Leading Article: Object lesson in revival that can hearten us all

CHANGING a big organisation, whether a company, a local council or a national health service, can be slow, frustrating and uncertain. With the number of institutions in Britain that are having to reinvent themselves, many readers will have direct experience of this bitter truth. They can take heart from the story of the turnaround of Compaq Computer.

In 1991, Compaq was just another American computer company that had swollen to monstrous size at high speed and then run into trouble. The personal computers it made were too expensive, and the value of its brand name dubious. It could not decide between distributing its products through conventional dealers or through superstores and direct mail. After seeing years of rising profits, its shareholders began to wonder whether the company might face terminal decline.

Then things began to look up. After a boardroom tussle, the company's founder departed and control of Compaq passed to Eckhard Pfeiffer, a German engineer who had made his name running the firm's European operations. At whirlwind speed, Mr Pfeiffer began to make changes. A pair of engineers, whom he despatched to a trade show, returned with the news that they had bought components there off the peg and built a computer in a hotel room at a lower cost than Compaq's.

That news led to an onslaught on costs. The firm found cheaper suppliers, and developed new designs requiring fewer screws. Instead of sacking staff wholesale, Compaq almost quadrupled productivity. Thirteen production lines in its Houston plant were squeezed into a smaller area than had housed six. The factory began to operate for 24 hours a day instead of nine.

Three years from the beginning of this revolution, Compaq has now become the leading personal computer brand in the US and Europe. Its share price has tripled. Confident that it can win a global price war, the firm cut its US prices by 22 per cent last week; this week, IBM became the first to follow suit. European consumers should see cheaper computers in September.

The recovery in Compaq's fortunes is fragile. The firm has dollars 2bn of stocks, which could prove inconvenient if sales shrink rather than grow; and it remains vulnerable to bright ideas from potential competitors. But the story is a reminder that with determination, organisations can often change more quickly than their members imagine. This needs to be as true in Europe as in the more risk-taking corporate climates of America and Japan.