In a somewhat bizarre turn of phrase for the essentially serious Eckhard Pfeiffer, CEO of Compaq, he opened his own keynote speech at Innovate 97, the bi-annual jamboree for corporate customers and resellers by describing his company as a member of the Golden Triangle.
But Pfeiffer was not referring to the area where most heroin originated in the 1960s and 1970s, but to the troika of Intel, Microsoft and Compaq and this triangle certainly turns in massive profits all three companies. By allying himself to Intel's Andy Grove and Microsoft's Bill Gates, Pfeiffer was saying that Compaq is a global player too. The very fact both Grove and Gates came along to the event to give their own views of the future of the industry is a tacit admission by them that Compaq is a very big player indeed.
The PC industry is volatile and Pfeiffer knows that. He re-engineered Compaq in 1992 when he took over the reins of power from founder Rod Canion and has turned it into the world's number one PC company.
It was obvious from the contents of the different workshops and conversations with senior Compaq executives over the four days of Innovate that more than a little re-engineering is needed from Pfeiffer if his company wants to hold its leading position.
A string of announcements about the Internet, the total cost of ownership argument and the need to change the way Compaq sells its computers underlined Pfeiffer's determination to make it so. On Monday, John T. Rose, senior VP and group general manager of Compaq's enterprise computing group, conceded that the company had kept a low profile on the Internet but said that was going to change. Pfeiffer reinforced Rose's commitment in his keynote the following day by planting a stake in the Internet market, but one which would be based on "industry standards", a Compaq codename for non-proprietary and non-Unix PC solutions. That signalled Pfeiffer's interest in the company becoming more than just a seller of tin.
Pfeiffer is a realist and takes the threat of NCs seriously enough to have invested a considerable degree of Compaq's money into pushing the Net PC. The threat Oracle and other NC players pose is based on a total cost of ownership rather than a technology argument and Pfeiffer spent considerable time spelling out how Compaq would address that.
"We're reducing cost from all phases of the ownership process," he said. "Total cost of ownership really has just two main parts, capital and labour. We have dozens of initiatives directed at lowering capital and labour costs." The evidence that Compaq could do that, he said, was increasing. "Several of our large customers have calculated the decrease in their labour hours after investing in our management tools," he said.
"They reported...there were 27 per cent fewer on-site support calls, 87 support hours saved a month for every 100 users and 27 per cent fewer server outages with 50 per cent fewer users affected," he claimed. He said market research company IDC is just about to issue an independent study that underscores the reduced labour costs of Compaq computer equipment."
Compaq's introduction of its Net PC, said by insiders to arrive in the next six weeks or so, will also help the total cost of ownership argument by providing a cheaper unit with far improved server management, he said.
He added that Compaq will underscore its commitment to the corporate marketplace by introducing leasing and capital finance schemes over the next months.
While Compaq has always allied itself to its network of distributors and resellers, Pfeiffer announced that was changing. Now, the company will build and configure to order allowing end users to bypass its channel. While resellers will fulfil the orders, customers can call Compaq direct and order the machines they want.
This move can only be seen as a reaction to Compaq's arch-rival, the Dell Corporation. It has successfully promoted a business model where end users specify what machines they want which Dell then builds and ships to them. Compaq is losing out because of the success of Dell's business plan. Pfeiffer said: "We will build and ship standard products within one to five days of receiving an actual customer order. Build to order reduces the need to have weeks of inventory in the channel and this gives customers and channel partners the benefits of lower prices, greater product availability and more predictable delivery."
According to Pfeiffer, the last thing he wants to do is to alienate his channel partners which together amount to 90 per cent of business. Instead Compaq will push money into corporate sales teams and into resellers to increase support and efficiency, he said.
Where there are weaknesses, Pfeiffer clearly wants to fix them. At Innovate, Compaq announced an "affordable" member of its Armada range. Because of stock and technical problems, the company had seen its market share slip in the fourth quarter of 1996 with Toshiba and IBM the winners, according to Dataquest figures.
If Compaq gets it right on all these fronts, Pfeiffer is confident the company can continue its steep growth curve. "In September 1993 Compaq was a $7 billion company and by October 1995 we had grown to nearly a $15 billion company. Now our worldwide sales seem to be heading into the clouds." He said that Compaq is the fifth largest computer company in the world but wants to be number three by the end of the century.
That will certainly make Pfeiffer the golden boy for his shareholders, and will give him more leverage over the other two members of what he describes as the golden triangle and who, to some extent at least, dictate the way that Compaq grows.
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