HP-Compaq Merger - Essay Example

HP-Compaq Merger xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Analysing the Proposed HP-Compaq Merge xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Institution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Executive Summery In the case of HP-Compaq merge, Fiorina is faced with a difficult situation as HP family member Walter and Packard opposes her decision to merge with Compaq. However, there is a chance for the merge to be successful if an appropriate pre and post plan strategy is developed. In the cutthroat competitive IT and Electronic global market, the size of a company’s capital will determine its market share. In the corporate world, market leadership is essential for the company to strategize how to maximize its profitability and shun off its competitors. Greater market share and market leadership are some of the key fundamental reasons why the Hp-Compaq merger must succeed. By coming together through a merger, the two-companies-come- one becomes more competitive, cost efficient and gains greater market share. The new HP can overcome all her weaknesses by focusing on her strengths and available opportunities. Although both the SWOT and Five forces analyzes indicate a number of possible limitations to the merger such as staff layoffs, cultural wars, stiff competition to mention but a few, the analysis shows a greater brighter side of the merger that overshadow these limitations. Some of them include high quality productions due to combined resources, greater customer satisfaction through extensive research, increased sales due combined channels of distribution and  reduced cost of production hence maximum profits to mention just but a few. HP should merge with Compaq but should concentrate on the growth of the merger rather than cost synergies which have been a major cause of failure of merges in the past. This may be achieved through product development and creating awareness of available products. This paper looks into a possible governance structure and recommendations that Fiorina should take into consideration if she is to succeed. The recommendations are presented in form of a score card after a critical analysis of the situation. Introduction The rationale behind mergers is that two companies together are more valuable than two separate companies. By coming together through a merger, the two-companies-come- one becomes more competitive, cost efficient and gains greater market share (Galpin & Herndon 2007). However, this does not come easy as there are quite a number of hurdles that must be cleared along the way for the merger to be effective. Since the conception of the proposed merger between HP Company and Compaq, there has been quite a number of difficulties and criticism from all quarters of the business society. The new HP therefore has to be strategically prepared at all times to face the dynamics of the computer industry. With personal computers being commoditized and competitors like Dell, IBM and Canon gaining market share through their low cost sales and delivery channels, there is need to make this merger a success in order to attain and retain market leadership. It is through scale that the company can improve the economics of her PC business and lower prices to effectively compete with Dell (Kroger & Tram 2000). Through the merger, HP will strengthen its product line especially the server segment by combining HP’s Linux and UNIX software with Compaq servers hence providing a much more integrated solution. SWOT Analysis A SWOT analysis of the merger shows that there are strengths, weaknesses, threats and opportunities that need to be keenly examined and managed properly in order to attain and even retain market leadership in the computer industry. Strengths Among the merger’s considerable strengths is its potential to double the maintenance-and-support business because the new HP is likely to land into big contracts with corporations and governments. Definitely, the new hp will have the absolute bulk to reach and turn two struggling companies into one indomitable and far healthier one. HP will leverage Compaq’s strong market share and brand recognition in the commercial PC market hence accelerating cost savings for the company. The company will also save over one billion dollars annually by cutting down its payroll and eliminating overlapping corporate functions, from legal and marketing to human resources and sales management (House & Price 2009). This is because they will cut down on employees who perform the same function. For instance, there will be one operating CEO instead of two. This merger will cement HP-Compaq’s position of becoming a leader in most of the PC industry sub-sectors hence giving it greater abilities in meeting dynamic customer demands through extensive and elaborate customer research using the research and development arms of both Compaq and HP that will now work towards common technological and economic goals. This move will also see the company cut down its costs and increase its profit margins thereby solidifying its financial strength to invest in new profitable areas like digital technology. Threats The merger faces economic, political, technological, political, social and competitive threats (Black 2003). The social threat is rated high due to employee morale issues within the company because of the number of layoffs that are likely to occur once the merger takes effect. The cultural background of both companies is quite different. HP’s culture is based on consensus while Compaq’s is based on swift decision making. It might take a much longer time to integrate these two cultures and resolve emergent issues caused by differing workplace cultures (Black 2003). The competitive nature of the hi-tech business and technological changes will powerfully impact on the new HP. These two companies were former competitors therefore there are chances that there will be conflicts that would increase customer risks and uncertainties (Black 2003). Initially at various levels, HP and Compaq have brought to the market almost similar technologies and products ranging from server hardware to operating systems. To eliminate redundancy, some of these technologies and hardware will have to be faced out. This might inevitably cause an eruption of turf wars. Consequently, the two CEOs will be charged with ensuring that the internal migration, consolidation and integration wars don’t disturb service to existing product lines and hurt the combined entity's ability to create outstanding new products-- this is not going to be easy. The new HP also faces rapid I.T advancement and changing customer needs therefore; it has to tailor its products and technologies for it to remain relevant to its customers. The company also has to watch strong brands in the market like IBM and Dell whose products are relatively cheaper and fashionable. Weaknesses Acquiring a greater market share will definitely not mean market leadership. In order for the new HP to attain and even retain market leadership, it needs struggle to be ahead of its competitors by enhancing its distribution channels, maximizing its profitability, ensuring competitive prices and maintaining customer loyalty (Rezaee 2004). Unfortunately, HP will not add new significant technological capabilities from the merger as there are overlaps in products, distribution channels, technologies, facilities, services and jobs because these two companies over the same products in the market. Technological operations will obviously experience drawbacks from the transformations that will happen within the business processes of the new corporation. It is obvious large stocks will increase the riskiness of the company as credit rating of HP was lowered after the merger announcement. There is a likelihood of diminishing economies of scale sector which both companies have already a great scale in the electronics and IT industry. Opportunities The combined distribution channels will be diversified to reach various parts of the world hence ensuring the company’s products and technologies are available and accessible in the global market. The global presence so attained will also make it possible for the company to outsource for a pool of the most qualified, reliable and efficient staff and facilities. Pooling the combined resources will make the company provide better products at low prices making the company a leader in low market prices (Rezaee 2004,). The company can also use the so achieved pool of resources to invest in internet usage to market its products such e-commerce and e-marketplace. The problems that are likely to occur due to the merger should be perceived as avenues of improvement. Restructuring and reengineering operations will also provide the opportunity for the new corporation to reinvent better manufacturing and production processes that seriously consider efficiency, reliability, quality and accountability in production. Five Force Analyses I. Entry barriers Entry barriers are those factors that make it easier or harder for other companies to enter the industry. High entry barriers lock potential competitors out of business whereas low barriers provide an opening for the competitors to enter the industry (Gaughan 2001). Some of the entry barriers that Compaq include Brand loyalty as quite a great number of Compaq customers insist on using Compaq products throughout their lives and if the merger goes through, Compaq will definitely acquire more brand loyalty by playing off HP’s. Switching cost is another entry barrier as it is relatively expensive to switch from a Compaq system to an Apple System due to the technicalities involved (Pfleeger1996). However, since business operations and facilities that characterize the electronics and IT industries are complicated and expensive, the merger of these two giant companies that have already set their leg into the lucrative business will definitely make it a harder venture for companies with limited capital. II. Supplier power Suppliers can be a dangerous force to any company when the company depends on them for products but the supplier does not depend on the company for business and consequently they can force up the prices of their supplies thereby depressing the company’s profitability (Clemente & Greenspan 1998). However, if the suppliers are weak, the company can bring down prices and demand higher input quality. HP-Compaq therefore must have a very comprehensive selective technique to evaluate the credibility of the suppliers who can provide raw materials and services required by HP-Compaq as a single corporation. III. Threat of substitute products Substitute products present a strong competitive threat to a company as they can limit the price a company can charge for their products and thus negatively affecting the profitability of the company. Merging the two competing companies will lessen the substitute products and service provisions that exist between the two and therefore ensure quality production and technological infrastructures and manufacturing processes that are expensive to rival companies thus reducing the number of substitutes in the market (Clemente & Greenspan 1998). Fortunately the substitute threat that comes from mobile computing by cell phones is minimal and can be countered by laptops that also provide efficient means for mobile computing. Iv. Buyer Power The buyer power is the impact customers have on a producing industry. The Hp-Compaq merger will bring better product lines and service offers to the market. This is what customers and clients of the company should expect as the buyer power will be intensified through offering new electronics services and products hence setting new market trends in the electronics and I.T industry. V. competitors The international IT and electronics industry is very competitive. When the merger was announced, some of the top competitors in the market like IBM, Dell and Canon were very skeptical of the outcome of the merger. There were those who believed that the merger will adversely weaken the two companies since both of them prior to the merger they were struggling while some believed otherwise since combined resources of the two companies will propel and strengthen them in a better market position in the years to come. Critical Appraisal Fiorina was concerned with the development of HP and her translation from the old organisation to a modernized organization. This is seen in her efforts as she visited HP facilities worldwide and her efforts of motivating workers to build a strong self-motivated working force (Williams & Gary 2001). Her action of developing the HP logo clearly indicates her determination to see the company move forward. In the field of IT where technology is evolving so fast, change is inevitable and being resisting change would ultimately to organisational failure. HP was shaky and would have crumbled if urgent actions were not taken to save her financial situation as her capital fell to less than half at the time Fiorina was hired. Fiorina’s efforts clearly indicate that global recesses and the change in IT sector were major causes of the deteriorating financial status. Both companies are merging because of the threat they are facing in the computer industry and the need to strengthen their financial base. Fiorina has misjudged the interest of Walter Hewlett and considers it unimportant to explain the situation to him. In real sense, family members in any company are more affiliated to the management of the company than common stakeholders and always tend to oppose change if it is not in line with the initial objectives of the company. In addition, they are the majority shareholders and if the company falls, they would be the greatest losers (Rezaee 2004). Fiorina is proud and thinks that she does not owe Walter an explanation since she had explained the issue to all shareholders in general. Walter Hewlett is not only a shareholder and a family member but also an activist. His actions of inciting others may succeed if Fiorina is not keen. The company has undergone a number of changes which includes giving high position without gender discrimination as is the case with Fiorina. This is an indication that change is inevitable and that Fiorina only needed to make Walter understand the importance of HP-Compaq merge. Fiorina made a mistake in announcing the merge publicly before gaining the support of family members. This may have been the cause of intensified oppositions family members thought Fiorina was disregarding their argument. HP failed to address the issue of employee lay off effectively and this may result to rumours that would result to company failure. Employee motivation and respect have been found to be major cause of success in most companies. The employees therefore needed to clearly understand the merge to the point that they can carry the vision of the management as they are the implementers on the ground (Clemente & Greenspan 1998). Fiorina did the right thing to inform the public so as to protect them from receiving distorted information. This may ensure retention of her customers in the process. Past researches indicate that it is easier for any company to retain employees rather than gain new ones. It is for this reason that both Compaq and HP should be keen on brand loyalty. Fiorina failed to address the issue of cultural difference existing between the two companies. This may result to failure of proper integration of teams. Since employee loyalty to a greater extent determines customer loyalty, this issue needed to be addressed and made clear to all stakeholders. HP’s culture should be incorporated in the plan if the merger is to succeed. Identifying their similarities and difference should therefore have been on concern to smoothen the integration process. Fiorina was decisive and moved fast to implement the decision of merging the two companies. This is a very good aspect and without it, companies are bound to fail. Her only mistake is that she did not seek to win and retain support from key share holders who are in this case the family members. Recommendations HP should merge with Compaq but should concentrate on the growth of the merge rather than cost synergies which have been a major cause of failure of merges in the past. This may be achieved through product development and creating awareness of available products. Activities such as road shows and advertising through the media are important. To prepare a good pre and post integration process plan focusing on developing the procedures to be followed. Hiring qualified personnel and involvement of stakeholders through seminars will enhance this process (Clemente & Greenspan 1998). To focus on customer satisfaction, retention and attraction bearing in mind the idea that the customer is always right. Addressing customer concern on time is of great value. To ensure clear communication on all issues including employee layoff to stakeholders, customers, shareowners, employees and the management by applying all available communication channels (Gaughan 2001). To focus on the integration of the two teams and utilize their cultural difference as strength through team development activities. To clarify the issue of the merge to the two families who are shareholders so as to sell the vision Fiorina has foe the new HP. This way, she can attain their support and ensure unity in the teams. Team work is essential for companies to attain success. To seek support from the market especially the industry analysts through extensive research and consultancy. Proposed governance structure This governance structure has been preferred as it ensures that there is no conflict of interest as all stakeholders are well represented. In addition it cuts down on operating cost while ensuring that external advice is sought in relation to the market. Reasoned Recommendation Financially, the merge will strengthen the company as its capital will be standing at $87 billion. This will place HP at a better position to compete with IBM. It will also make the new HP the biggest company among medium and small sized companies. Her strong capital base is important for mass production which will in turn result to lowering of prices and hence ability of the company to stand a better position in the market (Francis & Martin 2010). This financial power will act as the firm ground for the new HP to compete in the market with other companies such as IBM. The merge favours all stakeholders and thus providing value for them. This is because as the two companies combine efforts to increase their market share, shareholders also benefit. In addition, the merge protects both companies from collapsing despite the new challenges being faced in the IT market. The merge is likely to benefit customers as they will have a range of products from which to choose from. In addition, combined efforts will also mean an enlargement of the breadth and depth of solutions to problems being faced in the market (Clemente & Greenspan 1998). This may result to increased rate of customer retention as well as the market share. The new company will have new ways and means of satisfying customer need and will ensure flexibility on the part of the customer. Her new customer base and a large number of staff will encourage research to new approaches and products thus engineering a valuable technology. Partners will be more attracted to the new HP as a result of the deep relationship that will develop between the company and her customers. Many partners in the industry will be compelled to partner with the new HP due to her customer base and the popularity of her platforms which include HP-UX, NT and Itanium. Her new capital places her as the largest partner for most companies and consultancies which include KPMG, PWC and Accenture. This will mean an unmatched partnership commitment with these companies. Share owners will also benefit from the merge as a result of the growth that would result. The new cost structure will be highly competitive. In addition, the fact that the merger will involve different individuals with different capabilities and ideas will result to new efficiencies which will in turn ensure a large market share and growth. This growth will ultimately lead to recruitment of new employees as job opportunities open thus fulfilling the company’s objective of providing employment opportunities for the communities. Balanced Scorecard Strategic priorities Objectives Measures Target Initiatives Financial Attain financial strength Increase profit Portfolio Growth Portfolio growth Net profit margins Capital growth 50% 60% $ 174 Alliances with partners customer Ease accessibility of products and services Win-win marketing strategy effectiveness wide range of products Enhance product distribution Delight customers Develop and maintain win-win relationships Provide a wide range of products New outlets growth rate Positive customer feedbacks Growth of dealers gross profit Customer satisfaction rating 18% 80% 25% >80% Product promotion Feedback boxes Annual and quota year’s audits Training and innovation programs Internal Operational excellence Raise the customer value Strengthening the merge Provision of quality products and services Developing new products and services Inventory management Management and leadership development Deals closing rate Growth in No. Of new products Out-put vs. in-put rate Success rate of mentoring and training programs Above 80% 20% 90% 90% ISO 9000 Program review Manager’s mentoring programs. Growth & Learning Prepared and highly motivated workforce Competency development Excellent Working conditions Employee survey Employee-management relationship development 80% 85% Employee training programs Team building programs References Black, J, 2003, Organizational Culture: Creating the Influence Needed for Strategic Success, New York: Prentice Hall. Clemente, M, and Greenspan, D, 1998, Winning at Mergers and Acquisitions: A Guide to Market-Focused Planning and Integration. New Yolk: John Wiley & Sons. Cragan, F, David, W, and Chris, K, 2004, Communicating in Small Groups: Theory, Process, Skills, 6th Ed, Belmont, CA: Thomson Wadsworth Francis, R, and Martin, X, 2010, Acquisition profitability and timely loss recognition, Journal of Accounting and Economics (February): 161-178. Gaughan, A, 2001, Mergers, Acquisitions and Corporate Restructurings, 3rd Ed, New Yolk: John Wiley & Sons. Kroger, F, and Tram, M, 2000, After the Merger, London: Financial Times Prentice-Hall. Rezaee, Z, 2004, Financial Institutions, Valuations, Mergers, and Acquisitions: The Fair Value Approach, 2ed, New Yolk: John Wiley & Sons. Williams, M, and Gary McWilliams, 2001, “Family Affair: HP Deal’s Fate Rests with Skeptical Heirs,” The Wall Street Journal, November 9, p. A1. Read More

 

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