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I agree, this is a complex subject. But let me take a stab at defining some of the dynamics.
CPQ's current enterprise strategy is being driven by John Rose as much as by EP. Rose came to CPQ when CPQ was #3 in the PC business and just barely recovered from the near-meltdown in 1991. EP had been CEO for only 2 years, and wanted someone who could take CPQ to #1 in PCs by 1996. Rose committed to do that, and as is now well known, he did the job in 1 year, not 3, completing the job in 1994. He is super aggressive, very smart, and a great motivator. He also has a great feel for the enterprise market, and for DEC, since he spent much of his career there.
CPQ is also driven by a clear understanding of their business dynamics. They will create business and drive markets where they see the best return, and right now the easy targets are HP, IBM and Sun. All of these players have a conflicted strategy - HP and IBM because they are trying to maintain their legacy business while transitioning to whatever will be the winner in the next century, and Sun because of their refusal to get into the industry standard space because of Scott's attitude about microsoft.
CPQ executives have a good understanding of the strengths and weaknesses of Dell's model also. In the areas where Dell has a lot of inherent strength and CPQ a relative weakness, like the commercial desktop space, CPQ will probably play a defensive game. Why should they spend $2 to take $1 from Dell? Their strategy will probably be to emulate some of Dell's methods and tactics, play their brand, leverage their service capability and let the chips fall where they may. But if Dell begins to move into CPQ's bread and butter space (the enterprise) as they are showing signs of doing, the attitude will be a lot different.
In that case I would expect CPQ to play hardball. In the product space I could see them to bracketing Dell's enterprise offerings, with a pair of products at each point, one which offers the same capability at a lower cost, and a second which offers better capability at the same cost. They can drive that strategy with targeted trade-in and lease programs, integrated service offerings, and a tight linkage with the microsoft field, which has always had a much stronger affinity to both CPQ and DEC than Dell. Did you know that when CPQ or DEC sell an NT license the MS field guy gets his commission, but when Dell does direct fullfillment with OEM product the MS field guy gets nothing? Field people execute to their compensation plan. CPQ can subsidise portions of the hardware side of this plan through service revenues, which has been a staple of high end account control for at least the last 30 years.
CPQ can also put Dell into a 2-front battle by expanding their low end offerings. This creates price pressure on the lower end of Dell's lines (as it has already started to do). CPQ has already demonstrated their ability to make money in that space, so this is not a loss leader for them, but it might be for Dell. CPQ has not done a sub-1K server, but I have heard rumblings that they plan on doing direct sales of low end servers. It would not be much of a stretch for them to create server offerings that looks a lot like Dell's, at a lower price point, to deny Dell sales in the server markets where the service component is not valued as greatly.
It would be in Dell's interest to work their enterprise strategy in a way that reduces their exposure to this kind of pressure, while driving share and revenue in their current mainstream business. In the meantime, they could work out a way to develop a more complete enterprise capability (if they want to go there). But the pressure to maintain growth may not allow them the luxury of a balanced strategy. So there is certainly a chain of events which could put Dell in a tough battle with CPQ.
The other scenario, where CPQ spends most of its resources on the softer targets (IBM, HP, Sun, a few others) and leaves Dell a little running room, depends to some extent on Dell having sufficient respect for the capability of their competitor to avoid the direct battle. |
