S and thread -- I found this analysis from IDC helpful in understanding the dec/cpq deal: "Positive Impacts
The acquisition of Digital moves Compaq into Digital's spot as the third largest services organization in the world (see Table 1).
Table 1Compaq and Digital CombinedVendorSvcs revs FY97Svcs employeesCompaq $1.2B*6,000*Digital $5.8B23,000Total $7.0B29,000*IDC estimates (Tandem included).Source: IDC
Note: Digital's fiscal year 1997 ended June 28, 1997. Compaq's fiscal year 1997 ended December 31, 1997.
Even more important, however, are the benefits to Compaq of a large, highly expert services organization. The acquisition of Digital confers:
Credibility-The Digital acquisition gives a credibility boost to Compaq's play in the enterprise. Digital's account base provides a starting ground where Compaq can apply marketing and sales efforts. Potentially, this presence provides a foundation from which Compaq could sell more comprehensive solutions with a greater services component and present a credible alternative to IBM and H-P. A newly structured Compaq/Digital would also enjoy greater freedom in aggressively migrating Digital's base of VMS and Unix customers to Compaq platforms running NT.
Expanded services capabilities-Compaq had been using Digital's Multivendor Customer Services group for worldwide support services since 1995. Now, Digital's Network and Systems Integration Services (NSIS) and Operations Management Services (OMS) businesses will also be important components of Compaq's strategy. Their service offerings center around NT and messaging migration, as well as specific solutions for the communications and finance industries. In addition, Digital was further along than Compaq in developing services for Internet and intranet environments. Only last week, Digital announced phase two of their "Alliance for Enterprise Computing" with Microsoft, incorporating new investments by Microsoft in training and technologies.
Worldwide services reach-Leaving aside Unisys, other Compaq services partners use relationships and spotty acquisitions to provide services outside of the U.S. Digital has a service presence in roughly 100 countries worldwide. Compaq can now use this presence more seamlessly as part of its offerings to customers, and will be able to exercise more managerial control over the quality and consistency of global service delivery.
Services branding-Brand recognition has become an important factor in IT decision-making. Customers are looking for a provider they can trust to deliver on high-risk projects and high availability systems. Despite its relatively small role in service provision to date, the Compaq brand name carries weight, especially for services related to Windows NT. The combined organizations will strengthen this perception even more.
Challenges
While the acquisition of Digital gives Compaq a services story to tell, the plot of the story remains in question. The challenges the new organization will face are by no means minor.
Avoiding channel conflict-Compaq has been clear and direct in its dealings with channel partners regarding their role in delivering services, and has been careful to avoid channel conflict in the services arena. Digital, like IBM and other competitors, has had its ups and downs in its relations with channel partners. Compaq must fit Digital into its network of services relationships without causing excessive disruption.
Maintaining multivendor services business-Digital performs maintenance and support services for a variety of vendors that compete with Compaq, including Dell. It is unlikely that all of these relationships will sustain after the merger. Digital will have to adjust to lost business in its Multivendor Customer Services (MCS) unit and make up those revenues through new Compaq initiatives. In addition, given that the channel is increasingly invested in MCS service segments, the role of MCS may need to shift to incorporate greater channel involvement.
Executing on services branding and delivery-Challenges remain for Compaq in becoming a true enterprise competitor. Compaq has gaps in its strategy in delivering some higher end services that the Digital acquisition does little to address. For example, Digital's enterprise applications (ERP) practice is small and marginal. Also, its operational services business, while making inroads in Windows environments, is still moving from a heritage of tools and processes that were developed originally for Digital proprietary systems. To really offer these types of services on a par with some of its competitors, Compaq will need to make additional investments in services R&D, infrastructure, and marketing.
Overcoming cultural differences-Acquisitions create periods of turmoil and change, and differences in corporate culture can intensify the turmoil. Even though many Compaq services employees are formerly of Digital, the two cultures have evolved distinctly. Combining these cultures may prove painful for some. Losing key people in either Digital's or Compaq's service organizations could cripple both services marketing and services delivery, or slow the time to market of new programs and capabilities.
Developments to Watch
Compaq is like a lame horse that has just gotten a new shoe. With the Digital acquisition, it is now better equipped to compete with the front of the pack. Moreover, Compaq has a vision of where it wants to go and a disciplined management team. Compaq's competition at the enterprise level (i.e., H-P, IBM, Sun) should be concerned.
Several moves will indicate early on how Compaq will handle the challenges presented above. First, Compaq must quickly address the channel and define their participation in any new marketing efforts. To be forthright in this communication, Compaq should acknowledge areas where opportunities for the channel will be more limited and describe those areas where opportunities can be expanded. Since Compaq is already in the process of re-authorizing many of its resellers, it has a good opportunity to obtain their buy-in to changes that may be in the works.
Second, Compaq must develop a services business and marketing plan that sets out their intentions. Several scenarios are possible. Compaq could move toward a more direct selling model, which could mean an even greater reduction in services opportunity for channel partners (resellers, distributors, integrators). However, this could potentially kill the channel, something that Compaq cannot afford to do.
Instead, IDC anticipates that Compaq will continue to expand on a hybrid direct/indirect services model that will incorporate the channel and Digital's organization in market-focused initiatives. Potentially, such a hybrid model could be a critical tool in addressing the worsening IT skills shortage so that Compaq's growth does not become limited by this looming problem. In addition, IDC would not be surprised by another services-focused acquisition that would build out additional areas of Compaq's services offering. Although Compaq is on track to reach its $50 billion goal, Compaq can now move towards it with a fuller services portfolio for the enterprise market." dulane |
