Thesis work paper Case 1: Adobe Systems

Adobe Systems began in the 1982 as a small software company for creating and printing graphics and text. By 1998 Adobe was coming close to having billion dollar sales. However while other software companies were booming, Adobe was in trouble.
Adobe’s flagship product Adobe Illustrator ran late. Further the Japanese market tumbled as the effects of the Asian financial crises and the troubles of the Japanese banking system began to eat in to Adobe sales. Since the Japanese market contributed 25% to Adobe’s revenue, net income dropped drastically down 46% on the previous year. Managerial strife and a 20% staff turnover also wracked the company as desperate managers began to point fingers. An altogether common situation as Teng (Teng, 2002) points out, when no clear lines of accountability and delineation occurs.
Watching the firms ratios decline over the year, and pressuring for the delivery of software products Chief Executive John E. Warnock and cofounder Charles Geschke finally decided to implement a turnaround plan.
Eliminating the jobs of the other three top executives and laying off 10% of management, Warnock began an effort to cut through Adobe lays of bureaucracy.
Two other layoffs also occurred as the company sought to cut expenses. It could be interpreted that although cut backs were done, they were originally not deep enough as Davidson (Davidson, 2001) above warns.
A new Chief Financial Officer (CFO) was hired and the accounting disciplines were tightened and reorganised. Financial Controls were updated and changed to let manager’s track sales daily, instead of at the close of each quarter allowing for more responsive action and better accountability daily (a tactic strongly advocated by Sutton (Sutton, 2002) especially during the initial emergency action phase).
Adobe also amalgamated its four divisions and consolidated each of the geographically separate marketing, sales and engineering groups back in to the organisation.
The companies information systems were also centralised, so that less time was spent trying to integrate accounting data from differing geographies.
The amalgamation of international business units (and networks) back in to a centralised form is very common for international turnaround as Teng (Teng, 2002) indicated previously.
Khandwalla (Khandwalla, 1983) also advises such a move because it enables consistent global communication and co-ordination during restructurings.
Since 40% of Adobe's revenues had come from product upgrades sold to existing customers and another 30% of revenues came from Adobe Illustrator, made management realise that too much reliance on one product had created a revenue and cash flow shortfall. Therefore to allow for smoother income streams and reinvigorate itself Adobe began to focus on new products. A consistent approach in software turnarounds as stated by Davidson (Davidson, 2001) and Blumling (Blumling et al., 2002). As a result Adobe developed and extended the PhotoShop product range, and began implementing it’s new Adobe Internet Document Management Server range.
Adobe’s turnaround was exceptional. In 1999 it had exceeded US$1 billion in revenues, and achieved a 226% increase in net income.