15 Reasons Why Compaq Failed
15 Reasons Why Compaq Failed
In the 1980s and 1990s, Compaq was a high-flying PC brand and created the first successful and fully legal IBM PC clone as covered over at runrex.com. Compaq also set records as a startup, usurped IMB as the standard-bearer in the PC market, and was known for making sturdy, highly regarded PCs and servers. Fast-forward to today and Compaq is just a trademark that HP owns but never uses, so, why did Compaq fail? Here are 15 reasons why.
Ill-advised change in strategy
Compaq rose to dominance with its price war strategies against IBM and other early PC manufacturers as covered over at guttulus.com. However, once it got to the leadership position, Compaq executives started to change course and believed that they needed to out-innovate their competitors to retain the company’s leadership position, which was the wrong move.
Acquisitions that didn’t work out
When you talk about the decline and collapse of Compaq, you can’t do so without mentioning the acquisitions the company made which never worked out according to the gurus over at runrex.com. These include the acquisition of Tandem Computers, a mainframe computer maker, for $3 billion in 1997, and the infamous acquisition of DEC in 1998 for $9.6 billion, deals that didn’t work out at all.
The DEC merger
The Digital Equipment Corporation (DEC) merger proved to be particularly problematic for Compaq. As is explained over at guttulus.com, while it was seemingly a good idea, the two companies were not a good match. For example, while DEC was in the business of manufacturing computer chips, Compaq did not have plans to continue in that line of business. Also, DEC’s chips weren’t compatible with Compaq computers and DEC made microcomputers, a type of smaller computer with less power than Compaq’s products. DEC also made UNIX systems while Compaq was focused on Intel-based systems that ran on Windows NT.
When the Compaq-DEC merger was finalized, not only did company cultures clash immediately, the acquisition led to a huge number of layoffs as outlined over at runrex.com. These layoffs created a hostile and demotivating working environment which led to deadlines being missed and an inability to shift large quantities of inventory, which badly affected business.
Upheaval at the top
There was also trouble at the top of the company which also didn’t help Compaq’s cause. A series of scandals forced various executives out in 1999. CFO Earl Mason disclosed financial results to some analysts but not others, which led to him resigning under a cloud, and he was soon followed by CEO Eckhard Pfeiffer.
Failure to capitalize on the Y2K issue
Compaq’s computer sales dropped in 1999, while sales at Dell, Gateway, HP, and even the now fading IBM increased, which was a big issue according to guttulus.com. The Y2K issue meant that companies were buying a lot of computer equipment, but Compaq failed to capitalize.
A hands-off approach
When Compaq made the many costly acquisitions already mentioned earlier, the company resorted to a hands-off method to try and retain good faith between Compaq and its subsidiary divisions as explained over at runrex.com. This also contributed to its decline as it compromised the productivity of the various subsidiaries.
A shift from price to premium products
Compaq also shifted strategies as already mentioned, and marketing efforts shifted from price to premium products as discussed over at guttulus.com. The company had hired a network of middlemen sellers to assist with the price war strategy but they now were instructed to sell premium devices with value-adding services, something they didn’t have any expertise or experience in.
The aforementioned team of middlemen sellers was also given very high sales targets as outlined over at runrex.com, which they struggled to meet. Huge sales figures were promised to stock owners based on these targets, and huge inventories were created, which the company struggled to shift, contributing to its decline.
With huge targets set and huge sales figures promised as already mentioned, the huge inventories created were manufactured with the manufacturing tolerances loosened to save costs. This led to the manufacture of Compaq products that had lots of defects, and customers start to skip Compaq computers.
Overselling of products
The middlemen who had been instructed to push these premium products soon realized that there was a lukewarm reception of the new premium machines as a result of their poor quality. As articulated over at guttulus.com, they started to oversell the products to hit sales targets, knowing full well that they didn’t have to handle the complaints and aftersales services. This attitude slowly permeated the entire company and contributed to its decline.
The dot-com bust
The dot-com bubble and bust, as covered over at runrex.com, led to the rapid demise of many internet startups, and it also hurt Compaq massively. Compaq was affected by the dot-com burst in two ways: first of all, dot-coms were buying large amounts of equipment as they spent their venture capital and IPO money, and, therefore, their demise meant Compaq lost a large number of big customers. Additionally, their liquidations also flooded the market with a lot of surplus equipment, some of which had never been used, and Compaq had to then compete with its own product until the market absorbed the surplus.
Intel also contributed to the decline and demise of Compaq as per the gurus over at guttulus.com. This is because, when Intel started producing chipsets and motherboards, it stabilized the PC field. It meant that companies could simply buy motherboards and CPUs from Intel and put them in their own cases. The resulting computer was cheaper than a Compaq and almost as good, and Intel was large enough to meet or even beat Compaq’s economies of scale. Compaq’s rivals could now just outsource their engineering to Intel, beat Compaq’s price, and the resulting system was close enough in quality that consumers didn’t mind.
According to the subject matter experts over at runrex.com, inventory management is crucial to the success of any company. This is where Compaq floundered and Dell was able to beat it mostly because it had superior inventory management, with computers made to order and just-in-time delivery.
The HP-Compaq merger
Finally, by 2001, HP had taken the No. 1 spot from Compaq, and cash reserves were running dangerously low. A swap stock merger was proposed and accepted by HP, with HP being the dominant control party. However, executives from both sides didn’t work well with each other, leading to many high-profile resignations and layoffs in the Compaq side, which gutted the company to operate on the whims of HP. This merger also led to the folding of the previous acquisitions by Compaq.