HP Case Study †Strategy Essay

Hewlett-Packards personal computer (PC) element operates in a hyper-militant, grittyly-commoditized fabrication subject to dynamic shifts. The PC perseverance is driven by technological advancements requiring continuing commitment to research and development to capture the dynamic PC securities sedulousness. For most of the past five dollar bill years, Hewlett-Packard direct the PC sedulousness in terms of grocery store shargon. However, Hewlett-Packards commercialize cargon is shortly declining and recent fabrication reports indicate that a Chinese hapless woo PC manuf compriseurer, Lenovo, is right off the foodstuff sh are loss attraction.Over four firsthand sections, we per mental strained an abridgment of Hewlett-Packards strategy in the PC industry. First, we per create an external industry examination to obtain information on the current conditions of the securities industry, including industry trends, vendee and supplier food marketplace power, and appear market c at one timerns, such(prenominal) as the menace of PC substitutes. Second, we conducted an ingrained abstract to determine Hewlett-Packards authorize resources, as put togethers and liabilities, and potential difference capabilities from its value chain. Third, we documented Hewlett-Packards current strategic position inwardly the PC industry.Fourth, we examined and scrutinize Hewlett-Packards current industry strategy of act to its warmheartedness competencies small-arm consolidating aspects of its PC manufacturing and sales. From the information in these sections, we conclude that if Hewlett-Packard is to gravel (or regain) its place as the market leader in the PC industry, it must(prenominal)(prenominal) leverage its home run recognition, economies of scale vantages, and product consolidation features to capture market value while producing technologic eithery competitive products. IntroductionThis analysis is centralizesed on the personal comput er (PC) element of Hewlett-Packard (HP). For clarification, HPs PCs discussion section includes desktop, laptop, and notebook / netbook computers. Hardware devices f exclusivelying outside of the PC category are vigorous personal computing devices, such as tablets and cellular ph superstars. HPs PC sales for fiscal year 2012 were $41. 5 billion, which represents 26. 5% of HPs $120 billion fit revenue from all products and services. HPs PC sales captured a 16% share of the total PC market (Trefis, 2012).From an analytical standpoint, HP has do umpteen evidentiary moves everywhere the past three to four years, including numerous changes in comp all leadership and different shifts in business strategy. As a result, the ultimate effectiveness and triumph of HPs strategies discussed has yet to be seen. Therefore, some of the conclusions we draw regarding HPs forward strategy exit be measured by whether HPs strategic decisions coordinate with its competitive advantages and obl igations to stakeh sexagenarianers. External AnalysisThe global PC industry is led by a small number of great(p) scale manufacturers who are homogenizing products and looking to capitalize on petty(a) price push resources. fabrication demand is driven by technological developments, disposable consumer using up, and corporate spending cycles (First Research, 2012). Although global demand for PCs has increased, receipts margins are decreasing, creating an industry focuse on price challenger and olive-sized differentiation ( merchandiseLine, 2012). In addition, PC substitutes are a major(ip) scourge 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 smell cycle. Our external analysis examines the crucial factors influencing the current PC environment, including potential market threats and opportunities during the next five years, and how HP is performing relative to its industry competitors. butt against One illustrates the forces currently affecting the PC industry. Threat of New Entrants Overall, the threat of new-sprung(prenominal) entrants is low because any new entrants face numerous competitive obstacles in order to obtain industry relevance.The PC industry has signifi plundert fixed entry cost and the challenges to compete with the economies of scale of major companies would be exceedingly difficult for potential entrants to oercome. put up recognition takes anformer(a) distinct entry barrier because PC consumers bear high betray awareness ( market placeLine, 2012). With that mentioned, Microsoft and Intel are knock-down(a) industry suppliers so the threat for forward integration is reasonable. In addition, the oversaturation of staple fibre PC member suppliers in Southeast Asia poses an additional concern for potential entrants to the industry.New starchys could originate in Southeast Asia by leveraging the low cost labor force and avoid ing expensive write out chain expenditures. Buyer Power Differentiation The industry trend is to move manufacturing foreign in order to capture low cost labor efficiencies. There also has been a trend to homogenize products across the industry (Krabeepetcharat, 2012). In order to drive manufacturing cost down, most basic components 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(prenominal) of go awayicular PC strike out, consumer notice awareness is high in this focal industry. apple has carved out a laughable and loyal customer following largely because its users get higher transformation cost than new(prenominal) PC users due to Apples circumstantial computer operating system. If Apple consumers wereto change to a non-Apple computer, they would be take to learn a new operating system. Apart from Apple computers, the absolute majority of the other PCs run on Microsoft Windows-based operating systems. Consumers of PCs operating on Windows have lower work shift costs overall, allowing to a greater extent independence in switching smirchs. Despite this, brand awareness is still high among consumers of Windows-based PCs, thus modify to an overall moderate buyer power rating. Supplier Power Microsoft and Intel are two powerful suppliers to the PC industry. Intel is the leading manufacturer of the processors inside all PCs.Intels brand touch on carries significant brand recognition to end-level consumers providing Intel with a powerful industry position. 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 Sou theast 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 power in the PC industry is divided between powerful suppliers, such as Microsoft and Intel, and basic component suppliers with relatively little power. However, any examination of supplier power must acknowledge a growing socio-cultural concern regarding working conditions in affordable labor regions that may factor into business decisions. Substitutes The PC industry has been importantly impacted by the threat of substitutes in recent years. E meeting mobile technologies, such as smart phones and tablets, now account for 61% of total PC market volume (MarketLine, 2012). objet dart smart phones and tablets are toughened substitutes for consumer PC purchasers, up to this point mobile devices have not had the comparable impact on business-end u sers, who ecumenically 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 wisecrack between PCs and PC substitutes. Degree of Rivalry Market Value foretell Future PC sales are projected to generate slimmer make margins than the current 3. 8% industry fairish (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 competition becomes the default battleground, resulting in ever-shrinking acquire margins (Porter, 2007). This is very seeming(a) in the PC industry market forecast ( break two), which projects a 10% flow between 2011 and 2016 (MarketLine, 2012).Apples position in this analysis is noteworthy. Apple is the only pure computer hardware/software integrator, which has allowed Apple to create an incredibly besotted position that is unique to the PC industry. Apples five-year rolling realise margin average is approximately 23%, significantly higher than the PC industry (exhibit two) at large (YCharts, 2012). Large get over 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 Compe titors Since 2007, Hewlett-Packard held the market share leader position (MarketLine, 2012). However, in the fourth quarter 2012, Lenovo, Chinese PC manufacturing firm (formerly IBMs PC division), overtook the market share leader position (Gaudin, 2012).HPs brand still carries prize 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 ancillary 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). Exhibit two captures HPs competitive advantage over top rivals in regards to profit margins.In the coupled States, HP remains the largest domestic PC manufacturer (MarketLine, 2012). With the high degree of rivalry in the industry, the maturing/declining PC industry is shifting manufacturin g to low cost regions abroad. Since the join States is the second-largest PC consuming country in the mankind, HP must uphold to delicately balance 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 critical that HP retains market share and re-establishes profitable exploitation 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 currently in the mature or declining stage of its disembodied spirit cycle. During the six-year period spanning 2005 to 2011, HPs unfavorable strategic decisions caused a refocus and restructuring of its PC division. Listed below are HPs top resources from its VRIST and top capabilities from its value chain.Comparing these resources and capabilities against HPs past and cu rrent weaknesses allows an analysis of whether HP is propitiously positioned to regain its former status as the worlds leading PC manufacturer. HPs PC Resources and Capabilities R&type AD / Intellectual Property Trusted Brand / get Margin Interoperability Market Share HPs PC Weaknesses Acquisitions Substitutions Market Share Trends PC Revenue Trend Value Chain In the Technology section of HPs Value Chain, HP is returning(a) to one of its long standing core competencies by increasing investments in its Research & adenosine monophosphate Development department (R& antiophthalmic factorD).According to exhibit three, prior to 2004, HPs R&D figure was more than $3. 7 billion. exclusively after Mark Hurd became CEO in 2005, the R&D compute was reduced to as little as $2. 8 billion in 2009 (Y- charts, 2012). As shown in the slowness metrics for new products over the past two years, this significant decrease in R&D correlates presently to the middling success of HPs recent pr oduct launches. HPs initial launch into the smart phone and tablet market offers tangible designate of mediocre product development as twain the Palm webOS and touchpad were afterward stop.In 2010, HP started to increase its R&D budget again and the reporting for calendar year 2012 shows the R&D budget is over $3. 4 billion through November. This increased support and refocus into technology development is a promising index finger, but any resulting intellectual property will take time to build pole up. VRIST Analysis HP continues to be a trusted PC brand name (FTSE, 2012). Next to its intellectual property, HPs brand name is its most valuable extraordinary resource. HP manages to earn higher profit margins than the rest of the leading 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 plat form, 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 overcast Services, to be its distinguishing competitive advantage (video link).HPs next genesis Ultrabooks boast stylish form features, low power consumption, world-class credentials 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 extraordinary resource much like it is for the Apple brand. Since the PC market is facing continued encroachment from tablets and other PC substitutes, HP is marketing its enterprise tablet (ElitePad 900) in early 2013.Additionally, HPs managers feel its enterprise tablet has the opportunity to differentiate with other products HP offers by providing interplay between the p hysical and digital worlds (Bradley, 2012). Overall, the size, scale, and connection that HP products have will enable 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). exactly 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, chinaware is now the largest global PC consumer market (Dauod, 12). HP faces square(p) 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 view as its market share position in this hyper-competitive market.Acquisitions HP recently made some costly eruditions with the goal of reaching product segments with higher profit margins (Krabeepetcharat 2012). Autonomy, a British software firm which specializes in unstructured information or human information, was purchased for nearly $11 billion dollars. HP is now accusing Autonomy of overvaluing its financial records and has taken an $8. 8 billion expense against its balance sheet for this acquisition (Rushe, 2012). HP also purchased Palm in 2010 for $1. 2 billion with the hope 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 to a lower place past CEOs that were not in line with HPs core competencies. Interna l Analysis Conclusion In August 2011, HPs last CEO announced 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 maintain 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 staggering hurdles for any company to survive, if HP can return to its core competencies and re-brand itself as the company of entry (as it was once known), then HP can remain a dominant participant in the PC industry. Current 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) Reduce SKUs offered (arenas) (4) Integrated products & services (differentiators) (5) Economies of scale & Consolidation (Economic Logic) Vehicles HPs elementary strategy vehicle is a commitment to R&D in order to re-establish HP as a technologically cerebrate hardware company (Times, 2012). Exhibit 2 illustrates HPs ever-changing strategy regarding R&D investment.Starting in 2005, HPs investments in R&D steadily decreased. later on reaching its lowest figure in 2010, the R&D budget was increased. In 2011, HP invested $3. 25 billion on R&D, a significant improvement from 2009, when HP invested just $2. 77 billion in R&D (Yarrow, 2012). Interestingly, the bottom chart on Exhibit 2 shows that Apple spent less on R&D than HP but delivered technologically superior products. This exemplifies how R&D spending does not always agree cleanly with results. R&D is critical to generating a assembly line of intellectual property.Intellectual property is cri tical to HPs offshoot 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 affected both HPs initial smart phone and tablet touch pad releases (Davis, 2011). After the woeful 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 get under ones skin and distribute PCs more cost effectively. In fact, China is the future hub of both HPs manufacturing and distribution plan (Bradley, China, 2012). HPs executive team is aware of Chinas increasingly vital percentage in consumer PC sales. China currently accounts for 20% of the market and is evaluate to double the United States PC consumption by 2016 (Bradley, Shanghi summit, 2012).HP is playacting early by building 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% respectively by 2015 (Bradley, Newsroom, 2012).The maintenance cost of service over 2,100 types of laser printers is neither sustainable nor conducive to continued harvesting and profitability. Instead of divesting the PC division, as considered in 2011, HP now intends to re-invent its living product line by focusing on quali ty innovation over quantity of product offerings. Geographically, HP will also be building a Chinese-based manufacturing facility which will help them operate more cost effectively in that emerging market. DifferentiatorsHP expects to differentiate itself from other PC manufacturers by consolidation products with services solutions, a process HP has already begun. In March 2012, HP combined its Personal Systems separate (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 best products and solutions that are seamlessly integrated with each other. For example, upon purchasing 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 ch ain 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 seeking innovative or cost effective technologies. Refer to Exhibit 3 to view one of HPs marketing videos (HP marketing, 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 communication with clients (HP marketing, Humana, 2012). Economic Logic Economies of scurf As HP seeks to differentiate its PPS group to drive product innovation, thither will be significant cost-saving 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 mar ket anticipate to double that of the United States, HP is ideally situated to take opportune 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 consolidation 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 path to maintaining its history of premium set via product features. HP Strategic Implementation Based on our analysis, the facets of HPs strategy diamond are internall y consistent. HPs analyzed strategies are both interconnected and overlapping.For example, being focused on China provides HP with a strong arena given Chinas anticipated ripening 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 competencies, such as hardware innovation. On a larger scale, HPs renewed focus on R&D coupled with the creation of the PSG division supports HPs current desire to grow organically instead than through mergers and acquisitions.One weakness that continues to hamper HP is operating with over $20 billion in debt derived almost entirely 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 slaying of its forward strategy. Fortunately, HP appears to be taking the necessary steps to take its past failures and to capitalize on future opportunities. Since HP still has industry-wide brand name recognition, its return to market dominance is entirely 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.