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HP Business Strategy: Introduction
Hewlett Packard (HP) is a company that plays a leading role in providing its customers and other businesses with products and services such as IT infrastructure, computing technologies, and solutions (Ghori 120). It also offers global services in imaging, personal computers, printing, and access devices. The company has enlarged its market borders and improved its provision of products and services by coming up with new ideas and inventions. Each year, HP carries out research on the newly available markets, how best to serve its customers and develop its business strategy. The IT firm invests up to about four billion dollars each year for the purpose of research.
It has been able to get into new markets and offer better products and services through its innovative solutions to IT hardware and software, as well as emerging technologies. Over the years, HP has seen significant growth in its market changes that have been accompanied by success in business. This has been due to innovation. In addition, this innovative focus has attracted many other great and successful companies to it. For instance, because of its significant market strength, it was able to merge with Compaq. In 2003, HP came up with methods of getting the best out of investing in IT. This was through the adaptive enterprise strategy that spelled the type of technology and services as well as the practices to be used.
HP Strategy: Industry Analysis
The modern global economy is largely dependent on the Information Technology (IT) industry in driving communication needs as well as providing the much-needed software and hardware products. Needless to say, the IT industry has grown into a giant economic accelerator throughout the world. So to speak, this industry is the most robust in the world today and especially in the industrialized countries. The needs of enterprises and consumers in terms of both insatiable demand and economies of scale have significantly contributed towards the precedent growth of this sector.
The fact that computers and the associated information systems are utilized by all organizations in the contemporary explains why the IT industry is fast on track in accelerating economic growth both at the local and global scale (Grünig 144). For a complete IT industry, several components come into play. It all begins with the computing system, software and hardware development, creation of IT management systems, as well as the study and design of IT knowledge and infrastructure.
There is a growing base of available IT products that have made it possible for both consumers and business enterprises to easily access the much-needed services and products (Hill & Jones 65). Besides, recent years have witnessed a substantial growth of the industry, mainly due to emerging trends in the globalization of the world economy. The characteristics of the IT industry can be identified at a glance due to the outstanding and unique nature of the sector. For instance, the economies of scale are undoubtedly surging in this industry. This is attributed to the fact that the value addition that results from an extra software or hardware product is large and surpasses the marginal cost by far. Hence, the more units produced, the higher the returns.
Secondly, the IT industry relies on the creation, storage, processing, analysis, retrieval, and dissemination of knowledge. In other words, it is knowledge-based, unlike other industries.
HP Strategy: Industry Life Cycle
Any other industry will undergo a series of growth stages in the course of its operations. The first stage in the life cycle of the IT industry is introduction. This is perceived to be the point in time when the initial investments were being made in the industry. For installation, the acquisition of computing knowledge, as well as setting up the needed IT infrastructure, was instrumental at the introductory stage of the industry. In addition, this stage of development was also marked with the offering of new products to the market that required rigorous marketing so that consumers would be knowledgeable about it. Realistically, heavy investments in Research and Development (R&D) took place before IT could be fully-fledged as a fully equipped industry.
In order to remain stable at the introduction stage, the IT industry used the focus strategy to lay more emphasis on the consumers about how the new products (hardware and software) were unique. The industry started by targeting small scale enterprises and a group of customers. The latter are usually known as adopters or innovators in marketing literature. The level of IT marketing that took place during the introductory phase of the industry was initially meant to create consumer awareness about the availability of IT-related products as well as how they are used(Stonehouse & Campbell 126).
Indeed, the growth rate and immense success that has been experienced in the IT industry is believed to have been initiated during the introduction of the sector since this is the period when a niche for dominance can be superficially established. For instance, this life cycle stage marks the right point at which early and lasting impressions about technological superiority and product quality are created. Besides, the relationship between supply chain and vendors in the IT industry was developed during this stage.
The second stage in the lifecycle of the IT industry was characterized by the real growth of the sector. Unlike in the introduction cycle, this stage was characterized by both geographical expansion of the industry and impressive returns on investment. Although the growth stage also required significant capital investment, the industry got a reprieve due to increased profitability. Hewlett Packard (HP), as an IT firm, differentiating the products being offered with those of other competitors was the main goal behind marketing.
This was deemed necessary by the marketing department of the company since the growth stage is usually characterized by cut-throat competition. As such, HP invested heavily in marketing campaigns in order to have the lions share of the consumer (Hill & Jones 86). In addition, the IT firm did not stop investing in its plant and property development so that it could robust and provide more innovative and competitive products in the consumer market as part of not only meeting the demand but also creating a consumption culture of the companys products.
In spite of the growth momentum at HP during this life cycle, rigorous product standardization was being experienced by the IT industry. This proved to be overly beneficial for the company since production efficiency was at its peak alongside the economies of scale. In fact, it is out of production efficiency that the IT firm has fully established itself in the market apart from being one of the outstanding companies in the provision of computer hardware and software products. At present, HP has a global presence as an IT company.
Furthermore, the growth stage of the life cycle of the industry also witnessed intensive development in research and development that was specifically aimed at improving the standards of products in meeting the shifting needs of consumers as well as the demand of the dynamic market. As a result, growth in sales was evident in the company due to the continually growing demand (Grünig 144). The long term positive growth in profitability has put the company at a vantage point in competing effectively in this highly volatile, innovative, and knowledge-based company. As already mentioned, market rivalry is the main subject of concern for any IT firm during this stage of development in the life cycle.
As a matter of fact, the growth stage tends to attract more investors in the industry who are well convinced that they are likely to grow their revenue upon investing in the sector. Moreover, this point in the life cycle of the IT industry is also envisaged by other competitors as a breakthrough in investment, and hence they can also dare to invest both human and monetary capital with the anticipation of impressive returns (Campbell & Craig 440). Unlike other industries, the IT sector has experienced one of the longest growth periods in the global economy. Needless to say, a company like HP and many others in this sector are still in the growth phase since Information and Communication Technology (ICT) is a recent development that has not been fully exploited, especially in the developing and underdeveloped economies.
Any growth stage in an industry is easily identified with a steep lifecycle. An assessment of HPs growth since its inception reveals that the curve has been getting steeper gradually. This is a phenomenon when a firm is spreading its tentacles far and wide in terms of geographical expansion.
Definitely, the IT industry and HP company, in particular, is far from attaining the maturity stage in its operation. When the life cycle reaches maturity, a companys growth curve will often have a negligible gradient, that is, the curve becomes almost horizontal(Stonehouse & Campbell 132). On the same note, the last phase in the life cycle of an industry, also referred to as the decline stage, has not been experienced in the IT industry and HP company since the momentum of growth is still superficially high while demand for IT related products is still at its peak.
The Porter Five Forces analysis of the IT industry
This framework assists in analyzing the nature of business strategy adopted by an industry and how the very strategies can affect performance. The five forces determine how effective an industry can be in terms of its competitive structure. There are both internal threats and market rivalry emanating from outside an industry that is analyzed in the Porter Five Forces.
The IT industry can be affected by both the macro and micro environment. Although the IT industry has faced its own share of challenges, HP Company has also gone through various periods of transition. However, one factor is parallel in the performance of HP and the IT industry at large: both are still undergoing growth periods and the returns, both current and expected, are impressive (Hill & Jones 206).
Horizontal competition is addressed by the first three of the Porters Five Forces. To begin with, it is common knowledge that HP is producing products that have potential market substitutes. As such, other market rivals in the industry can equally produce substitute software and hardware products that will draw serious completion to the company. For instance, the International Business Machines (IBM) has grown over the years to emerge as one of the notable market leaders in the manufacturing of software and hardware used in computing systems. It has a global presence as a multinational corporation dealing with all consultations related to Information Technology and latest technology in computers. Indeed, IBM has the production capability to offer substitute and perhaps affordable products to beat its market rivals in the competition.
Secondly, the established rivals have also been a real threat for HPs operation. A case in point is IBM. The historical development of this company can be traced back even before the actual development of computing system was fully on board. It started as a Tabulating Machine Company towards the close of 19th century (1896) and its line of specialisation was in the development of machines known as the punched card data. However, this was not the first time this technology was being applied(Stonehouse & Campbell 120). It had earlier been used in 1884.
The population Census of 1890 necessitated the demand for tabulating machines and the technology grew by leaps and bounds thereafter. The 1896 punched cards gave the impetus for the generation of machines which would later be referred to as IBM. However, in 1911, the business exchanged hands when Charles Flint bought it at slightly over two million dollars. This enabled the original founder of the company to develop Computing Tabulating Recording Corporation (CRT) which was later incorporated on 16th June 1911.
A merger of three companies took place whereby Flint as the key investor. His membership lasted until 1930. Elsewhere, the CTR management was taken over by Thomas J. Watson Sr. in 1914 and before the close of 1917; CTR established its presence in Canada with a brand name of International Business Machines Co. Limited which later transformed to IBM Inc. Such a long and robust growth history of IBM jeopardises the growth prospects and market stability of HP Company. A well established competitor like IBM among others not motioned in this case study, are highly likely to have better marketing skills and competences, higher production capacity and the associated economies of scale as well as a broader competitive advantage largely due to market acceptance by consumers.
New entrants in the IT industry can also pose a serious business threat to HP company. While HP was incepted way back in 1939, new entrants like Samsung Electronics (1969) and Sony (1946) have devised more competitive products that are effectively competing in the market. Besides, it is pertinent to note that quite a number of new players like AU Optronics established in 1996 and Asus started in 1990 have to some extent, flooded the IT market thereby making innovation a costly venture for long term players like HP. On the other hand, the vertical competition within the IT industry is addressed by the reaming two of the Porter Five forces. This includes both customers and suppliers and their related bargaining powers.
There are quite a number of success factors that have boosted the performance of the IT industry as a whole. First, the high demand for ICT applications in almost all areas of life, both at the individual and organizational level, has grown by double digits over the years. Second, the innovative nature of the industry has pushed up the growth rate. third, stiff competition has necessitated better service and product provision. In other words, the high efficiency levels being experienced in the IT industry has been a real impetus to growth of the sector (Grünig 164).
HP Business Strategy: Company Analysis
SWOT Analysis of Hewlett Packard (HP)
Over the years, HP has offered its products in IT globally. It has addressed challenges and problems related to technology that people and companies are faced with through creation of ideas, improving the working and living conditions of their customers and using trusted and valuable experience.
Strengths
To begin with, HP has demonstrated great influence in the IT market. Its position in the market has been Strengthening and growing robust. For instance, the company closed its market shares at $53.15 in April last year (House & Price 86). Also, a report from the NASDAQ indicates that in the previous year, its strength in terms of stock led in the whole market by 62%. Since 2006, HP has steadfastly kept rising in the market sector. In 2008, it rose above Dell, which was a global PC leader in the PC market to clock 17% in terms of stock value. This was 3% above that of Dell.
Moreover, as a server, HP dominates 30% of the world market and 40% shares in the printer market globally. It got an EDS in 2008. This improved its performance in offering IT services to its customers thereby strengthening its market position.
Secondly, HPs brand is well recognized and prominent. It has been aware of the influence that a name brand has in the market (House & Price 86). Therefore, to keep up with the changing market environment, Hewlett Packard adjusted its brand to cover a broader market area than just a segment of one business. However, it continues to conduct business with the small retailers.
The firm has an outstanding brand that has put together computer hardware and consumer electronics. This brand referred to as One Voice has been introduced. It has a new packaging style and a unique design. The company has put effort to have all its products given this new brand in order to maintain its prominence in the consumer market. In 2009, Interbrand.com gave a report of the ranking of the Hewlett Packard Company at number 11 from its previous 12th position as the most recognized brand.
Thirdly, its strength has been on its booming strategic acquisitions which it has continued to capitalize on. Since 2002, the company has successfully merged with other companies like Compaq Computer Corporation. It merged with Compaq in 2002 and later with Electronic Data Systems. Another merger with Mercury Interactive Company took place in 2006.
Additionally, HP Company has acquired a machine worth $2.7 billion referred to as a 3Com that provides computer network services. A similar machine like this is used by the Cisco Company and it earns Cisco an annual $ 40 billion market profit thereby making it a market leader in providing of network services (Ruan 156). However, HP is intending to use the 3Com machine it has acquired to counter and compete with Cisco which has dominated the market for a long time.
Weaknesses
Although Hewitt Packard has displayed its strength in a number of ways in the market, there are some sections in the provision of products and services that are not felt in the market. For instance, other major competitors of HP are providing managing consulting services and other software products that HP doesnt (Ruan 165). This has made HPs presence in the market to be less felt as compared with its fellow competitors like the IBM, EMC and Accenture. These companies are coming up with comprehensive ways of providing a variety of products and services through the management consulting divisions they have established. However, HP is in the process of addressing this problem. For instance, in order to provide other services like front office processes to private firms, HP has partnered with Thomson eXimius.
Opportunities
Hewlett Packard Company has been able to use the available opportunities in the market to improve its offerings of products, technologies and services. To begin with, it has increased its provision of IT services in the market thereby making its presence to be felt in the cloud computing market. HP worked with Yahoo! and Intel Corporation in the year 2008 and were able to build a global multi-data center that deals with education and research on cloud computing. The global multi-data center became a project aimed at uniting the governments, academic centers and industries to work together. Also the project aimed at removing logistical and financial barriers.
Moreover, in the year 2009, HP expanded more opportunities by providing more cloud-based services like the new SaaS and HP Assure to assist other businesses to grow. It is important to note that HP Cloud Assure is made up of software and other services which include HP Business Availability Center and HP Performance Center. Moreover, it has a HP Application Security Center. Customers receive these software and services via the HP SaaS platform. Therefore, cloud computing has given HP an opportunity to gain market growth. It can be observed that the demand for HP solutions is likely to increase in the coming years. Before the close of 2012, the company is planning to have spent an estimated amount of above 40 billion dollars as part of its strategic expansion.
On the same note, HP is up in arms to boost its imaging and printing department. For example, it plans to explore commercial markets in imaging and printing services so that it can be in a position to identify new growth opportunities far and beyond the regional markets. Besides, HP has made several acquisitions such as ColorSpan, Tabblo, MacDermid and Logoworks.
In addition HP has provided its customers with methods of customizing and publishing photos. It has achieved this through launching of solutions that deal with photo printing. The company has introduced other technologies that assist its customers to create and print materials. These digital printing technologies include HP Latex Inks and HP Inkjet Web Press (Hill & Alvarado 434). Also, as a part of its graphic arts offering, HP has introduced three Indigo presses. Recently, HP launched a new technology called the HP Photosmart printer.
Threats
HP has been faced by a number of threats coming from the markets and the environment. To begin with, the IT market is faced with a decrease in demand for IT products. This has negative impacts on HP since it is a provider of IT products. Also, the information technology segment among other markets segments is faced with a threat of economic slowdown. This has tremendously affected global markets and more so negatively affected HP. In 2009 the global spending was predicted to have declined by 4% in the IT market.
Secondly, HP is faced with a hyper competitive environment. Its strong competitors include companies like Aver, Lenova Group, Dell and Toshiba. It is important to note that Dell has remained a formidable competitor of HP despite the HP overtaking it in sales. HP does not only compete with these companies in sales only but also competes in terms of range of products, distributions, brand and quality. In addition, it also competes with these companies in areas of reputation, technology and price among other factors.
Local companies and generically-branded companies are some of the main competitors at the regional front. Moreover, the company also faces threats from other server companies. There is stiff competition from quite a number of other market players. For example, companies such as IBM and EMC Corporation have been close competitors for decades now. Moreover, it faces challenges from other servers like the industry standard servers that are offered by Dell and the UNIX-based servers offered by the Sun Microsystems.
HP also gets competition from imaging and printing groups. These groups include Samsung Electronics, Seiko Epson Corporation and Dell. Other imaging and printing groups posing a threat to HP include Xerox Corporation, Lexmark International and Canon USA.
Additionally, re-manufacturing companies such as the original equipment manufacturers (OEMs) of Lexmark is a threat to the HP. At this point, it is pertinent to observe that used cartridges are bought from users then refill them with ink. The new product is later sold at a discount to Lexmark. Private brand stores as well as vendors who carry out their selling activities online are also potential threats to HP Company.
HP Strategy: Value Chain Analysis and Outsourcing
Value chain concept was advanced by Michael Porter in the 1980s. The concept can be used by companies in areas where there is competition. A value chain is formed when an organization links its activities with the activities of other organizations to form value in the business (Koontz & Weihrich 436). The activities that can be done together include marketing and distribution, manufacturing and purchasing of products and many others. The value chain framework has been used as a viable planning tool most advancing organizations for quite a lengthy period of time. Value chain works well in minimizing costs while maximizing value creation.
HP value chain analysis
HP has used value chain as a tool to identify the potential it has. It has been able to identify the activities in the organization that forms the value chain and has used it to gain advantage over other companies it is competing with (Ireland, Hoskisson & Hitt 74). This has been made possible by its ability to keenly perform crucial and key activities within the organization that their competitors are not performing.
Value chain links the functional parts of the HP Company with its organizational activities. This has given it a competitive over other companies. In addition HP has analysed the value chain and split it two sections mainly the primary activities and the support activities. Support activities for the HP Company are done by the human resource management. These activities provide the background that is required for the firm to work effectively and efficiently (Ireland, Hoskisson & Hitt 76). On the other hand, primary activities are mainly related with operations of the firm which include production of services as well as products, inbound logistics such receiving ad storing supplies and materials for external sources and using them. In addition, other primary activities include outbound logistics which involves delivering to the customers goods and services as well as performing other functions like sales and marketing.
Outsourcing at HP
Outsourcing is the provision of an in-house business function to an outside provider. HP has involved itself in a contractual agreement with other companies that involves them in exchange of payments and services (Koontz & Weihrich 438). For instance, it has been able to strike a deal with the company like Compaq to exchange services. HP has branches in different regions in the in the world and therefore can outsource to suppliers outside the nation a process referred to as offshore outsourcing.
HP has involved itself in outsourcing for reasons of saving costs, developing its core business, restructuring its core business, improving quality of service to gain knowledge and expertise in its business operations and to enhance capacity for innovation.
HP Strategic Plan: Value Creation and Capture
Value can be categorized in two different ways namely exchange and use value. The latter refers to the quality of a product, task or a job and how it meets the needs of the customer. Exchange value is the amount of money given or received for an exchange of a product, a task or a job. HP offers value creation and capture to its customers (House & Price 411). For instance, it offers an individual a source of value creation by offering products, technologies and services that are of value to the target user. The target user in this case would be the customer, employer or a client. HP offers a variety of products that meet the needs of its users and the needs of other companies. It creates value to people and to other businesses by developing appropriate products, services that adds value and improve the living standards of individuals and the company.
Secondly its a source of value creation to an organization. In this case value creation is evidenced by invention of new technologies that impacts the value creation process. HP is an innovative organization that introduces new products and services through innovations. In addition, it looks for ideas, markets and resources. Through this, HP has been able to reap great benefits from the availability of markets and its products that have become popular. Also, the company has been concerned by how to add value by creating new possibilities in the market. The market environmental changes prompt the company to seek new ways on how the company can create new advantages. Also, it encourages organizations to expand their values to the society by venturing into innovations.
Thirdly, HP provides a source of value creation for the society. It has begun incentives and programs that will expand value to members of the society. This has been through incentives for innovation and entrepreneurship.
Resource-based analysis and the resources of the companies
HP has laid a strong foundation in the market with most of its product being widely used by the businesses and the customers. Some of these products include PDAs, calculators, scanners, computers, digital cameras and so on. Today, HP Company not only supplies hardware but it also supplies software and a variety of services that support and design IT infrastructure. In addition HP has become the number one provider of imaging and printing products and services (Hill & Alvarado 434). The products and technologies include the LaserJet and Inkjet printers as well as officejet printer. Other products by HP include software like LightScribe, Snapfish, HP SPaM and HP Photosmart.
HP is also the leader of vending companies. It leads in supplying of PCs all over the world. Some of the examples of PCs supplied include Compaq Presario, VoodooPC, iPAQ PC for the pocket and the HP Pavilion. In addition, the company provides IT support solutions to other organizations and companies.
Capabilities of the company
Over the years, HP has maintained a good name in the IT industry and its popularity has continually grown (Weihrich & Cannice 470). A report from the Business Week Study indicates that HP Company ranks at number 11 in the world as the most valuable brand. It has maintained a popular global logo that consumers can easily identify with. Moreover, HP has been a sponsor of many organizations such as football clubs. It has also sponsored motor races and other sports activities. In addition, it has maintained its brand on most laptops and home desktops as Compaq Pressario (Weihrich & Cannice 434).
Strategic options
The profitability of a firm is likely to be affected by two closely inter-related factors. Both the position of the particular firm in the given industry and the attractive a level of the industry itself are two integral factors that can be used to differentiate strategic factors that determine profitability of a firm. In the case study of HP, it is evident that both the IT industry and the firm in question are at optimal performance although they may be facing different challenges at the same time. in other instances, it is possible for an individual firm to remain highly profitable in spite of the fact that the industry is dismally performing.
HP has leveraged on its strengths as identified in the SWOT analysis to position itself in the grossly dynamic IT industry. According to Porters generic strategies, there are two main pillars that the strength of a firm can rely on. These are differentiation and cost advantage. When these strengths are applied, there are three generic strategies that come into place. These are focus, differentiation and cost leadership (Stonehouse & Campbell 118). The growth ratio of HP is a vivid indication that the management of the IT firm has applied the aforementioned strategies at the level of the business. They do not depend on the industry or the firm and that is why they are referred to as generic strategies.
HP Business Strategy: Cost Leadership Strategy
The cost leadership strategy applies when a firm can opt to lower its production costs in an industry with respect to maintaining a certain standard of quality. For instance, the HP Company may decide maintain a selling price that is averagely at the same level with that of the IT industry. On the other hand, the firm can opt for a higher market price than that of its competitors. Another option would be to sell companys products at a price lower than that of the IT industry. The purpose of selling at a lower price contrary to what the industry is offering is to boost the level of market share. Moreover, it is imperative to note that HP and other IT players in the industry have had price wars for long. As a result, the company has mostly worked towards maintaining profitability while competition remaining on the suffering end.
Nonetheless, it is anticipated that HP will start producing at a lower cost as the IT industry advances towards maturity even in the event that there will be absence of price war. At this point, HP will be in a position to attain long term profitability. In order to reach out on the wider market, the cost leadership strategy has been found to be profoundly applicable.
HP Business Strategy: Differentiation Strategy
When dif
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