Will Compaq's new chief pass charisma test?

Does Compaq's new chief executive have the "star power" to run a huge, high-profile computer company?

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
Does Compaq's new chief executive have the "star power" to run a huge, high-profile computer company?

Michael Capellas, formerly Compaq Computer's chief operating officer, is by most accounts a highly competent manager with a firm grasp of operational and technical issues. But industry analysts wonder if he'll exude the kind of charisma that customers and investors seem to require of today's chief executives. One obstacle facing the 44-year-old Capellas is that he largely an unknown quantity outside his Houston company.

CEOs of the '90s and beyond need to have "that Nelson Mandela-like quality," said Roger Kay, an analyst with International Data Corporation. "One of the key roles now is the role of ambassador. He knows the people. He has been in on the transition strategy."

Still, he and others say, the role of chief executive goes well beyond the intricacies of running a company. "He's a real nuts-and-bolts guy, which they may need," Kay said of Capellas. "However, they definitely also need the face and the voice."

The ascension of Capellas, who did not appear to be on the firm's short list for the job, took many by surprise. "It's an interesting choice. The question is, does he have the stature?" said James Gruener, an analyst with the Aberdeen Group.

"The biggest hurdle he is going to face is execution," Gruener added. "Can he keep customers from jumping ship? He can do it if he has the leverage and the mind share of the people who work there. I think if [Compaq chairman] Ben Rosen chose him, he will likely perform quite well."

Capellas came to the PC maker less than a year ago, having mostly held positions that stress efficiency and logistics. He served as director of supply-chain management at business software giant SAP and as the chief of information services at oil company Schlumberger. Before becoming COO of Compaq, he was the company's chief information officer.

If anything, Capellas's meteoric rise could well mean that Rosen will continue to play a hands-on roll in Compaq's future. Rosen's decision to stay on as chairman has been cited as one reason Continental Airlines president Gregory Brenneman, an early favorite, removed himself as a candidate.

Although the charisma quotient is impossible to quantify, it has become a fact of life for large companies. The realities of the PC market sharpen the need for a star personality at the top, as the differences between PC brands today are more perceived than real, Kay said.

As a result, marketing and image play a more critical role in a company's success. Steve Jobs, Apple's colorful interim CEO, is a prime example.

The CEO effect is magnified still further when considered from a larger perspective: the rise of the high-tech and Internet industries in the public consciousness, not to mention the phenomenal growth of stocks in those companies.

Inventory issues
While the jury is still out on Capellas's abilities in sales and marketing, the promotion of a "nuts-and-bolts" executive could help Compaq organize its internal operations, a key issue for the company.

Logistical problems contributed to the downfall of former CEO Echkard Pfeiffer, who was dismissed in April. Pfeiffer had launched a "build-to-order" PC effort in June 1997 as a way to cut costs, reduce inventory, and compete more effectively with smaller rival Dell Computer.

Although being launched with fanfare, problems began to surface with the plan. Compaq's traditional dealers complained that the company was using the program to begin to sell directly to customers. Outsiders also said Compaq was making few PCs under the program and not cutting much in the way of costs.

In the first quarter of 1998, Compaq found itself saddled with a massive inventory of PCs, which wiped out profits for the next quarter. The ripple effect depressed prices and earnings for other companies as well. In the first quarter of 1999, Compaq admitted that sales would be below expectations.

More problems cropped up early this year as the company attempted to adapt to the Internet economy. In February, it suspended agreements with as many as ten companies that sell its Presario systems over the Internet, amid complaints from "brick-and-mortar" stores that these new dealers were undercutting them in price. Consumers also lodged complaints with Compaq about the service provided by some of these online sellers.

Pfeiffer's ouster soon followed.