Net Profit Margin/ Debt-Equity Ratio2
Too many alliances? Will this create conflict of interest?2
Mission-critical Solutions (Systems, Services, Software)2
Technologies available that will help HP make Enterprise Computing a continued success.2
Microelectronics and Measurement Solutions Center2
Semiconductor Products Group (Components)2
SUMMARY OF ISSUES, STRATEGIC RECOMMENDATIONS AND IMPLEMENTATION2
Development of new products/services outside PC’s:2
Major areas that HP is and should continue to focus its E-services on:2
Hewlett Packard is second only to IBM and is one of the world’s top provider of computers, peripherals, and related services. Hewlett Packard also manufacturers testing and measurement equipment, and medical equipment in a recent creation company of Agilent Technologies to be implemented by mid-2000. Over 50% of Hewlett Packard’s sales are outside the United States, and are made up of nearly 85% computers and related products. The vision, culture, and environment created by the co-founders are very much alive today, and continue to make Hewlett-Packard stand out from the crowd.
Hewlett Packard’s basic business purpose is to create information products that accelerate the advancement of knowledge and improve the effectiveness of people and organizations. These products and services are used in industry, business, engineering, science, medicine, and education in over 130 countries worldwide.
Hewlett Packard has well defined corporate goals that are a reflection of the overall mission. Service is most important to HP, whether the relationship is HP/consumer or HP/employee. Profit is one of the components of HP’s goals but only as a means to the greater ends. HP’s primary goal is to give its customers the products and services they desire. Followed are HP’s specific corporate goals:
·To achieve sufficient profit to finance our company growth and to provide the resources we need to achieve our other corporate objectives.
·To provide products and services of the highest quality and the greatest possible value to our customers, thereby gaining and holding their respect and loyalty.
·To participate in those fields of interest that build upon our technologies, competencies and customer interests, that offer opportunities for continuing growth, and that enable us to make a needed and profitable contribution.
·To let our growth be limited only by our profits and our ability to develop and produce innovative products that satisfy real customer needs.
·To help HP people share in the company’s success which they make possible; to provide them employment security based on performance; to create with them an injury-free, pleasant and inclusive work environment that values their diversity and recognizes individual contributions; and to help them gain a sense of satisfaction and accomplishment from their work.
·To foster initiative and creativity by allowing the individual great freedom of action in attaining well-defined objectives.
·To honor our obligations to society by being an economic, intellectual and social asset to each nation and each community in which we operate.
In order for HP to attain the goals they have set forth, several corporate strategies and practices have been implemented. These create an atmosphere in HP of informality and a sense of working together for the common good of the company. Followed are four examples of HP practices and there uses within the company.
MBWA involves keeping up to date with individuals and activities through informal or structured communication. Examples of MBWA are: A manager having office hours available for employee discussions or departmental lunches and breakfast meetings
Individuals at any level contribute to HP’s goals by forming goals or strategies, which are integrated with their manager’s and those of HP as a whole. Adaptability and innovation in recognizing alternative approaches to meeting goals provides an effective way of meeting customer needs. MBO examples are: Clearly defined written proposals, leading to and giving accountability within the organization or development of cross departmental or division teams to solve customer needs.
The assurance that no adverse consequences should result from responsibly raising issues with management or personnel. Trust and integrity are important parts of the Open Door Policy. Open Door examples would include: Ability to voice frustrations in a constructive manner, willingness to consider or see alternatives in a new way or Openness to discussion of advancement, or transfer opportunities
At the core of HP’s practice of open communication is the belief that when given the right tools, training and information to do a good job, people will contribute their best. HP hopes that open communication leads to strong teamwork between HP people, customers and others, and energized team achievement and contribution.
Who are Hewlett-Packard’s relevant stakeholders?
HP currently has 1.019 million shares of common stock outstanding. Current stock price as of October 12, 1999 was 87 3/8. Stockholders are directly affected by HP’s operations by the money made or lost within the organization. If the stock price dramatically drops, or dividends decrease or cease, stockholders are likely to take their money and invest where returns are higher.
HP has high regard and respect for its employees. One reflection of this high regard is a stock option plan was implemented in 1996 where HP along with employees contribute to the stock purchases. This gives HP employees not only a stake as an employee, but also as an investor. HP’s profitability/operations becomes increasingly important as the stakes get higher.
Competition in the diversified computer industry is innovative and competitive. If HP were to have financial troubles, competitors such as IBM are posed and ready to snatch up lost market share. The same can be said about HP, it’s the nature of the game. One company’s downfall becomes another’s windfall.
Major suppliers include firms such as Intel, the number one supplier to all PC manufacturers for chips. HP is susceptible just like any of the other PC manufacturers to Intel’s prices and availability. This gives Intel the corner in the market, and strength when it comes to affecting HP’s operations. If HP does not have the components needed to make its products, customers do not receive their products, resulting in unhappy customers.
The diversified computer industry (PCs, imaging products, servers, e-services, software, etc.) has become the world’s largest revenue generator and one of the most rapid growing industries during the past 10 years. Multiple new entrants and incumbents are fighting for market share and profits. Company profitability does not always depend on its longevity due to short product life cycle.
The personal computer, imaging and network servers industry is becoming a commodity producer. Home and business desktop PCs, imaging products, and network servers are very common and are supplied by nearly every vendor in the industry. Components for PCs, imaging products, and network servers are attainable in large quantities from a variety of suppliers and at very affordable prices. There is a great amount of similarity in the products due to the fact that vendors are using the same suppliers for their components. Because of this, price becomes a more important factor when trying to sell PCs and imaging products.
E-services and software are product segments where differentiation does exist. E-services require the newest technology and IT professionals that can provide the best product and service. Newer technology is brought into the market place everyday and there is a lack of competent IT professionals that understand how and why this technology works. This gives those companies that have the resources to hire competent IT professionals with an understanding of the newer technology the ability to differentiate themselves from the rest of the marketplace. Software and technology changes go hand in hand. As new technology is developed, system software has to be developed to enable the technology. The new technology is also providing the capacity for new application software and tools that are being developed to perform business functions and data management.
The personal computer and imaging industry have been in an over-capacity situation for most of its existence. There are many vendors competing for the same buyers and vendors need to convince buyers that their product has an advantage over the competition.
The e-services, software, and network servers product segments have experienced greater demand and are not at the point of excess capacity.
Entry barriers into the diversified computer industry are surmountable. Components for PCs and imaging products are easily attainable through many suppliers. Suppliers generally give volume discounts and the small newcomer must compete with larger established vendors who benefit from economies of scale. The ability to provide quality service and support to the customer is another barrier. Buyers are becoming accustomed to having support from the vendor, at any time of the day, after the sale. This requires having knowledgeable staff available to handle customer calls. Newcomers also have to overcome brand recognition and the reputation of established vendors.
Exit barriers vary depending on the company. Companies that emphasize one product will cease to exist if they are unable to be competitive with other producers of that product. Diversified companies would have an easier time leaving a specific industry product because they have other product lines in which they do business.
The diversified computer industry has been subject to seasonal, quarterly, and annual fluctuations. These fluctuations can be caused by product developments, pricing, reviews and component availability.
The diversified computer industry is subject to economic forces that could influence current and future profitability. The spending patterns of consumers are subject to prevailing economic conditions. The prevailing domestic and international economic conditions affect foreign currency prices and the amount that consumers are willing to spend. The industry is also subject to the liability of foreign taxes and foreign product sales. 1
Products used in the personal computer industry are very important. The concern for Y2K reflects the importance of the computer industry. The government, businesses, and individuals are concerned with what will happen to technology when the calendar turns to the year 2000. It is anticipated that there will be power disruptions, some water systems will not provide water, medical equipment will malfunction, etc. All the systems that are used to run the machinery and equipment used for the various processes contain technology produced by the computer industry. Therefore, the computer industry is very important because of the processes it helps to monitor and run.
The safeguarding of proprietary knowledge is important in the diversified computer industry. Computer manufacturers rely on suppliers and other technology developers to stay abreast of the latest developments in PC technology. If computer manufacturers or their suppliers were unable to obtain licenses necessary to use protected technology in their products on commercially reasonable terms, these manufacturers may be forced to market products without desirable technological features. This could require a company to incur substantial costs to redesign their products around other parties’ protected technology or to defend patent or copyright infringement actions against their own company.1
The computer electronic industry must meet standards established by the Federal Communications Commission, and similar agencies in other countries. An example of a standard would be the regulation on the maximum amount of radiation emitted by monitors. Companies in the computer industry must receive the appropriate certification before shipping computers. Therefore, if companies encounter problems obtaining certification, they risk delays in introducing new products. In addition, advertising, shipping and other operations are subject to state regulations, regulations of the Federal Trade Commission and the U.S. Department of Commerce in the United States, and similar agencies in foreign countries. Any failure to comply with such regulations can result in significant fines, penalties, forced rebates, and shipping restrictions levied against the violating companies. Companies are also subject to federal and state sales and income tax regulations. State regulations vary by state.1
A relevant social force is the excitement over the Internet and e-mail. Individuals and corporations are finding computer technology very valuable in their everyday lives and operations. Individuals have quick and easy access to virtual communities and consumer information. Corporations have a vital link of communication and a strategic tool for operations and managerial decision making. For whatever reason, this trend has caused the industry to grow at a very significant pace over recent years. Without major changes in other industry forces, this demand is foreseeable into the future.
Consumers have also changed and have become knowledgeable about components and how the components are used within the computer and other technological products. This knowledge is used to make selective purchases and forces the computer industry to offer the products that consumers want. Therefore, it is important that the computer industry establish the ability to produce products based on each consumer’s needs.
The computer industry is a technology industry and is therefore greatly affected by the technological changes that take place in the world.
Technological advances occur very quickly; therefore, companies must stay abreast of these changes and incorporate them into their products in order to remain competitive in the industry. Manufacturers must decide which new technologies will be the most cost-effective to incorporate.
Competition in the diversified personal computer industry is aggressive and numerous. Hewlett-Packard competes with some of the worlds largest companies and smaller highly specialized firms. Hewlett-Packard’s competition can be separated into the following areas: personal computer, software, and computer services industry.
The personal computer is the largest section of the computer hardware industry. The personal computer industry has recognized an average annual growth of 20% in PC shipments between 1991 and 1998. It is anticipated that the growth will be between 15-20% over the next several years. Lower prices, improved performance, and demand driven by the Internet will provide this growth.(3)
The PC segment is the most competitive segment of the computer hardware market. Consolidations and shakeouts of the second and third tier PC vendors have left approximately 65% of the market share with the top 10 vendors. The major competitors in the personal computer industry include Compaq/Digital, Packard Bell-NEC, IBM, Dell and Hewlett-Packard. The chart below shows world wide unit shipments for 1998. As the chart shows, Compaq sold more units than Dell, IBM, Packard Bell-NEC, and Hewlett-Packard.
·Figure 1. World Wide PC Vendor Market Share for 1998
It is forecasted that additional consolidation & shakeouts will leave 70% of the market share with the top five vendors by the early 2000s.(3)
The PC industry’s growth has been boosted by the sub-$1000 PC. It is anticipated that the average desktop prices will drop below $1400 by the year 2000. The means used to sell PCs also can have a positive/negative affect on PC pricing. Direct sellers traditionally have been able to underprice indirect sellers.(3)
The reduction in prices is mostly due to the drop in major component parts of PCs. All of the competitors listed above offer standard PCs that contain mostly the same components. Therefore, there is little differentiation between the various competitors PCs.(3)
The reliance on the component suppliers does present risk for the PC industry. Most computer components are standardized and the industry relies on one or two suppliers for two critical components: the CPU and motherboard. Approximately 85% of the worlds CPUs include an Intel Processor and Intel has been able to significantly increase its share of the motherboard market. This gives Intel a significant control on which and at what cost a PC vendor can provide a computer with its CPU and motherboard.(3)
The packaged software market has always been the fastest growing segments of the computer industry. The packaged software industry consists of three general market segments: application solutions, application tools, and systems software. Applications software performs specific industry or business functions and currently this market provides over $56 billion in sales and is expected to grow to a $98 billion dollars by 2001. Application tools provide data management, manipulation, access, and retrieval. It currently provides over $31 billion dollars in sales and is expected to grow over $50 billion dollars by 2002. System software is comprised of operating systems, and data center management. It currently provides over $35 billion dollars in sales and is expected to grow over $53 billion dollars in sales by 2001. The major competitors in the software market are listed below.(4)
11.Parametric Technology596.31,013.8
The software industry is fragmented and one established vendor (Microsoft) dominates the mature software markets such as operating systems. It is nearly impossible to start up software companies to take market share from well-established vendors. Potential users might perceive new products as being better but are concerned with upgrades and the ability of the company to enhance its product over the long run.
Newer software markets are very appealing to software vendors. Software vendors can be the first to enter the new market and can establish themselves at the same speed as other software developers/vendors.
Growth in the computer services industry has grown steadily from 1997 to 1998 and the trend is expected to continue. This segment of the computer industry consists of professional and processing services. The computer services industry is fragmented and consists of businesses ranging from one employee to thousands. Companies can focus on a niche market and or can provide services for several different markets. This market has excess demand, therefore new firms are always entering the market, and existing firms are increasing their market share.(5)
Consumers of the services provided in the computer services industry have a large selection of competent firms to choose from. Consumers can pick a firm that provides only computer services or a company that provides both computer services and products. The table below lists the top five independent computer services firms.(5)
As technology changes and the Internet becomes more inherent in the business world the need for professional services will also increase. The professional services provide outsourcing, systems integration, information technology consulting, and intranet/internet services.(5)
The professional services segment of the computer services industry has generated over $100 billion in revenues in 1997 and 1998. It is anticipated that the industry will grow between 11% to 15% by 2001.(5)
Processing services provide businesses with services such as payroll processing, employment regulatory compliance, tax information processing, and the dissemination of financial information. It is estimated that processing services provided $62.2 billion in revenues in 1997 and 1998. It is anticipated that the industry will grow significantly within the next five years.(5)
This analysis is in relation to the new focus of HP in not only the PC market, but the Server/Workstation market and E-services market.
The PC market has evolved dramatically over the past 10 years, where there were only a few top providers in the PC market, there are now hundreds of various computer companies. Entry is easy, components are readily available, and buyers are very knowledgeable and aware of their needs. Due to the change, the margins are shrinking and PC companies are exploring other markets.
HP is one of these companies that are shifting into other markets. The first market HP is moving into is the server/workstation market. This market currently has medium internal rivalry, but as other companies enter, the rivalry will increase. Not all PC companies have the facilities or suppliers to produce servers so substitution is somewhat available, but not to the same extent as PC’s. Supplier power, given the current providers, is limited, but no one company holds such a monopoly as say Intel in the PC market. Buyers also have limited power because the option of whom to purchase from is not fully developed.
Second market HP is heading into is E-services. This, like the server market has relatively medium internal rivalry and substitution due to the number of companies in the market. As more companies move to this market, again the substitutes and rivalry will increase. Entry into the market is high, based on the future and importance of the Internet. Buyers of E-services have specific needs of products and services that will need to customization to fit each customer. Supplier power is limited because products are based on existing technologies.
HP will need to monitor and analyze these markets, along with any new emerging markets very closely to maintain a competitive advantage. Remaining diversified and flexible to be able to react quickly to the future markets will be essential to HP’s profitability. HP can not just equal its competitor’s prices or products, but must continue to give value-added in order to differentiation products and services. Basically, HP needs to be one step ahead off its competition. HP’s goals, vision, and organizational structure lend itself well to this, especially how HP focuses on customer interaction and providing products/services to meet customer needs.
Followed is a diagram illustrating Porter’s Five Forces with relation to the PC, Server/Workstation, and E-services market.
HP sells considerably more than the industry standard, showing the level of market penetration HP has developed over the span of existence. While HP’s sales are well above industry, its overall sales growth in 1998 has dropped 11%. This would be a reflection of the slowing and reduced profit margins in the PC market.
Again, HP’s 1998 income is above industry standards, showing HP still has profits in the dwindling PC market. However, HP’s income growth dropped in 1998 and is below industry, leading HP to evaluate its financial condition. In evaluating financial considerations, other emerging markets have been entered.
Net Profit Margin/ Debt-Equity Ratio
HP’s net profit margin has consistently been in the 7.3% – 7.7% range in the past 5 years. In 1998, the NPM was 7.3%, lowest of the past 5 years. To increase this margin, HP should review costs, and identify costs that can be reduced. Increasing prices is another option to increase profit margins, but given the PC market, is not an option for HP. Entrance into new markets like the server and E-services should help the profit margin since the profits are currently higher in these markets compared to PCs.
HP’s debt-equity ratio is well below average; this is a positive trend, and show that HP has not borrowed heavily long-term against its equity.
HP’s revenue and earnings has consistently increased over the past 5 years, of course due to the surge in PC purchases and related products. In 1998, the net earnings did fall below its 1997 earnings while revenue continued to increase (costs increased at a higher rate than revenue). This can be seen in the increase in 1998 costs associated with products sold and services. These costs increased 2.1% to 68.1% of net revenues, up from 66% in 1997.
A.G. Edwards just released a report forecasting that HP’s EPS should increase 18% in the year 2000, and stock target price should be in the range of $130/share. HP has not ignored its setback in 1998 financials, and has taken a proactive approach. Examples of this proactive approach are the new corporate focus on providing E-services, and server/workstation sales, and the corporate realignment. These steps to counteract the recent setback are positive, and will help prepare HP for the new millenium.
·R & D – new product development/improvement
Nearly 85% of HP’s revenue comes from its computer and related products/services. This leaves almost 15% of revenue to come from Agilent, where sales come from testing and measurement equipment and medical equipment.
HP, established in 1966, has a long-standing reputation and good “brand awareness” in the computer industry.
HP spent $3.4 billion in R&D during 1998 and placed on the market 24 new products company wide. HP is positioning itself well in the Internet market – either by providing E-services or Internet sales of products.
AT&T announced an alliance with HP to provide Internet service to small/medium businesses using the new HP Brio line targeted at this segment. Another recently announced alliance is with Viador to introduce the industry’s first on-line implementation service to enable e-services.
Creation of this separate company provides two distinct industries that HP is involved in. These industries focus on computer and related products/services in HP, and scientific equipment and services in Agilent. This divergence gives each company a distinct focus, where previously each SBU stood alone within HP.
Only 50% of HP’s sales are within the U.S, proving HP is known, purchased and respected worldwide. Within the U.S. PC market, saturation rate is high and profit margins are becoming increasingly smaller making the international market increasingly important. Like other PC companies, HP has not fully developed the international market. Viewing the whole world as the market instead of just North America will help HP broaden its sales. As technology advances, servers, networking solutions and even e-services can be expanded in the international market.
HP’s PC products are easily imitated, but HP works to create consumer/brand loyalty. To achieve this loyalty HP is continually giving “value-added” improvements to products. An example of this is HP’s new Brio new line of computers for small/medium businesses. An Alliance with AT&T has been established to provide Internet service for these consumers. HP continues to do an excellent job of communication with customers to find out what improvement could be made to their products, by HP alone, or by involving other companies.
·Too many alliances? Will this create conflict of interest?
HP needs to be careful not to stray too far from the original vision set forth by David Packard and Bill Hewlett. This vision has gotten HP were it is today, and could take it into the future. Customers should always be the focus of a business. Knowing what your customers needs are and to how to meet they need them has been HP focus since its inception. Jumping too quickly into unknown markets or products could potentially hurt HP’s brand loyalty, and revenues.
HP currently concentrates on computers, computer related products and services. By creating Agilent Technologies, will this pull valuable resources away from its core competency of computers, etc? Could the funds allocated to Agilent show a better return in the computer side? Less than 20% of HP’s sales came from this branch in 1998.
PC’s were HP’s mainstream revenue makers, but with the evolving PC markets, profit margins shrinking and consumer knowledge increasing, HP is force to move into different markets. Examples are servers and e-services.
Too many alliances? Will this create conflict of interest?
By collaborating with too many companies, such as AT&T and others, will this create a conflict of interest for HP? Getting “into bed” with too many companies, HP could find itself without strong alliances. The best approach for HP would be to develop strong, long-term, alliances that will benefit both parties for many years in the future.
With respect to the computer related market, HP is attempting to pursue a somewhat low price strategy, meaning that HP keeps its prices in the same range as competitors, but at the same time give additional products or services to differentiate its products from the competition. HP has high brand awareness and as the PC market is moving from a “cash cow” to a “dog” in the BCG matrix, HP is capitalizing on new markets to create “stars” within its SBUs.
HP’s differentiation can be either a tangible difference, such as adding Internet service with the purchase of a PC or an intangible difference by the level of technical service and customer service provided HP addresses the entire market, but has separate products targeted to segments. The Pavilion line is targeted to home/personal PC use, while the Vectra and the new Brio lines is targeted to business use. HP focuses on providing its customers with the products and services it needs. This is a valid strategy, but can cost the firm profitability because there is a high cost associated with providing so many products. As long as this strategy is profitable, HP can and should continue this diversification.
One of the most important business level strategies HP developed was spinning off the medical equipment, test and measurement, etc. to Agilent Technologies. While Agilent will continue to follow HP’s mission and goals, Agilent’s customers and markets are very different from HP. This realignment was a positive move given HP’s new focus on servers and E-services. HP has envisioned where the Internet will take the world, and can now focus all its efforts and resources on creating new competitive advantages in E-services and Server markets.
HP has five basic priorities for its business level strategies. These priorities are also reflective in HP’s organizational chart (see Appendix A).
In nearly five years, HP’s inkjet imaging business has achieved more than 25% annual growth, the installed number of units has grown from 17 million to 85 million printers. This growth is largely a result of introducing new technologies into new product categories. Inkjet Imaging Solutions has been accelerating its technology into new categories at the over-$500 end of the inkjet market, the extremely fast-growing sub-$150 end of the market, and beyond the desktop.
Color is now becoming increasingly common in offices for presentations, reports etc. Making this technology affordable and high quality is one of HP goals. In 1997, HP introduced an entirely new category of inkjet color printers for the office, the HP 2000C and HP 2500C Professional Series color printers, these printers offer laser-class color print speeds and low cost-per-page.
HP intends to continue to aggressively push the adoption of color in the office by offering the widest array of color printing solutions at all price points. The company expects office color printing adoption rates to accelerate rapidly in the next decade, with inkjet gaining full legitimacy along with color laser printing as a printing technology for these users.
HP’s Computer Products was formed in 1991 to improve the way individuals and organizations around the world use information on the road or from the desktop, office or home. Listed below are HP’s top six categories within its computer products branch.
HP is a leading supplier of handheld computing devices, and HP calculators. Since its introduction in May 1991, the HP palmsize PC family has won more end-user awards than any product in the handheld PC category.
HP’s OmniBook family of notebook PCs for professionals is marketed throughout the world. These notebooks are some of the industry’s fastest and lightest on the market today.
HP markets the Pavilion line of PCs for the home through major U.S. retail outlets and internationally in 12 countries. Pavilion PCs remained one of HP’s fastest-growing product families.
The Vectra, Brio and Kayak brand PCs for business environments and feature a wide range of desktop and tower PC designs, ranging from low-cost, entry-level models to powerful dual-processor systems.
HP designs these for demanding technical and computing-intensive environments, With the Kayak, and Visualize systems, HP now offers the industry’s broadest range of performance, flexibility and price points in workstation solutions.
Developed and marketed the ProCurve family of network hardware, including hubs, routers and all-in-one network-solution kits.
These six areas of major importance for the future of the computer market. Mostly for the ease of use, cost, mobility, networking capability, and power. The range of people demanding information devices and desktop systems is expanding, requiring the development of PCs and information appliances that are increasingly easy to use. Businesses are concerned with not only the cost of PCs, but also about the total cost of owning and maintaining desktop systems. Customers now require access to information anywhere, anytime, which is driving the design of desktop and mobile devices that can create, transmit and receive many kinds of information in multiple forms. Communication capabilities are being standardized, developed and implemented to move information across networks, locally and globally. Certain firms, such as engineering companies need workstation solutions that will help them compete globally, reduce product time to the market and improve product quality.
HP’s Enterprise Computing (EC) business is a worldwide supplier of solutions, systems, software, services, support and financing for enterprise customers. HP’s vision of the computing future centers on the evolution of the Internet and the increasing importance of e-services. Listed below are areas of concentration by HP to expand its enterprise computing.
Mission-critical Solutions (Systems, Services, Software)
UNIX — HP products and services provide the scalability, manageability, availability and top performance on the Web and through OnLine Transaction Processing that is needed for e-services.
NT – EC services and supports NT, NT tools and system interoperability, critical pieces of the e-services foundation, and offers NT servers through HP’s Computer Products Group.
Linux — HP’s Enterprise Computing has mobilized to meet the strong demand for anticipated Linux-optimized systems, software and services, including 24×7 worldwide support.
Storage — HP’s storage systems have the high availability and robust disaster recovery, as well as data sharing, centralized storage management and efficient backup and restore needed to capture, store, manage and access e-services data.
Technologies available that will help HP make Enterprise Computing a continued success.
Quality of Service – HP Web Quality of Service software (WebQoS) allows service providers to handle unexpected surges in demand on the Internet, communicate an exact wait time to customers and offer their most important customers premier service levels.
Security – HP Praesidium technology affords security for people, transactions and information across increasingly dynamic company IT boundaries. HP Virtual Vault allows partners and customers to access designated applications through a company’s firewalls, and currently protects more than $5 trillion of assets in more than 100 banks worldwide.
Protocol – HP e-speak is a universal language and protocol that makes it easy to build e-services and allows them to connect and interact with each other securely, regardless of what or where they are. Using this new “html for services,” customers can access e-services faster, more cost-effectively and securely — and from a variety of appliances and locations.
Embedded Software – HP’s Chai family of embedded software products adds intelligence to appliances and devices, and allows users to access and create new and powerful e-services.
Application to Application Integration and Web Development – HP’s end-to-end platforms allow companies to easily open all or part of their enterprise applications to new users, business partners and suppliers, with no changes to the existing applications.
Storage Architecture – With 100 percent availability and infinite scalability, HP Equation Architecture ensures that all applications in the system can access all information in the enterprise at all times.
Services Consulting – Enterprise Computing partners with other industry leaders, such as Sapient and Viant, to help customers design and create a net-ready IT infrastructure, build and rapidly implement ERP and other e-business solutions, and transform the online experience for their target audiences. The organization has deep expertise in the communications industry, where e-services will first develop.
Mission-critical Support – With the advent of e-services, IT infrastructures will become even more critical to organizations. Whether the infrastructure is UNIX, NT or Linux-based, HP’s focus is to “keep it running and fix it fast,” through world-class infrastructure planning, operational assessments, proactive support programs and business-recovery planning capabilities. HP’s proprietary support technologies and proactive system-monitoring capabilities identify potential system problems before they occur and help prevent downtime.
HP’s central research organization, HP Labs ranks as one of the world’s leading research centers. HP Labs’ role is to be the innovation engine that propels HP’s continued growth. HP Labs pursues this goal by supporting current businesses and creating new business opportunities that exploit HP’s core competencies in measurement, computing and communications.
Since its inception in 1966, HP Labs has been the creative site for major HP business, including the world’s first desktop and pocket scientific calculators, thermal inkjet printers, and portable scanners. Two major areas of research are conducted. The first is under HP’s umbrella, the second under Agilent.
This center conducts research in enterprise computer systems and architectures, software, network, Internet and multimedia technologies, computer peripherals, imaging, and information appliances.
Microelectronics and Measurement Solutions Center
This center conducts research in electronic, medical, analytical and optical instruments; photonics and high-speed communication; solid-state materials and devices; and components.
While this is a separate company, Agilent continues to follow the HP way. Meaning Agilent will continue to innovate, as HP always has, to produce quality products and services that make a clear contribution. Secondly, Agilent will work according to the HP’s strategies with partners, customers, and employees in innovative ways, using the same set of business practices {MBO, MBWA, etc}. These practices embody the values that have built HP into the successful company that it is today.
Agilent is the world’s leading designer, developer, manufacturer and provider of communications components as well as electronic and optical test, measurement and monitoring instruments, systems and solutions. The company’s customers span essential industries, including electronics, communications, semiconductors, healthcare and life sciences.
Four main areas were moved from HP to create Agilent Technologies:
The automated test business is a market leader in the design, manufacture and service of systems that test semiconductor and electronic printed circuit boards. These systems are used to verify quality in manufacturing processes and ensure the performance and reliability of the end product.
These systems and services enable customers to design, build, install, manage and maintain the networks that make up the global communications infrastructure. This infrastructure enables worldwide access to, and transmission of, data, voice and images.
The electronic products and solutions business is the world’s leading supplier of test and measurement instrumentation for the electronics industry, including manufacturers of equipment for wireless networks. This business markets general-purpose test instruments for use in research and development laboratories, and repair shops.
The Chemical Analysis Group is a leading provider of analytical instrument systems that enable customers to identify, quantify, analyze and test the atomic, molecular, physical and biological properties of thousands of substances and products
The Healthcare Solutions Group is a leader in clinical measurement and diagnostic solutions for the healthcare marketplace. Its products and systems enable medical professionals to gather data and analyze information in hospital intensive-care units, outpatient clinics, doctors’ offices and patients’ homes.
Semiconductor Products Group (Components)
The Semiconductor Products Group is a leading supplier of semiconductor components, modules and assemblies for high-performance communications infrastructure, computing devices and mobile information appliances.
Four of the five HP priorities within corporate level strategies are interrelated (this excludes Agilent) and affect the others. HP labs is crucial in creating and improving printers, computer products and enterprise consulting products. Printers, computers, and enterprise consulting can be bundled together providing a one-stop shopping mechanism for customers. Whether the customer is a personal/home computer user or a large corporate customer, bundling creates a differentiation for HP. Given the choice, most people or organizations would prefer to work with one company for all their needs (so long as all needs are provided and the quality of products is high), as opposed to working with six different vendors for PC’s, printers, scanners, servers, networking service and e-services.
Summary of Issues, Strategic Recommendations and Implementation
The growth of the PC market is topping off, as far as US profit margins go. All PC companies will be faced with this same situation, and developing solutions to maintain profitability. Diversifying into new product lines, line extensions, or all new categories will become increasingly common among the PC manufacturers. Again, this was apparent in HP’s situation with Agilent Technologies. Other key points that HP needs to focus on to maintain profitability, and customer base worldwide are:
·Continued emphasis on customers needs; value added improvements to existing products or the creation of new products to meet the needs.
·Alliances with key companies. Do not “get into bed” with too many companies, but form strategic alliances that have major impact and potential for long-term, mutual benefit.
·Continue to provide PC’s but put more emphasis into expanding areas like the server market and providing E-services.
·Continue to develop International sales. These sales are not topped out, as the rest of the world is not as technologically advanced as the U.S.
HP’s commitment to providing services and products that customers want has always been apparent. To continue to grow and expand into other facets of the computer world, staying in close contact with customers is key to forecasting and defining the needs. It is also key in projecting where additional needs will be. The customers may be thinking of short-term only, but by defining a short-term need, a long-term one may be forecasted, giving HP an edge.
Key alliances will be beneficial to HP. The recent AT&T is an example of such an alliance. HP will provide Internet service for its Brio line computers, working with AT&T. Success of this agreement could lead to additional agreements of providing Internet service with its Pavilion or other lines of computers. AT&T has a large share of the telecommunications market, as computers and telecommunications become so entwined, this alliance has a multitude of potential for the future. Another key alliance was just announced October 20th. This is the Viador alliance for enterprise portal deployment, and gives HP the first on-line implementation service for E-services.
Development of new products/services outside PC’s:
The first part of the Internet was dominated by data exchange and growth of sites featuring simple transaction processes. In the next part, successful companies will turn their assets into services delivered securely via the Internet. The future of E-services will be in combining and recombining capabilities to solve problems, and making everyone’s lives easier. Some of these services will be available on Web sites; others will be delivered from telephone, pager, or e-mail. E-services will work behind the scenes, automatically linking together transactions across partners, suppliers, employees and customers. [Here again, an alliance with a telecommunications giant would prove beneficial.]
One of the hindrances to E-services is the complexity of computing systems and the absence of a common language to allow systems to interact with each other. HP should develop solutions to these problems and help customers understand how to build e-services, both internally in their IT departments and externally for their own customers.
Major areas that HP is and should continue to focus its E-services on:
E-marketing and selling — Developing new front-end communications and marketing capabilities, such as manufacturers’ storefronts and hosted online banking.
E-supplier integration — Moving customers beyond the traditional supply chain model to engage more interactively with the design, production, delivery and support of products and services, through e-procurement and e-order management solutions.
E-business intelligence — Helping customers generate new business through cross selling and marketing, and by offering more personalized e-services.
Mission-critical e-computing — Using new high-availability and systems management technologies to build a robust secure infrastructure with the maximum uptime that e-services require.
End-to-end e-payments — Protecting the integrity of transactions from start to finish for consumers, financial institutions and merchants.
Services provider hosted e-services — Developing turnkey hosted merchant platforms for a variety of HP customers with whom HP shares risk and revenue.
While the U.S. PC market is becoming more saturated and less money is being made. The world’s market is not. 50% of HP’s computer sales are outside the U.S. right now, and given a larger focus of resources, could greatly increase. Part of the world is not saturated with PC’s and provides a potential initially for PC sales, but again for additional services when technology is available. Targeting large international markets can create brand loyalty and awareness so that when the
entire world is ready for e-services, networking, servers, etc, HP’s name will have recognition. HP should work with international retailers to increase indirect sales worldwide. This penetration could be targeted at certain geographical locations where the market potential is highest. Hiring an outside marketing firm to investigate these key markets identified by HP would provide initial information on how the target the segments and penetration strategies.
As discussed earlier, HP is diversified and flexible within its organization and provides a large number of products in a multitude of markets. HP has adapted well to the changes in the markets by realigning itself and entrance into newly emerging markets. This is key to implementing new products/services into new markets. HP’s employees will continue to become important as the shift from the product to added services increases. The more customers that have HP products/services, the volume of technical and customer service needs will increase. Service representatives will be the first line link to its customers. Customers that receive unsatisfactory service will spread the word. Negative publicity like this will hurt the firm in the short and long run. Therefore, an investment in its hiring, training and “value-added” services for employees is advised. HP’s employees will also be important as the international market develops. This expansive will require additional training for employees to develop the skills needed to succeed in this market. There is success in the international market all ready, but to really penetrate the world, HP needs to focus on providing the same support to the world as it does in the U.S.
HP’s culture is one of informality and service-orientation. This culture is exactly what is needed survive in the ever-changing computer & related products industry. Companies that do not have this culture, flexibility and attitude will be unable to adapt to the rapid changes now and in the future.
HP can monitor its progress by reviewing industry market potential and its share, quarterly/annual financial information, stock price, but most importantly charting its customer feedback. Customers are HP’s focus and in order to rate its progress and success, customer satisfaction should be the main factor. Are the products and services in all HP’s markets meeting the needs? If not, what can be changed in existing products/services to meet the needs or how to quickly develop products/services that will. Also reviewing all product lines within markets should be attempted. Some products or services offered may not be meeting customer needs or making HP a profit. In this event, it should be discontinued. Monitoring production and inventory levels are important given the ever-changing markets. Developing too high of inventory could result in having to sell products at a very small profit, if a profit at all, having dramatic affects on the overall financial condition of HP.
HP continued to grow, as did the U.S. PC market during the mid-1990’s. As the PC market declined in the late 1990’s, so did HP’s financial situation. HP has reacted well to the setbacks by implementing realignment, developing within new markets all while continuing to provide PCs. HP works diligently to develop new products and services to meet its customer’s needs, in addition to hiring and training employees to focus on these needs also. In order for HP to have continued success, it should focus on the four main areas described in the summary of issues:
·Continued emphasis on customers needs; value added improvements to existing products or the creation of new products to meet the needs.
·Continue to provide PC’s but put more emphasis into expanding areas like the server market and providing E-services.
·Continue to develop International sales.
If HP correctly implements these essential points, it will be positioning itself well for wherever the Internet and millenium will take it.
Ziff Davis Web Site; http://www.zdnet.com
Microsoft Investor Web Site; http://www.investor.msn.com
“Computers: Hardware”, November 19, 1998, Standard & Poor’s, Industry Survey, page 1-9.
4 “Computers: Software”, March 4, 1999, Standard & Poor’s, Industry Survey, page 1-9.
5 “Computers: Commercial Services”, December 3, 1998, Standard & Poor’s Industry Survey, page 1-7.
