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McAfee Case Study I. Current Situation A. Current Performance McAfee is in good financial standing. * In 2004, paid down $347 million in convertible debt and repurchased $220 million in common stock. * Revenue has declined over past two years but net income has increased. * Ongoing operations generated over $350 million in cash, with the fiscal year ending in $1 billion in cash, cash equivalents, and investments. * Deferred revenue increased for the period by $220 million. B. Strategic Posture 1. Mission: a. To secure consumers and businesses from the desktop to the core of the network by delivering best-of-breed products and services that protect … global customer’s information technology systems and infrastructure. ”

2. Objectives: More of a goal “become worldwide leader in intrusion prevention and risk management solutions and services. ” II. Corporate Governance C. Board of Directors 3. George Samenuk (internal) b. Received formal education at Brown University, Political Science. c. Held various senior management positions at IBM. d. Former CEO and President of TradeOut Inc, a privately held online exchange. . Leslie G. Denend (internal) e. Holds multiple Ph. D. s from Stanford University, Economics, Public Policy, and Business. f. Joined McAfee after merger with Network General Corp. , whom she was CEO and President. 5. Robert Pangia (external) g. Received formal education from Brown University and Columbia University, Business. h. Held numerous senior management positions with Paine Weber Inc. which is a wealth management service provider. i. 1997 to 2003 worked as a private merchant banker.

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6. Robert B. Bucknam (external) j. Received formal education at Georgetown University with a Juris Doctoral in Foreign Service. . A senior vice president of Cross Match Technologies Inc. , a fingerprint identification provider. l. Served in many government positions including the Federal Bureau of Investigations, Chief of Staff and the U. S. Department of Justice, Deputy Attorney General. 7. Liane Wilson (external) m. She does not have a college degree. n. Runs her own consulting firm after retiring from Washington Mutual as senior vice president of information technologies. 8. Robert Dutkowsky (external) o. Received formal education from Cornell University, Industrial Engineering and Industrial Relations. p.

Serves as CEO and President of Engenera Inc and previously held the same title at J. D. Edwards and Company. q. He has also held other various senior Management positions with other IT firms. 9. Denis J. O’Leary (external) r. Received formal education from the University of Rochester, Economics and New York University, MBA. s. Worked for J. P. Morgan up until 2003, during his 25 years he held various senior management positions including Chief Information Officer. t. After leaving J. P. Morgan he became a private investor. D. Top Management 10. George Samenuk u. Chief Executive Officer and Chairman of the Board, since 2001. . Former CEO and President of TradeOut Inc. 11. Gene Hodges w. President, since 2001. Joined McAfee in 1995. x. Held various executive positions within McAfee. 12. Kent H. Roberts y. Executive Vice President, Secretary and General Counsel, since 2001. z. Held various legal positions prior to this position. 13. Kevin Weiss {. Executive Vice President of Worldwide Sales, since 2002. |. Formerly Senior VP for Ariba Inc. 14. Eric F. Brown }. Chief Financial Officer and Executive Vice President, since 2005. ~. Previously CFO for MicroStrategy Inc. III. External Environment: Opportunities and Threats

E. Societal Environment 15. Economic . Early part of the 21st century had a decrease in IT spending. (T) ?. IDC predicted a growth of 16. 9% annually between 2003 and 2008 in the security software market. (O) ?. There has been a steady growth of average 22% in e-commerce retail sales in the U. S. (O) 16. Technological ?. Newly developed viruses, spyware, and worms affect how well they can manage their securities (T) ?. Outsourcing bulk of new software development. (O) ?. Increased use of broadband and DSL speed internet, growing from 9. million users to 22. 7 million users. (O) ?. McAfee holds a 19% market share among the computer protection companies. (O) (Exhibit A) 17. Political-Legal ?. Potential losses that results in shareholders law suits against company. (T) ?. SEC made NAI re-state earnings because of compliance issues. (T) 18. Sociocultural ?. Accommodating to the aging society. The older population needs a product they can depend on, that is easy to understand and easy to use. (O) ?. Society is transitioning into a wireless more mobile society.

McAfee has to be aware of this and develop a product that will protect PDA’s, wireless laptops and mobile phones. (O) F. Task Environment Strategic type = prospector, focused on product innovation and market opportunities 1. McAfee should look to expand its mobile and wireless solutions. (O) 2. Collaboration with VeriFone Holdings, Inc. allows McAfee to be first to market with virus protection for point-of-sale terminals. (O) 3. Promote being recipients of the KM Reality Award, demonstrated leadership in the implementation of knowledge management practices and processes by realizing measurable business benefits. O) 4. There are many substitute products offered by competitors. (T) 5. High rivalry exists between firms like Symantec, Computer Assoc. , Trend Micro, and Panda. (T) 6. McAfee faces overseas competition. (T) 7. Symantec Products: Norton AntiVirus, Norton Utilities, Symantec AntiVirus. (T) 8. Microsoft switching to Trend Micro for use on all hotmail accounts. (T) 9. Microsoft’s entrance, acquiring GIANT Company Software, Inc. and distributing free anti-spyware software. (T) G. Summary of External Factors 19. External Factor Analysis Summary Matrix (Exhibit B). IV.

Internal Environment: Strengths and Weaknesses H. Corporate Structure 20. Functional Structure: Worldwide Sales, Consumer, Mobile, and Small Business, Corporate Strategy and Business Development, Operations and Finance, human Resources, Risk and Compliance, Worldwide Technical Support and Customer Service, and etc, each have its own Executive or Senior Vice President who report to the President. (S) 21. Chief Executive Officer is also Chairman of the Board. (W) 22. Members of board and management are diverse throughout different business areas. Not just technology focus. (S) I.

Corporate Culture 23. Implemented an “Ethics First” program, which is essential for any technical company. (S) 24. Ranked in top 10 for a computer software company between 2000 and 2005. (S) 25. Among Computer protection providers only hold a 15% market share. (W) J. Corporate Resources 26. Marketing * Two categories of products: McAfee System Protection Solution (desktops and servers) & McAfee Network Protection Solutions (corporate networks) * Types of products: anti-virus, anti-hacker and anti-spyware, anti-spam, anti-abuse, mobile and wireless, and bundled. Customer base- businesses, governments, and consumers. a. Product licensing. (S) * Products are priced and sold on subscription basis Single user, 1yr license (home internet security suite) = $69. 99 (before mail-in rebate).

* Three user, 1 year license (home internet security suite) = $129. 99. * Small businesses are priced depending on size of the organization and length of license. b. Products are distributed throughout North America, Europe, the Middle East, Africa, Japan, and Latin America. (S) c. McAfee Foundstone Enterprise 4. 0 is the leading provider of intrusion prevention solutions (IPS). S) d. Partnered with Dell to develop the McAfee SecurityCenter bundle (includes McAfee Personal Firewall Plus, McAfee Privacy Service and McAfee SpamKiller). (S) e. AOL began its partnership with McAfee in April of 2003 (reported blocking over a billion virus infected emails in thirteen months time). (S) 27. Finance ?. In 2003, NAI was required by the Securities and Exchange Commission to re-state it earnings for 1998, 1999 and 2000. NAI denied any wrongdoing, but agreed to reissue the revised statements after discussions with SEC officials.

The investigation dealt with the manner in which NAI reported revenue from sales by its distributors. (W) ?. In a post-Enron business environment, such investigations and the subsequent recalculations of financial statements can have a negative impact on a company’s value of its stock and efforts to obtain capital investment for future expansion. (W) ?. In 2002 and 2003, although revenues had decreased, NAI continued to invest in new technologies, spending $220 million to acquire IntruVert Networks, Inc. , and Entercept Security Technologies, both of which make intrusion-prevention products. S) ?. In 2004, NAI changed its name to McAfee, paid down $347 million in debt, and re-purchased $220 million in common stock in an effort to re-structure its capitalization strategy and achieve a goal of a 25% operating margin. (S) ?.

With nearly $350 million generated from ongoing operations, McAfee ended 2004 with nearly $1 billion in cash, cash equivalents, and investments. McAfee plans to use this cash to purchase additional security products. Additionally, the company plans to sell its unprofitable Sniffer network to Silver Lake Partners and Texas Pacific Group. S) ?. Additional Information (Exhibit C thru E). 28. Research and Development ?. Increasing technology resources through company acquisitions (S) ?. Continues to raise the bar in product innovation and industry leadership with astounding intrusion protection and security solutions (S) ?. Products are developed to be proactive to limit risk of intrusion during times of increased threat levels (S) ?. Lacking a competitive advantage in the anti-virus product line. (W) ?.

All McAfee security products are backed by the research organization McAfee AVERT (Anti-Virus Emergency Response Team) (S) ?. McAfee’s AVERT provides cures for most important outbreaks (S) 29. Operations and Logistics ?. Majority of McAfee’s logistics is online based with downloadable content for user’s easy access. (S) ?. Companies in today’s business world have the pressures to improve IT security. McAfee is working with companies to develop strategies to improve security risk while saving organizations money by improving network capabilities. S) ?. McAfee’s manufacturing/service objectives and strategies are not stated to the public. (W) 30. Human Resources Management ?. As with almost all highly technical businesses, McAfee has to budget a greater portion of its operating expenses for salaries of a very highly educated and trained work force. Software and program designers have advanced degrees in computer technology, and command higher salaries than traditional manufacturing jobs. (S) ?. Recruitment of such valuable talent is a considerable expense to these companies.

McAfee considers its employees as its most valuable tool, and rewards them with good benefits and strives to give them a good working environment. It is an equal opportunity employer, and promotes respect to all levels of employees. (S) ?. McAfee has a very strong continuous education and training program, and an educational assistance program for employees who wish to pursue additional academic education. (S) ?. The company Standards of Conduct manual emphasizes the highest ethical standards, particularly in their relationships with their customers, suppliers and shareholders. S) ?. McAfee has grown from 26 employees in 1992 to over 3,500 employees in 2003. However, in May of 2003 laid off about 150 employees, and in December of the same year, an undisclosed number of employees were laid off from the Sniffer division. (W) 31. Information Systems ?. McAfee has had a tradition of using acquisitions to improve on its technology for various products. (W) ?. Although many of the technology McAfee has gained, they do create their own software. They are ranked second among computer software companies.

They also have over 250 patents by the beginning of 2005. S) ?. McAfee maintains a very competent Information Systems Department as well as a Customer Service Departments which have been able to recognize and troubleshoot internal problems within their programs. They have adapted well to the acquired company’s technology to also correct problems dealing with integration between the software. (S) ?. McAfee has recognized with its partnership with VeriFone Holdings Inc. that protection in the place of commerce is an important sector to target with the growth of the economy. McAfee has also begun working on protections for e-commerce. S) K. Summary of Internal Factors 32. Internal Factors Analysis Summary Matrix (Exhibit F) V. Analysis of Strategic Factors L. Strategic Factors Analysis Summary Matrix (Exhibit G) M. Review of Mission and Objectives 33. Current mission statement is sufficient. 34. Objectives must be developed further to accomplish the company’s goals of becoming a worldwide leader in intrusion prevention and risk management solutions and services. 35. Suggested Mission: Secure and protect systems of all users, business to home users, from known and unknown global threats.

By working with our current partners and potential future ventures we’ll provide best in class solutions and services. 36. By changing the company’s mission it will help create objectives in accomplishing McAfee’s goal of becoming the worldwide leader in intrusion prevention software. VI. Strategic Alternatives and Recommended Strategy N. Strategic Alternatives 37. Continuing growth through acquisitions. ?. Pros 1. ) Increasing their technological advances. 2. ) Broadening market synergy. ?. Cons 3. ) Acquiring companies too similar to existing standards. 4. Becoming too costly to acquire new companies. 38. Pause (stability) strategy ?. Pros 5. ) Allows more focus on internal R&D. ?. Cons 6. ) Lack of obtaining new acquisitions. 7. ) Lack of growth can continue to decrease market share. 39. Establish R&D program ?. With McAfee’s growth, it’s important to revise the corporate structure into more of a divisional structure. ?. By restructuring they can identify the profitability of their product mix. ?. Once a better developed R&D program is established, it will lessen the need for as many acquisitions O. Recommended Strategy 40.

We recommend continuing growth through acquisitions since McAfee’s R&D isn’t as established as competitors. 41. McAfee should consider its own R&D strategy. 42. Developing marketing strategies will increase market share as McAfee has only been an average competitor in the industry. 43. Make McAfee exclusive to leading computer manufacturers (ex. Dell, HP). VII. Implementation P. For McAfee to continue to grow they will need to develop their own R&D program as future acquisitions become limited and potentially more costly and less beneficial. Expand policies/procedures in quality ontrol to strive for continuous improvement and customer satisfaction. Q. In order to continuously improve product performance the need for a divisional corporate structure would be necessary for each product line. R. Directors of the board and top management should be in support of implementing a R&D program as well as a shift to a divisional corporate structure. S. As acquisitions become more costly, the discussed implementation becomes more financial feasible. VIII. Evaluation and Control T. McAfee has proven to have the internal structure to monitor their performance and respond in a timely fashion to problems that may arise.

This information is based on McAfee’s response to recent financial shortcomings. U. Our evaluation of McAfee has found that current standards aren’t sufficient and with the new recommendation new standards will be needed for the methods of measurement. Exhibit A Anti-virus Market Share in Worldwide Sales Based on $4. 02 billion total sales of anti-virus software Exhibit B EFAS External Factors| Weight| Rating| Weighted Score| Comments| Opportunities| | | | | * Market Share| . 05| 1. 8| . 09| Only hold 15%| * Internet Boom| . 10| 4. 25| . 425| Growth of e-commerce and Internet speeds| * Economics| . 05| 3. 5| . 75| Consumers spending more on technologies needing protection| * Acquisitions| . 20| 4. 5| . 9| Continue market share growth through acquiring smaller companies| * Product Distribution| . 10| 4. 0| . 4| Bundling products with other companies| Threats| | | | | * New Entrants| . 15| 3. 5| . 525| Microsoft announcement reduced stock price| * Global Competition| . 20| 2. 5| . 5| Increasing global market| * Intellectual Property| . 10| 4. 0| . 4| Foreign government laws| * Bargaining Power of Buyers| . 05| 3. 0| . 15| Free security programs from competitors, internet downloads| Total Scores| 1. 00| | 3. 565| |

Exhibit C After a number of years of steadily increasing sales and revenues, Network Associates, Inc. , (NAI), the predecessor of McAfee, saw revenues slide from $1,043 million in 2002 to $936 million in 2003, a more than ten percent drop. (W) By comparison, Symantec, a primary competitor with its Norton Anti-virus program, had revenues totaling $1. 4 billion, and held a 37% market share in anti-virus software sales. Exhibit D Although the SEC investigation and required restatement initially hurt McAfee’s image, by the end of 2004 most analysts felt that the company was on the mend, and had achieved an earnings consistency.

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