On a bright, sunny morning in France last year, a black helicopter carrying Carleton "Carly" Fiorina and a corporate TV crew touched down outside Hewlett-Packard's offices in Paris. The event marked more than just the arrival of the company's new president and CEO; it signaled the beginning of an era at the computing giant in which flash and self-promotion would replace tech talk as the keys to promulgating the HP message. Fiorina's high-profile trips to visit employees and customers became known internally as the "Rock Star Tour".
Around the same time, Michael Capellas, newly anointed president and CEO of the world's No. 1 PC maker, Compaq Computer, was also meeting and greeting employees but without the helicopters, klieg lights and camera crews. Capellas' mission was intentionally low-profile.
The paths of Fiorina and Capellas ââ,¬"- both 45 years old, both considered tireless workers by observers who know themââ,¬"have diverged significantly since each was named CEO a year ago this week. And like their top executives, the remaking of HP and Compaq is a study in contrasts. While HP received an immediate boost from Fiorina's splashy debut, Compaq's turnaround has been much slower and is just now beginning to show signs of life.
What a difference a year makes
Things were different a year ago, when both companies were in the midst of major shake-ups. HP had announced plans in March 1999 to spin off its test and measurement business, and longtime Chairman and CEO Lewis Platt announced his intention to retire. Compaq, meanwhile, was in worse shape, facing a negative quarter and searching for a new leader after the company's board of directors ousted CEO Eckhard Pfeiffer in April.
Both companies were making a difficult transition from hardware maker to e-business solutions provider. HP was further down that road, having launched an e-services initiative in March 1999 that began to coalesce its Internet strategy. Compaq, on the other hand, was still struggling to digest its acquisition of Digital Equipment while picking up the pieces of a management team in shambles.
A year later, HP has hit its stride. HP's stock price rocketed from US$67 last July to as high as US$155.50, settling at US$134.69 last week. Revenues for the company's second fiscal quarter, ended April 30, were up 15 percent over the year-ago quarter.
Compaq's growth has been more constrained. Following a disastrous US$184 million loss in the second quarter of fiscal 1999 -ââ,¬" the quarter that ultimately led to Pfeiffer's ouster -ââ,¬" the company has been profitable in the three quarters since Capellas came on board. Revenue growth has been sluggish, up just 1 percent year to year in its first quarter that ended March 31 (the company will report second-quarter numbers on July 25). Its stock, stuck in the high teens last July, has climbed as high as US$34 before settling in the mid-US$20s.
Ask the customers
Financial performance aside, a more telling contrast between HP and Compaq involves their customers. HP continues to fine-tune itself to be more customer-centric through an internal reorganisation and a growing portfolio of e-services initiatives, while Compaq, observers said, continues to spend too much energy worrying about the desktop PC market.
In the new economy, image is almost everything. And HP, led by Fiorina, has done much more to improve its image than has Compaq. (Fiorina declined to be interviewed for this story.)
After Fiorina took over last July, HP kicked off a massive public relations and advertising campaign, which, while short on substance, nevertheless has resonated with once-cynical corporate customers.
"I'm feeling better about HP as a company," said Judy Brown, emerging technology analyst at the University of Wisconsin and an eWeek Corporate Partner. "Seeing her at shows, Webcasts and such, she seems to be forward-thinking. Their brand is very positive because of her."
A year ago, Brown said the new Compaq CEO would have to articulate a strategy to keep customers and make new ones. So far, she hasn't heard one. "Compaq has not been too vocal," she said. "I've seen more from Fiorina."
HP is starting to flesh out its image with new initiatives to improve customer focus. Earlier this year, the company began running its top 100 customer accounts as separate profit and loss centers.
Under Ann Livermore, president and CEO of HP's Enterprise Computing division, the company is also moving its worldwide customer profit and loss to four regional centres, in North America, Asia/Pacific, Latin America and Europe, in an effort to move decisions regarding products and services closer to customers. Each profit and loss centre comprises a portfolio with a set of goals for areas such as total customer satisfaction, profits and growth expectations.
HP has also restructured its sales force and divided it along customer lines, rather than by product.
"Historically, we organised more around products like LaserJets, InkJets, PCs and large servers," said Webb McKinney, vice president and general manager of HP's Personal Computing Organisation, "It was good, but when customers wanted to go across products, it could be difficult to work with us. Carly wanted us [to empower the sales force] to create a clear responsibility for the customer."
A more customer-focused sales force would help improve relations with IT managers such as Jim Bandy, manager of systems services for Southwest Airlines. Bandy has complained of troubled HP support.
"The problem that we've traditionally [had] with HP in the past is, you deal with the Unix group, or you deal with the MPE group, or you deal with the services group, and it's like dealing with five different companies," he said. "I think they've begun to make some progress to make it seem like we're dealing with one company."
Compaq officials contend that the organisation, and Capellas specifically, is "obsessed" with the customer. To drive that point home, Capellas in the first quarter of 2000 incorporated a customer satisfaction incentive into every executive bonus program.
"It's half of the bonus," said Michael Winkler, a Compaq senior vice president and group general manager. "There's no shortage of customer obsession, believe me, because it's all in our paycheck."
Winkler attributed recent customer satisfaction problems to the general employee strain facing the industry as well as a revamping of the sales force last June. "Maybe there are some [customers] that have fallen through the cracks," he said. "But those are the exception rather than the rule."
In fact, Technology Business Research reported in May that Compaq's customer satisfaction ratings and customer loyalty increased dramatically in the first quarter.
Compaq is working diligently to improve online customer support, the volume of which has grown 350 percent this year over last. Three weeks ago, it launched a revamped support page on its Web site that features a host of self-help services, such as the AskCompaq natural language query system, text-based chat with technicians and self-diagnosis, among others. Within six months, Compaq will turn on voice-over-IP chat functionality that will let customers instantly call a technician while online.
Capellas' background makes him a natural to improve relations with customers, Compaq backers say. "He was a CIOââ,¬"he was a customer. He understands," said one source close to the company. "And it turns out he's a natural-born leader." Capellas was unavailable to be interviewed for this story.
Question of quality control
While addressing customer service complaints, Compaq also faces increased customer concern over the company's products. "Seems to me that quality control isn't what it once was at Compaq," said Steve Levin, director of IT for Lowe McAdams Healthcare. "Lately, I've had a lot of problems with the equipment we've been receiving. Basically, I've had a lot of warranty repair work recently, which I didn't have before."
Lowe McAdams buys desktops and servers from Compaq and has HP printers and one HP server.
Bo McBee, Compaq's vice president of quality and customer satisfaction, was surprised to hear of the problems. McBee, who was promoted to the newly created position last fall and who reports directly to Capellas, said the company is doing much to improve both quality and customer satisfaction.
In addition to his position, McBee and Capellas created the company's Office of Customer Advocacy. "That's where the buck stops," McBee said. Essentially, if a customer goes through the normal channels and is still not sat is fied with the support, the office will take the issue and solve it within 24 hours, he said.
One of the central underpinnings to HP and its future is the company's e-services strategy, which Fiorina crystallised in a keynote speech at Comdex last year.
In the year since Fiorina took over as CEO, HP has signed up 47 partners to help provide 31 jointly run or marketed e-services. Such services range from Cartogra, a home-grown online photo album service for consumers, to the Ariba Network eCommerce service, which plugs online companies into Ariba's expansive network of suppliers.
The partnerships are key to what HP officials call Chapter 2 of the Internet, an era in which e-services become modular applications that smooth and speed Web-based transactions and navigation.
It's an idea that rivals IBM, Sun Microsystems and, more recently, Microsoft have also embraced.
"HP with their e-services is right on track," said Scott Hebner, director of E-business marketing at IBM, in Somers, NY Like HP, IBM sees the Internet as the platform on which modular applications will be built. And like HP, IBM taps into its 40,000-odd business partners to provide specific services around the architecture.
A critical piece of HP's e-services push is its e-speak development platform. Available now as open source with a manufacturer's release due in October, e-speak consists of software that performs discovery, negotiation, mediation and composition, along with programming specifications, tools and services.
Although HP has had a handful of past software missteps, e-speak developers so far say they're impressed with the technology.
"The promise of e-speak is that it will provide a unified architecture between sites," said Terry Hannigan, chief technology officer at Compareitall, a year-old startup that offers online visitors comparative pricing information on air fares, car rentals, cruises, hotels and more. The six-person company is counting on e-speak to link it with affiliates and ultimately enable shoppers to move swiftly from place to place for a complete travel-planning experience.
"e-speak is that certain kind of blood that you can use in everyone else," said Hannigan. "It's like the Type O of architectures."
Compaq's bumpy ride
Compaq's road to the Internet, highlighted by its year-old NonStop eBusiness initiative, has been much bumpier. Critics say that the company simply doesn't have the foundation to address the kinds of services HP and IBM offer.
"I don't see [Compaq] as a threat," Hebner said. "The middleware stack is fundamental to this. It's broader than just servers."
With no home-grown platform software, Compaq relies on partners such as Microsoft, with its bevy of applications, e-commerce tools and Windows NT; Clarus, which provides Compaq with e-procurement tools and its Active Architecture technology; Commerce One, which provides purchasing technology; and Click Commerce, with its business-to-business software. For most of its NonStop solutions, Compaq's contributions are servers and consulting.
The NonStop eBusiness initiative, launched during the last days of Pfeiffer's reign and spearheaded by another since-departed executive, Enrico Pesatori, has done little to change perceptions of Compaq as a box maker, observers say.
"Nothing's changed at Compaq," said an executive at a Compaq rival who requested anonymity. "They're still operating under the old model."
That model includes a stubborn focus on hardware instead of services and a years-long transition to direct sales. For the latter case, Compaq is still struggling to find the right formula.
"We have had a lot of focus on the distribution model," Winkler said. "We've had increased requests by our main accounts. That has taken a lot of time and attention."
Winkler believes Compaq found the right formula in January when it paid US$370 million for the custom configuration unit of partner Inacom Compaq used the operation to create a build-to-order division, called Custom Edge. While some Compaq customers said they've yet to see any benefits from the Inacom deal, Winkler said the division has paid off. For example, he said, 30 percent of Compaq's North American volume last quarter was shipped through Custom Edge.
Still, some customers are doubtful. "I know Compaq has been trying to copy Dell's example of build-to-order, but I haven't seen anything good come from that," said Lowe McAdams' Levin.
Custom Edge is but one of many investments Compaq has made of late to improve its customer relations and streamline business. In May, Compaq and HP aligned with 10 other technology companies to form a high-tech B2B exchange to fine-tune supply chain management. Last week, Compaq joined with Web company incubator CMGI to form a joint venture, Freeup LLC, which will be a business-to-employee Web site destination. Next month, it plans to make several additional Internet-related announcements.
Convincing Wall Street
In general, observers believe the futures of both HP and Compaq look brighter than they did before Fiorina and Capellas came on board. Compaq, despite its small gains over the year, is starting to convince Wall Street that it has turned the corner.
"Expectations were relatively low [when Capellas joined]; people were sceptical," said Richard Chu, an analyst at SG Cowen Securities. "But with the passage of time, Compaq's managed to avoid disappointing, even though they haven't broken out on the upside. There is still some reason for scepticism, but I think they have a lot more people on their side than nine or 12 months ago."
Analysts are even more bullish about HP. "The company is clearly headed in the right direction," said George Elling, an analyst at Lehman Brothers Holdings. "What Carly has been able to instill in the company, and instill in management and their work force, is a new sense of direction. ... They've become a much more focused company."
