Operations Strategy at Compaq Computer

Swaying from the ceiling at its Houston factory is a white banner that reads: We at Compaq Computer
are absolutely committed to provide defect free products and services to our customers.
The message jibes with what one sees below: a sparking assembly line, surrounded by potted ficus trees
and ferns, washed with light from vast skylight, that looks more like an expensive health club than a
factory. Founded in 1982, the company has its ideal inscribed in its name, an amalgam of the words
computer, compact, and quality.
A maker of IBM-compatible PCs as well as ultrafast computers that manage data on office networks,
Compaq has grown into an 11,800-employee business that in 1990 earned $455 million on $3.6 billion in
sales. It commands 20% of the world PC market, compared with 25%each of IBM and Apple Computer,
and has a almost no foreign rivals, except in the fast-growing field of laptop PCs. Still, competition in
ferocious fighting for sales, Compaq cut prices on its computers this spring as much as 34 percent and
warned that second-quarter earnings would drop 80 percent.
Part of Compaqs success derivers from its speed at offering the latest processor chips, disk drivers, and
display screens in its products. Yes, even faster than IBM. A Major challenge, says CEO and co-founder
Rod Canion, is to keep a breakneck pace of innovation across burgeoning product lines-nine new ones
last year alone.
When the company was small, speeding products to market seemed a breeze. Today Compaq tries to
maintain its entrepreneurial edge through small product-development teams that include marketers,
designers, engineers, and manufacturing experts. Rather than moving a new computer step by step from
drawing board to the factory, explains Canion, The secret is to do all things in parallel.
Compaqs greatest advantage, Canion believes, is that it buys most components rather than making
them itself: Vertical integration is the old way of doing things The way to succeed in the 1990s is to be
open to technology from anywhere in the world. When Compaq needed a hard disk drive for is first
laptop in 1986, it considered building one itself. Instead, it helped finance Conner Peripherals, a Silicon
Valley startup with a disk drive already under way. We worked so closely with Conner that they were
literally an extension of our design team, says Canion. We got all the benefits but werent tied down. If
another company had come along with a better drive, wed have bought from them as well.
In March, Compaq began a nervy foray beyond the realm of PCs into the $7.5-billion-a year market for
powerful desktop workstations used primarily by scientists and engineering. Rather than attacking market
leaders Sun Micro-systems and Hewlett- Packard head-on, Compaq assembled more than a dozen
hardware and software companies, including Microsoft and Digital Equipment Corp., in an alliance. The
group aims to win by defining a new technical standard for high-speed desktop computing, much like the
IBM standards in PCs. Any workstation designed in accordance with the standard would work with any
other. That would free customers to buy the latest, fastest machine without fear of being wedded to a
single manufacturer.
Industry experts think rivalry among participants may tear the alliance apart. Observes Dick Shaffer,
editor of Computer Letter: All the participants are entrepreneurial companies with big egos, The
groups prospects may not become clear until late next year, when Compaq and other members are due
to roll out the new computers and software. If the products all work together, Compaqs workstation
would be a winner. If not, says Stewart Alsop, Publisher of PC Letter, Compaq may have to lower its
sights: As a $3.6 billion company, Compaq cant keep up a high rate of growth anymore just by building
PCs.

OPERATIONS STRATEGY FRAMEWORK: FROM CUSTOMER NEEDS TO ORDER FULFILLMENT

Guide Questions:
1. Relate the elements of Compaqs strategy to the operations strategy framework shown in Exhibit
2.2. Specifically identify what appear to be the key performance priorities of Compaqs strategy
and the required enterprise and support platform capabilities that must be effectively employed
for Compaqs strategy to succeed.
2. What are the risks Compaq runs by outsourcing so much of its products?