Bleeding at Compaq.... What's wrong with Compaq?
andovernews.com
Something is wrong. And since Compaq's Chairman
sits on the Board of Directors of the firm that owns the
Ask Jeeves website, I punched in the question there. I
looked at reponses returned by several search engines,
and the best one was an analysis of what what had
gone wrong at Compaq since its takeover of Digital
Equipment Corporation. Plenty had gone very wrong.
And more has gone badly since the article was written.
Unfortunately one thing that had gone wrong was the
pointer at Altavista. The link was dead. (Hint: you can
find it elsewhere using Google).
While most analysts still think Compaq is very much
alive, the company has been in a tailspin for better than
a year. The Compaq/DECdeal that "analyst" Jesse
Berst said would have Compaq overtaking IBM as the
world's biggest computer company , hasn't worked at
all. The company's earnings are slipping, costs are
skyrocketing, and the firm's balance sheet is turning an
unattractive color -- red. None of the company's recent
initiatives are working and careers of a lot of well-paid
managers at the company are on life support. It's
getting ugly. While outsiders can only guess at the
details of what's going on by the blood seeping under
the door leading to the executive suite, it's pretty clear
that a full-fledged purge is underway.
In the last couple of months, former CEO Eckhard
Pfeiffer was shown the door after disappointing first
quarter numbers were announced. Ben Rosen, an early
investor and an old hand at Compaq, announced he
was in charge at least temporarily. He said that he
would be assisted by a team consisting of Frank
Doyle, a retired GE executive who'd been along for the
ride as a member of DEC's old board of directors, and a
real estate investor by the name of Robert Ted Enloe,
III. CFO Earl Mason was gone with Pfeiffer. Then Senior
VP Mike Heil left. Soon John Rando, the manager of
Compaq's services businesses, was gone. John Rose,
the Veep who ran Compaq's Enterprise business, and
who was considered Pfeiffer's likely successor,
resigned. In the last few days the VP in charge of
Europe learned that he had retired. Rosen recently
announced that things were going to stabilize. The
search for a new CEO was under way, he said. But one
of the managers most likely to be involved with the
search, Human Resources Veep Hans Gutsch (rhymes
with putsch?) learned this week that he had joined the
ranks of the retired.
Was the entire management of Compaq that bad? Or
has this been a case where a lot of guilty parties have
been fired by a lot of other guilty parties?
For the last couple of years there has been plenty of
guilt to spread around.
There's an old saying among analyst types that the
mathematics of most corporate mergers usually looks
like this: 1+1=1. That means that by the time the dust
settles on the "really big deal" profits aren't any higher,
shareholder value isn't higher, and sometimes gross
revenues aren't much higher than they were
beforehand. Looking at the Compaq/DECdeal it looks
like everyone involved was trying to prove that old
saying wrong -- because it was too optimistic. Every
opportunity to make "synergy" out of Compaq's PC and
Digital's server business fell flat. Even basic
coordination was lacking. At the beginning of the
merger, instead of working to help integrate product
lines, the DEC folks were bringing out a new PC line
whose primary competiton was--- you guessed it,
Compaq.
For their part the Compaq management dithered
endlessly about whether to feature Digital's old (but still
amazingly fast) server line that was based on the Alpha
chip, or to abandon it in favor of Intel's Merced. They
dithered endlessly about how or if their server line
should feature NT, or the company's proprietary
iteration of Unix or even Linux. They dithered about
about how or whether to support their old reseller
network, should they support it, force resellers to be
virtual manufacturers of Compaq equipment or move in
the direction of direct sales. They dithered about how to
handle Alta Vista. Was its superior search engine
sufficiently good to make it the basis of a "portal" for
business? Or were portals inevitably a consumer
business -- Or was the real money to be made by
bundling the engine into other software products?
The attempt at avoiding decisions resulted in having
decisions made for them.
Because the company couldn't decide what do do with
the Alpha chip, the market reacted, and soon Compaq
found themselves "consolidating" their Alpha chip
production. The firm's indecision concerning how to
deal with resellers meant that on one hand they got
into a major fight with one reseller and damaged
relations with many others, only to drive up costs and
drive down revenues when they tried to buy back
reseller loyalty with steep discounts and lowest price
guarantees. Meanwhile, the object of all the reseller
fights -- the corporate customers the firm has counted
on -- started drifting away. Many of them have found
that they can get rugged, reliable, high performance
systems created to their specifications via firms like
Dell or Gateway. Systems Integrators have been no
happier with Compaq than straight resellers. The
company's inability or unwillingness to fully commit to
NT or the versions of Unix developed by Digital or by
Compaq subsidiary Tandem, or to open systems
software such as Linux made the company few friends
among systems integrators, for whom software support
is critical. Within the company's own team of
integrators in Compaq's Services unit, morale was in
free-fall. As a couple of employees I've know for years
put it, "our resumes are ready to go and so are we."
Indecisiveness was hurting other business units.
AltaVista continued to be what one analyst described
as a "first tier engine/third tier portal," and lacked a
consistent or high-quality management team. The most
recent stable of managers was put together only in the
last month or so-- and it features as a senior manager
a fellow who's previous executive gig was managing a
national pet store chain. Occasional failures and
decisions such as a recent one to let advertisers "buy
their way" to the top of a search results list are not
likely to be welcomed by the sites' power users, and
the portal business is increasingly crowded as well
engineered or well financed alternative sites such as
Google or SNAP compete for users.
Much of the corporate indecision of the past year was
blamed on the differing agendas of Old Compaq and
Old Digital managers, and an unwillingness of senior
managers to resolve those differences. Or perhaps the
differences in corporate cultures couln't be resolved and
the merger was simply a big mistake. I would put
myself among those who never understood what
Eckhard Pfeiffer saw in Digital that was so appealing.
DEC's former CEO Robert Palmer had nearly driven the
company into the ground. The few viable usiness units
-- Altavista, the enterprise storage business, an
effective if demoralized services unit ,and the Alpha
servers business -- had little in common save a
management class more skilled at corporate infighting
than making sales.
And that may explain much of what is going on right
now. There is little question that infighting has broken
out Digital Equipment - style, and the result may be a
new president from the DEC side of the business.
Speculation is high that despite the ferverent hope of
many analysts that Compaq would go outside for it's
next CEO, Chairman Rosen is making that exceedingly
difficult. By firing almost all senior managers, and
announcing sweeping changes in corporate structure
any prospective outsider would find his hands tied and
have few resources to draw on to create a transitional
team. Any potential outsider candidate would likely to
be recruited by Hewlett Packard as well as Compaq.
While HP is having its own difficulties attracting a new
CEO the difficulties there pale compared to the
management challenge that's brewing at Compaq.
Rosen's team has already selected Compaq's new
boss and the speculation is centering on an ex-Digital
executive named Enrico Pesatori. When John Rose
was fired, Pesatori was given his job and presently he
is both head of enterprise sales and head of marketing
for the company. While Chief Information Officer
Michael D. Capellas was named "acting Chief
Operating Officer" at the beginning of June, it's widely
assumed that this job, like virtually every other
management job at Compaq -- was temporary, and that
Pesatori has the CEO job once all the bad numbers are
made official -- unless Ben Rosen wants to pull a Steve
Jobs, and run the show for a little while longer.
I want to be fair to Compaq. The PC market has
become incredibly cutthroat. IBM is allegedly a well run
concern and it lost a BILLION dollars in PCs.
NEC/Packard Bell has suffered. So has Hewlett
Packard. And Compaq has some great products both
shipping and in the pipeline. But with the
announcement of new competitors every day, most
notably a JV between Siemens and Fujitsu targeting
Compaq's core corporate market, Compaq can't afford
many more missteps or indulge itself in further
corporate backstabbing. |
