The success attributable to leadership in Compaq Computers and Konica Corp - Case Study Example

? The Success Attributable to Leadership: Compaq Computers and Konica Corp (Add (Add (Add The Success Attributable to Leadership: Compaq Computers and Konica Corp Introduction Compaq Computer Corporation is a Huston based company that produces PCs and computers. The company was founded in 1982 and presently, the company has its operations in more than 100 nations around the world. It operates through more than 31,000 marketing partners. Presently, the company holds 9.5% of the world computer market. Konica is a Japan based firm that is second largest photo film manufacturer in Japan. While Compaq was famous for its high quality computers which were costly in nature, Konica was in the field of photosensitive materials. Admittedly, both the companies faced troubles as there was intension competition in the market. This work intends to look into the strategies they adopted in their efforts to survive in the market and the role of leadership in their success. A Look into the Compaq Criterion From its beginning until 1991, the company witnessed considerable growth and profit. However, as a result of the intense competition in the market, the company lost momentum and for the first time in its history, the company declared loss in 1991, followed by laying off 1700 employees and cutting the price of the products. However, as the new leader Eckhard Pfeiffer took up the task, he introduced a totally new approach and strategy. On his beginning, as Salazar (1996, p. 638) reports, Pfeiffer declared his seven point strategy that included continuing to be the major global supplier of PCs and systems, PC division introducing new cost-effective and entry level products which are high performing, the system division providing quality service and customer support, maintaining high quality and reliability, high quality customer service and support, a continuously decreasing price of products ensuring competitive prices in all markets, and an increased sales and distribution. A look into the history of the company proves that the company managed to do all this, and the leadership of Pfeifer in achieving all these in the shortest time cannot be neglected. Pfeiffer’s Success Mantra and What Konica lacked Pfeiffer did not aim at short term management but long term success. His success lies in the fact that he clearly understood what went wrong with the company and he prepared a clear strategy for the company. In addition, he executed what he prepared. According to him, the failure of the company happened because its success made the company rest on its laurels for a while and hence, the company did not notice the signals of the growth of its rivals. So it focused only on the high-end market, keeping is products expensive. However, for Pfeifer, the picture was very clear. He knew what to do. His strategy was to slash prices on high-end products to keep the existing range of customers, and to introduce new entry level, low margin products which are designed to sell profitably at a price that matches low-cost competitors. Now, it is time to see how Pfeifer managed to introduce the low-priced line in a short time. Similarly, even before it falling into loss, Konica realized the threats ahead, reading from the changes in the market. In the year 1986, Fuji Film had 67.5% of the film market share, and Kodak had an increase in its market share by one percent. However, Konica lost one point of market share, falling from 22% to 21%. In addition, competition on the price of photofinishing was intense. The price of developing the film and the price of color printing were going down considerably for the last five years. So, the estimate was that the mini-labs would handle 25% of the amateur photofinishing market by 1989. In addition, as Turpin and Shen (1999) state, the camera section where Konica had a 5.5% share too was facing intense competition as the markets had matured and as companies were introducing cameras with a lot of new features and which are user-friendly; and the main players in the camera industry were Canon, Nikon, and Minolta. The new electronic cameras with video recording and the cameras without film were all threatening the traditional camera market. In addition, there was the introduction of disposable cameras and there too, the profit of Konica was marginal. Evidently, here Konica could not take such dramatic steps as Compaq had done because it lacked the kind of team that had the ‘can do’ attitude and engineering capability. Identifying the Root Cause Evidently, Pfeiffer’s success was heavily dependent on identifying the exact reason for the failure of the company. In addition, it also involved identifying the strengths and weaknesses of the company. Evidently, after identifying the facts that the strengths of the company are its engineering capability, global manufacturing and presence, brand recognition, loyalty, and a strong cultural base, the problems he identified were the limited range of products that only covered the high end users, the high prices, limited supply and so on. So, evidently, he decided to build on the company’s strengths and to solve the company’s weaknesses. As Heller (1994) points out, he introduced the Seven Point Strategy that included regaining market by expanding supply chain, introducing new products that suit all customers, maintaining quality and reputation through proper service and reducing prices for the products. Almost all of these steps were taken by Konica too. It introduced a variety of films and cameras though it did not evidently try to compete using reduced prices. In addition, the company could have gained market through advertisements as was done by Compaq. Introducing the Low-price Product According to Holden and Burton (2008, p. 218), it is possible to adopt various pricing strategies not only to increase profits but also to defeat the competitors. In order to develop the new cost-effective product line, Pfeiffer chose an experienced staff and was given the freedom to select his own team and to develop the best and the cheapest computer in the industry, and were sent to the company’s glass and steel camps in Huston. However, the team broke the long Compaq tradition and came up with a brightly colored design that did not look like Compaq. However, the new PC did not go well with Pfeiffer and so, he decided to wait so that he could come up with a high performing computer that suits the standards of Compaq and still that can be sold a the cheapest price the computer world has known. Thus, as Heller (1994) reports, by 15 June 1992, the ProLinea appeared that was sold at a price of $ 900, and as expected, a flood of orders was followed. As production further increased, the production cost further went down. Evidently, Konica too came up with new and new products as required but its products were not exceptional. In addition, its products were not considerably cheaper than that of its competitors. So, compared to the success of Compaq, the growth of Konica was not so spectacular. Speed and Growth Two other qualities that were exhibited by Pfeiffer at that time of crisis were speed and growth. If the company was in all trouble by the end of 1991, by June 1992, Pfeifer managed to alter the picture altogether. Here, one can see the effectiveness with which Pfeiffer managed the change. He did not hesitate to arrange a team to introduce the new low-price product line as early as possible. However, in the case of Konica, these features were absent. There was no speed involved and secondly, the company did not stress heavily on growth, as it lacked an aggressive, time-bound strategy. According to Davis, Boswell, and Frechette (2010, p. 35), it is highly necessary for organization’s success to have fast thinking CEOs and fast responding management team. Internal Communication- the Fourth Element Te most important point that made Pfeiffer successful was his ability to communicate an effective strategy in very clear terms. For the purpose, there was a worldwide communication group of 150-200 people. They met every month in order to hear the strategies from Pfeiffer and to discuss every aspect of the strategies (Compaq, 2010). As the message was clearly conveyed to the managers, they all worked with a very clear aim to achieve. Evidently, communication was not as effective in Konica as it lacked such an efficient communication system, and as it lacked a clear strategy. In the opinion of Smith and Mounter (2008, p.48), the importance of effective from the part of chief executive is something that determines the efficacy of any organization. The Shift from Functional to Divisional Organization Yet another important decision from Pfeiffer that made the company improve its operation was the shift from functional structure to divisional structure. As the company spread across five different geographical regions and three production divisions, functional organization was not effective. Under the new divisional organization, the business heads got more authority and responsibility. According to Cummings and Worley (2008, p. 318), as there was more independence, they functioned taking into account the needs of the region they operate; and thus, there was better growth as it became possible to introduce various strategies for various areas. The Strategic Alliances versus Merger As Prahalad and Ramaswamy (Nov 2001) opine, being against collaboration is like being against quality and profitability. The new business world is aware of the fact that it becomes necessary for even rivals in the business field to cooperate in order to survive in the long term. Both the companies; Compaq and Konica have proved that they too have to depend on collaboration and merge to ensure that they continue as profit-making companies in the long term. An important leadership decision is seen in the company decision to form strategic alliances. For example, Compaq has a five year strategic alliance with Picture Tel for the production of Personal Conferencing products. In addition, Microsoft and Compaq have formed alliance to develop video servers in order to enable people to receive cost effective and interactive multimedia video on private and public networks. In addition, there is the Compaq-Oracle alliance. The alliance intends to develop high performance, easy to manage integrated database server platforms. On the other hand, the strategy from Konica was to merge with Minolta, a leading camera producer. Admittedly, in both the cases, the leaders understood the need to diversify using latest technology, but the ways were different. As Ota (2008) opines, while Compaq engaged in short-term alliances, Konica preferred merger. However, both the cases show a shift away from their traditional products. The Diversification Strategy Compaq’s desire to diversify is evident from the company’s introduction of a 454 kg computer named ‘Armada’ to allow companies to consolidate all their servers in one place. In order to promote this, the company has decided to give up the mage as a PC maker and the company has decided to invest $ 40 million to develop the new service. Similarly, the new Konica Minolta group has decided to keep its photo imaging and camera as transforming business, optics as strategic business and business technologies as the core business. Different Business Models for Different Regions and Products One important point that helped Compaq operate effectively is the development of divisional organization that enabled each division to function independently. So, taking into account each geographical area and each product, the company developed separate strategies for each of them. The company has its top management that meets every month to discuss the strategies and also to monitor the progress. Though somewhat similar strategies were adopted by Konica in a very small scale, they were not so effective. For example, Konica had its new film for color prints targeted at teenagers with a packaging featuring Snoopy; the popular dog from the Peanuts cartoon. As a result of the attempt, there was an extra 13% rise in profits. However, the shortcoming was that such steps were not introduced in the case of all products. In addition, the company failed to reduce production costs and also to beat its competitors by reducing price. Increased Productivity and Profit with no Increase in Hiring Admittedly, Compaq managed to be back on the growth track, and this time, with more caution and care. The company always tries to improve the design of its production units and various components. This ensures that the same component remains usable in various products. In addition, better workplaces ensure that productivity increases with no increase in the number of employees. In addition, an effective just-in-time supply chain cuts inventory and manufacturing costs. Thus, for the high end brands, the company has considerably reduced costs and prices. For example, in 1991, the company reduced prices by 34% and in 1993; it further reduced prices by another 15%. Thus, the company effectively overtook its competitors and regained its markets like Japan. In addition to all these, there was improvement in the case of supply chain too. In order to address the needs of the small and medium buyers who comprised the bulk of Compaq customers, there was the addition of superstores and CompUSA. In addition, in order to make its System Division more effective, it started direct sales through a toll-free number. Furthermore, there was the decision to increase the warranty period of the products to three years. Also, the company offered within 24 hours delivery, and preset software packages for some buyers. So, many companies returned to Compaq. However, from Konica Minolta, the efforts were not in this direction. First of all, the company could not reduce the prices of its products considerably so that it could attract more customers. In fact, being a company that had a considerable number of customers, it could easily lure the remaining people to its products by finding ways to reduce the cost of production. In addition, as the company had presence in other nations like India and Saudi Arabia, it could diversify its product range depending on the needs of the people in each region. Moreover, in the camera industry, the company only had its products in the lowest range, and still, the products were not at all cheaper than other competitors. Corporate Social Responsibility The last point to be considered is a good corporate social responsibility image. It becomes evident that both the companies show a keen interest in global environmental issues. In addition, the companies ensure that they sustain high level corporate ethics. Moreover, in the case of Konica, it ensures utmost transparency in its corporate activities. Compaq too takes care to stand as the leader in environmental, health and safety areas. In 1997, the company was recognized by the World Environmental Center as the recipient of the WEC Gold Medal for International Corporate Environmental Achievement. The company was acclaimed by many for the adoption of an Environmental Policy in the very beginning of its operation. Admittedly, Compaq is the first in the industry to develop energy-efficient computers, which reduce carbon dioxide emissions. In addition, by avoiding the presence of CFC in the manufacturing methods, the company again gained the name of a highly ethical company. Moreover, the company is a member of the Industry Cooperative for Ozone Layer Protection. Here, it becomes evident that in the case of an ethical and environmental-friendly image, both the companies have achieved success. Conclusion Admittedly, both the companies share a lot of similarities in their steps. First of all, both of them realize the need to avoid depending on what their main products were in the past. Both have taken timely decision to diversify depending on the needs of the time. Te second point where both of them share similarity is their decision to make strategic alliances. While Compaq was bold enough to make short-term alliances, Konica merged with Minolta in their attempt to compete and to diversify. However, Compaq went many steps ahead as they effectively introduced better production, better pricing strategies, better supply, better services, and better publicity. References Bravo Compaq. (2010). Comjagat. Com. Comjagat English. Retrieved from http://eng.comjagat.com/news/bravo-compaq-2-539 Cummings, T. G & Worley, C. G. (2008). Organizational Development & Change. Canada: Cengage Learning. Davis, J. R., Frechette, H. M & Boswell, E. H. (2010). Strategic speed: mobilize people, accelerate execution. USA: Harvard Business Press. Heller, R. (1994). USA: The Compaq comeback. Management Today. Haymarket Business Media. Retrieved from http://www.managementtoday.co.uk/news/409758/USA-COMPAQ-COMEBACK/?DCMP=ILC-SEARCH Holdon, R. K & Burton, M. R. (2008). Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table. New Jersey: John Wiley & Sons. Ota, Y. (2008). Business strategy in the era of globalisation: The case of Konica Minolta. Business Library. CBS Interactive. Retrieved from http://findarticles.com/p/articles/mi_6769/is_2_16/ai_n31872192/ Prahalad, C. K & Ramaswamy, D. (Nov 2001). The collaboration Continuum: Understand the full goals and complexity of collaboration before moving forward. Optimize. CMP Media LLC, 1-5. Retrieved from http://www.providersedge.com/docs/km_articles/The_Collaboration_Continuum.pdf Salazar, R. J. (1996). Compaq Computer Corporation: Superb leadership, superior technology, or serendipity?. 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