How Compaq

Nine days after Compaq Computer Corp. announced its first quarter earnings would only come to about half of Wall Street estimates, CEO Eckhard Pfeiffer found himself out of a job.

Pfeiffer initially blamed the shortfall on industry-wide problems such as weak PC demand and intense price wars between competitors.

“Compaq released preliminary first quarter results showing lower (than expected) sales and earnings. While market conditions will continue to be competitive, we fully intend to expand our business and grow our market share in 1999,” he said in his keynote speech at Innovate Forum ’99 in Houston. “This will not slow us down.”

Yet days later, on the heels of Pfeiffer’s resignation, company chairman Ben Rosen countered this by saying Compaq itself was largely at fault for its disappointing financial performance during the quarter, and that a change in leadership was needed in order to maintain its industry position. CFO Earl Mason also stepped down.

Peter Ciceri, president and managing director of Richmond Hill, Ont.-based Compaq Canada Inc., called Pfeiffer “an architect and a visionary.

“He took this company from a few billion dollars seven or eight years ago to a powerhouse – and he deserves a huge amount of credit for the work that’s been done,” he said.

“But at this particular time in the history of Compaq…the board felt that we required a change in leadership, and I think that should be viewed as very positive.”

The message that Pfeiffer gave at Innovate, to embrace the Internet and pursue its NonStop e-business strategy, is a company-wide directive that will not change with his departure, Ciceri said.

But the Internet scheme that was announced at Innovate looked “a little half-baked” to George Karidis, account director at Yankee Group in Bolton, Ont.

“Basically, they haven’t built anything new, all they’ve done is packaged what already existed. So now they have to put that business plan and that marketing strategy around those markets and sell it,” he said.

Karidis also feels the staff shuffle at Compaq is something that has been coming on for some time.

“Compaq is number one on the PC front, and they needed to be number one in a couple of other areas. So it’s probably time to bring in a new leader to try and get there.”

Jonathan Eunice, analyst and IT advisor at Illuminata Inc. in Nashua, N.H., said Pfeiffer likely didn’t see his fate coming. “People in executive positions tend to believe they will live forever. But Compaq has a real record of hacking off (people) really quickly. They don’t let things linger,” he said.

“When (former CEO and founder) Ron Canion was pushed out eight years ago – he was there, he was there, then bam he’s not there. Everyone talks about keeping the CEO accountable; almost no one does it. But [Rosen’s] not afraid to fire his main guy and move on.”

Eunice said Pfeiffer played the accountability game and lost once too often. “Pfeiffer is not supposed to be the guy who fails on implementation. He doesn’t strike most people as a broad visionary, but he is very well known for being incredibly tight operationally. [But] the operations have been so sloppy for the second year in a row that it’s almost staggering how off those numbers have been.”

Promising a quick, seamless integration between Compaq and recently-acquired companies Tandem and Digital was another fatal move, Eunice said.

“You don’t make any progress unless you strive for it very boldly. But nothing that’s in the 10 billion dollar range happens in less than a year and a half. They’ve done a tremendous job but…it isn’t what [Pfeiffer] promised. He had great ambitions, he acted boldly, but even if the acquisitions work out, he didn’t do it fast enough.”

Compaq’s strategy to focus more on the enterprise was a good move, but ignoring the PC side was also a mistake, Eunice feels.

“The failure to go build-to-order, the failure to put in Internet distribution early is the basic business they forgot a little bit about.”

So who will replace Pfeiffer? According to a report from research firm Dataquest, the new CEO will have to be someone who is not adverse to taking calculated risks, and must also have a strong vision.

“Appointing someone who has no vision will lead Compaq further down a rocky road. Apple was a good example of this strategy failing,” the report states.

However, Dataquest believes it unlikely that Compaq will find a risk-taker who also has vision, and recommends the company find a triumvirate of talent rather than just one CEO.