Compaq Computer Corporation: E-Commerce challenge

CASE V - Trevor Gavinchuk & Michael Gandhi

Background for case•Compaq was facing difficult decisions on

how to combat the increasing threat posed by Dell Computers.

•Compaq Computer had recently removed it’s CEO (Eckhard Pfeiffer) due to poor response to competitors in the PC market (Dell)

•Yearly earnings were less than half of forecast in 1999

•Only 10 % of Compaq sales were via direct channels (internet/telephone)

Background for case•Compaq trying to grow scale through

inorganic acquisitions but lacked integration of its businesses.

•Compaq lost sight of the need to service its customer and missed out on customers need for tailored products and relationships.

•Dell grew through mainly organic growth and had strong relationships with its customers. It leveraged this with its “Dell Direct Model”

Compaq - History

•Formed in 1982•Global leader in PC market•Sales of $31 Billion in 1998 (loss of $2.7 Billion)

•Revenues up 250% between 2004-2009 mainly thru acquisitions (Tandem) & mergers (DEC) – integration problems with the inorganic growth.

•Merged with Hewlett Packard in 2002 •Currently employs 321,000 people in 170

countries

Compaq – Business Units

•3 Main Business Units1- Enterprise Solutions- Servers and High

Power workstations (Windows NT)2- Commercial PC –Desktop and Laptop

solutions for small business3- Consumer PC-High end and value added

PC’s for the home PC market

Dell (the B2C leader in PC sales)- History

•Incorporated in 1984 •Direct sales model created in 1987•$18 billion of revenue in 1998•Internet sales began 1996 (40% of sales

by 1999)•90% of sales in 1999 made to institutions

(66% of sales were $1 million or more)

Dell Critical Success Factors

•Produce a line of high quality products that were IBM compatible

•It’s Direct relationship marketing concept▫Why is this important?

•Efficient and flexible manufacturing operation.

Dell Direct Model

•Powerful model that relies on sophisticated IT infrastructure to deliver a superior customer experience. ▫Enables direct relationship with customers▫Alliances with key technology partners▫Computer solutions tailored to customers

needs

•No clear solution to the Direct sales strategy used by it’s competitors (Dell)

•Customer sales strategy known as “customer confusion” strategy

•Change in sales strategy is alienating its traditional indirect sales team (VAR’s, resellers)

Organizational Problem

Component Manufacturers

Direct Marketers

eg Gateway, Dell

Component Distributors

Local Assemblers

Organizational and Individual End Users

VARs: eg Micron, Microage

Retail Channels: e.g. CompUSA., Walmart,Fry’s, Radio Shack, Circuit City Future Shop

Costco

Global LogisticsCenters

TraditionalProducers::e.g.Compaq, IBM,

PackardBell, HP

Distributors:e.g.. Ingram, Micro, Tech

Data

OEM Producers:e.g. Acer, Mitac

Definitions:

•E-Commerce: Conducting business operations electronically beyond organizational boundaries

•Business to Business (B2B): Buying and selling between firms, no intermediary

•Business to Consumer (B2C):activities of businesses serving end consumers with products and/or services

Information aspect of the problem•E-commerce (B2C & B2B) needs to

increase to improve customer sales and support

•In 1999 only 10% of Commercial PC sales are via direct channels (B2C)

IT/IS ImpactComparison of go-to market models for small to

medium businesses

0 20 40 60 80 100

Traditionalindirect

Partner Direct

CustomerDirect Dell

IndustryCompaq

IT/IS IMPACT ON INFORMATION

•B2B/B2C allows business to gain immediate information on needs and wants of customers for both hardware & software.

•Enables shorter “product to market” times•Provides easier access to technical

troubleshooting resulting in less “down time” and more D.I.Y. solutions

•Rapid gathering of information regarding service problems for parts vendors and manufacturers.

IT/IS ALTERNATIVES

•Balanced mix of indirect and direct sales using B2B and B2C forms of E-commerce

•Direct sales approach using solely an E-commerce (B2C) approach

IT/IS SolutionsBalanced approach of indirect/direct sales using B2B &

B2C and traditional indirect sales methods

Pros Cons

• Higher Commisions • Disgruntled indirect sales

force (VAR’s, resellers, etc) resulting in overall higher costs ie electronic storefronts, etc

• Lower costs with increased use of direct sales approach

• Access to IT-inept consumers

• On-line payments are only optional

IT/IS SolutionsDirect Sales approach solely using E-commerce

Pros Cons

• 2nd place behind Dell• Abandoning indirect sales

force• Continually need to

update technology and security

• IT have-nots ignored• Public still unsure about

online payment (1999)

• Low relative sales costs • Immediate customer

feedback• Global reach• 24/7 operations• Less “people” intensive• Customer service profiling• Increased productivity

Preferred solution

Balanced approach • Increase direct sales approach specifically

for low yield sales ie <$600 PC’s• Increased use of B2B and B2C (E-Commerce)•Continue to utilize VAR’s/ indirect channels

for large customers but providing option of using direct channel

•Survey to determine which markets will benefit form direct sales and target them specifically

Messages for Modern Leader

•E-Commerce is now a necessary part of all business (B2B and/or B2C)

•Adaptability is crucial the IT/IS environment

•Culture of Continuous Improvement•Foundation of Governance (Policies and

Procedures)