The Iceberg

By Laura Hughes  |  Posted 01-01-2002 Print Email

The Iceberg

On Sept. 12, nearly two years to the day after Murphy first outlined his IT vision for Project Leapfrog—and halfway into the project, with some of its changes just starting to pay off in the millions—the bottom fell out. That day, Murphy found himself called into a very different kind of meeting.

It was the morning after the terrorist attacks in New York and Washington, and Murphy and five other executives, including the CFO and the chief HR officer, were assembled by Fain to talk about how much the world had changed—and to take action. Hundreds of people were phoning travel agents across the country to cancel fall and winter cruises, and more calls were flooding in by the second. Dozens of ports were closed, and thousands of people were stranded on ships all over the globe: One ship stranded off Vancouver would have to wait five days to disembark its rattled vacationers.

Fain's news then was hardly surprising: It was likely to be a very bad quarter—and suddenly, the future beyond December didn't look too great, either. Fain asked all six executives at the meeting to quickly calculate what it would mean if each of their units were to cut their operating budgets by 25 percent. Two days later, with bookings now down 50 percent from the same week the year before, Murphy presented the group with three IT options: slow down Leapfrog, cut parts of it or stop it dead in the water. To Murphy's surprise, Fain, Leapfrog's champion, opted for a dead stop. More than $300 million had to be cut from the company's operating costs immediately, and most of that would have to come out of the future. That meant Leapfrog. "Nobody in IT thought that they'd shut down Leapfrog altogether," Murphy says. "The company treasurer was the only one who counted that day." Fain would later tell the SEC that the financial impact to RC for the week following Sept. 11 was $25 million.

Over the next two weeks, some 400 people lost their jobs, 112 in IT alone, and nearly every part of Leapfrog was mothballed for better, less uncertain times (see "Leapfrog, Grounded.") Murphy's annual IT budget was slashed, from $83 million in 2000 to about $42 million in October—roughly the same amount he had to work with when he first came on board. "It was the hardest thing I've ever had to do," Murphy said, "and unlike anything I've ever been through in my life."

Yet no sooner did he complete the layoffs and reorganize his staff around a "holding pattern" of basic IT services than new crosswinds began buffeting Murphy's department. On Nov. 20, RC announced plans to merge with P&O Princess Cruises PLC, kicking up whole new waves of uncertainty. RC executives told Wall Street analysts at the time that the IT departments of the two companies would likely be combined—signaling more streamlining ahead, and perhaps just one CIO running both shops.

Murphy wasn't in the loop this time. He and the other top executives were told of the merger two days before the public announcement. Now Murphy isn't sure what his future holds: On Dec. 17, No. 1 Carnival Corp. made a hostile takeover bid for No. 3 Princess. If regulators reject both deals, RC would remain No. 2. But if regulators don't object, Princess shareholders, during a meeting set for Feb 14, could vote to opt for Carnival and leave RC at sea.



 

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