Compaq Case Study

Introduction
Compaq Computer foundation, founded in 1982, was headed by Eckhard Pfeiffer
from 1991 to 1999. The case study’s objective is to find the poor choices made by
Pfeiffer that ultimately lead to his termination and the various problems faced by the
company. Thereafter, formulate solutions/alternatives to tackle the problems and
poor choices.

Issues/Problems
1996: The first signs of trouble appeared when Pfeiffer had to cut prices to meet
growth target but this led to lowest ever profit margin (20%).
o It appeared Pfeiffer’s motivation was to be No 1 in terms of market share but
did not take into account the costumers demand and profit goals.
1997: Further movement into Networking business and escalation of internal
problems with reseller. Acquisition of Tandem was one such step.
o Compaq was no longer a Computer Company but computer and networking
business. This was another step to satisfy Pfeiffer fantasy to be No 1.
1998: The biggest ever computer merger with Digital. Compaq was now the biggest
computer company but was slowly losing market share.
o The sole motive behind acquiring Digital was being No1. Pfeiffer did not take
into consideration the drastically different cultural and the difficulty involved
in the merger of 2 computer giants. This ultimately led to focus being driven
away to merger rather than focusing on core PC business and market share.
o Pfeiffer during this period had became isolated from the employees and
important decisions were made with consultation with senior executives and
vice president. For e.g. merger with Digital
 In the race to be No. 1 company built an ‘Empty Market Share’ i.e. large but not
profitable.
 Driven away from the Comprehensive Computer Business with the objective to
serve costumer requirements.
 Pfeiffer had good strategy but poor execution. Paralyzed by the speed at which
market was changing. Not able to make difficult decisions.
 Back Inventory due to retail sales model.
 Solutions/Alternatives
 The merger with Digital was a good decision but it was executed poorly and at the
wrong time. At the time of merger, the market was shifting and the focus on merger
lead to further downfall. Thus, the merger needs to executed properly and fully to be
able to reap the benefits of the offered by Digitals admirable service arm.
 Develop a better on-line strategy similar to Dell this would help solve the problem of
back inventory as the tech becomes outdated every week. Compaq has to find a
model to sell products both on-line and through retail vendors.
 Lastly, it needs to bring back focus on being a Comprehensive Computer Business
driven by enormous services benefits offered to the customers.
 A strategy that takes into account the competitor’s strategy and focuses on building
a profitable and large market share like the online model used by dell or the way
IBM has placed itself around e-business.

Conclusion
Pfeiffer oversaw a period of great growth which benefited a no of people and he
should be given due credit for that. The bad quarter was not the reason for his
termination but some poor fantasy motivated decisions and improper execution of
strategies were the culprit. It is for the company and next CEO Michael Cappellas to
learn from his predecessors’ mistakes and work upon them.