HP Strategic Analysis Keep Aggressive: Go Horizontally & Vertically Nov. 27, 2008 University du Quebec en Outaouais Presented to : Dr. Tamas Koplyay MGP708QA Strategy Formulation in High-tech and Project Management Setting Team Members Ar man Matti Florentina Macovei Jian ni Chen Sahar Kamaly
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Hewlett-Packard Company (HP) is well known as a technology solutions provider to
consumer, businesses and institutions globally.
• HP was founded in 1939 in a garage building, where two college friends, Bill Hewlettand Dave Packard created a development lab and manufacturing facility for their innovative electronics products.
• Corporate headquarters is in Palo Alto, California.
• HP is a global provider of personal systems, imaging and printing products, andtechnology solutions. The company is the largest player in the inkjet printer and laser printer market. Hewlett-Packard is one of the major companies in the enterprisestorage and servers market. The company is also one of market leaders in the globalPC market.
• Hewlett-Packard generates revenues primarily through seven business divisions:personal systems group, imaging and printing group, enterprise storage and HPservices , HP financial services , software and corporate investments.
• The USA is the company's largest geographic market, accounted for 33.4% of thetotal revenues in fiscal 2007.
Non-US operations accounted for 66.6% of the total segment revenues in the fiscal year
• Hewlett-Packard is the market leader in distributed performance and availabilitymanagement software market. The company also led the industry in thin client unitshipments with approximately 34% market share.
• Strong market position in various market segments enhances the brand image of the
company and provides economies of scale in procurement.
HP financial positioning
• World’s largest IT companies- Revenue totaling $113.1 billion at the end of July 2008and 325,000 employees
• Hewlett-Packard’s long-term debt ratio stood at 0.1 for the fiscal year ended October 2007 compared with IBM’s long-term debt ratio of 0.22 for fiscal year endedDecember 2006.
• Hewlett-Packard had cash and cash equivalent of $13,293 million compared to IBM’s$8,023 million for fiscal year ended December 2007.
• Strong financial position provides the company the flexibility of expanding itsgeographical coverage and product portfolio by acquisition.
Mission: Create competitive advantage by optimizing availability, performance andoperational efficiency , solve their business problems
• Vision: Hewlett once said that the “HP Way was a core ideology” . . . [that] includesa deep respect for the individual, a dedication to affordable quality and reliability, acommitment to community responsibility, and a view that the company exists tomake technical contributions for the advancement and welfare of humanity.“
• Trust and respect for customers and employees – culture of inclusion
• Speed and agility - resourceful, adaptable and achieve results faster
• Meaningful Innovation – invest in useful and significant technology
• Integrity – open, honest and direct in dealings
• Achievements, contribution, results through teamwork - provide efficiency tocustomers
Strategy deals with a company’s competitive initiatives and business approachesand Business Model -- Concerns more if the revenues and costs flowing from thestrategy demonstrate that the business is profitable and viable
Before you formulate a strategy the organization need to have a clear Mission, Visionand Values.
•
A mission statement focuses on current business activities -- “who we are and whatwe do”
• Current product and service offerings
• Customer needs being served
• Technological and business capabilities
• A strategic vision concerns a firm’s future business path -- “where we are going”
• Markets to be pursued
• Future technology-product-customer focus
• Kind of company that management is trying to create
Note: For IBM and DELL, Revenues available only for 3 quarters
1. HP: a leading global provider of computing and imaging solutions and services -- is
focused on making technology and its benefits accessible to all. HP had total
revenue from continuing operations of $48.8 billion in its 2000 fiscal year
2. Before the merger with Compaq in 2000, HP focus on computers, Imaging and
printing services. Compaq core business was in computer, enterprise technology
and solutions. Apparently, HP wanted to expand its business territory to Enterprise
after its acquisition with Compaq. Looking at the Revenue graph HP doubled it's
enterprise business revenues in 2002, the same year after finishing the marriage
with Compaq.
3. Compaq: Founded in 1982, Compaq Computer Corporation (“Compaq”) and was a
leading global provider of enterprise technology and solutions. Compaq designs,
develops, manufactures and markets hardware, software, solutions and services,
including industry-leading enterprise computing solutions, fault-tolerant business-
critical solutions, communication products, and desktop and portable personal
computers that are sold in more than 200 countries.
4. From the graph continuous revenues growth except in 2001 when Compaq wasacquired and first year of merger the revenue were not so great also due to crisis in
high tech and low demand.
5. Applying different strategies over the years the HP maintained the second place
after the IBM up to year 2007 when HP revenues 104,286 millions versus 98,786
• Revolution imaging &printing projectiontechnology released
Mercury• Stated several
horizontalcooperation
spin off
unit - HPServices
• Announced
new 64-bitplatform
strategy
• Initiated Smallmedium business
market• Imaging & printing
simplify-technology
• Acquired 5companies
• Acquired 2companies toexpand Imaging &
printing• China R&D lab
established
center strategy
• 7 acquisitionscompleted
• AdvocatedGreen IT
• HP: The technology solutions provider
• 1938 - Stanford University graduates Bill Hewlett and Dave Packard collaborate onthe company's first product, an audio oscillator, in a Palo Alto garage.
• 1939: Hewlett and Packard formalize their partnership on Jan. 1, 1939, deciding thecompany's name with a coin toss.
• 1940: HP moves from the garage behind Hewlett and Packard's house to rentedbuildings in Palo Alto. The start of World War II brings increased U.S. governmentorders for electronic instruments. Revenues at year-end total $34,396.
• 1957: HP goes public on Nov. 6 for $16 per share.
• 1999: Agilent Technologies - spun off as a new company (a public subsidiary) fromthe existing HP organization.
• HP named Carleton (Carly) S. Fiorina as President and CEO
• The first Windows CE pocket-size PC with a color screen has been introduced.
• HP began a new brand campaign based on a single concept: invent. (Print andtelevision ads focus on the company's history of invention and innovation.)
• HP revenue: $42 billion. HP employees: 84,400.
• 2001 Created a new business unit (HP Services). The new organization includes ITconsulting, outsourcing, support, education and solutions deployment.
• HP and Intel cooperated and announced a new technology product -- Itanium (theplatform for next-generation 64-bit computing)
• HP and Compaq announced a definitive merger agreement to create an $87 billionglobal technology leader.
• HP revenue: 45.2 billion. HP employees: 88,000.
• 2002:
• HP opened the research Labs in India;
• Completed the acquisition of Indigo
• Acquisition impacts: The acquisition extends HP's printing systems portfoliobeyond inkjet and LaserJet technology into a third high-speed color printtechnology - offset-quality digital press solutions and services for short-run,personalized business communications.) results: HP announced its largestconsumer product rollout
•
HP and Compaq officially merged
• Merged Impacts: lead global provider of products, technologies, solutions andservices to consumers and businesses. Business scope span IT infrastructure,personal computing and access devices, global services and imaging andprinting
• HP introduced its first tablet PC (collaborated with Compaq)
• HP revenue: 56.6 billion. HP employees: 141,000.
• 2003:
• The value proposition changed to high tech, low cost and the best total customer experience.
• Adapted Enterprise strategy to help businesses manage change and get more fromtheir IT investments. (New services, software, solutions and enterprise referencearchitecture designed to help companies measure, architect and manage change bycreating a tighter linkage between business and IT.)
• Simplified technology radically to help people "enjoy more"
• Impact: extends HP's leadership in imaging, printing and home computing intothe fast-growing digital photography and entertainment markets)
• Initiated the Smart Office that tailored support services to serve small and medium-sized business (SMB) market.
• 2005:
• Changed CEO: Mark Hurd was named the CEO and president of HP.
• HP acquired online photo service company – Snapfish.
• HP announced a breakthrough printing platform (fastest home and office photoprinting devices)
• HP shipped the millionth x86 processor-based ProLiant server (, which was initiatedthe first shipment in 1993)
• HP acquired Scitex Vision and expanded its printing market to industrial professional
field. (Scitex Vision was a market leader in wide and super-wide format printers for signage and industrial applications such as billboards, banners, street advertisingand packaging.)
• HP establishes a research lab in China.( for more lab history, please refer toHISTORY AND MILESTONES SUPPLEMENTAL section hereinafter)
• Created the Halo Collaboration Studio, which enabled remote teams to work together in a setting so life-like that participants feel as though they are in the same room.
• 2006:
• CEO Mark Hurd was named as chairman of the board.
• HP acquired VoodooPC, a high-end gaming PC provider
• HP acquires Mercury Interactive Corp., (A software company, its core productwas WinRunner ), which was the subsidiary of HP for business technologyoptimization (BTO).
• Fortune 500 Ranking: 14
• HP revenue: $91.6 billion. HP employees: 156,000.
• 2008:
• HP's 2008 Fortune 500 ranking: No. 14
• HP's revenue for the four fiscal quarters ended July 31, 2008: $113.1 billion.
• HP Announces Strategy to Bridge Gap Between Content Creation and Publishing (Jan)
• Cooperated horizontally:
• ProCurve Networking by HP Strengthens Network Security Through Integrationwith Microsoft NAP Technology
•
(Apr)
•
MySpace (Microsoft) and HP to Unlock Online Content Through the Power Of Print
HP Acquired LeftHand Networks to Extend Leadership in Storage andVirtualization Solutions
• Announced a new relationship with U.K.- based Timsons Ltd., the world’slargest book press manufacturer, to develop a digital inkjet system for short- andmedium-run book production. (Oct)
• Completed $13.9 billion acquisition of EDS, and started integration sequence withHP Service.
(May)
(EDS was a $22 billion-plus global technology services, outsourcing and consultingleader that pioneered the IT outsourcing industry.)
• Signed a definitive agreement to acquire Colubris Networks Inc.,to Expand HPProCurve’s Wireless Technology (Aug)(http://www.hp.com/hpinfo/newsroom/press/2008/080811b.html?jumpid=reg_R1002_ USEN)
• Colubris is a Waltham, Mass.-based, privately-held global provider of intelligentwireless networks for enterprises and service providers. (Aug)
• HP plans to integrate Colubris’ extensive product line into its ProCurveNetworking product portfolio. This will expand HP ProCurve’s reach into verticalmarkets such as hospitality, transportation, healthcare, manufacturing, service
provider and education.• It will simplify operations and achieve lower total cost of ownership for their
storage-area network (SAN) environments
• HP Unveils Innovative Large-format Printing Solutions (Oct)
• HP Makes Big Investment in Consumer Tech Support - the aim of which is to enablepeople to get faster, more effective help with the HP technology products in their homes. (Feb)
• HP Introduces Servers, storage arrays, Customer Management Portfolio to ReduceCosts for Midsize Businesses
• Offered New Web Solutions, business/ marketing solutions and workshops (HP andSCORE Host Nationwide “Wellness” Workshops) for small organizations to reducecosts, :
• For enterprises: Announced a software and hardware storage virtualization solutionthat enabled enterprises to improve productivity. (Nov)
HP spun off Agilent and focused on PC, imaging and printing market.
• Strategy 2: Merger Strategy (Horizontal)
Case: HP Compaq merger in 2002.
• Strategy 3: Acquisition Strategy ( Horizontal )
Case: Snapfish and other 11 imaging and printing companies acquisitions (from
2002 to 2008).
• Strategy 4: Acquisition Strategy (Horizontal and Vertical)
Case: EDS acquisition (2008).
Strategy - Focusing in things that HP can make a difference
2005- Organization starts focusing in their core fundamentals. To be competitive,being able to go to the marketplace and compete, and simplifying their organization,
HP will get their cost structure inline by focusing in leveraging the core assets.
HP is in the server business, storage business and in the management software
business markets that have large growth potential.
To be a leader in those markets HP has to take care of customers services.
Average per year HP ships 50 million printers, over 30 million PCs and a couple of
The r evenues o f TSG (Technology S olution Group) i ncreased al most 9 t imes
from 1998 to 2008 . A veragely, i t had 28 % r evenue i ncrease per y ear. Its
increasing rate was rank number 1 amongst 4 business segments in HP.
The TSG Revenues started to soar since 2001, after HP merged Compaq, from
2001 to 2002, the increasing rate of PSG group soared to 169% on a yearly
basis. The nex t hi ghest i ncreasing rate occu rred i n 2002 to 2003 fiscal y ear,
which r eached 38% . After 2003 , the i ncreasing sp eed slow dow n t o 8%
(maximum 12%/ year). In 2008, after HP acquired EDS, the TSG revenuesstarted to climb again, the increasing rate reached 19%/year.
Both the merger and acquisition strategies proved that HP made the right choice.
• PSG
Besides TSG, P SG i s the se cond co ntributor t o t he t otal r evenues in HP.
Averagely, PSG has 11% increasing rate/ year from 1998 to 2008. from 2001 to
2002 t wo fiscal y ears, a fter H P m erged C ompaq, i t’s revenues continued
dropping for 2 years, which can be understandable, because during that time, the
IT industry is going through an economy winter. Most of the companies who soldPCs had t heir revenues dropped dur ing t hat period. B ut t he bou nced bac k
numbers from 2002 to 2008 fiscal year illustrate that for a long run, this marriage
is worthy.
• IPG
Among three business segments, IPG is the group that keeps the lowest growth
since 2001. A lthough H P acquired Indigo(2002), sn apfish ( 2005) and o ther 10
companies from 2002 to 2008 , and it launched over hundreds o f products, it
seems that i t w as lack of some l ucky from t he i maging and p rinting market.
Maybe this group expand too fast horizontally, it need some vertical strategies,we will verify our assumption in the following models and SPACE analysis.
Hp i s a technology co mpany that i s competing in a mainly i n the mature market.
Their products in the TSG\ HPS and I PG segments, mostly have sh ort l ife cycles,
and always evolve. for HP to keep up with the innovations, they acquire companies
to lower risk compared to developing new products, to have a faster way to enter and
compete in the current market, and to have a quicker means to new capabilities
• As well t hey i nvest i n their R&D global l abs to realize new cu tting ed ge
innovations.
(If half of HP’s printing revenues were in the consumer market that would put 45% of
HP’s revenues in the consumer segment.) And where IBM now makes more than
half of its revenue from software and services, HP makes 80% of its revenues selling
hardware and (printing) supplies.
TSG:
• Server market facts: HP grew blade revenue 59.2%, year over year, gaining 6.2points of revenue market share while IBM lost 7.6 points of revenue share to fall
to 24.8%, more than 28 points behind HP.
• HP is the number 1 su pplier of I tanium based systems based on worldwide unit
volume and worldwide factory revenue. (ESS - HP growth was based only on the
• It has currently 4 main business segments (Horizontal integration), and
throughout t he y ears from 2001 t ill now i t acq uired l ots of companies i n t he
various segments. It strategy is to buy competitors and expand its market share
way. (it buy market space).
• They are focused on being more efficient (cutting cost more then competitors).
• Knocking competition down (Compaq, EDS)
• They are no longer compete with smaller companies in the market, and compete
in the global market as well side by side with IBM.
• They want t o l ead a complete service so lutions to their mid and big si ze
companies. They adopting the One-Stop Shops: In other words, HP thinks want
to ov ercome i ts o f se parating out sourcing nee ds and sp reading them acr oss
vendors. HP seeks to be the first one-stop shop for outsourcing.
•
They have a stable growth, in a shake out market (buy smaller companies), andin a Push market as they are dealing with Early to late majority (depends on
Client RelationsClient base stable Client base unstable
Competitor PressureLow asset base Maximum Decreasing
Economy of SState
High Barriers
SalesScope Scale
Synergy
Speed Span Structure SalesLow Barriers
HP was viewed as an innovative technology (core competency) information technology
company doing business in over 170 countries worldwide. HP comes second to IBM as
largest computer company in the world.
HP now is trying to move to be more efficient, and competitive:
In Services:
Providing i ts se rvices through “Data ce nters” – centralized del ivery w ith su bstantialhardware co mponents ( Blade se rvers). This i s to replace co mpanies I T su pport s taff
which are required to maintain local servers (old) . HP has lots of storage and ne twork
expertise w hich is more advantage over I BM t hat hand t his over t o someone el se t o
manage i t. B y buy ing E DS i s trying t o compete w ith I BM G lobal services. ( biggest
competitor) Others: A ccenture LLP , CapGemini/ Ernst & Y oung an d
PricewaterhouseCoopers LLP.
Imaging and Printing systems:
The markets for printer hardware and i ts supplies are highly competitive, especially the
pricing and i nnovations. K ey co mpetitors in this segment i nclude Xerox C orporation,
Lexmark International Group Inc., S eiko E pson C orporation, S ony Corporation o f
America (“Sony”) and Canon USA inc. The segment has been a strong profit area for HP,
representing about 27% of fiscal 2007 revenue but 41% of earnings from operations.
Printers and imaging solutions are another prime area for HP, where it competes against
the likes of Canon, Xerox, and Lexmark). The segment has been a strong profit area for
HP, representing about 27% of fiscal 2007 revenue but 41% of earnings from operations.
The company is a top competitor in several key IT markets. It holds a leading market
share o f about 18 .9% It co mpetes w ith rivals Dell(16.4% second-quarter 2008 m arket
share), Acer (9.5%), Lenovo (7.9%), Toshiba (4.5%), and Apple(3.5%) in the PC arena.
ESG:
EMC Corporation in storage space.
In an overall server market worth about $54.4 billion in 2007, HP is a close second to
rival IBM. W ith about a 28.3% market share of worldwide server factory revenue for
2007 (Dell, Sun Microsystems). Market leader IBM had 31.9% share in 2007, and Dell
(11.3%) and Sun Microsystems (10.8%) vied for third place.
HP is well positioned to gain share in the future because it is prominent in the large and
fast-growing "volume server" market, whereas IBM has strengths in higher-end markets
that might see less rapid growth.
In Finance:
largest competitor is again IBM Global Financing. Offers leasing, financing, utility
programs and asset r ecovery se rvices, financial asset management se rvices for l arge
global and Enterprise customers. It also provides specialized financial services to small
and offers leasing, financing, utility programs and asset recovery services, financial
asset management services for large global and enterprise customers. It also providesspecialized financial se rvices to small and medium si zed businesses, a nd educational
and governmental entities medium sized businesses, and educational and governmental
entities.
Strategy to obtain bigger market share and growth:
• HP will become stronger competitor by the partnership and alliance at the end of
2006 with Microsoft for a three-year joint marketing alliance, in creating solutions
portfolio which are focused on the area of messaging & unified communications,
collaboration & C ontent M anagement, busi ness intelligence. S oftware and
Hardware will be pushed globally by both their adjacent partners.
• Another par tnership i s between H P, M S, and Yahoo i n cl oud computing: The
idea is that large-scale computing tasks, can be handled as efficiently, if not more
so “in the cloud” meaning by thousands of Internet-connected servers stationed
in dat a ce nters ar ound the w orld. I nstead o f s pending truckloads o f cash for
servers and the space t o house t hem and the personnel to run and maintain
them, why not lease the capacity you need from providers in the cloud who can
give you what need, add or subtract more quickly based on your needs
• HP’s Prith Banerjee, head of HP Labs said that HP believes that the marketplace
is entering an era called “Everything as a Service.”
Lines of Cr edit Growth Funding Cash Flow FinancialReserves
CapitalStructure
Reinvestment of Cash Flow
Since Apr. 1, 2005, has demonstrated its ability to improve profitability by focusing on
costs. Fo r i nstance, H P's return on e quity w ent from abou t 6 .4% i n fiscal 2005
(October), to about 19.0% in fiscal 2007.
The company is among the largest IT companies, with fiscal 2007 revenues of $104
billion t hat w e est imate will g row or ganically an d by acq uisition to $11 9 bi llion for
fiscal 2008.
Hp is following a strategy of repurchases. They announced the will be spending up
to $8 billion on a major stock re-purchasing campaign; the company has about 2.5billion shares outstanding. This in attempt to control fluctuations in its share price.
Paying Dividends to it stakeholders.
Their stock price is relatively stable.
Notes:
• Cash f low: How much cash the company is generating from its operation. It is
calculated from the net profit and from the cash inflows from the balance sheet.When acco unt receivable decr ease t his will g enerated cash to t he co mpany,
account receivable is getting better. can be helpful in financing its capital
expenditures.
• ROA: Efficiency of assets and how much revenue they are generating
• ROE: Return on the shareholder equity. The higher it is the more likely dividends
the shareholders will get.
• Net Profit or Loss Margin
•
HP’s revenues are divided between the consumer and business markets.
• Technology solution groups (TSG): servers, software, storage and services – Low
• Few substitutes
• Web hosting ( low cost, tech support, low switching costs, easy to manage)
The web host ing business might be t he biggest threat o f substitute f or the server products.. The advantages of web host ing include low cost, t ech-support, easy to
manage and low switching costs.
In addition, the advanced personal computer might be another biggest threat to the
server product
• Personal System Group (PSG): medium
Substitutes that exist in the market are portable computer devices, advanced phones
such as iphones, blackberries, i-touch from apple, etc
• Imaging and Printing Group (IPG): Medium
Some of the available substitutes that exist are
• Computers,
• portable computer devices,
• Phones (such as iphones, blackberry phones)
• Data storage devices (data and image storage devices such as flash memory
sticks, CD’s, external hard drives, etc)
Threat of New Entrants
• Technology solution groups (TSG): servers, software, storage and services – Low
• High Capital requirements for R&D, techniques, distribution channels
• IBM ($171 million in system and technology for server product in 2005
The threat of entrants for the server market is low because of the enormous costs
on t he R &D, relevant su pport pr oducts and services, m anufacturing and thedistribution. For example, IBM spent nearly $171 million in system and technology
for server product in 2005, (Annual Report,2006) and IBM spent over $1 billion in
the Linux operating system in 2001.(Shankland, 2002) This was only the barrier on
the cost, there were other barriers like technique, distribution channels etc.
Before IBM sold it’s PSG, HP, IBM and DELL have similar business structures. Now HP
just faces only one major competitors left in personal PC market ---- DELL. Because the
product quality, s tability, se rvices offering an d co mpany di versification o f H P ar e
stronger t han D ELL, which w eakened D ELL’s competitive ca pability i n bot h the
enterprise market and personal PC market.
Since the products from Sun are running under a unique operating system, which means,the pr oducts o f Sun a re not as popul ar t han those o f DELL or H P, and the co mpany
scale resulted in the inferior market condition.
Lenovo i s a st rong competitor t o H P i n P C m arket, but since t heir stream m arket o f
Lenovo is still in China, it will not be a threat to HP so far.
In I maging and pr inting i ndustry, H P ha s two m ajor competitors -- Xerox and
Heidelberger. Since both of these companies just focus on one type of customer, HP’s
broad-bound cl ientele strategy i s st ill w orking well w ithout an ov erall challenge. But i t
needs to face and beat it’s competitors in every market segment.
In general, HP has very sound competitive capability and the highest diversification in IT,
imaging and printing and consulting markets. From this map, the strategy of HP should
increase it’s competitive capability to move to the right hand side. In order to reach that
point, HP could increase its capability by using the following strategies:
- Acquire some excellent companies
- enhance deliverables and efficiencies of each functional department
- Rely on the new findings from HP R&D centers.
Background information:
• HP: 4 busi ness segments (personal co mputing, i maging and printing, t echnology
solution, and financing)
• IBM: similar business segments as those of HP, and it does not have imaging and
printing business
• Dell: i t just focusing on PCs, Laptops and Workstations. Even though i ts revenues
from enterprise business segments is 2/3 of that of HP’s TSG, it can not catch up
with the development speed of HP because HP products have higher quality, stabilityand capability.
• Sun M icrosystem: S un has similar b usiness diversification al st ructure as those i n
DELL (PCs and Laptops excluded)
• Xerox: focus on business printing hardware and software, a strong competitor to HP
• Over al l, H P financial c apability i s above av erage. Though i t’s l iquidity and
leverage capacities are lower than industry level, the ratios are still acceptable in
terms of the requirements in traditional economy point of view.
• Comparing to it’s major competitor -- IBM, the leverage capability and employee
productivity were m uch better t han those o f IBM. T hough t he p rofitability and
liquidity is lower than those of IBM, they were still acceptable. Since HP acquired
7 co mpanies in 2007, which w ill influenced t he degree of Current Assets andLiability amounts (cash and cash equivalents decreased, inventory increased) ,
as well as the decrease of profitability accordingly (operation costs increased at
• Chairman of the Board and Chief Executive Officer of Hewlett-Packard announced
in D ecember 1 st 2004
(
(another way to achieve cost advantage )
http://workingsmarter.typepad.com/my_weblog/2004/12/effectiveness_a.html) t hat
“H-P has had a discipline of outsourcing its manufacturing for 30 years. Now we
apply t hat di scipline t o every par t o f our business." H P recognizes that onl y bybeing m oiré efficient a nd m ore e ffective hp c an co mpete i n the m arket– (an
organization’s policy that is considered to be one of the most important drivers of
uniqueness/differentiation)
• Hp outsources m ost of i ts manufacturing t o co ntract producers – “The co ntract
manufacturer buy s the ca se for the monitor from an injection m older, w hich
acquires the material used to make the case from a plastics compounder (Geon is
an example), which in turn buys the material for the compound from a resin maker.”
Outbound Logistics:
The warehousing and distribution of finished goods.
• Spends 2 billion a year on outbound logistics
• Annually, HP ships roughly 25 million PCs, 43 million printers, 2.5 million
handhelds, two million servers, and more than one million disk arrays.
• Hewlett-Packard Company has the ninth-largest non-military supply ch ain in the
world. We ship everything from inkjet cartridges to super computers,” says Robert
Gifford, vice president, worldwide logistics for the company. "
• The improvement of their outbound logistics comes as a response to the increasing
pressure on hp for fast delivery of their pc’s and other final products.
• Hp’s distribution centers’ geographic locations (leads to cost advantage)
• Improved customers service ( differentiation due to linkage between outbound
logistics and services )
are
selected according to customers’ needs and in a manner to ensure high efficiency
in delivery and cost-effectiveness in their delivery operations. Therefore improving
their profitability and increasing the shareholder’s value (one of the 10 drivers that
leads to improvements of value chain activities)
• Offering cu stomers (retailers) and di rect cu stomers a num ber o f t ransit-time
options enabled hp to managed logistics costs and maintain the customer
In terms of competitive factors, HP has high quality product and uniqueness. HP has
a strong market position in most of its product segments. The company has a leading
position in market position in PC (19% market share) followed by Dell (16.4%). HP isalso second largest entity in servers market behind IBM. It also is one of the leaders
in printers.
HP is flat in R&D spending. R&D as a percentage of revenue has declined over the
last three years (2005 to 2007 from 4% to 3.5%) comparing to IBM (6.1% to 6.7%).
Also, in terms of suppliers strength, there are some monopoly suppliers such as Intel
Mkt Strength Very high High Medium/ Low Medium High
typicalfinancialproblem
Capitalization Cash flow Leverage/Margins
Low netearnings/capitalization
Cost control
Key takeaways from this slide:
• Economy of scale
•
Cost leader/strong market position
• Robust Financials (reduced long term debt)
• Multiple units and products
• Matrix structure (Most companies tend to recruit, train and promote people within
functional corridors. But HewlettPackard (HP) breaks the walls, creating a carrier
network that begins with the recruitment of diverse people in terms of their skills
and personality and then promotes horizontally, as well as vertically throughout
the company)
• HP faces i ntense competition from co mpetitors i n many di fferent m arketsegments that co uld a ffect their revenue. The c ompany has become a market
leader in PC in third and fourth quarter of 2006, with Michael Dell coming back as
CEO, Dell is likely to make a push for market leadership.
• No focus because o f the di fferent segments which make t he management andplanning difficult.
• Maturity w ithin a busi ness segment (printing), s low dow n i n i nnovation w hichmight translate to less profits.
• Acquisitions may become substitutes for innovation.
• Internal C ommunication ( Diversified firms like H P w hich has 4 se gments mustprocess more information of greater diversity which HP lacked sometimes, Scopecreated by di versification m ay ca use managers t o rely t oo m uch on financialrather than strategic controls to evaluate business units’ performances)
• Flat R&D spending compared to competition
Opportunities:
• Expand in em erging markets t hat w ill g ive HP a l arger market sh are (Differentcountries are at different stages of economic and technological development, and
their consumers have different needs at different times. A company facing toughcompetition, thin profit margins, and slow sales growth at home may get a f reshstart in another country where demand for its product is just beginning to grow)
• Green computing to be fit with the environment (Data Centers that are focusedon l everaging hi gh-density co oling, pow er-reduction desi gn s trategies for customers with reliable, scalable solutions) Outsourcing and v irtualization to HP(help clients to better contribute in this means)
• Complete solutions: one stop solutions
• Reducing time to markets (be first in market to introduce new innovative products – Servers, printers, services, virtualization)
• Partnership with big market players (Microsoft, Intel and yahoo)
• Services when m argins sl ow dow n t o keep cu stomer sa tisfaction and l oyalty.Outsourcing to H P (added V alue t o c ustomers, as customer a re sw itching therisk to HP and getting services on demand)
• Offshore operations: HP labs in global setting help understand the marketdynamics, cl ient needs. R &D G lobalization ( HP l abs work w ith H P's businessdivisions and customers to a nticipate future t rends and create i nnovations thathelp create next-generation solutions. Focus on creating new technologies for
addressing t he I T needs of new cu stomers i n r apidly g rowing g lobal marketswhere t here a re di stinct t echnological, so cial and economic ch aracteristics. B yunderstanding t his co ntext deepl y, H P Labs ai ms t o cr eate new and relevanttechnologies. )
• Not enough elasticity in high end products (servers and storage), as if market areslow t hey ca nnot b ring t he p rice dow n ( will not h ave bi g co mpetition – HPmonopoly in this segment)
• Economy dow n t urn: the r ecession and i ts i mpact on the w hole m arket (The Asia/Pacific P C m arket was impacted by a sl owdown i n C hina, P C g rowth i nLatin America was slow relative to historical levels). Last acquisition investmentimpact that might have on the financial situation.
•
Intense competition with big players in the different segments ( IBM, D ell, S un,Xerox )
• Competitors Vertical integration with distributors and suppliers (monopoly)
• Decrease in Segment Margins (printers\ hand held devices\ PC)
How Strength can be an opportunity? Or How Strength can translate to threats?
Or How Weaknesses can be opportunity or a threat?
• Having Big market share, economy of scale can be an opportunity to expand in
the market, and have a stronger position within competitors
• With H orizontal i ntegration i s an oppo rtunity for ex pansion by ac quiring m orecompanies or competitors. The risk in this that they will miss on investing more ininnovations opportunities.
• Diversification i n their di fferent segments give H P an oppor tunity t o be bet ter then competition to provide clients with one stop solution, but in the same tokencan be a point of weakness in sense that there lack of internal communicationand synergy between the business segments.
• Flat R & D i s a w eakness that w ill pr esent esp ecially with t heir i ntensecompetition with IBM, Dell, Cannon, IBM Global services …
• Lack of Focus as they have the di fferent business segments, again can be anopportunity as they have t he advantage of pr oviding t he one-stop solutions totheir customers
• Brand Recognition is a strength that can be an opportunity, as they have goodchance to partner with big players in the market (ex: Microsoft, Intel, Yahoo), butthe t hreat here i s competition ca n have a bet ter oppor tunity o f i ntegration w ithsuppliers, distributors.
• Cost effective operations give them leverage to run off shore operations (HP labs)and provide their services globally.
• Maturity within a segment even though it is a strength as it give them economy of scale and big market share within the segment (IPG and PSG) it is a w eaknessin terms that don’t have big room to grow, they have to sustain their position inthe market for these segments.
• This would represent a risk or threat with the intense competition as they mightcome with new innovative, cu tting edge technologies, as well these se gmentsmight at this point have stable or decrease in the segments margins.
But HP had stronger capabilities than its competitors in some areas such as its
technology, sa les ch annel, se rvices, so lutions, quality and b rand r ecognition, w hich
make H P ca n occu py a i deal per centage o f market sh ares in this personal sy stem
segment.
PSG (existing position):
After H P m erged C ompaq, i ts company ca pability i ncreased. N ow t he company had
many di rect competitors (Dell, Lenovo, Fuj ishu, Toshiba, Acer etc), so t hat t he market
potential was not in a very attractive condition since the profit margin became very lean
to manufacturers, but as to the numbers of PC customers is increasing (which means
the PSG market is expanding), which might offset the negative impact and might even
increase the market potential rate instead.
The main strategy to PSG group is to improve the company capability. On one hand, this
group should keep focusing on products’ qualities, innovation, and marketing strategies;
on the other hand, it should lower costs to enlarge its profits by using vertical integrationstrategies.
IPG (Previous position):
IPG had the similar si tuations as PSG, t he market potential was a l ittle bi t l ower t han
PSG. HP had many competitors from different level and business segments.
IPG (existing position):
The horizontal acquisition strategies (from 2002 to 2008) enhanced the company’s entirecapability. Although the marketing potential is shrinking, plus more and more substitute
products introduced to the market (as we mentioned in porter 5 forces model), the
horizontal acquisitions could offset some of the negative impacts and keep HP’s market
potential moving to a favourable direction.
In order to beat its strong competitors like Xerox, Canon and Heidelberger, IPG group
need to keep its eyes on the market potentials (main strategy for IPG), which means, it
could keep i ts horizontal i ntegration s trategy t o keep exploring new m arkets or create
innovative products/ services to their cl ients. I n addi tion, to lower costs and t o c reate
more environmental friendly/green products are the ways to improve its market share. In
order to reach this goal, IPG also could employ the same strategies (vertical integration)as those suggested to PSG.
• Value added:− Vertical: reduce costs or increase revenues
−Horizontal: increase revenues
• Enhancement: both strategies could solid HP’s position
• Flexibility: large platform advantages
•
• Fit: Innovations & vertical supports maintain HP leadership
• Performance: Sophisticated restructuring plans help
• Consistency: Vision & value
• Stretch: Market leader in all business segments
• Sustainability:
Implement v ertically, su ch as ac quiring co mpanies with new busi ness or newtechnologies. In addition, t o exploit and enhance functions of HP l aboratories, toshorten the period of transferring academic findings to business projects.
• Uniqueness:
The company portfolio has overall competitive advantages over others.
•
Value added:
Horizontal acquisitions could bring revenues growth. Vertical acquisition couldreduce costs or i ncrease revenues because of applying new t echnologies/ edgedacademic findings.
• Enhancement:
Horizontal acq uisition could not go further without adv anced and i nnovativesupports from functional departments, and vertical acq uisition or v ertical technicalsupports could become the supplemental strategy for HP. Vice versa. Bothhorizontal and vertical strategies will solid HP’s market position as a cost leadership.
•
Flexibility:
A large platform allows techies to invent new products, enables internal manpower transfer and internal lessons learn.
• Stability:
The cost leadership will keep HP maintaining in a stable market position.
Innovations and advanced t echnical su pports i s necessary for H P to maintain i tscost leadership position in the market.
• Performance:
After merger or acquisitions, sophisticated restructuring plans should beimplemented to improve productivities and employees’ performance.
• Consistency:
A long term vision and value se tting enables CEO to map out strategies consistentwith market trends, company structures and existing company advantages.
• Stretch:
Become a market leader in all business segments by enhancing vertical functionsand expanding new business markets.