News Analysis: Hitting the Right Note with a Golden Triangle
Hundreds of corporates and resellers descended on Houston, Texas, two weeks ago as Compaq held its biannual conference ? Innovate 97 ? to listen to CEO Eckhard Pfeiffer?s words of wisdom. But in a somewhat uncharacteristic turn of phrase, Pfeiffer opened his own keynote speech by describing Compaq as a member of the golden triangle.
He was referring to the alliance of Intel, Microsoft and Compaq ? a triangle which certainly turns in massive profits for all three. By allying himself with Intel CEO Andy Grove and Microsoft CEO Bill Gates, Pfeiffer was saying that Compaq is a global player too. The very fact that both Grove and Gates came along to the event to give their own views of the future of the industry is a tacit admission by them that Compaq is a very big player indeed.
The PC industry is volatile and Pfeiffer knows that. He re-engineered Compaq in 1992 when he took over the reins from founder Rod Canion, and has turned it into the world?s number one PC company.
It was obvious from the different workshops and conversations with senior Compaq ex- ecutives at Innovate that more than a little re-engineering is needed from Pfeiffer if the manufacturer wants to hold on to its leading position. A string of announcements about the internet, the total cost of ownership argument and the need to change the way Compaq sells its computers underlined Pfeiffer?s determination to make it so.
Last week, John Rose, senior VP and group general manager of Compaq?s enterprise computing group, conceded that the vendor had kept a low profile on the internet, but insisted that would change. Pfeiffer reinforced Rose?s commitment in his keynote speech the following day, by planting a stake in the internet market, but one which would be based on ?industry standards? ? a Compaq codename for non-proprietary and non-Unix PC systems. That signalled Pfeiffer?s interest in the firm becoming more than just a seller of tin.
Pfeiffer is a realist and takes the threat of NCs seriously enough to have invested a considerable degree of Compaq?s money into pushing the Net PC. The threat from Oracle and other NC players is based on a total cost of ownership rather than a technology argument, and Pfeiffer spent considerable time spelling out how Compaq would address that.
?We?re reducing cost from all phases of the ownership process,? he said. ?Total cost of ownership really has just two main parts: capital and labour. We have dozens of initiatives directed at lowering capital and labour costs.?
The evidence that Compaq could do this, he said, was increasing. ?Several of our large customers have calculated the decrease in their labour hours after investing in our management tools. They reported that there were 27 per cent fewer on-site support calls, 87 support hours saved a month for every 100 users and 27 per cent fewer server outages with 50 per cent fewer users affected.?
Compaq?s introduction of its Net PC ? which insiders claimed will arrive in the next two months ? will also help the total cost of ownership argument by providing a cheaper unit with greatly improved server management. Pfeiffer added that Compaq will further strengthen its commitment to corporates by introducing leasing and capital finance schemes over the next months.
Pfeiffer also attempted to downplay the vendor?s recent move into direct sales. He was adamant that Compaq would continue to support its channel, despite the fact that Compaq US will build and configure to order, thereby allowing users to bypass its channel.
This move can only be seen as a reaction to Compaq?s arch-rival, Dell. The direct manufacturer has successfully promoted a business model where users specify what machines they want and Dell then builds and ships the box to them. It is this gap in the market that Compaq is losing.
Pfeiffer said: ?We will build and ship standard products within one to five days of receiving an actual customer order. Build to order reduces the need to have weeks of inventory in the channel and this gives customers and channel partners the benefits of lower prices, greater product availability and more predictable delivery.?
According to Pfeiffer, the last thing he wants to do is to alienate his channel partners, which together amount to 90 per cent of business. Instead, Compaq will push money into corporate sales teams and into resellers to increase support and efficiency, he said.
Pfeiffer clearly wants to eliminate weaknesses from Compaq. At Innovate, the firm announced an ?affordable? member of its Armada range. Because of stock and technical problems, the vendor has seen its market share slip in Q4 of 1996, with Toshiba and IBM the winners, according to Dataquest.
If Compaq gets it right on all these fronts, Pfeiffer is confident that it can continue its steep growth curve. ?In September 1993 Compaq was a $7 billion company and by October 1995 we had grown to nearly a $15 billion company. Now our worldwide sales seem to be heading into the clouds.? He said Compaq is the fifth largest computer company in the world, but wants to be number three by the end of the century.
That will certainly make Pfeiffer the golden boy of Compaq?s shareholders, and will give him more leverage over the other two golden triangle members who, to some extent at least, dictate the way that Compaq grows.