The Hewlett-Packard And Compaq Merger - Case Study Example

Title: HP-Compaq Merger Student name: Instructor’s Name: Course Name and Code: University: Date Submitted: EXECUTIVE SUMMARY The Hewlett Packard and Compaq merger initially encountered significant resistance from various stakeholders who did not find the merger idea viable. The culmination of a successful firm with numerous competitive advantages however is an illustration that the idea of a merger was indeed viable. This paper aims at analyzing the HP and Compaq merger with an objective of establishing the impact of the merger on the overall performance of the firm and the impact on its competitiveness. The paper will begin with a strategic analysis of the merger before tackling the more involving aspects of strategic management and competitive advantage strategies. In order to determine the continuity probability of the new HP this paper studies the internal and external environment of the company. In the SWOT analysis, it can be established that the new HP is expected to gain more through increased economies of scale. Further, the market share for the company is expected to increase as the two companies merge. It is however notable that competition is increasing at a tremendous rate and therefore extra efforts are required in increasing the company's profitability. The paper also undertakes a study of HP's market environment through a study of Five Porter's theory. A critical appraisal of what has happened so far establishes that besides the initial challenges, the company is bound to do well as witnessed in the changes within the company. Three strategic options are suggested for HP including: customer centrism, technology advancement and extensive marketing. These three options could greatly improve the company's profitability. Lastly, the paper drafts the business requirement mapping which concentrates on the technology development strategic option due to the company's need to remain on top of competition. The first step in the mapping is solution design which is followed by testing before the employees are trained on the strategic option hence adopting it. HP-Compaq Merger Introduction The Hewlett-Packard and Compaq merger presents a wide array of opportunities that the two companies could utilize in enhancing their overall competitiveness. Mergers not only serve the purpose of gaining market control but they are also strategic tools for pooling company resources with a view of gaining from economies of scale. Accordingly, HP and Compaq could gain significantly through the increase in productivity as the two companies continue working together. The two firms will enjoy greater access to resources and capital which will make production easier and hence promote efficiency and profitability. Strategic analysis The new company formed following the merger between HP and Compaq is bound to lead to a significant improvement in the internal environment as the number of strengths increase. Further, it is expected to face a variety of external market influences that will impact on its profitability potential. Notably, competition is becoming increasingly steeper as companies invest in unique products and technology in order to gain a competitive edge. Accordingly, HP and Compaq must exert continuous innovation efforts in order to retain their market share and maintain competitive advantage in the computer market. A proper understanding of the business environment faced by HP and Compaq would necessitate the use of various strategic analysis tools including a SWOT analysis and the Porter's Five Forces Analysis. These tools will be effective in guiding the adoption of business strategies that will aid HP and Compaq in achieving optimal competitiveness. SWOT ANALYSIS Strengths -Large customer share -Brand recognition - International presence -Unique quality products -Dedicated customer service -Increased capital base -Economies of scale -Efficient R&D endeavors Opportunities -Growing market for computers -Increased demand for laptops and portable devices -Increased computer awareness in developing countries - Introducing new products -The internet as a new market opportunity -Networking demand Weaknesses -Management challenges in assimilation of the new company -Employee challenges in acculturation -Failure to react to market changes quickly -Organizational structure pegged on product portfolio -Value addition challenges Threats -Increased competition -Reduction in prices for products - Substitute products e.g. ipads -Increasing prices for inputs due to economic changes -Change in government regulations -Changes in technology HP and Compaq both enjoyed a large market share before the merger. A merger therefore leads to the amalgamation of the two markets thus creating a valuable market size. This gives the two companies competitive advantage over their competitors such that they are strongly placed in the market. This means that the companies are likely to record a significant increase in profitability and thus enhance continuity. Brand recognition, unique products and dedicated customer service will also play a significant role in promoting business. The market holds a significant number of opportunities that the firm could exploit in enhancing development and competitiveness in the market. To begin with, the demand for computers is increasing at a high rate as the world goes digital such that the market share is expected to rise significantly (Butler 2006, p. 221). Further, the increased use of the internet calls for high quality computers, which could actually lead to increased demand for computers, hence, presenting an opportunity for the firms to utilize. There is also a notable rise in the demand for laptops which has emerged as one of Compaq’s specialties. This is more so among business people and executives, who need the convenience of accessing their work from wherever they are without having to go to the office. HP and Compaq must therefore aim at satisfying such demand, which further provides an opportunity for them to utilize the available market. HP and Compaq must be wary of the steady rise in competition that is likely to threaten business continuity. Enhancing survival in the highly competitive market will require the use of proactive strategies aimed at capturing the market. Such strategies could include the provision of high quality goods, increased research and development activity, developing unique products to meet customer needs and to surpass competitors’ efforts. Technology development presents a great opportunity but also remains a major threat to HP and Compaq. Notably, technology is advancing at a tremendous rate and companies that invest highly in developing new technology are expected to gain more from the sale of computers and other related products (Morley & Parker 2009, p.110). The determination of whether technology will be productive or destructive for the company however remains in the hands of the management. By continuously investing in research and development to advance technology within the firm, the new company will be able to maintain competitive advantage over other players in the market. Failure to do so however could compromise on the firm’s inability to compete in the market as other firms undertake research and development and thus outdo the HP and Compaq in capturing new markets with their new technologies. Competitors’ research and development capabilities are therefore a major threat to HP and Compaq hence the need to seek alternative sources of funds to develop their own technology. Porter’s five The Porter’s Five Analysis indicates that HP and Compaq are operating in a highly competitive market where every player is trying to outdo the other through increased investment in innovative technology and the provision of unique products. Further, efforts to capture the market have led to the implementation of low prices for products such that the general profitability that HP and Compaq are likely to obtain may be significantly lowered. This insinuates that the companies must seek alternative means of promoting profitability such as increasing the market share and the development of new innovative products to capture the market. It is notable that the buyer power has increased significantly following the increase in the number of computer providers and variety in the market. In essence, buyers have the power to choose among many products in the market such that they are likely to exercise the freedom of choice in relation to various factors. Competitors including Dell, Microsoft, IBM and Apple among others provide a wide range of products that consumers may find appealing due to one reason or the other. According to Gupta and Lehmann (2007, p.178), buyers will tend to compare the quality of products, the price and accessibility before making a purchase decision. This insinuates that HP and Compaq must work towards enhancing customer satisfaction through ensuring that their needs are identified and addressed. Furthermore, such needs are expected to change from time to time thus the need for continuous research aimed at identifying customer needs. It is also imperative to ensure that the products are supplied at reasonable prices and proximity so as to enhance access. Critical appraisal of what has happened so far The HP-Compaq merger represents a major leap for HP which had to overcome numerous obstacles before the deal could finally be sealed. This represents the kind of obstacles that are likely to be faced during a company’s change of business strategy. Different stakeholders are expected to oppose strategies that are set forth by the management thereby limiting the effective implementation of such strategies. Notably, the family members opposed the HP-Compaq merger to a great extent as witnessed in the case. The founders’ family members led by Walter Hewlett and David Packard resisted the change and vowed to vote against the move by HP and Compaq. It is also notable that the deal was met with a lot of controversy from the investment community that almost threatened its implementation. Despite the fact that the merger was eventually conducted, it is notable that a great deal of time and resources was spent in trying to convince the family members and investors through the campaigns and transport costs spent by Carly Fiona. This is an indication that while a merger may be desirable, approval from the relevant stakeholders plays a significant role in determining how long the strategy will take before it is implemented. The merger between HP and Compaq is a positive move towards capturing the market and it is bound to yield desirable outcomes for the two companies. There are a variety of pros associated with mergers that the firms are bound to gain. To begin with, rivalry between the two companies has been eliminated such that the two firms will now work together towards increasing competitiveness with an objective of beating competitors. As noted in the case study, the merger served the purpose of eliminating one of the major players from the oversaturated PC market. This meant that by merging, the two companies stood a better chance to effectively compete in the market as opposed to when each operated on its own. The merger also depicts that the combined market share of the two firms would lead to competitive advantage within the industry such that profitability may improve significantly (Baumol & Blinder, 2007, p.254). It is notable that each of them had a significant market share and a combination of both markets will culminate in a bigger market where the firms can easily generate a high level of profit. HP and Compaq will gain significantly from the economies of scale; both in production and marketing. Miles (2003, p.69) notes that by engaging in massive production, companies are likely to gain significantly from reduced production costs. The same applies to other costs such as advertising and product costs such that the firms are bound to gain more through increased profitability potential. HP is bound to enjoy the benefits that are associated with mergers and other forms of business association. Mergers present an opportunity for companies to share resources such that value is created in the process. As noted by Miles (2003, p.93), each company compliments the other through unique resources that are not available to them while gaining from resources possessed by the other party as well. Due to the increased amount of resources, the companies are in a position to enhance production and thus reach a significant level of profitability. Mergers also play an imperative role in the reduction of costs, which further increases profitability. Notably, fewer resources are needed in terms of labour, office space and production costs. This emanates from the combined activity such that the inputs required such as machinery and employees are reduced significantly once the companies are merged. The merger was expected to generate $2.5 billion in cost synergies annually thus improving the cost structure (HP 2010). As noted in the case study, the merger called for the elimination of 15,000 employees to begin with, a step that would reduce the cost for the company.. Efficiency is also enhanced because best employees from both firms are selected to enhance the learning of the new organization. The case study indicates that redundant product groups, marketing costs, advertising and shipping costs would be reduced to a great extent thus increasing revenue for the company. All these advantages culminate in a more profitable business for HP and Compaq such that the merger is highly desirable. Strategic options available An efficient business strategy is often viewed as an inescapable requirement in enhancing profitability and continuity of any business. Accordingly, every company needs to continually evaluate its internal and external environment with an objective of ensuring that its strategy is still in sequence with the company’s overall objective. It is highly imperative for the management to realize that other companies in the industry are also working tirelessly in order to capture a significant portion of the market; such that HP must continually develop strategies to counter the competition. I would suggest the use of three strategies namely; customer centrism, technology advancement and extensive marketing. Customer centrism HP must realize that the customers are the sole determinants for business success and that satisfying their needs appropriately is every business’ secret to success (Michman, Mazze & Greco 2003, p.174). The epithet “Customer is King” should act as guiding principle in the development of a customer care culture that is bound to retain and attract new customers. Customer centrism symbolizes approaches that ensure that the customer needs are met through dedicated measures that place the customer at the core of business strategy (Upshaw 1995, p.64). This means that customers become the main focus of the business such that production of goods is done with a major objective of meeting customer needs. Continuous collection of market information is also emphasized due to the need to identify changes in customer needs. Customer centrism aims at guaranteeing that consumers will always obtain the right products at the right time; that the products are fairly priced; and that there exists proper communication channels through which customers can seek service and support (Armstrong & Kotler 2010, p.34). Competition is high in the market and HP must therefore work towards satisfying customer needs. Further, it is notable that customer needs are dynamic in nature such that new forms of demand are expected to come up every time and HP must aim at satisfying them. Technology advancement The need for HP to keep up with advancement is apparent. It is notable that modern- day technology is advanced at a high rate and companies must be ready to invest sums of money into the acquisition of innovative technologies in order to succeed in market. For HP to curb the effects of competition, the company must invest in technological research and development and employ highly qualified individuals to come up with innovative technologies to be used in manufacturing their products. Subsequent studies indicate that companies that invest in technological advancement are more likely to have higher sales and less likely to exit the marketing in long-run (Scherer 1992, p.94) Extensive market Marketing is considered the best strategy that company can use to reach customers with the sole objective of increasing sales ands gaining dominance in the target market. This combines promotion, development, pricing and distribution among other elements (Gupta & Lehmann 2007). In order to set up a successful marketing strategy, HP must effectively establish its goals, how it will achieve them and the period that is going to be taken for the same. In order for HP effectively position itself in the market, it should use the pricing approach. The company’s products will be offered at a lower price so as to attract customers. Baumol and Blinder (2007) notes that price greatly affect a consumer buying decision and that a price reduction or discount is bound to lead to the purchase of a product as opposed to its substitutes. Proposed governance structure for the organization The new HP requires the use of proactive business strategies aimed at making the company more competitive in the market. Accordingly, the company must ensure that the right kind of corporate governance structure is developed in order to enhance thorough implementation of the proposed strategies within the firm. This denotes that the need for effective leadership and management is imperative and that the management must seek to include well qualified managers and directors to govern the company. They must exhibit high levels of competency, accompanied by experience in the industry and desirable education qualifications. I would propose the following governance structure for HP. Strategy implementation methodology Given the constant changes in technology that are being witnessed in the world today, technology development remains the most fundamental strategy for HP to adopt at the moment. This section represents a strategy implementation methodology that should be used by HP in reaching its objectives. 1. Business strategy definition This is the first step in the business strategy implementation methodology and it involves the establishment of an existing need. In this case, HP seeks to enhance its competitiveness through investing in technology that will place it at a favorable position in the market. Accordingly, there is dire need to invest in resources in research and development in order to come up with new technologies to enhance the quality and marketability of its products. 2. Business requirement mapping This will involve studying the internal environment and the external environment in order to determine what the requirements of the company are in terms of technology needs. According to Armstrong and Kotler, (2007, p.79) the business must effectively study the market in order to establish the extent to which it will invest in order to meet their needs. HP will be required to perform a market feasibility study in order to establish the kind of technology that is required in enhancing product quality. This will also involve collecting data from customers so as to establish their needs. Once this has been done, the company will be in a position to gauge how much they should invest in developing technology in order to meet the required needs. 3. Solution design Coming up with a solution design will involve technology experts who be required to design new technologies to fit into the company’s needs. The findings collected during the business requirement mapping will be incorporated during this stage in order to ensure that the objective is met (Scherer, p.123). The experts will design unique technologies which will be used in the production of quality products, which will in turn enhance profitability and increase the company’s market share. 4. Testing Once the technology has been developed, it is important to test whether it is a worthy investment in order to ensure that launch will be profitable to the company. This may be done in the form of samples, which can be presented to corporate clients for approval. Testing will also encompass the process of checking whether the technologies will serve the right purpose as initially intended (Warschauer 2004, p.73). This will reduce chances of loss and technology failure that would significantly impact on the business profitability. 5. Training/adoption This is the last stage in the methodology and it involves the full use of the technology in the development of products. This indicates the actual adoption and therefore represents the company’s potential benefits from the newly developed technology. This stage will also involve training of engineers and other employees on how to use the technology. Reference List Armstrong, G. & Kotler P 2010, Marketing: An Introduction, Prentice Hall, London. Baumol, W. J. & Blinder, A. S2007, Microeconomics: Principles and Policy, Cengage Learning, London. Fine, LG 2009, The SWOT Analysis: Using Your Strength to Overcome Weaknesses, Using Opportunities to Overcome Threats, Booksurge Llc. South California: US. Gupta, S. & Lehmann, DR 2007, Managing Customers as Investments: The Strategic Value of Customers in the Long Run, Pearson, Upper Saddle River, NJ. Baker, MJ 2003, The marketing book, Butterworth-Heinemann, Oxford, UK. Butler, AM 2006, Essentials of Marketing in the 21st century, McGrawHill, New York. Holmes, A 2008, Commoditization and the Strategic Response, Gower Publishing, Ltd, Aldershot, UK. HP 2010, Hewlett-Packard and Compaq agree to merge, creating $87 billion global technology leader, viewed 14 December 2010 http://www.hp.com/hpinfo/newsroom/press/2001/010904a.html Michman, R.D., Mazze, E.M. & Greco, A J 2003, Lifestyle marketing: reaching the new American, Greenwood Publishing Group, London. Miles, Raymond 2003, Organizational Strategy, Structure, and Process, Stanford University Press, Stanford. Morley, D. & Parker, CS 2009, Understanding Computers: Today and Tomorrow. Cengage Learning, London. Scherer, FM 1992, International high-technology, Harvard University Press, Oxford. Warschauer, M 2004, Technology and social inclusion: rethinking the digital divide, MIT Press, Cambridge, MA. Upshaw, LB 1995, Building brand identity: a strategy for success in a hostile Marketplace, John Wiley and Sons, New York.  Read More