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In 1997 Gordon Bethune, the CEO of Continental Airlines, had
published a very interesting book, “From the Worst to the First,” about
turning around his company. As a loyal and satisfied Continental
Airlines customer, I can attest to the great accomplishment achieved by
Gordon Bethune, his president and COO Greg Brenneman and their
management team in transforming Continental Airlines from the U.S.’
worst airline to one of the most respected and respectable companies.

Why am I telling you all this? Because there is no one more qualified
than Eric Benhamou, CEO of 3Com to write a sequel to Gordon’s book.
However, Eric’s sequel should probably be entitled “From the Best to the
Worst.” Indeed, Eric Benhamou, his president and COO Bruce Claflin and
their management team managed to transform 3Com. However, their
transformation was in the opposite direction. Once very successful and
respected by customers, analysts, and employees (3Com made the “Fortune
100 Best Places to Work” in 1998), the company was recently transformed
to one of the worst hi-tech companies with some of the lowest levels of
respect from customers, analysts, and one of industry’s highest employee
turn-around ratio.

Let’s take a look how 3Com’s stunning management team succeeded in
this not-so-easy endeavor in the booming technology market.

In my humble opinion, the reasons behind 3Com’s demise are quite
simple and can be very precisely described by the famous Peter
Principle. And if you also add 3Com’s executives persistent refusal
taking personal responsibility for failures you have got the
recipe for destroying a once successful corporation even in the most
favorable market conditions.

Let’s take a closer look at the history of this calamity.

During the last three years, the period of the most incredible
Internet boom, 3Com — once a leader in networking technology — the
company, founded by the inventor of the Ethernet (most powerful and
widely implemented networking technology in the last three decades) was
clearly searching for its identity. Just take a look at company’s
banners during this very short period of time: first it was “Networks
that go distance,” then it became “From the edge to the core,” then it
was “More connected,” then the short-lived “e-Networks.” But the “first
prize” for bad business move should probably go to the latest quite
peculiar decision to change the once-famous 3Com logo to three
disconnected rings — a move that generated some pretty interesting
ideas as to what they supposedly symbolize. Take your pick:

 

  • 3Com’s disjointed business model

     

  • The Three Stooges

     

  • More-or-less connected

     

Not less “impressive” (and inconsistent) were the public
appearances by 3Com’s executives: most notably Eric Benhamou, who used
to be one of the top 10 high-tech executives with most media appearances
only few years ago. According to the ever-changing (and ever-waffling)
3Com’s public positions:

 

  • “Following the conquest of the networks’ edge 3Com is
    aggressively moving to network core” vs. “Network core becomes a
    commodity — edge is where the growth is.”

     

  • “Storage Area Network is a high growth area we are going to
    focus” to be almost immediately replaced by an announcement about
    withdrawing from SAN as a risky investment-ravenous area.

     

  • “Palm is one of the core building blocks inherent in our
    networking strategy” only a few months before the decision to spin-off
    Palm “to unlock 3Com’s stock value for the shareholders.”

     

I guess, after going over some of the specifics and quotes
above, one is better equipped to grasp how did 3Com manage to “advance
backwards” from Fortune magazine’s “one of the best” to one of the
worst. In fact, 3Com’s board and Eric Benhamou personally realized they
are going to need external help to turn the company around. So in 1998,
they decided to bring on board Bruce Claflin — a seasoned executive
with wealth of operational, sales, and marketing experience — as 3Com’s
president and COO. I guess, looking at Bruce Claflin’s accomplishments
and track record (with the IBM PC group — has anyone heard of them
lately? and with Digital Equipment Corporation — no need for additional
comments) Eric Benhamou and 3Com’s board felt very comfortable that the
new president and COO of 3Com will help the company to turn around the
corner. The real question was: Where to?

Looks like all remaining questions were answered last March, when
3Com announced the so-called “end-of-life” for their “strategic large
enterprise customers.” Oops, I meant “products.” Product lines, once
so brilliantly designed by 3Com’s engineers (oftentimes being first to
market), such as the NetBuilder, CoreBuilder, and PathBuilder and so
poorly marketed by 3Com’s pathetic marketing (or rather lack thereof)
were “killed” overnight to a huge surprise of the majority of so-called
3Com’s strategic customers. As part of the “brilliant” move and in order
to “assist 3Com’s customers transitioning to equipment of their former
competitor and newly defined “strategic partner” — Extreme Networks –
3Com decided to “transition” several hundred of its employees to Extreme
Networks.

This engaging move one more time emphasized 3Com’s corporate values
and commitment to (I quote):

 

    … treat customers, suppliers, partners, our communities and our
    employees as we would want to be treated with the highest standards of
    respect, truthfulness and integrity. 3Com will remain a special place to
    work. These values will set a direction for all our activities.
    Sometimes trade-offs must be made for which the values may seem in
    conflict. When this occurs, integrity will never be broken and customers
    first will be our primary guide.

By the way, about 80 percent of 3Com’s customers surveyed following
the pitiful March 20 announcement decided not to follow 3Com’s
recommendation to migrate to 3Com’s selected partners.

And if one was wondering about the level of dignity and respect
3Com’s employees were treated, following are some interesting quotes
from a Q&A distributed by 3Com’s HR: “You and your job have been
transferred to Extreme Networks; therefore, you will have no loss of
employment. If you turn down the Extreme Networks offer, your
termination from 3Com will be treated as a voluntary termination, and
you will not be eligible for either the notification period or the
severance plan. In addition, you will not be eligible to apply for
opportunities within 3Com. …”

To make it even more interesting, 3Com gave their employees between
one to three days to review this so-called “offer.” Pretty interesting
and noteworthy utilization of the term “voluntary,” one would think.

The Q&A went further to say: “Extreme Networks is currently preparing
transition letters that will match your current salary,” a pretty
interesting fact in itself considering no one of the “transitioned”
employees authorized transfer of this sensitive information by 3Com’s HR
to a third party. In fact, in many cases, disclosing this information
prevented transferees from getting a more competitive compensation
package with their new employer hand-picked by 3Com.

Keeping in mind that slavery has been banned in the U.S. for quite
some time, one may ask where, for crying our loud, did 3Com get the idea
their employees are property that can be transferred to a third party?

Another interesting fact is the terminology carefully selected by
3Com for this appalling process, in which: a) people and human assets
were transferred to third party; b) no other choices were offered; and
c) in return for this transaction 3Com received 1.5 million options of
Extreme stock. 3Com insists this action cannot be considered a sell of
business unit. Why did they insist on the semantics? Simply because
otherwise, according to their stock options plan, 50 percent of unvested
stock options for every non-executive “transferee” would immediately
become eligible for accelerated vesting, which at that time amounted to
a significant amount for many “transferees.”

At this point, several of the unhappy “transferees” contacted labor
lawyers and HR consultants, which probably “helped” 3Com’s HR to change
their original idea to redefine “voluntary resignation” and pay a
two-month severance with full benefits for the involuntary transferees.
Interestingly enough, in the “good” tradition of 3Com’s executive not
accepting responsibility for major mistakes and blunders looks like no
one was held responsible for this shameful and unconscionable event
either.

Going back to my original recommendation, I am certain that Eric
Benhamou and his executive team should very seriously consider writing a
sequel to Gordon Bethune’s “From the Worst to the First.” A book like
“From the Best to the Worst” (by people who very well know the subject,
“have been there and done that” on their own) is surely going to make a
bestseller list in no time, which could probably help to “further unlock
the value” of 3Com’s stock for their shareholders.

 




Eddie Rabinovitch
is an industry-wide recognized Internet and communications specialist who was fortunate to work for 3Com while 3Com was still focusing on large enterprise markets, but was also unfortunate to own COMS. Both problems were recently fixed.

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