Thesis work paper Case 3: Network Associates

Like Adobe and Intuit, Network Associates Incorporated (NAI) was another software company that was having trouble in the Internet boom.
NAI board members hired George Samenuk from IBM to become CEO of the troubled security software giant in December 2000 after NAI had posted consistent loses of US$159,901million for 1999, and US$108,014 million for 2000. Even worse, “accounting irregularities” had turned up, which required US$20 million dollar expense restatements on the financial reports that were filled to the American Securities and Exchange Commission (SEC).
With morale low and the companies best and brightest jumping ship, he bet some of his younger employees that he would grow a goatee if the company stock hit $20. Even better, he would shave his head if it hit $40 -- and get an earring if it hit $60.
To show commitment to the turnaround Samenuk addressed the talent bleed by repricing the company share options at $4.
As Sutton (Sutton, 2002) mentions, such declaration quickly gives employees the signal that the company is serious about turning itself around. It also provided an incentive to stay and work hard, while having little effect on cash flow.
Focusing on the security software maker's three weak areas, Samenuk addressed each one in turn.
First was the task of winning over customers who were beginning to look elsewhere due to late product releases, bad service and poor support.
Taking a page out of Sutton’s (Sutton, 2002) book he criss-crossed the globe to talk directly to clients and harried vendors to ask their perceptions on where NAI was going wrong. Most customers reported that late products in the antiviral area were of the biggest concern as was their lack of support.
Considering that the anti-virus software was NAI core competency, it become apparent that NAI had diverged too much from its central offering, and both product delivery and customer service had been effected.
As Hoffman (Hoffman, 1989) indicates, this is a classic symptom of the need for a strategic turnaround rather than an operational one.
Samenuk quickly sold off the flagging Gauntlet Firewall and the profitable PGP Encryption divisions, to refocus the company back on to what it was good at – anti virus software.
Although staff could understand the removal of the Gauntlet division, there was concern about PGP. But Samenuk indicated to the staff in the fortnightly meetings, PGP had never made much money, and encryption products represented a tiny market opportunity.
Further, both divisions had diverted NAI attention away from what it had done best (Bibeault, 1998), and all told NAI would actually save a compounded $50 million by ditching the two units. NAI was to refocus back on its core business (Barker III et al., 1994) .
Within the first year NAI had gone from a loss of US$108 million in 2000 to a profit in 2001 of US$83.2 million. By year two of Samenuk’s turnaround plan NAI’s net income had increased to US$128 million.