PC Wars

HP vs Dell

Question-1:

How do you judge the quality of a product whether a computer or something else? Is it mostly by

price? Discuss your perception of price and quality as well as any ramifications.

Answer-1:

Quality of a product for me is how solid product is whether a car or a computer. Any product should

do what it is supposed to do out-of-box without any problem or any extra effort.

Another thing about quality is; how easy and fun it is to use that product. I will always choose the

product which is more fun and easier to use (between similar products). Better quality products

should be more fun and easier to use.

I think price by itself is not enough to judge the quality of a product. But it is generally true that high

quality products have higher prices due to high production costs. High quality material and better

production quality are required to produce high quality products, both of which affects price of the

product. Inferior goods are cheap, they are inferior because they are made of cheap material or

production quality is low. Consumption of all inferior goods decreases as income increases.

Another important thing is value of the product. I can pay high price if the benefits of the product is

high. I think value of a product will drop as the quality drops.

In HP vs. Dell case, Dell provides cheaper computers to commodity. Dell provides low prices by

cutting its operating costs and eliminating middleman, direct marketing. Direct marketing was very

successful but price by itself is not enough to be competitive in long term because price gap

decreased and other far east manufacturers are on the market now and they also provide low-price

d computers.

Dell noticed that price is not enough and design counts so they invested on design and R&D

programs to create value for customers. They also entered new markets such as enterprise-server

and printer markets to create new revenue streams.

Question-2:

“Tradition has no place in corporate thinking today”

Answer-2:

I believe tradition should have no place or a little place in corporate thinking today. Tradition comes

into existence as entrenched corporate cultures, corporate hierarchies or complex corporate

structures/ bureaucracies. In many big companies which have a long company history, traditional

management was encouraged up to near future.

Traditional methods became obstacle to be more competitive and transport them in response to

market changes. Decision making process should be fast for a quick response and this requires more

flat organization and decentralized management.

Many great corporate managers earned their reputation by attacking tradition and eliminating

existence of bureaucracies in company such as Jack Welch.

As economist Joseph Schumpeter called the forces of "creative destruction.”; rapid globalization,

accelerating innovation and relentless competition are shaping corporates today.

In today’s market, traditional approaches in corporate management will prevent transformation and

will cause to miss the right time and be late to change for better.

Traditional corporates didn't see the coming innovations, because they failed to respond to market

demands in time and appreciate how important innovation is.

In today’s world, innovative products are very important to be competitive and traditional thinking

could not be helpful to be innovative. It is common observation that innovation generally happens in

small agile business units where traditional methods not used.

To avoid this problem, corporates need to act more like venture capitalists, and less like traditional.

Question-3:

“Giant organizations are often plagued with cumbersome bureaucracies. Discuss how this tendency

could be prevented as an organization grows to large size over many years.”

Answer-3:

CEO role here is very important to prevent tendency for cumbersome bureaucracies. As the leader

of the organization, CEO should be a charismatic leader (as Carly Fiorina of HP or Jack Welch of GE)

so that he/she would be able to achieve radical changes and motivate employee for the change.

As the organizations gets bigger, number of departments will increase and bureaucracy can evolve in

decision making process. Decentralized management and flat organization would be also helpful to

avoid bureaucracy and entrenched corporate cultures. Decentralization will enable fast decisions

and dynamic response to market changes. Constant rotation of manager would be also helpful to

avoid bureaucracy and entrenched corporate cultures.

Bureaucracy evolves between departments in layered hierarchies and this slows decision making

process. Large organizations should prevent layered hierarchies and organize as flat as possible. This

can be done organizing in small business units working independently from other business units and

directly connect to top management. These small business units should have authorization to

operate with its own decision up to some point both financially and operationally. Large

organizations should create business units working like startups.

Question-4:

“Playing a devil’s advocate (one who takes an opposing position for the sake

of examining all aspects of a decision), present the case against the Compaq

merger. (You may want to research the arguments raised by Walter Hewett

in his aggressive campaign against the merger.)”

Answer-4:

CEO, Carly Fiorina emphasized that the merger would put them into competitive position and

eliminate redundant product groups and costs in marketing, advertising, and shipping, while at the

same time preserving much of the two companies’ revenues.

But there was a great risk for HP and an opportunity for competitors to swoop in and persuade

current customers and solution providers to switch product lines. If merger cause any questions in

customers and partners minds then this uncertainty could make them switch to competitors. HP

should manage merge smoothly and complete in short time.

Another thing is if royal Compaq customers would be hold when Compaq logo fully disappeared. It

was not clear how HP could succeed to earn royal Compaq customers. HP should update marketing

strategy to address the inherited customers and markets and this would affect current market

position in a negative way.

Blending two corporate cultures under HP would be also a challenge because Compaq was a big

global company with its own corporate culture and thousands of employees all around world. After

merge complete, HP should also face the problems of Compaq, there would be new problems added

to its own to resolve. The cultural background of both companies is quite different; culture at HP is

based on consensus, Compaq’s culture on the other hand is based on rapid decision making.

PC business is low-profit business and there were many competitors such as Dell. Dell provide lowest

prices and hard to compete on price.

It was not clear how merge would help HP to be more competitive, there would be some cost cuts

by eliminating redundant operations but it would not provide any technological competitive

advantage or enhanced product diversity.

Question-5:

““H-P is gouging the consumer in charging such high prices for its ink refi ll

cartridges. Sure, it’s a high profi t item, but such profits cross the line and

are obscene.” Discuss”

Answer-5:

HP earns a lot from ink jet printer business. Lucrative printer and ink/toner refill business was

helpful to finance low-profit PC business. But such high profit margin attracts other companies to

printer market, Dell also interested in printing business and alliance with Lexmark (number two on

market) has the potential to strike HP on printer and refill business. Such a competition will drop

profits and could affect PC business.

There is no way to be competitive with such high profit margins and it is not possible to dominate

the printer and refill market in long term with high prices. There will be many competitors and

inferior alternative goods eventually. Competition will be on price. Many inkjet printer owners,

home users and students, do not need a high printing quality and do not want to pay high price.

To keep profit margins high, HP should differentiate printing business from competitors and add

values that competitors don’t have. In that sense, digital camera/image process business could be

complementary business and could support printer business by differentiating HP products. HP

should be able to supply full product range from digital photo to digital publishing.

To compete with other companies on price, HP should produce low price refill cartridges perhaps

quality could be lower alittle.

Question-6:

“Do you think the 17,000 jobs lost in the merger was laudatory, or should

it be condemned? What would swing your opinion?”

Answer-6:

Job lost is inevitable after merger because there are many operations lapping with each other but

number was huge and cost cut benefit was small so I think it should be condemned. This means that

benefit in sense of expending services was small but still merger was the right decision.

In long term, HP faced the risk of losing its innovative position in market, in short term cost cuts

increased profit but in long term, HP was not innovative as before. “HP way” spirit diminished, no

innovative product with great market success was launched after merger as the laser jet printer.

Re-organization after merge should be carefully planned and executed; job cut should be limited so

that support new customers and new markets inherited from Compaq would not be uninterrupted

and keep the quality of service. I think HP risked the quality of service because numbers were huge.

It is expected that employees would resist to the merge knowing they would lose their jobs.

Employee should be told about the job lost; why it is inevitable and it would be a fair process to

convince them else resistance of employees will put merge into risk. This would also create PR

problem with consumer where HP is active in desktop and laptop markets.

There has been numerous job lost -17,000 employees. The claimed annual cost savings of about $2.5

billion dollars by the year 2004 amounts to only 3 % of the combined costs of both companies.

Gartner Group research has indicated that the merged company has failed to do a good enough job

of presenting the benefits of an acquisition of this scale to justify the deal’s risk as it is generally

known that technology mergers rarely work. I think this mainly because new HP lost its “HP way.

In addition, both companies in the past have struggled to resolve conflicts between direct and

indirect sales channels.

Question-7:

“Why do you think Hurd’s efforts were so successful and so quickly accomplished?

Support your conclusions as persuasively as you can.”

Answer-7:

Hurd was anti-Carly, “ignoring all fluff for execution.” When Hurd was chosen as CEO after Carly,

merge was completed and targets for the merge was succeeded. Hurd continued to execute merge

as planned by Carly. What Carly did wrong was to fail in strategic aspects of integration even though

integration was nicely planned and successfully executed on operational level.

Carly failed to handle concerns of customers on strategy of new corporation after merger. “HP was

beginning to miss its longer-term goals. Also, its estimates about growth of both the business and

consumer PC markets turned out to be overly optimistic.” This caused market disillusionment and

stock prices fell.

Hurd did a great job of reading market and adjusting HP corporate strategy to reality and continued

to job cuts and other cost cutting precautions.

Cost was dropped over %5 percent in the last 5 years, 2001 to 2006. HP reached to $87 billion

revenue and become number one in many of markets worldwide.

HP stocks rise over %50 after Hurd took over, Hurd became Wall Street star.

It was reasonable to question who deserves credit because merger was executed successfully on

operational level as planned by Carly and merger was the right decision. Carly did a great job

planning the complex merge process and executed the plan successfully. Hurd stayed firmly with

Carly’s plan and even though there were many critics regarding merger plan. Hurd read the market

and adjusted the new strategy to reality where Carly failed. This success made HP stock rise back

again.

At the end, Hurd and Carly should share the credit for success.

Question-8:

“Why do you think Dell aged so far behind H-P in tapping into retail markets?”

Answer-8:

Dell was specialized in direct marketing and low-price strategy by eliminating middle man. Dell

managed to cut cost from manufacturing and other areas of cost savings including product design,

logistics, and warranty costs and achieved very low prices. Dell was not spending on R&D rather

using standard technologies developed by other companies. This also helped Dell to cut prices and

produce good quality computers.

Dell showed no interest in retail markets because presence in retail stores would generate extra cost

and prices will get higher and there would be middle man between Dell and consumers. Dell instead

tried kiosk to reach consumers.

Another thing; internet and other direct sales channels helped Dell to reach consumers and sell

computers easily without additional cost and so Dell was not interesting retail markets

For decades, low-price strategy worked well and Dell became one of the biggest pc maker in market.

Dell underestimated the possibility of competitors, most probably due to low profit margins. But

things changed as Far East computer makers trumped the low-price strategy; as a result Dell lost its

leadership. Low price was no longer enough to be competitive.

Dell was late for recognizing consumer’s changing buying patterns. Consumers not only ask for lower

prices but also ask for design. Consumers like to see and touch/try before they decided to buy.

Kiosks were insufficient to achieve that.

Consumers want to have computers that they can show to their friends, a personal thing that

reflects its owner’s personality and social statue. Dell is far from doing that, they recognized that and

bought niche computer maker (Alienware Inc.) to close the gap.

After Michael Dell returned company, the company focused on retail markets and gain retail store

presence in the world market.