A Carleton S. Fiorina Finger Exercise
Brad DeLong catches
Tim Berners Lee Timothy B. Lee [h/t Bob in comments] being, to be nice, disingenuous:
…The idea was that [HP and Compaq] would be able to do the things they already did more effectively if they joined forces. Management consultants who examined the merger for HP found that (as Fiorina loved to put it) HP and Compaq ‘fit together like a zipper’…
Stop right there: when you are reduced to quoting management consultants hired to make the case for the deal the CEO wants to do, you are demonstrating that you have no good arguments.
Brad is being too nice. Here’s the Daniel Davies-style Finger Exercise:
- A CEO runs a company with an annual ROE of X. They are considering buying a company of similar size that (best case) products that might be complementary to—but also modular to—the company’s highest-margin good.
- The company to be aquired has a current annual ROE of Y. Y is significantly less than X, and the company’s primary market continues to become increasingly commoditized.
- The CEO tells you they are doing this in an attempt to increase the company’s margins (which should in turn increase company ROE).
1) Attempt to specify an algorithm that can justify your claimed expectations. Caution: use of negative coefficients is not permitted.
Use your results to answer the following questions:
2) Is there anyone with math skills greater than the average third-grader who couldn’t see at the time that this was sheer idiocy?*
3) Would you be surprised if that CEO were fired and never again offered the opportunity to run a company of any size?
4) Even granting West Coast bias, why would anyone looking at Fiorina’s performance at Lucent have been silly enough to offer her the job at HP in the first place?
*Exclude Carleton S. Fiorina and Michael Eisner from possible answers
As Maynard Handley reported in the comments to DeLong’s web posting,
“Timothy B Lee is NOT Tim Berners-Lee… “!
Brad subsequently corrected the name he used in hiw post.
Thank you. Correcting now.
Hind sight is great isn’t it. gobbling up you competition is nothing new if it works. Was the problem was fierce foreign in an already saturated market that was forced to make everything overseas. Apple found their niche in creative innovative ways and survived. My brother worked for Kaypro in the 80’s who also did not survive. Just a few short years ago much of the buzz was with Nextel’s walkie talkie that trumpted Motorola but today is all inside Sprint and Verizon. The point is very few execs or boards can really see what is coming next.
The poor dears. Maybe their human scale limitations will start governing their paychecks at some point.
Fiorina did worse to Lucent.
Her career is being Romney’s hatchet man dissolving otherwise solvent companies.
While her views of climate crisis say much about the reason employees and shareholders of Lucent and HP suffered.
I am familiar with the pillaging of Lucent and the subsequent fines from SEC.
Back in the 1960s and into the 1970s I was a DEC fan. Ken Olsen and his team had designed some pretty good gear, but by the early 1980s they were clueless. Their response to the PC was ridiculous. By the early 1990s their only asset was the Alpha processor chip (which I believe they sold to Intel). Basically, they were on death watch. There was no way I was going to spec DEC hardware for any serious project. When Compaq bought DEC, that put Compaq on death watch, and needless to say Compaq promptly imploded. I was amazed to see HP buy Compaq in turn. It was like watching a drowning man struggling for good grip on an anchor.
Do they teach DEC/Compaq/HP in business school these days? Granted, it doesn’t matter to a CEO. They usually win the lottery when they cash their signing bonus.