The primary elements of the new strategies of the established companies are the topic of the following chapter. First of all we will describe the change in competitive strategy, that means above all supplementing the product range with PCs which can compete with the clone- makers. After this we will describe the most important alliances between PC manufacturers and primary suppliers, above all in the area of microprocessors and operating systems as a means to define a non-proprietary industry standard for the long-term future of the industry. In the last section we will show how the market leader IBM is attempting to improve its flexibi
lity through organizational reforms in order to survive the competition from the clone-makers.
4.1 Split Product Strategy
Companies like IBM, Compaq and Apple which are known as suppliers of high-performance, but expensive, PCs are confronting the clone-makers in their main segment, the inexpensive PCs.
To this end the established PC manufacturers are selecting the same sales strategies as the clone-makers. They do not hesitate any more to sell the renowned brand name products in supermarkets or discount stores, telephone sales are to be made possible and the service offe
rings noticeably reduced, as they are especially cost-intensive (see figure 10).
In addition to the reduction of sales costs the established PC manufacturers are also planning on a massive reduction of production costs through their own production lines or separate companies for inexpensive PCs.
A good part of Apple's 60% increase in sales and 14% increase in turnover in 1991 is due to the success of the low-cost version of the Macintosh Classic.
In June 1992 Compaq presented two dozen desktop and laptop PCs with prices around the $1000 mark — for the cheapest PCs of them —, which is still about 20% higher than the prices of the clone-makers, though. With this Compaq wants to depart from its pre
vious practice and meet the clone-makers direct in the segment of inexpensive PCs. Also new for Compaq are sales in supermarkets and department stores.
In September 1992 IBM reorganized its product line in order to do justice to various customer needs. In the same month the PC division attained a large degree of indepen
dence as a separate company within the corporation as a whole (see chapter 4.3).
Figure 11: The PC Product Range o f Apple
The change in the competitive strategy seen on the example of IBM, Compaq and Apple signalizes the extent to which these companies are threatened by the advance of the clone- makers. The insight has prevailed that in a short-term perspective the only way to produce profits is by following the pattern of the clone-makers. This means low production costs, short through-put times, matching the production to operational control and a low degree of vertical integration.
An expansion of the product range could be observed at Apple at the end of the 1980s and the beginning of the 1990s in all three product segments, the compact computers, the entry level family, and the high performance computers (high-end PCs). The product range was clearly expanded, in particular with new products in October 1990 and October 1991 (see figure 11).
In the fall of 1991 Apple presented PCs which, first, would be able to compete with the low- price suppliers, e.g. Classic H, the low-priced version of the Macintosh Classic line, and, second, would enter profitable segments of notebook market (the Powerbook line) and with two high-end computers, the Quadra line, which were designed for networks. Apple thus reacted to the decline in sales and profits at the end of the 1980s and drastically changed its business policy, as it now also offered low-priced versions.
4.2 New Alliances for New Products
In a short-term perspective the established computer companies want to meet the challenge of the clone-makers with low-cost quality products. But in a long-term perspective the medium- range layout and customer specifications of the personal computer is at stake.
We must differentiate two groups of alliances. First, the group of alliances which is aimed at sharing the costs for the development and production of the next generation of memory chips and uniting the know-how of differing manufacturers. These alliances as the joint develop
ment of the 256 MBit D-Ram memory chip by IBM, Toshiba and Siemens are not directed at the PC sector in its narrow sense, although the development of memory chips was and is one of the driving forces for innovation in PCs.
These should be differentiated from the alliances which aim directly at the development of the PC industry. The further account concentrates on this type of alliances.
The explicit goal of all five alliances is to influence the further development of the PC sector.
In the age of open systems they are trying to shape and establish a binding standard for the entire sector, as was the case with MS-DOS in the history of the PC up to now.
Table 2: The most important strategic alliances in the PC sector
Source: Top Business, November 1991, p. 160 and additions from the author (level: June 1992).
Table 2 shows the major alliances, their leaders and their respective objectives.
The alliance ACE led by Microsoft, Compaq and DEC as well as the alliance between IBM and Apple are directly aimed at establishing new standards for the PC.
In contrast to this, the alliances OSF and UI are also attempting to set standards for the PC sector, but in this case by means of a version of the Unix operating system for PCs and workstations. They reckon that the operating system Unix will establish itself for PCs in this performance category anyway. The OSF group developed a specification called DCE (distributed computing environment). This specification set rules for the functioning of software in distributed computer networks on the basis of the Unix opera
ting system.
Nine American and Japanese electronics firms have formed a consortium under the lea
dership of the computer company Hewlett Packard which has the goal of making Hewlett Packard's "precision architecture" Rise technology the general industry standard for Rise
chips. New and conspicuous about this industry group is, first, the prominent role of Ja
panese computer firms in the alliance and, second, the presence of companies which are not represented in the electronic or computer industry. The US aircraft company Hughes, which is a part of the General Motors group, wants to introduce Rise chips with the pre
cision architecture into flight safety systems and products for the automobile industry.
The OKI Electric Industry is taking part in the industry group in order to develop con
trollers which can be used in systems for telecommunication, automotive electronics and factory automation (information from the VDI-Nachrichten, April 3,1992, p. 29).
The efforts are concentrated above all on two aspects: the development of microprocessors with Rise technology and the creation of new operating systems to support these microproces
sors, but also to improve the user interface.
4.3 IBM Reform: Towards A Leaner PC Division
At the beginning of December 1991 IBM's Chairman IBM, John F. Akers, announced organi
zational changes which amounted to breaking up the colossus IBM into many small indepen
dent units and thus to dissolve the centralistic large corporation. With ca. 300,000 employees and sales of $64 billion in 1992 (Financial Times, January 27, 1993), IBM is by far the largest computer company in the world. Combined in the corporate group are, e.g., the largest soft
ware company (1991: $10.6 billion sales), the largest manufacturer of PCs with $14 billion in 1991 (18% of IBM's total sales), one of the largest supplier of workstations and of memory chips and microprocessors, as well as one of the largest producers of storage media ($10.6 bil
lion sales in 1991) (figures according to Business Week, December 16,1991, p. 37).
Especially, the PC division was severely hit by the burocratic management of the business bringing down the market share from a impressive 30 % in 1986 to 13 % in 1992. The opera
tions in the PC division were narrowly controlled by the headquarter in Armonk.
One example of the hindrances which arise for the PC division through the bureaucracy of the headquarters is the setting of prices:
"Last year (1990, HD), IBM's PC unit was ready to launch a new model to get it back into the fast-growing laptop market after an embarrassingly poor showing a few years earlier. To be competitive, division chief James Cannavino priced the machine at
$4,995. Armonk, however, insisted on a $5,995 tag, to hit corporate profit-margin tar
gets. That made it easy for dozens of laptop makers to undercut IBM's price. Now the price has been cut to $3,645. But the laptop has never recovered from its slow start"
(Business Week, December 16,1991, p. 39).
An example of the dominance of the mainframe department within the IBM corporation is their blocking the introduction of new workstations although the IBM engineers were the first
to develop a Rise microprocessor for these machines. The greatest thorn in their flesh was the competition of the most powerful workstations with lower classes of mainframes, which, after all, made up 44% of IBM's sales. IBM came out with its workstation, the Rise-system 6000, only in 1990, after the market had already been divided up between Sun Microsystems, Digital Equipment, Hewlett Packard and Silicon Intergraph.
The reform of the corporate structure, announced at the beginning of November 1991, was particularly aimed at breaking down these hindrances. The headquarters would lose its influ
ence over the product and marketing policy of the autonomous product units and only retain the function of a holding which concerned itself with decisions of general principle, like the investment budget Below this would be autonomous companies which in the end would be responsible for their own competitive strategy and commercial success. The path would be clear to move from a centralists giant to a multipolar corporate network. The product units within IBM would then become responsible for the marketing and services, as well as the development and manufacturing of their products. The autonomy of the product units also includes the right to combine IBM products and services with those of other companies and thus be able to respond to customer wishes. This represents a sacrilege when compared to the previous IBM company policy which only allowed internal sales.
With this stepping down as CEO it has become clear that even more far reaching restructu
rings have to be initiated to bring IBM back to a satisfactory balance. It is expected that the new chairman L. Gerstner as coming from outside will continue this way with even more vigour.
The PC unit within IBM, "Entry Systems Technology", will be one of the first to enjoy this far-reaching autonomy and be able to develop its own price policy, product planning, and marketing. They are planning on reducing sales costs by also selling IBM PCs directly through mail orders or in discount stores.