Strategic Management of Hewlett Packard - Case Study Example

Table of Content Content Page Introduction 01 2. Process of Formulating Strategy 01 2 Vision & Mission 02 2.2 Setting Objectives 03 2.3 Strategic Analysis – SWOT 03 2.4 PESTLE Analysis 04 2.5 Porter’s Five Force Analysis 05 3. Strategic Position of Hewlett Packard’s 05 Computing and Printing 3.1 HP’s competitive strategy 07 4. Position of Agilent’s test equipment business. 08 4.1 Agilents Competitive strategy 08 5. Conclusion 09 Strategic Management Process 1. Introduction In today’s world managers are increasingly pressured to achieve targets and goals with limited and scarce economic resources. By deploying a well-formulated strategy, the scare resources and efforts can be directed towards a charted course, eliminating waste from lacking direction. Without a strategy to provide an overall direction, the functional activities can run the risks of missed opportunities, fragmented and wasted effort, working at cross purposes, and getting involved in internal conflicts. Objective of formulating a corporate strategy is to allow a company to identify a competitive advantage and sustaining that competitive advantage and survive, forge ahead and stay ahead of the competition. In crafting organisational strategies the company’s key objectives should drive the process. For this purpose, it is important that the strategy formulation process is initiated with a clear understanding of “What” the company’s business mission is, “Who” are the customers, “What” do the customers consider as value, “What” have been the organisation’s results so far in catering to these needs and “What” are the future plan in meeting the consumer needs (Druker). The report aims at outlining the process of developing organisational strategy and proposing a competitive strategy for the business operations of Hewlett Packard’s Computer and Printing operations. A competitive strategy for HP’s recently separated business arm of Agilent Test equipment operation is also developed. 2. Process of Formulating Strategy In order to formulate a successful corporate strategy, it is important to understand what delineates Corporate Strategy. A company’s strategy can be understood as the game plan the management is using to stake out a market position, conduct operations, attract satisfy and retain customers, compete successfully and achieve organisational objectives. The process of formulating corporate strategy cannot be carried out in an ad hoc fashion but follow a systematic process that involves five key steps. The Five Key Tasks of Strategy formulation includes identifying or developing Strategic Business Vision and Mission for the organisation, Setting objectives, Create strategic plans to accomplish purpose and objectives; implement the strategic plans and finally evaluate results and modify or change strategies in response to the dynamic business conditions (Thomson & Strickland 2003). In order to evaluate the effectiveness of formulated strategies, applicable criteria includes whether the strategies have clear decisive objectives, whether it maintains the initiative, whether it focus and concentrates on objectives, whether it can gain acceptance of those who have to implement it, whether it can sustain commitment of leadership and whether the strategy has a element of surprise for the external parties such as competitors (Thomson & Strickland 2003). 2.1 Visions and Mission An organisational mission and vision are the foundation upon which effective strategies can be formulated. (Kaplan & Norton 2001). “A strategically revealing mission statement incorporates three elements. These include “what”, “who” and “how” referring to the needs, customer groups and process of delivery (Abell 1980). A company’s Vision should be Inspiring, Overarching and Long-term and should not be myopic in its view limiting scope for growth in future. Vision statements embody the fundamental Values, Aspirations and goals of the organisation. It is the reason for being, where the organisation’s existence is concerned. In contrast to the vision, the mission of the company is more specific and focuses on the customers, products and/or services and the underlying business philosophy. 2.2 Setting Objectives Setting objectives is the second step of the strategy formulation process. Without a clear set of objectives which link the strategies to the organisational vision, the focus of the operations will suffer. A clearly defined and effective set of objectives aid in realizing the mission or the organisation; provides guidance on how to move toward the vision of the company and provide Specific, Measurable, Appropriate, Realistic objectives that cover a defined Time frame. Such SMART objectives provide challenging targets for organisation to strive towards while forming the basis for reward systems. It is increasingly accepted by organisations today that organisational objectives should not be limited to financial considerations but take a balanced perspective and cover areas of customer focus, internal processes, financial performance and innovation and learning process (Kaplan & Norton). 2.3 Strategic Analysis - SWOT Effective strategies will have a clear insight in to both internal and external factors which impinges upon company’s performance and for this purpose a SWOT analysis can be used in drawing conclusions on how a company can best align its resource base to take advantage of the business opportunities while safeguarding against the threats. It should also be used in developing those weakness areas by strengthening the internal deficiencies and building required core competencies (Duncan, Ginter & Swayne 1998). The strength and weaknesses of the company should be identified by assessing the core competencies in areas of, Key business processes, Technology, Human resources, Manufacturing, Management Systems and Talents and Financial strength. A company’s strengths and weaknesses may relate to innovation, customer focus, brand image or productivity and supply chain effectiveness. An internal audit will facilitate the identification of the company’s strengths and weaknesses in relation to its given business objectives and techniques such as Organisational Capability Analysis (OCP) can be used to provided quantified score ratings for Business strengths and weaknesses. Opportunities and Threats of the SWOT analysis focus upon the external factors which bears and impact on the organisational performance and involves assessment of current and future conditions of the industry and the external environment. The competitive conditions and industry attractiveness can be assessed by application of analysis tools such as the Porter’s Five Force model while the environmental conditions can be assessed using techniques such as the PESTLE analysis. 2.4 PESTLE Analysis Political conditions in both national and global front impacts on business. Prevailing world terrorism has implications for many industries. Some of the closed economies in the 1980’s have opened up and adopted the open economic policies and allowing foreign direct investments. Such countries as, India, China and Russia offer massive markets, which can be considered for new investments factors impinging upon companies. Environmental factors such as scarce natural resources, conservation of eco systems through recycling have varying implications for different industries. Natural disasters as the Asian Tsunami and the series of hurricanes in US can also impact upon the organisations adversely. Social & Cultural factors consist of changing demographics, patterns of employment, lifestyles and attitudes. More and more people are becoming technology savvy and the new generations are highly computer literate. A higher percentage of women across the world are employed. The ageing population of the world may hold adverse effects for some industry. Technological developments include wide spread use of personal computers, rapid growth of Internet usage and integration of information technology to drive key processes of organisations. Legal factors as increased focus on Intellectual property rights, Anti Trust laws, regulation of mergers and acquisitions an monopolistic market practices also impacts on organisations. Economic forces such as the slowdown in the global economy and the increased competition from cheaper global source, the turbulent currency markets also affect companies. 2.5 Porters Five Force Model For businesses to enjoy profits in the long run, two essential factors should be in place. First is the industry attractiveness and the second is the company’s capability to capitalise from the opportunities (Porter 1996). Industry attractiveness can be assessed using five dimensions of Porter’s Five Force Model. Threat of substitutes affects how attractive an industry is for both existing and prospective players. The substitutes can be direct or indirect and therefore the scanning of the environment for threat of substitutes should not be myopic and restrictive. Bargaining Power of Buyers is another factor, which affects the industry attractiveness. If buyers are large scale and concentrated, their bargaining power will drive down prices and profitability. Bargaining Power of Suppliers is also an essential element, which decides the industry attractiveness. If specialized and scarce raw materials are required, the suppliers may demand higher prices and control supply conditions, affecting profitability and growth potential. Threat of new entrants will depend upon natural barriers and legal barriers. High capital intensity, high switching costs, alliances, economies of scale are some forms of barriers to entry, which reduce threat of new entrants. Rivalry among competing sellers will depend up on factors such as the sstructure of competition, the structure of industry costs, and switching costs, aggressive strategic objectives and high exit barriers. 3. Strategic Position of Hewlett Packard’s Computing and Printing Founded in 1939 by two Stanford University classmates, Bill Hewlett and Dave Packard, Hewlett Packard is today among the top ten companies in Fortune 500 companies. With its team of 151,000 employees and operations spanning over 170 countries the company revenue has reached $87 billion in 2005. The company, which started off with production of an audio oscillator—an electronic test instrument used by sound engineers in today at the forefront of computer and printing technology. HP’s success is widely attributed to its strategic platforms, which links the operation to the overall company objectives. Company defines its corporate objectives clearly as Customer Loyalty, Profits, Market Leadership, Growth, Employee Commitment, Leadership Capability and Global Citizenship. The importance of developing a corporate strategy, which is derived from company objectives, and driving the overall operations is embodied in the following quote by HP’s co founder Dave Packard. “It is necessary that people work together in unison toward common objectives and avoid working at cross purposes at all levels if the ultimate in efficiency and achievement is to be obtained." — Dave Packard Today the company stands as a leader in an industry which with high growth potential. The IT industry and the hardware sector are growing rapidly with the technology dispersion across the globe. With the strong internal strengths of HP driven by innovation, experience, economies of scale and wide global presence, the company is in a strong business position to capitalise from the available business opportunities. The industry attractiveness should be considered in terms of threat of substitutes, which is high as IT technologies are subjected to fast obselence. Intense competition is driving the innovation process at a rapid phase in this industry. The threat of new entrants is not high as the market entry barriers are high with alliances; high exist costs and capital intensity. Bargaining power of suppliers is not at a high level and the alliances formed can mitigate any threats in this aspect. The bargaining power of the buyers differs as HP serves a range of customers from individual to small and medium scale businesses as well as large-scale buyers. The rivalry among existing players is high but differentiation tactics has allowed the operators to sustain profitably. 3.1 HP’s competitive strategy Considering the above strategic position of HP, the following business strategies are proposed to capitalise from market opportunities while overcoming any challenging industry competitive forces. Components of the proposed competitive strategy for HB includes a Best Cost generic strategy supported by a combination of Growth, Differentiation and Alliances to support its business mission of “offering products, services and solutions that are high tech, low cost and deliver the best customer experience” (HP Home Page 2005). The company needs to capitalise from the current growth potential in the industry through Concentrated Growth strategies targeting the global market. Such growth strategies may include mergers and integrations as the HP – Compaq merger, allowing the firm to benefit from economies of scale which will in turn support a generic strategy of Best Cost platform. The growth can be facilitated through alliances with global partners with joint venture operations. These joint ventures and strategic alliances will aid the company in increasing the barriers to entry in the industry and also in establishing powerful competitive positioning. Furthermore, such global growth strategies will allow the company to benefit from newly emerging markets as India and China, resulting from changes in business environmental factors related to political and economic conditions in the globe. To benefit from the IT industry growth in the developing nations’ the company should pursue a best cost Generic strategy, offering Best Quality products, services and solutions at the cheapest possible prices, allowing lower income consumers to consider HP products. Finally the company should adopt a differentiated platform, capitalizing on HP’s brand image and aligning its innovation as a key strategic driver to ensure that changing consumer needs and evolving IT technology is intercepted with innovative new products by HP. In order to pursue a differentiated strategy a company should have access to leading research, have a creative and highly skilled product design team, engage a strong sales team with a clear product vision and possess a reputation for Quality and Innovation. HP currently spends $ 3.5 billion annually on innovation and produces 11 patents a day worldwide. Such strategically aligned innovation is the key to sustained competitive advantage. 4. Position of Agilent’s test equipment business. As per a management decision at HP, a new company was formed as Agilent Technologies in 1999, concentrating on HPs former measurement, components, chemical analysis and medical businesses. Agilent Corporation was formed in November 1999 with a record breaking largest ever IPO in the Silicon Valley. Agilent Technologies today is the worlds premier measurement company, providing core electronic and bio-analytical measurement tools to engineers, service providers, researchers and scientists in the electronics, communications, life science research, environmental and petrochemical industries. Agilent with its global operations generate two-thirds of its US$ 7 billion revenue from outside of the United States. Company is placed 212 in the Fortune 500 rankings since its introduction to the list in 2002. The company stands to gain from the rapid industrial development in the industries to which it caters such as the life science and bio analytical measurement tools. 4.1 Agilents Competitive strategy The company was formed through a Restructuring strategy, which basically aims at changing the scale and/or mix of operations to gain efficiency and improve performance. The company can further its competitive positioning through several key strategies. The Strategic use of the Internet in gaining competitive advantage is important to Agilent’s as it deals with large and high profile customers with precision requirements, which are highly, specialize. By establishing project collaboration and new product development systems, which incorporates the customers through Internet based technologies, will allow the company to operate with greater customer focus. By integrating supply chain in to the Internet based system will also provide the company with strategic advantages in supplier reliability, lead-time and cost management. The company should pursue a Focused strategy when it comes to the Generic competitive platform. With its core competencies in the precision electronics, company should Focus on needs of market segments. This would allow the company to benefit from specialization and achieve competitive positioning through premium quality and innovation within a narrow and focused product range. In order to make this strategy a success the company should have strong market tracking to gauge consumer needs and develop strong customer loyalty. The process efficiencies are important to match lower volumes. The company can also engage growth strategies in geographical scale while pursuing its product focus so that the company caters to a wider market base spread across the globe. As the core industries being supplies by the company are operating globally, such a lateral growth strategy will be viable as the case of recent joint ventures with Chengdu Qianfeng Electronics Ltd. Corp. in China and the establishment of Agilent Technologies China Holding Company Ltd., aimed at consolidate business in China. 5. Conclusion While corporate strategies differ from company to company and needs to be changed in response to the dynamic nature of business environment, the underlying strategic options focus on catering to the needs of the consumers effectively and with cost efficiency. 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