E-Business Darwinism: Compaq ousts slow-moving CEO

E-Business Darwinism: Compaq ousts slow-moving CEO

Sun is the dot in "dot-com". IBM is e-business. But what is Compaq? Its recent branding campaign included a big nebulous "Q," and the question was: can the world's biggest PC maker transform itself into an Internet powerhouse? The answer now is: not with Eckhard Pfeiffer as CEO. Over the weekend, Compaq's board - led by chairman Ben Rosen - ousted Pfeiffer. CFO Earl Mason resigned in a coincidental move, according to Rosen. The moves came after Compaq warned that its profits in the latest quarter were half what analysts expected.

The New York Times' Steve Lohr was quick to point out that the "dramatic boardroom coup reflects just how much the Internet is shaking up the computer industry". He included a quote from chairman Rosen: "The Internet opportunity for Compaq is incredible." Rosen noted that with its big purchase of DEC last year, the company now has a top site in AltaVista and servers for hosting Net services and commerce. Rosen's reasoning for dumping Pfeiffer? In a statement, he said: "As a company engaged in transforming its industry for the Internet era, we must have the organisational flexibility necessary to move at Internet speed." Lohr gave IBM, Sun and Dell as examples of old-school tech companies that had Netified their images successfully.

The Journal's Gary McWilliams and Joann Lublin focused primarily on the PC side of the biz, including speculation that the board fell out of love with Pfeiffer because he didn't institute a build-as-you-sell program a la Dell and Gateway. They also noted that Wall Street didn't like the team anymore.

And if you're wondering who will next surprise us as an Internet company, you have to look no further than the cover of Forbes magazine. Intel CEO Craig Barrett's mug is there. The story is that the chip giant, too, is looking to diversify out of hardware and go to the Net. Forbes scribe Elizabeth Corcoran gave Barrett a soft-focus profile, saying that as the microchip becomes a commodity, Intel's growth driver will be "all about the Internet". Barrett's two new pushes are into networking chips and "services that will underpin e-commerce", though Corcoran never spelled out the latter specifically, outside of mentioning the legion of Intel's investments in startups. She did mention that Barrett's eagerness to get into e-commerce "is a tougher stretch for Intel". Hey, couldn't be any worse than making consumers think the Pentium III is going to speed up the Net.

Compaq and HP -- the old order changeth

By Ed Scannell and Michael Lattig

With Hewlett-Packard gently pushing its chief executive officer Lew Platt into retirement and Compaq shoving its CEO Eckhard Pfeiffer out the door less than two months later, some industry observers see the moves as an admission that now two of the three largest computer companies cannot keep competitive pace in the age of the Web.

"It's not fun out there," said Rob Enderle, vice president of desktop technology at the Giga Information Group, in Santa Clara, California. "The market is changing rapidly, and as a result companies that can't move rapidly aren't prepared to compete. In one instance the board is allowing the CEO to transition out gradually, on the other case the board took the desk and threw it out the window."

Although observers generally believe HP may be in a better position to recover -- based on its history of successfully making changes and the fact that it has less reliance on desktop PCs than Compaq -- they said that both companies need to express a clearer, more practical vision of the future for their customers and shareholders.

In each case both HP and Compaq were trying to assemble and reassemble multibillion dollar puzzle pieces into a seamless picture. But neither one had a clear idea how to do it without essentially maintaining multiple business models under the same roof.

"They really didn't know what they wanted to be. They didn't have a clear vision of what putting all these together meant or where it was going in the digital economy,'' said Michael Goulde, a senior analyst at the Seybold Group, in Boston.

While Compaq and HP try to pull themselves together and address the market with their yet-to-be named leadership, the big winners in the short term could be Dell and IBM.

"I think Dell will benefit from this. They come off right now looking like the model of stability with Michael (Dell) firmly planted at the top and still growing. They haven't broken the code to get into the top tier, but this doesn't hurt their chances to get there,'' said John Dunkle, president of Workgroup Strategic Services, in Portsmouth, New Hampshire.

IBM, unlike Compaq, has built up other revenue streams to compensate for its recently-reported $US1 billion loss in PC sales in 1998. The company's host-based business remains strong, even growing in some markets, and its services business is rapidly approaching $US30 billion. Some believe they have a cushion on which to sit comfortably if only for the short term.

"What's saving IBM is that they have so much legacy technology in place that it takes an awful lot to affect them," Giga's Enderle said. "While the trends don't look good for them either, they're in a better position to weather the storm."

Observers agreed that the executives taking over for Pfeiffer and Platt will need to cleanly cut the ties of their old business models and more aggressively use the Web as an important building block for its strategies across the board. In the case of Compaq that might mean more decisively de-emphasising its reliance on resellers.

"It is nice to be loyal to your dealer channel, but not at the expense of your company," Seybold's Gould said. "(Resellers) are going to be the dead weight that brings them down. Whoever comes in will have to really embrace e-commerce and the channel will have to adapt.''Compaq to stick with Pfeiffer strategy -- BarthBy Jana SanchezCompaq will continue along the strategy path developed by company chief executive officer and president Eckhard Pfeiffer before he was ousted Sunday, according to Andreas Barth, Compaq's general manager for Europe, Middle East and Africa (EMEA).

Compaq will carry on with its dual strategy of selling high-end systems and services to large corporate customers and at the same time continuing to sell PCs at all price levels. This strategy has been much maligned by analysts as being one of the main contributing factors to Pfeiffer's removal, because Compaq's attempts to be "all things to all people" have left the company too unfocused, they said.

"This is one of the complexities," Compaq's Barth said in a phone interview. "Since Compaq is an IT company with a broad offering in all segments of the market, we have to have different business models."

That business scenario will not change with Pfeiffer's departure, said Barth. "(Pfeiffer's) strategy is absolutely supported by the board and the management team. The main focus is on the execution of the strategy. We need to move at Internet speed," he added.

Barth drew a contrast between Pfeiffer's removal and that of Rod Canion, his predecessor in the Compaq CEO hot seat, in 1991. "In 1991, when we had a change in management. . . the strategy (of Canion) was not supported (by the board). At that time, we fundamentally changed the strategy," said Barth.

Analysts have pointed to the growing losses in Compaq's PC division, in the face of falling prices and stiff competition from direct sellers such as Dell. Compaq has so far, at least in Europe, failed to move its core PC business from resellers and distributors, who take a share of the profits, to the Web, where margins should be fatter.

That's all set to change, said Barth. Currently in Europe, Compaq's PC business is almost 100 per cent indirect, going through resellers and distributors, he said, while the company's sales of servers, services and storage are direct to corporate customers.

Calling it a "customer choice model", Compaq will begin direct sales of PCs over the Web very shortly in France and in the UK, and then throughout Europe during the second half of 1999, said Barth. The continuation of that strategy demonstrates that Compaq is not moving away from Pfeiffer's vision, he said.

"Eckhard as the CEO, gave the direction for that. It was part of the strategy that was fully supported by the board of the directors," said Barth. "The fundamental direction will not change," he added.

Replacing Pfeiffer will not be easy, admitted Barth. Acting Compaq CEO and chairman Ben Rosen has told senior company managers that the board is searching for the best person worldwide who could manage the execution of the existing strategy, said Barth. The search is both internal and external, he added.

The eventual successor to Pfeiffer is likely to be the CEO of an important company, or at least someone with CEO potential, said Barth. "Ideally, someone who is part of the IT industry, or at least someone who has a good understanding of and is comfortable with technology," he said.

Admitting that those people are rare, the task will be difficult, Barth added.

Barth is phoning his largest corporate customers, he said. "What they are mostly concerned about is that we maintain the commitment that Pfeiffer has made personally regarding the offering of products, solution sand services... and since the strategy is unchanged, they are happy," Barth said.

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