Final article (for tonight) about CPQ from PC Week:
Off the Cuff
Pfeiffer's obsession with Dell offers clue to downfall
By Michael R. Zimmerman
April 19, 1999 10:45 AM ET
I was on the Compaq beat here at PC Week for about six months when then- CEO and co-founder Rod Canion was ousted due to poor financial performance, which had culminated in the company's first quarterly loss. It was a turbulent time for Compaq and certainly for Canion. During an interview I had with him several months before his resignation, I remember thinking, "This guy is agitated." He sat at the edge of his chair during much of the interview and was visibly impatient and humorless. Though I wasn't present during the interview with now ex-Compaq CEO Eckhard Pfeiffer my colleagues conducted last week at Compaq's Innovate Forum, Charlie Cooper's description of Pfeiffer's appearance and tone brought back memories of that Canion interview.
Though one could count the two men's similarities on one hand (not counting, of course, that they were both ousted due to poor financial performance), one trait was fairly evident: their obsession with rivals and their failure to devise and execute a plan to combat them.
For the latter part of his time at Compaq, Canion seemed almost too focused on low-cost clone makers. In an interview with PC Week back in 1991, Canion dubbed these companies, who after all were only doing what Compaq had been doing, only for a lot less money, "predators."
OK. Rivals, certainly, but predators?
Canion had a plan in mind to combat the bottom-feeding PC makers like Zeos and Northgate. Months after he left the company, ex-executives told me Compaq's biggest enemy at the time was time itself. The time needed to create, manufacture and deliver a low-cost PC line that would, by the way, meet the company's high-quality standards. (Remember, this was a company that was founded on the principle of making quality products first.) Canion, according to these executives, was opposed to the idea of going to an offshore manufacturer for an inexpensive line and simply slapping a Compaq nameplate on the box. The risk to the Compaq image of quality was too great, and Canion was determined to build the line at home. A line was begun.
Enter Pfeiffer, who, along with Chairman Ben Rosen, was convinced that the Taiwan route would enable the company to get into the low-cost market faster and at a lower cost, executives said. After the changing of the guard, Pfeiffer canned Canion's low-cost project and looked to Taiwan. But the line signed onto actually got the thumbs-down from top Compaq brass. Word from the ex-executives was that Pfeiffer reversed himself and fired up the original low-cost line, which would become the Prolinea. Ironically, Canion's low-cost line, if left to be completed, would have shipped several months before the Prolinea wound up shipping.
The root of the 'enterprise' ambitions
Pfeiffer's obsession for the last five years has been with Dell. Not just the company -- Michael Dell, personally. In fact, a colleague of mine pointed out recently that you never knew when Pfeiffer was talking about Michael Dell personally or the company because he always refers to Dell as "he" or "his."
Pfeiffer referenced either the man or the company in virtually every speech and was quick to point out that Dell, too, uses dealers. OK, we get it. But why bother to bring him/it up at all? When was the last time you heard Lou Gerstner mention Eckhard Pfeiffer's name in a speech? Yes, Dell's been taking share away from Compaq and IBM for the last year, if not more. Yes, Dell's direct model has done very well. But did Pfeiffer think that pointing out insignificant differences between the two companies in public would have any impact on public opinion?
Two weeks ago when Compaq announced its new Prosignia line for small business, Pfeiffer did it again. I felt compelled to ask Peter Blackmore, Compaq senior vice president about the Dell references in an interview after the announcement. Blackmore laughed for a few seconds and said something to the affect that Dell is a key competitor, etc., etc. OK.
What kills me about this saga is that Pfeiffer, like Canion, identified his most powerful rival and wanted something done about it. But then something happened. Somewhere along the way he got sidetracked by the notion of becoming an "enterprise company." Bigger is better I suppose. And maybe he thought that by becoming the next HP or IBM, he'd be able to outperform all the smaller vendors. Sounds good in theory. But what's the point if you can't accomplish anything without having to turn to Viagra or things mechanical?
Unfortunately for Pfeiffer, no magic pill could fix the Dell problem. So he embarked on his quest for the enterprise and acquired a handful of networking and high-end computer companies ranging from Thomas Conrad and Microcom to Tandem and, of course, Digital. All the while, Dell was eating away at its bread and butter PC business.
Pfeiffer was right to focus on Dell and wrong to focus on anything else until that was taken care of. Yes, it was important for Compaq to acquire some type of services company, and the company's e-business strategy, while late, is also a crucial component to its future. But it embarked on these initiatives when the Dell problem was still a key concern to Pfeiffer.
To his credit, Pfeiffer did try a few ideas to compete against direct marketers. Compaq Direct Plus was one. A challenge from the start due to the distribution and pricing complications it created for its loyal dealer channel, but an idea, nonetheless.
One idea that surely would have paid off in spades was the acquisition of Gateway that almost took place several years ago. According to sources, Compaq and Gateway, which was privately held at the time, were in serious merger/acquisition discussions when Gateway CEO Ted Waitt walked away from the deal at the last minute. Imagine the success Compaq would have had against Dell if it had been able to make Gateway and Waitt a deal they couldn't refuse. Compaq's dealer worries would have been almost nonexistent, its customer base would have expanded dramatically overnight and its revenue stream would have jumped as well. But it was not to happen and today the company has a rather confusing array of purchasing options that includes dealers, retail, Web and direct sales.
Though I believe Pfeiffer's ousting is a classic case of "what goes around comes around," you can't ignore the incredible wealth he has helped bring to Compaq's investors and shareholders over the last eight years. In fact, my first Off the Cuff column praised Pfeiffer for his no-nonsense approach to the company and the industry. But what it always boils down to is pleasing the investors and the board, and Pfeiffer knows this all too well. The business is unforgiving.
But there is one puzzling thing about this ouster. I can't help but wonder if, despite the dismal estimates, Pfeiffer could have found a way to keep his job. Maybe he could have been more up front about exactly how Compaq was caught off guard by some of the market pressures. You know, make the bad news at least a little more digestible to the board and Compaq investors. Let's face it, telling the world "Don't blow this out of proportion'' and that your troubles are basically the result of intense pricing pressures is a lot like NBA coaches telling us the point percentages are down because the players didn't start practice until late. Huh? Telling us that pricing pressure was one of the main reasons for your problems begs the question: Aren't you supposed to have plans in place to combat such things?
Maybe Pfeiffer could have stayed on if he'd pointed to the worst affected parts of the business and fingered a couple of fall guys.
Worse things have happened.
What do you think Compaq has to do to beat Dell or at least maintain its lead in the PC industry? Contact me at Mike_Zimmerman@zd.com. Off the Cuff, an online exclusive column, appears on Monday, Wednesday and Friday. |
