The Success of Compaq Computer Corporation - Case Study Example

Leadership and Entrepreneurship Prepare a report on the success of Compaq and ONE of the other cases provided in readings M2/3 to M2/5 which can be attributed to leadership. [20% marks] Introduction: Compaq Computer Corporation was established in the year 1982 by Rod Canion together with two other Texas Instruments employees, Jim Harris and Bill Murto, with an aim of manufacturing and marketing portable computers. The journey from the humble beginnings as an employee friendly research firm that marketed good quality products to a multi million dollar research oriented and innovative industry leader is phenomenal. The various strategies adopted by the firm from time to time, as well as the exceptional leadership and entrepreneurial abilities displayed by its management contributed significantly towards the company’s growth and development. Compaq under the Leadership of Rod Canion: Good leadership is an inevitable element that plays a major role in the growth and development of any organization. It is the leadership qualities displayed by the management that steers the company towards profitability and helps in attaining a competitive position in the industry. Similarly in the case of Compaq, the leaders such as Rod Canion, who founded the company along with two other employees from Texas Instruments and Eckhard Pfeiffer, the leader of the European marketing team helped Compaq gain the position of an industry leader during a very short span of time. Since the management team that leads an organization comprises of a handful of entrepreneurs, the organization is entrusted with a crucial task of assigning the reins of leadership to those who are capable enough to drive the company towards great heights, in the face of adverse situations especially a dynamic and radically changing external environment. The distribution chain under Rod Canino’s leadership: Rod Canion, along with his two partners managed to create a sizeable market for its Compaq PCs through smart business ideas and considerable and active research and development efforts complimented by an equally creative and energetic workforce. It was under the leadership of Rod Canion, that Compaq dared to break the monolithic hold of IBM Corporation, on the industry by successfully developing highly competitive and affordable line of products. The conviction and determination with which Canion approached the various strategic issues at hand provide an insight into his exemplary business acumen and was truly representative of a great leader. The company, since its inception adopted a strategy of positioning itself as a technological innovator, ventured into international territories by the year 1984 -85, grossed sales of $503 million by the year 1986 and had the distinction to join the ranks of the Fortune 500 list, creating a record of sorts, of being the fastest company to to do so in history. During the same year, the company beat IBM, its close rival, by technological breakthrough of becoming the first company to use the fast Intel 80386 chip. It steadily climbed the success ladder, collecting as many achievements to its credit, and became the second largest supplier of business PCs in Europe. The stupendous success enjoyed by the company was largely due to the leadership abilities of Mr. Canion, who succeeded in not only recruiting employees but turning them into colleagues who had a common goal – the goal of making Compaq the industry leader. This attitude towards managing the business, resulted in a rapidly expanding and motivated workforce, creation of a high quality niche, high quality, cordial and long standing business relations with the vendors and suppliers, and a state of the art research and development team. The unprecedented success of Compaq was not the result of a technological wizardry but rather a conscious effort, sharp business foresight and of the exceptional leadership of Mr. Rod Canion. Compaq under the leadership of Eckhard Pfeiffer: Eckhard Pfeiffer, one of the most successful leaders that the industry had ever seen, was appointed the President of Compaq Computer Corporation in the early 1990s. During his tenure as the leader, the company witnessed successive achievements in terms of financial as well as economic growth. The leadership style adopted by Pfeiffer steered the company towards a monopolistic sphere whereby the company enjoyed full dominance over the retail computer market beating its competitors with huge margins. The aggressive marketing strategies adopted by the new president as well as the resultant ensuing price war, aimed at creating a substantial market share for its products, which ultimately led to the manufacture of the cheapest PC available in the market that caused the rival companies such as IBM and Dell to flee the industry giving Compaq the exclusive dominance over the retail PC market. The strategy of price slicing worked for the company, as the sales hit record levels to $827 million, with a 43% rise in profits in the second quarter. Such measures by Compaq, resulted in counter policies adopted by its rivals such as Dell, who resorted to cost cutting measures by reducing its workforce, to which the confident president at Compaq, Mr. Pfeiffer, was quoted as saying “We’ve introduced a long term model for leadership and there is nothing in Dell’s [model] that is superior to it”. This shows the foresight of the great leader, owing to which the company saw itself through the critical survival years and managed to break the market dominance of the rival companies. The Distribution chain under Eckhard Pfeiffer: The DAG group: The Drycleaning Acquisition Group, was formed by Chris Hackett and Val Rayzman in 1991. The fact that the dry cleaning industry, during those times was highly fragmented and undifferentiated with low entry barriers fuelled the thought of venturing into this industry within the two Harvard graduates who ultimately laid the foundation of the DAG group. Their leadership attributes are apparent from the ways and means applied by them prior to the acquisition of Superb Cleaners. Most of the acquisition deals are driven by numbers rather than the resources available at the disposal of the management that ultimately leads the business to succeed in a competitive industry. Similar challenges were faced by the duo, Chris and Val, during the acquisition of Superb Cleaners. The thorough investigation and research carried out by them prior to the acquisition, was in part, a conscious effort on their part, to gauge the viability of the business proposition. The factors such as location of the building, plant capacity, as well as prospects and viability for future expansion, the availability of adequate capital over and above the crucial price issue needed to be handled with due diligence. The issue of whether to buy an established business or start a new one was of crucial significance as it would dictate the firm’s competitive standing in the future. The opportunities available at the disposal of the individuals contemplating the idea of venturing into a new business are largely resource driven. The leaders in this case were truly opportunity driven, since they recognized the immense opportunities made available by the highly unorganized structure of the dry cleaning business and initiated concrete efforts to venture into this traditional yet unexplored territory through careful strategic orientation. The entrepreneurs in this case, recognized the opportunity presented by the industry and concentrated their efforts towards acquiring adequate resources to realize that opportunity. “The entrepreneur is not necessarily concerned with breaking new ground; opportunity can also be found in a new mix of old ideas or in the creative application of traditional approaches” (Sahlman, Bhide, Stevenson, Roberts, The Entrepreneurial Venture, 1999, pp.11) 2. Discuss: Significance of entrepreneurial ideas which resulted in a decision to set up the organizations chosen. [30% marks] Entrepreneurship is synonymous with innovative ideas, which includes market innovation, product innovation, process innovation or on a broader platform: organizational innovation. An entrepreneur is hence, often perceived as a lone risk taker, who has remarkable foresight and sharp business acumen that enables him to sense the opportunities even in the most adverse of situations. These daring, and often highly rewarding, entrepreneurial ideas have led to the creation of several successful business ventures of all times. The organizations chosen for the purpose of this study, Compaq Computer Corporation as well as DAG group, are case in point, that define the exceptional abilities and sheer drive of the respective leaders of the said firms, to steer their organizations towards success combined with the will to exercise power and attain market dominance have facilitated them to achieve unprecedented success. Eckhard Pfeiffer’s seven point strategy aimed at being the number one company in the industry to provide high quality, low cost and fastest computers helped Compaq regain its lost market share, boost its brand image as well as popularity, provide excellent customer support, improve its distribution networks and ultimately become the industry leader, beating the other major players in the industry including IBM, its strongest and closest rival. It was only due to the exceptional leadership qualities displayed by the leaders at Compaq that saw the company rise to unprecedented levels. However, this success could be achieved on the basis of Rod Canion’s vision who, along with two other business partners, laid the foundation of the giant organization. The factors that led to the establishment of Compaq, includes the accurate assessment of the growth potential of the PC market, which, at that time had relatively lower levels of entry barriers, a large chunk of untapped markets since the demand always outstripped the supply, and the existence of fewer competitors. Moreover, the creation of an organization or a new entrepreneurial venture could not be attributed to the external factors alone. The inherent characteristics of the entrepreneurs, such as the ability to undertake risks, their ability as well as willingness to create innovative product, ideas or strategies to capture the markets, as well as immense determination and belief in their ideas as being capable of converting into successful business ventures. Such initiatives fuel the establishment of new and innovative enterprises / services and drive the overall economic growth. Several times, the decision to establish a new business venture is fuelled by the resources at hand along with the existence of immense opportunities offered by the market. Similarly in the case of DAG group, the entrepreneurs Chris and Val sensed the innumerable opportunities that this highly segmented and unorganized dry cleaning industry had to offer and ultimately decided to take a plunge in this line of business to explore and exploit the largely untapped markets. As opposed to the case of Compaq, where the technological innovations drove the industry growth, the dry cleaning industry was relatively traditional and with little scope of implementing technological innovations. The entrepreneurial ability of the two promoters of DAG group, could be assessed from the fact that they showed willingness in venturing into a traditional business by grasping the opportunities that the industry had to offer through quick implementation of their plans. Along with the risk taking ability, the entrepreneurs need to have the ability to adapt to the changing industry environment and a thorough knowledge of the industry they operate in. These strategic issues were taken care of by the leaders of both the organizations, which is seen from the research carried out on the basis of various sources, that helped them in assessing the competitive scenario in their respective industries and gave them an opportunity to chart out counter policies to combat those competitive forces and establish and ensure secure positioning in the industry. 3. Explain: The degree to which leadership, as a system of navigating the organization to its intended outcomes, was effective. [30% marks] Leadership which is defined as the process whereby a person motivates and influences the people to accomplish the given task, or a predefined goal of the organization, through continuous efforts. This is made possible by the presence of certain inherent attributes within the leader which makes him highly motivated to influence himself and his team and drive organizational growth single handedly or in a team, through consistent efforts and well defined strategies. Colin Powell had his own definition of Leadership: “Leadership is the art of accomplishing more than science of management says is possible” (Oren Harari, 2002, Pp.13) It is up to the leader to define appropriate organizational goals, choose the right team, motivate them by proper rewards and appreciation, and encourage the involvement and participation of other members of the team to achieve the pre set goals. In case of Compaq, both the leaders Rod Canion and Eckhard Pfeiffer, through their accurate market predictions, smart strategies and consistent efforts managed to steer the organization towards unprecedented growth and success. The strategies developed and adopted by Mr.Canion, during the early phase of the company’s growth were well suited and well defined according to the level of competition in the industry as well as the present market structure. Canion, envisioned the position of an industry leader and focused all his efforts towards attaining that position, which he eventually succeeded in gaining due to his sheer drive and dedicated efforts. His leadership qualities are highly appreciated since breaking the IBM market and gaining a majority of market share was considered by many, as a rare feat. IBM was a strong contender in the PC market, and getting anywhere close to the giant was an unattainable dream. But the strategies adopted by Compaq under the leadership of Mr.Canion, which involved smart moves, such as cost cutting, concentrating its efforts on creating a high quality market niche and continuous and sustained research and development efforts, ultimately helped the organization realize its dream. The company did manage a breakthrough and even became the fastest company to join the ranks of the esteemed Fortune 5oo, beating its rivals fairly and by a considerable margin. Post the Canion era, when the company again was facing a downward trend, owing to the economic as well as political factors in the country, Mr.Eckhard Pfeiffer, assumed the reigns of the company and successfully drove it towards high growth and profitability. Mr.Pfeiffers seven point strategy helped the organization in regaining its lost market share, expand its customer database, create a brand name as well as a brand value, strengthen its market positioning, and ultimately ensured steady revenue flows leading to high profitability. The company was indeed back on track. This was due to the efforts of the leaders who ably took the right decisions, often involving their staff / employees which in a way, proved crucial and helped the organization realize its goals. Similarly in the case of DAG group, the entrepreneurs Val and Chris, showed exceptional business acumen by accurately predicting the growth potential of the dry cleaning business, a typical attribute of an entrepreneur, who seeks to venture into newer territories and assumes risk in order to achieve profits rather than taking the beaten road. It is due to these daring entrepreneurs, leaders and visionaries that new technological innovations are fuelled and supported and the growth of the economy could be achieved. Entrepreneurship cannot always be related to the establishment of a new enterprise. It could also be concerned with finding innovative ways and means to promote a traditional well established business, in dire need of major renovations, as observed in the case of the Dry cleaning Acquisition Group. Leaders are undoubtedly great visionaries, who dare to see beyond the horizons and seek to explore the immense “opportunities” that are wrapped in the garb of “problem scenarios”. GE’s Jack Welch, too recognized the opportunities that presented itself in the form of speed, simplicity, self confidence and the concept of a “boundary less” organization and adopted them in his organizational strategies to become one of the worlds greatest leaders and an entrepreneur par excellence. In the words of Colin Powell: “Performance of organizations is the Ultimate Measure of the Leader”. “Most important, Leaders can conceive and articulate goals that lift people out of their petty preoccupations and unite them in pursuit of objectives worthy of their best efforts” - John Gardner. REFERENCES Salazar, 1996. Compaq Computer Corporation: Superb Leadership, superior technology, or serendipity?, Prentice Hall, Pp. 637 – 647. Rayzman, Hackett, 2000. New Business Ventures and the Entrepreneur, Irwin McGraw Hill, Pp. 143 – 155, 157 – 158. Sahlman, Bhide, Stevenson, Roberts.1999, The Entrepreneurial Venture, Harvard Business Press, Pp.11 Harari, 2002. The Leadership Secrets of Colin Powell, McGraw Hill Professionals, Pp.13 Read More