GATEWAY CHIEF MAKES DARING DECISIONS Read the case and answer the questions that follow. Studying this case will help you better understand how decision- making concepts can be applied in a company such as Gateway. Bill Gates, Michael Dell, and . . . Ted Waitt? Like Gates and Dell, Waitt left college to form a computer company, Gateway. He and Mike Hammond, now senior vice president of manufacturing, started the firm in a farmhouse with a loan secured by a $10,000 CD owned by Waitt’s grandmother. Initially, they sold hardware peripherals and software to owners of PCs made by Texas Instruments; later they expanded into designing and assembling their own fully configured PC systems for direct sale to consumers and businesses. As his company grew, Waitt used his Midwestern roots to differentiate the South Dakota–based company from competitors such as Dell and Hewlett-Packard. For example, he used eyecatching cow spots to establish a brand image, which can be quite difficult in the standardized computer industry. Every Gateway computer came packed inside a white box with cow- like black spots, and the company served cow-shaped cookies at its annual shareholder meetings. By 1998, the company was reporting net income of $346 million on $7.5 billion in annual revenues. However, to sustain the company’s extraordinary growth during the coming years, Waitt realized that changes were needed. First, he decided to relocate the top management team to new administrative headquarters in San Diego. Not only would this help Gateway attract top talent, it would bring the office closer to Silicon Valley partners and suppliers. Waitt also decided to reduce the company’s reliance on the cow motif as he courted business customers, who might not see a clear connection between high-quality computers and cows. Gateway’s growth roared on and by 2000, the company had a workforce of 20,000, mainly concentrated in its U.S. manufacturing facilities. Next, Waitt made an even more expensive change. Instead of taking orders only by phone or via the Web, as rival Dell does, Waitt plunged into retailing. He opened hundreds of Gateway Country stores in the United States, Europe, and Japan so customers could see the different computer models and get advice from knowledgeable sales staff. When much of the world fell into economic recession during 2001, demand for computers dropped off and Gateway’s market share, revenues, and profits started to decline as well. Now the founder faced more challenges. Rather than continue operating the entire retail chain, he ordered some stores closed and had the remaining outlets remodeled to better showcase new merchandise. Another big decision Waitt made was to diversify into popular consumer electronics products such as flat-panel televisions. This put Gateway into direct competition with Sony and other well-known firms—even as it was struggling to hold its own in the computer industry. By 2004, the company had experienced three years of losses, both financially and in PC market share. It was time to reverse some of the earlier decisions. Waitt cut costs by outsourcing much of the company’s production activities and laying off thousands of employees. He closed all the Gateway Country stores and arranged for the Best Buy chain to purchase the consumer electronics for resale. And the founder made yet another bold decision: He acquired the computer maker eMachines and its CEO, Wayne Inouye, became Gateway’s CEO (Waitt became board chair). Inouye quickly announced that the company would narrow its product line to make the most of the Gateway brand’s appeal to computer buyers: “The fact is, we were not making a lot of money on the consumer electronics side at all,” he said. “Our route to profitability is to fix our core business, and that’s PCs and PC-related products.” He also made major changes to the distribution strategy by selling PCs under the eMachines and Gateway brands in Best Buy stores, even as he sought shelf space in other national retail chains. Coupled with additional layoffs, these decisions helped Gateway increase its revenues and narrow its losses. Still, some observers wonder whether Inouye and Waitt will be able to complete the turnaround and restore Gateway’s growth and financial success. QUESTIONS 1. Knowing that growth is one of Gateway’s long-term objectives, do you agree with Inouye’s decision to reduce the product line and refocus on PCs? Explain