|BUSINESSWEEK ONLINE : JULY 26, 1999 ISSUE|
Ben Rosen: The Lion in Winter
At 66, computer legend Ben Rosen is toiling harder than ever to fix the PC maker
Normally, life for Benjamin M. Rosen is like a cake coated with an especially thick layer of frosting. From his lair on the 43rd floor of a glitzy tower in midtown Manhattan, the 66-year-old computer-industry legend looks out on a stunning view of Central Park and the Manhattan skyline. He's surrounded by the fine things he has collected--a Picasso drawing on his dining-room wall, a Botero bronze sculpture by the window, and a 130-bottle collection of single-malt Scotch lined up on the breakfront. This is a portrait of a man in the winter of his life savoring his hard-won riches.
The phone rings. He jumps up, then checks himself. ''I won't worry about that. It isn't the important line,'' he says. He sits down, but the spell is broken, and reality sets in. Rosen's lush life is on hold, and now the visionary financier who backed the likes of Compaq (CPQ) and Lotus (IBM), is toiling perhaps harder than ever before. This is no time to stop and smell the single-malt Scotch. As chairman of Compaq Computer Corp., he presided over the Apr. 17 firing of Chief Executive Officer Eckhard Pfeiffer and then stepped in as acting CEO.
''PERVERSE PLEASURE.'' Now Rosen is neck-deep in perhaps the most difficult job in all of technology: fixing Compaq, a $31 billion behemoth beset by slowing growth, slipshod execution, and a baffling miscalculation on the importance of the Internet. In three out of the last six quarters, either Compaq's revenues or earnings have fallen short of expectations. Its U.S. PC sales in 1999's first quarter grew a measly 10%, while rival Dell Computer Corp. (DELL) racked up 55% growth. And Compaq is forecasting a $260 million loss in the quarter just completed. The stock is down 46% since late January, to about $26 today. Even Lewis E. Platt, CEO of Hewlett-Packard Co. (HWP), another computer giant that's searching for a new CEO, bristles at the suggestion that the two companies are in the same boat. ''We're not confused,'' he snaps. ''I'd argue that Compaq is.''
Rosen couldn't disagree more. Yet it's perceptions like these that have him working 12-hour days to tackle the problems at Compaq. It's anything but business-as-usual for Rosen, one of the industry's most influential power brokers--a soft-spoken man, who has worked for decades behind the scenes, spotting the trends and pulling the strings. Never mind the 50 startups that he has invested in over the past few years--which he loves to drop in on. Forget his usual prowling to find the overlooked entrepreneur that might spawn a brand-new industry. And golf, his passion of the past 11 years? His memberships in eight swank country clubs are sitting idle. ''Little did I know I'd be working this hard at 66,'' he says.
Yet, he also takes a ''perverse pleasure in this, in spite of my grousing about the work,'' he says. Rosen is convinced that Compaq's strategy is a sound one. ''Many of the press and analyst reports are negative. But I know we're going to turn it around and I'm going to take a great deal of pleasure in it,'' he says. He ought to. The value of his 5.5 million shares in Compaq has dropped to $143 million--about half what it was six months ago.
Although Compaq is far from a startup these days, the chance to reinvent the company gives him an opportunity to reindulge what he loves about business. ''What's most gratifying to me is to take sketches or ideas and create a living company employing thousands of people--and creating new industries. It's an exhilarating feeling,'' he says.
By this time, though, Rosen had hoped to have someone else at the helm. He has been forced to recalibrate his timetable and now is expecting to land a CEO some time in the next 30 days. Whoever it is, it won't be his first choice. That candidate, Continental Airlines Inc. (CAI) President Gregory D. Brenneman, dropped out on June 28. Officially, Brenneman says he is happy where he is. Unofficially, those familiar with the discussions say that Brenneman was worried that Rosen would be a backseat driver who wouldn't give him free rein to run the company.
Ah, the legend of Rosen. It's huge even in techdom, a place of jumbo personalities and deafening hype. For the past 38 years, Rosen has had an uncanny sense of where technology was headed and how to cash in on it. As a Wall Street analyst in the '60s and '70s, he was the among the first to recognize the PC revolution and put the likes of Intel Corp. (INTC) and Apple Computer Inc. (AAPL) on the map.
Rosen was the industry's agenda setter. His PC Forum conferences--where he entertained the young William H. Gates III and pals by balancing chairs and boxes on his chin--were must-attend schmoozefests that solidified the issues of the coming year. Later, as a venture capitalist, he was the first to spot the promise in Compaq and software-maker Lotus Development Corp. And when Compaq lost its way in 1991, it was Rosen who stunned the industry by booting out CEO and co-founder Joseph R. ''Rod'' Canion, putting the company on an aggressive course that made it No. 1 in PCs.
Now we'll see if Rosen still has the Midas touch. In the 12 weeks since he swapped his posh New York pad for a hotel in sweltering Houston, he has been on a tear. Rosen and his two partners in an interim Office of the CEO--directors Frank P. Doyle and Robert Ted Enloe III--have an overarching goal: To whack $2 billion in expenses, speed up the company, and dive headlong into the Internet game. Right off, Rosen took an axe to Compaq's sacred sales channel, slashing the number of distributors from 40 to four as a way to better manage inventories. He streamlined the company's structure into three new divisions--consumer PCs, business PCs, and corporate computing and services. More important, each of those divisions now has profit responsibility.
RAISING EYEBROWS. Transforming Compaq from a no-show into an E-commerce contender is now Priority No. 1. Rosen vows to move the needle on sales of Compaq business computers over the Internet from 15% to 25% by the end of the year. He has set aside $100 million to boost the company's profile as a supplier of powerful Internet computers and services. He's pushed out a half-dozen managers and is looking to hire an Internet czar. And, in an eyebrow-raising move, he has sold controlling interest in the company's AltaVista Web search engine subsidiary to gain a strategic alliance with CMGI Inc. (CMGI) and its portfolio of 40 Web companies.
For the most part, Rosen & Co. are getting kudos for their efforts from Wall Street analysts--and acknowledgement that it was time for Pfeiffer to go. Already the stock has nudged up 4 points since they stepped in. ''Eckhard was all talk and no action,'' says analyst Ashok Kumar of Piper Jaffray Inc. ''Ben and the boys are moving. They're biting the bullet and taking the pain now.''
But is it too much pain? The past three months have been a whirlwind, even by CEO standards. And they've been downright stunning for someone just holding down the job temporarily. That has experts fretting that Rosen may be going too far, and no CEO candidate worth his or her salt will want to step into the middle of his grand plan.
Rosen seethes at such a notion. ''It's not true,'' he says. ''During good times, which has been most of Compaq's 16 years, I've been a normal board member. I go to meetings. I talk to the CEO. I help if he wants.'' He has no interest in managing Compaq long term, he says, adding: ''I'm a dilettante, not a worker.'' Besides, Rosen says he has had little choice but to move fast with rivals outpacing the company on so many fronts. ''We're operating on Internet time now,'' he says. ''The industry is moving so rapidly there's a big penalty for not acting.''
It may turn out that Compaq is penalized anyway. Rosen's new streamlined structure may speed things up, but it won't put Compaq any closer to the biggest corporate customers, analysts say. That's a must in today's marketplace, where PC makers also supply the heavy-duty servers and software that handle a company's biggest jobs. IBM (IBM), for example, uses its booming services business to develop tight customer relationships and feed client needs back to its product development groups. Rosen needs to create a similar feedback loop either by beefing up Compaq's service organization or eliminating resellers altogether for the company's largest customers. ''Their resellers know more about the client than they do,'' says Gartner Group Inc. analyst Kevin Knox.
The Digital Equipment Corp. acquisition was going to fix that. Compaq bought Digital last June for $8.4 billion as a way to offer soup-to-nuts computers and services for corporate customers. Digital also gave Compaq much-needed software skills and rounded out its selection of high-end computer systems--important products that drive the market for services. But so far, Compaq has struggled to integrate Digital and hasn't been able to make the service organization pay off.
Rosen's even bigger challenge may be turning Compaq into an E-player. Compaq traded 83% of AltaVista for a 16% stake in CMGI to give the company a rapid infusion of Net skills. That may prove to be a financial boon if CMGI's stock continues to defy gravity. It's not clear, however, that the deal actually gives Compaq the E-commerce capabilities it will need, such as software so Compaq's computers will be in bigger demand to handle Web-site traffic. ''It seems odd to spin off the one thing that they had that really has an established brand on the Net,'' says James Moore, chairman of management consultant GeoPartners Research Inc.
Rosen isn't buying that. He says that Compaq is by far the market-share leader in PCs, and it can harness Digital's high-powered computers, networking expertise, and services. Compaq is better positioned than Dell, he believes, because it can sell computers to customers the way they want to buy them--via the Internet, through retailers, or from Compaq's field sales force. The deal with CMGI, he believes, gives Compaq the ability to sell a potent combination of its computers and technology provided by CMGI's Web companies--all sewn together for customers by Compaq's services organization. ''I see no reason why we can't be the leading information-technology company in the next five years,'' says Rosen.
That's trademark Rosen, who's so well-known for his optimism that he's quick to insist he's not ''looking through Rosen-colored glasses.'' Still, his can-do spirit is starting to infuse the company. Rosen and his sidekicks have busted Compaq's dam of indecision--quickly shifting personnel, approving new advertising plans, canceling corporate jets that had been ordered, and, according to director Tom Perkins, ''reducing the prison culture'' of the executive offices by getting rid of guards and security cameras.
Partners already see a difference in the computer giant. Christina C. Jones, president of pcOrder.com, an E-commerce technology provider, says Compaq moved quickly in June to complete a deal with pc.Order to provide the technology for Compaq's online sales activities. ''Having Rosen there really accelerated things,'' she says. ''People at Compaq feel empowered to move aggressively.''
Rosen is leading by example. Executives say Pfeiffer had become isolated from the troops. Rosen, by contrast, has his meals in the company cafeteria, as do Enloe and Doyle. The three are reading and answering all their own E-mail. They've met one-on-one and in groups with hundreds of people at headquarters. And they've gone to a series of meetings around the country--the company's so-called Solutions Seminars for corporate customers. While traveling, the trio took side excursions to huddle with some 400 Compaq employees in branch offices around the country.
How is the sexagenarian cramming so much into a short time? Determination, for one. This is a guy who every year leads what friends call the ''Bataan death march'' of golf--three 36-hole days at Mexico's Cabo San Lucas resorts. On the job, Rosen is superefficient. He and his two partners in the Office of the CEO are jammed into Pfeiffer's old quarters so they can talk continuously and even overhear each other's phone conversations. Rosen's staff meetings are quick and to the point--usually less than one-hour long. And he has squeezed in conversations with more than 100 customers since mid-April.
None of this should be a surprise. Rosen has never been satisfied with being ordinary and excelled at a tender age. Brother Harold remembers that Benji--his family's pet name for him--learned the trick of doubling numbers at age 3 and would perform on demand, standing on a chair so guests at the family's home could see him. ''He got up to 1,048,576--two to the 20th power,'' says Harold, a semi-retired rocket scientist. ''Turns out binary numbers stood him in good stead when the Digital Age came.'' The urge to entertain has stuck with Rosen, too. He juggles, spins trays on his fingers, and balances chairs on his chin to this day.
''EXHILARATING.'' There's still a lot of the kid in him. He loves charades and crossword puzzles--completing The New York Times' vaunted Sunday magazine puzzle in ink. He gets great pleasure out of showing people things he has collected--including a classic Wurlitzer jukebox in his kitchen. (During a tour of his apartment, Rosen opens the box to show its dinosaur-like vacuum tubes.) He came to golf late, at age 55, but still has a not-so-terrible 19 handicap. He's so committed to the game that four years ago he had both of his ailing knees replaced at once so he could limit the amount of time he'd be off the links.
Rosen's early family life wasn't so pleasant. His father, a dentist, plied his trade in the parlor of the family's New Orleans home. His parents, Isadore and Anna Rosen, divorced when he was eight and his mother made just $20 a week as a secretary while raising three children on her own. She valued education and wanted to see her children get ahead. So, with help from a brother, she scraped together enough money to send Rosen to a top-notch private school. His mother and brother served as role models that helped him ''always see the solutions, not the problems,'' says Rosen.
That's not to say he doesn't feel down from time to time. ''He called me after he fired Eckhard and said it was the hardest day of his life,'' says sister Ruth Weisel. Rosen has been separated from his wife, Alexandra, for the past two years--something he's not willing to talk about. He doesn't share emotion easily. Outwardly, he's calm and analytical--even under stress. At the end of one torturous day at Compaq, he went back to his hotel room where he nervously munched his way through most of the candy in the minibar.
Early on, Rosen emulated big brother Harold. He followed him into engineering, and even worked with him briefly at Raytheon Co. (RTNA) in Southern California in the early 1950s. But Rosen changed lanes when he saw that he would only be a run-of-the-mill engineer. He had always been interested in business, so he went to Wall Street and established himself as a technology analyst--primarily at Morgan Stanley & Co.
Rosen's special insight was that he understood early that the calculators and digital watches made possible by semiconductor technology would soon grow up into more powerful machines. When the Apple II computer came out in 1977, he became a self-appointed evangelist for the potential of the PC--carrying one around on visits to Morgan Stanley clients and demonstrating to them that the machine was not a toy. ''He was the first person on Wall Street who took PCs seriously,'' says Mitchell Kapor, the Lotus founder.
Rosen had a knack for spotting opportunities because he was a gadget geek himself. He suffered the pain of carrying around the Apple II, so, five years later, he understood the attraction of the original ''luggable'' Compaq computer when Canion showed him a sketch drawn on the back of a diner place mat. He wrote his own financial calculation programs until PC spreadsheets came out. And, if something went wrong, he was on the phone with the company to give his critique. The first time Kapor met Rosen was in 1979, when Kapor and a partner published a basic graphics program and Rosen called him up looking for technical support.
Backing startups was a natural progression from Rosen's Wall Street perch--which he gave up in 1981 because it had become too routine. He teamed up with L.J. Sevin, a former chip company CEO whom Rosen met as an analyst covering his company, Mostek Corp. That year, they hung out their shingle. They had their share of spectacular failures--Osborne Computer, for example, the British maker of a non-IBM compatible PC that crashed and burned in 1982. But Rosen and Sevin are remembered for their hits: Lotus, Compaq, Ciena (CIEN), Silicon Graphics (SGI), Citrix (CTXS), and Electronic Arts (ERTS). ''He was great at sniffing out things that were going to happen--rather than already happened,'' says Sevin, who is retired.
Rosen wasn't just a great investor. He plunged in and helped his companies' CEOs out when needed. Canion, the Compaq co-founder, remembers that it was Rosen who convinced computer dealers to carry Compaq as well as IBM.
But Rosen is best-known for being tough with CEOs--especially for the way he fired Canion. The company was threatened by cheap Asian imports, and the two disagreed on how to fix things. Canion planned on building his own lower-cost PCs. But Rosen believed Compaq needed to get into the market faster and should buy standard components from suppliers. To prove his case, he sent a small team of Compaq engineers to Comdex, the big computer trade show. They bought components at considerably lower cost than if Compaq handled the whole thing itself. At a fateful October board meeting, Rosen presented his findings and the board fired Canion, promoting Pfeiffer to fill his shoes.
Canion was stung. He and Rosen didn't speak for years. But gradually their relationship became cordial again. And, last month, they met in Compaq's executive offices--the first time Canion had been there since his ouster. Rosen gave Canion some advice about a business issue he was wrestling with. Looking back, Canion still disagrees with Rosen about the low-cost PC strategy. But he says Rosen was justified in firing him. ''I was burned out. I needed to leave,'' says Canion. ''He felt I didn't have a strong sense of urgency.''
Pfeiffer's ouster was an altogether different matter. Behind the scenes, Rosen and the board had been fretting over Pfeiffer's performance since last summer--and told him so. Director Perkins says the board gave Pfeiffer two ''C-minuses'' on his annual review for product-quality problems and his failure to develop a potential successor.
Last fall, Rosen suggested that Pfeiffer recruit some top executives and create an Office of the President. ''Eckhard pushed back,'' says Perkins. Board members say Pfeiffer had isolated himself with his clique of Chief Financial Officer Earl Mason, Senior Vice-President John Rose, and Human Resources Chief Hans Gutsch--all now gone--causing resentment in the management ranks. The three could not be reached for comment. ''In retrospect, it would have been better if we acted earlier,'' concedes Rosen. He faults himself for not pushing Compaq harder to harness the Internet. He really didn't focus on it until six months ago. ''We should have been on the leading edge,'' he says.
When the axe fell, Rosen wasn't the sole instigator, however. Other board members say they asked Rosen to call the special meeting in New York on Apr. 15. ''He doesn't bully the board into a point of view,'' says director Ken Roman, a former ad executive. The board voted unanimously to boot Pfeiffer and spent most of the six-hour session debating how to handle the transition. They agreed that they'd search outside for a new CEO--and asked Rosen to fill in temporarily.
For his part, Pfeiffer doesn't believe he deserved to be ousted. He says he had nearly completed integration of Digital's operations with Compaq. And a 17,000-person workforce reduction was ahead of schedule. Sure, ''there were bumps in the road,'' Pfeiffer concedes. The transition to direct selling was going more slowly than he had hoped. But, ''overall, execution was good,'' he says.
The CEO search is back to square one now that Brenneman is out of the picture. Former candidates--like Oracle Corp. (ORCL) COO Ray Lane and AT&T (T) President John D. Zeglis--aren't interested. And Nortel Networks (NT) President David L. House, who was approached more recently, is lukewarm to the job, sources say. Rosen says he's not giving up the chairmanship in order to lure a new CEO, but director Roman says the board is open to letting the new leader be chairman as well as chief executive. ''We want the best CEO for the business and we're willing to do whatever is necessary to get that CEO,'' he says.
CEO candidates might be interested to know that Rosen was no gentler about giving himself the boot. In 1993, he and his brother Harold started Rosen Motors to develop a hybrid car that would be powered by a gas turbine engine and an energy-saving flywheel. The prototype was highly fuel-efficient and gave off virtually no emissions. But the Rosens couldn't convince any of the major auto makers to back them, and in 1997, after Ben Rosen invested $24 million of his own money, the brothers shut down the 70-person operation.
It was a sad day when Rosen Motors closed--but Rosen didn't go into mourning. It's nothing like the way he feels about Compaq today. ''I could fail with impunity with Rosen Motors. It was my money,'' he says. ''But, with Compaq, failure is not an option. I'm responsible.'' And if Rosen finds a CEO, and Compaq comes around quickly, all the better. He can get back to savoring his single-malt Scotch collection and polishing up his golf game.
By Steve Hamm in New York with Ira Sager in New York and Peter Burrows in San Mateo, Calif.
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Ben Rosen: The Lion in Winter
COVER IMAGE: The Lion in Winter
TABLE: A Digital Life
TABLE: Rosen's Turnaround Plan
CHART: Compaq's Growth Has Slipped...and Its Stock Price Has Swooned
TABLE: They Say No Thanks
``I Was an Asset...Rather Than a Meddler''
ONLINE ORIGINAL: As Compaq Slumbers, Apple Soars
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