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IMT581 – Example: Organizational Response

by on October 5, 2010

Prof. Desouza raised a point about how most organizations responded to the recession by implementing cost-cutting measures – mainly layoffs – and the impact they can have. A student started a discussion by asking for examples of organizations that have responded well to the recession, and those that haven’t. I wanted to offer some examples of what I felt like were poor responses by organizations.

Yahoo and RIM both announced this year that they would be implementing a stock buyback. RIM plans to buy back 31 million shares (which is $1.54 billion USD @ current of $49.60), and Yahoo is buying back up to $3 billion USD over the next 3 years. Fred Wilson, a NYC VC, shares his opinion on why he dislikes stock buyback programs. In summary, the company could make better use of the money and invest in long-term value (e.g. new product lines) that could transform the company, rather than short-term value to shareholders.

Not directly related to the recession: When Mark Hurd was CEO of HP, he was able to increase their revenue from $80 billion USD to $115 billion USD (2009). As a result, stock prices more than doubled during his time at HP. However, the real reason behind his ousting started becoming clearer shortly after the press release (“official stance” was that he resigned because of a sexual harassment lawsuit that revealed fudged accounting statements). Hurd had increased revenue and profits, and the market responded by seeing HP’s stock more than double in value, but he had accomplished this by reducing costs, particularly R&D. To summarize, Hurd focused on short-term value through ruthless cost-cutting (e.g. layoffs, reducing R&D budget from ~8% of total revenue to ~2%) and sacrificed long-term value/growth in the process. HP is now desperately trying to fix the damage done by Hurd and regain their long-term strategy with R&D through acquisitions of companies like 3PAR and ArcSight – even if they have to pay a ~200% premium (3PAR’s stock was $10. HP offered $33 in a bidding war with Dell).

One Comment
  1. Thanks, Tim. These are good examples. It never seems to surprise me how short-sighted some executives and boards can be!

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