Hewlett Packard and Compaq Companies - Essay Example

Hewlett Packard and Compaq Companies Executive Summary Both Hewlett Packard (HP) and Compaq are strong performing companies in their own right. While HP has already established itself as a world leader in servers, printers and cartridges, Compaq has been a well known brand in PC and server market. With the merger, both the companies would straight away get access to the each other’s market particularly the server and retail computer market. As both the companies had similar strategic goals, both become natural strategic partners to enable synergies in their work. To perform a strategic analysis of the merger we will look at the various the key strengths and weaknesses of the two companies as potential strategic partners. HP has the ability to become a number one player in the server business because of the merger with Compaq. The two companies were earlier competing with each other of some turfs. The way this merger was handled from the operations perspective gave some positive results in the beginning. To ensure complete employee touch and integration in the merged entity, they were optimally involved in the merger process. However, cultural conflicts within the employees can work as major roadblocks in achieving the profitability desired. There was no strategic direction in the laying-off roadmap, and this also led to problems. The crux of planning for the future is the focus on strategic planning rather than operational planning. Thus we will look at the various strategies which will help in improving the situation and placing the company on the path of future growth. The governance structure can be based on the various divisions that the company is operating. The four product lines that the merged entity has to follow are - Access devices, Imaging and printing, Information technology infrastructure and Services. So, to perform a strategic analysis of the merger we will look at the various the key strengths and weaknesses of the two companies as potential strategic partners. Strategic case study of HP and Compaq merger Strategic analysis of the merger Compaq Points in favor of the merger A fast growing company, HP has established itself well in the retail PC as well as the server market. Both these are the key strength areas of the company. The company has already taken major steps towards its strategic goal of expanding into the field of consulting. They have taken over Digital Equipment which was already experienced in handling corporate IT solutions consultation. Moving into IT solutions market is a very natural strategic move because the company already has 20 years of experience in server administration. Point not favoring the merger The company has stagnated. As pointed out by critics “the merging of stagnant Compaq with HP's lucrative printing and imaging division is criticized as that would overshadow the latter's profitability.” (globalwarmingart.com). Cultural difference from HP – As happens with other companies, the two companies have a conflicting culture. Compaq employees might have to bear the axe of downsizing. This can cause their intimidation. HP Points in favor of the merger HP also has ambitious plan to enter the consulting business. Company’s strategic goal is to become an end to end IT solutions provider which means having both hardware and software capabilities. Getting access to the the server business of Compaq would not only mean expanding into a new product line but also help achieve the strategic target of entering the consulting area of business. This is because with the sale of servers to corporate, the company would enter into contracts for consulting. These could then be capitalized into providing other related IT solution like database management, software licenses and even sale of software to the same clients. This could give them capability of competing with IBM. Server and retail pc business are new to the firm and in this respect Compaq could provide HP with a platform to enter into this arena. It “would also improve HP’s market share across the hardware line and double the size of HP’s service unit—both essential steps in being able to compete with industry-giant IBM” (icmrindia.org). “HP way” which is the punch line of the company’s strategic policy and embedded into its culture is another positive point which justifies the merger for HP. As this merger supports the HP values of creativity, change, and innovation, its strategic justification holds good (Hoopes 2004). Points not favoring the merger HP operates in the same market as Compaq. This can lead to a situation where one company is taking over the other’s business instead of increasing the market share. Opposition from within HP could be a big roadblock in this deal. Both the sons of the founders of the company apart from the other key stake holders are opposed to the deal. Cultural amalgamation of Compaq employees would require major strategic planning by HP as any mishandling of this issue could lead to a major dissatisfaction within the employees. Synergies from the merger Besides the opportunities discussed above which are in the favor of the merger, there are further prospects which would increase the synergy of the entity formed by the merger. Though they were two entire different organizations there were some common markets where they competed. With the merger, the two of them could come together to cooperate in areas where they were entirely different from each other. This would reduce competition for both the companies apart from giving access to each other’s markets. The combined entity could utilize the experience of both the companies in terms of patents and trademarks to further their prospect of achieving the strategic goals. Appraisal of the situation so far As expected by the supporters of the merger, it resulted in major synergies for the two companies in some areas, giving both positive and negative results. Hits The formation of “clean room”, where a huge team of experts worked on the complexities of the merger, was a very innovative step towards formalizing a smooth merger. “The scope of decisions involved in melding the two companies was immense, ranging from larger issues with more strategic impact—such as branding, product lines, and corporate culture—to smaller details, such as cash management systems and financial reporting practices.” (bendercon.wordpress.com 2009). Hence this required building up of a blue print of how the two entities will operate together as one. Burgelman (2007) had this to say regarding the work of the integration team, “the integration planning process was so successful that on the day the merger was approved, the new company was ready to go” (gsb.stanford.edu 2007). The financial prudence of the merger was immediately visible post merger. The merged entity of HPQ was able to cut $3.5 billion in operational costs, while its original target was to cut the expenditure by $2.5 billion, thus saving more than $1 billion. (gsb.stanford.edu 2007). The day the new entity came into existence all the products of both the companies were on display at its e-store, hp.com. This was a very positive achievement of the merger operations team as it aptly and efficiently utilized the synergy created by the merger from day one. The restructuring of the new company into 4 separate groups i.e. the Imaging and Printing group, the HP services group, the Personal Systems group and the enterprise systems group helped achieve smooth operations and sales of its various product lines. Because of this structure approach the company was able to achieve the targets set for the initial phase of operations of the combined entity. To ensure complete employee touch (as this is the most important aspect of any merger and is a deciding factor of its future success) a portal name @hp was created. Immense networking ensured connectivity of all employees. 1,193 company networks connected at key strategic locations, active directory and enterprise directory synchronized and all E-mail systems interconnected linking more than 229,000 mailboxes and a quarter million desktops, leading to effective organisational functioning (Baker 2002). Misses Integration of employees is the most challenging part in any merger situation. Without a common strategic goal and culture within which to operate, the company can never achieve its intended goals. Thus it is important to provide the environment of a healthy and common corporate culture so as to minimize conflicts and increase productivity. “Much of the company's early work has been focused on two areas: minimizing disruption to customers and working to avoid internal culture clashes.” (Fried 2002). The statement summarizes the focus areas of the management. Strategies symbolic of adopting the new entity in its culture and shedding the old Compaq culture were adopted in a big way. For example to chuck out the Compaq logo, some $80,000 worth of gear was donated to a local charity, including 400 coffee mugs and more than 600 shirts (Fried 2002). All such activities apart from the immense effort that was put in creating communications networks and a special employee portal did not ultimately result in the desired goal, though the intention of the management to achieve smooth employee integration was more than evident. This effort was thwarted by the way laying-off of the employees, with the intention of optimizing the resources to achieve cost reduction, was handled. Culture of an organization cannot be changed without having a clear understanding of what it is today. The change management of organizational culture was handled without a clear picture of what is was at the time of the merger and what it should be in the future. Also, there was no clear strategic direction of how to achieve growth post merger. The management did not know which areas to focus on to maintain the continuity of the positive impact of the merger. “This in turn led to insufficient attention being paid to the multiyear strategic activities required to exploit all the opportunities created by the merger,” says Burgelman. (gsb.stanford.edu 2007). The main focus of management was on amalgamation of operations rather than chalking out strategies to integrate the organization as a whole. As senior management of the combined companies focused on executing the very complex operational integration, thus the strategic integration aspect of the merger faltered (gsb.stanford.edu 2007). Strategies for future growth 1. Managing costs This should be the first focus area. We need to see which pockets of the combined entity are adding to unnecessary costs. Usually it is seen that employee wages are the highest drain on any company’s bottom-line. We need to look at other major contributors of cost which could be wastage in process or duplication of work and so on. Thus, implementation of ‘lean’ methodology on all process will help in identifying leakage and duplication of work. This will not only help in cost reduction through re-engineering of process but also through elimination of excess staff from the place where they are not required and adding them where they are needed. Restructuring of the working locations – moving processes to locations where the cost of labor is low will help in further cost optimization. However, it should be ensured that quality and customer service are not compromised in any way. 2. Improving efficiencies Business process reengineering will help in achieving efficiency at all levels. The processes need to be broken into various sub-processes and a macro level picture of the entire organization needs to be looked at. This will help in analyzing the processes that are not needed or those which can be shifted to low cost countries which have the capability of providing equal of better quality. 3. Change management strategy Understand the current culture and have a clear vision for the values that you feel should be a part of the organization culture. Use all means of communication percolation the message to the employees. The leadership team along with the management team should be personally involved in this activity. Ensure a personal touch by holding skip-level meetings or one on one discussions to show that the leaders of the firm are interested in the well being of the employees. Involve employees and take their feedbacks on various policies. Providing the comfort level to the employees that they are being heard will lead to better participation of the employees in the change management process. 4. Product strategy The company needs to decide which products and/or services are their core fields. Once these have been identified, an action plan needs to be put in place for making them their core competences. This would help the company focus on a few products and services rather than running after all and not achieving any substantial results on account of lack of focus. Focusing on a few products does not mean that other areas need to be ignored. For example if the company starts by focusing on hardware technology and servicing as their core business, then they should also start working on the software part as both are interlinked. If hardware is sold to a client then software for running it and licensing them also forms part of the business. Thus, all related businesses should be used as diversification avenues. However, there should be a clear categorization of all products and managed accordingly. “The key element of success will be in minimizing product and service overlap, and a seamless provisioning of the tightly coupled "four S" process approach, driving renewed investment in holistic IT solutions.” (Cormia, 2002). Proposed governance structure The governance structure can be based on the various divisions that the company is operating with. The four product lines that the merged entity has are as follows Access devices Imaging and printing Information technology infrastructure Services Each product line will have a group head all reporting to the CEO for sales and operations activities. For the supporting functions which are finance, human resources, administration and training, there can be separate group heads again reporting into the CEO. For ease of reporting training and administration can be clubbed under a single group head. However, all these functions will also be aligned to the business heads of the core product lines as they provide the support role. Hence each product line will have finance, HR, administration and training head reporting into the business heads as well as the group head of the three functions together. This cross functional reporting will help in aligning the 3 support functions with the core activities of the business. A core strategy building and implementation team consisting of business leaders reporting into the CEO will look into the future strategy function of the company. This would consist of marketing and technical experts who would be responsible for deciding and implementing respective strategies for the various product lines. They along with the business heads will be responsible for shaping the path of the various product lines. Each business group head will have various functional departments aligned to them. These are sales, customer service and operations, each having a functional head looking at the activities of the functions. Under these functional heads will be the various teams under team leaders and/or managers depending on the size of the teams. These team mangers or leaders will be responsible for the performance of their teams with respect to operations as well as sales and customer service. These teams will be a mix of technical, sales and customer service staff. For example, Imaging and Printing product line will have teams of sales and technical staff based on the product groups. Marketing strategies would be developed by the strategy team and will be percolated down the group through the group heads. The team leaders will be responsible for implementing the strategies through their teams. They will also be responsible for the profitability of their teams. For the various reporting activities, the information flow will be from the team leaders to their respective function heads who would then give a consolidated report to their function heads. Thus, with this governance structure core areas are differentiated from the support functions. There is complete accountability of all functions and a separate strategy function which will ensure that the new entity will have a clear direction consistently. Though the strategy formulation is the task of the leaders of an organization, giving it a concrete identity as a function will ensure that the company does not lose its direction midway. Recommendation for strategy implementation The following diagram describes the cycle of sustainable strategy implementation. Source: docstoc.com I. Strategic focus a. Formulate and commit to strategy Goal- Profitability, quality and customer satisfaction Organization culture and values- employee participation at all levels, commitment to quality and profitability, process efficiency, open culture where there are minimum hierarchies and transparency in all transactions. Employee trainings – Continuous trainings both technical and soft skills trainings. Products – Information Technology is the core focus area. Diversification into software solutions in stages. II. Assessment b. Measures of key target areas Set matrices to measure the achievement of goals. For profitability the matrices could be net profit, operating margins, sales growth and so on. For quality the measure could be sigma level of a process. For customer satisfaction the matrices could be number of repeat order, conducting regular surveys asking the customer to rank the satisfaction level and so on. c. Developing new measures of performance as well as new drivers Measuring performance is a continuous process. Hence, the drivers of performance need to be updated based on the expanding business. New measures of these drivers need to be set on a regular basis. Based on the customer feedbacks new drivers and measures can be set so as to achieve the desired organizational goals. d. Apply the new measures Once new measures have been developed their application needs to be implemented as a part of the process. Many times it happens that with time the measures lose focus and hence are not followed. e. Analyze and report There should be an analysis and reporting mechanism for all measures. For example at the process level, the operations team should be in-charge of measuring and reporting the matrices to the management. Analysis of this report should be done and further action plan and timelines of implementation should be decided and later followed by the management team to ensure complete follow-up. III. Change planning and implementation f. Implement and improve plan Once it has been decided that the change needs to be implemented then the entire action plan with timelines should be set. Person responsible for implementing this change should also be decided at this stage. IV. Continuous improvement g. Track metrics The operations or sales teams need to ensure that all metrics are tracked on a regular basis. h. Continuous improvement This should be done so that strategies can be modified based on the performance of the various metrics. References Baker, M 2002, HP/Compaq Merger: The Value of Enterprise Architecture, viewed on November 27, 2010 http://garryfeatherstone.com/downloads/EAC%20keynote%20mb%20FINAL. ppt. bendercon.wordpress.com 2009, HP/Compaq Merger – Harvard Business Case, viewed on November 27, 2010 http://bendercon.wordpress.com/2009/04/24/hpcompaq-merger-harvard- business-case/ Cormia, B. 2002, Analysis of the Proposed HP-Compaq Merger via the ValueFramework, viewed on November 27, 2010 http://www.allbusiness.com/buying-exiting-businesses/mergers- acquisitions/193783-1.html docstoc.com, Balanced scorecards and strategy implementation, viewed on November 27, 2010 http://www.docstoc.com/Pro/1106820 Fried, I 2002, HP-Compaq merger: Worth the wait? viewed on November 27, 2010 http://news.cnet.com/HP-Compaq-merger-Worth-the-wait/2100-1001_3-956202.html globalwarmingart.com, Compaq, viewed on November 27, 2010 http://www.globalwarmingart.com/wiki/Wikipedia:Compaq gsb.stanford.edu 2007, Compaq and HP: Ultimately, the Urge to Merge Was Right, viewed on November 27, 2010 http://www.gsb.stanford.edu/news/research/urgetomerge.html Hoopes, CL. 2004, The Hewlett-Packard and Compaq Merger: A Case Study in Business Communication, viewed on November 27, 2010 http://www.awpagesociety.com/images/uploads/HP-Compaq-case.pdf icmrindia.org, HP’s Compaq Acquisition (B), viewed on November 27, 2010 http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy3/HP %20Compaq%20Acquisition%20B.htm Read More