The new product line will span the computing landscape, but diverse cultures will have to be married.

By Anshu Tandon

A week before D-Day, Abhishek Mukherjee had a hunch that he wouldn't continue heading the Rs 380-crore Compaq India (Compaq). On July 4, 1998, it was confirmed. That day, Paul Chan, the head of Compaq Computer Corp. Asia, called in from Singapore to inform him that Som Mittal, the 45-year-old Managing Director of the Rs 420-crore Digital Equipment India Ltd (DEIL), was to be the new Managing Director of Compaq. Seven days later, and 6 months after the $24.60-billion Compaq Computer Corp. took over the $13-billion Digital Equipment Corp. (DEC) worldwide, the Indian wings of the 2 companies received the formal communication.

Over the past couple of months, Mukherjee and Mittal have been working together to define the new Compaq. The duo will continue to do so for another 3 months, when Mukherjee--under whose tutelage Compaq has risen to the No. 2 spot in PC sales (behind hcl Infosystems)--moves out. Says the 47-year-old Mukherjee, who has declined to shift to Compaq Computer's headquarters at Houston (US): "I have no regrets. I am leaving behind a dynamic, professional, and healthy organisation. Now, it's Som's call."

What does Som have to call on? Well, the largest infotech company in the country. The revenues of the new Compaq stand at an estimated Rs 800 crore, which makes it larger than HCL Infosystems (revenues: Rs 643 crore), ibm (Rs 654 crore), and Hewlett-Packard (h-p, Rs 655 crore). The new entity will sell products ranging from hand-held computers to high-end servers; it will also offer services from networking to software development.

Indeed, Mittal, who turned around a loss-making DEIL 3 years back, will have to manage a radically-different organisation. He agrees: "The new culture will focus on speed and numbers, and, at the same time, offer large enterprises the love and touch they need." Apart from facing the challenge of fusing product lines, employees, and clients, Mittal will also have to deal with the fact that DEIL--a 51 per cent subsidiary of DEC--is the larger entity in the country, in terms of revenues, reach, clients, and workforce. In contrast, its parent is a little over half the size of Compaq Computer.

Moreover, there's the niggling issue of whether Compaq will buy back 49 per cent of DEIL's equity from the market, or merge the 2 companies. While DEIL has become a subsidiary of Compaq--itself a wholly-owned subsidiary of Compaq Computer--it may just be a matter of time before the Houston-based parent takes a decision on the issue. However, Mittal categorically rules out a buyout: "Our shareholders have stuck with us through thick and thin, and there is no question of not sharing our success with them." Adds Mukherjee: "Compaq may not be interested in the remaining 49 per cent stake just because of the sheer cost of acquiring it." Indeed, DEIL's scrip was quoting at Rs 134.70 on July 14, 1998.

Does that imply that a merger is on the cards? Probably. But until a decision is taken by Compaq Computer, a common management will run its 2 subsidiaries in the country, which will present one face to the customer. Therein lies the challenge: the 2 companies have different cultures because, by and large, they address different market segments. Thus, Compaq's lean, mean operational style--which fits in with the cut-throat PC market--will have to drive along with the relation building that is required in DEIL's core business of enterprise-wide computing.

In order of priority, there's no doubt that DEIL's strengths in software and services, and an intricate knowledge of its customers' back offices, will boost the new Compaq's bottomline. Compaq's strengths, in contrast, lie in channel management and logistics. Admits Mittal: "Definitely, Compaq brings to the new company a strong brand, excellent channel management, and good managers."

In terms of reach, DEIL has more feet on the street than Compaq thanks to its offices in 13 locations across the country and a support network spread across 38 major cities and towns. Compare this to Compaq's 2 offices and 3 customer call centres, and it is clear that the new Compaq's PC business will benefit from access to DEIL's office and support network. Compaq's channel partners will now include process-control companies, such as the Rs 1,084-crore ABB, and systems integrators, such as the Rs 294-crore CMC. Of course, Compaq's own partners include retailers like Thakral Computers and catalogue-marketers like Multiple Zones. Says Pradeep Kar, 40, the CEO of the Rs 181-crore Microland, a distributor for Compaq: "The merger means stronger relationships and better business."

While DEIL brings in 170 additional accounts to the new Compaq's 130-account portfolio, Compaq and DEIL have only 30 direct customers in common. Says Rajesh Uppal, 39, Specialist (Marketing Information Services), Maruti Udyog, a customer for both companies: "Compaq is better organised in planning and shipments, and Digital's service is excellent." So, Compaq will now move up the value chain as DEIL's products will make up for the former's lack of penetration into the enterprise segment.

The new Compaq will manage this change by applying different rules to address different customer segments. Thus, it will use retail to cater to the home PC market; channel partners to sell PCs to small and medium businesses; and direct as well as channel partners to market high-end servers. Explains Mittal: "The market-space is getting increasingly segmented. Compaq was missing out because it could not bring in end-to-end solutions."

Even Compaq's bread-and-butter PC business benefits from its marriage with DEIL. Ever since it set up shop in 1994, Compaq had been exploring the possibility of setting up a PC integration facility in the country. So far, the numbers didn't justify the investment. Now, DEIL's manufacturing facility at Bangalore can serve as a PC integration plant. This will bring down Compaq's net costs by 5 per cent--no mean benefit in the dog-eat-dog local PC marketplace. Says Mittal: "The only purpose of manufacturing (locally) is because it makes sense."

Of course, there will be overlaps. DEIL has its own PC brand, which has a marketshare of 2 per cent. Compaq has maintained that it will not kill any product right away. It will, instead, let the product run through its normal product-cycle before replacing it. So, what happens to Alpha, DEIL's proprietary Central Processing Unit (CPU), and where will it stand against Merced--the new CPU being developed by Intel, in alliance with h-p? So far, Compaq has reasserted that it will continue to support Alpha, whose normal product-cycle could stretch into a decade.

Another potential problem is that DEIL's workforce (700 employees) is nearly 8 times the size of Compaq's 90-strong employee-base. Mittal, however, denies that there will be any retrenchments, arguing that the industry's attrition rate of 25 per cent will trim the organisation. In any case, his challenge lies in adapting DEIL's employees to Compaq's aggressive style of functioning. Mittal admits as much: "Yes, there will be pressure on productivity." Adds Stacy Plummens, 51, Vice-President (Enterprise Systems Group), H-P: "It will be a huge challenge. Culturally, selling PCs and selling to large customers represent two different cultures." If Mittal is to successfully manage this hi-tech merger, he will have to marry the diverse cultures that make the new Compaq.

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