Reference no: EM133056545

In one of the most dramatic redirections of corporate strategy in U.S. history, Hughes Corporation transformed itself from a defense industry behemoth into the world's largest digital information and communication company. Once California's largest manufacturing employer, Hughes Corporation built spacecraft, the world's first working laser, communications satellites, radar systems, and military weapons systems. However, by the late 1990s, the firm had undergone substantial gut-wrenching change to reposition the firm in what was viewed as a more attractive growth opportunity. This transformation culminated in the firm being acquired in 2004 by News Corp, a global media empire. To accomplish this transformation, Hughes divested its communications satellite businesses and its auto electronics operation. The corporate overhaul created a firm focused on direct-to-home satellite broadcasting with its DirecTV service offering. DirecTV's introduction to nearly 12 million U.S. homes was a technology made possible by U.S. military spending during the early 1980s. Although military spending had fueled much of Hughes's growth during the decade of the 1980s, it was becoming increasingly clear by 1988 that the level of defense spending of the Reagan years was coming to a close with the winding down of the cold war. For the next several years, Hughes attempted to find profitable niches in the rapidly consolidating U.S. defense contracting industry. Hughes acquired General Dynamics's missile business and made about 15 smaller defense-related acquisitions. Eventually, Hughes's parent firm, General Motors, lost enthusiasm for additional investment in defense-related businesses. The decision was made that, if Hughes could not participate in the shrinking defense industry, there was no reason to retain any interests in the industry at all. In November 1995, Hughes initiated discussions with Raytheon, and two years later, it sold its aerospace and defense business to Raytheon for $9.8 billion. The firm also merged its Delco product line with GM's Delphi automotive systems. What remained was the firm's telecommunications division. Hughes had transformed itself from a $16 billion defense contractor to a svelte $4 billion telecommunications business. Hughes's telecommunications unit was its smallest operation but, with DirecTV, its fastest growing. The transformation was to exact a huge cultural toll on Hughes's employees, most of whom had spent their careers dealing with the U.S. Department of Defense. Hughes moved to hire people aggressively from the cable and broadcast businesses. By the late 1990s, former Hughes's employees constituted only 15-20 percent of DirecTV's total employees. Restructuring continued through the end of the 1990s. In 2000, Hughes sold its satellite manufacturing operations to Boeing for $3.75 billion. This eliminated the last component of the old Hughes and cut its workforce in half. In December 2000, Hughes paid about $180 million for Telocity, a firm that provides digital subscriber line service through phone lines. This acquisition allowed Hughes to provide high-speed Internet connections through its existing satellite service, mainly in more remote rural areas, as well as phone lines targeted at city dwellers. Hughes now could market the same combination of high-speed Internet services and video offered by cable providers, Hughes's primary competitor.

Questions

Why did Hughes's board and management seem to rely heavily on divestitures rather than other restructuring strategies to achieve the radical transformation of the firm? Be specific.