A Growing Appetite

It's not as if the merger of the two IT giants Compaq and Digital was unique in its problems. The IT industry is sprinkled with only a few cases of mergers gone right and replete with mergers gone wrong. It's difficult enough when mergers create technology dead-ends for long-term users. However, when the cultures of merging companies clash, their customers suffer at another level, and Colin Hoschke can't think of a merger when cultures haven't clashed.

Now CEO of his own company, Mainpac, Hoschke was a reseller for 15 years, from the creation of Honeywell's Level 6 in 1980. Watching the impacts on the industry has made him cynical about mergers. "Generally I think they're put together by accountants. They factor in the numbers, but they don't factor in the people side of the equation. It's one plus one equals one-and-a-half in my observation," Hoschke says.

In nearly every instance there is a cultural clash between the two merging organisations, he says. Inevitably, one side seems to have the upper hand, and that side's senior management tries to take advantage of that. In nearly every instance that gets not just the other party offside, but also the customers.

He says: "Compaq-Digital was a classic, I would have thought. They're utterly different cultures. I think that was true of Honeywell-GE, Burroughs-Univac, and the Fujitsu-ICL thing.

"Digital, for example, had built up massive loyalty over 20 years. That loyalty eroded from the instant of that merger. I think that's been true of all of these mergers. And the loyalty factor comes apart pretty quickly."

With its history as a PC manufacturer, Compaq's culture tended to revolve around a three-year product lifecycle. Digital, in contrast, had long understood the enterprise, where for significant organisations like the Australian Stock Exchange (ASX), a critical production system has a lifecycle of 10 years or more.

"When Compaq acquired Digital, that culture of Compaq having a three-year horizon certainly took a long time to settle down," says ASX general manager of production services, Jeff Olsson.

Eventually a lot of the service qualities and the understanding of the enterprise actually did get passed on to Compaq and it picked up that side of the Digital culture, Olsson adds. However, during the long transition period ASX had multiple issues, which almost all came back to the fact that Compaq really didn't understand the enterprise, especially when it came to positioning operating systems like OpenVMS and the dependence of the client base on them.

"When Compaq announced something, it would look at a transition period of a couple of years as the maximum, whereas when you're moving a major system across onto a new operating environment, some of these things can have quite a long timeframe. So we were looking for longevity of OpenVMS for at least five years and hoping more for a 10-year horizon, and Compaq didn't seem to grasp that," he says.

Compaq's relatively recent difficulties in digesting Digital helps explain in part why several analysts are concerned that Hewlett-Packard's planned acquisition of Compaq is fraught with peril for the two main players. If it follows the pattern, HP/Compaq could wallow for months in a swamp created by its own need to reorganise, the retrenchment of thousands of employees and the discontinuing of multiple product lines. The big danger is that, as customers lose their service and support connections, they will turn to rival vendors to fill their needs.

Kalisch sees the dangers all too clearly. While hopeful that having HP as the dominant party might make the transition more organised, he is nonetheless worried. "Things are looking very slow, everyone is reporting very weak quarters, and if they [Hewlett-Packard] are not able to be completely customer-focused through this reorganisation, it will certainly give the IBMs, which they're trying to combat, and Dells and Toshibas the upper hand."

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