HP Case Study †Strategy Essay

Hewlett-Packards individualized computer (PC) division operates in a hyper- competitory, highly-commoditized fabrication publication to dynamic shifts. The PC constancy is drive by technological advancements requiring keep commitment to research and in blueprintation to go the ever- changing PC foodstuff place. For close to of the past quintuplet twelvemonths, Hewlett-Packard led the PC effort in footing of market sh ar. However, Hewlett-Packards market share is presently declining and recent effort reports indicate that a Chinese mild terms PC manufacturer, Lenovo, is direct the market share attraction.Over four primary sections, we performed an compend of Hewlett-Packards outline in the PC industry. First, we performed an external industry examination to detect information on the current conditions of the market, including industry trends, buyer and supplier food market power, and emerge market concerns, such as the threat of PC substitutes. Second, we co nducted an ingrained analysis to determine Hewlett-Packards flower resources, assets and liabilities, and probable capabilities from its value chain. Third, we record Hewlett-Packards current strategic placement within the PC industry.Fourth, we examined and scrutinize Hewlett-Packards current industry strategy of returning to its meat competencies slice consolidating aspects of its PC manufacturing and sales. From the information in these sections, we conclude that if Hewlett-Packard is to sustain (or re ca using up) its place as the market leader in the PC industry, it must leverage its send recognition, economies of scale prefers, and harvest-feast integration features to capture market value go producing technologic all toldy competitive products. IntroductionThis analysis is concentrate on the manifestation-to-face computer (PC) segment of Hewlett-Packard (HP). For clarification, HPs PCs segment includes desktop, laptop, and notebook / netbook computers. computer ironware devices falling outside of the PC category are mobile personal computing devices, such as tab keys and cellular ph hotshots. HPs PC sales for fiscal year 2012 were $41. 5 billion, which represents 26. 5% of HPs $120 billion total revenue from all products and service. HPs PC sales captured a 16% share of the total PC market (Trefis, 2012).From an analytical standpoint, HP has made many signifi faecal mattert moves oer the past three to four years, including numerous converts in company leadership and distinct shifts in business strategy. As a result, the ultimate force and success of HPs strategies discussed has yet to be seen. Therefore, some of the conclusions we sire regarding HPs forward strategy allow be heedful by whether HPs strategic decisions align with its competitive utilitys and obligations to stakeholders. external AnalysisThe globose PC industry is led by a small number of large scale manufacturers who are homogenizing products and looking to take advantage on hapless damage excavate resources. Industry rent is driven by technological assumements, disposable consumer spending, and corporate spending cycles (First Research, 2012). Although global demand for PCs has increased, usefulness margins are decreasing, creating an industry focused on price contender and shrimpy differentiation (MarketLine, 2012). In increment, PC substitutes are a major(ip) threat to the PC industry (Indigo, 2012).The traditional PC industry, with its focus on desktops and laptops, is in the mature or declining stage of its life cycle. Our external analysis examines the significant factors influencing the current PC environment, including potential market threats and opportunities during the next five years, and how HP is perform relative to its industry competitors. debunk One illustrates the forces before long affecting the PC industry. Threat of New Entrants Overall, the threat of peeled entrants is low because any new entrants face nu merous competitive obstacles in set out to obtain industry relevance.The PC industry has significant fixed entryway be and the challenges to compete with the economies of scale of major companies would be exceedingly voiceless for potential entrants to overcome. Brand recognition creates an some new(prenominal) distinct entry restriction because PC consumers baffle high fall guy cognisance (MarketLine, 2012). With that mentioned, Microsoft and Intel are brawny industry suppliers so the threat for forward integration is reasonable. In addition, the oversaturation of underlying PC section suppliers in Southeast Asia poses an additional concern for potential entrants to the industry.New securelys could originate in Southeast Asia by leveraging the low cost intentness force and avoiding expensive picture chain expenditures. vendee Power Differentiation The industry trend is to move manufacturing abroad in fix up to capture low cost labor efficiencies. There in any case has been a trend to homogenize products crossways the industry (Krabeepetcharat, 2012). In order to drive manufacturing cost down, most basic fragments used in the PC industry are standardized and lack significant differentiation (MarketLine, 2012).The exception differentiators are memory size, processor speed, and product form features (Bradley, 2012). Overall the industry has moved toward commoditization, which strengthens buyer power. Network Effect / Brand Recognition regardless of particular PC disfigurement, consumer brand awareness is high in this focal industry. Apple has carved out a unique and loyal customer following largely because its users have higher exchange costs than other PC users due to Apples specific computer channelise system. If Apple consumers wereto change to a non-Apple computer, they would be required to learn a new operating system. Apart from Apple computers, the majority of the other PCs run on Microsoft Windows-based operating systems. Consum ers of PCs operating on Windows have lower switching costs overall, allowing more independence in switching brands. Despite this, brand awareness is still high among consumers of Windows-based PCs, thus contri scarceing to an overall declare buyer power rating. Supplier Power Microsoft and Intel are two sizeable suppliers to the PC industry. Intel is the hint manufacturer of the processors inside all PCs.Intels brand name carries significant brand recognition to end-level consumers providing Intel with a powerful industry bureau. Similarly, Microsofts widely-used Windows operating system provides Microsoft a powerful industry position as well. As mentioned earlier, the manufacture of most basic component PC parts is being outsourced to Southeast Asia to capitalize on low cost labor. Since Southeast Asia is replete with component suppliers competing with one another, major PC manufacturers face low switching costs when deciding on basic component suppliers.Therefore, supplier pow er in the PC industry is divided among powerful suppliers, such as Microsoft and Intel, and basic component suppliers with relatively short(p) power. However, any examination of supplier power must acknowledge a stiring socio-cultural concern regarding working conditions in low-cost labor regions that whitethorn factor into business decisions. Substitutes The PC industry has been significantly impacted by the threat of substitutes in recent years. Emerging mobile technologies, such as dexterous phones and tablets, now account for 61% of total PC market volume (MarketLine, 2012).While smart phones and tablets are inexpugnable substitutes for consumer PC purchasers, up to this point mobile devices have not had the same impact on business-end users, who generally chose the robust functionality of traditional PCs over less powerful smart phones and tablets. It is important for PC manufacturers to leverage these capabilities to diminish the functionality gap in the midst of PCs an d PC substitutes. Degree of Rivalry Market Value Forecast Future PC sales are projected to generate slimmer profit margins than the current 3. 8% industry average (Krabeepetcharat, 2012).As major manufacturers leverage manufacturing efficiencies abroad, product costs are lowering, creating a degree of rivalry and a focus on end-level costs. Manufacturers are essentially looking to cut costs and offer cheaper products to gain market share (First Research, 2012). Since products within the industry lack differentiation, price contestation becomes the default battleground, resulting in ever-shrinking profit margins (Porter, 2007). This is very apparent in the PC industry market forecast (exhibit two), which projects a 10% fall down in the midst of 2011 and 2016 (MarketLine, 2012).Apples position in this analysis is noteworthy. Apple is the completely pure hardware/software product integrator, which has allowed Apple to create an incredibly healthy position that is unique to the PC industry. Apples five-year rolling profit margin average is approximately 23%, significantly higher than the PC industry (exhibit two) at large (YCharts, 2012). Large Scale Manufacturers Computer manufacturing is labor intensive. Major industry participants have moved manufacturing abroad to take advantage of low cost labor and geographic proximity to electronic component manufacturers (ECMs) in Southeast Asia.This close proximity to ECMs contributes to low switching costs for PC manufacturers (Krabeepetcharat, 2012). Shifting production of PC manufacturing to low cost labor regions and having access to numerous component suppliers creates economies of scale advantages for these large PC manufacturers. HPs Performance Relative to PC Manufacturing Competitors Since 2007, Hewlett-Packard held the market share leader position (MarketLine, 2012). However, in the fourth nincompoop 2012, Lenovo, Chinese PC manufacturing firm (formerly IBMs PC division), overtook the market share leader position (Gaudin, 2012).HPs brand still carries superior brand integrity in the PC industry. The integration of multiple HP products, such as laptops seamlessly linking to HP printers, help differentiate an HP consumers experience. Additionally, HPs assistant products and services are still a strong differentiator (Bradley, 2012), and HP was able to capture a 5. 6% profit margin in 2011 (Hughes, 2011), a margin higher than the industry average of 3. 8% (MarketLine, 2012). shew two captures HPs competitive advantage over top rivals in regards to profit margins.In the United States, HP remains the largest domesticated PC manufacturer (MarketLine, 2012). With the high degree of rivalry in the industry, the maturing/declining PC industry is shifting manufacturing to low cost regions abroad. Since the United States is the second-largest PC overpowering country in the world, HP must continue to delicately parallelism its outsourcing activities (Krabeepetcharat, 2012). Once considered a technological leader in the PC industry, HP now struggles with competition from PC substitutes such as tablets and phones.Looking forward, it is vituperative that HP retains market share and re-establishes profitable growth in the PC industry by being first-to-market with new technologies or higher performing capabilities (First Research, 2012). Internal Analysis As a whole, the PC industry is soon in the mature or declining stage of its life cycle. During the six-year period spanning 2005 to 2011, HPs unfavorable strategic decisions caused a refocusing and restructuring of its PC division. Listed at a lower place are HPs top resources from its VRIST and top capabilities from its value chain. equivalence these resources and capabilities against HPs past and current weaknesses allows an analysis of whether HP is propitiously positioned to regain its former status as the worlds direct PC manufacturer. HPs PC Resources and Capabilities R&D / skilful Property Trusted Brand / Pro fit Margin Interoperability Market get by HPs PC Weaknesses Acquisitions Substitutions Market Share Trends PC taxation Trend Value Chain In the Technology section of HPs Value Chain, HP is returning to one of its long rest loading competencies by increasing investments in its Research & Development part (R&D). check to exhibit three, earlier to 2004, HPs R&D budget was more than $3. 7 billion. But after Mark Hurd became chief operating officer in 2005, the R&D budget was deoxidized to as little as $2. 8 billion in 2009 (Y-charts, 2012). As shown in the interim poetic rhythm for new products over the past two years, this significant decrease in R&D correlates directly to the middling success of HPs recent product dipes. HPs initial launch into the smart phone and tablet market offers tangible evidence of fair(a) product victimisation as both the Palm webOS and touchpad were subsequently discontinued.In 2010, HP started to increase its R&D budget again and the describe fo r calendar year 2012 shows the R&D budget is over $3. 4 billion with November. This increased financing and refocus into technology development is a promising indicator, but any resulting adroit property will take time to build back up. VRIST Analysis HP continues to be a trusted PC brand name (FTSE, 2012). Next to its apt property, HPs brand name is its most valuable howling(prenominal) resource. HP manages to earn higher profit margins than the rest of the trail hardware PC manufacturers based in part on this brand awareness(MarketLine, 2012). HPs trusted brand image is a competitive advantage that it must sustain. Through brand recognition and interoperability with other products across its platform, HP is able to charge consumers a slightly higher premium over other leading PC manufacturers. Interoperability HP expects the interoperability of its Ultrabooks, ElitePad, and smart phones with other HP products and solutions, such as ePrint Cloud service, to be its distinguish ing competitive advantage (video link).HPs next generation Ultrabooks boast stylish form features, low power consumption, world-class security features, and preserve mainstream price points. HP and its partners anticipate that these features will differentiate its PCs from its competitors (Bradley, 2012) and could one day be an iniquitous resource much like it is for the Apple brand. Since the PC market is face continued encroachment from tablets and other PC substitutes, HP is marketing its attempt tablet (ElitePad 900) in early 2013.Additionally, HPs managers feel its endeavor tablet has the opportunity to differentiate with other products HP offers by providing interplay between the physical and digital worlds (Bradley, 2012). Overall, the size, scale, and connection that HP products have will modify customers to create, store, consume, and share information safer than before (Bradley, 2012). Market Share Since 2007, HP was the leading global PC manufacturer (MarketLine, 2007 ). But in the fourth quarter of 2012, Lenovo, a Chinese PC manufacturing firm overtook HP and now leads all manufacturers in global PC sales (Gaudin, 2012).Furthermore, mainland chinaware is now the largest global PC consumer market (Dauod, 12). HP faces substantial difficulty regaining its prior spot as market leader because Lenovos is a Chinese company with greater access to the chinawares PC market the largest and quickest growing PC market in the world. HP currently manufactures 16% of all PCs shipped worldwide, however that market share has declined since 2010 (MarketLine, 2012). Once a technological leader, HP is now an industry laggard and must develop new marketable technology to bear its market share position in this hyper-competitive market.Acquisitions HP recently made some costly scholarships with the refinement of reaching product segments with higher profit margins (Krabeepetcharat 2012). Autonomy, a British software firm which specializes in unstructured data or human information, was purchased for tight $11 billion dollars. HP is now accusing Autonomy of overvaluing its monetary records and has taken an $8. 8 billion write-off against its equilibrium sheet for this acquisition (Rushe, 2012). HP as well as purchased Palm in 2010 for $1. 2 billion with the accept of capitalizing on the emerging tablet market.But consumer sales of HPs new tablet, the TouchPad, failed to support the product line, and the TouchPad was discontinued less than a year after product launch (Panzarino, 2012). Beyond these noted questionable acquisitions, HP made numerous other eyebrow-raising acquisitions under past CEOs that were not in line with HPs core competencies. Internal Analysis shutdown In August 2011, HPs last CEO proclaimed that HP planned to divest of its PC division (Krabeepetcharat, 2012). However, HPs current CEO, Meg Whitman, has stated a renewed commitment to the PC segment.Part of HPs internal strategy is to rebuild the balance sheet through the newly formed Printer and Personal Services (PPS) division in order to accommodate acquisition-related charges (Thacker, 2012). This is part of the CEOs five-year plan to rebuild HP (Whitman, 2012). While multi-billion dollar write-offs are dumbfounding hurdles for any company to survive, if HP can return to its core competencies and re-brand itself as the company of innovation (as it was once known), then HP can remain a dominant participant in the PC industry. on-going HP Strategic PositionOur strategy diamond analysis, shown in Exhibit five, determines that HP plans on implementing the following five strategies in the PC industry (1) Focus on R&D (vehicles) (2) Pursue emerging markets (staging) (3) tame SKUs offered (arenas) (4) Integrated products & services (differentiators) (5) Economies of scale & desegregation (Economic Logic) Vehicles HPs primary strategy vehicle is a commitment to R&D in order to re-establish HP as a technologically focused hardware company (Times, 2012). Exhibit 2 illustrates HPs changing strategy regarding R&D investment.Starting in 2005, HPs investments in R&D steadily decreased. After reaching its lowest figure in 2010, the R&D budget was increased. In 2011, HP invested $3. 25 billion on R&D, a significant usefulness from 2009, when HP invested just $2. 77 billion in R&D (Yarrow, 2012). Interestingly, the bottom chart on Exhibit 2 shows that Apple spend less on R&D than HP but delivered technologically superior products. This exemplifies how R&D spending does not always check cleanly with results. R&D is critical to generating a pipeline of intellectual property.Intellectual property is critical to HPs growth because it is one of HPs extraordinary resources. Strong R&D investments are often a good leading indicator of well-received future products. On the other hand, the lag metrics arising from HPs previous R&D slashing indicate numerous problems. Of most concern is the failed WebOS that moved(p) both HPs initial sm art phone and tablet touch pad releases (Davis, 2011). After the poor reception of HPs WebOS, it became open-source software available to the general public to freely use and modify.HP is currently working on developing its own WebOS but is opening the system to the free market to encourage outside development of mobile applications. Staging Pursuing emerging markets such as China will enable HP to produce and distribute PCs more cost effectively. In fact, China is the future hub of both HPs manufacturing and dispersal plan (Bradley, China, 2012). HPs executive team is aware of Chinas increasingly vital role in consumer PC sales. China currently accounts for 20% of the market and is expected to double the United States PC consumption by 2016 (Bradley, Shanghi summit, 2012).HP is acting early by create PC manufacturing facilities in China, both to act as a distribution hub for other Asian suppliers and to distribute PCs directly to the Chinese market. Since HP began this strategy two years ago, HP seems to have been correctly following leading indicators and should see a beneficial pay-off over the coming years as Chinas market surpasses the United States PC market. Arenas HP intends to reduce the number of its PC and printer stock-keeping units (SKUs) by 25% and 30% singly by 2015 (Bradley, Newsroom, 2012).The maintenance cost of servicing over 2,100 types of laser printers is incomplete sustainable nor conducive to continued growth and profitability. Instead of divesting the PC division, as considered in 2011, HP now intends to re-invent its existing product line by focusing on quality innovation over quantity of product offerings. Geographically, HP will also be building a Chinese-based manufacturing easiness which will help them operate more cost effectively in that emerging market. DifferentiatorsHP expects to differentiate itself from other PC manufacturers by integrate products with services solutions, a process HP has already begun. In bump into 2012, HP combined its Personal Systems convention (PSG) with its Imaging and Printing Group (IPG) to form a new segment named Printing & Personal Systems (PPS) (Bradley, 2012). According to a HP director, merging the two groups into PPS was a key strategy to provide consumers and business customers with better products and solutions that are seamlessly integrated with each other. For eccentric, upon buying a HP laptop, a consumer can expect his or her new laptop to wirelessly find and automatically connect with any of the consumers HP printers or other products. In addition, by integrating internal supply chain processes between the old PSG and IPG, and having a single HP sales person selling both PCs and printers, HP can keep the prices of its products and services competitive. It is business strategies such as these that show HP is still forward-thinking and pursuance innovative or cost effective technologies. Refer to Exhibit 3 to view one of HPs marketing videos (HP marketi ng, 2012).Another example of how the newly-formed PPS group integrates products can be seen in their Exstream product, which has been put to use by Humana and saved millions Humana millions by integrating static and dynamic content for easier confabulation with clients (HP marketing, Humana, 2012). Economic Logic Economies of Scale As HP seeks to differentiate its PPS group to drive product innovation, there will be significant cost-saving personal effects due to increased economies of scale. Essentially, HP will save money by manufacturing more products directly in emerging markets like China.With Chinas consumer PC market expected to double that of the United States, HP is ideally situated to take advantageous benefit of Chinas emerging market through manufacturing plants and distribution channels located within China. Consolidation By consolidating its PC and Printing groups, HP strengthened its position in many ways, including lowering costs in the supply chain. In addition to consolidating its supply chain functions, HP is also streamlining its sales teams and reducing its functional support organizations (Bradley, 2012).HPs current PC strategy of integrating is a direct byproduct of both a planned decrease in SKUs and the PC manufacturing and consumer sales reaching the ending stage of their lifecycles. If HP can successfully set new standards for PC and printing synergies through consolidation, then HP can create a viable route to maintaining its history of premium pricing via product features. HP Strategic implementation Based on our analysis, the facets of HPs strategy diamond are internally consistent. HPs analyzed strategies are both coordinated and overlapping.For example, being focused on China provides HP with a strong arena given Chinas anticipated growth in the consumer PC market. But a presence in China also validates HPs economic logic by producing lowered costs. Overall, HPs PC strategy is sound because HP is returning to its core compe tencies, such as hardware innovation. On a larger scale, HPs renewed focus on R&D match with the creation of the PSG division supports HPs current desire to grow organically rather than through mergers and acquisitions.One weakness that continues to hamper HP is operating with over $20 billion in debt derived almost only if from acquisition costs related to fruitless assets. Looking back, HP could have benefited from smarter business plans, including a balanced scorecard, prior to some of these acquisitions. With such information, HP would have had a more realistic chance to make each acquisition profitable, or perhaps it would have had enough qualitative metrics to realize that the acquisition may not integrate with its core processes.Since change in the PC industry is highly iterative, HP must continually adjust the implementation of its forward strategy. Fortunately, HP appears to be taking the essential steps to address its past failures and to capitalize on future opportuniti es. Since HP still has industry-wide brand name recognition, its return to market dominance is but feasible. But as technology progresses and markets shift, HPs ability to maintain sustainable growth will depend largely on whether HPs new PC business strategy can capture value while simultaneously producing competitive, cutting edge products.