Bausch

Harvard Business School

9-198-009
Rev. June 23, 1999

Bausch & Lomb, Inc.: Pressure to Perform
We are impressed by Bausch’s ability to grind out 15% earnings per share growth despite the impact of a weak consumer market in the U.S. on the company’s domestic oral care and Ray-Ban sunglass businesses and substantial losses in BOL’s U.S. ethical pharmaceutical business. —(First BostonCorporation, July 20, 1992) From 1980 to 1991, Bausch & Lomb Inc. was considered by many investment analysts to be one of the strongest performers on Wall Street. Investors who bought the stock in 1977 and held it until 1991 were handsomely rewarded as the stock climbed from $5.50 per share to $58.00 per share (Exhibit 1). Then, beginning in 1993, the business press called into question many of themanagement practices at Bausch & Lomb. Business Week accused Bausch & Lomb of forcing distributors to accept excess inventory, creating false sales invoices, and possible money laundering. Bausch & Lomb senior executives denied that there were systemic problems.1

Background
In 1853 John Bausch, a German immigrant, began selling optical goods in Rochester, New York. In need of $60 for storeexpansion, Bausch asked his friend Henry Lomb to join as partner. Bausch & Lomb’s early success was attributed to the invention of Vulcanite, a hard rubber eyeglass frame that was considerably more long lasting than traditional wire frames.2 In the early 1900s, Bausch & Lomb began producing microscopes, telescopes, and binoculars using internally manufactured optical glass that was cheaper than thetypical product imported from Europe. Bausch & Lomb furnished many of the binocular and telescope lenses for the U.S. government during World War I. In 1929 Bausch & Lomb developed an anti-glare product for the Army Air Corps: Ray-Ban sunglasses. In World War II Bausch & Lomb continued to supply the U.S. government with lenses for everything from binoculars to satellites and missile defense systems.31 Mark Maremont, “Blind Ambition,” Business Week, October 23, 1995, pp. 78-92. 2 OneSource Internet home page, Bausch & Lomb Corporate Overview. 3 Ibid.

Alex C. Sapir, MBA’97 and Research Associate Indra A. Reinbergs prepared this case from public sources under the supervision of Professor Robert L. Simons as the basis for class discussion rather than to illustrate either effective orineffective handling of an administrative situation. Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, ortransmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1
Purchased by victor mercado (vmercado@d6.cl) on December 28, 2011

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Bausch & Lomb, Inc.: Pressure to Perform

From 1970-1995, the company enjoyed a series of successes, beginning with the approval of soft contact lenses by the Foodand Drug Administration (FDA) in 1971. Solid patent positions allowed the company to achieve record sales, which propelled it into the Fortune 500. In the 1980s Ray-Ban sunglass sales skyrocketed, as Hollywood popularized the classic sunglasses through movies like Top Gun and The Blues Brothers. In 1992, Re-Nu, the first dual-purpose (cleaner/disinfectant) contact lens solution, became Bausch &Lomb’s best-selling product after only three years on the market. During this time, Bausch & Lomb sold its core optical operations (prescription eyeglass service and industrial instruments) and expanded into medical products and research.4

Company Structure
As of December 1995, Bausch & Lomb divided its operations across two lines of business: Optics (30% of sales) and Healthcare (70% of sales)....