Change in Technological Environment and Challenges Faced - Essay Example

1. a) Consider how the changing technological environment presents challenges to Hewlett Packard. Hewlett-Packard Company (HP) is a multinational technology giant which offers a wide array of products such as technologies, software solutions and services to individual consumers, as well as small- and medium-sized businesses (SMBs) and even large corporations, including the government. Its offerings include multi-vendor customer services, infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services, and consulting and integration services; enterprise information technology infrastructure, including enterprise storage and server technology, networking products and resources, and software that optimizes business technology investments; personal computing and other access devices, and imaging and printing-related products and services (HP, 2010a). It has currently gone through a significant management reshuffling at the top level (Business Week, 2010), which has courted several controversies putting the company in a tight spot over a range of critical issues and serious concerns have been raised on various aspects of management ranging from sustaining the current market position to expanding and diversifying its portfolio. The change in the top level management i.e. the internal environment coupled with the changes in external environment are posing fresh challenges to the technology giant, which are discussed in the following section. Change in technological environment and challenges faced: Currently HP faces stringent competition from its rivals such as Dell, Oracle and IBM who are competing for a greater market share. Dell and HP are fierce rivals in the hardware segment while Oracle continues to give tough competition in the software division. Moreover, the rapidly changing technological environment is posing newer challenges. The market for HP’s products is changing drastically in tandem with the rapidly changing consumer taste and preferences. According to Robin Purohit – the General Manger and Vice President of HP’s software products: “Our customers are dealing with some of the most significant combination of changes in IT technologies and paradigm that I have ever seen,” (Gardner, 2010) Moreover, HP is steadily entering into the software business which has strong rivals such as Oracle. HP has a large portfolio of products, primarily dealing in hardware and such a transformation might affect its profitability in other stronger segments of its business. While Oracle on the other hand, has a strong business presence in the market especially in the software segment. Furthermore, there is a significant rise in the Asian PC markets which is eating away the market share of top firms. Although HP continues to lead this market segment, a steady growth and new entries in the industry offering cheaper substitutes are constantly on the rise. This could lead to an adverse impact on HP’s market share and ultimately on its revenues; besides the competition is rather fierce within U.S. itself with companies like Dell, and Apple constantly flooding the markets with innovative products. According to a paper published by economists at the New York Fed: “The three "PC" manufacturers (Hewlett Packard, Sony and Toshiba) have short product cycles, frequent staggered entry, and declining prices over the lifetime of the good. In contrast, Apple has long product cycles, less frequent and more uniform entry, and flatter price contours” (The Economist, 2010a). This could pose a serious threat to the company in the long run. Hence HP will have to gear up o match the product standard and innovation displayed by its contemporaries in order to keep up float in this highly competitive industry. The Apple iPad, for instance has garnered much praise and appreciation in the consumer product segment and companies are trying to match up to such product innovations in order to retain their market share. The competition in the tablet PC segment is increasing at a rapid rate. Companies such as Google, the Korean manufacturer - Samsung, China’s Asus and Taiwan’s Acer are in the process to invade the tablet PC market through continuous innovation (The Guardian, 2010a).. Also, there is a significant rise in the trend of outsourcing hi-tech jobs to developing countries in order to maximize their profitability. On account of such a trend several I.T firms have resorted to drastic measures such as mass-employee layoffs. HP has drastically reduced its workforce over the past couple of years and is likely to continue with the trend. According to reports HP has laid-off over four thousand employees in the last two years and is likely to reduce its workforce by a further 1300 in the current year (The Guardian, 2010b). Although the company has performed well, financially, over the years, the drastic reduction in workforce is done on account of increasing automation in the industry as well as in order to reduce costs. The company employs about 300,000 employees worldwide of which 16000 are from UK. Such a move hence can have serious negative consequences on the local economy. b) Provide advice to the directors about the expected dynamics of the digital environment on the company’s operations The company currently enjoys a strong market position however, on account of the recent reshuffling of the top management, and the various controversies attached to it, there is an urgent need to take stringent action to maintain its competitive position in the market. The company which primarily dealt in hardware has now ventured into newer markets and making a foray into the software segment as well. The new CEO of HP, Mr. Leo Apotheker has had significant work experience of working in the software segment. This is an added advantage, given the company’s long term strategy of expanding its product portfolio and should be fully exploited to increase profitability. IT is an ever changing and dynamic industry where the competition is fierce among the few key players such as Dell, IBM and Oracle. One of the key strategies to sustain such competition is continuous product innovation and / or acquisition of firms. HP has recently acquired EDS in order to increase and strengthen its position in the I.T. services market. The top level management must take full advantage of such acquisitions and continue investing in such established firms in order to retain its market control. Furthermore the company has a well-established brand name as well as image. It can be used in the company’s favor to address the challenges posed by the changing market dynamics. HP has been the number one PC supplier in the world followed by Dell. The company must continue to exploit its excellent retail network and increase and strengthen its presence in the consumer market; along with the business-to-business sales. Such a strategy will help in ensuring consistent cash inflows which can then be invested in product innovation as well as acquisitions. It can also help in lowering the costs and increasing the profit margin. Recently, the I.T. market has seen increasing integration of the software and hardware segments. HP must take advantage of such integration and use its wide array of products including consumer electronics as well as computer hardware products, to leverage on this changing trend. This will not only help them in cost savings but elevating its brand image further into the consumer goods segment thus giving tough competition to its core rivals. Currently the I.T. industry is going through a phase, referred to by experts as “re-verticalization”, wherein big players in the industry are trying to become more and more vertically integrated. The strategic alliance between Oracle and Sun and previously between SAP and HP are apt examples of such a trend. The directors must cash in on this opportunity and strike deals with its business associates by making optimum utilization of their strong business network and retain their market control (The Economist, 2010b). It has also been observed in the past that several companies in the I.T. sector including HP have been immensely benefited with strategic alliances and acquisitions for instance the acquisition of Compaq Computer Corporation, Electronic Data Systems, Mercury interactive etc over the past couple of years. Similarly it should continue acquiring such companies and take on its lesser rivals to increase its market presence. Such a strategy will help HP in eliminating competition from other business segments such as networking and add to its revenues. The company’s strong brand presence will help the management in successful acquisitions and increase competitiveness within the industry, and at the same time, continue to create value for investors as well as its customers. There are various unexplored business segments such as providing consulting services – which also has a huge market potential. HP must venture into this untapped market which niche yet established players, and offer comprehensive and integrated range of services. It can also enter into strategic partnerships with established players to cater to the increasing needs of its large customer base. The I.T. industry in recent times has become a hyper competitive market place, and although HP enjoys a leadership position in the industry, there are various new entrants from emerging economies and other indigenous producers who are or may pose a threat to its consumer segment. Currently, HP competes in the market in segments such as price, quality, range of products offered, technology as well as range of services offered among various others. However, generically produced or imported low cost goods from Asian markets, may pose a threat to its market share, and the company may lose a substantial position of its share in the market. In order to avoid such loss of market control the company must continue to innovate and offer unique products with excellent customer services. 2. Discuss the impact of the current economic global crisis upon the operations of HP, both in the North American market and on the international activities of the company. The global financial crisis (from the period 2007 – 2010) had very insignificant impact on the company’s operations in the North American as well as international markets. On the contrary, the company enjoyed substantial profits which far exceeded industry expectations. The profit from North America accounted for the maximum share: Canada / Latin America – 9 per cent and U.S. 33 per cent, followed by EMEA and Asia Pacific regions. Figure 1: Revenue by region Source: HP Annual Report The company’s net revenues increased from $17.30 million in 2006 to $ 18.16 million in 2007. The key contributors to this profit were the company’s three key divisions i.e. personal computer division which reported an earnings $10.1 billion and a 30 per cent rise from the previous year. The server and storage division recorded a $5.2 billion earnings amounting to a total of 10 per cent rise over the previous year and the Software division which recorded a double rise in sales to $698 million as compared to the previous year. Such a strong performance in the midst of the global economic downturn was attributed to its vast global outreach – i.e. strong international presence, a loyal customer base, as well as a broad and impressive product portfolio. This trend continued in the coming years as well, and the company recorded substantial profits in the following years i.e. year 2008 as well as 2009. HP largely remained unaffected by the on-going economic crisis and continued its expansion and acquisition spree by investing into a wide range of services, in a bid to increase its product range and strengthen its hold in the global market. The company succeeded in not only retaining its competitive position in the market but also managed to book substantial profits in the process. It also took bold strategic decisions of venturing into the software market, to ward off competition and emerged as an industry leader. Figure 2: Net Revenue for the year 2007 – 2009 Source: HP Annual Report (2010b) According to industry analysts, HP managed to remain afloat and gain substantial revenues despite the financial crisis solely on account of its strong international presence. Thus while its rivals struggled to sustain their competitive edge, HP due to its strong strategic policies managed to retain their leadership position. The only division that failed to deliver as per expectation was the printing segment, while the rest of the segments delivered handsome profits throughout the recession. Figure 4: Top PC vendors, worldwide: Rank Company No. of units sold % market share 1. HP 15.45 million 19.3  2. Acer 11.4 million 13  3. Dell 10.35 million 12.9 4. Lenovo 7 million   7.6 5. ASUS/Toshiba (tied) 4.6 million 5.55 US PC sales, Q1 2010: 17.5 million units  Growth (YOY): 18.6 percent Source: Gartner, (2010) 3. With reference to the North American and in other wealthy markets explain how contemporary cultural and social changes might shape the current operations and future development of a company like HP. "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 The 21st century is largely governed by revolutionary changes, which are in turn driven by a series of persistent and rapid technological innovations. Hence, global leaders or management in charge of huge multinationals with an overwhelming global presence must be well equipped to plan strategies to deal and cope with change by improving their managerial skills as well as enriching their knowledge on culture and social environment affecting their businesses. HP is a multinational organization with a huge international presence. Hence its leaders must learn to embrace change in order to capitalize on their strengths and maximize their profitability. Any change in the information technology sector has the potential to bring about significant changes in not only the national but international cultures as well. Change in the culture of an organization can also trigger off changes in its external environment. HP has been an undisputed industry leader and a significant portion of its success can be attributed to its work culture which encourages innovation and embraces change. HP has been able to retain its competitive positioning in the industry despite the global economic downturn, and this unprecedented success can partly be attributed to its unique strategy of embracing change. With the advent of rapidly changing technology, the pace of social and cultural change has also increased substantially which requires efficient leaders who have the potential to not only manage change but manipulate it in their favor and convert into a competitive advantage. This calls for formulation and implementation of bold strategic decision making on the part of the leaders – such as a complete transformation in the set norms, and practices and revolutionizing the manner in which companies operate with a view to enhance customer satisfaction and improve the overall quality of life of people involved. It has been observed that the current I.T. industry calls for provision of integrated services and dealing with niche products might affect the company’s revenues. Owing to such changing dynamics, HP has successfully stepped out of its hardware business and diversified its business to include the software division as well, through a series of mergers and acquisitions. Such a strategy of adapting to change has helped HP in maintaining its hold on the markets and ward off any competition from new entrants or low cost manufacturers. It is widely known that organizations with flexible working environment and culture tend to outperform their counterparts, and it is possible to train and prepare employees to adapt to a culture of continuing and dynamic change (Harris et al, 2004). References: Bussiness Week (2010). Hewlett-Packard Names SAP’s Ex-CEO Apotheker as Chief [Online] Available at: Accessed: 17th November, 2010 Gardner, D., (2010). New HP products take aim at managing complexity in hybrid data center era [Online] Available at: Accessed: 17th November, 2010 Gartner (2010). Worldwide PC sales [Online] Available at: < http://www.gartner.com/it/page.jsp?id=1353330> Accessed: 20th November 22, 2010 Harris, P. R., Moran, R. T., Moran, S. V., (2004). Managing cultural differences: Global leadership strategies for 21st century, Butterworth - Heinemann Publication, Pp. 98 - 100 HP (2010a). About HP [Online] Available at: < http://www8.hp.com/us/en/hp-information/about-hp/index.html> Accessed: 17th November, 2010 HP (2010b). Annual Reports [Online] Available at: < http://www8.hp.com/us/en/hp-information/index.html > Accessed: 17th November, 2010 The Economist (2010a). Who innovates more, Apple or HP? [Online] Available at: Accessed: 17th November, 2010 The Economist (2010b). The Léo Way [Online] Available at: Accessed: 20th November, 2010 The Guardian (2010a). Apples iPad bonanza triggers race to launch copycat tablets [Online] Available at: Accessed: 20th November, 2010 The Guardian (2010b). Hewlett-Packard to axe another 1,300 UK jobs [Online] Available at: Accessed: 20th November, 2010 Read More