First, Dell happened. Dell
Computer (www.dell.com) pioneered a new way of making and selling personal computers.
Its customers “custom design” their computers over the Internet or phone. Dell reengineered its “supply chain”: It coordinated its efforts with its suppliers and streamlined its order-taking and production process. It can ship a computer within two days of taking an order. Personal computers lose 1 percent of their value every week they sit on a shelf. Thus, having virtually no inventory is a great advantage to Dell. Compaq tried to adopt Dell’s approach, but with limited success.
The second shock to Compaq came when it acquired a company even larger than itself—Digital Equipment. Mr. Pfeiffer believed that the purchase of Digital, with its huge and respected technical sales force, opened new opportunities for Compaq as a global service company. But combining the two companies proved to be hugely expensive and extremely complicated.
Ultimately Compaq decided to merge with Hewlett-Packard (HP)
(www.hp.com) in order to survive.
After this merger, HP lost significant market share to Dell because its higher cost structure made it hard to compete with Dell on price. Dell created a buzz in the financial press when it decided to enter the computer printing business—a segment that HP had long dominated. Many predicated that
Dell would soon take over printers as well. But just when it appeared that
Dell could not be beat, HP regained its footing and Dell stumbled. HP reduced its costs by adopting many of Dell’s “lean” practices. Thus Dell lost much of its competitive advantage. In addition, computer purchasing habits changed, and Dell wasn’t able to adjust fast