Leader of the Pack

Staying on top in any profession is hard to do. And for leading IT vendors, sufficient products and services sometimes may not be enoughInformation technology has truly become a global business. For any vendor to earn or keep its position on the upper rungs of the IT revenue ladder, it must ensure that it can not only deliver its products and services to all of the world's markets, but can also tailor those products and services to meet the specific needs of individual countries.

But for those vendors which aspire to market dominance, global presence gives them economies of scale in manufacture and distribution which are unmatched by their smaller competitors, while a broad portfolio of products and services gives them access to a much greater proportion of the available IT budgets.

The recent announcement by Compaq Computer Corporation that it was acquiring Digital Equipment Corporation came somewhat as a surprise to many IT industry observers, but not because it was an unlikely proposition - Compaq had apparently held discussions with the mid-range systems supplier at least twice before.

Rather, the surprise was due to the fact while still digesting the much smaller Tandem Computers, Compaq was willing to take on the task of consuming a much larger organisation - Digital has about half the revenues of Compaq, but employs about 40 per cent more people. Apart from the sheer magnitude of the task of combining these two companies, Compaq faces significant challenges, not the least being the issues of culture clash and potential conflict with Compaq's traditional indirect sales model.

The last IT industry merger of similar scope was the combining of Burroughs and Sperry to form Unisys in the mid-1980s. For years after the physical consolidation, vestiges of the original companies lingered in the people, products and attitudes, and it is only in the past few years that Unisys has emerged with its own identity.

Notwithstanding those issues, a merger of this magnitude was necessary if Compaq was to break away from the pack and fulfil its dream of becoming a supplier capable of operating across the enterprise. And there is no doubt that Compaq will consider further acquisitions as it continues on its path to becoming a full service supplier - its networking portfolio, for example, is now extremely light relative to its systems and services offerings.

The pace of technology change is such that no longer can any single vendor effectively develop all of the technology which its customers require. While technology partnerships go some way to filling the void, acquisitions are the only sure way of controlling a product or technology.

While Compaq's purchase of Digital will be the largest merger that the IT industry will see for some time, the ongoing quest of most vendors for market penetration and dominance means that it will be just one of many that we see in coming months and years.