Marketing of Internet Services at HP - Case Study Example

Management Consulting Case study problem: marketing of internet services at HP At HP, the year 1999 was full of new opportunities and challenges as well. The company was making huge profits but it was also stagnating because of many organizational and innovational problems. Lack of proper marketing strategies contributed largely to these problems, which manifested themselves in decrease in revenue generation through computing systems, printing and imaging. The company needed to have an internet marketing strategy in place. In 1999, HP was handling the production of servers, workstations, printers and personal computers but it was yet to make any attempt at offering the products in the form of internet-based solutions (Stanford University Graduate School of Business 2000, p.7). In 1998, HP started to exhibit the characteristics of a large company: breadth, complexity and a loss of accountability. It was important to rethink HP’s core marketing management strategy. Due to the decentralized nature of HP’s management style, no single division could be said to be in charge of strategy. In this case, an internet strategy was needed. Additionally, the internet strategy was needed in response to the similar marketing campaigns that had been rolled out by IBM and Sun Microsystems. The strategy entailed the ability to take risks and venture into new marketing horizons. The choice of people to manage the internet strategy had to have different levels of expertise and knowledge about HP. They also had to share in the frustration in the slow rate at which HP was venturing into the internet market segment. According to Shih (2004, p. 367), although HP had a good internet space, it had failed to communicate it in an effective manner. For this reason, very few people in the market knew anything about it. The marketing department had not informed the public about the internet security software and online web transaction solutions that HP was already offering to people who handle institutions using modern technology. The marketing problem was being compounded by the fact that the internet was evolving and that the era of a networked PC infrastructure was coming to a close. In fact, this era may be termed as the first wave in the era of the internet. The second was taking over in 1999 and HP was not prepared for it at all. This wave entailed serving the people who were already relying on the internet in order to get connectivity to the services. In order to make a mark in the internet market, HP needed to think about the third wave. In this wave, the world was become mobile-centric rather than PC centric. Software seemed to be evolving into a model of ‘pay-for-use’. All products were going to be much more valuable if they were integrated into the provision of services. In other words, products were going to change into services by being delivered on the web. These services include computing power, applications, and storage. It would be possible to rent all these services online. This is the kind of strategy that HP marketing people needed to start thinking about. HP did not have an e-services division where the internet services, as well as the supported transactions and partnerships would be offered. There was a need for the e-services to include search engine requests that were one-stop brokered, where the web was used to work for consumers through such activities as searching for the best airfare deals, rental car companies, and hotels. Additionally, there was a need for e-services to include additional computing power and extra computer storage capacity. These services would be charged on a ‘per usage’ basis. In this strategy, HP needed to market its internet infrastructure, appliances, and services as e-services through a network of partners. The formation of “e-services” unit was announced in May 1999, although this was not the main focus of the company at this time; focus was looking for a replacement for its leader, Platt. For the first time, Platt went outside the company, to hire Carleton Fiorina, former president of Sales and Service division at Lucent Technologies. During her first week as HP’s CEO, Fiorina opposed the prioritization of HP’s ‘e-services’ division plan, instead preferring to spend the first six weeks at the company traveling abroad for meetings with key HP customers. Meanwhile, she identified the need for HP to have an e-services framework, by acknowledging that the Net economy was going to impact business in very many ways. Background Research As per market research findings, many start-ups were willing to anything within their ability to have HP logos in the flagship products they were hoping to unleash on their way to hitting the public product offering arena (Werr 2003, p. 891). These start ups were eyeing the internet solutions market only that they lacked a proper positioning in order to be able to penetrate the lucrative market. For HP, therein lay the solution. The solution was creating a platform whereby it was possible for clients to access services through appliances that were powered by a web-based infrastructure. For this reason the three key important areas that HP had to focus on were appliances, services, and infrastructure. HP was in a unique position to be able to offer these services. By doing this, the company would be creating services in order to give other companies the ability to create services. First, it was going to be easy to do this through HP labs and the cross-divisional R& unit of the company, two areas where the technologies to support these services would be developed. Secondly, appliances were going to proliferate until connectivity to the web was established, and HP was in a relatively good position as the world’s third largest appliance company. Thirdly, an infrastructure was needed in the form of storage, computers and software. Within this infrastructure, billions of appliances and trillions of infrastructures would be supported. Growth was going to be achieved at the point of intersection of these three factors. The end market segments were the main target of ESS. This is where the lead adoption strategy would take place, providing the best points of launch. The main segments to focus on included mobile and wireless, business hubs and trading communities, incubators and VCs, small and medium-size businesses, telecom companies and internet data providers, corporate information portals, printing e-services, publishing, education and digital media e-services. Partnering was going to be necessary in areas of hardware, stack of services and software operational efficiency. The stack of services would include such things as billing, security, and network infrastructure. HP needed to either provide an enabling technological infrastructure or alternatively, form a partnership with someone who had the technical expertise to do it. Such an ecosystem of partnerships would enable HP to be able to provide technologies and services that it had no possess in-house. This would attract more partners seeking the many plug and play solutions that HP was lining up. ESS would venture into funding equity investments in startups that hoped to invest in various HP platforms as well as those that were pursuing financing options that were ‘creative’. Equity investment leaders budgeted for $100 million for purposes of minority investments. This investment was a huge strategic bet for HP’s ESS strategy for purposes of debt financing through leases on equipment. It may also have been possible for the new HP CEO to settle for riskier terms such as convertible debt, warrants that were exchanged for equipment, and revenue sharing. Such risk-taking measures were not typical of HP. The interest that HP alliances were going to attract from the media and the corporate world had to be expected to be immense, although it formed only 3% of all the company’s alliances. The proposition to these partners, though, had to be very attractive such that ESS would provide all financing. Additionally, the e-service would have to be sold through the sales and marketing organization channels at HP. The estimation was that 3,000 channel resellers and 6,000 sales representatives would be leveraged to the e-service to partners, and it was inclusive of a $1 billion marketing budget that had been mentioned at the conception stages of the ESS. HP would also present a proposition on a ‘membership’ drive in the entire network that the company was rolling out. Therefore, consultations through leadership would be absolutely necessary. The issue of using HP’s brand name also needed to be addressed, whereby many start-ups were predicted to do anything within their power in order to have HPs brand name on their S-1. Development of methods to address the problematic issue The main components of the ESS strategy had to include the target markets and how to reach it; partnerships; financing, measurement of success; creation of deals; competitive positioning; and cultural and operational aspects of ESS (including issues of recruitment, compensation, integration with other HP divisions and future prospects. Part of the big deal at HP’s ESS strategy was the announcement of alliances with 41 partners. Among them, Ariba, a provider of vendor-services on operating resource management systems, whereby an exclusive launch of Ariba.com Network was in the offing. Qwest Communications was another big alliance that the ESS pursued. Additionally Yahoo was brought on board whereby it would get involved in the corporate information portal market, provision of connections between employees of companies and external information services and integration of various intranets of companies, tasks that required impeccable security. The problematic issue of competitive positioning affects very many companies today (Davenport 1999, p. 191). For HP, this issue entailed first pursuing an understanding of competitors, IBM and Sun Microsystems and the innovations that they were making as far as entry into the world of internet services is concerned. According to Haas & Hansen (2005, p. 14), the main issue here, which continues to prevent itself to this day, is innovations made involving large, powerful servers with a massive capability to run internet sites, networks and corporate databases. Today, HP believes that financing, choice of technology, sales reach are better than those of Sun’s. The most important thing, therefore is making use of this competitive positioning for practical, radical gains, in accordance with the company’s ‘rules of the garage’. Another main advantage of HP is that unlike its competitors, the company makes appliances. This means that the product penetration was very extensive, and ESS would change the competitive landscape completely. On the other hand, the lack of clarity in lines of competition had to be put into consideration. Just like in the case today, HP managers were aware that the world of technology was changing and the reality was that today’s competitors may be phased out by tomorrow’s competitors, depending on efficiency, innovation and market dynamics. Recent trends show a radical change in HP’s business definition, whereby enabling technologies have been procured through nurturing expertise relating to web development. This change of trend resulted from the introduction of the ESS strategy. According to Glückler (2003, p. 271), the strategy would not have succeeded without a clear understanding of competitive positioning. HP’s ESS strategists understood that whereas IBM, Dell, The Suns, and Compaq could be fierce competitors, providers of technology solutions and e-commerce strategy consultants could be as well, although they were also potential partners. For a plan such as HP’s ESS strategy to work, the operation and culture aspect of the highly innovative idea had to be put into consideration. One the issues that should always be handled with care whenever such ambitious marketing plans are being implemented is the implicit danger of launching an attack on ‘The HP Way’. Additionally, the HP’s prevailing incentives, HR policies and habits may not be compatible with the attitude and the speed required of a start-up organization. Some of the aspects of culture worth considering include a change in the teamwork spirit, the ability to persevere shortcoming and risky ventures with little prospects, motivation of the workforce, shifting of cultural practices among financing teams in order to facilitate various core aspects of new strategies such as risk-taking and speed and change of approaches. For instance, in the case of the ESS plan, the portfolio approach was adopted, something that is foreign to HP’s corporate practices. Cultural and operational changes also entail the aspect of recruitment. Visibly, rolling out a new strategy such as the ESS and making it work requires a new HR structure to be set up within the larger organizational setting. The human resources may be tapped from within the organization (a large percentage) while new skills may be tapped from outside. In ESS’s case, the in-house team consisted of 90 employees, 20 of whom had to be hired from outside the HP (Lee & Billington 1995, p. 61). According to Sahlin-Andersson & Engwall (2002, p. 119), other important issues to be considered include issuance of referral bonuses, change of the incentive structure, shifts in lifestyles in order to reflect the new start-up spirit and future increase in the workforce. In terms of compensation, the greatest challenge is tailoring the terms of service such that they reflect the existing challenges that need to be encountered in order for the problem to be solved. For instance, when HP was rolling out the ESS program, only senior executives were being offered pay-for-performance compensation. Cash bonuses were non-existent. The profit-sharing program encompassed only 5% of an employee’s salary. Additionally, employees were receiving an average of between 300 and 400 options every year. Those who climbed the corporate ladder most successfully everyone else were given a Ford Taurus. Raises were not significantly rewarding top performers. In other words, the marketing problem, which was evident in a situation whereby the spirit of invention was dying, may have been caused by lack of accountability. Fortunately for HP, this is a problem that every $40 billion dollar company must face and resolve in order to move on into the future. Through the ESS strategy the accountability problem was solved and the new program provided an opportunity for marketing people to get a new lease of life in terms of compensation, benefits and bonuses. Changing the traditional pay scheme has its benefits and dangers. The dangers may be in the form of disruption of the organizational order. The benefits depend on the compensation and culture that is being put in place. A pay scheme that rewards performance more would be welcome even if it involves a change of culture. Recommendations All the recommendations regarding a change in marketing strategy through introduction of new products and services entail modalities on operations and integration with the mainstream organizational culture. In any organization, there are cultural elements that form its bedrock; they are a part of the company’s foundation. For HP, the introduction of E-Service Solutions meant that some cultural practices had to be redefined and others reinforced through the process of integration and mainstreaming. The role of the marketing department is very critical in the accomplishment of this task. Monitoring marketing results entails use of proper management principles. Two commonly used approaches include MBWA (Management By Wandering Around) and MBO (Management By Objectives). MBWA is an informal practice that requires the manager to keep up to date with the tasks and activities that individuals are performing through structured or information communication. When principles of MBWA are used to give recognition to the ideas and concerns of employees, trust and respect for all individuals becomes apparent. The MBWA perspective works out very well in monitoring the progress of marketing strategies in order to assess whether the existing problem of a dysfunctional organizational marketing culture is being resolved amicably. Specifically, it is easy to tell whether a feeling of accountability is being instilled in the workforce during impromptu discussions, hallway conversations, networking with individuals across the organization and coffee talks. Through management by objectives, the progress of the resolution process of a marketing problem can be accurately monitored, assessments and evaluations made and future trends forecasted Kipping & Engwall (2009, p. 312). MBO facilitates multi-level contribution to a company’s marketing goals though development of objectives that are integrated with those of the manager, partners, and sales force. The open-door policy and open communication policy works out well when the results that are being monitored and evaluated are perfectly understood by everyone at the company. When a new marketing strategy has been introduced, such as HP’s ESS, the elements of evaluation and monitoring include the success of deals through follow-ups; assessments of competitive positioning; analyses of the finances and partnerships; and regular appraisal of new cultural and operational approaches to marketing management. References Davenport, T, De Long, D, & Beers, M 1999, Successful Knowledge Management Projects, Butterworth-Heinemann, London. Glückler, J 2003, ‘Bridging Uncertainty in Management Consulting: The Mechanisms of Trust and Networked Reputation’, Organization Studies, Vol. 24, No. 2, pp. 269-297. Haas, M, & Hansen, M 2005, ‘When using knowledge can hurt Performance: the value of organizational Capabilities in a management consulting Company’, Strategic Management Journal, Vol. 26, No. 5, pp. 1–24. Kipping, M, & Engwall, L 2009, Management consulting: emergence and dynamics of a knowledge industry, Oxford University Press, Oxford. Kubr, M 2002, Management consulting: a guide to the profession, Fourth Edition, International Labor Organization, Geneva. Lee, H, & Billington, C 1995, ‘The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard’, Interfaces, Vol. 25, No. 5, pp. 42-63. Sahlin-Andersson, K, Engwall, L 2002, The expansion of management knowledge: carriers, flows, and sources, Stanford University Press, Stanford. Shih, H, 2004 ‘An empirical study on predicting user acceptance of e-shopping on the Web’ Information & Management, Vol. 41, No. 3, pp. 351-368. Stanford University Graduate School of Business 2000, HP E-Services.Solutions, Stanford University Press, Stanford. Werr, A, 2003 ‘Exploring Management Consulting Firms as Knowledge Systems’ Organization Studies, Vol. 24, No. 6, pp. 881-908. Read More