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Compaq Computer Case
Compaq Computer Case
The company was also showing signs of organizational problems that may
have been overlooked previously because of its remarkable sales growth.
The organization's culture was suffering from a lack of communication
between divisions as well as a growing riff between even the company's
founders. The company was in two camps struggling for control of the its
destiny.
The United States is a leader in the computer hardware industry. While the
Japanese are a large producers of electronic components, U.S. companies
are still among the leaders in high technology. Sony Corporation is fast
catching, especially in the area of miniaturizing technology. The Walkman
is one example of the Sony's ability to make a bulky product smaller.
One potentially big problem for U.S. companies will be their ability to
compete with foreign companies to sell high technology products abroad.
Sales to foreign companies and governments must be approved by the
Federal Government. The latest technological advances are often limited to
sales within the U.S. for national security reasons.
The computer hardware industry is growing in leaps and bounds. IBM one
of the best funded companies in the industry is having problems meeting
demand. This has helped Compaq's growth. While there are relatively no
substitute products for computers the threat of entry by new firms is
growing. There are limited barriers to entry or exit due to the ease of
assembling computers (can be done in one's own barn).
New companies are constantly entering the market place, since personal
computers can be assembled in an entrepreneur's garage. Although the major
players, Compaq and IBM have a good foot hold smaller companies are
starting up. Larger companies wanting a piece of the pie are also entering
the arena, e.g. AT&T.
New smaller businesses (e.g. Dell, AST) are entering the market with
cheaper consumer oriented products. These firms are using alternative
measures of operation (e.g. selling direct, custom assembly).
Compaq's internal culture has shifted toward greater complacency, with top
managers having taken a quasi "early retirement" reducing their workday to
just 6 hours. With a history of technological capabilities Compaq has been
repeatedly successful in launching the next generation of products to market.
In this way Compaq has demonstrated a leading edge in quality, affording
them the ability to charge a price premium.
Strengths:
Weaknesses:
Opportunities:
Despite its current internal problems, Compaq has a great deal to gain if it
can quickly fix its problems and seize the changes that are going on in the
marketplace. Compaq is seen as a high quality producer of desk top and
portable computers. While IBM has also stood for quality, it has never been
able to take advantage of its resources and produce products in sufficient
numbers to meet customer demand. This has left its customers disappointed
and forced to depend on other sources. Compaq has also successfully been
able to develop products that have surpassed IBM's. Demand is still greater
than supply, however this gap is quickly being eroded.
Threats:
Because the industry has low entry and exit barriers new challengers are
entering the market on a continual basis. These potential competitors include
entrepreneurs as well as large well financed companies like AT&T and
Oviletti, who are eroding the excess demand in the market. Compaq must
focus on a strategy that will successfully manage the changing external
industry environment.
A. Strategic Alternatives
1. Continue on R&D as they have in the past: In this case Compaq continues
to focus on being industry leaders in quality affording them the luxury of a
price premium. 0
B. Alternative Evaluation
3. Compaq must recognize that the market place has evolved from corporate
users of hardware products to a mix of corporate and consumers. As
hardware and software costs decrease the consumer portion of the market
will increase their demand. Lower cost products will determine which
makers capture the majority of the market. This strategy will aid Compaq in
maintaining their position as an industry leader.
C. Alternative Choice
Alternative three is the best strategy for Compaq to pursue for several
reasons. First, Compaq has a strong brand recognition of being an industry
leader in producing high quality products. Many consumers currently use
Compaq's products at work, so they feel comfortable using them. Second,
Compaq has built its business by being able to meet the excess demand that
other computer companies could not. IBM, for example, has never been able
to meet demand, this has frustrated many of its dealers. With new entrants it
is vital to long-term viability of Compaq that it competes in this growing
segment of the market, as the corporate segment will quickly reach
saturation. Lastly, unlike the other two alternatives, alternative three requires
that Compaq respond to changes in the industry environment. Alternatives
one and two wrongly assume that Compaq can continue to do business as
usual.
A. Action Items
B. Action Plan