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  Eddie, 18 Jul 2000 @ 5:29pm

  
  

  3Com's stupidity

  You got it right, Mike! If Wall Street had rewarded companies for stupidity of their executives 3Com would have been the most valuable company on earth! In 1997 Gordon Bethune the CEO of Continental Airlines had published a very interesting book “From the Worst to the First” about turning around his company. As loyal and satisfied Continental Airlines customer I can attest to the great accomplishment achieved by Gordon Bethune, his President and COO Greg Brenneman and their management team in transforming Continental Airlines from the US worst airline to one of the most respected and respectable companies. Why am I telling all this? Because there is no one more qualified than Eric Benhamou, CEO of 3Com to write a sequel to Gordon’s book. However, Eric’s sequel should probably be entitled: “From the Best to the Worst…” Indeed, Eric Benhamou, his President and COO Bruce Claflin and their management team managed to transform 3Com. However, their transformation was in the opposite direction. Once very successful and respected by customers, analysts, and employees, (3Com made the “Fortune 100 Best Places to Work” in 1998) was recently transformed to one of the worst hi-tech companies with some of the lowest levels of respect from customers, analysts, and one of industry’s highest employee turn-around ratio. Let’s take a look how did 3Com’s stunning management team succeed in this not so easy endeavor in the booming technology market. In my humble opinion, the reasons behind 3Com’s demise are quite simple and can be very precisely described by the famous Peter’s principle. And if you also add 3Com’s executives persistent refusal taking personal responsibility for failures you have got the recipe for destroying a once successful corporation even in the most favorable market conditions. Let’s take a closer look at the history of this calamity. During the last three years, the period of the most incredible Internet boom, 3Com - once a leader in networking technology - the company, founded by the inventor of the Ethernet (most powerful and widely implemented networking technology in the last 3 decades) was clearly searching for its identity. Just take a look at company’s banners during this very short period of time: first it was “Networks that go distance”, then it became: “From the edge to the core”, then it was “More connected”, then the short-lived “e-Networks”. But the “first prize” should probably go to the latest quite peculiar decision to change the once famous 3Com logo to three disconnected rings that generated some pretty interesting ideas as to what actually they are supposedly symbolize – take your pick: · 3Com’s disjoined business model? · “the 3 stooges”? · “more-or-less connected”? Not less “impressive” (and inconsistent) were the public appearances by 3Com’s executives: most notably Eric Benhamou, who used to be one of the top ten high-tech executives with most media appearances only few years ago. According to the ever-changing (and ever-waffling) 3Com’s public positions: · “Following the conquest of the networks’ edge 3Com is aggressively moving to network core” vs. “Network core becomes a commodity – edge is where the growth is” · “Storage Area Network is a high growth area we are going to focus” to be almost immediately replaced by an announcement about withdrawing from SAN as a risky investment-ravenous area. · “Palm is one of the core building blocks inherent in our networking strategy” only few months before the decision to spin-off Palm “to unlock 3Com’s stock value for the shareholders” I guess, after going over some of the specifics and quotes above, one is better equipped to grasp how did manage 3Com to “advance backwards” from Fortune magazine’s “one of the best” to one of the worst. In fact, 3Com’s board and Eric Benhamou personally realized they are going to need external help to turn the company around. So in 1998, they decided to bring on board Bruce Claflin - a seasoned executive with wealth of operational, sales, and marketing experience - as 3Com’s President and COO. I guess, looking at Bruce Claflin’s accomplishments and track record (with the IBM PC group – has anyone heard of them lately? and with Digital Equipment Corporation – no need for additional comments) Eric Benhamou and 3Com’s board felt very comfortable that the new President and COO of 3Com will help the company to turn around the corner – the real question was – were to??? Looks like all remaining questions were answered last March, when 3Com announced the so-called “end-of-life” for their “strategic large enterprise customers…” oops, I meant … “products”. Product lines, once so brilliantly designed by 3Com’s engineers (oftentimes being first to market) as the NetBuilder, CoreBuilder, and PathBuilder and so poorly marketed by 3Com’s pathetic marketing (or rather lack of thereof) were “killed” overnight to a huge surprise of the majority of so-called 3Com’s strategic customers. As part of the “brilliant” move and in order to “assist 3Com’s customers transitioning to equipment of their former competitor and newly defined “strategic partner” – Extreme Networks 3Com decided to “transition” several hundred of its employees to Extreme Networks. This engaging move one more time emphasized 3Com’s corporate values and commitment to (I quote): “treat customers, suppliers, partners, our communities and our employees as we would want to be treatedÑwith the highest standards of respect, truthfulness and integrity. 3Com will remain a special place to work. These values will set a direction for all our activities. Sometimes trade-offs must be made for which the values may seem in conflict. When this occurs, integrity will never be broken and customers first will be our primary guide.” By the way, about 80% of 3Com’s customers surveyed following the pitiful March 20, 2000 announcement decided not to follow 3Com’s recommendation to migrate to 3Com’s selected partners. And if one was wondering about the level of dignity and respect 3Com’s employees were treated, following are some interesting quotes from a Q&A distributed by 3Com’s HR: "You and your job have been transferred to Extreme Networks; therefore, you will have no loss of employment. If you turn down the Extreme Networks offer, your termination from 3Com will be treated as a voluntary termination, and you will not be eligible for either the notification period or the severance plan. In addition, you will not be eligible to apply for opportunities within 3Com..." To make it even more interesting, 3Com gave their employees between 1-3 days to review this so-called “offer.” Pretty interesting and noteworthy utilization of the term “voluntary”, one would think. The Q&A went further to say: "Extreme Networks is currently preparing transition letters that will match your current salary", a pretty interesting fact in itself considering no one of the “transitioned” employees authorized transfer of this sensitive information by 3Com’s HR to a third party. In fact, in many cases, disclosing this information prevented from transferees to get a more competitive compensation package with their new employer hand-picked by 3Com. Keeping in mind, slavery was banned in the US for quite some time one may ask where, for crying our loud, did 3Com get the idea their employees is property that can be transferred to a third party??? Another interesting fact is the terminology carefully selected by 3Com for this appalling process: who despite the facts: (a) people and human assets were transferred to third party; (b) no other choices were offered; (c) in return for this transaction 3Com received 1.5 million options of Extreme stock: 3Com insisted this action cannot be considered a sell of business unit. Why did they insist on semantics? Simply, because otherwise, according to their stock options plan, 50% of unvested stock options for every non-executive “transferee” would immediately become eligible for accelerated vesting, which at that time amounted to a significant amount for many “transferees”. At this point, several of the unhappy “transferees” contacted labor lawyers and HR consultants, which probably “helped” 3Com’s HR to change their original idea to redefine “voluntary resignation” and pay a two-month severance with full benefits for the involuntary transferees. Interestingly enough, in the “good” tradition of 3Com’s executive not accepting responsibility for major mistakes and blunders looks like no one was held responsible for this shameful and unconscionable event either. Going back to my original recommendation, I am confident, Eric Benhamou and his executive team should very seriously consider writing a sequel to Gordon Bethune’s “From the Worst to the First”. A book like “From the Best to the Worst” (by people who very well know the subject, “have been there and done that” on their own) is surely going to make a bestseller list in no time, which could probably help to “further unlock the value” of 3Com’s stock for their shareholders.

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  • 

    Cathy Hand, 4 Dec 2000 @ 10:39am

    
    

    Re: 3Com's stupidity

    
    Eddie, much appreciated the findings there about 3Com. I am a student in Dublin, Ireland and am specializing on 3Com for my final project. I found your opinions and research very interesting. I would like to hear more about 3Com if possible.
    
    Regards,
    Cathy Hand
    

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