UC Irvine
`I.T. in Business
`
`Title
`Successful Implementation and Use of Enterprise Software: Compaq Computer Corporation
`Permalink
`https://escholarship.org/uc/item/5tz202t5
`Authors
`Wright, William F.
`Smith, Rodney
`Jesser, Ryan
`et al.
`Publication Date
`1998-09-17
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`eScholarship.org
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`Powered by the California Digital Library
`University of California
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`CONFIGIT 1030
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`SUCCESSFUL SUCCESSFUL
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`SUCCESSFUL SUCCESSFUL
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`IMPLEMENTATION AND USE IMPLEMENTATION AND USE
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`IMPLEMENTATION AND USE IMPLEMENTATION AND USE
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`OF ENTERPRISE SOFTWARE:OF ENTERPRISE SOFTWARE:
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`OF ENTERPRISE SOFTWARE: OF ENTERPRISE SOFTWARE:
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`COMPAQ COMPUTER COMPAQ COMPUTER
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`COMPAQ COMPUTER COMPAQ COMPUTER
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`CORPORATIONCORPORATION
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`CORPORATIONCORPORATION
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`An Academic Case StudyAn Academic Case Study
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`AUTHORS:AUTHORS:
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`William F. Wright William F. Wright
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`Email: wfwright@uci.eduEmail: wfwright@uci.edu
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`Tel: 949-824-7017Tel: 949-824-7017
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`CENTER FOR RESEARCH ON CENTER FOR RESEARCH ON
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`INFORMATION INFORMATION
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`TECHNOLOGY AND TECHNOLOGY AND
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`ORGANIZATIONSORGANIZATIONS
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`University of California, IrvineUniversity of California, Irvine
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`3200 Berkeley Place3200 Berkeley Place
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`Irvine, California 92697-4650Irvine, California 92697-4650
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`andand
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`Graduate School of Graduate School of
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`ManagementManagement
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`Final Version: September 17, 1998Final Version: September 17, 1998
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`Rodney Smith Rodney Smith
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`Ryan JesserRyan Jesser
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`Mark StupeckMark Stupeck
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`Acknowledgement:
`This research has been supported by grants from the CISE/IIS/CSS Division of the U.S. National Science Foundation and the
`NSF Industry/University Cooperative Research Center (CISE/EEC) to the Center for Research on Information Technology and
`Organizations (CRITO) at the University of California, Irvine. Industry sponsors include: ATL Products, the Boeing Company,
`Bristol-Myers Squibb, Canon Information Systems, IBM, Nortel Networks, Rockwell International, Microsoft, Seagate
`Technology, Sun Microsystems, and Systems Management Specialists (SMS).
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`Table of Contents
`I. Introduction .......................................................................................................................3
`Business Strategies and Use of Enterprise-Wide Information Technology......................... 3
`Objectives of this Academic Case Study ............................................................................ 3
`Why Focus on Compaq Computer Corporation? .............................................................. 4
`Organization of the Case Study......................................................................................... 4
`II. The Personal Computer Industry: Competition and Strategic Use of IT ......................4
`Overview........................................................................................................................... 4
`Strategic Initiatives by the PC Manufacturers ................................................................... 5
`Business Strategies and Use of Information Technology.................................................... 7
`III. Compaq: Business Strategy and Use of Information Technology ...............................8
`Context and Background................................................................................................... 8
`Compaq Changes its Business Strategy ............................................................................. 9
`Compaq’s Redesigned Business Processes ......................................................................... 9
`1. Product design and development process........................................................................................................9
`2. Manufacturing and distribution processes. ..................................................................................................10
`3. Pricing process....................................................................................................................................................10
`Compaq’s Restructured Organization............................................................................. 11
`Compaq’s New Enterprise Information System............................................................... 11
`Compaq’s Strategy at the End of 1997............................................................................. 13
`IV. A Balanced Scorecard Analysis of Compaq’s Performance and Use of IT ...............14
`Overview......................................................................................................................... 14
`Financial Accounting Measures of Enterprise Performance............................................ 14
`A Balanced Scorecard View of Evaluating Enterprise Performance................................ 15
`Performance Results: Financial Outcome Measures .........................................................................................16
`A Performance Model of Compaq ................................................................................... 22
`Compaq Falters in 1998................................................................................................... 23
`V. Summary and Overall Conclusion.................................................................................25
`References............................................................................................................................28
`Table 1 Selected Financial Measures - Major PC Manufacturers ...................................29
`Table 2 IT-Enabled Enterprise Performance.....................................................................30
`Table 3 Selected 1998 (6 months) Financial Measures - Major PC Manufacturers.......31
`Figure 1 Relative Shares of the PC Market .......................................................................32
`Figure 2 IT Impact on the Value Chain.............................................................................33
`Figure 3 Compaq’s Information System Relationships.....................................................33
`Figure 4 Compaq’s Global On-Line Transaction System.................................................35
`Figure 5 Compaq’s Build-to-Forecast System...................................................................36
`Figure 6 Compaq’s Build-to-Order System........................................................................37
`Figure 7 Balanced Scorecard Representation of Causes and Effects ..............................38
`Figure 8 Compaq’s Balanced Scorecard Objectives..........................................................39
`Figure 9 Compaq’s 1997 Performance Based on the Balanced Scorecard......................40
`Figure 10 Compaq’s 1998 Performance Based on the Balanced Scorecard....................41
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`Successful Implementation and Use of Enterprise Software:
` Compaq Computer Corporation1
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`I. Introduction
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`Business Strategies and Use of Enterprise-Wide Information Technology
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`Intensifying global competition and increasingly sophisticated consumer preferences
`require that companies respond quickly and effectively to market opportunities. In this
`economic climate, effective implementation of a business strategy depends upon insightful
`use of enterprise-level information technology to redesign business processes, improve
`supply chain management and increase the value provided to the customer. To
`accomplish these goals, managers need timely and comprehensive information to make
`good marketing, production and distribution decisions. These strategic needs have
`motivated many businesses to implement enterprise resource planning (ERP) software.
`
`Packaged software products provided by Baan, Oracle, Peoplesoft, SAP AG and other
`vendors provide effective ERP solutions. The potential benefits of implementing ERP
`software can be very compelling for management:
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`(a) Common business software applications (e.g., for procurement, production
`scheduling, inventory management and financial accounting) are used for all
`organizational units worldwide;
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`(b) ERP software facilitates business process redesign or reengineering efforts,
`permitting the enterprise to more effectively improve business processes,
`reduce costs and execute fundamental business decisions;
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`(c) Real-time access to information is provided on the major economic activities
`of the enterprise for all organizational units worldwide.
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`Currently, the popular SAP AG R/3 ERP software provides the most comprehensive
`coverage of business processes and economic events. Using the R/3 software, executive
`management can monitor and lead the entire enterprise at the levels of business
`processes (e.g., worldwide production and forecasting) and customer demand (e.g., by
`product line and by geographical region). Managers and professionals also can be more
`aware of the economic status of their units, and be more responsive to the needs of their
`customers. These benefits of a successful R/3 implementation can enhance the
`competitive position of a firm significantly.
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`Objectives of this Academic Case Study
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`An academic case study is intended to present a well-reasoned and theoretically
`sound analysis of how an important issue was framed and resolved by an actual firm. The
`issue for the current study is how strategic business use of enterprise-wide software,
`especially SAP R/3, can improve the economic performance of a large-scale
`manufacturing company. We provide a comprehensive, richly detailed analysis of how
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`1This research has been supported by grants from the U.S. National Science Foundation, the
`Industry-University Cooperative Research Program, and IBM Global Services.
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`changes in Compaq’s business strategy and its use of enterprise-wide IT transformed the
`company.
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`Why Focus on Compaq Computer Corporation?
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`Compaq has relied on strategic use of enterprise-wide IT to enhance its competitive
`position. Compaq experienced rapid growth in the 1980s, gaining a well-deserved
`reputation for producing high quality (and high cost) computers. In the 1990s, however,
`the computer marketplace became increasingly competitive in every market segment.
`Competitors such as Dell, Gateway, and Micron started delivering high quality products at
`low prices through mail order operations. Giant corporations such as IBM, Hewlett-
`Packard, and DEC were vying for market share in the large and medium business
`computer market. Large electronics companies like Packard-Bell and NEC were
`producing high volumes of low cost computers for the retail market.
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`Compaq felt the effects of this competition: it lost sales and market share. In 1992, its
`annual revenues dipped by more than $300 million to $1.5 billion while its operating costs
`continued to rise. Earnings per share dropped by over 70%. Compaq’s management
`needed to respond--to develop a new business strategy that would allow them to compete
`successfully while remaining financially strong. The success of any change in strategy
`would depend directly heavily on how wisely Compaq used information technology across,
`and into, the entire organization. These issues constitute the theme of this case study.
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`Organization of the Case Study
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`This case study is organized as follows. The economics and competitiveness of the
`PC industry, and the role of information technology, are evaluated in section two. In
`section three, we concentrate on changes in Compaq’s business strategy and its use of
`enterprise-wide information technology to implement strategic changes. Next, the impact
`of the strategy changes and use of IT on the economic performance of Compaq are
`evaluated using a Balanced Scorecard causal and performance analysis (Kaplan and
`Norton, 1996). The final section provides a summary of our insights and conclusions.
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`II. The Personal Computer Industry: Competition and Strategic Use of IT
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`Overview
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`It is not an exaggeration to assert that rapid and relentless economic Darwinism has
`prevailed, and continues to prevail, in the personal computer industry. “Compaq
`participates in a highly volatile industry that is characterized by fierce industry-wide
`competition for market share. Industry participants confront aggressive pricing practices,
`continually changing customer demand patterns, growing competition from well-
`capitalized high technology and consumer electronics companies, and rapid technological
`development carried out in the midst of legal battles over intellectual property rights.” This
`statement from Compaq’s June 30, 1997 SEC 10Q report describes accurately the highly
`competitive conditions in the industry.
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`These competitive conditions and demands have taken their toll on a number of firms.
`Companies such as Apple Computer, AST Research and Packard Bell are fighting for
`their survival. Others are leaving the market (e.g., Unisys Corporation) or have been
`acquired (e.g., Digital Equipment and Tandem Computer, both of which were acquired by
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`Compaq). And some have suffered substantial losses: Dell Computer lost $36 million in
`1994, IBM lost over $8 billion in 1993, and both Gateway and Micron Electronics reported
`disappointing financial results in 1997.
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`Survival in the PC industry requires that firms continuously re-evaluate and improve
`their business processes, especially their value chains. ERP software, e.g., SAP AG’s
`R/3, is used to implement changes in business processes. Leveraging this technology
`enabled companies to restructure resources, gain efficiencies, improve market reach, and
`implement corporate strategies more effectively.
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`Strategic Initiatives by the PC Manufacturers
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`While Hewlett-Packard and IBM are formidable competitors for Compaq, they are
`large, highly diversified companies; therefore, they are not readily comparable with
`Compaq. We will, therefore, contrast Compaq’s operations and use of enterprise IT
`directly with Dell and Gateway. We note, however, that third quarter 1997 PC industry
`results indicate that Hewlett-Packard has made substantial gains in the PC market—and
`IBM’s inability to compete on price has caused it to restructure its PC operations in late
`1997. It is also important to recognize that IBM’s dramatic financial performance
`improvement over the last few years appears to have been buoyed by the success of its
`Global Services and Storage Systems (SSD) divisions. (The success of IBM SSD’s
`implementation of SAP R/3 has been well publicized.)
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`The continued growth and success of PC manufacturers depends on their ability to
`implement their strategic objectives in a changing market. In the last quarter of 1997, the
`overall market for PCs increased 15% over the same quarter in 1996. Compaq enjoyed a
`clear lead in PC market share in both the reseller (commercial) and the retail (consumer)
`channels. Figure one shows the distribution of U.S. market shares for the major PC
`manufacturers as of the end of 1993 and for the fourth quarter of 1997. Compaq had a
`16.6% market share; Dell was number two with a 9.5% market share, and Gateway was
`number five with 7% of the market. All three recorded substantial increases in the number
`of units shipped during 1997.
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`In Tables 1 and 2, we compare the performance of Compaq, Dell, and Gateway.
`Compaq is two to four times as large as the other two in annual revenues (prior to its
`acquisition of Digital Equipment Corporation). Compaq is three and one-half times as
`large as Dell in total assets and seven times larger than Gateway. From a return on equity
`(ROE) standpoint, however, Dell has a big lead. Although Dell carries no long-term debt to
`lever the common equity, it still produced a 76% ROE in 1997 whereas Compaq’s was
`23.6% and Gateway’s dropped to 12.6%.2 It is apparent that Dell’s management has
`created a highly effective and efficient operation.
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`What aspects of the corporate strategies are driving company performance? The
`direct marketing and build-to-order strategies employed by Dell and Gateway give them
`clear advantages in terms of reduced inventories. Dell averages less than 11 days to sell
`its inventory; its inventory turnover was over 39 times for the fiscal year ending February
`1, 1998. Gateway averages 18 days to sell its inventory, and its inventory turnover was
`19.8 times. Compaq, however, uses the reseller channel to resell its products;
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`2 Based on company financial reports for fiscal years ending December 31, 1997 for Compaq and
`Gateway, and February 1, 1998 for Dell.
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`consequently, it took over 30 days to sell its inventory with an inventory turnover of just
`over 12.6 times for the year ending December 31, 1997.
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`Compaq controls almost 12.5% of the global PC market by designing, manufacturing,
`and marketing a wide range of computer products, including desktop and portable
`computers and network servers. From 1994 to 1997, Compaq has averaged 33% growth
`in annual revenue and 51% growth in annual net income. This growth was accomplished
`by leveraging its strategic use of information technology, e.g., by starting to change from
`“build-to-forecast” to “build-to-order” production. Also, Compaq increased its reach
`(product offerings) by acquiring both Microcom Corporation and Tandem Computer in
`1997. These acquisitions allowed Compaq to compete more aggressively with Dell
`Computer and Gateway; its acquisition of Digital Equipment Corporation in 1998 will allow
`it to confront HP and IBM in the market for large-scale enterprise networks and service.
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`Compaq is the leader in the reseller channel with over 35% of unit sales. While Dell
`and Gateway enjoy significant sales to businesses, they were not major players in the
`reseller market in 1997 for two primary reasons:
`• Dell and Gateway are direct retailers and, therefore, they do not
`typically use the reseller channel;
`• Dell and Gateway have, until recently, focused on selling
`workstations and individual computers, rather than servers and
`completely bundled network hardware.
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`Compaq has also done well in the retail channel. Compaq leads there as well with
`over 25% of the market.3 Intense price competition and other factors have caused several
`PC manufacturers to lose market share and then regain it in late 1997 as they brought out
`competitive models that sell for less than $1000. For example, Packard Bell’s share
`dropped by 40% but then rebounded to over 20% of the retail market by gaining over 30%
`of the under $1000 segment. Both Acer’s and Apple’s share declined significantly
`because of their small share of the fast growing sub-$1000 market.4 Dell and Gateway
`avoid the retail channel with their direct marketing strategy and have not joined the
`competition for desktops priced under $1000 (Gateway recently began offering a limited
`selection of computers for under $1000). Their ability to price their products without that
`additional retailer markup, however, has allowed them to market high performance
`(Pentium II™) systems for well under $2000 and has contributed to their strength in the
`consumer marketplace.
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`Dell, however, has continued its success in the commercial (business) marketplace in
`1997, actually passing Compaq in sales in the second quarter of 1997. The world’s
`leading direct marketer of computer systems, Dell’s sales growth rate is building: 54%
`over the last 12 months, 42% over the last 36 months, and 40% over the last 60 months.5
`Dell’s ability to leverage technology has fueled its dramatic growth in an industry
`characterized by declining prices. Dell maintains lower costs by bypassing distributors and
`
`3 PC Data report for June 1998.
`4 According to Computer Intelligence, Acer held only 0.9% of the under $1000 market in October
`1997, that jumped to 11% in November 1997 and fell to 3.8% in December 1997; Apple had not
`entered the under $1000 market in 1997.
`5 Hoover’s Online market data for Dell Computer Corporation as of September 1998.
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`other resellers. Dell was the first to use a build-to-order (BTO) methodology to
`manufacture and distribute computers given customer orders. Enterprise IT is used wisely
`to minimize inventories and more effectively manage its supply chain. In fact, Dell’s
`newest factory converts customer orders into desktop PCs ready for delivery in an
`average of 8 hours.6
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`Gateway, the second largest direct marketer of computer systems, is also responding
`to competitiveness in the industry. In 1997, it acquired Advanced Logic Research and
`announced entry into the corporate network server market. At the same time, Gateway
`modified its distribution model to increase the use of channel resellers. It will continue to
`sell most of products directly, but will use VARs when large corporate clients need specific
`services.7 Gateway also announced expansion of its own chain of retail stores, Gateway
`Country, building on the success of its store in Great Britain.8
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`Business Strategies and Use of Information Technology
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`In the PC business, sagacious use of enterprise-level IT is essential to implement
`business strategies and be fully competitive. Moreover, Mata, Fuerst, and Barney (1995)
`suggest that managerial IT skills are likely to be the only source of sustained competitive
`advantage using information technology. They define managerial IT skills to “include
`management’s ability to conceive of, develop, and exploit IT applications to support and
`enhance other business functions” (Mata, Fuerst, and Barney, 1995, p. 499).
`
`The following excerpt from Dell’s 1997 SEC 10K report, although addressing only the
`customer awareness aspect, highlights the importance of IT in implementing business
`strategies. Great emphasis is placed on customer service and understanding of market
`trends--and use of the enterprise software that provides the necessary information.
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`“Dell’s information systems enable the company to track each unit sold
`from the initial sales contacts, through the manufacturing process to
`post-sales service and support. Dell is able to track key information
`about many of its customers and target marketing activities specifically
`to particular types of customers by using its database to assess
`purchasing trends, advertising effectiveness and customer and product
`groupings. This database, unique to Dell’s direct model, allows the
`Company to gauge customer satisfaction issues and also provides the
`opportunity to test new propositions in the marketplace prior to product
`or service introductions.”
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`Gateway’s annual reports indicate a similar emphasis on tracking customer satisfaction
`and sales. Since Compaq has used, and continues to use, resellers as intermediaries,
`Compaq obtains customer-oriented information that is both less complete and less timely.
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`More generally, their uses of direct marketing and build-to-order strategies permit Dell
`and Gateway to enjoy strategic advantages over Compaq. The two companies are able to
`reduce the relative size of their inventories, obtain more direct and timely feedback from
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`6 Dallas Morning News, Sep. 2, 1997.
`7 Computer Reseller News, Sep 22, 1997.
`8 Computer Retail Week, Sep 5, 1997.
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`their customers, and, with comprehensive sales tracking systems, they obtain immediate
`information regarding changes in customer preferences. These advantages could not be
`achieved without effective implementation of enterprise software to accomplish the tasks.
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`The continued growth and success of these PC manufacturers depends on their ability
`to improve and implement their strategic objectives in a changing market. Wise use of
`enterprise software is an essential tool. Compaq is now deploying enterprise software to
`obtain the information and logistical advantages enjoyed by its competitors.
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`III. Compaq: Business Strategy and Use of Information Technology
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`In section II, we profiled the intense competition that prevails in the PC industry—and
`why effective use of IT is a competitive necessity. Now, we will investigate how Compaq’s
`use of IT permitted the firm to change its corporate strategy, transform several critical
`processes and compete more successfully in the PC industry.
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`Context and Background
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`In 1997, headlines in the business press extolled Compaq’s accomplishments:
`“Compaq Announces Record Third Quarter Sales, Earnings, and EVA,” “Compaq Scores
`with Cheaper PCs,” “Dataquest, IDC Q3 figures put Compaq atop of PC sales heap,”
`“Domination – Compaq and Dell surge.”9 At the same time, some of Compaq’s
`competitors were not faring as well. For example, Micron Electronics, Inc. announced on
`November 24, 1997 that its quarterly earnings would be lower, Gateway reported a third
`quarter 1997 net loss of $107 million, and Apple Computer was just returning to
`profitability. These different results are surprising since there appears to be little to
`distinguish one PC from another--each uses almost the same components often from the
`same vendors. The prices are similar; so is the performance of the products. Why, then, is
`was Compaq doing well when many others were not?
`
`Before we address that question, some understanding of Compaq’s history may be
`helpful. Founded only 15 years ago, Compaq presents a model for a growth company. In
`1983, it reported first year sales of $111 million and, by 1984, Compaq had subsidiaries in
`Germany, France, and the United Kingdom. By 1985, Compaq stock was trading on the
`New York Stock Exchange. Compaq reached $1 billion annual sales by 1987. Compaq
`introduced the first business-class laptop computer in 1988 and a PC-based
`multiprocessor server in 1989. By 1990, Compaq’s international sales exceeded its North
`American sales. The Compaq Presario line of personal computers for the home was
`launched in 1993. Compaq became the largest global supplier of PCs in 1994 and the fifth
`largest computer company in the world in 1995.10
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`Dynamic growth in the 1980s, however, caught up with Compaq in the early 1990s.
`Compaq experienced its first quarterly loss in 1991; essentially, the company had
`outgrown its ability to manage its growth. In addition, responding to competitive pressures
`had become more difficult. More specifically, Compaq’s information system lacked the
`
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`9 Planning Review July, 1994.Business Wire Oct 16, 1997; Wall Street Journal Oct 17, 1997;
`Business Wire Oct 27, 1997; and ZDNN Oct 27, 1997. The authors recognize that Compaq
`Computer Corporation generated certain of these headlines via press releases.
`10 Compaq 1996 Annual Report.
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`process integration necessary to provide management with timely information. Its
`organizational structure was no longer applicable or efficient.
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`Compaq Changes its Business Strategy
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`Compaq seemed to manifest the common problem that Michael Hammer described in
`his 1990 article,11 Reengineering Work: Don’t Automate, Obliterate: “processes have not
`kept pace with the changes in technology, demographics, and business objectives.” When
`CEO (and Compaq founder) Rod Canion failed to develop a comprehensive plan to
`reengineer the corporation, the board of directors replaced Canion with Eckhard Pfeiffer.
`In 1993, based on Pfeiffer’s new business strategy, Compaq began an enterprise-wide
`reengineering effort that encompassed changed strategic business processes, a more
`effective organizational structure, and a comprehensive, integrated enterprise information
`system (compare the process flows in Figures 5 and 6).
`
`Three major strategic objectives were emphasized:
`• Build-to-order manufacturing. Before this objective could be fully
`implemented, however, Compaq needed to reengineer its processes to
`reduce cycle time (the time from receipt of an order until the products
`fulfilling that order are shipped) from two weeks to 5 days.
`• Multi-channel distribution. Compaq planned to add additional sales
`channels, such as mass-market retailers, but the success of this strategy
`hinged on not alienating the computer retailers and resellers with whom
`Compaq already had highly productive relationships.
`• Pricing, promotion, and customer service. Compaq began implementing
`this initiative immediately by cutting prices an average of 30%, increasing
`advertising by 60%, offering on-site installation, extending warrantees, and
`building remote diagnostic capability into its PCs.12
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`Compaq’s Redesigned Business Processes
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`Compaq’s management identified three major business processes that were critical to
`its strategy implementation: 1) product design and development, 2) manufacturing and
`distribution, and 3) pricing. These processes not only had to be improved; they had to be
`completely redesigned.
`
`1. Product design and development process.
`
`Compaq already excelled in product design and development. Now, it had to design
`products to specific price points--price targets that would position the company’s products
`favorably in the market. In addition, its goal was to be, if not the first, among the first to
`market with products based on the latest technology.
`
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`11 Harvard Business Review, July-August, 1990.
`12 Planning Review, July 1994.
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`A cross-functional process was necessary. Designers and engineers needed market
`information on both market requirements (e.g., interoperability of systems components,
`reducing cost of ownership, typical uses, and configuration preferences), and on
`competitors’ innovations. Also needed were data from suppliers and manufacturing
`information to design-for-manufacturability; SAP’s R/3 software is designed to provide
`much of this information. A “best practice” team approach dictated that the marketing
`members of the team specify the product requirements and the manufacturing members
`set the production constraints.
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`2. Manufacturing and distribution processes.
`
`Dell’s efficient “build-to-order” model gave Compaq a target for its manufacturing and
`distribution processes. Compaq had relied on “build-to-forecast,” an inherently more
`efficient manufacturing process characterized by large production runs and low unit costs.
`In the PC industry, however, any unsold product has a very short shelf life. New products
`are introduced constantly and product lines often have only a life of a few months. Like
`others in the industry, Compaq had to deal with obsolete products in both its inventory and
`the inventory held by its retail dealers and resellers. Obsolescent inventory--with lowered
`prices--competed with new products. In addition, Compaq was faced with substantial
`product returns each time a new product was introduced. The extra handling and
`disposition was wasteful and costly.
`
`Build-to-order should eliminate these problems by eliminating the extra inventory
`levels. Build-to-order, however, requires a much higher level of supply chain integration
`and management. Compaq plans to replace inventory with information. Compaq’s
`suppliers will need to know the firm’s requirements as soon as Compaq does. Compaq
`must balance demands placed on suppliers while keeping the manufacturing facilities
`operating smoothly and efficiently.
`
`3. Pricing process
`
`Compaq’s pricing objectives are ambitious: It wants to set the prices for the market. At
`the same time, it also wants to create value for its customers in ways that will differentiate
`its products.
`
`To achieve these pricing goals, detailed and timely sales information is essential. In
`the retail channel, Compaq requires sales information on a daily basis to price its products
`correctly without compromising its profit margins. In the reseller channel, Compaq needs
`to understand its customers’ requirements and develop solutions that will add more value
`than competitors’ products at a lower total cost of ownership.
`
`One aspect of pricing is product quality, i.e., does the product meet all of the
`customer’s requirements. Compaq’s success in the major corporate market hinges on its
`ability to deliver complete enterprise-wide solutions. Its customers typically seek to avoid
`dealing with multiple vendors and they do not want to struggle to integrate potentially
`incompatible products. Compaq must provide complete solutions and then price the
`products appropri