At the time of the acquisition, Compaq (plus DEC and Tandem) was the dominant low-end computer vendor. It positioned its brand as the premium home and business computer. HP, on the other hand, had a reputation of producing the best computing instruments in the market, especially its scientific calculators. The question was how Carly would manage to differentiate between the two brands when brought under a common management. The answer was not very well. HP could not afford to jettison the Compaq brand because it was too valuable. At the same time, having two product lines for both desktop systems and notebooks made marketing much more difficult. The result is that if you look at HP's website today, there is only a very feeble attempt at brand differentiation. An average consumer's puzzled by the two brands and wonders how to choose between them: Notebooks: For Home and Home Office.
HP Pavilion notebook PCs: Productivity and multimedia tools on the go.
Compaq Presario notebook PCs: Desktop performance and integrated wireless features.
Desktops: For Home and Home Office.
HP Pavilion desktop PCs: Perfect for digital imaging needs
Compaq Presario desktop PCs: Advanced home and wireless networking capabilities
The only shred of differentiation is that the Pavilion line has better multimedia/imaging capabilities and the Compaq line's geared for the power user. But that isn't great shakes. There is plenty of overlap between the lines. Look at the specs for the Pavilion and the Presarion notebooks and you'll find some from the former line virtually indistinguishable from some from the latter. Ditto with the desktops. What makes me choose one over the other? And because of all this chaos, there's no answer to "why would I buy any of these instead of a Dell or an IBM Thinkpad"?
Poor performance from the Enterprise servers and storage division in the third quarter last year (revenue was down 5%, and losses were $208 million)[19] dragged down HP's performance in the printing, imaging, PC and services business. This was in spite of the same market segment (servers and storage) showing a resurgence that quarter. Fiorina blamed the mess on problems with a new order-processing system in the US. This caused HP to miss some order altogether, and to ship others by air. She also admitted that the usual "acceleration" in server sales towards the end of the year was "muted". Promising "immediate management changes", HP fired the head of Enterprise Sales, the EMEA head of the Customer Solutions Group, and the head of Enterprise sales for the Americas[5]. This was seen as many as a knee-jerk reaction, perhaps unnecessary, and unlikely to have any significant impact on what appears to be a problem in execution strategy.
What are HP's problems?
HP has a wide range of products and services. There are consumer-oriented areas and business-oriented ones. Consequently, HP has a problem of positioning itself, because it has too wide a portfolio. It tries to succeed in enterprise IT, personal computing, peripherals, and emerging technologies. It competes with Dell in the low- and mid-range PC business, against Sony in the consumer electronics segment, and against IBM in the enterprise. All of these three competitors are focussed on their industries. Since Dell does little spending on R&D, has a focussed approach to cutting operating costs, and sells direct to customers, its operating overheads are 10%, as compared to 18% at HP (and 42% at Sun). IBM, at the other end of the scale, has decided it does not want to be in this business at all, and has sold its PC business.
HP can be viewed as being made up of three major units. The printing and imaging business, the PC business (these to were combined in January), and the high-end, enterprise business (Here too, the hardware, software and services businesses were combined to form the Technology Solutions Group).The printing and imaging business is clearly HP's strength. It accounts for only 30% of HP's revenue, but generates 75% of its profits. However, because it is dependent on the performance of the rest of HP, it is missing out on growth opportunities. The PC business is large: HP is the world's second-largest vendor of PCs, behind Dell and ahead of IBM-Lenovo. But Dell's efficiency in its delivery model is widening the gap between Dell and the rest. Margins in this business are razor-thin, and the industry consensus is that if you're not purely in the PC business, then stay out of it. Which is precisely what IBM did. As far as the high-end business goes, there are numerous problems there too. They've been discussed in a later section.
An interesting point [20] is how HP became a victim of its own "centrist" strategy, the "Switzerland" syndrome. HP tries to diplomatically offer both Windows and Linux servers on the x86 architecture, without resounding success with either. IBM, in contrast, is a staunch supporter of Linux across its product line, the Power-based pSeries, the Intel-based xSeries, even its zSeries mainframes. Sun has injected itself with an adrenaline shot named Solaris 10, and is pushing the Operating Environment with the zeal of a holy war. Sun has come up with all sorts of innovative ideas - such as its pay-per-use grid computing initiative, to which HP has no answer. Finally, both IBM and Sun have assiduously cultivated developers for their product base, and now have a large developer base, which fuels third-party applications and plugins being written on top of their middleware. HP has no developer base to speak of, and no middleware to write applications for.
Therefore, HP's printing business is the only one which is doing well now, and which has potential for driving HP's growth. The questions that HP's new CEO must answer are:
How can HP leverage its strength in printing and imaging?
How does HP define its identity?
How can HP find synergy across its product lines?
What are the future growth areas for HP?
Where is HP losing market share, and what do HP do about it?
Do we keep HP together or do we split it? If so, how?
- "HP after Fiorina, Page 1/4"
- "HP after Fiorina, Page 2/4"
- "HP after Fiorina, Page 3/4"
- "HP after Fiorina, Page 4/4"
