FREE ESSAY ON HEWLETTPACKARD STRATEGY

HEWLETTPACKARD STRATEGY

Strategy Paper Hewlett Packard, Inc. (NYSE: HWP) TABLE OF CONTENTS SECTION 1 2 BACKGROUND
2 SECTION 2 2 MISSION, GOALS, AND STRATEGIES 2 Company Mission 2 Company Goals 2 Company
Strategies 2 Management By Wandering Around. 2 Management By Objective. 2
Open-Door-Policy 2 Open Communication 2 SECTION 3 2 STAKEHOLDERS 2 Stockholders: 2
Employees: 2 Competition: 2 Major suppliers: 2 SECTION 4 2 EXTERNAL ENVIRONMENT 2
Industry Environment 2 Differentiation versus Commodity 2 Capacity versus Demand 2 Entry
and Exit Barriers 2 Economic Conditions and Forces 2 Importance of Product 2 Proprietary
Knowledge 2 Government Forces 2 Social-Demographic Forces 2 Technology 2 SECTION 5 2
INTERNAL ENVIRONMENT 2 Competitive Analysis 2 Porter뭩 Five Forces Analysis: 2
SECTION 6 2 FINANCIAL CONSIDERATIONS 2 Sales/Sales Growth 2 Income/Income Growth 2 Net
Profit Margin/ Debt-Equity Ratio 2 HP뭩 Five Year Financial Trends 2 SECTION 7 2
INTERNAL ANALYSIS 2 Strengths 2 Diversification: 2 Brand awareness: 2 R & D: 2 Alliances:
2 Agilent Technologies: 2 International Sales: 2 Weaknesses 2 Diverging from original
vision? 2 Too diversified? 2 Is HP뭩 core competency changing? 2 Too many
alliances? Will this create conflict of interest? 2 SECTION 8 2 Business Level Strategy 2
SECTION 9 2 Corporate Level Strategy 2 Printers: 2 Computer Products: 2 Personal
Information Appliances 2 Notebook PCs 2 Home PCs 2 Commercial PCs 2 Technical
Workstations 2 Networking Products 2 Enterprise Computing 2 Mission-critical Solutions
(Systems, Services, Software) 2 Technologies available that will help HP make Enterprise
Computing a continued success. 2 HP Labs 2 Information Technology Center 2
Microelectronics and Measurement Solutions Center 2 Agilent Technologies: 2 Test and
Measurement 2 Chemical Analysis Group 2 Healthcare Solutions Group 2 Semiconductor
Products Group (Components) 2 SECTION 10 2 SUMMARY OF ISSUES, STRATEGIC RECOMMENDATIONS
AND IMPLEMENTATION 2 Summary of Issues 2 Strategic Recommendations 2 Customers needs: 2
Alliances: 2 Development of new products/services outside PC뭩: 2 Major areas that
HP is and should continue to focus its E-services on: 2 International Sales: 2 Strategic
Implementation 2 SECTION 11 2 Conclusion 2 Section 1 Background Hewlett Packard is second
only to IBM and is one of the world뭩 top provider of computers, peripherals, and
related services. Hewlett Packard also manufacturers testing and measurement equipment,
and medical equipment in a recent creation company of Agilent Technologies to be
implemented by mid-2000. Over 50% of Hewlett Packard's sales are outside the United
States, and are made up of nearly 85% computers and related products. The vision,
culture, and environment created by the co-founders are very much alive today, and
continue to make Hewlett-Packard stand out from the crowd. Section 2 Mission, Goals, and
Strategies Company Mission Hewlett Packard's basic business purpose is to create
information products that accelerate the advancement of knowledge and improve the
effectiveness of people and organizations. These products and services are used in
industry, business, engineering, science, medicine, and education in over 130 countries
worldwide. Company Goals Hewlett Packard has well defined corporate goals that are a
reflection of the overall mission. Service is most important to HP, whether the
relationship is HP/consumer or HP/employee. Profit is one of the components of HP뭩
goals but only as a means to the greater ends. HP뭩 primary goal is to give its
customers the products and services they desire. Followed are HP뭩 specific
corporate goals: ?To achieve sufficient profit to finance our company growth and to
provide the resources we need to achieve our other corporate objectives. ?To provide
products and services of the highest quality and the greatest possible value to our
customers, thereby gaining and holding their respect and loyalty. ?To participate in
those fields of interest that build upon our technologies, competencies and customer
interests, that offer opportunities for continuing growth, and that enable us to make a
needed and profitable contribution. ?To let our growth be limited only by our profits and
our ability to develop and produce innovative products that satisfy real customer needs.
?To help HP people share in the company's success which they make possible; to provide
them employment security based on performance; to create with them an injury-free,
pleasant and inclusive work environment that values their diversity and recognizes
individual contributions; and to help them gain a sense of satisfaction and
accomplishment from their work. ?To foster initiative and creativity by allowing the
individual great freedom of action in attaining well-defined objectives. ?To honor our
obligations to society by being an economic, intellectual and social asset to each nation
and each community in which we operate. Company Strategies In order for HP to attain the
goals they have set forth, several corporate strategies and practices have been
implemented. These create an atmosphere in HP of informality and a sense of working
together for the common good of the company. Followed are four examples of HP practices
and there uses within the company. Management By Wandering Around. MBWA involves keeping
up to date with individuals and activities through informal or structured communication.
Examples of MBWA are: A manager having office hours available for employee discussions or
departmental lunches and breakfast meetings Management By Objective. Individuals at any
level contribute to HP뭩 goals by forming goals or strategies, which are integrated
with their manager's and those of HP as a whole. Adaptability and innovation in
recognizing alternative approaches to meeting goals provides an effective way of meeting
customer needs. MBO examples are: Clearly defined written proposals, leading to and
giving accountability within the organization or development of cross departmental or
division teams to solve customer needs. Open-Door-Policy The assurance that no adverse
consequences should result from responsibly raising issues with management or personnel.
Trust and integrity are important parts of the Open Door Policy. Open Door examples would
include: Ability to voice frustrations in a constructive manner, willingness to consider
or see alternatives in a new way or Openness to discussion of advancement, or transfer
opportunities Open Communication At the core of HP뭩 practice of open communication
is the belief that when given the right tools, training and information to do a good job,
people will contribute their best. HP hopes that open communication leads to strong
teamwork between HP people, customers and others, and energized team achievement and
contribution. Section 3 Stakeholders Who are Hewlett-Packard's relevant stakeholders?
?Stockholders ?Employees ?Competition ?Major Suppliers Stockholders: HP currently has
1.019 million shares of common stock outstanding. Current stock price as of October 12,
1999 was 87 3/8. Stockholders are directly affected by HP뭩 operations by the money
made or lost within the organization. If the stock price dramatically drops, or dividends
decrease or cease, stockholders are likely to take their money and invest where returns
are higher. Employees: HP has high regard and respect for its employees. One reflection
of this high regard is a stock option plan was implemented in 1996 where HP along with
employees contribute to the stock purchases. This gives HP employees not only a stake as
an employee, but also as an investor. HP뭩 profitability/operations becomes
increasingly important as the stakes get higher. Competition: Competition in the
diversified computer industry is innovative and competitive. If HP were to have financial
troubles, competitors such as IBM are posed and ready to snatch up lost market share. The
same can be said about HP, it뭩 the nature of the game. One company뭩
downfall becomes another뭩 windfall. Major suppliers: Major suppliers include firms
such as Intel, the number one supplier to all PC manufacturers for chips. HP is
susceptible just like any of the other PC manufacturers to Intel뭩 prices and
availability. This gives Intel the corner in the market, and strength when it comes to
affecting HP뭩 operations. If HP does not have the components needed to make its
products, customers do not receive their products, resulting in unhappy customers.
Section 4 External Environment Industry Environment The diversified computer industry
(PCs, imaging products, servers, e-services, software, etc.) has become the world뭩
largest revenue generator and one of the most rapid growing industries during the past 10
years. Multiple new entrants and incumbents are fighting for market share and profits.
Company profitability does not always depend on its longevity due to short product life
cycle. Differentiation versus Commodity The personal computer, imaging and network
servers industry is becoming a commodity producer. Home and business desktop PCs, imaging
products, and network servers are very common and are supplied by nearly every vendor in
the industry. Components for PCs, imaging products, and network servers are attainable in
large quantities from a variety of suppliers and at very affordable prices. There is a
great amount of similarity in the products due to the fact that vendors are using the
same suppliers for their components. Because of this, price becomes a more important
factor when trying to sell PCs and imaging products. E-services and software are product
segments where differentiation does exist. E-services require the newest technology and
IT professionals that can provide the best product and service. Newer technology is
brought into the market place everyday and there is a lack of competent IT professionals
that understand how and why this technology works. This gives those companies that have
the resources to hire competent IT professionals with an understanding of the newer
technology the ability to differentiate themselves from the rest of the marketplace.
Software and technology changes go hand in hand. As new technology is developed, system
software has to be developed to enable the technology. The new technology is also
providing the capacity for new application software and tools that are being developed to
perform business functions and data management. Capacity versus Demand The personal
computer and imaging industry have been in an over-capacity situation for most of its
existence. There are many vendors competing for the same buyers and vendors need to
convince buyers that their product has an advantage over the competition. The e-services,
software, and network servers product segments have experienced greater demand and are
not at the point of excess capacity. Entry and Exit Barriers Entry barriers into the
diversified computer industry are surmountable. Components for PCs and imaging products
are easily attainable through many suppliers. Suppliers generally give volume discounts
and the small newcomer must compete with larger established vendors who benefit from
economies of scale. The ability to provide quality service and support to the customer is
another barrier. Buyers are becoming accustomed to having support from the vendor, at any
time of the day, after the sale. This requires having knowledgeable staff available to
handle customer calls. Newcomers also have to overcome brand recognition and the
reputation of established vendors. Exit barriers vary depending on the company. Companies
that emphasize one product will cease to exist if they are unable to be competitive with
other producers of that product. Diversified companies would have an easier time leaving
a specific industry product because they have other product lines in which they do
business. Economic Conditions and Forces The diversified computer industry has been
subject to seasonal, quarterly, and annual fluctuations. These fluctuations can be caused
by product developments, pricing, reviews and component availability. The diversified
computer industry is subject to economic forces that could influence current and future
profitability. The spending patterns of consumers are subject to prevailing economic
conditions. The prevailing domestic and international economic conditions affect foreign
currency prices and the amount that consumers are willing to spend. The industry is also
subject to the liability of foreign taxes and foreign product sales. 1 Importance of
Product Products used in the personal computer industry are very important. The concern
for Y2K reflects the importance of the computer industry. The government, businesses, and
individuals are concerned with what will happen to technology when the calendar turns to
the year 2000. It is anticipated that there will be power disruptions, some water systems
will not provide water, medical equipment will malfunction, etc. All the systems that are
used to run the machinery and equipment used for the various processes contain technology
produced by the computer industry. Therefore, the computer industry is very important
because of the processes it helps to monitor and run. Proprietary Knowledge The
safeguarding of proprietary knowledge is important in the diversified computer industry.
Computer manufacturers rely on suppliers and other technology developers to stay abreast
of the latest developments in PC technology. If computer manufacturers or their suppliers
were unable to obtain licenses necessary to use protected technology in their products on
commercially reasonable terms, these manufacturers may be forced to market products
without desirable technological features. This could require a company to incur
substantial costs to redesign their products around other parties?protected technology or
to defend patent or copyright infringement actions against their own company.1 Government
Forces The computer electronic industry must meet standards established by the Federal
Communications Commission, and similar agencies in other countries. An example of a
standard would be the regulation on the maximum amount of radiation emitted by monitors.
Companies in the computer industry must receive the appropriate certification before
shipping computers. Therefore, if companies encounter problems obtaining certification,
they risk delays in introducing new products. In addition, advertising, shipping and
other operations are subject to state regulations, regulations of the Federal Trade
Commission and the U.S. Department of Commerce in the United States, and similar agencies
in foreign countries. Any failure to comply with such regulations can result in
significant fines, penalties, forced rebates, and shipping restrictions levied against
the violating companies. Companies are also subject to federal and state sales and income
tax regulations. State regulations vary by state.1 Social-Demographic Forces A relevant
social force is the excitement over the Internet and e-mail. Individuals and corporations
are finding computer technology very valuable in their everyday lives and operations.
Individuals have quick and easy access to virtual communities and consumer information.
Corporations have a vital link of communication and a strategic tool for operations and
managerial decision making. For whatever reason, this trend has caused the industry to
grow at a very significant pace over recent years. Without major changes in other
industry forces, this demand is foreseeable into the future. Consumers have also changed
and have become knowledgeable about components and how the components are used within the
computer and other technological products. This knowledge is used to make selective
purchases and forces the computer industry to offer the products that consumers want.
Therefore, it is important that the computer industry establish the ability to produce
products based on each consumer뭩 needs. Technology The computer industry is a
technology industry and is therefore greatly affected by the technological changes that
take place in the world. Technological advances occur very quickly; therefore, companies
must stay abreast of these changes and incorporate them into their products in order to
remain competitive in the industry. Manufacturers must decide which new technologies will
be the most cost-effective to incorporate. Section 5 Internal Environment Competitive
Analysis Competition in the diversified personal computer industry is aggressive and
numerous. Hewlett-Packard competes with some of the worlds largest companies and smaller
highly specialized firms. Hewlett-Packard's competition can be separated into the
following areas: personal computer, software, and computer services industry. The
personal computer is the largest section of the computer hardware industry. The personal
computer industry has recognized an average annual growth of 20% in PC shipments between
1991 and 1998. It is anticipated that the growth will be between 15-20% over the next
several years. Lower prices, improved performance, and demand driven by the Internet will
provide this growth.(3) The PC segment is the most competitive segment of the computer
hardware market. Consolidations and shakeouts of the second and third tier PC vendors
have left approximately 65% of the market share with the top 10 vendors. The major
competitors in the personal computer industry include Compaq/Digital, Packard Bell-NEC,
IBM, Dell and Hewlett-Packard. The chart below shows world wide unit shipments for 1998.
As the chart shows, Compaq sold more units than Dell, IBM, Packard Bell-NEC, and
Hewlett-Packard. ?Figure 1. World Wide PC Vendor Market Share for 1998 It is forecasted
that additional consolidation & shakeouts will leave 70% of the market share with the top
five vendors by the early 2000s.(3) The PC industry's growth has been boosted by the
sub-$1000 PC. It is anticipated that the average desktop prices will drop below $1400 by
the year 2000. The means used to sell PCs also can have a positive/negative affect on PC
pricing. Direct sellers traditionally have been able to underprice indirect sellers.(3)
The reduction in prices is mostly due to the drop in major component parts of PCs. All of
the competitors listed above offer standard PCs that contain mostly the same components.
Therefore, there is little differentiation between the various competitors PCs.(3) The
reliance on the component suppliers does present risk for the PC industry. Most computer
components are standardized and the industry relies on one or two suppliers for two
critical components: the CPU and motherboard. Approximately 85% of the worlds CPUs
include an Intel Processor and Intel has been able to significantly increase its share of
the motherboard market. This gives Intel a significant control on which and at what cost
a PC vendor can provide a computer with its CPU and motherboard.(3) The packaged software
market has always been the fastest growing segments of the computer industry. The
packaged software industry consists of three general market segments: application
solutions, application tools, and systems software. Applications software performs
specific industry or business functions and currently this market provides over $56
billion in sales and is expected to grow to a $98 billion dollars by 2001. Application
tools provide data management, manipulation, access, and retrieval. It currently provides
over $31 billion dollars in sales and is expected to grow over $50 billion dollars by
2002. System software is comprised of operating systems, and data center management. It
currently provides over $35 billion dollars in sales and is expected to grow over $53
billion dollars in sales by 2001. The major competitors in the software market are listed
below.(4) Worlds Top Software Suppliers(4)6 REV. (MIL$)997 1996 1997 1. IBM 13,052 12,844
2. Microsoft 9,247 12,836 3. Computer Associates 3,945 4,457 4. Oracle Corp 3,615 4,447
5. Hitachi Ltd 3,960169 4,023 6. SAP AG 1,692 2,290 7. Fujitsu Ltd 2,000 2,000 8.
Compaq/Digital 1,224.9 1,174.2 9. Sun Microsystems 1,000 1,117.7 10. Siemens Nixdorf
1,020 1,071 11. Parametric Technology 596.3 1,013.8 12. Intel Corp NA 1,002.8 13. Novell
Inc. 1,208 930 14. Adobe Systems 786.6 911.9 15. Sybase Inc 1,011.5 903.9 16.
Hewlett-Packard 798.5 886.1 17. CadenceDesignSystems 587 755 18. SAS Institute 620.4 727
19. PeopleSoft Inc 389.4 706.4 20. BMC Software 530.9 677.7 The software industry is
fragmented and one established vendor (Microsoft) dominates the mature software markets
such as operating systems. It is nearly impossible to start up software companies to take
market share from well-established vendors. Potential users might perceive new products
as being better but are concerned with upgrades and the ability of the company to enhance
its product over the long run. Newer software markets are very appealing to software
vendors. Software vendors can be the first to enter the new market and can establish
themselves at the same speed as other software developers/vendors. Growth in the computer
services industry has grown steadily from 1997 to 1998 and the trend is expected to
continue. This segment of the computer industry consists of professional and processing
services. The computer services industry is fragmented and consists of businesses ranging
from one employee to thousands. Companies can focus on a niche market and or can provide
services for several different markets. This market has excess demand, therefore new
firms are always entering the market, and existing firms are increasing their market
share.(5) Consumers of the services provided in the computer services industry have a
large selection of competent firms to choose from. Consumers can pick a firm that
provides only computer services or a company that provides both computer services and
products. The table below lists the top five independent computer services firms.(5) TOP
INDEPENDENT SERVICE FIRMS(5) Revenues Company (in billions $) 1. EDS 15.2 2. Anderson
Consulting 6.6 3. Computer Sciences 6.3 4. GE Capital ITS 6.0 5. Science Applications 4.0
As technology changes and the Internet becomes more inherent in the business world the
need for professional services will also increase. The professional services provide
outsourcing, systems integration, information technology consulting, and
intranet/internet services.(5) The professional services segment of the computer services
industry has generated over $100 billion in revenues in 1997 and 1998. It is anticipated
that the industry will grow between 11% to 15% by 2001.(5) Processing services provide
businesses with services such as payroll processing, employment regulatory compliance,
tax information processing, and the dissemination of financial information. It is
estimated that processing services provided $62.2 billion in revenues in 1997 and 1998.
It is anticipated that the industry will grow significantly within the next five
years.(5) Porter뭩 Five Forces Analysis: This analysis is in relation to the new
focus of HP in not only the PC market, but the Server/Workstation market and E-services
market. The PC market has evolved dramatically over the past 10 years, where there were
only a few top providers in the PC market, there are now hundreds of various computer
companies. Entry is easy, components are readily available, and buyers are very
knowledgeable and aware of their needs. Due to the change, the margins are shrinking and
PC companies are exploring other markets. HP is one of these companies that are shifting
into other markets. The first market HP is moving into is the server/workstation market.
This market currently has medium internal rivalry, but as other companies enter, the
rivalry will increase. Not all PC companies have the facilities or suppliers to produce
servers so substitution is somewhat available, but not to the same extent as PC뭩.
Supplier power, given the current providers, is limited, but no one company holds such a
monopoly as say Intel in the PC market. Buyers also have limited power because the option
of whom to purchase from is not fully developed. Second market HP is heading into is
E-services. This, like the server market has relatively medium internal rivalry and
substitution due to the number of companies in the market. As more companies move to this
market, again the substitutes and rivalry will increase. Entry into the market is high,
based on the future and importance of the Internet. Buyers of E-services have specific
needs of products and services that will need to customization to fit each customer.
Supplier power is limited because products are based on existing technologies. HP will
need to monitor and analyze these markets, along with any new emerging markets very
closely to maintain a competitive advantage. Remaining diversified and flexible to be
able to react quickly to the future markets will be essential to HP뭩
profitability. HP can not just equal its competitor's prices or products, but must
continue to give value-added in order to differentiation products and services.
Basically, HP needs to be one step ahead off its competition. HP뭩 goals, vision,
and organizational structure lend itself well to this, especially how HP focuses on
customer interaction and providing products/services to meet customer needs. Followed is
a diagram illustrating Porter뭩 Five Forces with relation to the PC,
Server/Workstation, and E-services market. Section 6 Financial Considerations Sales/Sales
Growth HP sells considerably more than the industry standard, showing the level of market
penetration HP has developed over the span of existence. While HP뭩 sales are well
above industry, its overall sales growth in 1998 has dropped 11%. This would be a
reflection of the slowing and reduced profit margins in the PC market. Income/Income
Growth Again, HP뭩 1998 income is above industry standards, showing HP still has
profits in the dwindling PC market. However, HP뭩 income growth dropped in 1998 and
is below industry, leading HP to evaluate its financial condition. In evaluating
financial considerations, other emerging markets have been entered. Net Profit Margin/
Debt-Equity Ratio HP뭩 net profit margin has consistently been in the 7.3% - 7.7%
range in the past 5 years. In 1998, the NPM was 7.3%, lowest of the past 5 years. To
increase this margin, HP should review costs, and identify costs that can be reduced.
Increasing prices is another option to increase profit margins, but given the PC market,
is not an option for HP. Entrance into new markets like the server and E-services should
help the profit margin since the profits are currently higher in these markets compared
to PCs. HP뭩 debt-equity ratio is well below average; this is a positive trend, and
show that HP has not borrowed heavily long-term against its equity. HP뭩 Five Year
Financial Trends HP뭩 revenue and earnings has consistently increased over the past
5 years, of course due to the surge in PC purchases and related products. In 1998, the
net earnings did fall below its 1997 earnings while revenue continued to increase (costs
increased at a higher rate than revenue). This can be seen in the increase in 1998 costs
associated with products sold and services. These costs increased 2.1% to 68.1% of net
revenues, up from 66% in 1997. A.G. Edwards just released a report forecasting that
HP뭩 EPS should increase 18% in the year 2000, and stock target price should be in
the range of $130/share. HP has not ignored its setback in 1998 financials, and has taken
a proactive approach. Examples of this proactive approach are the new corporate focus on
providing E-services, and server/workstation sales, and the corporate realignment. These
steps to counteract the recent setback are positive, and will help prepare HP for the new
millenium. Section 7 Internal Analysis Strengths ?Diversification ?Brand awareness ?R & D
?new product development/improvement ?Alliances ?Creation of Agilent Tech ?International
Sales Diversification: Nearly 85% of HP뭩 revenue comes from its computer and
related products/services. This leaves almost 15% of revenue to come from Agilent, where
sales come from testing and measurement equipment and medical equipment. Brand awareness:
HP, established in 1966, has a long-standing reputation and good 밷rand
awareness?in the computer industry. R & D: HP spent $3.4 billion in R&D during 1998 and
placed on the market 24 new products company wide. HP is positioning itself well in the
Internet market ?either by providing E-services or Internet sales of products. Alliances:
AT&T announced an alliance with HP to provide Internet service to small/medium businesses
using the new HP Brio line targeted at this segment. Another recently announced alliance
is with Viador to introduce the industry뭩 first on-line implementation service to
enable e-services. Agilent Technologies: Creation of this separate company provides two
distinct industries that HP is involved in. These industries focus on computer and
related products/services in HP, and scientific equipment and services in Agilent. This
divergence gives each company a distinct focus, where previously each SBU stood alone
within HP. International Sales: Only 50% of HP뭩 sales are within the U.S, proving
HP is known, purchased and respected worldwide. Within the U.S. PC market, saturation
rate is high and profit margins are becoming increasingly smaller making the
international market increasingly important. Like other PC companies, HP has not fully
developed the international market. Viewing the whole world as the market instead of just
North America will help HP broaden its sales. As technology advances, servers, networking
solutions and even e-services can be expanded in the international market. HP뭩 PC
products are easily imitated, but HP works to create consumer/brand loyalty. To achieve
this loyalty HP is continually giving 뱕alue-added?improvements to products. An
example of this is HP뭩 new Brio new line of computers for small/medium businesses.
An Alliance with AT&T has been established to provide Internet service for these
consumers. HP continues to do an excellent job of communication with customers to find
out what improvement could be made to their products, by HP alone, or by involving other
companies. Weaknesses ?Diverging from original vision? ?Too diversified? ?Is HP뭩
core competency changing? ?Too many alliances? Will this create conflict of interest?
Diverging from original vision? HP needs to be careful not to stray too far from the
original vision set forth by David Packard and Bill Hewlett. This vision has gotten HP
were it is today, and could take it into the future. Customers should always be the focus
of a business. Knowing what your customers needs are and to how to meet they need them
has been HP focus since its inception. Jumping too quickly into unknown markets or
products could potentially hurt HP뭩 brand loyalty, and revenues. Too diversified?
HP currently concentrates on computers, computer related products and services. By
creating Agilent Technologies, will this pull valuable resources away from its core
competency of computers, etc? Could the funds allocated to Agilent show a better return
in the computer side? Less than 20% of HP뭩 sales came from this branch in 1998. Is
HP뭩 core competency changing? PC뭩 were HP뭩 mainstream revenue
makers, but with the evolving PC markets, profit margins shrinking and consumer knowledge
increasing, HP is force to move into different markets. Examples are servers and
e-services. Too many alliances? Will this create conflict of interest? By collaborating
with too many companies, such as AT&T and others, will this create a conflict of interest
for HP? Getting 밿nto bed?with too many companies, HP could find itself without
strong alliances. The best approach for HP would be to develop strong, long-term,
alliances that will benefit both parties for many years in the future. Section 8 Business
Level Strategy With respect to the computer related market, HP is attempting to pursue a
somewhat low price strategy, meaning that HP keeps its prices in the same range as
competitors, but at the same time give additional products or services to differentiate
its products from the competition. HP has high brand awareness and as the PC market is
moving from a 밹ash cow?to a 밺og?in the BCG matrix, HP is capitalizing on
new markets to create 뱒tars?within its SBUs. HP뭩 differentiation can be
either a tangible difference, such as adding Internet service with the purchase of a PC
or an intangible difference by the level of technical service and customer service
provided HP addresses the entire market, but has separate products targeted to segments.
The Pavilion line is targeted to home/personal PC use, while the Vectra and the new Brio
lines is targeted to business use. HP focuses on providing its customers with the
products and services it needs. This is a valid strategy, but can cost the firm
profitability because there is a high cost associated with providing so many products. As
long as this strategy is profitable, HP can and should continue this diversification. One
of the most important business level strategies HP developed was spinning off the medical
equipment, test and measurement, etc. to Agilent Technologies. While Agilent will
continue to follow HP뭩 mission and goals, Agilent's customers and markets are very
different from HP. This realignment was a positive move given HP's new focus on servers
and E-services. HP has envisioned where the Internet will take the world, and can now
focus all its efforts and resources on creating new competitive advantages in E-services
and Server markets. Section 9 Corporate Level Strategy HP has five basic priorities for
its business level strategies. These priorities are also reflective in HP뭩
organizational chart (see Appendix A). ?Printers ?Computer Products ?Enterprise Computing
?HP Labs ?Agilent Technologies Printers: In nearly five years, HP뭩 inkjet imaging
business has achieved more than 25% annual growth, the installed number of units has
grown from 17 million to 85 million printers. This growth is largely a result of
introducing new technologies into new product categories. Inkjet Imaging Solutions has
been accelerating its technology into new categories at the over-$500 end of the inkjet
market, the extremely fast-growing sub-$150 end of the market, and beyond the desktop.
Color is now becoming increasingly common in offices for presentations, reports etc.
Making this technology affordable and high quality is one of HP goals. In 1997, HP
introduced an entirely new category of inkjet color printers for the office, the HP 2000C
and HP 2500C Professional Series color printers, these printers offer laser-class color
print speeds and low cost-per-page. HP intends to continue to aggressively push the
adoption of color in the office by offering the widest array of color printing solutions
at all price points. The company expects office color printing adoption rates to
accelerate rapidly in the next decade, with inkjet gaining full legitimacy along with
color laser printing as a printing technology for these users. Computer Products: HP's
Computer Products was formed in 1991 to improve the way individuals and organizations
around the world use information on the road or from the desktop, office or home. Listed
below are HP뭩 top six categories within its computer products branch. Personal
Information Appliances HP is a leading supplier of handheld computing devices, and HP
calculators. Since its introduction in May 1991, the HP palmsize PC family has won more
end-user awards than any product in the handheld PC category. Notebook PCs HP뭩
OmniBook family of notebook PCs for professionals is marketed throughout the world. These
notebooks are some of the industry뭩 fastest and lightest on the market today. Home
PCs HP markets the Pavilion line of PCs for the home through major U.S. retail outlets
and internationally in 12 countries. Pavilion PCs remained one of HP뭩
fastest-growing product families. Commercial PCs The Vectra, Brio and Kayak brand PCs for
business environments and feature a wide range of desktop and tower PC designs, ranging
from low-cost, entry-level models to powerful dual-processor systems. Technical
Workstations HP designs these for demanding technical and computing-intensive
environments, With the Kayak, and Visualize systems, HP now offers the industry's
broadest range of performance, flexibility and price points in workstation solutions.
Networking Products Developed and marketed the ProCurve family of network hardware,
including hubs, routers and all-in-one network-solution kits. These six areas of major
importance for the future of the computer market. Mostly for the ease of use, cost,
mobility, networking capability, and power. The range of people demanding information
devices and desktop systems is expanding, requiring the development of PCs and
information appliances that are increasingly easy to use. Businesses are concerned with
not only the cost of PCs, but also about the total cost of owning and maintaining desktop
systems. Customers now require access to information anywhere, anytime, which is driving
the design of desktop and mobile devices that can create, transmit and receive many kinds
of information in multiple forms. Communication capabilities are being standardized,
developed and implemented to move information across networks, locally and globally.
Certain firms, such as engineering companies need workstation solutions that will help
them compete globally, reduce product time to the market and improve product quality.
Enterprise Computing HP뭩 Enterprise Computing (EC) business is a worldwide
supplier of solutions, systems, software, services, support and financing for enterprise
customers. HP뭩 vision of the computing future centers on the evolution of the
Internet and the increasing importance of e-services. Listed below are areas of
concentration by HP to expand its enterprise computing. Mission-critical Solutions
(Systems, Services, Software) UNIX -- HP products and services provide the scalability,
manageability, availability and top performance on the Web and through OnLine Transaction
Processing that is needed for e-services. NT ?EC services and supports NT, NT tools and
system interoperability, critical pieces of the e-services foundation, and offers NT
servers through HP뭩 Computer Products Group. Linux -- HP뭩 Enterprise
Computing has mobilized to meet the strong demand for anticipated Linux-optimized
systems, software and services, including 24x7 worldwide support. Storage -- HP뭩
storage systems have the high availability and robust disaster recovery, as well as data
sharing, centralized storage management and efficient backup and restore needed to
capture, store, manage and access e-services data. Technologies available that will help
HP make Enterprise Computing a continued success. Quality of Service - HP Web Quality of
Service software (WebQoS) allows service providers to handle unexpected surges in demand
on the Internet, communicate an exact wait time to customers and offer their most
important customers premier service levels. Security - HP Praesidium technology affords
security for people, transactions and information across increasingly dynamic company IT
boundaries. HP Virtual Vault allows partners and customers to access designated
applications through a company뭩 firewalls, and currently protects more than $5
trillion of assets in more than 100 banks worldwide. Protocol - HP e-speak is a universal
language and protocol that makes it easy to build e-services and allows them to connect
and interact with each other securely, regardless of what or where they are. Using this
new html for services, customers can access e-services faster, more cost-effectively and
securely -- and from a variety of appliances and locations. Embedded Software -
HP뭩 Chai family of embedded software products adds intelligence to appliances and
devices, and allows users to access and create new and powerful e-services. Application
to Application Integration and Web Development - HP뭩 end-to-end platforms allow
companies to easily open all or part of their enterprise applications to new users,
business partners and suppliers, with no changes to the existing applications. Storage
Architecture - With 100 percent availability and infinite scalability, HP Equation
Architecture ensures that all applications in the system can access all information in
the enterprise at all times. Services Consulting - Enterprise Computing partners with
other industry leaders, such as Sapient and Viant, to help customers design and create a
net-ready IT infrastructure, build and rapidly implement ERP and other e-business
solutions, and transform the online experience for their target audiences. The
organization has deep expertise in the communications industry, where e-services will
first develop. Mission-critical Support - With the advent of e-services, IT
infrastructures will become even more critical to organizations. Whether the
infrastructure is UNIX, NT or Linux-based, HP뭩 focus is to keep it running and fix
it fast, through world-class infrastructure planning, operational assessments, proactive
support programs and business-recovery planning capabilities. HP뭩 proprietary
support technologies and proactive system-monitoring capabilities identify potential
system problems before they occur and help prevent downtime. HP Labs HP뭩 central
research organization, HP Labs ranks as one of the world뭩 leading research
centers. HP Labs?role is to be the innovation engine that propels HP뭩 continued
growth. HP Labs pursues this goal by supporting current businesses and creating new
business opportunities that exploit HP뭩 core competencies in measurement,
computing and communications. Since its inception in 1966, HP Labs has been the creative
site for major HP business, including the world's first desktop and pocket scientific
calculators, thermal inkjet printers, and portable scanners. Two major areas of research
are conducted. The first is under HP뭩 umbrella, the second under Agilent.
Information Technology Center This center conducts research in enterprise computer
systems and architectures, software, network, Internet and multimedia technologies,
computer peripherals, imaging, and information appliances. Microelectronics and
Measurement Solutions Center This center conducts research in electronic, medical,
analytical and optical instruments; photonics and high-speed communication; solid-state
materials and devices; and components. Agilent Technologies: While this is a separate
company, Agilent continues to follow the HP way. Meaning Agilent will continue to
innovate, as HP always has, to produce quality products and services that make a clear
contribution. Secondly, Agilent will work according to the HP뭩 strategies with
partners, customers, and employees in innovative ways, using the same set of business
practices {MBO, MBWA, etc}. These practices embody the values that have built HP into the
successful company that it is today. Agilent is the world's leading designer, developer,
manufacturer and provider of communications components as well as electronic and optical
test, measurement and monitoring instruments, systems and solutions. The company's
customers span essential industries, including electronics, communications,
semiconductors, healthcare and life sciences. Four main areas were moved from HP to
create Agilent Technologies: Test and Measurement The automated test business is a market
leader in the design, manufacture and service of systems that test semiconductor and
electronic printed circuit boards. These systems are used to verify quality in
manufacturing processes and ensure the performance and reliability of the end product.
These systems and services enable customers to design, build, install, manage and
maintain the networks that make up the global communications infrastructure. This
infrastructure enables worldwide access to, and transmission of, data, voice and images.
The electronic products and solutions business is the world's leading supplier of test
and measurement instrumentation for the electronics industry, including manufacturers of
equipment for wireless networks. This business markets general-purpose test instruments
for use in research and development laboratories, and repair shops. Chemical Analysis
Group The Chemical Analysis Group is a leading provider of analytical instrument systems
that enable customers to identify, quantify, analyze and test the atomic, molecular,
physical and biological properties of thousands of substances and products Healthcare
Solutions Group The Healthcare Solutions Group is a leader in clinical measurement and
diagnostic solutions for the healthcare marketplace. Its products and systems enable
medical professionals to gather data and analyze information in hospital intensive-care
units, outpatient clinics, doctors' offices and patients' homes. Semiconductor Products
Group (Components) The Semiconductor Products Group is a leading supplier of
semiconductor components, modules and assemblies for high-performance communications
infrastructure, computing devices and mobile information appliances. Four of the five HP
priorities within corporate level strategies are interrelated (this excludes Agilent) and
affect the others. HP labs is crucial in creating and improving printers, computer
products and enterprise consulting products. Printers, computers, and enterprise
consulting can be bundled together providing a one-stop shopping mechanism for customers.
Whether the customer is a personal/home computer user or a large corporate customer,
bundling creates a differentiation for HP. Given the choice, most people or organizations
would prefer to work with one company for all their needs (so long as all needs are
provided and the quality of products is high), as opposed to working with six different
vendors for PC뭩, printers, scanners, servers, networking service and e-services.
Section 10 Summary of Issues, Strategic Recommendations and Implementation Summary of
Issues The growth of the PC market is topping off, as far as US profit margins go. All PC
companies will be faced with this same situation, and developing solutions to maintain
profitability. Diversifying into new product lines, line extensions, or all new
categories will become increasingly common among the PC manufacturers. Again, this was
apparent in HP뭩 situation with Agilent Technologies. Other key points that HP
needs to focus on to maintain profitability, and customer base worldwide are: ?Continued
emphasis on customers needs; value added improvements to existing products or the
creation of new products to meet the needs. ?Alliances with key companies. Do not
밽et into bed?with too many companies, but form strategic alliances that have major
impact and potential for long-term, mutual benefit. ?Continue to provide PC뭩 but
put more emphasis into expanding areas like the server market and providing E-services.
?Continue to develop International sales. These sales are not topped out, as the rest of
the world is not as technologically advanced as the U.S. Strategic Recommendations
Customers needs: HP뭩 commitment to providing services and products that customers
want has always been apparent. To continue to grow and expand into other facets of the
computer world, staying in close contact with customers is key to forecasting and
defining the needs. It is also key in projecting where additional needs will be. The
customers may be thinking of short-term only, but by defining a short-term need, a
long-term one may be forecasted, giving HP an edge. Alliances: Key alliances will be
beneficial to HP. The recent AT&T is an example of such an alliance. HP will provide
Internet service for its Brio line computers, working with AT&T. Success of this
agreement could lead to additional agreements of providing Internet service with its
Pavilion or other lines of computers. AT&T has a large share of the telecommunications
market, as computers and telecommunications become so entwined, this alliance has a
multitude of potential for the future. Another key alliance was just announced October
20th. This is the Viador alliance for enterprise portal deployment, and gives HP the
first on-line implementation service for E-services. Development of new products/services
outside PC뭩: The first part of the Internet was dominated by data exchange and
growth of sites featuring simple transaction processes. In the next part, successful
companies will turn their assets into services delivered securely via the Internet. The
future of E-services will be in combining and recombining capabilities to solve problems,
and making everyone뭩 lives easier. Some of these services will be available on Web
sites; others will be delivered from telephone, pager, or e-mail. E-services will work
behind the scenes, automatically linking together transactions across partners,
suppliers, employees and customers. [Here again, an alliance with a telecommunications
giant would prove beneficial.] One of the hindrances to E-services is the complexity of
computing systems and the absence of a common language to allow systems to interact with
each other. HP should develop solutions to these problems and help customers understand
how to build e-services, both internally in their IT departments and externally for their
own customers. Major areas that HP is and should continue to focus its E-services on:
E-marketing and selling -- Developing new front-end communications and marketing
capabilities, such as manufacturers?storefronts and hosted online banking. E-supplier
integration -- Moving customers beyond the traditional supply chain model to engage more
interactively with the design, production, delivery and support of products and services,
through e-procurement and e-order management solutions. E-business intelligence --
Helping customers generate new business through cross selling and marketing, and by
offering more personalized e-services. Mission-critical e-computing -- Using new
high-availability and systems management technologies to build a robust secure
infrastructure with the maximum uptime that e-services require. End-to-end e-payments --
Protecting the integrity of transactions from start to finish for consumers, financial
institutions and merchants. Services provider hosted e-services -- Developing turnkey
hosted merchant platforms for a variety of HP customers with whom HP shares risk and
revenue. International Sales: While the U.S. PC market is becoming more saturated and
less money is being made. The world뭩 market is not. 50% of HP뭩 computer
sales are outside the U.S. right now, and given a larger focus of resources, could
greatly increase. Part of the world is not saturated with PC뭩 and provides a
potential initially for PC sales, but again for additional services when technology is
available. Targeting large international markets can create brand loyalty and awareness
so that when the entire world is ready for e-services, networking, servers, etc,
HP뭩 name will have recognition. HP should work with international retailers to
increase indirect sales worldwide. This penetration could be targeted at certain
geographical locations where the market potential is highest. Hiring an outside marketing
firm to investigate these key markets identified by HP would provide initial information
on how the target the segments and penetration strategies. Strategic Implementation As
discussed earlier, HP is diversified and flexible within its organization and provides a
large number of products in a multitude of markets. HP has adapted well to the changes in
the markets by realigning itself and entrance into newly emerging markets. This is key to
implementing new products/services into new markets. HP뭩 employees will continue
to become important as the shift from the product to added services increases. The more
customers that have HP products/services, the volume of technical and customer service
needs will increase. Service representatives will be the first line link to its
customers. Customers that receive unsatisfactory service will spread the word. Negative
publicity like this will hurt the firm in the short and long run. Therefore, an
investment in its hiring, training and 뱕alue-added?services for employees is
advised. HP뭩 employees will also be important as the international market
develops. This expansive will require additional training for employees to develop the
skills needed to succeed in this market. There is success in the international market all
ready, but to really penetrate the world, HP needs to focus on providing the same support
to the world as it does in the U.S. HP뭩 culture is one of informality and
service-orientation. This culture is exactly what is needed survive in the ever-changing
computer & related products industry. Companies that do not have this culture,
flexibility and attitude will be unable to adapt to the rapid changes now and in the
future. HP can monitor its progress by reviewing industry market potential and its share,
quarterly/annual financial information, stock price, but most importantly charting its
customer feedback. Customers are HP뭩 focus and in order to rate its progress and
success, customer satisfaction should be the main factor. Are the products and services
in all HP뭩 markets meeting the needs? If not, what can be changed in existing
products/services to meet the needs or how to quickly develop products/services that
will. Also reviewing all product lines within markets should be attempted. Some products
or services offered may not be meeting customer needs or making HP a profit. In this
event, it should be discontinued. Monitoring production and inventory levels are
important given the ever-changing markets. Developing too high of inventory could result
in having to sell products at a very small profit, if a profit at all, having dramatic
affects on the overall financial condition of HP. Section 11 Conclusion HP continued to
grow, as did the U.S. PC market during the mid-1990뭩. As the PC market declined in
the late 1990뭩, so did HP뭩 financial situation. HP has reacted well to the
setbacks by implementing realignment, developing within new markets all while continuing
to provide PCs. HP works diligently to develop new products and services to meet its
customer뭩 needs, in addition to hiring and training employees to focus on these
needs also. In order for HP to have continued success, it should focus on the four main
areas described in the summary of issues: ?Continued emphasis on customers needs; value
added improvements to existing products or the creation of new products to meet the
needs. ?Alliances with key companies. ?Continue to provide PC뭩 but put more
emphasis into expanding areas like the server market and providing E-services. ?Continue
to develop International sales. If HP correctly implements these essential points, it
will be positioning itself well for wherever the Internet and millenium will take it. 
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