Corporate-Level Strategies Of Hewlett-Packard Essay Sample
Business-Level and Corporate-Level Strategies
This paper analyzes business-level and corporate-level strategies of Hewlett-Packard corporation and of its closest competitor within the portable PC manufacturing industry. Additionally, it discusses the long-term effectiveness of key business-level and corporate level strategies of the selected corporation and its closest rival. Finally, effectiveness of the chosen key strategies is discussed within the context of slow-cycle and fast-cycle markets.
Business-level strategies of Hewlett-Packard
A business-level strategy indicates the methods a firm exploits to make the best use of its competitive advantage over rival companies (Hitt, Ireland, & Hoskisson, 2015). Consequently, a corporation develops business-level strategy for every separate business it has. Hewlett-Packard operates in six diversified business segments: personal systems, printing, enterprise group, enterprise services, software, and financial services (HP Annual Report, 2015).
The market of personal systems, also referred to as personal computers, is highly competitive. Main characteristics of this market include inventory obsolescence and price competition. The intensity of competition is further increased due to PC market’s decline and customers’ ongoing shift to mobility products (HP Annual Report, 2015). Hewlett-Packard’s key competitors in the PC segment include Lenovo, Dell, Acer, Asus, Apple, Toshiba, and Samsung. To maximize the effect of its competitive advantages, Hewlett-Packard maintains several key aspects of the business-level strategy: broad product portfolio, innovation and R&D capabilities, brand and procurement leverage, extensive support offerings and service, strong distribution system that varies from commercial and retail channels to direct sales (HP Annual Report, 2015).
The markets of printers and associated supplies are very competitive as well. Key customer segments of the printing market face heavy competitive pressure in introduction of new products and pricing. Main rivals of Hewlett-Packard in the printing market include Canon, Lexmark, Xerox, Seiko, Ricoh, and Samsung. Key elements of Hewlett-Packard’s business-level strategy in the printing market include offering comprehensive solutions for publishing, office, and home environments; utilizing powerful innovation and R&D capabilities; using the strength of the brand name; and maintaining and developing the strong distribution system.
Software division of Hewlett-Packard operates in a rapidly changing market environment, due to shifts in technologies and customer requirements (HP Annual Report, 2015). Main competitors that also develop and design corporate IT management software include IBM, CA Technologies, VMware, BMC, and others. Hewlett-Packard also develops data solutions that include data analysis, digital marketing, and information governance. In this segment, main rivals are Adobe, IBM, EMC, Oracle, and Symantec. Business-level strategy of Hewlett-Packard in the software market is largely based on further development of depth and breadth of the company’s software and services portfolio, and effective usage of strong market coverage.
Enterprise group, enterprise services, and financial services are secondary business segments of Hewlett-Packard. Therefore, the analysis does not cover these operations, in order to maintain a major focus on the principal businesses of the company.
As far as I am concerned, a business-level strategy that fosters innovation and supports effective development of the R&D function is vital to the long-term success of Hewlett-Packard. Personal systems and printers are the key businesses of the company, and powerful innovation and R&D capabilities are essential for Hewlett-Packard’s competitive advantage. Of course, powerful distribution network also enables Hewlett-Packard to gain major competitive edge over its rivals, but I consider the company’s strategic focus on innovativeness to be more important. Similar ideas are reflected in Thomas J. Sowell’s (2006) book, where he emphasizes the crucial role of innovation in Hewlett-Packard’s success. Moreover, each employee of the company represents an important part of the innovative strategic approach, regardless of their position in the company’s hierarchy: “to support its commitment to innovation, Hewlett-Packard encourages its workers to serve as product champions. The firm’s employees are challenged continuously to strive for innovativeness, speed, and efficiency” (Sowell, 2006, p. 143).
A corporate-level strategy determines the businesses in which the firm plans to compete and identifies the most effective ways to manage its businesses. Other vital aspects of a corporate-level strategy include acquisitions of other businesses and restructuring of the company’s business portfolio if such a need arises (Hitt, Ireland, & Hoskisson, 2015).
Corporate-level strategies of Hewlett-Packard have substantially transformed over the past several years in response to changing business environment. For instance, in 2009-2012, Hewlett-Packard was the number one PC producer in the world in terms of market share (Yoffie, & Rossano, 2014). The major corporate strategic focus of the company was placed on maintain the lowest prices among the competition. However, such a strategy began negatively affecting the company since 2005, as PC parts and components became more standardized and cheap. Hewlett-Packard’s profitability ratios were one of the lowest compared to its closest competitors, because maintaining the lowest prices required sacrificing profit margins, which continued dropping to threating levels. Harrison and John (2010) also mention that Hewlett-Packard tried to maintain a cost-leadership strategy.
The management team of Hewlett-Packard recognized the need to execute a significant shift in the priorities of the corporate-level strategy. The company no longer strives to pursue the cost-leadership strategy, although the price competition still remains fierce in the company’s key businesses, and the change of strategy forced Hewlett-Packard to give up the first place on the PC market. According to the world’s leading IT research company Gartner, at the end of 2014 Hewlett-Packard occupied the second place with 17.5% market share, and the first place was held by Lenovo with 18.8% (Gartner.com, 2015).
One of the steps taken by the management in terms of the corporate-level strategy of Hewlett-Packard includes dividing the corporation into two publicly-traded independent companies: Hewlett-Packard Enterprise and HP Inc. The decision was announced in October 2014, and is expected to be completed by the end of 2015 (HP Annual Report, 2015). Hewlett-Packard Enterprise will unite the following business segments: enterprise group, enterprise services, software, and financial services. The key businesses of the company, personal systems and printers, will operate under HP Inc. Division of the company’s businesses was already discussed above. According to the annual report, Hewlett-Packard does not plan on further diversification by launching new businesses (HP Annual Report, 2015).
Various aspects of Hewlett-Packard’s corporate-level strategy can be defined on the functional basis, including sales, marketing, and distribution; manufacturing and materials; international presence; and research and development.
In sales, marketing, and distribution, Hewlett-Packard strives to tailor those functions in accordance with buying patterns of customers and market conditions of each specific region. However, while each business segment manages its own distribution and go-to-market strategy, the company exploits the effectiveness of strategic and process alignment
In manufacturing and sourcing materials, Hewlett-Packard uses a strategic approach highly popular among modern leading PC producers – utilization of outsourced manufacturers (OMs). Typically, they are located in Asia, and enable significant cost savings and timely delivery (HP Annual Report, 2015). In terms of meeting demand for its products, Hewlett-Packard uses two primary methods: building and configuring products to order. The first method allows maximizing logistics and manufacturing efficiencies by producing large quantities of basic configurations of products. The second method enables meeting customer-specific, non-generic requirements.
Strong international presence is a major strategic platform for Hewlett-Packard’s future development. The company plans on continuing its active expansion into markets of developing countries, and developing technical expertise from a diverse workforce. In this light, it is not surprising that about 65% of the company’s total net revenue was accumulated outside the United States in 2014 (HP Annual Report, 2015).
Innovation is a key strategic aspect of Hewlett-Packard. The company plans on continuing to allocate significant resources into research and development, in order to maintain and develop its innovative competitive advantage. In 2014, for instance, $3,4 billion was spent of R&D, compared with $3,1 billion in 2013.
The corporate-level strategy I think is most important to the long-term success of Hewlett-Packard is further expansion into developing markets. In my opinion, it is a good choice, because in a highly competitive PC and printing industries, which are core for Hewlett-Packard, competition is heavily based on price, and successful entry in a new attractive market is one of the few ways of gaining edge over competitors. Having a strong distribution network, salesforce, brand name, capital resources, and geographical presence, Hewlett-Packard has high chances of capturing the leading position in developing markets.
Comparison of Hewlett-Packard and Lenovo’s business-level and corporate-level strategies
The analysis of business-level strategies will cover the main product group of the companies – personal systems, which include PCs and tablets.
Lenovo’s principal business-level strategy in the PC industry lies in maintaining cost leadership by offering budget/entry PCs and tablets to the customers (Lenovo Group Interim Report, 2014-2015). The company continues to outperform the world’s stabilizing PC industry, growing unit shipments by eighteen percent year-on-year (y-o-y) and reinforcing its market share in the industry to the record high nineteen percent. Main emphasis of Lenovo’s corporate-level strategy is placed on active product diversification. In October 2014, Lenovo acquired Motorola Mobility from Google, planning on intensifying the expansion of its smartphone business. Currently, Lenovo is ranked third among the world’s leading smartphone producers in terms of market share, but through the acquisition the company expects to climb higher by entering Mature Markets outside China (Lenovo Group Interim Report, 2014-2015).
In the long term, I think Lenovo will be more successful than Hewlett-Packard. This company is able to offer low prices to its customers while maintaining decent profitability levels and outperforming the market in terms of revenue growth. Considering the heavy price competition and not yet fully stabilized market conditions, such performance is sufficient to make positive forecasts for Lenovo, in my opinion. Additionally, Lenovo is actively diversifying its business portfolio, while Hewlett-Packard strives to stabilize its financial performance and maintain its market share. Within the context of a rapidly changing business environment of high-tech industries, diversified portfolio of businesses is an undeniable advantage in the long term.
Potential differences in slow-cycle and fast-cycle markets
Main industry where Lenovo and Hewlett-Packard operate, personal systems, represents a fast-cycle market. Such a market is characterized by low protection of a firm’s competitive advantage from imitation, and limited sustainability of competitive advantages (Peng, 2014). Naturally, slow-cycle market has the opposite characteristics.
If the companies operated in a slow-cycle market, Hewlett-Packard would have a considerably better position for the long-term success than Lenovo, in my opinion. Hewlett-Packard invests significant resources in research and development, and fosters innovation at all company levels. This leads to development of a competitive advantage, which within the framework of a slow-cycle market would be highly difficult to imitate. Sustainable competitive advantage that is very costly and complex for the competitors to copy is a key for long-term success in a slow-cycle market.
Harrison, J. S., & John, C. H. (2010). Foundations in Strategic Management. Mason, OH: South-Western Cengage Learning
Hewlett-Packard Enterprise. (2015). 2014 Annual Report. Palo Alto, CA
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2015). Strategic Management: Concepts: Competitiveness and Globalization. Stamford, CT: Cengage Learning
Lenovo Group Limited. (2015). 2014/15 Interim Report. Hong Kong
Peng, M. W. (2014). Global Business (3rd ed.). Mason, OH: South-Western Cengage Learning
Pettey, C. (2015). Gartner Says Worldwide PC Shipments Grew 1 Percent in Fourth Quarter of 2014. Retrieved from http://www.gartner.com/newsroom/id/2960125
Sowell, T. J. (2006). Strategic Manufacturing Management: Strategies to Achieve Managerial Competitiveness. Xlibris
Yoffie, D. B., & Rossano, P. (2014). Apple Inc. in 2012. Harvard Business School, 9-712-490