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.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.649.

Median SAT score: mean = 1033.3, standard deviation = 80.1
Graduation rate: mean = 51.8, standard deviation = 13.7

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of  in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1028. Use the regression equation to estimate the graduation rate for Northern Michigan University.  

6. The recorded graduation rate for Northern Michigan University is 47.6. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. higher than
B. lower than
C. the same as
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. No, because 1455 is beyond the range of the data used to build the regression model.
B. No, because 98.610% is too large to be a reasonable graduation rate, even for an elite university.
C. Yes, because 1455 is a reasonable median SAT score for an elite university.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.649.

Median SAT score: mean = 1033.3, standard deviation = 80.1
Graduation rate: mean = 51.8, standard deviation = 13.7

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of  in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1028. Use the regression equation to estimate the graduation rate for Northern Michigan University.  

6. The recorded graduation rate for Northern Michigan University is 47.6. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. lower than
B. higher than
C. the same as
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. Yes, because 1455 is a reasonable median SAT score for an elite university.
B. No, because 1455 is beyond the range of the data used to build the regression model.
C. No, because 98.610% is too large to be a reasonable graduation rate, even for an elite university.

(1 point) College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.641.

Median SAT score: mean = 1029.1, standard deviation = 78.3
Graduation rate: mean = 49.2, standard deviation = 14.7

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1028. Use the regression equation to estimate the graduation rate for Northern Michigan University.  

6. The recorded graduation rate for Northern Michigan University is 47.9. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. the same as
B. higher than
C. lower than
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. No, because 100.453% is too large to be a reasonable graduation rate, even for an elite university.
B. No, because 1455 is beyond the range of the data used to build the regression model.
C. Yes, because 1455 is a reasonable median SAT score for an elite university.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.641.

Median SAT score: mean = 1029.1, standard deviation = 78.3
Graduation rate: mean = 49.2, standard deviation = 14.7

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1028. Use the regression equation to estimate the graduation rate for Northern Michigan University.  

6. The recorded graduation rate for Northern Michigan University is 47.9. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. the same as
B. higher than
C. lower than
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. No, because 100.453% is too large to be a reasonable graduation rate, even for an elite university.
B. No, because 1455 is beyond the range of the data used to build the regression model.
C. Yes, because 1455 is a reasonable median SAT score for an elite university.

(1 point) College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.676.

Median SAT score: mean = 1038.5, standard deviation = 78.6
Graduation rate: mean = 48.2, standard deviation = 13.4

3. The equation of the regression line is y = ...(?) + (?) x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of  in Median SAT score corresponds to a/an  ? decrease increase  of (?) in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1032. Use the regression equation to estimate the graduation rate for Northern Michigan University.

6. The recorded graduation rate for Northern Michigan University is 48.1. Complete the following sentence.

The residual for Northern Michigan University is ....(?) . This means the graduation rate at Northern Michigan University is
A. higher than
B. the same as
C. lower than the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. No, because 96.200% is too large to be a reasonable graduation rate, even for an elite university.
B. Yes, because 1455 is a reasonable median SAT score for an elite university.
C. No, because 1455 is beyond the range of the data used to build the regression model.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.655.

Median SAT score: mean = 1035.9, standard deviation = 79.3
Graduation rate: mean = 51.9, standard deviation = 14.5

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of  in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1032. Use the regression equation to estimate the graduation rate for Northern Michigan University.

6. The recorded graduation rate for Northern Michigan University is 47. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. higher than
B. the same as
C. lower than
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. No, because 102.094% is too large to be a reasonable graduation rate, even for an elite university.
B. Yes, because 1455 is a reasonable median SAT score for an elite university.
C. No, because 1455 is beyond the range of the data used to build the regression model.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places.

1. The relationship between median SAT score and graduation rate is  ? positive negative ,  ? weak strong , and  ? linear non-linear .

2. The explanatory variable is  ? graduation rate median SAT college year  and the response variable is  ? graduation rate median SAT college year .

The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.663.

Median SAT score: mean = 1030.3, standard deviation = 80.7
Graduation rate: mean = 49.6, standard deviation = 14.3

3. The equation of the regression line is y =  +  x

4. Complete the following sentence to interpret the slope of the regression line:

An increase of  in Median SAT score corresponds to a/an  ? decrease increase  of  in Graduation Rate.

5. The recorded median SAT score for Northern Michigan University is 1026. Use the regression equation to estimate the graduation rate for Northern Michigan University.

6. The recorded graduation rate for Northern Michigan University is 46.3. Complete the following sentence.

The residual for Northern Michigan University is  . This means the graduation rate at Northern Michigan University is
A. lower than
B. higher than
C. the same as
the rate predicted by the regression model.

7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford?

A. Yes, because 1455 is a reasonable median SAT score for an elite university.
B. No, because 1455 is beyond the range of the data used to build the regression model.
C. No, because 99.495% is too large to be a reasonable graduation rate, even for an elite university.

Question 11 pts

In the 20th century the U.S.

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Question 21 pts

The US dollar would be most likely to fall if: