Scott Mcnealy and Sun Microsystems

Abstract:

Scott McNealy had been the CEO of Sun Microsystems, a company that he had co-founded in 1984, for 22 years. In April 2006, he announced his decision to step down in favor of Sun's president and COO Jonathan Schwartz.

This case study discusses the various events at Sun under McNealy's leadership. It traces the company's growth from a small startup in the mid 1980s to one of the driving forces behind the internet economy in the 1990s. It also talks about the events that led to Sun's decline in the early 2000s, and McNealy' failure to arrest this decline. The case concludes with a discussion of the leadership change at Sun and whether Schwartz was the right person to give the ailing company a new lease of life.

Questions:

1. Assuming that you were hired as a consultant to the Sun board of directors, describe what should be done with the Sun management team.  Make it clear whether the management team should be changed or whether economic and technological circumstances have caused the problems at Sun, meaning the current management team can still lead Sun to success.

INTRODUCTION

"Scott (McNealy) is kind of like Moses. (He) led the world to the land of milk and honey, but he got left behind."

- Paul Saffo, director, Institute for the Future,1 in 2004.2

"Sun has been a labor of love for me for since 1982 and it has been an honor and privilege to serve as its CEO for the past 22 years. We've helped shape the industry as it is today, and the opportunities before us are immense."2

- Scott McNealy, co-founder, chairman and former CEO of Sun Microsystems, in 2006.3

The End of an ERA

In April 2006, Scott McNealy (McNealy), the co-founder of Sun Microsystems, Inc. (Sun), announced that he would step down as the CEO of Sun in favor of the company's president and Chief Operating Officer (COO) Jonathan Schwartz (Schwartz). This was significant news for the IT industry, as McNealy had been at the helm of Sun for the last 22 years and had steered the company through a series of ups and downs in the industry.

The announcement was made on the same day that Sun announced a loss of $217 million4 for the quarter ended March 31st 2006, (taking the company's cumulative losses since 2002 to a staggering $4.5 billion).

It was not a surprise as Wall Street had been calling for McNealy's resignation since the early 2000s when Sun first went into decline following the bursting of the dotcom and telecom bubbles in 2000 and 2001 respectively. Between fiscal years 2001 and 20055, Sun saw its sales fall 39 percent and its share price plummet from a peak of $64 in mid 2002 to around $4 by 2005. Following the announcement of McNealy's exit, the stock gained 8.6 percent in extended trading and reached its highest level of the year at $5.41 (Refer Exhibit I for Sun's share prices).

McNealy said that the leadership change was a part of the company's succession planning efforts, and that he was looking forward to playing the role of 'chief evangelist' within Sun. However, some analysts felt that that the board had forced McNealy to step down under intense pressure from Wall Street over the company's poor financial performance.

McNealy was to continue as the chairman of Sun's board as well as chairman of the board of Sun Federal, Inc.6 McNealy was as well known in the IT industry for his visionary leadership of Sun in the 1980s and 1990s, as for his witty takes on competitors, especially Microsoft Corp. (Microsoft)...

He was one of the most controversial leaders in the industry, but even his harshest critics could not deny that he played a pivotal role in shaping the future of computing. It was not surprising therefore that when the leadership change at Sun was announced, analysts said it was 'the end of an era'in the history of the IT industry.

Background

McNealy was born on November 13, 1954 in Indiana. His father, William McNealy was vice chairman at American Motors Corp. (AMC).7 As a child, McNealy took an avid interest in the auto industry - an interest encouraged by his father, who often discussed business with the youngster and allowed him to accompany him when he went to play golf with people like Lee A. Iacocca.8

After attending Cranbrook Kingswood School, a preparatory school near Detroit, McNealy was accepted at Harvard University, from where he graduated with a degree in Economics in 1976. He then tried for a place at Stanford Graduate School of Business (Stanford) but was rejected.

While trying for an admission into Stanford, McNealy took up a job as foreman at the Rockwell International Corp. (Ohio), which made body panels for trucks. When he eventually got into Stanford in 1978, he chose to specialize in manufacturing rather than the more popular finance. He was not a dedicated student and later admitted that he spent more time 'goofing off' than in classes.

One of his classmates recalled that McNealy never bothered to attend any class that he did not think would help him get a job. At that point McNealy was not ambitious. Reportedly, his ambition was to start a small machine shop that he could leave to his children, and then, to retire early. After graduating in 1980, he worked in the manufacturing departments of FMC Corp. (which made tanks for the US army) and of minicomputer maker Onyx Systems. In 1982, Vinod Khosla (Khosla), McNealy's classmate at Stanford, asked him to join him, Andy Bechtolsheim (Bechtolsheim) and Bill Joy (Joy) in starting a computer manufacturing unit to make and sell workstations operating on UNIX.

The Golden Years

It was McNealy's dynamism and vision that were largely responsible for Sun's rapid growth in the first two decades of the company's existence. When McNealy first joined Sun, he was in charge of manufacturing, but later became responsible for sales as well. This helped him develop a good understanding of different areas of the business. After McNealy became CEO in 1984, he played an important role in shaping Sun's vision that 'The Network is the Computer'. Sun was committed to developing technologies that would allow computers to connect seamlessly over a network, thus increasing their power tremendously. Networking would allow computing to be provided like a utility, just like electricity and telecommunications..

The Decline

The beginning of the new millennium turned out to be inauspicious for the US economy. The collapse of several dotcom and telecom companies combined with the September 11 terrorist attacks on the US sent the economy into a decline, and one of the worst affected by these adversities was the IT industry...

Conclusion

According to analysts, Sun could have become one of the giants of the IT industry, on par with IBM and Microsoft. Many concepts that had become the standard in the early 2000s, like networking and open source, were first popularized by Sun. But the company took some missteps along the way, which did not allow it to take advantage of its resources. "They've (Sun) always had lots of great things on paper. But when it comes to execution, they're lacking. They always seem to be behind where they need to be" said Gary Feierstein, vice-president for information technology at Premier Inc., a hospital management company.

in python: (can use ntlk)

Given the following documents:

• Can we go to Disney??!!!!!! Let's go on a plane!

• The New England Patriots won the Super Bowl..

• I HATE going to school so early

• When will I be considered an adult?

• I want to go to A&M, Baylor, or the University of Texas.

Conduct punctuation removal, stop word removal, casefolding, lemmatization, stemming on the documents.

Which school of economic thought originated in the 1930s and argued that the key to overcoming the Great Depression was to have the Federal Government borrow more money and spend it on various programs, such as public infrastructure projects, in order to increase the economy’s total monetary demand for commodities and labor?

1 Which of the following is an advantage of having a single set of accounting standards used worldwide?

A. Reduced accounting costs for multinational corporations

B. Increased power of the FASB

C. Reduced number of multinational corporations on the NYSE

D. Increased diversity of accounting methods used by multinational corporations

2 The accounting standards in code law countries tend to be:

A. very detailed.

B. formulated by organizations such as the FASB.

C. stated generally without much guidance on accounting procedures.

D. very conservative.

3 What is the likely result when accounting rules are left up to professional associations

rather than being legislated by governmental bodies?

A. Very general accounting rules are created, as in code law countries.

B. Very detailed rules for practice are created, as in common law countries.

C. Very general accounting rules are created, as in common law countries.

D. Very detailed rules for practice are created, as in code law countries.

4Historical cost is the primary basis for asset valuation under U.S. GAAP. 

Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.?

A. Historical costs are too difficult to calculate in the currencies used in Central and South America.

B. The countries of Latin America have experienced very high rates of inflation,

which would make historical costs meaningless to readers of financial statements.

C. There is very little foreign direct investment in the countries of Latin America,

so few assets need to be accounted for.

D. In Latin America, asset prices are very stable, making historical costs ,

so it doesn't matter which valuation basis is used.

5Which of the following statements is true about accounting convergence?

A. Convergence is a synonym for harmonization.

B. Convergence is the opposite of standardization.

C. Convergence, unlike harmonization, takes place over a period of time.

D. Convergence means developing high-quality standards in partnership with national standards.

6 Which of the following statements is believed to be true about accounting convergence

by proponents of convergence?

A. Convergence would not affect the feelings of nationalism.

B. Convergence is desirable because there is very little difference among capital markets

in different countries.

C. Convergence would help to raise the quality of accounting practices internationally.

D. None of the above statements is true.

7Why does the IASB believe that a principles-based approach to standard setting 

is superior to a rules-based approach?

A. Detailed guidance or rules encourage accountants to look for ways around the rules

rather than trying to provide useful information.

B. Principles-based standard setting is less costly to undertake than rules

-based standard formulation.

C. It is desirable to have all corporations in all countries using the same accounting practice.

D. A conceptual framework for standard setting has demonstrated to encourage

the greatest economic development.

8 If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:

A. annual revaluations must be performed on each class of assets.

B. it must update the valuation so that the balance sheet represents fair value

on the balance sheet date.

C. appraisals must be performed by an official of the IASB.

D. the depreciated replacement cost must be used as the fair value of the fixed asset.

Suppose body mass index (BMI) varies approximately to the normal distribution in a population of boys aged 2-20. A national survey analyzed the BMI for American adolescents in this age range and found the µ=20 and the σ=1.75.

A) What is the 25^th percentile of this distribution?

B) What is the z-score corresponding to finding a boy with at least a BMI 18.25?

C) What is the probability of finding a boy with at least this BMI, 18.25?

Calculate the sample variance and sample standard deviation for the following frequency distribution of heights in centimeters for a sample of 8-year-old boys. If necessary, round to one more decimal place than the largest number of decimal places given in the data.

Heights in Centimeters

Class Frequency

120.6 - 123.6 26

123.7 - 126.7 22

126.8--129.8 34

129.9-132.9 26

133-136 44

In these trying times, I’m thinking about starting my own school – the Redman Academy. The school day will consist of 3 periods each day and the school will offer 10 different courses. Each student enrolls in 3 courses per semester and each course is taught during every period (i.e., each course is taught 3 times per day). Students pick classes and but are assigned a period. Courses have no prerequisites

a) As a new student, how many different lists of three courses could you submit to the registrar?

b) You and your best friend choose the same three courses. What is the probability that you have the exact same schedule (i.e., you are assigned the same periods for each of the three classes.)?

c) Your lazy friend randomly selected 3 courses and is relying on you for copies of class notes. What is the probability that you and your lazy friend share 2 of the same courses (they don’t necessarily have to be the exact same period)?

d) Still considering the last problem with your lazy friend, what is the probability that you share no classes?

Answer each of the following questions in your submission for this part of the project:

1. List your 4 variables from the Consensus at School (opens in a new window) and state whether they are qualitative or quantitative.
2. Using your four variables, write your two questions you will analyze based on data from Census at School.
3. What is your population?
4. What type of sampling will you use to gather your data (stratified or simple random)?
5. What is cluster sampling and why would this type of sampling not work for this type of data gathering? What would it look like to use systematic sampling for this data?

Answer the following questions by entering your response in the space provided below.

1. What are your two questions you would like to analyze based on data from Census at School?
2. List your 4 variables and whether they are qualitative or quantitative.
3. What is your population?
4. What type of sampling will you use to gather your data (stratified or simple random)?
5. What is cluster sampling and why would this type of sampling not work for this type of data gathering? What would it look like to use systematic sampling for this data?

A student who expects to graduate from Wichita State University in May of 2019 is considering whether to go on to graduate school. Which three (3) of the following are opportunity costs that the student must consider in deciding whether to go to graduate school?

The $250 the student spend last year on books while working on her undergraduate degree?

The $35,000 per year that she would make if she accepts a job that will be available to her after graduating with her undergraduate degree.

The $350 she plans to spend to fix the brakes on the car she is currently using to get to the Wichita State campus.

The $6,000 per year in tuition for her graduate degree.

The value of the time she would like to spend with her family on weekends instead of studying while working on her graduate degree.

The $900 she plans to spend on a trip to New York City with friends to celebrate after she graduates in May of 2019.

The $150 per month she spends on dog care for the dog she plans to keep regardless of whether she goes to graduate school or works next year.

The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.02 percent?