• Home   /  
  • Archive by category "1"

Hewlett-Packard Case Study On Strategic Management

Table of Contents

Executive Summary

List of Abbreviations

List of Tables

List of Figures

1 Introduction

2 Main Part
2.1 Economic features of the industry segments
2.1.1 IT Services
2.1.2 Personal computers (PC)
2.1.3 Enterprise Storage and Servers
2.1.4 Imaging and Printing
2.2 HP – a short overview
2.3 Analysis of the financial performance of HP (2005 – 2007)
2.4 SWOT analysis of HP and its biggest global competitor
2.4.1 SWOT analysis of HP ,
2.4.2 SWOT analysis of IBM
2.4.3 SWOT analysis of Dell
2.5 Evaluation of HP’s business portfolio using Nine Cell Matrix
2.6 Recommendations for HP

3 Conclusion

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Appendix 5

4 ITM Checklist

Executive Summary

HP is an international giant in the information technology industry. The company offers a wide product portfolio from personal computers (PC), notebooks, serves, storage, printers, scanners, and digital camera to IT services. The company features a phenomenal growth history and has developed from a “garage” with a working capital of $538 in 1938 to a leading global provider with $100 billion revenue. However the global competition becomes fiercer today and HP has to face with different competitors in all business segments. Can HP continue its success story and beat the global competitors? This question will be tried to answer in the present study.

In this study the internal and external environment factors effecting HP’s business are analyzed. Thereby industry’s economic features and competitive environment, e.g. market segments, market size and growth, trends, competition, and driving forces are studied. Moreover, the SWOT of HP and its biggest global competitors as well as financial performance of HP over the last three business years (2005 – 2007) are analyzed. The diversified business portfolio of HP is evaluated using the Nine Cell Matrix and concrete recommendations for the senior management board of HP are provided.

It could be shown that despite fierce competition HP could remain its pole position in the world market. HP is worldwide No. 1 in the printing, PC, and server market and No. 2 in storage business. HP exhibited an impressive financial performance in the last 3 years. For the future HP should intensify strategic alliances and partnerships and boost the acquisition to strengthen competitive capability and to gain market share quickly. The company should follow strategies like rapid expanding into new geography markets, rapid product development and push the product innovation, penetration also in low-end market segments, expanding into online sale and business, and offering complete solution based on broad portfolio in order to meet customer needs. Moreover HP should improve its supply chain management, optimize manufacturing cost, and strengthen the effective marketing and channel partnership to boost the completive strengths.

List of Abbreviations

illustration not visible in this excerpt

List of Tables

Table 1 – Revenue and market share of worldwide IT services providers (millions USD).

Table 2 – PC unit shipment and growth in different regions (2006 – 2007).

Table 3 – PC unit shipment and market share of worldwide vendors (2006 – 2007).

Table 4 – Server revenue and market share of worldwide vendors (2006 – 2007).

Table 5 – Server shipments and market share of worldwide vendors (2006 – 2007).

Table 6 – Revenue and market share of worldwide disk storage vendors (2006 – 2007).

Table 7 – Unit shipments and market share of MFP vendors in EMEA (2006 – 2007).

Table 8 – Net revenue and earnings from operation of HP’s segments (2005 – 2007).

Table 9 – Selected financial data of HP (2005 – 2007).

Table 10 – Direct competitor comparison for HP in 2007.

Table 11 – Calculating weighted industry attractiveness scores.

Table 12 – Calculating weighted competitive strength scores for HP’s segments.

List of Figures

Figure 1 – Revenue and annual change of global IT service market, 2005 – 2011.

Figure 2 – Ranking of the global top six IT service providers in 2007.

Figure 3 – Worldwide PC vendor unit shipment and annual growth, 2002 – 2007.

Figure 4 – Worldwide server vendor unit shipment and annual growth, 2004 – 2007.

Figure 5 – Worldwide server vendor revenue and annual growth, 2004 – 2007.

Figure 6 – Worldwide ECB disk storage revenue and annual growth, 2004 – 2007.

Figure 7 – Revenue by HP’s business segments in 2007.

Figure 8 – HP's share price in USD, June 2003 – June 2008.

Figure 9 – Comparison of the development of HP and S&P 500, June 2003 – June 2008.

Figure 10 – Nine-Cell Industry Attractiveness – Competitive Strength matrix.

1 Introduction

Currently, Hewlett-Packard (HP), an American information technology (IT) cooperation headquartered in Palo Alto, California, announced its offering to takeover the American IT service provider EDS (Electronic Data Systems) for $13.9 billion. The acquisition would help HP to become the number two in the IT service business behind the market leader IBM. Thereby, HP would double its revenue in this industry segment to $38 billion and reduce the gap to IBM with $54 billion revenue in 2007. At present HP is located at the fifth position and has a market share of 2.2 % compared to 3.0 % of EDS and 7.2 % of IBM. HP’s CEO Mark Hurd promised a global leadership in the IT services and benefits from strong synergy and cost saving through the acquisition. The EDS management board agreed with the HP’s offering and the acquisition should be completed in this year.[1]

HP is nowadays an international giant in the information technology industry. The company offers a wide product portfolio from personal computers (PC), notebooks, serves, storage, calculators, printers, scanners, fax, and digital camera to network management software. The company features a phenomenal growth history and has developed from a “garage” with a working capital of $538 in 1938 to a leading global provider with $100 billion revenue.[2] HP provides products, technologies, solutions and services for both individual consumers and large businesses. However the global competition becomes fiercer today and HP has to face with different competitors in all business segments. Can HP continue its success story and beat the global competitors? This question will be tried to answer in the present study.

The object of this study is to analyze the internal and external environment factors effecting HP’s business in order to develop a suitable strategy helping the company to improve its competitive strength and become the world leading and most profitable provider in its industry segments. Thereby industry’s economic features and competitive environment, e.g. market segments, market size and growth, trends, competition, driving forces, and factors driving industry change are studied. Moreover, the resource strengths and weaknesses, new market opportunities and threats (SWOT) of HP and its biggest global competitors as well as financial performance of HP over the last three business years (2005 – 2007) are analyzed. The diversified business portfolio of HP should be evaluated using the Nine Cell Matrix (NCM) and concrete recommendations for the senior management board of HP will be provided.

2 Main Part

2.1 Economic features of the industry segments

HP has a global presence in different industry segments, e.g. Personal Computers, Imaging and Printing, Enterprise Storage and Servers, and IT Services. In this chapter the economic features of these industry segments like market size and growth, competition, trends, driving forces, factors driving industry change will be analyzed.

2.1.1 IT Services

The revenue of the global market for information technology amounts to $1.2 trillion.[3] The IT service has a lion’s share of this industry and reached $748 billion in 2007. It corresponded to an increase of 10.5 % from 2006 revenue.[4] After the crisis in the beginning of the 21st century the IT industry has recovered. A steady growth of the global IT service market from 2005 to 2007 could be observed. This trend is estimated to be continued until 2011. The revenue would increase from $782 billion in 2008 to $839 billion in 2009 and $964 billion in 2011. The annual change would achieve 4.5 % in 2008 and 7.2 % constantly from 2009 to 2011 (figure 1, appendix 1). However, it could be stated that the growth of the IT service market is moderate and always under the expectation of 30 % increase per annum. Moreover, the profit margin is relatively low due to a very high pricing pressure. The industry changing was resulted from the following driving forces:

- Changes in cost and efficiency: After the crisis in 2000 most IT service providers competed against the overcapacity in the market with price cutting. It led to a stiff price war between competitors. Although the customers got benefits from this price competition, all IT providers stand under high pressure and had to reduce their cost, e.g. through restructuring, outsourcing and employing of low cost resources in Eastern Europe, India, and China.
- Changing in consumer behaviour: The business customers (companies) are hesitant to release their IT, in particular the business critical parts. The trend nowadays is „selective outsourcing“. That means that companies slice their IT tasks and put the order to several IT service providers instead of one. While in 2000 only 19% companies dealt with more than three IT service providers, this rate increased to 36 % in 2006. The selective outsourcing caused a massive pressure of prices.[5]
- Increasing globalization: A high market expansion with rapid growth could be observed in Asia (India, China…). On the one hand cost efficient manpower in low-wage countries like India could be utilized by Western IT companies. On the other hand Indian IT service providers, e.g. Tata, Wipro and Infosys expand also their business in the Western market. Hence, the global presence is required nowadays and a consistent using of this opportunity would provide companies more competitive edge.

Furthermore, business customers prefer today “global” IT service providers. It drives the IT providers to merge and boost the acquisitions. An example is the current offering of HP to takeover EDS. Also several hardware manufacturers show high interest on acquisition of IT service providers like Logica, Capgemini and Atos Origin in Europe and Computer Sciences Cooperation (CSC) and Affiliated Computer Service (ACS) in the US. The reason is that thereby hardware manufacturers can offer customers a complete solution from hardware to IT services.[6]

- Others: Other driving forces like product and business model innovation, technological change, entry of major firms and emerging new internet capabilities and applications are also important. They can have a big influence on the IT service industry changing.

It could be stated that the IT service market is overcrowded with competitors. The revenue and market share of the 6 biggest global IT service providers are represented in table 1.[7]

illustration not visible in this excerpt

Table 1 – Revenue and market share of worldwide IT services providers (millions USD).

The surplus on the IT market could be asserted that the market leader IBM had only 7.2 % market share in 2006 while 79.8 % market share belonged to others competitors apart from the top six providers. Moreover, an interesting fact is that India-based IT service providers had a revenue growth of 33.3 % in 2006. However, they earned only 3 % of revenue tracked, while U.S.-based IT service providers earned 57 % of that total.

In 2007 IBM could defend its leadership in the global IT service market (figure 2, appendix 1). EDS, HP and CSC retained their positions. Accenture could improve its revenue and took the third place from Fujitsu. Although HP grew its revenue from $16.4 million in 2006 to $17.25 million in 2007, the company was located further on the fifth position.[8]

2.1.2 Personal computers (PC)

The global PC market grew permanently in the last 5 years. The worldwide PC vendor unit shipment and annual growth were analyzed using statistics of Gartner Inc – the world’s leading IT research and advisory company (figure 3, appendix 2). It could be stated that the worldwide PC vendor unit shipment increased continuously from 152 million units in 2002 to 212 million in 2005 and 271 million in 2007. This corresponded to an annual growth of between 10.9 % and 13.4 % in the period 2003 – 2007.[9]

However, the growth rate varied between several demographical regions (table 2). In the last few years the Europe, Middle East and Africa (EMEA) region was the largest PC market followed by Asia/Pacific, US, Latin America and Japan. The EMEA region had a robust growth of 14.7 % in 2007 due to particularly good market development in Eastern Europe, Middle East and Africa. The strongest growth of 18.7 % could be reached in Asia/Pacific. In comparison, the US and Japan market featured only a slow growth of about 5 %.[10]

The global top five PC vendors are HP, Dell, Acer, Lenovo (former IBM), and Toshiba (table 3), whereby HP and Dell battled for the No. 1 position in worldwide PC shipments. HP achieved an impressive growth of 30 % in 2007 due to robust customers and mobile PC sales. Hence, HP could establish its leadership with 18.2 % market share.

illustration not visible in this excerpt

Table 2 – PC unit shipment and growth in different regions (2006 – 2007).

illustration not visible in this excerpt

Note: Data includes desk-based PCs, mobile PCs and X86 servers.

Table 3 – PC unit shipment and market share of worldwide vendors (2006 – 2007).

The PC business is intensely competitive and characterized by rapid price reductions and inventory depreciation.[11] The driving forces for the strong growth in the PC market were the following:

- High demand for mobile PCs: The new technology and design improvement led to price decline and value proposition improvement of mobile PCs relative to desk-based PCs. More private customers can now pay for an “affordable” mobile PC. Moreover, the expansion of mobile access (Wireless LAN) contributed to an increasing of worldwide demand for mobile PCs.
- Robust growth in emerging markets: The rapid economic growth in emerging regions stimulated the PC demand of business and private customers. In the fourth quarter of 2007 the PC unit shipments in these markets grew 22 %, accounting for 60 % of worldwide PC unit growth.
- Increasing of desk-based PC replacement: The increasing replacement activity boosted the PC growth because replacements accounted for 60 % of PC shipments worldwide and even 80 % in the US. The last major PC replacement cycle was in the time frame 2004 – 2005. The next cycle would be between 2008 and 2010.

It was predicted that the global PC shipments would increase to 293 million units in 2008 and reach a growth of 10.9 % from 2007. However, the PC shipment growth will also depend on the global economy. Scenarios like deepening US recession, slowdown in China’s economy and the blasting of oil price will have negative influence on the PC market growth.[12]

2.1.3 Enterprise Storage and Servers

The enterprise storage and servers industry segment is characterized by rapid and ongoing technological innovation and price reductions. The individual businesses exhibit the following features.[13]

[...]



[1] Available from http://www.welt.de/welt_print/article1992452/HP_will_Rivalen_IBM_

mit_Milliardeneinkauf_aengstigen.html (accessed on 01.06.2008).

[2] Available from http://www.hp.com (accessed on 01.06.2008).

[3] Available from http://media.corporate-ir.net/media_files/irol/71/71087/AR2007/pdfs/

hp_annual_report_2007.pdf (accessed on 01.06.2008).

[4] Available from http://www.ftd.de/technik/it_telekommunikation/:HP%20Chef%20Margen/

355118.html (accessed on 01.06.2008).

[5] Available from http://www.wiwo.de/unternehmer-maerkte/uebernahme-wirbelt-it-service-markt-

durcheinander-292799/ (accessed on 01.06.2008).

[6] Available from http://www.ftd.de/technik/it_telekommunikation/:HP%20Chef%20Margen/

355118.html (accessed on 01.06.2008).

[7] Available from http://www.gartner.com/it/page.jsp?id=506001 (accessed on 01.06.2008).

[8] Available from http://www.ftd.de/technik/it_telekommunikation/:HP%20Chef%20Margen/

355118.html (accessed on 01.06.2008).

[9] Available from http://www.gartner.com/ (accessed on 01.06.2008).

[10] Available from http://www.gartner.com/it/page.jsp?id=584210 (accessed on 01.06.2008).

[11] Available from http://media.corporate-ir.net/media_files/irol/71/71087/AR2007/pdfs/

hp_annual_report_2007.pdf (accessed on 01.06.2008).

[12] Available from http://www.gartner.com/it/page.jsp?id=631107 (accessed on 01.06.2008).

[13] Available from http://media.corporate-ir.net/media_files/irol/71/71087/AR2007/pdfs/

hp_annual_report_2007.pdf (accessed on 01.06.2008).

Case | HBS Case Collection | February 2005 (Revised November 2006)

Hewlett-Packard (A)

by Rohit Deshpande and Seth Schulman

Abstract

Since its controversial merger with Compaq, Hewlett-Packard had been under pressure by analysts and some stockholders to divest itself of its low-margin PC business. For CEO Carly Fiorina and others on HP's management team, however, PCs seemed integral to the company's broader strategy of becoming more customer focused. In May 2004, with HP's stock substantially undervalued, Mike Winkler, HP's chief marketing officer, was asked to weigh in on the company's PC strategy going forward. Could HP serve its customers better with PCs or without them? And if HP stayed in PCs, how should the company price them?

Keywords: Problems and Challenges; Customer Focus and Relationships; Mergers and Acquisitions; Hardware; Business Strategy; Price; Computer Industry;

One thought on “Hewlett-Packard Case Study On Strategic Management

Leave a comment

L'indirizzo email non verrà pubblicato. I campi obbligatori sono contrassegnati *