Summarize the economics and current conditions in the industry, and describe the strategies for HP.
Over the last ten years, the technology sector has undergone a major transformation. Part of the reason for this is because of the different innovations that have taken place during this time. As many of the various personal electronic devices have become: smaller and are able to perform a number of applications simultaneously. This has meant that various products such as: I Pod, I Phone and MP3 players have transformed the way that everyone is entertained / communicates. As a result, a shift has taken place in the kind of products that are being delivered, with consumers demanding: that they are smaller and have more applications. (Cassella) These two elements have meant that there has been a shift away from: the traditional PC to more mobile devices that could store information online (through what is known as cloud computing). Simply put, cloud computing is when various pieces of information are stored at located elsewhere on mainframe computers and servers. The idea is that by storing large amounts of information on: mainframe computers and servers will allow; these devices to perform more applications. (“Cloud Computing”) This means that demand is changing to: smaller gadgets (for users), large mainframe computers / servers, more routers, switches and other components (for it providers). This is all part of an effort to adjust to these changes that are taking place, as technology companies need to expand capacity. While consumers want devices that are small and can perform a variety of functions on the go. (Robinson)
To adapt to these changes that are taking place, HP has focused on becoming a major manufacturer of portable devices. They also have been concentrating on addressing the demand from technology companies by: providing them with a host of mainframe computers / servers and other products / services. When you put these different elements, this has means that HP is augmenting their current business model, with these pieces to adapt to the changes that are occurring. This is important, because it shows how HP is evolving with what has been happening in the industry. (Robbinson)
Discuss at the Company Level
Porter’s Five Forces
To fully understand the overall scope of the challenges and opportunities facing Hewlett Packard requires using the Porter’s Five Forces Model. This is when you are looking at the company / industry through several different factors to include: buyer power, supplier power, rivalries among existing firms, the threat of new entrants market and the threat of new substitutes. These various elements are important because they will tell you the strengths and weakness of HP in comparison with the technology sector.
Buyer power is when the consumer will have a tremendous amount of control over what goods and services they are purchasing. As there are a number of different factors that could influence these decisions to include: brand loyalty, price, the availability of substitutes and a larger numbers of buyers / sellers of a particular product. (“Chapter 1 Overview of Financial Statement”) in the case of HP, this is a major challenge that they have to wrestle with. Part of the reason for this, is because the company is selling a variety of products that are manufactured by other companies. A good example of this can be seen with laptops, where there other manufacturers that make similar devices to include: Sony, Toshiba and Lenovo. At the same time, the I Pad is emerging as one product that is slowly shifting consumer tastes away from this merchandise. (Yarrow) This is important, because it shows how HP must be able to create products that can compete against some of the most in demand items (such as: the I Pad). As this will help to improve their brand image and give them the ability to extend their domination in other markets.
Supplier power is when purveyors have control over the availability of certain products and services. As they have a number of different advantages including: smaller amounts of competitors, greater control of the availability of the product / service on the market and the ability to restrict substitutes from emerging. (“Chapter 1 Overview of Financial Statement”)
In HP’s situation, they have some control over how supplies are distributed through purchasing them from other manufacturers. However, when there is a sharp increase in raw material costs it will have an impact upon their overall bottom line. This is important, because it shows how HP is vulnerable to sudden changes in the price of raw materials in the production of different parts they are using.
Rivalries among existing firms are when you are looking at the total competition in a particular industry. Where, you are examining a number of different elements to include: industry growth, over capacity, product differences and rivalries. In the case of HP, they are facing a fierce amount of rivalries. (“Chapter 1 Overview of Financial Statement”) as they have to wrestles with wide variety of competitors ranging from laptops to printers. This is problematic, because it means that the company must utilize different product lines and strategies to address these challenges. As a result, HP has been able to distinguish itself by offering a host of different products and services. A good example of this can be seen with the merger of Compaq during the late 1990’s. What happened was the pressure among major electronics makers continued to intensify as markups were declining. This would have a major impact upon device makers, as the competition began to erode profit margins. To maintain its dominance, the company purchased Compaq, as part of its plan to increase their leverage. Even though the merger came with a number of integration challenges, the fact of the matter is that it helped HP to maintain their lead in: the printer, desktop and laptop market. This is important, because it shows how the competition is so severe that HP has often engaged in strategies that are somewhat risky (in an effort to maintain some kind of supremacy). (“Case Study”)
The threat of new entrants is when there is the possibility that new competitors could emerge that will have an impact upon the industry. As the market, is fairly easy for them to enter because of number of factors to include: less regulation, lower switching costs and they have the required capital for investing. In the case of HP, they face the possibility that new competitors could quickly emerge. A good example of this can be seen with the Lenovo purchase of IBM’s PC unit in 2004. Once the acquisition was complete, Lenovo would become the largest PC maker behind HP and Dell. This is important, because it shows how easy the competition can shift in this market. (Lemon)
The threat of substitutes is when there is the possibility that substitute products could be introduced that will have an effect upon the industry. In the case of HP, this could be problematic, as new products could create sudden shifts in demand. A good example of this can be seen with smart phones, where many of these devices can perform the same kind of functions as traditional PCs or laptops. However, smart phone are more popular because: they cost less, are more mobile and can use a variety of applications. This is problematic for HP, as it is showing how substitute products could quickly enter the market and replace some of the top selling items (such as laptops). Therefore, the company needs to quickly adapt to these changes that are taking place, by offering a wide variety of items to consumers. (Wilcox)
Economic Attributes Framework
The economic attributes framework is when you are examining various economic factors that could have an impact upon the overall bottom line of the company. The most notable include: demand / seasonality, suppliers / barriers, manufacturing requirements, marketing to businesses / consumers and the overall financial strength of the company (i.e. their short-term financing, cash flow as well as long-term assets). (“Chapter 1 Overview of Financial Statement”) in the case of HP, they are involved in a business that is subject to seasonal demand factors. As their will be: sharp increases during certain times of the year and cycles when large infrastructure upgrades are taking place every two to three years. There are a large number of part suppliers and manufacturers, which helps HP to run operations around the world. The manufacturing requirements are extensive, as the production of various products will involve the construction of large facilities and considerable research & development costs. (Mahajan 238 — 242) as far as marketing to consumers / businesses, HP is able to successfully target both segments (due to the fact that they are the largest PC maker in the world). The overall financial strength of the company is in good shape. Evidence of this can be seen by looking at the balance sheet, where they have $12.58 billion in operating free cash flow and $9.93 billion in cash. (“HP”) These different elements are important, because they are showing the overall financial strength of HP. Yet, they are also illustrating how they face tremendous amounts of competition in the industry. Part of the reason for this is because, of shifts in demand and the ability of new rivals to quickly enter the field. As a result, the company must be able to capitalize upon these changes, in order to maintain their domination.
Framework for Strategic Analysis
In the case of HP, there are a number of different issues that must be analyzed to determine the overall strengths of the company (strategically speaking). This involves, examining various elements to include: the nature of the product / service, the degree of integration within the value chain, the degree of geographical and industry diversification. These different elements are important, because they will tell you how quickly the company is adapting to the underlying challenges that they are facing.
The nature of the product / service is when you are looking at the overall amounts of demand from customers and how this will have an impact upon the company. As the branding of the product and the ability to remain competitively priced, will determine how successful a company will be in the future. In the case of HP, they have been offering a number of different products, at host of price ranges. This is important, because it has allowed the company to be able to maintain its dominance in the sector. While at the same time, helping them to: reach out to variety of consumers and businesses. When you put these different elements together, it means that the company has been able to keep up with the changes in markups and maintain their strong brand image.
The degree of integration in the value chain is when the company has control over the production process through vertical integration. This is when the number of competitors will decline, by one company purchasing another. In the case of HP, they have engaged in vertical integration with their purchase of Compaq. Even though there were a number of different challenges during the process (such as: integrating the two companies together). The reality is that this merger, allowed the company to be able to maintain its dominance, by using Compaq’s distribution / manufacturing process and their focus on the low to medium end markets. This helped HP to be able to redefine itself, by offering a wide variety of electronic to consumers. While at the same time, they could be able to focus on their core markets. Once this took place, it meant that the company would be able to increase their domination of sector through: having multiple product channels. (“Case Study”)
Geographical diversification is when you are spreading out the risk by not over investing in a particular region. The idea is that by limiting exposure to one area will help to protect the company against adverse events that could occur. In the case of HP, they are been embracing geographical diversification, by focusing on creating a host of different manufacturing facilities around the world. This has helped the company to be able to keep up with changes in demand and prevent adverse impacts from volatility in the currency markets. A good example of this can be seen with the company focused on offering variety of services to Asian markets. As they have built a number of different manufacturing facilities and sales offices in these regions. Where, they would establish a host of manufacturing plants in countries such as: Vietnam and China. This would help the company to maintain its dominance, while ensuring that they are maintaining low manufacturing costs. As they do not have to import the different product to the region and can use various regional free trade agreement to shield them against any kind of adverse influences from financial markets. This is important, because it is showing how this focus on diversifying throughout various regions of the world, would help to improve the company’s overall bottom line. (“HP”)
Industry diversification is when a company is trying to reduce their risk in a particular sector by investing in other areas. The idea is that by engaging in such a strategy, you can balance the business model through: having operations in other segments of the sector. This will help to prevent any kind of adverse changes from: the volatility associated with one single product line. While at the same time, it allows an organization to be able to cross market a host of different products / services to consumers. In the case of HP, they have been embracing industrial diversification. As they are focused on a number of different sectors inside the technology / it arena to include: outsourcing a variety of services to businesses / governments, enterprise storage / servers, personal computers / laptops, printers, infrastructure products and select smart phones. This is important, because it is showing how HP is diversified among a number of different product lines inside the technology sector. (“HP”)
When you step back and put these different elements together, they are showing how HP was able to adapt to the changes that were taking place, by engaging in actions to maintain their dominance. Where, they would offer a number of different products at a host of prices ranges. Their merger of Compaq is a classic example of how the company is maintaining their lead in these areas, by expanding their overall reach into a host of segments. This is important, because it would allow the company to be able to maintain its core business model and augment it with one that reaches out to new customers.
At the same time, HP was involved in focusing on maintaining their low cost structure and lead through geographical / industrial diversification. As far as geographical diversification is concerned the company was able to maintain low costs by going into regions where free trade agreements were in place and labor costs were low. This helped them to focus on offering their products in these areas, without having to worry about other factors (i.e. volatility in international markets). The diversification in the industry meant that they were protected against sudden shifts in demand from new products that have been introduced or changes in consumer tastes. As a result, this is all showing how HP was able to maintain its lead, when many of its competitors are facing tremendous amounts of pressure.
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MLA Format http://owl.english.purdue.edu/owl/resource/747/01/