SEB711 2012 Technology and Strategy 2

7/31/2019 SEB711 2012 Technology and Strategy 2

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Today were going to explore this topic further by examining Hewlett Packard as a case study.

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We looked at Porters model last week and we will look at a case study this week where we can use this model as an aid to help us

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Remember that for a Five Forces analysis of an organisation or of a division of an organisation, in a similar manner to a SWOTanalysis, you seek to identify and list the major items for each category. So for the five forces, develop a brief list of major items foreach. Keep in mind that the perspective here is of the organisation and its interaction with its external environment. Unlike SWOT

analysis, you do not attempt to review the internals of the organisation.

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This diagram is from Professor Porters 2001 paper titled Strategy and the Internet. A

copy is provided in the Required Reading section make sure you read it.

The underlying theme is that the Internet is not a strategy it is a technology. We can

include it as a technology in developing our business strategy but we still need to have

goals, objectives, and an accompanying strategy for our organisation that is viable and

makes sense.

The Internet does not replace the need to competently perform the PLANNING function

when managing ANY organisation.

As shown above, the Internet affects many of the factors involved in the five forcesaffecting an organisation. This is how we should view technologies such as the Internet

an ow we s ou nc u e tec no ogy n our us ness p ann ng act v t es suc as goa

setting and strategy development.

Importantly the Internet as a technology has been as is extremely disruptive to many

industries and in particular the rate of change has accelerated tremendously because of it.

This demands much better management of organisations so that their planning is more

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Make sure to read Porters paper, Strategy and the Internet.

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Here Porter has considered the impact of the Internet and related-technologies on an

organisations value chain.

If an organisation or its competitors is affected or plans to exploit the Internet for

advantage then it should be considering these types of impacts on how it functions and

provides its products and services.

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At the time IBM decided to exit the PC business the #1 competitor globally was Dell

Computer with about 18% market share (of all PCs sold worldwide).

In the short term, especially during 2006, the main winner was Hewlett Packard that

grew sales of its PCs worldwide to become the #1 supplier of PCs for the global market

with over 17% of the market share.

At the same time Dell was slipping losing its #1 position to HP and forcing the

companys founder, Michael Dell, to come out of retirement and takeover once again as

the CEO of Dell Computer in order to try and fix its problems.

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Over the last 5 years IBM has been solid investment reflecting the solid performance of

the company.

It appears that the re-direction IBM took in 2004/05 was the right one and its subsequent

and current business strategy is on track.

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This document is available from IBMs website and their latest 2011 Annual Report.

The top chart clearly shows the direction IBM has taken since 2004/05 when it sold thePC business. It has reduced its reliance on IT hardware revenue by more than half to

only 15% of total revenues. It has also significantly increased the revenue share from

software services to 44% - as planned and according to their strategy.

Importantly IBM appears to be headed in a direction where revenue growth is being

achieved and is sustainable.

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So lets look at one of IBMs competitors, Hewlett Packard (HP).

Founded by entreprenuers today it is world #1 in supplying personal computerequipment.

Compare its sources of revenue to the IBM chart a few slides ago.

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Since this chart HPs market share has slipped further from about 20% to about 18%.

Also look a the market share for Apple for computers. Not even in the global top 5 andbarely in the top 5 for the USA.

This data is from the period where Apple was shifting focus from PCs to

telecommunications and entertainment (iPhone) and just about to announce the iPad (in

Jan 2010) to expand into e-book publishing and further into entertainment.

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HPs history has long been in developing and manufacturing electrical and electronic

equipment and that was the initial reason it was founded.

It was there early on with PCs too from 1980. And remember when we looked at

Kodak? HP is a global leader in supplying digital printers (such as laser printers, and

inkjet printers).

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Competitor to HPs personal computing business was/is Apple. And in early 2010 they

announced the new iPad tablet PC.

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Apples competitors HP and Samsung both reacted quickly to Apples news about the

iPad and rapidly sought to compete with their own Tablet PC as soon as possible.

Also the Tablet PC quickly proved to be a substitute for compact laptops, i.e., netbook

pcs, that both had products for.

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The Palm Pilot was the first widely successful Personal Digital Assistant (PDA) in the

mid-1990s. Like the iPad set the benchmark for Tablet PCs in 2010 the Palm Pilot set

the benchmark for PDAs in 1996 and set the technological trend that evolved into theSmartphones of the early 21st century.

Interestingly Apple attempt at a PDA, the Apple Newton launched in 1993, was a market

failure. It was expensive, complicated, and the handwriting recognition on the pen-based

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first major decisions he made was to cancel development and production of the Newton.

For HP the primary reason to acquire Palm Inc., which was failing as a company and

heading towards bankruptcy, was to acquire the webOS software. HP hoped that webOS

would enable it to jumpstart the development of new products such as their own tablet

PC to com ete with the iPad.

Actually HP did have a tablet PC in development in 2009 which it announced in early

2010 around the same time Apple announced the iPad. The original HP tablet PC was to

use Microsoft Windows for the operating system software. After Apples announcement

of the iPad, HP reviewed its plans and cancelled the Windows-based tablet PC

apparently since HP realised the iPad was a far superior product and it needed a better

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pro uct to e compet t ve.


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Only 7 weeks after sales commence of the TouchPad, HP unexpectedly announces it is

dumping the product altogether and abandoning any further development and production

of Tablet PCs.

Initial reviews of the TouchPad rated it poorly and put much of the blame on the webOS

software on it. The stampede to buy the TouchPad at $99 at least proved something: that

the marketplace would accept an alternative to Apple iPad as long as it was significantly

.

Around this time last year Apple held about 60% share of the global tablet PC market

with its iPad compared to Android software-based tablet PCs from various

manufacturers (including Samsung) that held about 30% market share collectively. The

webOS software that HP acquired with Palm in mid-2010 appeared to be effectively

worthless.

(Android is an operating system for mobile devices such as smartphones and tablet PCs

being developed by an open alliance of various organisations led by Google Inc.)

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Sound familiar?

CEO Leo Apotheker seemingly was attempting to copy IBMs change in direction in2004/05 when it exited the PC business to focus on software and services. Leos plan was

that HP would abandon the PC business (of which it primarily manufactured and

supplied hardware) and would re-direct itself towards software, end-user (non-PC)

devices, and services.

The problem was that IBMs change in planning and strategy made sense for IBM at

the time its market share in the PC business was slipping rapidly. But HP is the world #1

in the PC business. Quit while the leader? It also was world #1 in the associated printer

business.

at eo a e to cons er was t at t e oar o rectors at a a reputat on or

firing their CEO.

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The new direction for HP, minus the PC business and almost a copy of IBMs re-

direction plans since 2004, was rejected by investors. The Board of Directors at HP,

observing the interests of shareholders for the company, reacted swiftly by removing LeoApotheker and replacing him with Meg Whitman as CEO.

Immediately (on her 1st day as CEO), Whitman announced that HP had cancelled all

plans for the new direction and would keep the PC business. Since then she has focused

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She was too late to save the production of the Touchpad which remained cancelled. But

she saved the smartphone products (still made and sold today) and re-started the Tablet

PC development program. HP is once again developing a Tablet PC most likely to be

launched in 2013.

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HP has dumped the webOS software it acquired with Palm Inc as the platform for its

Tablet PC products.

The new Tablet PC (TouchPad 2 ?) will use the new Windows 8 software from Microsoft.

The other significance of this decision is that HP is retreating from an expansion of their

own in-house software development plans instead choosing to license off-the-shelf

software from others.

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Under CEO Apotheker and during his brief 1 year leadership of HP the companys share

price plunged from the low 40s to the low 20s.

At least under CEO Whitman the price stabilised and has stayed higher than the lows it

reached when HP shocked investors in August 2011.

This company has been unstable in its leadership since CEO Fiorina was fired in early

2005 with four CEOs since then (including Hurd, Apotheker, and Whitman).

Will HP finally resolve its executive leadership problems and develop an effective

competitive strategy? With low profit margins in the PC business it needs to figure out

what technological directions to follow and what strategy will be right for them.

And there it is. What better case study to consider the relationship between technology

and strategy than Hewlett Packard in recent times? As Meg Whitman seemingly admits,

as quoted above, the most important management function is the planning function. And

in the 2011 HP got it wrong and the significant detrimental impacts started to show. It

remains to be seen if under Whitmans leadership they get it right.

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Next set of study notes: strategy and more on technology (as part of strategy).

SEB711 2012 Technology and Strategy 2

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