HEWLETT-PACKARD: LOSING THE HP WAY

HEWLETT-PACKARD: LOSING THE HP WAY


Table of Contents

Strategic Vision and Mission …………….

Crafting Strategy…………………………...

Competitive Analysis………………………

Executing Strategy………………………...

Bibliography ………………………………..

2

3

4

7

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Strategic Vision and Mission

Electrical engineers Bill Hewlett and Dave Packard. Original

strategic vision for Hewlett-Packard (HP) was to encourage a

corporate culture of trust, teamwork and integrity.

A culture of consensus was formed within which, the workforce

would have a say in the operations of the firm via the

practise of management by objectives (MBO). This instituted

the teamwork component of HP’s vision resulting in a unique

co-operative focused and consensus driven work place, fuelled

by personal leadership from everyone in the company. Trust

was built around HP’s commitment to its workforce by giving

long term employment contracts with reassignment for under

performance as a replacement for firing. If the employee could

not progress with the company they could quit without

emblemising their work record.

Bill Hewlett and Dave Packard’s aspiration was that the

behaviours and actions imposed in their flat corporate culture

would encourage diversity and inclusion thus building the

common conviction of every HP employee, making innovation and

entrepreneurship a conscious part of the HP way.

The strategic vision of founders Bill Hewlett and Dave Packard

has undergone considerable change with the arrival of Carly

Fiorina as CEO. Fiorina’s vision for the company is more

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focused on maximising sales opportunities, while making it

easier for client’s to engage with HP, while reducing costs.

The evolution of HP’s strategic vision from the days of Bill

Hewlett and Dave Packard to Carly Fiorina is extreme. The

company has moved from the flat organisational structure which

was reflective of the beliefs and priorities of its founders

to a more cybernetic model of control imposed by Fiorina to

maintain the bottom line whilst cutting costs during a

turbulent period in the company’s history.

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Crafting Strategy

The strategic plan HP put forward under CEO Carly Fiorina

involved the company downsizing and becoming less

bureaucratic. She felt that following the dot-com bubble HP

like many other tech companies needed to leaner and more

compact. Examples of how the company was operating can be

examined by testimonials given during the period from both

employees and customers:

HP vice-president Jeffery L. Cooke stated “there was no

synergy between units” – he once had to clear an order for

operational change with 37 different committees (P.Speer

1999).

Four managers from retailer Best Buy Co. wanted to

purchase computer products, 50 HP employees turned up to

sell the company’s wares (Burrows & Elstrom 2003)

Fiorina radically changed the strategic outlook for the

company, first by adopting a plan of merger and acquisition.

This strategy of combining two companies can strengthen a

company’s competences and competitiveness, whilst opening up

new market opportunities. (Thompson/Strickland /Gamble.2010).

The merger of HP and Compaq in 2002 was intended to synergise

both firms, and give them a stronger platform to compete with

their market peers. The new unified company was the second

largest global technology provider, behind IBM.

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Competitive Analysis

HP in this casestudy finds itself in a very competitive

enviorment, the companys brand is streached over many

different sectors of the technology market and competes with

focused companies such as Dell and IBM that operate a less

diversified potfollio of products.

During HP’s, Compaq merger David Hewlett voiced concerns and

oppossed the merger stateing: “The merger could increase HP’s market

position in the unattactive low-end PC business, diluting the stockholders interest in

the profitable imaging and printing business”. It is clear from this

statement that the son of one of HP’s founders felt that the

PC sector was too competitive a world for the company to be

sluging it out in. He was proved right following the

deteriation of the companys stock price following the merger.

The competitive forces that exist within a market can be

analyised by using Michael Porters five forces model. This

model holds that the state of competition in an industry is a

composit of competitive forces operating in five ares of the

overall market (Thompson et al. 2010).

By using the five forces model we can try to understand the

competitive forces at play which prevoked Carly Fiorina to

radically change the strategic path of HP and help us also

understand David Hewlett’s concerns.

Issues arising from the 5 forces model (Porters model) below

allow an analysis of the overall nature of competitive forces

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affecting growth and future profitability in the technology

industry (fig1).

Figure 1 Porters 5 forces model Thompson et al (2010)

Rivalry amongst competing sellers (High)

The personal computer industry is very intense and competitive

market. The main manufacturers IBM, Dell, Apple and HP are in

constantly trying to produce the most efficient machine at the

lowest possible cost. Apple’s focuses is primarily on

innovation and style while Dell focuses on distribution

channels, customisation and services. Competition on price has

intensified as PC’s have become a personal commodity. This has

driven the industry to embrace cost-cutting measures in an

effort to maintain profit margins.

Potential New Competitors (moderate)

The threat to HP from a new entrant to the industry is of

moderate proportions. The presence of dominant firms limits

the opportunity of new companies to enter the market and

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establish their own brand. The barriers to entry are high In-

regards to investment in research and development, customer

service, and marketing departments. New entrants would more

than likely be acquisitioned by a prominent firm if they

offered any value to the industry.

Substitute Products (Moderate)

At the time this case was written The PC industry was not

affected by a host of rapidly evolving substitutes.

Smartphones and the "apps" available on them which provide the

functionality of a PC in a portable environment. This was not

so relevant in 2005.

Customers (Moderate)

Buyer power is moderate in terms of the amount of substitutes

available at the time this case was written. Buyers don’t

change products too often and are hard moved to different

items if they have a loyalty to a particular brand.

Suppliers (strong)

Suppliers in this industry hold strong bargaining positions.

HP has an advantage of negotiating large volumes of goods with

suppliers; therefore HP is a valued customer across many

sectors for their suppliers. Having said that in an industry

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where product ranges are so homogenous and competition so

stiff suppliers do carry a lot of power.

Findings

The overall strength of competition in the technology industry

can be classed as strong based on the combined average

competitive forces exerted as illustrated in the five forces

model. This is due to the technological nature of the industry

and the relatively high barriers to entry, in which a few

large companies endeavour to, surpass each other’s

achievements on a constant basis.

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Executing Strategy

HP’s execution of its strategy has run into difficulty over

the years. The original HP way formulated by founders Bill

Hewlett and Dave Packard became an obese bureaucratic

hindrance to progress and Carly Fiorina’s austere toleration

rule built the company into a split entity following the

complex non profitable merger of Compaq and unpopular staff

layoffs.

One way to see if the strategy employed at HP is effective is

to benchmark HP’s performance with its industry rivals.

Figure 2. Source: Q3 Statistics compiled by Gartner 2005. Data includes desktop,mobile PC'sand PC servers.

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Analysing the above data, one easily notices the decline inthe combined sales of HP-Compaq following their merger in2001. In 1999 their combined sales made up 19.7% of the marketbut following the merger in 2003 - 2004 HP-Compaq represented15%. However this is not an isolated case as IBM also seen adecline in market share, Dell however, doubled their marketshare in the same period. The evidence suggests that thevalue Compaq were expected to bring to HP’s value chain didnot materialise and the more focused differentiation strategyof Dell stormed ahead in the PC market.

Figure 3 Source: Q3 Statistics Compiled by International Data Corporation World-wide Quarterly tracker (2005)

In the servers market HP-Compaq have performed well following

their merger. In this analysis Compaq have added value to the

HP product line, as the company has increased its market share

annually since the merger.

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Figure 4. Sorce: Q3 Statistics Compiled by Gartner Dataquest Estimates and CompanyInformation (2005)

For many years HP had been the clear leader in the printermarket but in 2004 their market share fell by almost 50%.This analysis shows that the misgivings David Hewlett hadabout the merger with Compaq would lead to the deteriorationof HP’s market share in its lucrative printer business, wasproved right. His strong defiance to the way Carly Fiorina wasrunning the company would seem justified by the above data.

It seems to this author that Carly Fiorina has stretched HP’sbrand over too many market segments following the merger withCompaq. This has led to a decline in its primary printermarket and unease in the boardroom and on the company floorwhere staff feel that the soul of the company has evaporatedwith the HP way of a culture of integrity, teamwork and trust.

The future for HP must be somewhere between the HP way and thelean fighting innovative company Carly Fiorina wanted, butfailed to build.

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Bibliography

Thompson/Strickland/Gamble (2010). Crafting and Executing Strategy. 16th ed. New

York: McGraw - Hill. 3-413.

Borrows and Elstrom (2004). The Boss . New York: wiley. 9-365.

G. Anders (2003). The Carly Chronicles. Boston: Fast Company. 34-425.

Ali Farhoomand. (2006). HP at a Strategic crossroads: 2005 . Asia case Research

Centre, University of Hong Kong. 1 (1), 1-22.

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HEWLETT-PACKARD: LOSING THE HP WAY

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