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STRATEGIC ANALYSIS OF

HEWLETT PACKARD CORPORATION

Amira Issa Wael Rezk Nessim Kamal Mohamed Ahmed

CONTENTS

Introduction & history Vision , mission & Core Competencies Main objectives Internal environment scanning External environment scanning Using Porters Five Forces Model Problem Statement SWOT Analysis TOWS MATRIX BOSTON CONSULTANTING GROUP MATRIX (BCG) Direction Strategy Time line Strategic Recommendations

Introduction
Hewlett-Packard Company commonly referred to as HP, is an information technology corporation headquartered in Palo Alto, California, USA. As one of the world's largest information technology companies, it operates almost in every country. Its specialty lies in developing and manufacturing computers, data storage, networking hardware, designing software and delivering services. The Major products include personal computer devices, enterprise servers, storage devices, and a diverse range of printers and imaging products. HP markets its products to households, small to medium size businesses and enterprises both directly, via online distribution, consumer-electronics and officesupply retailers, software partners and major technology vendors. Bill Hewlett and David Packard founded HP in a garage in Palo Alto with only US$538 in 1939, after graduating in electrical engineering from Stanford University. Incorporated in 1947 it went public in 1957. And since then it has grown and grown to now become a huge multinational company. HP has an approximate of 324,600 employees. Revenue of $126.6 billion USD Ranks: 7th as World most innovative Company o 1st in Greenest Big Companies and Corporate responsibility Officers. Declared as one of the most sustainable corporations among the global 100 companies

HISTORY
BILL HEWLETT AND DAVE PACKARD Bill Hewlett and Dave Packard began Hewlett-Packard in a garage in Palo Alto after graduating with degrees in Electrical Engineering from Stanford University in 1935. In 1938, Bill and Dave produced HP's first product, the resistance-capacitance audio oscillator, used to test sound equipment. They name it the HP Model 200A. One of their first customers was Walt Disney who used the oscillator to test audio equipment in the 12 specially equipped theaters showing Fantasia in 1940. Bill and Dave wished to establish a unique culture for their firm and in 1940 they decided that all employees would share in HPs success. They issued $5 (U.S.) Christmas bonuses and adopted production bonuses, laying the foundation for the company's profitsharing program. Every worker had bonuses tied to productivity that evolved into all-inclusive profit-sharing. In 1942 they created a pioneering Health Care Plan for all eight of their employees. In 1943 HP entered the microwave field, setting the stage for future leadership in signal generators and by 1947 the company had blossomed with 113 employees and $851,287 Revenues. The corporate system Bill and Dave established respected personal autonomy and stressed corporate decentralization. They systematically nurtured employee satisfaction and morale, which led to a steady stream of leading-edge, highly profitable products. The 1950s were a time of tremendous growth for both HP and the city of Palo Alto. The citys population more than doubled during the decade. Palo Alto was on its way to becoming the high-tech center it is today. In 1951 HP invented the 524A high-speed frequency counter, greatly reducing the time required to measure high frequencies. Frequency counters and related products would come to account for billions in future revenue for HP. In 1956 HP created yet another new product, its first oscilloscope, which went on to represent a significant part of HPs test and measurement product line. In 1957 HP held its IPO with shares selling for $16. HP also introduced its corporate objectives to empower decentralized decision-making. Spanning seven categoriesprofit, customers, fields of interest, growth, people,

management and citizenshipthe principles helped distinguish HP from the top-down management style of most companies and serve as the basis for the HP Way. In 1958 the firm had its

Vision statement
To view change in market as an opportunity to grow, to use our profit and our

ability to develop & produce innovative products , services and solutions that satisfy emerging customers need

Mission Statement
To provide product, services and solution of highest quality and deliver more value to our customers that earn their respect and loyalty

Core Competences
The idea of "core competences can be regarded as one of the most important business ideas that is currently shaping the business world. Prahalad and Hamel argue In their key paper of 1990, "The Core Competence of the Corporation" , that "Core Competences" are some of the very most important sources of uniqueness: things a company can do uniquely well, that no other can copy easily and quickly to affect competition (mindtool.com). Analyst for Gartner David Cearley, said. "HP is showing a very strong core business in devices (servers, PCs, and printers) across markets and geographies," Cearley said. "Their traditional device businesses are showing significant strength against their competitors." If HP's core businesses continue to thrive, then the company would have the money it needs to pursue its goal of expanding itssoftware and services businesses."HP today is a major device company with software and services capabilities," Cearley said. "The question is whether HP can rebalance that portfolio over the years to have a stronger software and services business relative to its traditional device business" (Information week). HP to date has strong focus on reducing expenses, which is important in increasing profit margins while using the money saved to reduce prices against major competitor like Dell and others.

Hurd, boiled down his thoughts on HP in a statement at Gartner conference, into what he calls the company's three core competencies: creating solutions, creating demand for those solutions and servicing those solutions (CNNmoney.com). He explains that: Creating solutions means coming up with the right mix of server, PCs, printing equipments and computers in other words, the right technology that customers want. Creating demand is another fancy way of saying HP needs to do a very good job of selling what the product managers and technologists have in mind. While servicing the solutions and constantly making more money for the company by offering consulting, outsourcing services and maintenance to clients (CNNmoney.com). Executive VP and general manager of the Computer Organization, Richard E. Belluzzo, said in a statement, "HP lead the adoption of open systems and for many years, customers have validated HP's position on standards-based computing. And today, our electronic business strategy leverages our core competencies, working with strategic partners to deliver open, practical solutions to help our customers extend their enterprises as never before to build profits, increase productivity and improve competitiveness. Those customers who adopted an open-systems approach are ideally positioned to leverage the power of the Internet and create the Extended Enterprise." (Bnet, 2011)

Main objectives 1. Customer Loyalty


To provide products, services and solutions of the maximum quality and deliver high value to our customers that earns their respect and loyalty

2. Profit
To achieve adequate profits to finance our company growth, create value for our shareholders and provide the resources we require in achieving our other corporate objectives.

3. Market leadership

To grow by constantly providing useful and significant products, services and solutions to markets we already supply - and to expand into new areas that build on our technologies, competencies and customer interests.

4. Growth
To see change in the market as an opportunity to develop and grow; to use our profits and our abilities to develop and produce innovative products, services and solutions that satisfy emerging customer needs.

5. Employee commitment
To help HP workforce share in the company's success that they make possible; to provide people with employment opportunities based on performance and abilities; to create with them a secure, exciting and inclusice work atmosphere that values their diversity, recognises individual contributions; and to help them gain a sense of satisfaction and accomplishment from their effort.

6. Leadership capability
To develop leaders at every stage who are accountable for achieving business results and exemplifying our values.

7. Global citizenship
Good citizenship is good business. We live up to our responsibility to the society by being an economic, intellectual and social asset to each country and community we operate in.

8. Stakeholders
A stakeholder is anyone, either individually or as a group, who can affect or be affected by the business as a whole. So anyone related to HP is a stakeholder. * Shareholders - The approximate 2.3Billion shareholders are interested in the performance, profit and direction of the company. They decide who the Director of the company is. * Top Management Staff The top/senior management staff direct the company's operations, targets and growth. Senior Management includes HP Board of Directors, who are responsible for the establishment of the policies and

objectives of HP, such as Mark V. Hurd, HP Executive Team, includes the Chief Officers of Operations, Finance (Catherine A. Lesjak), Information, Strategic and others. These officers are the head managers their own departments. Government As its operations in 77 countries it has several governments to consider who decide the tax rates and the amount of imports and exports as well the production of products. The government gets money from taxes and unemployment decreases. * Customers Customers of HP want value and quality of their purchases after all the business is in the hands of the customers. If they stop buying, company stops running. * Employees As of 2008 321,000 employees. Employees are interested in the success of the business as this leads not only to job security but also bonuses and wage rise. If employees are not motivated the quality of the products and services get affected as well as the infrastructure * Suppliers The huge range of products that HP produces requires reliable suppliers, who in return want credit payment in time, new contracts and liquidity. Their reliability and level of quality directly affects the quality of the finished goods and hence level of customer satisfaction.

Internal Environment Scanning Tangible Resources


The financial resources of hp are distinguished by their wealth of successful acquisitions and valuable partnerships. This has also allowed hp to develop expertise in their supply chain and distribution channels. Property, plant and equipment The facilities are maintained for development and manufacturing Technological resources of hp are represented by a large patent portfolio.

Organizational
The structure of the company is broken down into seven segments. These segments are structured by activity. Basing the structure around activities or product groupings makes it easier for HP to focus on customer needs in each division, and market segments for different divisions. Innovation has defined the success of HP. The culture of the organization has embraced the value of knowledge sharing. It celebrates individualism as well as team work.

Intangible Resources Capabilities


The capability to deploy resources efficiently and manage an enterprise that operates with seven business divisions all of rich complexity and skill. Merging This capability is teamed with the companys fluent innovative expertise. In addition to acquisitions HP has had long standing partnerships with many of its market rivals.

External Analysis Using Porters Five Forces Model


Dr. Micheal Porter, Professor of Harvard business school indicated that the type and size of the competition in the business depended on 5 forces namely the Threat of New Entrants, Threat of Competition, Threat of Substitutes, Bargaining power of Supplier and the Bargaining power of Buyers. This part will analyse the external environment of Hewlett Packard with the Five Forces model.

Threats of New Entry


Capital cost for entering into hardware and software market is not so easy. The high cost of developing the products forbids the new entrants into the market. It needs a huge financial amount to get into this venture. The newcomers also have a problem of facing the existing well reputed business giants in the market such as Dell, Acer, Sony, Lenovo, Toshiba, Canon, Xerox, Epson and other local companies in the market. The newcomers into the business also need skilled labour, brand name, better understanding of the business environment. Hewlett Packard has different product portfolios into various parts of Software and Hardware. It will take at least 5 years to gain a reputation in this business. It will take at least more than one year to design a product and need to wait for at least 3 years to find out the profit achieved. New inventions are coming every day. Computers and Laptops are becoming outdated in 1 year from its released date so new entrants should be able to launch a product which should be able to meet the current market expectations. Hence the Threat of new entrant is low for Hewlett Packard. There new releases from its competitors may also affect the business of HP in future. Dell is all set to release its XPS range A laptop this year and Acer releases its dual screen laptop Iconia is planning to release it during the September of the this year. Apple is in the process of introducing its next iPad 2 with comes with USB port, dual camera and with 4G bandwidth, which is expected to hit the market in the early next year. Apart from this blackberry is also releasing tablet PC named as Playbook which expected to hit the market in early during this year. Both these tablets directly compete against HP tablets. Tablets are looked as a future generation of computing. According to HPs vice president personal systems group, one in five adults is predicted to have a tablet in 2014.

Threats from the Competition


The necessity of personal computing has overstepped the outlooks. HP faces competition from Dell, Acer, Lenovo and Toshiba. Dell has managed to get the second position in market share pushing Acer right back into the third place. Dell acquired a 144% rise in the third quarter of 2010. Both Dell and HP has a standardized performance. Dells Studio series Laptops competes directly HPs pavilion and Inspiring series competes with HP CPQ. Taiwanese Acer which offers relatively low priced PC s when compared with HP. In case of personal computer it also competes with assembled computers which can be customized based on the requirement of a person. Hewlett Packard also maintains its lead in printer industry toping against other competitors namely Epson, Canon, Xerox and Dell. EpsonsB-150DN and Epson B-510DN is competes HP Office Jet Pro 8000 Wireless Printer from HewlettPackard Co from Epson Imaging Devices. It also faces competition from refillers of inkjet printers which saves the near to half of the cost than purchasing a new cartridge. Data management center is highly competitive market where Hewlett Packard is drifting from its competitors. American IBM has been a market leader in this business with a strong base. Sun Microsystems which was acquired by Oracle in 2009 is also attempting to acquire and dell is now in the process of advancing in Infrastructure management with a new server, software solutions and services. (Bonsai, 2009) With more than 70 years of experience in business, HP has been the market leader since 2007. Hewlett Packard has been outstanding in its quality and performance which has helped the organization to sell it against customers and keeps them right on top in Hardware and Software industry. Hence Threat from Competition for Hewlett Packard is high.

Threat of Substitutes
The substitute for Hewlett Packard depends upon the product. The Substitutes for Personal Computers is an Apples ipad which operates in same interface. The ipad which came into market during April 2010 has attracted a quite a lot peoples because of its think and sleek style, prolonged battery life its comfortable to present the documents by using an ipad. This has also attracted companies to manipulate for their business. It also has drawbacks like lack of DVD drives, USB ports and Webcam and cannot be used for long business works such as making documents for 40 pages or creating a presentation, which has led to choose Netbooks and Notebooks. (Edward, 2010) The substitute for a printer is Copier, which is cheaper than taking print outs. So when a huge number of copies are required, there are more chances of opting for photo copying preferably than printers. Toner can produce copies more than four to five times larger than an inkjet printer. Also an inkjet printer should be continuously used otherwise the ink may get clotted which reduces the less number of pages. There actually no substitutes for HP server business. The substitute product for HP s computing and Printing has a moderate effect on HP. Looking at these examples we consider the threat of substitutes for this organization is relatively moderate.

Bargaining Power of Buyers


More than 20,000 brains of HP are serving 409 public sectors in 32 countries. 94% of fortune 100 companies, 95 out of 100 worlds largest bank operates with HP software. 130 Stock exchanges are provided with HP worldwide. The customers have an option to switch to another supplier if the prospects do not cope with. As provided in the Figure below the prospects may be a Product feature, Quality, Price, Service, Market Maturity and the Brand name of the product. Figure 3. Conceptual Model of Purchase Decision (Ray, S. 2009) HP sales in Indian market laptop accounted for 2% which is infact less when compared with countries like Singapore, Thailand and Malaysia. Some of the issues which are currently faced by HP notebooks get heater more than any other notebooks, which make it uncomfortable for using long hours. This has led the buyers to shift their purchasing decisions towards another brand in the

market. The price of HP s products in countries like India is quite expensive which makes them shift their choice towards the other brand. For example, the price of HP pavilion starts from approx. INR 45000/- whereas the HCL laptops with high configuration than a Pavilion costs from approx. INR 35,000/- has an adverse effect over the sales. (Ray, 2009) The Netbook industry globally declined after the arrival Apples ipad in market. In the first quarter of 2010 shipment of Netbook was expected to be 4.8 million units which is 33.6% rise when compared with its previous year where 3.6 million units were sold with rise of 872%. Demand for Netbook has also slumped. The LCD manufacturing firm in the last year announced production cuts due to less production. Even though there are many brands in the market. Hewlett Packard has managed to standardize its products and have good reputation in its business, which has led the sales growing upward when compared with its rivals. As a result, the bargaining power of buyers is moderate for Hewlett Packard.

Bargaining Power of Suppliers


Hewlett Packard has the prominent supply chain in IT industry over 700 suppliers in production in 1200 locations globally. Some of the key suppliers of Hewlett Packard are Microsoft Corporation, Advanced Micro Devices, Intel Corporation, NVIDIA Corporation and Sony Corporation. Switching has not been possible with supplier like Microsoft Corporation which supplies the Operating System for HP products. Similarly with Intel Corporation and AMD both provide mother boards. It also not possible for HP Switch from Intel to AMD or vice versa, both the mother board has their known specifications and its not possible to use only one of them for its products Hewlett Packard has always managed to get the best from its suppliers, receiving the products right in time for delivery which helped to ship around 100 million products in 2008 and 3.5 products are shipped every second. It focuses on enhancing the communities in the suppliers workplace. It alleviated the communication gap between trade union and employer for tier 2 supplier of HP in Thailand and shared that experience in Global Supplier conference. In china, the company identified and solved the issue of excessive working hours by reporting specific key performance indicators. HP always maintained farsighted relationships which helped to work efficiently. Currently it is dealing with its 95 percent of speculative facilities in obtaining the

best from its customers. It also prescribes the social and environmental responsibility towards its supplier companies.

Hewlett Packards External Monitoring of Environment


The research works of Hewlett Packard is done by HP labs, which is a research group started in 1966. The principle aim of HP Labs is to undertake the challenges from the society as well the buyers for the next ten years. HP labs are found in seven different parts of the world. HP Labs concentrates on each and every part of the business such as Technical, Business etc. External Environment of the Hewlett Packard is monitored by the HP Labs using three models such as SWOT analysis, PEST Analysis and the Porters Five Forces model. HP Labs has followed all the three models to analyses its external environment which is evident in study made during the year 1999 to cull out the Structure and Trends of the ISP Market. These 3 strategic methods provide the better understanding of the external environment in different perspectives. SWOT analysis sublimates the four major aspects such as Strength, Weakness, Opportunities and the Threats, SWOT analysis could have been done at the growing stage of an organization which provides a check in finding out the position of venture in the market. PEST another strategic tool is used to analyse the Political, Economic, Sociological and Technological which gives another view of external environment PEST analysis should be done before making Joint venture in a new country. For instance, HP made a JV with NCS in Bahrain, which helps to find out the opportunity or Threats before starting a business and Porter s Five Forces which mainly focuses on the threats from competition and the external factors which affect the business.

Conclusion
From the analysis of porters 5 forces its understood that the competition for Hewlett Packard is moderate. Since HP has managed to stay in right in top of other global hardware and Software Industry. Global PC market is seeing positive outlook after the gone through economic slowdown. The demand for global PC is getting higher new inventions each day. HP should be able to meet those needs of the people without any backlogs. Hewlett Packard should also concentrate should on manufacturing more Eco-friendly since the number of computers, laptops, printers and storage devices will be increasing in the near future and also try to solve technical issue like overheating, and delay of shipments Hewlett Packard is attractive to buyers since it centers on the Good Quality, reasonable Price and Good service, Product features, brand name and well experienced in the market. This has turned the old auto garage to worlds No. one Company in Software and Hardware Computing in the past. Hewlett Packard should maintain this standard always and stay ahead from other manufacturers in the industry.

Problem Statements HP faces three problems:


upper-level management issues, which have affected the coherence of firm strategy; intense competition in the Personal Systems Group, which has seen declining margins and revenues in recent quarters;

A set of six disjointed business units, which dont currently work well together. All of HPs major challenges and issues can be categorized under these three categories :

Management, PSG unprofitability, Lack of synergy among the six business units.

SWOT ANALYSIS Strengths


Hewlett-Packard enjoys a solid brand name Innovation focused culture Deep product portfolio with presence in both hardware and software space Web technology used for product awareness & sale HP is a giant multinational company. Strong financials Bought companies in information technology software space End to end presence in information technology space

Weaknesses
Lack of in-house management consulting division Intellectual capital is underestimated No aggressive investment in R & D No good people retention policy Lack of configuration database supply chain dependencies Lack in overall vision Huge Presence in high cost locations like North America Hardware business ( low margin) occupying managements mind share Intra HP controls are not strong Inadequate focus on services business particularly consulting business Lack of fire in the belly

Opportunities
Expansion of retailed stores for customer convenience Participation in joint venture Make easy to use product for upcoming retirees wide market of Computer ,cell phone software & hardware Customers are embracing new innovation in an unprecedented manner Outsource work to low cost destinations for overall cost reduction Upcoming economies with huge middle class like China, Brazil, India

Threats
Competitors technology & pricing low compatibility with non- HP product Availability of substitute Less global coverage than competitor Third party supplier Maturing products Component supplier entering the space on the basis on cost advantage Product life cycles are becoming shorter New Technologies like cloud computing can lead to non-viability of business in long run Recession impact IT sector the most, both hardware and software Not able to beat Dell which plays on price in many areas

BCG (HP division)

Direction strategy
(S1, S2,S5,O1,)
Must open new retail stores throughout the world to take advantage of financial strength . (Market development Horizontal Integration)(Short Term)

(S3, O3)
Develop easy pc and cell phone for old generation. (Product development Vertical Integration)(Intermediate Term)

(W1,W4,O2)
Develop new HR policy in order to retain human capital by making Joint venture or acquisition other firm management. (Joint venture or acquisition Horizontal Integration)(Short Term)

(W3,O2,O4)
Make a joint venture or acquisition a company to improve R&D in computer & cell phone . (Joint venture or acquisition Horizontal Integration) (Short Terms)

(S3, T1)
Developed low price and innovative for pc & cell phone than competitors. (Product development Vertical Integration)(Short Term)

(S4,T2)
Developed such hardware and software for computer & cell phone which are compatible with other companies software and accessories (Product growth concentric diversification)(Long Term)

Time line

STRATEGIC RECOMMENDATIONS
HP faces three problems: upper-level management issues, which have affected the coherence of firm strategy; intense competition in the Personal Systems Group, which has seen declining margins and revenues in recent quarters; and a set of six disjointed business units, which dont currently work well together. All of HPs major challenges and issues can be categorized under these three categories management, PSG unprofitability, and a lack of synergy among the six business units. Our solutions, as we discuss below, are threefold: first, pay Meg Whitman enough to secure her role as CEO for at least five years; second, pare down the number of products in the PSG by focusing on fewer models of higher quality, including a tablet and a smartphone; third, 27 focus on synergy between business units and sell the divisions that dont cohere with the whole.

1. PAY WHITMAN MORE TO KEEP HER AS CEO


Meg Whitman, who replaced Leo Apotheker late in 2011 as the CEO of HP, needs to have a long tenure at HP in order to give the company coherence of long-term strategy and to assure investors of HPs stability. Investors demand that the company create a succession plan, and we have determined that the best succession plan is to keep the current CEO. Whether or not Meg Whitman is the absolute best candidate for the long term is less important than giving the impression of consistency, reliability, and direction. As long as HP follows the Griffin Consulting Groups other two main recommendations, paying Meg Whitman enough to convince her to stay as CEO for at least five years will keep the company on the playing field. In the last two years, HP has had three different Chief Executive Officers, each with different strategies, and none of them coherent. Leo Apotheker replaced CEO Mark Hurd in September 2011 after Hurd was found to have fudged numbers on his expense account to avoid revealing a relationship with certain companies16. The company struggled under Apothekers shaky leadership: in 2011 he announced his intention to spin off HPs PSG business, which had been the foundation of the companys success for several decades and was a fundamental part of the company17. He made this decision at a point when the PSG was actually performing relatively well compared to the rest of the industry, and when HP was the largest manufacturer of desktops and laptops in the world. After a year-long tenure at HP, Leo Apotheker was ousted by the Board of Directors, and Meg Whitman, who enjoyed success at eBay as its CEO in the early 2000s, took over his role. Whitman seems to have a better handle on operating HP as a whole, as she decided to keep the PC business and called back Apothekers hasty decision soon after she became CEO. She has

announced her intention to develop a strategy for HP as a whole, including all six business units rather than the Software unit that Apotheker focused on, but she has also promised to continue several strategies that Apotheker began during his tenure. Many investors see this as New CEO, same old strategy18. However, Whitman has already taken real steps to increase synergy within the 28 company: in March 2012, she announced her intention to merge its printer (IPG) and PC (PSG) businesses in order to streamline operations19. This synergistic move is consistent with our recommendation to focus on core activities of the firm and to emphasize coordination over revenue generation. The Griffin Group sees the continuation of strategy from one CEO to be vital to the success of a large firm like HP, and thus commends Whitmans adoption of some of Apothekers strategies. Investors already believe HP to have no more coherence of strategy than a fish floundering on land, and also think that HP is not credible anymore, as evidenced by Apothekers announcement to sell the PC business and Whitmans decision to keep it just months later. Though Whitman has yet to announce her long-term strategy, we are confident that as long as she remains CEO for at least five years and follows our recommendations, HP will increase profitability in the short run and long run. Whitman currently takes all her pay in the form of performance-based bonuses and stock options. Her annual salary is a nominal $1, but her target bonus for 2012 is $2.4 million, and she has the option to purchase 1.9 million shares of HP at $23.5920. This option is fully vested if she stays at HP for three years, but will only be profitable for her if the company share price rises in that same period (the stock price is slightly lower than the strike price as of Q2 2012). Whitman is estimated to have a personal wealth of $1.3 billion, however, so whatever benefits she stands to receive from HP are small in comparison. In order to truly motivate Whitman to continue as HPs CEO for at least five years, the executive compensation will have to be more robust and creative. Whitmans huge personal wealth presents a compensation challenge that can be remedied by both increasing her stock-based compensation significantly and by increasing her quality of life. On one hand, we recommend tripling the leverage of her stock options, because HP will benefit greatly if she manages to lead the company to a higher stock price; in addition, the cost of leveraging these stock options will be negligible in comparison with the profits HP would make. If the company doesnt do well, then Whitman will earn nothing, but it is important to motivate Whitman with an appropriate salary. 29 On the other hand, Whitman is already a billionaire, and it is likely that she values her free time somewhat more now than when she was CEO of a rapidlygrowing eBay. As such, HPs Board of Directors should renegotiate Whitmans contract in terms that are much more favorable to her personal life. Whether this

means more vacation days, shorter work days, or other benefits, it is crucial to motivate Whitman to stay at HP and to direct the company on her own terms and to the best of her ability.

2. CONSOLIDATE PRODUCT LINES IN PSG


HP offers hundreds of versions of products on their website, spanning all types of electronics from laptops and printers to netbooks and monitors21. In the laptop category, HP sells 56 different base models, 31 of which can be customized in millions of combinations22. Customers complain about too many options, and a Harvard Business School study found that when presented with too many choices, customers tend to run to another competitor23. In many cases, this competitor is Apple, Inc. who offers only a few laptops but whose products are highly rated see the chart below:

CHART 11: CUSTOMER SATISFACTION INDEX, MAC VS. PC 24

Mac users are becoming more and more satisfied with their computers than Windows users, and this trend over the last two decades is reflected in Apples meteoric rise to the top of the stock market, with a 2356% return since 200025, which is a compound annual growth rate of 30.57%. Below is a chart of Apples stock performance in the last 4 years against HP and Dell, the two most prominent manufacturers of now-commoditized Windows machines.

CHART 12: HP AND DELL VS. APPLE SINCE MAY 2008

HPs core division is its Personal Systems Group, which competes against Apple, Dell, Toshiba, Acer, and Lenovo, and if HP wants to succeed in the next few years against tough competitors, then it will have to drastically change its PSG strategy. The key component of the PSG strategy devised by the Griffin Consulting Group is to consolidate product lines. HP needs to stop producing 56 different models of laptops: it is better to only produce three or four models at a time. In the electronics industry, less is more. For three reasons, HP will actually decrease costs and increase sales by reducing the number of options it offers in laptops, desktops, printers, and monitors. Furthermore, the reduction of

redundant activities will allow for resources to be allocated towards a quality tablet and a quality smartphone. 31 First, HP will cut costs by eliminating redundancies in product development labs and customer support functions. If model XFW-1503 and XFW-1504 are handled by different research and support teams simply because they their keyboards are different, then HP has to pay twice as much for a product feature (the different keyboard) that probably isnt even a major concern for the customer. If the customization and slight differences between different HP models truly drove more product sales and higher profit, then it might be worth it, but research is showing that while customers say they want choices and options, their buying habits say otherwise26 - which is the next point. Recently, a psychologist has found that by decreasing the number of types of a product it offers, a company can actually increase revenues. Psychologist Barry Schwartz is known for his research on the Paradox of Choice, which is the idea that when consumers are presented with too many options, they tend to avoid making a choice and as a result commit less often. Conversely, Schwartz also finds that when customers have fewer choices of a product, they actually buy more of it27. This runs contrary to popular belief, especially in which bigger is better and more is always good. However, it is important to cater to customers actual buying habits, not just what they say they want. When HP whittles down the number of laptops it offers from several dozen to perhaps two or three, then not only will it decrease costs through the elimination of redundancies and induce customers to buy more in the short term because of the paradox of choice, but the quality of the products will be higher in the long run. If HP dedicated its research and development, quality assurance, and customer service teams to just two or three products, then the quality of these laptops, desktops, and other personal systems would increase tremendously. Research and development teams will innovate more quickly when they have a focus, quality assurance teams will iron out all minor defects and bugs, and customer service will be more efficient in handling problems because there will be a smaller range of issues when there are fewer differences between HPs product offerings. In just a couple of years, with the right marketing, HP could be seen more as a competitor to Apple than to Lenovo, Acer, or of the Windows machine manufacturers who try to compete on cost alone and also offer hundreds of options for every product type. 32 So by consolidating its product lines in the Personal Systems Group, HP will lower its costs, simplify its offerings to spur consumer demand, and cultivate fewer but better products in the short and long run.

3. INCREASE SYNERGY AND FOCUS ON CORE ACTIVITIES


HPs management talks a lot about synergy, but aside from Whitmans announcement to merge the IPG and PSG divisions last month, nothing has been done to back up their words28. Whitmans idea is a step in the right

direction, but the overhaul of HPs organization needs to be more complete and in accordance with a focus on core activities rather than just trying to increase revenues (which has shown to be at the cost of profits)29. HP would do well to follow Ciscos example. In 2011, Cisco sold its low profit margin divisions, merged core capability divisions, and reduced its size and operations somewhat to avoid further thinning itself out30.There is already some synergy between the Services, ESSN, and Software units. The Enterprise Storage, Servers, and Networking unit (ESSSN) provides products that are designed to work effectively with HPs Services unit. In turn, HP Software provides a package of software that acts as a solid framework with which customers can operate their IT units effectively and for a low price. HP can use its size to attract more clients from any one of these units, and once they have them, offer services from the other two synergistic units. So to decrease costs and increase revenues, the Griffin Consulting Group recommends a full integration of the Services, ESSN, and Software units. Redundant management and administrative roles will be eliminated when all three groups, which already serve the same customers, combine into one. As mentioned before, as one larger unit, client relationships will be maintained and HP will be able to offer better integration for future services, which will increase revenue significantly. As part of this integration, however, small business units within each of the six main units must be eliminated if they do not contribute to the synergy of this new combined unit. Even if profitable, these non-core activities should be spun off and sold to interested parties. In the long run, it is more important to get HP to work as a solid unit and to focus on what it does best. The firm may face some short term losses during the restructuring phase, but investors will be able to see the longterm advantages of our synergistic focus. 33 We support Whitmans plan to integrate the PSG and IPG for the same reasons we want to integrate Services, ESSN, and Software. The HP Financial Services Group is not a core function of the company, but should be retained because it can be adapted to better work with the companys two combined divisions, which will be called the Hardware Group and the Enterprise Solutions Group. HPFS will be given a mandate to operate solely as a risk-reducing entity: it will buy and sell futures contracts on necessary inputs, hedging out commodity, supplier, and to some extent macroeconomic risk. HPFS will fulfill the important role of stabilizing the companys financial situation and decreasing overall risk when possible.HP has alarmed investors in recent years with its overpaying for a series of unwise acquisitions. When HP overpaid for companies like Autonomy and Palm at unrealistically high valuations, it gave off the message that it was using its cash poorly and that it wanted to increase its revenues and size at the cost of profits. This practice of acquisition needs to stop for HP to remain a respectable and efficient company. The Griffin Consulting Group recommends that HP cease all acquisition and merger activity until the restructuring of the Hardware Group and the Enterprise Solutions Group have been completed; after that, limited

acquisitions will be allowed but only if they truly fit within the mandate of each division and if they can be bought at a favorable price.

1+2+3 = RETURN TO PROFITABILITY


If Hewlett-Packard implements the three recommendations of the Griffin Consulting Group, then as demonstrated, it will increase revenues, decrease costs, and thereby significantly increase profits in the long term. First, HP must enact a succession plan by encouraging Meg Whitman to remain CEO for five years by any means necessary. Second, the PSG must consolidate its product lines. Third, HP must combine its PSG and IPG groups into the Hardware Division, merge Services, ESSN, and Software into the Enterprise Solutions division, and move HP Financial Services into a role designed to reduce risk for all business units; these moves will increase synergy at all levels of the company, and in combination with the spin-off of non-core activities, will focus the company on its core capabilities. In the next few months, HP may undergo a lot of activity due to the merging of divisions, selling of non-essential business units, and reduction of product lines in the Hardware Division, but investors will surely recognize 34 the long-term wisdom of this three-step plan. In the next few months, HPs stock price may even go up as a result, and even in one year, the firm will see increasing revenues, decreasing costs, and profitability.

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