Strategy: Compaq battles for corporate cohesion
brw.com.au
Jeff Lynn, Compaq's new general manager of professional services, plans to strike alliances with a number of new rivals, such as start-up services companies Scient and Viant, which have embraced e-commerce related services and are showing growth rates of about 20%.
"Those firms have excellent brands, but they lack scale and 'global-ity' (global ability)," Lynn says. "We have terrific scale and global-ity, and we lack brand. So we are talking to a couple of firms like that about linking up."
By Brad Howarth
More than two years after acquiring Digital Equipment Corporation, Compaq Computer Corporation is still trying to be taken seriously as a full-service information technology company and to rein in its IT services division.
When Compaq said in January 1998 that it was buying Digital for $US8.4 billion, it sent shock waves through the IT industry. Established in 1982, the Texas-based Compaq had ambitions of greatness as a maker of PCs, servers and notebook computers. The Massachusetts-based Digital was in its fourth decade as a large, if declining, developer of high-end enterprise computing systems.
Cultural clashes soon began; some of the fiercest at Digital's services division. Former Compaq chief executive Eckhard Pfieffer had said that Digital's services division was the primary reason for the acquisition, but it proved the most resistant to its new owners. Unhappy employees impeded merger programs or left the company. (Compaq experienced similar problems when it bought Tandem Computers in June 1997.)
The distractions led to huge losses in Compaq's core PC business, including a $US2.7 billion loss in 1998 (profit for 1999 was $US569 million). In March this year, Compaq brought in help by appointing Jeff Lynn (previously vice-president for the IBM Global Services financial industry consulting group) as vice-president and general manager of professional services.
Lynn says the potential in the services divisions of Digital and Tandem has yet to be realised. "It's a fair observation that the services division has been a bit arm's-length from the rest of Compaq. Some of the initiatives that we are undertaking now are explicitly to build strong links back into the rest of Compaq. A big part of my job is to realise the services part of the promise of those acquisitions. We have a very good story to tell, and we are not telling it well."
Compaq is running a global advertising campaign on its otherwise unknown strength in the services area. The aim is to tell customers that Compaq does more than make PCs. "Consumer PCs are about 20% of our revenues, and about 80% is out of the enterprise market," Lynn says. "One of the main positioning themes for the new Compaq brand extension is going to be services, particularly professional services."
Earlier this year Compaq renamed its services division as Compaq Global Services. The name is similar to that of its main rival, IBM Global Services, but Lynn says it sends a clear message about the capabilities of a company with nearly 17,000 staff around the world, including 1500 in Australia.
"It's a simple change, but when you get right down to it, there are fewer than half a dozen services firms in the world that can credibly look a client in the eye and say they can play well globally."
Rolf Jester, Sydney-based principal analyst at the research firm Gartner, says Compaq still has cultural and branding issues to deal with, but it has breadth of coverage and unique skills in some areas. "There are some areas where they haven't been as successful, like the classic outsourcing business, but that's never been something they have gone after very seriously," Jester says. "In certain areas, like leveraging their Microsoft partnership with services around Windows 2000 and Exchange implementations, they have excellent skills."
This year Microsoft gave Compaq the status of "prime integrator" for the Windows 2000 operating system, meaning that it is recommended as a preferred partner for Microsoft's enterprise customers. It was also named Microsoft's global partner of the year for 2000 and employs more than 3500 Microsoft-certified engineers - more than Microsoft itself.
Compaq Global Services had a 4% fall in revenue to $US1.7 billion for the three months to June 30, mainly due to a drop in demand after the year-2000 issue passed. Lynn says: "The e-business/e-services internet component of our revenue stream is growing at an increasing rate now. Had that started to happen three quarters ago, it might have covered the drop."
Lynn is confident he can provide the leadership to hold the organisation together. "I have very much a 'one team' attitude. Let's go forward as one Compaq team - and, by and large, we are. Two years ago, post-acquisition, it was a very hot topic. These days, with the passage of time and the infusion of new talent from many other companies, that's a declining issue." |
