Failure in Successful Organizations: Marconi

Master’s Dissertation Proposal The Case Study of Marconi The following dissertation proposal previews and scouts ahead the major issues and themes involved in an exploratory study of the management failure of successful companies: in particular, the company Marconi. The central investigation of the proposal is this: how can a multi-billion pound companies like Marconi (similarly Enron, Parmalat, Bearings Bank etc.,) collapse so spectacularly and catastrophically. To what extent, and in what ways, did the management team of Marconi contribute to the collapse of the company? Which factors were decisive for failure: leadership, strategic errors, technological incompetence, public image mishandling? The proposal suggests a possible methodology according to which to a detailed investigation of the failures of Marconi may be explored; this methodology centres upon interviews and questionnaires undertaken with former Marconi staff and other management professionals. Further, the dissertation proposal reviews and suggests the key literature that should form the base of this exploratory investigation. Moreover, the literature review delimits the major theoretical and practical principals of management that emerge from the literature and asks how these might be applied most usefully to an understanding of the management failures of Marconi. A provisional bibliography is supplied as the basis for the full dissertation and investigation. The dissertation proposal suggests that results from these investigations should be analysed using PSS data analysis, graphs, charts, data-sheets and a variety of other forms of representation. Finally, the dissertation proposal suggests a conclusion section in which will be discussed possible implications of this Marconi investigation and the avenues for future research that it might open up. CONTENTS PAGE

A® Abstract

A® Contents Page

 

A® Section 1: Marconi Introduction

A® Section 2: Research Question A® Section 3: Research Aims & Objectives A® Section 4: Methodology A® Section 5: Literature Review A® Section 6: Discussion & Analysis A® Section 7: Bibliography A® Section 8: Conclusion Section 1: Marconi Introduction In 2001, at the height of the ‘internet boom’, Marconi was worth A£34 billion, its shares A£12.5 each, and it employed more than 90,000 staff; one year later the company was worth less than A£50 million, its shares 3.6p each, and it employed less than 3,000 staff (Brody & Dunstan, 2004). The obvious question: what engendered the calamitous collapse of one of Britain’s most respected and successful companies? To what extent were the management of Marconi responsible for the plummet of the company share-price? What was the role of leadership of the company, headed by Lord Simpson, in the free-fall of Marconi’s value? What were the key strategic errors that brought about the collapse? Did Marconi’s management’s handling of the crisis — particularly the handling of its public image —worsen the crisis’ seriousness? Was Marconi’s management guilty of a nave and too rapid transition into the telecommunications sector? Each of these questions are fascinating for the management student; and the pursuit of answers to these questions promises to uncover much valuable information about the causes and consequences of management failures in multi-billion pound companies. Although this dissertation shall focus on Marconi, it will be useful and enlightening to compare the management failures of Marconi with those of other spectacularly failed companies such as Enron, Parmalat, WorldCom, Bearings and so on. This comparison allows an analysis of whether Marconi’s failures were endemic, or whether they were typical failures of companies of such a size. Section 2: Research Questions The general title for this dissertation proposal is ‘An exploratory study of failure in successful organizations: the case study of Marconi’. From this broad title, a more specific and refined research question is put forward, namely: Was the spectacular failure of Marconi’s management due more to individual error, to strategic mistakes, to technological incompetence or to mismanagement of public image? Phrasing the research question in this way gives the ‘exploratory study’ four clear areas of investigation whilst leaving open exploration of further unnamed factors. The dissertation itself can treat each of these areas — individual error, strategy, technology, publicity — equally, or it can undertake an in-depth investigation of a single factor. Preliminary Discussion & Statement of Facts Turning to consider in turn each of these causes of failure at Marconi. Individual Error. Before 1997, under Lord Weinstock’s leadership, Marconi had a celebrated reputation as one of the most financially prudent, conservative and reliable companies on the London stock-exchange. Lord Weinstock had concentrated Marconi’s business around its defence contracts, and this approach had led to a gathering of cash reserves of A£2.6 billion and the future health and prosperity of the company seemed assured. But in 1997 Lord Weinstock was succeeded by Lord Simpson; a manager with a radically different style and interpretation of the future direction that Marconi should take. Five years later Marconi shares were worth 3.6p and the company had debts of A£4 billion. Strategic Mistakes. Once at the helm, Lord Simpson immediately began a rapid and expansive re-orientation of Marconi towards the telecommunications sector, where he envisaged Marconi as a specialist supplier of telecommunications equipment and services. Lord Simpson sold much of Marconi’s defence subsidiaries to BAe for A£6 billion so as to acquire telecommunications businesses. Lord Simpson bought Reltec for $2.1 billion, Fore Systems for $4.5 billion, and six further companies totalling A£265 million. Initially, during the internet boom, this decision led to a flourishing of the company, and in 2001 Marconi was worth an all-time high of A£34 billion. Nonetheless, when the miraculous conditions of the high-tech years began to wane, and when sales were slipping and customers buying Marconi’s products more hesitantly, the wisdom of this transit to telecommunications began to look much more dubious. This decision finally proved disastrous. On July 5th 2001, Marconi suspended its shares for an entire day — a highly unusual move for a major FTSE company. The next day, Lord Simpson announced that Marconi profits would be 50% lower than in 2000; extremely angry investors panicked and began to sell their shares immediately, causing a 54% drop in the share-price of the company. Technological Incompetence. After a few weeks of the crisis, the Marconi board finally realised that it must consolidate financial affairs for all of its companies; though it realised at the same time that doing this would be an extremely complicated and difficult matter. Desperately, in April 2001, thirty days before releasing its annual results, Marconi announced a restructuring plan that would be orchestrated by John Mayo. The central task of this restructuring was to be the ‘… elimination of duplicate information systems through the implementation of a single company-wide systems platform’ (Brody & Dunston, 2004: p68). John Mayo announced a $250 million deal with Oracle to provide this system; Oracle was chosen because ‘ . . . of the vision and understanding of our integrated business requirements, combined with the ability to implement them very fast’ (Brody & Dunstan, 2004: p.69). Nonetheless, the incompatibility of Oracle technology with Marconi businesses and Oracle’s lack of experience in this field led to an unsatisfactory system implementation and to the stalling of Marconi’s revovery. Publicity Mismanagement. Until the very eve of the crisis, Lord Simpson personally assured both Marconi share-holders and the stock-market that all was financially well with the company. Moreover, while other CEOs sensed the slowing of the market and took defensive measures accordingly, Lord Simpson continued an expensive acquisition of further communications companies. Further, the Marconi management insisted on restructuring and protecting their bonuses at a time when the company was losing billions. Section 3: Research Aims & Objectives The research aims and objectives of this dissertation will be as follows. (1) To set-down empirically testable hypotheses that will allow the corroboration or refutation of the dissertation research question. (2) To gather data — interviews, questionnaires, literature etc., — about the management failures that led to the collapse of Marconi. (3) To analyze the extant academic literature to see how theoretical principles and practical examples can be usefully applied to the Marconi case-study. (4) To analyze the results of the dissertation by a variety of PSS analysis graphs, charts, data-sheets and other forms of representation. (5) To present an authoritative and lucid discussion of the principal results of this investigation. (6) To elucidate the possible future investigations of management failure that might be undertaken on the basis of this dissertation. Section 4: Methodology The following methodology will be employed to gain answers to the questions posed by this dissertation proposal. As far as possible, the writer will arrange interviews with present and former members of staff at Marconi. These interviews will provide an invaluable first-hand source of information. In addition to interviews, questionnaires will be sent to other Marconi employees — thus widening the possible numbers of responses and so first-hand information. First-hand information will be supplemented by the management literature listed in the Bibliography section of this dissertation proposal. Management theory and practical applications relevant to the Marconi case-study will be derived from the academic books and journal articles discussed here, and these sources will allow for an interpretation of the causes and consequences of failure at Marconi. Gathered data will be analysed using PSS analysis, graphs, tables, pie-charts and other means of representation. The discussion of results will be undertaken in by essay analysis according to the four main aspects of the research question listed above: individual error, strategic mistakes, technological incompetence, and mismanagement of public image. The future consequences of these results will be put forth in the Conclusion section of the dissertation. Section 5: Literature Review In Section 7 of this dissertation proposal a provisional bibliography has been given as the basis for the full dissertation; this reading least will be supplemented by additional books and articles as they emerge from initial reading for the research questions. It is necessary here to discuss and speculate upon several issues raised by the literature material for this dissertation. Firstly, there is a paucity of academic books dealing specifically with the causes of the management failures of Marconi; there are many books which tackle the question at a general level. The dissertation will need therefore to rely heavily upon these general books, inferring appropriate management theories and examples to apply to the particular case study of Marconi. Further, it will be advantageous to make use of texts that discuss the collapse of other formerly highly successful but now defunct companies: for example, Enron, WorldCom, Parmalat and so on. Here, Brody and Dunstan’s The Great Telecoms Swindle: How The Collapse Of Worldcom Finally Exposed The Technology Myth may be of particular use. The book categorizes the typical and characteristic reasons for the failure of huge multi-national corporations; from this analysis it is possible to infer how similar Marconi’s were to the general model of failure. Of the general books, the following may be particularly illuminating for the Marconi case study. For a discussion of the stagnation of the telecommunications market in the early 2000’s three books are recommended. For a general overview of the subject: A. Dold’s (2002) The Essential Guide to Telecommunications charts the history of the telecommunications industry and its oscillating fortunes in the 1990’s and early 2000’s. Walters’ (2004) Spectacular Collapses: A History of Corporate Fraud and Fiascos and Jameson’s (2003). Ecstasy to Despair: Stagnation in the Telecommunications Industry both give excellent analyses of the unrealistic expectations placed by senior managements on the telecommunication companies, and then of the responses of various companies to this stagnation. The strategic errors and theoretical misapplications made by Marconi are explained at the general level by two seminal texts: Geshon’s (2001). Telecommunications Management: Industry Structures and Planning Strategies and Silverman’s (2002) Technological Restructuring and the Logic of Corporate Diversity. Geshon’s book introduces the subject of telecommunications management, its special features, its dangers, and the variety of management strategies that are most successful within the telecommunications sector. In the late 1990’s Lord Simpson presided over Marconi’s transition from a defence manufacturer to a telecommunications specialist; Silverman’s work highlights the logic behind such a transition, and explains the technical difficulties and pitfalls encountered when restructuring a company around a technological base. From this analysis, it is possible to highlight the strategic errors of the Marconi management team. Excellent accounts of the extent to which individual ambition, negligence and error can precipitate the failure of once successful companies are given in: G.R. Griffin’s (1991) Machiavelli on Management: Playing and Winning the Corporate Power Game and M.P. Spencer’s (1995). Corporate Misconduct: The Legal, Societal and Management Issues. Both Griffin and Spencer examine the huge managerial freedoms given to company chairmen and CEOs and the consequences for companies when such colossal figures make disastrous errors of judgement. Such considerations are particularly relevant to Marconi, where its corporate leadership was safe and secure under Lord Weinstock, but then degenerated and faced a total loss of financial respectability under Lord Simpson. On the question of the management of Marconi’s public image during the crisis, S.M. Oliver’s (2004) A Handbook of Corporate Communication and Public Relations: Pure and Applied is perhaps the best work of its kind. Oliver cites ten ‘golden principles’ of management of public image, ranging from ‘Rule 1: Do not excel credibility. Be honest’ to ‘Rule 6: Create and draw from a reservoir of good will’, and the application of these rules to Marconi shows that its management ignored or abused nearly every one of these rules. For instance, Lord Simpson publicly reassured investors of the financial soundness of the Marconi until the very last minute; thus Maroni far excelled its credibility and Lord Simpson was far from honest. The dissertation will use books like Oliver’s to show how the mismanagement of Marconi’s public and media image exasperated and compounded the individual and strategic errors of Marconi’s management team. It will explain how the tarnishing of public ‘perception’ of Marconi led to investors abandoning their shares in the company and their refusal to reinvest when the crisis was palliated by emergency measures. Finally, there are innumerable internet articles, spread over the past four years, which discuss the reasons for the management failures of Marconi. This abundance of internet sources is both an opportunity and a danger; the opportunity is that of gathering specific information about Marconi from analysts and commentators from the time of the collapse itself; the danger is the usual one associated with internet sources: their reliability. The profusion of articles on the internet, and the extreme ease with which they can be posted, often raises serious questions about the reliability and authoritativeness of these sources. Such sources must be used with some caution, and a greater margin of error acknowledged in their use. By using the above sources and others listed in the bibliography section of this dissertation proposal, the management student would have a sufficient and ample body of theory and practical examples upon which to construct his own case study into the management failures of Marconi. Section 6: Discussion & Analysis Results from interviews and questionnaires will be analysed quantitatively and qualitatively, using a variety of graphs, charts, diagrams, data-sheets and other means of representation. Interview and questionnaire sheets will be placed in appendices at the end of the dissertation. The discussion of these results will centre upon the four central causes of management failure in Marconi hypothesised in the Research Question section of this dissertation proposal: individual error, strategy mistakes, technological incompetence, and public image mismanagement. These hypotheses will be discussed in separate sections, where the individual literature relevant to that hypothesis will be brought to bear. A Literature Review section will highlight particular issues and special characteristics associated with the literature of the case study of Marconi; it will further discuss questions of source reliability, origin and so on. The final implications of these results will be determined and set in fresh relief in the Conclusion section of the dissertation — possible further future investigations that might be carried out on the back of this dissertation will also be discussed in the conclusion. Section 7: Suggested Bibliography

Academic Books, Journals & Articles

— Dewig, A.S. (1914). Corporate Promotions and Reorganizations. Harvard University Press, Massachusetts. — Brody, K & Dunstan, S. (2004). The Great Telecoms Swindle: How The Collapse Of Worldcom Finally Exposed The Technology Myth. Oxford University Press, Oxford. — Callaway, R.L. (1999). The Realities of Management: A View From the Trenches. Oxford University Press, Oxford. — Dold, A. (2002). The Essential Guide to Telecommunications. Javelin Press, New York. — Drucker, P.F. (1954). The Practice of Management. Harper & Row, New York. — Geshon, R.L. (2001). Telecommunications Management: Industry Structures and Planning Strategies. Lawrence Erlbaum Associates, New York. — Gratton, L. (1999). Strategic Human Resource Management: Corporate Rhetoric and Human Reality. Oxford University Press, Oxford. — Griffin, G.R. (1991). Machiavelli on Management: Playing and Winning the Corporate Power Game. Praeger Press, London. — Grunig, J.E. (1992). Excellence in Public Relations and Communications Management. Clarendon Press, Oxford. — Jameson, J. (2003). Ecstasy to Despair: Stagnation in the Telecommunications Industry. Clivedon Press, Dublin. — Klein, J.I. (2000). Corporate Failure by Design: Why Organizations Are Built to Fail. Quorum Books, London. — Mace, M.L. (1961). Management Problems of Corporate Acquisition. Harvard University Press, Massachusetts. — McChahery, J. (1994). Corporate Control and Accountability. Clarendon Press, Oxford. — Oden, H.W. (1997). Managing Corporate Culture: Innovation and Intrapreneurship. Quorum Books, London. — Oliver, S.M. (2004). A Handbook of Corporate Communication and Public Relations: Pure and Applied. Routledge, London. — Silverman, B.S. (2002). Technological Restructuring and the Logic of Corporate Diversity. Routledge, London. — Spencer, M.P. (1995). Corporate Misconduct: The Legal, Societal and Management Issues. Quorum Books, London. — Walters, B. (2004). Spectacular Collapses: A History of Corporate Fraud and Fiascos. Pneumbra Books, New York. Section 8: Conclusion The aforementioned dissertation proposal, by focusing in-depth on a single company, Marconi, promises to uncover much valuable information about the causes and the types of management failures that can lead to the collapse of vast multi-billion pound and once highly successful companies like Marconi, Enron, WorldCom and others. As is evident from the drastic job losses forced upon Marconi, the collapse of multi-billion-pound companies has profound consequences for their employees, for the companies themselves and for stock-markets and economies generally. Understanding the causes of such management failures is therefore vital for educating and training future managers to avoid repeating these hugely costly errors. The present dissertation proposal intends to examine four principal causes for the meltdown at Marconi, and by doing this discover which factor was of the singular greatest importance in bringing about the downfall of Marconi. It is further hoped that the results of this dissertation investigation will become a spring-board for other similar investigations into the failures of other companies similar to Marconi.

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