Articles and Exercises

	1999 Articles "Remaking Microsoft," Business Week "Time to Buy Net Stocks," Business Week "Coke's Man On The Spot," Business Week "EDS Cuts 4% of Its Work Force, Reports a Loss," The Wall Street Journal "To a Pile of CEO Perks, Add the 'Special' Bonus," The Wall Street Journal "Companies Are Laying Off Economists," The Wall Street Journal "Disney Says Profit Tumbled 41%, Vows More Cost-Cutting Efforts," The Wall Street Journal   1998 Articles "Economic Trends: Downsizing's Economic Spin," Business Week "Does TWA Need a New Captain?" BusinessWeek "When is a Temp Not a Temp?" BusinessWeek "GM Turns to Computers to Cut Development Costs," The Wall Street Journal "Reviving the Not-So-Wonderful World of Disney," The Wall Street Journal, "Doubts Grow Over Banc One's Skill With Cost Scalpel," The Wall Street Journal   Other Selected Articles, Some With Multiple References
"Remaking Microsoft," Business Week, May 17, 1999.
Overview	Vision Version 2, the new plan developed by Microsoft Chairman, Bill Gates and his co-leader, Steve Ballmer, may dramatically change the way the firm does business. As part of the plan, Microsoft will change its motto from "a PC on every desk and in every home" to "giving people the power to do anything they want, anywhere they want, and on any device." According to the article, Microsoft is adapting to the Internet by developing software that does not focus exclusively on the Windows platform. The firm is also changing its organizational structure.
Discussion Questions	Q1: Describe Microsoft's pre-Vision Version 2 organizational structure. Q2: How will Vision 2 change the firm's structure? Q3: What is Steve Ballmer's number one priority? Q4: How is Microsoft attempting to satisfy customer demand?
Suggested Solutions	Q1: According to the article, Microsoft has about 30,000 employees, 183 products, and five management layers. Q2: The firm will create the following eight new divisions: Business and Enterprise Division - focuses on corporate customers Business Productivity Group - develops handheld computer software Developer Group - develops corporate applications Consumer and Commerce Group - focuses on WWW links Home and Retail Division - designs home applications and children's software Consumer Windows Division - makes easy-to-use applications Sales and Support Group - focuses on sales and customer service Microsoft Research Division - performs basic research Q3: Steve Ballmer's primary focus is on the customer. Q4: One of Microsoft's priorities involves making the PC easier to use. Software programmers are developing a software package, called Neptune, which will make computing easier for novices. The program will facilitate letter writing and checkbook balancing.
"Time to Buy Net Stocks," Business Week, May 17, 1999.
Overview	The article provides two opposing Internet stock buy/hold/sell recommendations. Dean Foust, Atlanta bureau chief, believes that investors should not buy Internet stocks and that current owners of Internet issues should "dump them" and not look back. Linda Himelstein, Silicon Valley bureau chief, thinks that current Internet stock valuations can be justified.
Discussion Questions	Q1: According to Dean Foust, what poses a threat to Internet companies? Q2: How does the Internet sector compare with other U.S. equities? Japanese financial markets? Q3: How does employee productivity for e-Bay compare with Wal-Mart? Q4: What figures does Linda Himelstein use to support her position?
Suggested Solutions	Q1: Due to the low-cost of market entry, low-cost upstarts may be able to provide similar services at lower prices. In addition, current Internet powerhouses are entering other markets and undercutting the competition. For example, Yahoo!, the Internet search engine company, is providing free on-line auction services for which e-Bay charges a 2.5% commission. Q2: According to Stephen S. Roach, a Morgan Stanley Dean Witter economist, the $2 trillion value attached to net stocks is roughly 20% of all U.S. equities and equal to the combined value of three-fourths of all the companies in the Japanese stock market. Q3: Revenue per employee for e-Bay is $690,000 which is four times that of Wal-Mart. Q4: The Silicon Valley bureau chief site the following growth statistics: 1998 / 2003 (est.) Internet Users 160 million / 500 million Online Consumer Spending $50 million / $1.3 trillion
"Coke's Man On The Spot," Business Week, May 3, 1999.
Overview	Global economic problems including the Asian economic crisis have thrown Coca-Cola, Co. into a tailspin. According to the article, during the last twelve months, Coke has experienced near-zero growth in Japan and Brazil which are two of Coke's largest markets overseas. In Russia, the company's production facilities are operating at 50% of capacity. ___In addition to the aforementioned problems, Coca-Cola's new Chairman, M. Douglas Ivester, a former accountant who is known for his creative problem abilities and attention to nitty-gritty details, is facing increasing competition from Pepsi and low-cost brands.
Discussion Questions	Q1: What are Coke's major challenges and proposed solutions? Q2: What percent of Coke's profits are derived from overseas operations? Q3: What is Chairman Ivester's goal with respect to U.S. consumption? Q4: How much did Coke pay for sales rights in a Michigan school district?
Suggested Solutions	Q1: Below are the challenges and solutions outlined in the article. Challenge Solution U.S. Markets are Saturated Make Coke More Available Overseas Consumption is Decreasing "Cheaper Packaging and Smaller Servings" Acquisitions (e.g. Orangina) Face Regulatory Hurdles Coke will Make Concessions Pepsi Coke will attempt to Sign Exclusivity Deals Q2: According to the article, "Coke derives more than three-fourths of its profits and 71% of its growth from international operations." Q3: The Chairman's goal is to increase annual per capita consumption by 25%. Q4: Coke paid what amounted to $28 per pupil annually.
"EDS Cuts 4% of Its Work Force, Reports a Loss," The Wall Street Journal, April 30, 1999.
Overview	Electronic Data Systems Corp. (EDS) announced that it eliminated 5,200 jobs in order to lower expenses. The cuts, which amount to over 4% of its 120,000 employee work force, come mostly from its technical and administrative staff. ___In addition to the $380 million earnings charge resulting from its staff reductions, the firm's income will also be adversely affected when EDS closes some of its plants and sells "underperforming businesses."
Discussion Questions	Q1: What business products/services does EDS provide? Q2: Do the staff reductions mark the end of EDS's cost-cutting program? Q3: When were the staff reductions announced? Q4: What portion of EDS revenues are derived from its activities with General Motors?
Suggested Solutions	Q1: EDS provides management consulting services, computer outsourcing, systems integration, and electronic commerce consulting. Q2: No. The firm expects to trim another $1 billion from its annual operating budget. Q3: The staff reductions were announced after trading closed on Thursday, April 19, 1999. EDS's stock price fell by almost $2 per share on Thursday. Q4: According to the article, EDS derives about 25% of its revenues from work for General Motors.
"To a Pile of CEO Perks, Add the 'Special' Bonus," The Wall Street Journal, April 29, 1999.
Overview	In addition to a salary, bonus and stock option plan, chief executive officers are receiving "special bonuses." The special bonuses are given to executives in recognition for outstanding achievement. One example of such a plan involves Tokheim Corp., which according to the article, awarded its CEO a $150,000 bonus for " 'directing and accomplishing' an acquisition."
Discussion Questions	Q1: Are special bonuses disclosed to shareholders? If so, how? Q2: What percent of top executives received a special award? Q3: How have companies justified such awards? Q4: Is everyone in agreement that the awards are deserved?
Suggested Solutions	Q1: Yes. The awards can be found in the firm's proxy statements. Q2: According to a William M. Mercer survey which analyzed statements of 350 U.S. companies, almost 10% of companies give special awards. Q3: According to the article, Lucent Technologies gave its CEO a special bonus of $7.4 million plus options because he had "personally led the company's efforts to create a high-performance operating environment and an open, supportive and diverse workplace." Q4: No. The article quotes an executive pay consultant as saying that Lucent's special bonus "offers a vivid illustration of how out of control things have gotten in the world of executive compensation."
"Companies Are Laying Off Economists," The Wall Street Journal, April 29, 1999.
Overview	Recently, firms have been reducing the size of their economics departments. Bank mergers and general dissatisfaction with economic forecasts have been cited as reasons for the trend. According to the article, BankAmerica eliminated its 21-person economics group and Wells-Fargo cut a dozen economists from its staff before merging with Northwest Corporation.
Discussion Questions	Q1: What happened to Citibank's economics staff when Citicorp and Travelers merged? Q2: What other factor explains the recent layoffs? Q3: How has the Internet affected the nature of an economist's jobs? Q4: How has an industry economist's job changed? Q5: Who is hiring the displaced economists?
Suggested Solutions	Q1: Citibank's 120-person economics staff was eliminated. Q2: According to the article, CEO's no longer need the "coaching of an economist." Q3: Caroline Scott of McCoy and Scott consulting is quoted as saying that Web sites now contain free data that can be downloaded into a firm's spreadsheet or modeling program. Prior to the WWW, an important part of an economist's job was gathering data. Q4: According to the article, an economist must provide information that is useful for management. Q5: Accounting and consulting firms are hiring some of the laid off economists.
"Disney Says Profit Tumbled 41%, Vows More Cost-Cutting Efforts," The Wall Street Journal, April 28, 1999.
Overview	Disney's second-quarter results reveal a 41% decline in profits as compared to its second quarter last year. The company's CEO, Michael Eisner, disappointed by the results, promised further cost cuts. ___Michael Eisner announced that Disney will attempt to improve efficiency, increase cash flow and position itself for long-term growth. The disappointing earnings results were followed by a 7.1% decline in stock price.
Discussion Questions	Q1: What factors explain the decline in profits? Q2: How will Michael Eisner improve Disney's financial performance? Q3: Which divisions and products have been targeted for improvement? Q4: What is on the horizon for Disney's theme park unit?
Suggested Solutions	Q1: Sales in Disney's consumer products and home-video segments have been lagging. Q2: According to the article, Chairman Eisner pledged "an across-the-board assessment" of its cost structure. Q3: Listed below are areas Disney has and will investigate in order to improve its performance. Cost Cutting Program Is Already Underway - Feature-Animation Unit - Movie Studio - Theme Park Division Cost Cutting Program To Be Initiated - ABC Broadcast Network - Disney Corporate Operations Other Areas Of Concern - Consumer Products - Home Video Q4: Seagram Co. and Rank PLC are building a new theme park in Orlando, Florida. The park is expected to draw some customers away from Disney.
"Economic Trends: Downsizing's Economic Spin," Business Week, December 28, 1998.
Overview	According to a recent survey, U.S. corporate layoffs in 1998 increased by 50% as compared to a similar period in 1997. The Asian economic crisis and U.S. corporations' desire to maintain a competitive position in the global economy are factors that explain the increase.
Discussion Questions	Q1: How does increasing competition affect a firm's decision to cut its workforce? Q2: How could the layoffs hurt U.S. companies?
Suggested Solutions	Q1: Firms in a globally competitive environment face increasing profit pressure which could lead to a decision to cut costs through job reductions. Q2: According to the article, the effect of the layoffs could spiral. Laid off workers might spend less which would lower demand for U.S. products and lead to more layoffs. In addition, if economies such as Asia grow quickly, firms may not be able to meet the increased demand in the short run.
"Does TWA Need a New Captain?" BusinessWeek, December 28, 1998.
Overview	According to the article, TWA will report a loss in 1998 despite increasing demand and lower fuel costs. In an effort to improve the airline's competitive position and stall the firm's declining share price, some TWA employees and a leading union are calling for the chairman's resignation.
Discussion Questions	Q1: One investor group criticized TWA for its inability to "use their yield management system effectively". The system assists TWA in finding the best product mix which includes corporate and discount vacation fares. Explain how TWAs failure to produce the right product mix effects operating results.
Suggested Solutions	Q1: According to the article, TWA focused too much on the high paying corporate customers and not enough on the discount-oriented vacationers. The result was excess capacity (i.e., empty seats), lost revenues and lower profit.
"When is a Temp Not a Temp?" BusinessWeek, December 7, 1998.
Overview	Reengineering trends of the '80s and '90s included labor outsourcing. According to the article, independent contractors and temporary workers replaced many permanent salaried employees. Recently, courts have ruled that, in certain instances, independent contractors and temporary workers were common law employees who are entitled to the same benefits received by full-time employees.
Discussion Questions	Q1: How can a firm avoid the extra cost of providing benefits to temporary workers and independent contractors? Q2: What type of analysis could a firm perform in deciding whether it is appropriate to hire non-permanent staff?
Suggested Solutions	Q1: According to the article, the firm must relinquish a substantial degree of managerial control over temporary staff in order to avoid having them be considered full-time employees. Q2: This is not an easy question to answer. There are several possibilities. A firm could perform a cost-benefit analysis in which benefits are cost savings and costs are items such as learning, rework, and down time. The cost items may be more difficult to quantify and trace to a particular worker.
"GM Turns to Computers to Cut Development Costs," The Wall Street Journal, October 12,1998.
Overview	The article highlights General Motors (GM) $1 billion a year investment in computer systems that is expected to reduce new product development costs by $200 million per new vehicle program. The computer system contains math-based design tools that could eventually allow GM to implement an 18-month design-to-production program.
Discussion Questions	Q1: How will the new software reduce costs? Q2: What factor(s) lead to GM's decision to invest so heavily in computer engineering?
Suggested Solutions	Q1: The new software replaces physical models, reduces the number of engineering changes, shortens lead times, and allows problems to be solved in a virtual factory in place of a physical plant. Q2: Global competition may have been a critical factor that lead to GM's decision to spend $1 billion a year on computer software and hardware. Ford and Chrysler have similar computer models.
"Reviving the Not-So-Wonderful World of Disney," The Wall Street Journal, September 24, 1998.
Overview	Disney's profit growth has been hurt by the Asian crisis, lack of current movie hits such as Lion King, and increasing labor costs. Some of the rise in labor costs can be attributed to animation artists' salaries which have recently, nearly doubled.
Discussion Questions	Q1: List ways in which Disney can try to maintain its previously outstanding profit growth. Q2: How can Disney control animation artists' salaries?
Suggested Solutions	Q1: The article outlines Disney's strategy to improve profit growth. Disney is attempting to grow by: 1) building regional entertainment facilities; 2) expanding its cruise ship and theater facilities; 3) entering the Internet market; 4) reintroducing classic products; and 5) cutting and/or containing costs. Q2: The article lists several possibilities including replacing labor with computers and reducing overtime.
"Doubts Grow Over Banc One's Skill With Cost Scalpel," The Wall Street Journal, August 3, 1998.
Overview	Banc One aggressive cost cutting plan is falling short of expectations which is causing concern among investors. John McCoy, Banc One's CEO, promised a nearly $1 billion reduction in annual expenses after the firm merges with First Chicago NBD Corporation. Early in 1998, information surfaced which indicated that cost savings would be 22% below expectations.
Discussion Questions	Q1: The article states that computer problems were one of the reasons why Banc One would not be able to achieve its cost reduction goal. List types of computer problems Banc One could be experiencing. Q2: Analysts compare banks using an efficiency ratio which equals operating expenses divided by revenues. What factors affect the ratio?
Suggested Solutions	Q1: Types of problems include Year 2000 problems and merger-related computer incompatibility. Q2: Factors that affect the ratio relate to the firm's operating, investment, and financing decisions. Accounting and customer-driven policies would also impact the ratio. In the first quarter of 1998, First Chicago and Banc One had efficiency ratios of 0.53 and 0.62, respectively.
"Remaking Microsoft," Business Week, May 17, 1999.
Overview	Vision Version 2, the new plan developed by Microsoft Chairman, Bill Gates and his co-leader, Steve Ballmer, may dramatically change the way the firm does business. As part of the plan, Microsoft will change its motto from "a PC on every desk and in every home" to "giving people the power to do anything they want, anywhere they want, and on any device." According to the article, Microsoft is adapting to the Internet by developing software that does not focus exclusively on the Windows platform. The firm is also changing its organizational structure.
Discussion Questions	Q1: Describe Microsoft's pre-Vision Version 2 organizational structure. Q2: How will Vision 2 change the firm's structure? Q3: What is Steve Ballmer's number one priority? Q4: How is Microsoft attempting to satisfy customer demand?
"Time to Buy Net Stocks: No or Yes?," Business Week, May 17, 1999. "Net Companies' Shares Are Sky High..." "...But So Is Their Growth"
Overview	The article provides two opposing Internet stock buy/hold/sell recommendations. Dean Foust, Atlanta bureau chief, believes that investors should not buy Internet stocks and that current owners of Internet issues should "dump them" and not look back. Linda Himelstein, Silicon Valley bureau chief, thinks that current Internet stock valuations can be justified.
Discussion Questions	Q1: According to Dean Foust, what poses a threat to Internet companies? Q2: How does the Internet sector compare with other U.S. equities? Japanese financial markets? Q3: How does employee productivity for e-Bay compare with Wal-Mart? Q4: What figures does Linda Himelstein use to support her position?
"Coke's Man On The Spot," Business Week, May 3, 1999. "They'd Like to Sell the World a Coke" "As Coke Sales Stall... Earnings Take a Hit... And the Stock Loses Its Fizz"
Overview	Global economic problems including the Asian economic crisis have thrown Coca-Cola, Co. into a tailspin. According to the article, during the last twelve months, Coke has experienced near-zero growth in Japan and Brazil which are two of Coke's largest markets overseas. In Russia, the company's production facilities are operating at 50% of capacity. ___In addition to the aforementioned problems, Coca-Cola's new Chairman, M. Douglas Ivester, a former accountant who is known for his creative problem abilities and attention to nitty-gritty details, is facing increasing competition from Pepsi and low-cost brands.
Discussion Questions	Q1: What are Coke's major challenges and proposed solutions? Q2: What percent of Coke's profits are derived from overseas operations? Q3: What is Chairman Ivester's goal with respect to U.S. consumption? Q4: How much did Coke pay for sales rights in a Michigan school district?
"EDS Cuts 4% of Its Work Force, Reports a Loss," The Wall Street Journal, April 30, 1999.
Overview	Electronic Data Systems Corp. (EDS) announced that it eliminated 5,200 jobs in order to lower expenses. The cuts, which amount to over 4% of its 120,000 employee work force, come mostly from its technical and administrative staff.
Discussion Questions	Q1: What business products/services does EDS provide? Q2: Do the staff reductions mark the end of EDS's cost-cutting program? Q3: When were the staff reductions announced? Q4: What portion of EDS revenues are derived from its activities with General Motors?
"To a Pile of CEO Perks, Add the ‘Special' Bonus," The Wall Street Journal, April 29, 1999.
Overview	In addition to a salary, bonus and stock option plan, chief executive officers are receiving "special bonuses." The special bonuses are given to executives in recognition for outstanding achievement. One example of such a plan involves Tokheim Corp., which according to the article, awarded its CEO a $150,000 bonus for " 'directing and accomplishing' an acquisition."
Discussion Questions	Q1: Are special bonuses disclosed to shareholders? If so, how? Q2: What percent of top executives received a special award? Q3: How have companies justified such awards? Q4: Is everyone in agreement that the awards are deserved?
"Companies Are Laying Off Economists," The Wall Street Journal, April 29, 1999.
Overview	Recently, firms have been reducing the size of their economics departments. Bank mergers and general dissatisfaction with economic forecasts have been cited as reasons for the trend. According to the article, BankAmerica eliminated its 21-person economics group and Wells-Fargo cut a dozen economists from its staff before merging with Northwest Corporation.
Discussion Questions	Q1: What happened to Citibank's economics staff when Citicorp and Travelers merged? Q2: What other factor explains the recent layoffs? Q3: How has the Internet affected the nature of an economist's jobs? Q4: How has an industry economist's job changed? Q5: Who is hiring the displaced economists?
"Disney Says Profit Tumbled 41%, Vows More Cost-Cutting Efforts," The Wall Street Journal, April 28, 1999.
Overview	Disney's second-quarter results reveal a 41% decline in profits as compared to its second quarter last year. The company's CEO, Michael Eisner, disappointed by the results, promised further cost cuts. ___Michael Eisner announced that Disney will attempt to improve efficiency, increase cash flow and position itself for long-term growth. The disappointing earnings results were followed by a 7.1% decline in stock price.
Discussion Questions	Q1: What factors explain the decline in profits? Q2: How will Michael Eisner improve Disney's financial performance? Q3: Which divisions and products have been targeted for improvement? Q4: What is on the horizon for Disney's theme park unit?