UNIVERSITY OF HERTFORDSHIRE. Strategic Management Perspectives

Hewlett Packard

A Strategic Analysis

VISHAL SHARMA

1/5/2011

MBA Full Time

Student ID: 10281299

Module Leader: Dr. Denise Dollimore.

Module Code: 7BSM1020

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Contents Page

1.Introduction...............................................................................................3

2.Company Profile........................................... ............................................3

3.Strategy Definitions....................................................................................4.

4.The HP Way: Cultural bedrock . ................................................................5

5.Cultural Web...............................................................................................6

6.HP under Fiorina and Hurd.........................................................................7-12

7.The Paradox of Profitability and Responsibility.................................... .....12

8.SWOT Analysis...........................................................................................13-16

9.HP External Environment Analysis (PEST).................................................16

10.Porter's Five Forces.......................... ........................................................18

11.Reflection...................................................................................................19.

12.Referencing….....………………………………………………………………22

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Introduction

The brief mandate of this paper is to look into the strategic orientation of Hewlett-

Packard, an electronics industry powerhouse, especially the eventful changes

happening under the regime of its mercurial CEO Carleton (Carly) Fiorina and later

Mark Hurd. While doing so, the paper explores and examines various strategic

paradoxes dotting the tenure of the two CEOs.

Company Overview

Founded in 1939 in a car garage in Paulo Alto by two engineers, William Hewlett and

David Packard, the company made massive strides and now boasts of being a

company with one of the tech world's most comprehensive portfolios of hardware,

software, and services.

It completed its $18.6bn merger with Compaq in May 2002 that saw some serious

challenge to the move by 'rebel' Hewlett Packard shareholder Walter Hewlett who

gave up his fight to block the acquisition after losing a court case (BBC News).

The various products on the new entity's platter, post this merger, are personal

computers, printers, networking equipment, storage devices etc. It also provides

solutions in business process outsourcing, consulting, systems integration and other

technological services.

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The company markets to consumers, businesses, government agencies, and

schools in more than 170 countries [www.hoovers.com]. The company has

304,000 employees and flaunts an enviable Fortune 500 ranking, perched at number

10. The HP's revenue for the fiscal year ending October 31, 2010 was pegged at

$126 billion (www.hp.com).

Strategy definitions

Before delving into the analysis, it is prudent to take notice of some definitions of

strategy. According to James Brian Quinn (1998), strategy is the pattern or plan that

integrates an organization's major goals, policies and action sequences into a

cohesive whole.

Quinn further defines strategic decisions as those that determine the overall direction

of an enterprise and its ultimate viability in light of the predictable, unpredictable and

the unknowable changes that may occur in its most important surrounding

environments.

Presenting another view, Henry Mintzberg (1998) comes out with five significant

definitions of strategy conceiving it as a plan, ploy, pattern, position and perspective

(Five Ps) and their interrelationships. For de Wit and Meyer (2010), strategy is any

course of action for achieving an organisation's purpose. Colin White (2004) defines

strategy as a coordinated series of actions which involve the deployment of

resources to which one has access for the achievement of a given purpose.

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A comparatively newer term 'strategic management' has been defined as 'that set of

decisions and actions which lead to the development of an effective strategy or

strategies to help achieve corporate objectives'. (W.F.Glueck, 1980).

It can be safely asserted that the essence of strategic planning is to anticipate

change and plan in advance (prescriptive process to strategy development),

although it may not be possible for a company to fully know the extent of change and

this has led to concept of emergent approach to the process of strategy

development. (Richard Lynch, 2006).

The HP Way: Cultural bedrock of the company

It is not often that an inconsequential $538 garage effort metamorphoses into a

multi-billion dollar corporate giant. However, Hewlett-Packard duo not only brought

about this fantastic growth of their company but in the process also laid foundation of

some rather radical corporate practices and beliefs, so very aptly summed up as The

HP Way.

David Packard in his stimulating, albeit self congratulatory, book: The HP Way: How

Bill Hewlett and I built our company (2006) reveals that the HP Way is not an

autocratic, top-down phenomenon but something which is built and integrated into

the organization. The concept champions openness, honesty, trust, superior

performance and flexibility throughout the organisation.

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With such obviously idealistic benchmarks and company people as a pivot, the HP

Way introduced and still propagates the tenets of management by walking around

(borrowed from Japanese style of management), educational subsidies for

employees, profit sharing, handing over authority to employees closest to the

customers etc. Most significantly, it lays focus on innovation (research and

development leading to cutting-edge technology) as a way of being for everyone

from plant engineers to CEO.

It also stresses that the HP company has a responsibility to contribute directly to the

well-being of the communities in which it operates (Stakeholder perspective. Social

Responsibility).

Celebrity author ('Built to last', 'Good to Great') and noted management guru Jim

Collins (www.jimcollins.com) in his 2005 forward on Packard’s ‘the HP Way’, says

that the HP Way is the “hidden DNA” of the company. He suggests that both

performance as well benevolence are the two dominant strands of this hidden DNA.

Cultural Web

The Cultural Web by Gerry Johnson and Kevan Scholes (1992) is quite a useful tool

to analyse the corporate culture of a given organisation. It enables us to identify as to

what should remain and what should be allowed to perish in an organisation’s

culture. The tool is important because the change in culture, as witnessed during

Carly and Hurd's tenure, implies remoulding company’s values, beliefs and

behaviour.

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The six, key elements of the cultural web form the paradigm or the 'pattern' of a

company's corporate culture. These elements are stories or what is talked about

inside or outside the company, routines or rituals relating to daily behaviour and

actions of people, symbols like logo, organisational structure whether bureaucratic or

horizontal, control systems as to how the organisation is controlled and power

structure of the company.

The culture of the HP underwent significant changes under the regime of Carly

and Hurd, especially the changes in HR management. Employees were shunted out

to ensure profitability, power structures were altered with both the CEOs

restructuring the organisation into cohesive strategic business units (SBUs) and

bringing in their favourites from outside, organisational structure became top-down

and symbols like logo too was changed under Carly's tenure as CEO.

HP under Fiorina and Hurd

Based on the case study given in de Wit and Meyers, some of the highlights of the

tenure of Carly Fiorina and Mark Hurd are as follows:

Carly’s Tenure 1999-2005

Carleton S. Fiorina (Carly) was known for her marketing and sales abilities. She took

some major steps like rebranding of HP and introduced HP Invent logo even as she

spent over $200 m on marketing and re-branding initiatives. The most significant

turning point of her tenure came when she led the HP-Compaq merger in May 2002.

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The merger happened despite opposition from some very influential board members

and also saw scathing criticism from analysts. Going very much against the grain

of the HP Way, Carly laid off 17,000 employees post merger. She also framed the

Rules of Garage' (Exhibit 6, Page 897, de Wit and Meyers) to emphasise

performance and brought a serious change in 'consensus-based' organisational

culture by introducing and emphasizing top-down approach.

She also restructured HP into four main business divisions: Customer solutions

group, imaging and printing group, personal systems group and technology systems

group. Her tenure also saw HP unveiling its 'adaptive enterprise strategy' to help

businesses manage change and get more from their IT investments.

It is apparent that some of the initiatives taken by Carleton were not in sync with the

HP Way philosophy and made her quite unpopular as she was perceived as

authoritarian, elitist and bureaucratic.

However, it can also be argued that Carly was intending to bring about

revolutionary change in the organisation to boost its competitive advantage.

Seen in the context of discontinuous renewal, the merger with Compaq was

symptomatic of a major strategic move that attracted resistance even as Carly aimed

to change the rules of the game of the industry by her audacious move. She instilled

a sense of urgency, created a pressure situation that made things fluid and receptive

to change.

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As stated by Lewin (1947) and Miller and Friesen, (1984), as long as pressure

persists, revolutionary change is possible but as soon as the pressure lets up the

firm will re-solidify in a new form, inhibiting any further major changes.

destruction', Carly's disruptive and intense strategy to bring about a revolutionary

change obviously destroyed a lot of the much-revered HP Way in her quest for

something radically new.

As de Wit and Meyers put it eloquently, strategising managers should know when to

change and when it is more wise to seek stability. Probably, this is where Carly

made lapses, leading to her downfall.

Another important aspect is that Carly was basically an outside-in manager,

laying focus upon adjusting the core values of the company to external environment.

It is obvious that this didn't fit in with the inside-out (resource-based) perspective

engrained in the HP Way.

According to Jaworkski and Kohli (1993) outside-in managers take cues from

customers and competitors and use these signals to determine their own game plan.

For them, markets are leading, resources are following.

Both Carly and Hurd had a corporate management style focussing upon

centralisation as a dominant integration approach to structuring HP into various

strategic business units (SBUs). This organisational structure has been referred to

as the M-form (Williamson, 1975). That this leads to a more bureaucratic approach

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and affects business responsiveness is lucidly explained by de Wit and Meyers in

their description of the paradox of responsiveness and synergy.

Interestingly, Hamel and Prahalad, in what they dub as tyranny of SBUs, say that

SBU-centric vision focuses only upon today. They warn that companies that attempt

to build market share by relying on the competitiveness of others (as Carly on

Compaq's), rather than investing in core competencies and world-core-product

leadership, may be treading on quicksand.

Mark Hurd's tenure (2005-2010)

Hurd was known for his operational excellence, was dubbed as 'Operations Whiz' by

the media. Enjoying the reputation for aggressive cost-cutting, Hurd too laid off

14,500 employees, reduced IT department's strength from 19,000 to 8,000 and

consolidated HP's 80 data centres into six. His tenure also witnessed cuts in

employee pays, benefits and scrapping off the e-inclusion programme. Importantly,

though he himself took a pay cut of 20% in his base salary, the compensation

committee increased his bonus by the same amount.

Hurd restructured HP in to 3 main business divisions: Personal system group,

technology solution group and imaging and the printing group. He also acted boldly

and against the HP organisational culture by hiring outsiders for key posts in the

company. He believed in what he called "Pay for performance", such that employees

had a sustainable part of their salaries "at risk", which got paid only when the

company's performance measured up.

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Hurd’s management style revealed hardening of the company’s HR approach

against the grain of the HP Way Philosophy.. The CEO obviously took staff -as- cost

point of view and did not count them as a valuable resource of competitive

advantage or offered them graceful exit options.

Hurd was more of a 'continuous renewal man' believing in small, gradual changes in

strategy. It is apparent that Hurd turned out be a fairly effective CEO with his

operational expertise but somehow lacked the vision and instinct for encouraging

innovation. (an essential ingredient of the HP Way).

Both CEOs as top-down, bureaucratic leaders

Very importantly, the two CEOs and their style of functioning reflected 'the

organizational leadership perspective’. The proponents of the view (Finkelstein and

Hambrick, 1996) are quite categorical about the fact that top management can and

should take charge of the organisation. The basis of this argument is that if people

are left to address issues themselves, it will cause strategic vacuum and thus an

effective control and command structure is required. This makes an interesting

contract with 'organisational dynamics perspective' which states that if managers

emphasise control, the only result will be decimation of the organisation's ability to

innovate and learn.

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The Paradox of Profitability and Responsibility

The HP Way sums up the company’s raison d etre very clearly even as it forms the

vital core for all its present and future strategies and objectives. The HP Way is

strongly inclined towards stakeholder view (propounded mainly by Edward Freeman

in 1984) since its very inception.

However, it doesn't mean that performance and profits don't matter in HP but

certainly they are not the sole considerations driving the company. As the founders

themselves asserted, “We must ask how to contribute not how to succeed”

(www.hp.com).

Interestingly, according to Friedman 1970, responsibility for employment, local

communities, environment, consumer welfare and social developments are not an

organizational matter but issues for individuals and governments.

However, in a stark contrast, Campbell and Yeung (1991) say that few stakeholders

are filled with a sense of mission to go and maximise shareholder value , especially if

shareholders bear no responsibility for the other stakeholders' interests.

To sum up, HP has a rather radical stakeholder perspective since its very foundation

and is now engaged in actively pursuing a global citizenship agenda that lays stress

on sustainability, environmental issues etc. That this leads to enhance brand value

and public image is a major consideration though for the company.

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The company has managed the strategic pull of profitability and responsibility,

though employees as stakeholders were cold shouldered under both CEOs, rather

effectively as reflected from its high revenue and profit figures (www.hp.com) when

juxtaposed with a healthy CSR agenda and costs associated with it.

SWOT Analysis

Strengths

Strong Market Position:

Hewlett Packard, operating in more than 170 countries, enjoys a strong market

leader position in a highly competitive market. Post Compaq merger, it has become

the biggest computer hardware and peripherals consort in the world. (www.hp.com).

Strong Brand Identity - According to Interbrand.com, the HP is placed at an

impressive 10th position (2010) amongst the best 100 global brands. The company

has been quite flexible to adjust its brand image according to the necessities of

competitive market.

Strategic Acquisitions - The company saw an array of important and often

controversial acquisitions under Carly and Hurd. These mergers and strategic

acquisitions include Compaq Computer Corporation in 2002, Mercury Interactive in

2006 and Electronic Data Systems Corporation (EDS) in 2008. In 2009, the company

announced that it had inked an agreement to acquire 3Com, a provider of computer

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network equipment. The jury is still out on various strategic acquisitions made by the

HP in the past years.

Strong CSR image- The HP enjoys leadership position in corporate social

responsibility globally. The HP has put in place its 'Global Citizenship' agenda

(www.hp.com) as one of the major components of its core strategy emanating from

the HP Way. It is committed to reducing the carbon footprints by taking a host of

environmental friendly initiatives and has a dedicated team of professionals

managing its CSR activities.

Weaknesses

Poor Market Segment Integration - Though the company, under Carly and Hurd,

tried to address the issue of its poor presence in some major market segments yet

there is still enough room for improvement. When pitted against major competitors

like IBM, Accenture or EMC, the HP portfolio shows significant lack of software

products or management consultancy services.

Opportunities

Increasing presence in cloud computing market - Cloud computing relates to

developing new delivery models for IT services. The HP, in association with Intel and

Yahoo, set up a global, multi-data centre and open source test bed for cloud

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computing research and education in 2008. The global spending on cloud

computing is forecast to cross a value of over $40 billion by 2012. (www.hp.com)

Imaging and printing solutions

Some of the key acquisitions like Tabblo, Logoworks, Macdermid and Colorspan

have resulted in HP increasing its imaging and printing product portfolio. The

company is focussing upon emerging growth opportunities in commercial printing

and imaging solutions.

Threats

Slowdown in the IT markets

There are some gloomy predictions about an impending low in the demand for

various IT products worldwide owing to global recession. This can hit the HP in a

major way.

Highly competitive environment - Though the HP is reasonably well placed in the

competition yet Dell is one of its major rivals that poses a formidable threat along

with a host of other companies like IBM, Sun Microsystems, Dell, Toshiba, Lenova

and Aver.

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HP External Environment Analysis

PEST Analysis

Political

Being a global entity, the HP is exposed to political systems of various hues and

compositions across the world. Since political factors essentially include the role of

the governments in putting a check on various businesses in their national interest,

the HP is obviously affected and reacts to various business laws and other business

practices initiated by such political actors across the world.

Economic

Global recession, presence of native trade restriction laws, diverse economic policies

and agendas of individual nation-states and governments, changes in demand and

supply, tax barriers etc are some of the economic factors affecting the HP.

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Socio-cultural factors

Opposition to emerging technologies in certain cultures and regions owing to

environmental and sustainable development issues, civil rights groups championing

curbs on unbridled technological and industrial growth etc are some of the socio-

cultural factors that the HP has to ponder over while penetrating various markets

across the globe.

Technological

Given the highly technical nature of the IT and printing industry and rapid research

and development happening therein, technological factors form one of the most

external factors affecting the HP strategy and objectives. It has to make

technological strides to keep up the pace with its enterprising competitors like IBM,

Dell etc.

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Legal

Various trade laws, legislations including those regarding environmental protection,

product safety laws, employee protection laws, mergers, acquisitions and take-over

laws, patent and intellectual property laws affect and restrict the free operability of

the HP and it has to mould its strategy accordingly.

Porter’s Five Forces Analysis (micro environment)

Rivalry

According to Porter, threat by competitors or rivals is the most potent threat to any

organisation's financial and strategic interests. There is no doubt that the HP's

environment is hyper competitive with some of the most respected and feared

competitors like IBM, Dell etc dotting its landscape.

New Entrant threat

Given the highly competitive nature of the HP's industry and the sheer size of main

players in the market, the threat of new entrants is virtually low as venturing into the

HP's arena demands considerable capital and survivor capacity.

Bargaining power of buyers

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Given a host of competitors and substitute products available in the market, it can be

said that the buyer bargaining power is moderately high or fair in the case of HP.

Bargaining power of Suppliers

Given the fact that supplier concentration of electronic parts and components is low,

the bargaining power of suppliers with the company is low to fair. Given the size and

reach of the HP, many suppliers will be too keen to supply goods to it and this offers

a lot of choice to the HP in selecting suppliers. However, the company is highly

selective in picking up suppliers, given the context of its CSR initiative called "Global

Citizenship Agenda" and is in fact one of the very few companies in the world to

publish the list of its suppliers to buttress its CSR credibility. (www.hp.com).

Substitutes

The threat of substitutes is fairly high for the company given the presence of big

companies like Dell, IBM etc offering similar products and services. These

companies eye the same target market as the HP.

Reflection

Strategic Management Perspectives as a study module offers a fascinating insight

into the imperatives that guide and steer decision making in the highest echelons of

the management in organisations. Significantly, the lessons stemming from the

subject also play an important part in developing an integrated, comprehensive

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outlook towards life in general and business in particular by offering a mature

perspective.

The sheer pleasure of learning about paradoxes, multi-strategy perspectives and

how to deftly handle them without falling prey to the “tyranny of either-or” enables

one to chart out a strategic middle path so very vital to think laterally, differently and

holistically.

I, being trained as a lawyer and also having considerable experience in the print

media, found the module to be the most uplifting intellectually. The core text book by

de Wit and Meyers, unlike routine books on the subject, takes the concept and

theory of strategic management to exalting, often philosophical levels. Often, I could

relate the paradoxes mentioned in the book to my professional experiences,

especially the situations where I was caught between opposing pulls and pressures

of ethics and professional necessities.

The resounding suggestion by the authors to resort to the genius of “And” made me

appreciate and acknowledge new frontiers of human thought that stretch and

challenge one’s established and entrenched thought-processes. Even the quotations

mentioned in the text book were pure gems of wisdom that captured the essence of

essays that followed.

The teaching methodology and candid, intense discussions with the module leader

augmented the joy of learning the strategy concepts. Often, the discourse on the

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strategy witnessed stimulating polemics amongst a professionally and culturally

diverse group of students in my class.

The case studies mentioned therein, presentations and coursework prodded me to

think and act as a team member, so very vital to me given that I come from a

strongly individualistic professional background.

The HP case study and coursework made me realise how certain core values or

“DNA” of an organisation can’t be jeopardised even by audacious leaders like Carly

Fiorina. Carly and Mark Hurd’s management of HP also threw up interesting

questions of leadership style, change management, culture etc.

This important case study, being a part of my coursework, made me reflect over

how a CEO who wants radical changes in an organisation runs the risk of being

perceived as an authoritarian, bureaucratic and too flamboyant (Fitting the

description of Theory X propounded by Douglas McGregor in his famous book 'The

Human Side of Enterprise).

It makes it clear to me that a good leader, willing to unleash new ideas and

strategies upon his followers, must take not rush into breaking traditional barriers in a

jiffy but work out a gradual, softer, educative approach to quell any potential

rebellion. Being too adventurous or arrogantly loud is often futile and may kill the

very objective a leader is trying to achieve.

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Often, the creative impetuosity of a leader has to be tamed in sync with the

established strategic core of an organisation. To sum up, I am of the opinion that

strategy is imbuing an organisation with a measurable purpose and the means and

ways to achieve it. It is akin to providing a healthy body to the soul of an

organisation. How one does it depends upon his ability to lead and not just manage.

Word Count: 3733, excluding referencing and content page.

Referencing

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Planning, Volume 24, no 4, August, Pp: 10-20.

2.de Wit, Bob., and Meyers, Ron., (2010) Strategy: Process, Content, Context. An

international perspective. Fourth Edition.South-Western Cengage Learning.

3.Freeman, R.E.(1984) Strategic Management: A Stakeholder approach,

Boston:Pitman/Ballinger.

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4.Friedman, M. (1970) 'The Social Responsibility of Business is to increase its

profits', The New York Times Magazine, September 15.

5.Finkelstein, S., and Hambrick, D.C. (1996) Strategic Leadership:Top executives

and their effects on organisation, West, St. Paul

6.Glueck W.F. (1980) Business Policy and Strategic Management, New York:

McGraw Hill.

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Harvard Business School Press.

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Education Limited

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Cliffs, NJ: Prentice Hall.

12.Packard David (2006), The HP Way; How Bill Hewlett and I built our company

(paperback). Collins Business.

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13.Porter , M.E. (1987) 'From Competitive Advantage to Corporate Strategy',

Harvard Business Review, vol.65, No.3, May-June, Pp: 43-59.

14..Quinn, James Brian., Mintzberg, Henry., Goshal, Sumanta., (1998), The

Strategy Process, revised european edition. Prentice Hall Europe.

15..Raynor, M.E. and Bower, J.L. (2001) 'Lead from the Centre: How to Manager

Diverse Businesses', Harvard Business Review, Vol 80, No 5, May, Pp:93-100.

16..Schumpeter, J.A. (1950) Capitalism, Socialism and Democracy. Thrid Edition,

New York: Harper and Brothers.

17..White, Colin. (2004) Strategic Management. Hampshire/New York: Palgrave

Macmillan

18..Williamson, O.E. (1975) Markets and Hierarchies: Analysis and Antitrust

implications, New York: Free Press.

Online references:

1.BBC [online] available at:http://www.bbc.com.[ Accessed 29th December].

2.Collins, Jim. [online] available at: http://www.jimcollins.com. [Accessed 29th

December].

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3.Hoovers. [Online]. Available at: http://www.hoovers.com [Accessed 29th

December].

4.HP [online] available at: http://www.hp.com. [Accessed 29th December].

5. Interbrand.com [online] available at: http://www.interbrand.com. [Accessed 29th December].