Compaq Computer Corporation

Team 5
Jennifer Banfield
Stephen Capelle
Graham Fuga
Parneet Mavi
Candice Rivet
In the 1990’s, Compaq was a global leader in
PCs with a strong position in the PC server
business and in direct competition with IBM,
HP and Dell.
By 1995, they held the highest global PC
market share at over 10%.
By 1998, Compaq was the second largest
computer company in the world.
Compaq was organized into three large
business units:
 Enterprise Solutions and Services
 Commercial Personal Computing
 Consumer
The majority of revenues coming from
Enterprise Solutions and Services
Strategy: Enterprise computing
Tactics: Acquisition –DEC, Tandem
Operations Model: Off the shelf models
Dealer channel
Compaq's market position weakened
 Losing market share
Failure to resolve the indirect distribution
 Particularly in commercial personal
computing segment (exhibit 11)
 Strong Competition
 The Dell Direct Model
Problems with Compaq’s strategy
 Three core business processes – people,
strategy and operations are not linked
Since 1995 Compaq has been moving from a
PC maker to a full-service IT company
Key elements of this strategy: DEC and
Tandem acquisitions
Its core PC business began to drift
New technologies to market faster
Low-cost of consumer PCs
 Intense price competition
DEC &Tandem added more layers of complexity
Large and complex IT systems needed to support such a
centralized structure
Sell through a variety of channels
Large, medium business & Government
through dealers, value-added resellers and
system integrators
Small business & home customers through
dealers and consumer channels
Re-seller margins on name-brand desktop PCs
had been shrinking over the years
E-Commerce is related to the organizational
 Customers want to directly deal with the
 Lower costs
 Increased customer support
Resellers do not want direct dealing
 They must lower prices
 They must offer more support and services
E-Commerce software available for purchase
E-Commerce software can be developed
internally, allowing greater customization,
flexibility and customer satisfaction
Business to Business (B2B) Advantages
 Already using this method (dealing with shipping
companies, resellers, parts manufacturers)
Larger market
Savings in costs and efficiencies
24/7 operation
Bid opportunities
Business to Business (B2B) Disadvantages
 Costs of networks
 Privacy issues
 Legal boundaries
 Losses from increased competition
 Keeping up with technological changes
Business to Consumer (B2C) Advantages
 The way Dell became so large so fast
 Compaq wanted to use Dell’s ideas
 Lower prices
 24/7 operation
 Easy on-line technical support
 Easy to track market segments and customers
 Flexible
 Easy to expand and sell anywhere
Business to Consumer (B2C) Disadvantages
 Customers need access to the internet to place orders
 Customers are scared of internet monetary transactions
 Worry about privacy
 Worry about returns/exchanges
Do Nothing
Focus solely on Indirect and Partner Direct
(VAR’s) Distribution channels
Switch to a Direct Distribution Model
Do Nothing
 Pros:
▪ No investment needed
 Cons:
▪ No resolution to “Customer Confusion” Strategy
▪ Bitter relationships with resellers
▪ Loss of referrals to other manufacturers
Focus solely on Indirect and Partner Direct
(VAR’s) Distribution channels
 Pros:
▪ Utilization of existing infrastructure
 Cons:
▪ Lose out on ‘direct option’ customers
▪ Inventory costs
▪ Lack of responsiveness
Switch to a Direct Distribution Model
 Pros:
▪ Provide products at lower cost to customer
▪ Potential increase in sales
▪ Increased responsiveness
▪ Increased ability to forecast demand
 Cons:
▪ Requires significant changes in infrastructure as well as
▪ Sophisticated ‘customer-oriented’ IT infrastructure
▪ Close working relationships with suppliers
▪ Direct competition with Dell that has expertise in the
direct distribution model
▪ 85% of sales in the Commercial Personal Computing
Channel, still generated by traditional indirect channel
Hybrid Model
 Components
1. Retain but re-engineer the indirect retail
channel (B2B).
2. Reduce the role of resellers.
3. Develop a stronger direct distribution
channel (B2C).
Retain but redefine the current Indirect
The indirect channel generated 85% of the
sales for Compaq, compared to the industry
average of 70% (Exhibit 12).
The company still had an edge over
competitors in this channel.
Retain but re-engineer the current Indirect
Re-engineer the process so that the channel
fits the role of being an extension of the
company’s sales force into those markets that
it can't cover through a cost-effective model
adding value-added services downstream.
2. Eliminate the role of reseller in commercial
personal computing segment
Reduce the confusion in the ‘customer choice’
Savings on commissions could be transferred
to the customer via lower prices.
Resources could be diverted to strengthen the
organization’s IT capabilities.
3. Develop a stronger direct distribution channel
The direct channel (B2C) would be modeled
along the Dell direct business model, that had
proven to be the key success factor for Dell.
Compaq had already begun to offer enhanced
selling and support services to its Prosignia
customers and these capabilities could be
developed further.
In 2001, Compaq merged with Hewlett-Packard and HP
subsequently laid off thousands of former Compaq
employees. Although the merger initially made it the
number one PC maker, it soon lost the lead and further
market share to Dell.
In late 2005, thanks to new leadership and slumping
sales at Dell, HP retook the lead in the PC sales race and
remains at global sales leader to date.
In 2008, HP dropped the "Compaq" name from its "HP
Compaq" business notebooks, leaving the Compaq name
for HP's entry-level consumer platforms.
Compaq’s Main Webpage – first tab highlighted is Learn & Shop
Compaq’s Main Webpage – hovering over any section shows the same menu
Shop the Compaq Store – only Consumer products are shown
HP Store – clicking on certain links from the Compaq page redirects to the HP Store
Find a Retailer – direct links to retailers’ Compaq products page
Best Buy’s Compaq page – able to purchase Compaq products online from retailers
Compaq’s Support Webpage – easy to use online technical support
In 2002, Dell started opening kiosk locations in shopping
malls across the U.S. and in 2005, they expanded their
kiosk initiative worldwide.
In 2006, they opened their first full store in Dallas, TX.
In 2008, Dell closed all 140 mall kiosks in the U.S. to
focus on expansion into retail stores such as Wal-Mart.
The “Dell Partner Direct” Program was announced in
2007 and consisted of utilizing Value-Added Resellers as
an outlet to increase sales and regain lost market share.
To become and stay an industry leader, you must
realize profitable business and IT strategies and
not be afraid to try them, or someone else will.
 In this changing world, people will always flock to
a faster, more convenient, cheaper channel to do
business; this should be at the fore-front of any
good business strategy.
 We should be looking to IT for innovative time
saving business strategies.
 IT is so widely accessible nowadays that it should
never hinder a company’s success.