By Dana Baldwin, Senior Consultant
Note: This post is a part of a series taken from Dana Baldwin’s article When Strategies Go Bad previously published in Compass Points in April 2004. In Part 1, we introduced the series and discussed what happened with IBM. In this part, we will discuss what happened to Global Crossing.
An example of not paying enough attention to the realities of the market place was also exemplified by Global Crossing. Global Crossing decided they would build up their inventory of fibre cable to the point where they would dominate domestic, trans-Atlantic, and trans-Pacific data and voice traffic. The company spent billions to install/lay fibre. The problem was that they were not the only ones doing this. The result was that there was a tremendous overcapacity of fibre to the point where the market price for fibre cable usage collapsed, leaving Global Crossing with very high debt and low revenue, a fatal combination.
Global Crossing failed to look at the competitive capacity being built by others, and at the actual levels of usage, which were miles below the forecasts which were the basis on which they built their capacity. They took no notice of the drivers which shaped and limited the real needs they thought they were filling. As a result, they filed Chapter 11, when their stock was down to $0.30 per share from a high around $60. While they currently have a large cash reserve, they will need a large infusion of capital as they are competing in a market which is suffering from both low utilization and low prices.
The result is that revenues do not appear to be enough to sustain this business model in the future. Lesson: Be sure your assumptions about the future direction of your markets are realistic. Overly optimistic assumptions can easily allow you to charge off in a direction that the market place will not support – a recipe for disaster.
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M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: email@example.com
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