CASE STUDY

for dinner," thought Jack Thompson, the
CEO of Praxim, Incorporated, as he drove north on Interstate 101 toward 11 Fornaio, his favorite restaurant in Palo Alto. Fred Wong, a longtime friend, had been one of Praxim's early backers, and Jack knew he'd get an earful about his company's continued lackluster performance.
"I'll be getting all the grief," Jack said to himself. "At least Fred can pickup the tah."
Jack had been with Praxim for 18 years and had served as CEO for the

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'LL MAKE FRED pay

last 12. He could take a lot of the credit for building the company into a multihillion-doUar business selling workstations, PCs, servers, software, and services. But now, after many years of strong growth and profitability, Praxim was being dragged down by increasingly intense competition in the consumer segment.
The company had sold to consumers since the early 1990s; as long as there had been upmarket customers willing to pay $2,000 or more for fast, powerful equipment, Praxim had done well. But that higher in-

come market was now saturated, and Praxim, like most PC makers, was competing increasingly on price.
The consumer division currently accounted for 20% of Praxim's sales but the gross margin had dropped to a dismal 12%. Just two days earlier,
Praxim had announced its sixth straight disappointing quarter, and the stock price had been hit hard.
Stock options all over the company had been driven further under water.
Jack was beginning to wonder if it was even possible to make money in this business.
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THE CASE OF
Praxim can't make money on consumers. Should it even

CASE STUDY

His new consumer-division manager, Linda Marcus, was entirely sure it was possible. In fact, it was in part because of her certainty tbat they could turn the business around that Jack had lured her away from a
leading