Jean -
their tandem acquisition is a disaster
In general I agree with your comments, but it was not the acquisition of Tandem which got CPQ in trouble, it was DEC.
Tandem had a great internal culture and some outstanding technology, and was still a reasonably healthy company when CPQ bought them. They had suffered a couple of years of declining growth, but still retained the people and spirit that made them successful in the first place.
They had (and still have) an absolute stranglehold on the high reliability market, and they continue to be the product of choice for people who absolutely can't go down. That's why DELL runs the heart of its infrastructure on Tandem, and why every important stock exchange and the majority of banks and financial institutions run their core transaction processing on Tandem.
Tandem was also digestible - with roughly 6,000 employees, they injected a sense of engineering excellence and rigorous product testing into CPQ without overwhelming the things which made CPQ great.
I think CPQ should have stopped there. However, apparently (from anecdotal evidence and the statements of CPQ management at the time of the DEC acquisition), one of the things that gave CPQ the confidence to attempt the DEC acquisition was how quickly and easily the Tandem acquisition went, how smoothly the cultures integrated, and how quickly the Tandem product lines were returned to profitability.
DEC, however, was a different story. After nearly 15 years of decline, it had become a culture of survivors. Mixed in with some great engineering (mostly related to Alpha, but also in the software products and storage) was a host of weak strategies, money-losing development, and a huge cadre of senior and middle management whose primary skill seemed to be to justify 20 managers to direct 5 engineers.
Given the huge size of the DEC employee base compared to CPQ, I believe the only way for CPQ to have succeeded would have been to immediately cut unprofitable or redundant products and development efforts, retaining primarily the services organization. In another post today I pointed to the sorry history of small successful companies merging with large unsuccessful ones, and CPQ was no exception to that rule.
I thought that CPQ would move quickly to consolidate product lines, spin off the weaker businesses, and get to an efficient operation run primarily by CPQ classic and Tandem management. In the months after the acquisition was announced, I heard rumors that CPQ planned to reduce DEC headcount by between 25,000 and 30,000 people, either by spinning off business or layoffs, within a month or two of final closure of the deal.
They instead took about 14 months to do what should have been done in 60 days - reposition Alpha as a high end product line, drop Alpha NT and other volume Alpha plays, consolidate the Tandem and Alpha high end lines in a single business unit, and unload a large part of the specialty staff that DEC's shotgun approach to product planning had created. They still have not gone nearly far enough but at least they are moving.
I don't really know why there was a failure of will or of execution in the original merger, but it took a bold but risky move and turned it into a sure loser. Perhaps Eckhard Pfeiffer had become so enamored by the big revenue base he acquired with DEC that he didn't want to drop anything. More likely Earl Mason and John Rose (both ex-DEC executives) got caught up in the internal issues at DEC and just lost sight of the big picture. Whether by design or through incompetence, it is certain that the so-called "A team" of Pfeiffer, Rose and Mason did not present the real picture to either shareholders or other senior managers. I understand that John Rando, who headed DEC's service organization, had been a "shadow member" of the "A team" not just from the time of the acquisition, but to some extent since he brokered the services deal with CPQ in 1995. So he should probably be included in with the rest of the "A team" for presenting an artificially rosy picture, since as you point out, the services business is not nearly as healthy as we had been led to believe.
I guess that the server business , the ProLiants and stuff cannot carry the rest of the company.
CPQ still dominates the "Industry standard" server space, and their engineering of the ProLiant line is second to none. I work with customers who routinely evaluate the ProLiants against IBM, HP and DELL and although the latter group makes a respectable server, comparing them to ProLiant is comparing a Chevrolet to a Mercedes.
However, ProLiant is beginning to suffer the same problems that led Ben Rosen to sack Rod Cannion in 1991. Product transitions are happening too slowly. The products, while great designs, are too expensive. And there is a big chunk of the market where the differences between the ProLiant line and the products from the other major vendors just don't make any difference to customers. By the way, last time I checked, Chevrolet outsold Mercedes...
ProLiant still has the dominant share, and sells nearly as much as the next three vendors combined. But their lead has been cut in half in the last 2 years. I agree that unless they "get their groove back" they will not be able to carry the company (which they certainly did from 1993 to 1997). |
