Management Planning At WorldCom
- Pages: 6
- Word count: 1301
- Category: Management
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Planning is the central to other functions of management. In any organization, management plays four very important roles including planning, organizing, directing, and controlling. However, all these functions start with planning as it forms the base for implementation of the others. Management planning therefore influences the direction an organization will take. While planning may appear simple in paper, it is a complex and very involving process since it charts the way forward for the organization and hence it must be carried out in the most appropriate manner (Murray and Jones, 2005). There are different issues and factors which influence the planning function in organizations and management must come up with the most appropriate way to overcome them. The success of any organization lie in the way management overcomes different hurdles in planning. This paper will look into management planning in WorldCom and how factors influencing planning function led to bankruptcy of the organization.
WorldCom was a top telecommunication company in the United States until it filed for bankruptcy in 2002. The company had grown over a very short period of time due to growth in internet and communication sector. For example by 1997, the company shares traded at $60 per share. Founded in 1983 as Long Distance Discount Services (LDDS), the company grew through merger with Advantage Companies Inc. in 1989 and later changed its name to LDDS WorldCom in 1995 (Moberg and Romar, 2003). However, it growth was fueled when it changed its name to WorldCom and reached its apex growth in 1998 when it acquired MCI. The company became an important and attractive investment destination in Wall Street. This boom was however followed by poor planning and management and the company became another large scandal in the U.S corporate history after Enron scandal.
The planning function at WorldCom was mainly vested in its desire for continued growth in the telecommunication sector. However, from 1998 when the company acquired MCI throughout to 2001, management used the wrong growth strategy especially with proposed acquisition of Sprint Corporation, which would have made it the largest merger in U.S history and the largest communication company ahead of AT&T (Moberg and Romar, 2003). The merger between WorldCom and Sprint Corporation was opposed by the U.S Department of Justice and EU on ground that it would have turned the organization into a monopoly greatly damaging the market (Cholewka, 2000). This is a clear indication that the planning function in WorldCom was not well executed.
The decision by the management to advance a $400 million loan to Ebbers to cover his margin calls failed to avert the falling share prices. It has also been revealed that from 1999 to 2002, the company used fraudulent accounting practices in order to conceal the declining earnings and showed up falsified financial growth and profitability to propel its shares upward. WorldCom management failed to plan in the proper manner although it had acquired different communication organizations. Management could not bring all those company to operate under one entity. It is also evident that management did not properly plan financial integration of the additional companies eventually leading to a large bankruptcy. The continued attainment of businesses led to an overwhelming situation which management could not control (Murray and Jones, 2005).
There are different legal issues, ethics, and corporate social responsibility issues that have had a great impact on management planning in WorldCom. Every organization has the obligation of operating under the laid down legal framework. The aim of setting up an organization is to make profit but this must be attained only when the organization operation according to laid down laws without engaging in deception and fraudulent activities (Murray and Jones, 2005). According to Moberg and Romar (2003) WorldCom management had the legal responsibility to ensure that the organization followed laid down laws but they extensively failed to do this. For example the management pushed on to merge with Sprint Corporation even when it was opposed by Department of Justices due to its legal implications, eventually humiliating the company when the deal failed (Cholewka, 2000).
The management had a legal obligation of ensuring that the accounting practices followed the laid down legal process and the monetary interpretation were documented in the most appropriate way. However, the company applied liberal accounting procedures and its high level management published false financial reports and fraudulent stock data to the Security and Exchange Commission (SEC). Ethical issues in business are important since they ensure that the business operates for benefits of all stakeholders. A business that is focused on long term profitability also holds a long term commitment to business ethics. There were many fraudulent activities in WorldCom which derailed its commitment to business ethics.
For example when management knew that share prices were falling, they used fraudulent accounting to conceal its financial position and to prop up its share prices. This was unethical because it showed positive balance sheet for the company while actually the company was going through financial distress. Corporate social responsibility is an important concept that helps business organization to meet is moral obligation to its stakeholders (Moberg and Romar, 2003). This ensures that the organization does not operate only for the wellbeing of shareholders but also for its customers, employees, communities, and the environment. There are many facets of corporate social responsibility including reporting that were not followed by WorldCom. For example the company reported fraudulent financial performance to the stakeholders which was a failure in its CSR obligation.
The telecommunication industry is one of the fast growing industries with stiff competition. The industry is also characterized by price wars, ever-changing technologies and growing consolidation. There were some factors which influenced strategic, tactical, operational, and contingency planning at WorldCom. In strategic planning, the company management pursued a dominant growth strategy mainly through acquisitions of companies which were becoming its competitors. The company also ventured into other areas like provision of internet services which raised its share prices. In tactical planning, the company purchased local exchange carriers which enabled it to have long term focus on core competencies although this resulted to failure to consolidate all acquired local network (Moberg and Romar, 2003). The company failed in organization planning since there were no systematic efforts to communicate with management at different levels to manage the expansive network. The company however showed a smart contingency planning when it moved swiftly to present a contingency plan of gaining wireless infrastructure to its investors when its plan to acquire Sprint Corporations.
Management planning is core function that forms the base for other management functions. Management planning is based on a long term focus on goals and objectives which assist the business to put in place a working business model. The case of WorldCom is a clear illustration of how management can fail to use appropriate planning strategies with a long term focus. The management in WorldCom focused on short term mergers and acquisition of its competitors eventually creating a bloated network that could not be sustained. The organization also failed to align its legal issues, ethics, and corporate social responsibility with its operation eventually leading to derailment of its strategic plan. Management should also recognize the tactical, strategic, operational, and contingency plans have to be reviewed now and then to ensure they are in line with organizational goals. It is important that organizations aligns goals and objectives with growth strategy and communicate it effectively to employees.
Cholewka, K. (2000). Sprint, World think of the next move. Retrieved 4th August 2009 from http://www.forbes.com/2000/06/27/mu7.html
Moberg, D. & Romar, E. (2003). WorldCom case. Retrieved 4th August 2009 from http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html
Murray, P. & Jones, G. (2005). Management and organizational behavior. Thomas Nelson