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Hewlett-Packard: A Business Review and Analysis |
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Introduction Hewlett-Packard is currently a successful company operating within the computer and printer industry. In addition to its huge market coverage, HP has also been earning billions of dollars through quality products and ingenious development of new technologies. Despite this success, the increasing competition in the industry encourages the company to apply new marketing strategies that will position its products better in the market. One of the possible solutions for this goal is to enter into internet retailing. This paper will then analyze the resources of the company in supporting this strategy; the weaknesses of HP will also be identified in this analysis using various business analytical tools.
HP’s Macro Environment: PEST Analysis Political Private ownership is the dominant market system in the United States. Moreover, both home and private businesses are granted the authority for decentralized decision-making. The free system in the American business sector is made evident by the amount of the production and output of private businesses. Statistics showed that about two-thirds of the overall American economic outputs are for the individuals and their private businesses. A third of these output are the only part that goes to the government (US Department of State, 2006). This statistical division indicates that the private businesses and the consumers have a more essential role in the business sector as compared to the political level. Still, the government plays a significant role to the country’s economy including the business sector. One of the important roles of the government in business is the development and enforcement of various business-related laws. These laws include business and property right protection as well as the prohibition of business practices that are perceived as unjust. Product safety is also part of these legislations (Microsoft Encarta Online Encyclopedia, 2005). Economical The United States economy is considered one of the largest in the world. The businesses in the country are mainly market-oriented where most decisions and activities are developed by the people (Wikipedia, 2005). This has been made evident by the annual purchases of the American consumers, which on the average, totaled to more than 5 trillion dollars every year. This suggests that about 80% of the total goods and services produced by US businesses are purchased and supported by the local consumers. In 1999, a total of $2.9 trillion was the US’s gross domestic product (Microsoft Encarta Online Encyclopedia, 2005). Based on a more recent statistical estimation, the US GDP per capita is at $41, 800 and has a real growth of 3.5%. The GDP purchasing parity on the other hand is at $12.37 trillion based on the 2005 estimation (The World Factbook, 2006). The activeness of the US economy is mainly attributed to its rich and diverse business sectors. One of the most important sectors in the country is the manufacturing industry. HP is actually under the industrial machinery sector where computer as well as engines and other equipment are produced. This manufacturing sector actually accounts for 10.7% of the annual value from manufacturers (Microsoft Encarta Online Encyclopedia, 2005). This suggests the ability of the American to live a fairly good standard of living. There are some economic problems however in the US which could affect the growth and strategic plans of the economy. One of these problems is the significant level of unemployment rate in the country; in addition, report also indicated that a considerable percentage of young Americans fail to graduate (Microsoft Encarta Online Encyclopedia, 2005). Socio-cultural The population of the country is considered as the third most populated country in the world, which is estimated to be around 296 million (Microsoft Encarta Online Encyclopedia, 2005). In addition to size, the United States is said to be a pluralistic society. This indicates that the country’s inhabitants are highly diverse in terms of religions, races and nationalities. In addition to the presence of minority groups, the diversity in the country is also attributable to open trade and influx of immigrant workers. The rise of immigrant workers suggests the growing working sector of the country, which increases the need for computers and technology. In the employment factor, certain problems are evident. For example, in terms of the wages given to the people, sixteen states in the country provide a wage higher than the minimum, which is at $5.15 for every hour. There are 26 states that provide minimum wages based on the national level. Ohio and Kansas on the other hand offer wages below the minimum, while six other states do not apply any state laws (Wikipedia, 2006). The problem on discrimination is also an occurrence as female workers typically earns less than 10 percent than their male counterparts performing similar responsibilities and with same level of training and education. The 1996 statistical findings also showed that male college graduates typically earn $63, 127 every year whereas female college graduates earn an average of $41, 339. Unemployment rates are significantly related to the people’s education level as the unemployment rate of 7.1% in 1998 was observed among individuals who were not able to finish their high school education. On the other hand, the same statistics revealed that only 1.8% of the college graduates were unemployed (Microsoft Encarta Online Encyclopedia, 2005). Technological Being one of the countries who were able to use the computer and the internet for the first time, the American society is very mush adapted to technology. In fact, statistics suggested that the employment sector is continuously using computers and related gadgets in their work activities; this greatly contributed to the growth of the computer industry. In addition, job openings for computer professionals are also said to double from 1996 until 2006. People had also grown accustomed to using the internet for work, paying bills, reserving airline tickets as well as shopping. Statistics showed that in 1999, a total of 84 million American have Internet access either at home or at work (Microsoft Encarta Online Encyclopedia, 2005). Macro-environment Analysis From the details of the company’s macro environment, several strengths can be identified. One of which is the relative stability of the United States in both political and economic terms. With a good political setting, HP as well as other related companies’ strategies will be controlled and supported by well-established business legislations; this in turn will promote fair competition within the industry. Moreover, as the country employs a decentralized decision-making process among businesses, HP has the liberty to design strategies that suits its needs and available resources. Aside from these, the outcome of the production and strategies of HP will be concentrated on the company considering that only a small part of the economic outcome goes to the government. This will help HP in achieving fast returns of investment as well as sufficient funds to develop other strategies. The data from the company’s macro environment also indicate that future growth and success are very likely. One indication is the presence of a large target market for HP, considering US’s high population count. In addition, the technological background of the country implies the continuously growing awareness of the consumers to computer technology and information systems. If the company will choose to use Internet technology to improve its marketing strategy, the high accessibility of this technology to the people as well as the significant number of people that has online access will result to successful marketing. Nonetheless, the macro environment information suggests the company’s need to familiarize itself with business laws applied in the country, particularly in product safety, consumer protection and internet security. Furthermore, although the US economy is stable enough, the unemployment and undergraduate rates in the country hint possible economic downturns. With a significant number of undergraduates, pools for competent employees for HP can be reduced. Production and development of strategies can also be affected due to limited workforce. In order to avoid major company losses due to labor problems, HP should choose strategies that are cost effective. This will help it buffer the effects of future economic crisis.
HP’s Micro Environment: Porter’s Five Forces Rivalry Rivalry is considered to be the strongest and most important force in Porter’s model. It represents the presence and number of firms competing for each other’s economic profits. The level of rivalry within HP’s environment can be described as high. This is mainly due to the presence of several competing companies of similar sizes. Moreover, rivalry level increases because of product and service differentiation inadequacy. The competitors of HP are also very aggressive in making fresh moves so as to increase sales and market share. For instance, in terms of internet retailing, Dell, IBM and Compaq are some of the major companies applying the same business strategies. Aside from this, these companies are also targeting similar market segments, making the level of rivalry even higher.
Entrants The threat on entrants is highly dependent on the presence of factors known as barriers of entry. Basically, barriers to entry could increase or decrease the chances of new businesses offering products that could rival those produced by existing companies. Naturally, if the barriers are high, the threat on entrants will be low due to risks of decreased market share potential. There are several examples of barriers to entry. These include government regulations, trade restriction and inaccessibility of major distribution channels. For HP, the entrant factor can be considered as low due to a number of reasons. One of which is the fact that operating such business demands a considerable capital. A great deal of capital will not only be necessary for putting up the business itself but also in acquiring the best professionals and technology for product development as well as marketing. Moreover, time is necessary for the company in order for it to flourish; HP started in 1939 and spent years of operation before it became a multi-billion dollar company. Aside from capital and time, entering the same business and competing with HP can be difficult due to customer loyalty and strong brand preference factors.
Buyers This aspect of Porter’s five forces pertains to the power of the buyers over the manufacturer or the company. In the case of HP, the buyer power is fair. This assessment is based on the nature of buyer power sources surrounding the company. For instance, the buyer power for HP can be low since product demand is high and buyer concentration is low. These factors suggest that the company has the power to control the amount of production as well as the prices its gives to the market. These buyer sources however, are off set by the presence of several substitutes. In addition, due to several competitors, products and services offered to consumers are undifferentiated. These make buyer power neither high nor low for HP consumers.
Suppliers Similar to buyer power, the power of the suppliers with the company is fair. This is because supplier concentration for electronic parts and components is low. HP can deal with other suppliers for its production. Considering that HP is a major company, other suppliers will be very willing to supply goods to a large company. However, HP should also note that healthy relation with suppliers is as important as those with its customers. So as not to affect the quality of its products, it is imperative that the company refrain from changing one supplier to the next.
Substitutes As mentioned, the computer and printer industry is very competitive; HP is operating in a business environment where several major companies are producing and offering similar products or services. In addition, the target markets of these companies are similar as well. The consumers then have several product options to choose from, making the level of substitutes high for HP.
Micro-environment Analysis The micro environment of the company clearly showed the major source of HP’s problem, which is intense competition. In addition to the number of competitors, HP’s rivals are mostly major companies who are able to implement similar marketing strategies. The similarity of the companies’ target markets further worsens the competition and substitute level. This problem will make it difficult for HP to stand out to the market and even if it does, the positive impact may not be as great. On the other hand, the level of competition for HP can allow the company to develop unique and better strategies that will greatly improve its marketing status. Nonetheless, the operation of an IT company requires essential resources (e.g. capital, time, loyalty, brand preference) that cannot be achieved easily by future new rivals. This is an important factor for HP as it will definitely help in controlling the rivalry factor. Controlling the rivalry factor will help HP in focusing its strategies that will overcome major competitors. The micro environment of HP also suggests that the company’s success should be supported mainly by good relations with its stakeholders. In its choice of marketing strategy for example, HP should focus on plans that will promote ease among consumers; its message should speak more about its products’ use and benefits. Good working relations with the suppliers should also be maintained so as to ensure quality production. Through this, HP will be able to produce a quality product and promote it effectively to interested consumers.
Company: SWOT Strengths
Weaknesses
Opportunities § The company can use other means of distribution like internet retailing, which can possibly augment its sales and market access. § The continuous use of computers and printers by office workers and home owners alike suggests that these gadgets will be in demand for several more years. § The ability of the company to acquire pertinent consumer data allows it to develop products that are based on current consumer needs and preferences. This enables HP to develop new products as well as establish customer satisfaction and loyalty. Threats
Company Analysis The data from the SWOT analysis showed that HP’s strengths are basically derived from two major sources: human/financial resources and experience. Through these strengths, the company is capable of producing quality products that can be marketed effectively. Its long experience and presence in the computer/printer industry have allowed the company to acquire a strong hold on the market. The access to these sources suggests that HP is capable of employing most marketing strategies successfully. Nonetheless, there are still obstacles. The increased competition among companies and the possibility of employing similar strategies reduce HP’s opportunity to distribute its products effectively to the market. While strategies like internet retailing can help HP, it is likely that the return of investment will take time since others will be doing the same tactic. In order to address this, it is perhaps imperative that HP implement a strategy that is not only cost effective but unique as well.
Problems and Issues Based from the tools used for analysis, certain issues and problems of HP have been stressed. One of the major problems of the company is the presence of several competitors within the industry. Though the company has access to a myriad of marketing strategies, companies applying similar strategies can limit their positive effects. The company should then apply a marketing strategy that will give the best results. In order to overcome these problems, HP then plans to distribute its products online. While at resent, the company is already connected to major online retailers, there is also the opportunity to create a company direct online service. The company is then caught between whether this alternative is worth the risk or should it just optimize its current strategy. In this aspect, the main issue is whether the change of strategy is a cost-effective move for HP. Despite the fact that HP has the resources to support this strategy, it is essential that the company will gain the expected results from this investment. It is important that the ability of the strategy to overcome HP’s business concerns is considered. Will the strategy help HP distribute its products effectively to the market? Will this overcome competitors? Will it result to fast return of investment?
Alternative Proposition and Evaluation The basic aim of HP’s current strategy is to improve its means of distributing its products and services. This strategy will help overcome competition as well as increase profit margins. For this purpose, there are two possible alternatives. The company could either push through with its plan to retail its products by internet means or the company could just enhance its current distribution channels. In the first alternative, HP will develop its own website where product designs or models as well as the services it offers will be retailed. In this company site, customers can view the features of the products as well as the prices. Special offers like discounts or product packages may also be displayed in the website. Inquiries through electronic mail can also be an added feature to the designed website. On the other hand, the second alternative is focused on the existing distribution channels of the company. Aside from major direct retailers of the company, HP also has contact with mass merchants like Wal-Mart and Sears. Both of these retailers have a company website where products are displayed for consumers who preferred to shop online. In this case, rather than creating an entirely new company site, HP will contract either distribution channel to display its products on their sites. Both of these alternatives however have their own advantages and downsides. Internet retailing through a customized website is beneficial for HP as people all over the world can easily access online shops and websites anywhere at any time. Since its products are produced under a well-known brand, product promotion through online means may not be as difficult. In general, businesses with more established and popular brand names have more chances of acquiring the advantages of marketing through the internet. Aside from widened market access, the internet enables merchants to attain direct access to their consumers. This helps retailers avoid undergoing several intermediaries before reaching the consumers; hence, business deals are made faster. Furthermore, this method helps avoid particular intermediary costs like distribution inventories as well as the maintenance of costly retail shops. On the other hand, creating a new website for the company may be disadvantageous as well. This is due to the cost needed to support its development and maintenance. Moreover, issues like internet security and consumer protection may affect the success of this strategy. Conducting internet retailing through mass retailers is advantageous since fewer resources from the company will have to be allocated. The company need not allot time, workforce and energy for developing as well as maintaining the site. The downside of this alternative however, is that it limits the company’s direct access to the consumers. Product purchase is not done directly between the company and the buyers. In addition, most competitors have already applied this strategy; while this may be a tested strategy, applying the same strategy may not address the aim of the company to overcome competition.
Recommendation and Implementation Based from the analysis of the company’s strengths and options, the first alternative appears to be the most recommendable. There are two main reasons for this judgment. One is that the company has the resources and capabilities to design a website of its own, which has been pointed out in the company analysis. With its available capital, strong brand name, loyal customers and talented workforce, HP has access to the major elements for internet retailing through a customized website. The second reason is that the HP will most likely benefit from this alternative. By facing the possible risks involved in developing a company website, HP can apply a strategy that is different from its major rivals; hence, this alternative will help the company achieve its aim of overcoming business rivalry. As the company’s major markets are capable of accessing the internet, the company will be able to improve its means of product distribution as well as increase market growth. The macro environment, micro environment and company analysis for HP all indicated that in order for HP to overcome its major sources of threats, cost effective and distinctive business strategies should be developed. The first alternative is then recommended as it answers to these needs. In conclusion, the resources, capabilities and business environment of HP can all contribute to the efficacy of implementing internet retailing by the company. The company should then design a project plan for this strategy. Important resources that will serve as the strategy’s framework should be prepared. It is also suggested that the company develop a monitoring system, which will regularly evaluate the strategy’s progress. This will be helpful for detecting problems ahead of time as well as in implementing strategy changes or improvements.
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