     June 12, 2006




                                 Applying the Theory of Constraints:

                       A Comparison of the Goal in the FCC, AOL, and Verizon




        In his book The Goal: a Process of Ongoing Improvement, Eliyahu M. Goldratt outlines

“The Theory of Constraints,” which can be summarized as a method of defining an

organization’s goal, identifying possible obstacles (or constraints) to the goal, and managing

operations so that all efforts are directed towards achieving or furthering the goal. In identifying

and managing obstacles or constraints, barriers are transformed so that they are no longer

impediments, but rather, steps towards fulfilling the goal. This paper will discuss the missions

of the Federal Communications Commission (or FCC), America On-Line (or AOL), and

Verizon, and will describe the various constraints that these companies must address to meet and

further their goals.

        In its “Fiscal Year 2005 Performance and Accountability Report,” the FCC (2005, p. 4)

defines their mission as ensuring “that Americans have access to rapid, efficient, nation- and

world-wide communication services, whether by radio, television, wire, satellite or cable, at

reasonable costs and without discrimination.” However, there are several constraints to its
mission, involving issues of distribution, money, people and process, changing environments and

technology, resources, and communication. For example, uneven distribution of new

technologies (such as broadband access in rural locations) provides a constraint to the goal of

providing rapid and efficient services to all Americans at a reasonable cost and without

discrimination to location. Changing technologies such as mobile, personal, and wireless

communication devices require effective management on the part of the FCC and require keen

oversight by regulators, as new technologies must not only be compatible with older

technologies, but also with concurrent developments. Additionally, according to the FCC (2005,

p. 7) changes in technology and types of media could entice companies to enter into mergers

which could destabilize the market, adversely affect competition, and result in higher consumer

costs. Consumer concern about the price of communications is a real issue and possible

constraint to the FCC in realizing its mission.

       The Office of Inspector General (2005) has reported on several long-term challenges and

constraints, which the FCC continues to struggle with, including investigations into fraud (p. 1),

an inability “to implement effective independent audit oversight of the USF [Universal Service

Fund] program because of inadequate resources” (p. 2), and poor financial reporting which

forces the FCC to scramble in a “massive, manually intensive effort to compile, analyze, and

correct its financial data to prepare accurate financial statements” (p. 5) at the end of each year.

These illustrate clear constraints relating to processes that hinder the FCC’s ability to maximize

its efficiency. Additionally, the FCC (2005, p. 166) reports the OIG found that its computer

systems are fairly insecure, that the FCC is not in line with Federal statutes, and that external

systems outsourced to private companies are not always aligned with FCC internal systems.

Further, the FCC (2005, p. 167) has not yet determined fully how many entities are subject to its




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regulation fees. Until the FCC can create an accurate foundation with which to base its fees, and

can solve its issues of disorganization and poor reporting, it will be unable to truly achieve its

goal of providing efficient service to Americans.

       AOL (2006, ¶ 1) states that the company’s mission is “to build a global medium as

central to people’s lives as the telephone or television… and even more valuable.” Additionally,

AOL (2006, ¶ 5) states that its goal is to build “the best possible- and most valuable- online

experience available anywhere.” In looking at the services AOL provides it is clear that the

company aims to build a vast communication, information, and entertainment empire that is also

perceived as safe and reliable. Further, while the company places emphasis on customer service,

their focus on the word “valuable” hints at an underlying, larger, goal of net profit. AOL, as a

company, however, has many constraints interfering with its goals, including issues relating to

resources, people, money, and change.

       According to Hamerly (2006, ¶ 2), AOL has suffered losses in dial-up access service

subscribers. While AOL partnered through Time Warner Cable to offer high speed broadband

services, Hamerly (2006, ¶ 4) observes that AOL “stopped offering broadband service after

determining its cost was not competitive.” Helm (2006, ¶ 1) reports that despite AOL’s efforts at

customer satisfaction, the company continues to lose subscribers “at a quickening pace” and also

that it exhibits “the slowest audience growth” among Internet service providers. While AOL has

tried to build its organization around customer satisfaction, it appears to have the least satisfied

customers. Despite AOL’s changes in service strategies, it seems the company is failing to meet

the demands of changes in the market. According to Hamerly (2006, ¶ 2), AOL has announced

plans to “cut 1,300 workers, or about 7% of its work force,” clearly showing constraints in terms

of resources, money, and people.




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     Verizon (n.d., ¶ 1) states that its mission is to be a profitable and leading communications

service provider, which works to “enable people and businesses to communicate with each

other.” Verizon (2006, p. 1), in their Annual Report, states that “Providing great service to

customers is our number-one priority” and its slogan “We never stop working for you” reflects

the company’s customer service centered theory of business. In focusing on customer service as

part of their mission, Verizon (2006, Your Code of Conduct, p. 2) has also adapted four core

values: integrity, respect, performance excellence, and accountability. As a result, processes

have been created to support these values, and upholding these standards may possibly create

bottlenecks.

     Overall, issues of regulation, people, resources, and money can be considered constraints

towards Verizon achieving its mission. For example, while regulations are necessary to maintain

fairness within the communications industry, they can create obstacles that can limit a

company’s ability to implement plans that might otherwise increase productivity or profit. In

terms of revenue growth, Verizon (2006, 2005 Annual Report, p. 14) is facing line losses in

traditional wireline voice services, and is focusing on redirecting growth in areas of wireless,

wireline broadband connections, and fiber optics. This loss indicates a constraint relating to

resources that are tied up in traditional wireline services. Verizon must now commit large

amounts of capital to build new infrastructure to support changes in technology and to respond to

new opportunities for growth, which illustrates a constraint in terms of money. Additionally,

Verizon (2006, 2005 Annual Report, p. 14) indicates that it is struggling with a constraint

relating to people and services. Their shift to self-service initiatives indicates that managing

their customer service call centers is expensive and that one-on-one support is not easily

scalable. Providing high quality personal customer service is incompatible with lowering costs,




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and as a result Verizon is pursuing alternative strategies.

     Overall, there are many common constraints among these three organizations. Keeping up

with rapid changes in technology is clearly a huge obstacle in that new technologies stimulate

changes that can create constraints in terms of resources and money. While both AOL and

Verizon face constraints from its resources being tied up in technologies that are quickly

becoming out of date, each must focus on adapting its strategies of business while also

maintaining cost effectiveness. Interestingly, the FCC and Verizon share a connection and

common constraint in dealing with regulations, and while the FCC is responsible for this

regulation, it has difficultly adhering to its own standards. Each of these organizations is also

large and therefore faces constraints relating to infrastructure. Issues of communication,

knowledge, and adaptability are all challenges of infrastructure and management in such

sprawling organizations.




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                                          References


AOL, LLC. (2006). Who We Are: Our Mission. Retrieved June 11, 2006 from
      http://www.corp.aol.com/whoweare/mission.shtml

Federal Communications Commission. (2005). Fiscal year 2005 Performance and
       Accountability Report. Washington, D.C.: Retrieved June 11, 2006 from
       http://www.fcc.gov/omd/strategicplan

Goldratt, E. M. (2004). The goal: A process of ongoing improvement. (3rd ed.). Great
       Barrington, MA: North River Press.

Hamerly, D. (2006). AOL, LLC Quick Report. Retrieved June 11, 2006 from Hoover’s Online.

Helm, B. (2006, May 4). The ails of AOL. [Electronic version]. BusinessWeek Online. Retrieved
      June 11, 2006 from
      http://www.businessweek.com/technology/content/may2006/tc20060504_747054.htm

Office Inspector General. (2005). Inspector General Statement on the Federal Communications
        Commission’s Major Management Challenges Fiscal Year 2005. Washington, D.C.:
        Retrieved June 11, 2006, from
        http://www.fcc.gov/oig/oigreportsaudit.html

Verizon. (n.d.). Verizon’s 2005 Interactive Annual Report: Guide. Retrieved June 11, 2006,
       from http://investor.verizon.com/financial/annual/2005/extra_guide.html

Verizon. (2006). 2005 Annual Report. Retrieved June 11, 2006, from
       http://investor.verizon.com/financial/annual/2005/extra_download.html

Verizon. (2006). Your Code of Conduct. Retrieved June 11, 2006, from
       http://www22.verizon.com/about/careers/pdfs/CodeOfConduct.pdf




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