Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

CASE ANALYSIS 1: BOOM AND BUST IN TELECOMMUNICATIONS In 1997 Michael O'Dell, the chief scientist at WorldCom, which owned the largest network of Internet

image text in transcribedimage text in transcribed

CASE ANALYSIS 1: BOOM AND BUST IN TELECOMMUNICATIONS In 1997 Michael O'Dell, the chief scientist at WorldCom, which owned the largest network of "Internet backbone" fiber optic cable in the world, stated that data traffic over the Internet was doubling every hundred days. This implied a growth rate of over 1,000 percent a year. O'Dell went on to say that there was not enough fiber optic capacity to go around, and that "demand will far outstrip supply for the foreseeable future." Electrified by this potential opportunity, a number of companies rushed into the business. These firms included Level 3 Communications, 360 Networks, Global Crossing, Qwest Communications, WorldCom, Williams Communications Group, Genuity Inc., and XO Communications. In all cases the strategic plans were remarkably similar: Raise lots of capital, build massive fiber optic networks that straddled the nation (or even the globe), cut prices, and get ready for the rush of business. Managers at these companies believed that surging demand would soon catch up with capacity. resulting in a profit bonanza for those that had the foresight to build out their networks. It was a gold rush, and the first into the field would stake the best claims. However, there were dissenting voices. As early as October 1998 an Internet researcher at AT&T Labs named Andrew Odlyzko published a paper that debunked the assumption that demand for Internet traffic was growing at 1,000 percent a year. Odlyzko's careful analysis concluded that growth was much slower-only 100 percent a year! Although still large, that growth rate was not nearly large enough to fill the massive flood of fiber optic capacity that was entering the market. Moreover, Odlyzko noted that new technologies were increasing the amount of data that could be sent down existing fibers, reducing the need for new fiber. But with investment money flooding into the market, few paid any attention to him. World Com was still using the 1,000 percent figure as late as September 2000. As it turned out, Odlyzko was right. Capacity rapidly outstripped demand, and by late 2002 less than 3 percent of the fiber that had been laid in the ground was actually being used! While prices slumped, the surge in volume that managers had bet on did not materialize. Unable to service the debt they had taken on to build out their networks, company after company tumbled into bankruptcyincluding WorldCom, 360 Networks, XO Communications, and Global Crossing. Level 3 and Qwest survived, but their stock prices had fallen by 90 percent, and both companies were saddled with massive debts. Case Discussion Questions 1. Why did the strategic plans adopted by companies like Level 3, Global Crossing, and 360 Networks fail? 2. The managers who ran these companies were smart, successful individuals, as were many of the investors who put money into these businesses. How could so many smart people have been so wrong? 3. What specific decision-making biases do you think were at work in this industry during the late 1990s and early 2000s? 4. What could the managers running these companies have done differently that might have led to a different outcome? 5. Do you think the firm is living up to its mission, vision, values, and goals? What evidence do you have to support your conclusion? 6. Can you find any evidence that managers at the organization might have made any significant strategic errors over the last decade? If they have, what role did poor planning, a lack of planning, or decision-making traps play in these errors?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Project Management in Practice

Authors: Samuel J. Mantel Jr., Jack R. Meredith, Sco

4th edition

470533013, 978-0470533017

More Books

Students also viewed these General Management questions

Question

5. Tape-record your interview. porters words.

Answered: 1 week ago

Question

9. Avoid jargon.?

Answered: 1 week ago