Great article. (IMHO)
Compaq expects loss, embarks on major
restructuring
By James Niccolai
InfoWorld Electric
Posted at 2:00 PM PT, Jun 17, 1999
As expected, Compaq Computer warned Thursday of an expected loss for its
second fiscal quarter, and announced plans for a major restructuring that will result in three
distinct business units, each responsible for its own profit and loss.
Compaq blamed pricing pressures in the personal computer segment, inadequate revenue
growth, and a noncompetitive cost structure for the expected shortfall. The company said in
a statement issued Thursday that it expects to report a loss of $0.15 per share for the quarter
ending July 28, while revenues and gross margins are expected to be flat to down
sequentially.
To help the PC manufacturer get back on track, Compaq will undergo a major
reorganization that will split the company into three global business groups -- Enterprise
Solutions and Services, Personal Computer, and Consumer -- each with a separate,
market-driven profit-and-loss accountability.
Benjamin Rosen, acting CEO of Compaq, sent out an all company e-mail Thursday morning
(see below) alerting employees to the changes. In it he termed the restructuring as "the most
extensive realignment of our company since 1991. It will mean significant changes in how our
operations are organized and how we drive our business. But these changes are necessary
for us to improve execution, streamline decision-making and accelerate growth and
profitability."
The company expects to take a "substantial restructuring charge" in the third quarter of this
financial year in connection with the realignment. Once completed, the realignment plan is
designed to eliminate $2 billion in ongoing operating costs, Benjamin Rosen, Compaq's
chairman and acting chief executive officer, said in a statement issued Thursday.
"The actions we are taking today are designed to take full advantage of the breadth and
depth of Compaq's capabilities to restore the company's growth and financial performance,"
Rosen said.
Thursday's news follows a spate of departures of high-profile executives at Compaq, starting
in April with the surprise resignation of longtime CEO Eckhard Pfeiffer and Chief Financial
Officer Earl Mason.
Just Wednesday, Hans Gutsch, senior vice president of human resources, organization and
environment, retired from Compaq, effective immediately. In his 11 years with the vendor,
Compaq's payroll grew from 2,000 to 70,000 employees, and Gutsch was credited with
playing a major role in orchestrating the company's global infrastructure.
"In the two months since the change of management at the company, we have taken a deep
look into the strengths and challenges of Compaq," Rosen said in today's statement. "We
have determined that significant structural changes are required to enable this company to
realize its enormous potential and secure its position as the preferred information technology
partner for global customers."
Operating issues affecting the computer maker in the first quarter have continued to dog the
company, and Compaq has "not performed to [its] potential," Rosen said.
In the internal e-mail, Rosen outlined the five steps Compaq would need to enact in order to
turn the ship around.
"We will focus on five key goals. First, we will become a recognized leader in eBusiness
solutions. We are building a strong foundation with our NonStop eBusiness strategy, which is
a powerful differentiator for our company. Second, we will extend our leadership in personal
computing for both the commercial and consumer markets. Third, we will take full
accountability for our customer relationships. Fourth, we will build a world-class global
supply chain, which will help make us more competitive across all of our businesses. And
fifth, we will substantially reduce our infrastructure costs."
The newly formed Enterprise Solutions and Services Group, headed by Enrico Pesatori,
senior vice president and group general manager, is being formed through the integration of
the company's Enterprise Computing Group and Compaq Services. The new group will be
responsible for the delivery of Compaq's NonStop eBusiness solutions and the products and
services that make up those solutions.
The Personal Computer Group will continue to be led by Mike Winkler, senior vice
president and group general manager. The Consumer Group will continue to be headed by
Mike Larson, senior vice president and group general manager.
Additional elements of the company's realignment include:
the creation of a global sales and marketing group with responsibility for sales processes
across all business group lines;
the establishment of a dedicated organization to manage all of Compaq's
electronic-commerce activities; and
the creation of a customer advocacy organization, combining Compaq's quality and customer
satisfaction organization with its customer advocacy initiatives.
Compaq Computer Corp., in Houston, is at www.compaq.com.
Internal e-mail from Office of the Chief Executive
To: Compaq Worldwide Team
During the past several weeks, the three of us have learned a lot about Compaq -- from
you and from our customers. We found that Compaq has many of the essential
components of a great company: quality and enthusiastic people, a broad portfolio of
products, services and solutions, a sound strategy built around NonStop eBusiness
solutions and PC leadership, and a strong culture of success.
But we also found that we have created substantial barriers to success. From customer
focus to cost structure to the alignment of our businesses, we need to make significant
improvements. As we put it in April, we are not living up to our tremendous potential.
This is reflected in our current financial performance. We told financial analysts this morning
that Compaq expects to report a loss for the second quarter of up to 15 cents per share.
This is unacceptable to us, and we know it is unacceptable to you.
After several weeks of work, the senior management team has unanimously endorsed a
plan that will address our challenges and, most important, position Compaq for sustained
growth and industry leadership as we enter a new century. It is the most extensive
realignment of our company since 1991. It will mean significant changes in how our
operations are organized and how we drive our business. But these changes are necessary
for us to improve execution, streamline decision-making and accelerate growth and
profitability.
One of the first things we have to do is to answer a question that many of you, as well as
many of our customers, have asked: What is Compaq? Compaq is a global information
technology company focused on three growing market segments: consumers, personal
computers and enterprise solutions. Our goal is to be a leader in each segment. And we
will go to market with the most competitive model in each.
We will focus on five key goals. First, we will become a recognized leader in eBusiness
solutions. We are building a strong foundation with our NonStop eBusiness strategy, which
is a powerful differentiator for our company. Second, we will extend our leadership in
personal computing for both the commercial and consumer markets. Third, we will take full
accountability for our customer relationships. Fourth, we will build a world-class global
supply chain, which will help make us more competitive across all of our businesses. And
fifth, we will substantially reduce our infrastructure costs.
The most fundamental change we are making is to create three global business groups --
Consumer, Personal Computer and Enterprise Solutions and Services -- with end-to-end
alignment and accountability for meeting customer needs and increasing customer
satisfaction. Each business group will have profit and loss responsibility that is
benchmarked against the market, go-to-market models focused on growth and competitive
cost structures. This alignment will enable us to compete effectively not only against other
diversified companies like IBM and HP but also against single-focus companies like Sun
and Dell.
We will integrate the Enterprise Computing Group and Compaq Services into a new
Enterprise Solutions and Services Group (ESSG). It will be responsible for the global
delivery of NonStop eBusiness solutions and the products and services that make up those
solutions. Our technology and global service capabilities are two of Compaq's most
important assets, and they must be tightly linked. Enrico Pesatori is the Senior Vice
President and Group General Manager, ESSG.
Mike Winkler will continue to serve as Senior Vice President and Group General
Manager, Personal Computer, and Mike Larson as Senior Vice President and Group
General Manager, Consumer.
To support this alignment, we are taking several other key actions.
We are creating a new role for Sales and Marketing. Although we eliminated the
Worldwide Sales and Marketing function several weeks ago, we concluded that there is a
need for an organization with an emphasis on global sales processes. Sales and Marketing
will increase our focus on global accounts, present a single face to major customers and
increase our account penetration. We want to assure continuity for customers, so account
assignments will not change. The geographies will continue to be the focal point for
customer relationships and will report to this organization. Peter Blackmore, previously
head of North America, will become Senior Vice President, Sales and Marketing.
Country managers will continue to report through the geography general managers and will
be responsible for managing the company's portfolio of businesses. The business model
and strategy for these businesses will be defined by the global business groups. Country
managers will be responsible for implementing the go-to-market strategy and for managing
the sales force and customer relationships to meet the agreed revenue and profit goals of
the business groups. In addition, they will implement eCommerce and call center
capabilities and manage shared services for the country.
We are establishing clear accountability for marketing. Corporate Marketing will continue
to drive branding, advertising and corporate communications. The business groups will be
responsible for product and solutions marketing. And the geographies will drive demand
generation.
It is critical that we integrate the Internet into everything we do, so we are establishing a
dedicated organization to manage all of Compaq's eCommerce activities. This group will
be responsible for Compaq.com, customer relationship management and the necessary
information management resources. It will also deliver global eCommerce capabilities and
tools and call center systems. We expect this to become a showcase for our Internet
solutions. We will recruit an experienced eCommerce executive to lead this organization,
who will report to the Chief Operating Officer.
We are expanding the responsibilities of our supply chain management organization. This
will insure that we have end-to-end alignment from demand management to delivery. By
building the best supply chain in the industry we will reduce costs, improve efficiencies and
enhance overall customer satisfaction. Ed Straw continues as Senior Vice President,
Supply Chain Management.
We are also creating a new organization dedicated to customer advocacy. It will combine
the quality and customer satisfaction organization with our customer advocacy initiatives.
This group will be responsible for Compaq's Quality Leadership Teams, process
improvement activities and benchmarking. A Vice President of Customer Advocacy,
reporting to the Chief Operating Officer, will be named later.
These actions are focused on our operations. Corporate Marketing, Human Resources,
Finance, Legal, Technology and Corporate Development, and The AltaVista Company will
continue to report to the Office of the Chief Executive. [See attached organization chart]
As a result of these actions, we will have focused, fully aligned business groups, supported
by a large, international sales force and a best-in-class global supply chain. We will be
more responsive to our customers. And we will develop leadership eCommerce
capabilities. This will put Compaq in a strong competitive position.
The key, of course, is execution. We have started by naming the senior management team
that will drive our implementation plan. We will establish clear metrics, accountability and
rules of engagement. We will deploy market-driven benchmarks for our business groups.
And we will define our restructuring and reinvestment plans.
We do expect to take a substantial restructuring charge in the third quarter as a result of
our realignment plans. But we also intend to invest in growth and in infrastructure
improvements that have been deferred, such as customer call centers and eCommerce
capabilities.
These changes will require each of us to think in new ways and to build new and stronger
partnerships within Compaq and with our customers. Based on what we have heard from
you during the past nine weeks, we believe that the vast majority of you will welcome these
changes and the opportunities they will provide. This is a company of winners, and our goal
is to unleash our will to win.
We are counting on each of you to help make these new organizations a success for
Compaq and, most important, for our customers. We will communicate further
implementation details to you and your managers over the coming weeks. Together we will
build a Compaq that is poised for even greater success in the years to come.
Ben [Rosen] Frank [Doyle] Ted [Enloe]
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