HP - Strategic Management Case Study 2007

LAHORE SCHOOL OF ECONOMICS (LSE) BBA-IV (2013)

HP – Hewlett Packard Corporation

Group Members: Furqan Mohyuddin M. Ali Aleem Zain-ul-Abideen

HP – Hewlett Packard Corporation 2012 Table of Contents Introduction .................................................................................................................................................. 3 Mission Statement of Hewlett Packard ........................................................................................................ 3 Vision statement of Hewlett Packard ........................................................................................................... 4 Improved Mission statement ........................................................................................................................ 4 Improved Vision statement .......................................................................................................................... 4 Why? ............................................................................................................................................................. 4 SWOT ANALYSIS ............................................................................................................................................ 5 Strengths ....................................................................................................................................................... 5 Weaknesses .................................................................................................................................................. 5 Opportunities ................................................................................................................................................ 5 Threats .......................................................................................................................................................... 6 IFE (INTERNAL FACTOR EVALUATION MATRIX) ............................................................................................ 7 EFE (EXTERNAL FACTOR EVALUATION MATRIX) ........................................................................................... 7 SWOT Matrix ................................................................................................................................................. 9 CPM (COMPETITIVE PROFILE MATRIX) ....................................................................................................... 10 SPACE (STRATEGIC POSITION & ACTION EVALUATION MATRIX) ............................................................... 11 IE (INTERNAL-EXTERNAL MATRIX) .............................................................................................................. 13 QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX) ............................................................................ 14 Financial Ratio Analysis ............................................................................................................................... 16 Gross profit margin ratio............................................................................................................................. 16 Operating profit margin .............................................................................................................................. 16 Net profit margin ........................................................................................................................................ 16 Current ratio ............................................................................................................................................... 16 Quick ratio ................................................................................................................................................... 17 Inventory turnover ratio ............................................................................................................................. 17 Sales to receivables ratio ............................................................................................................................ 17 Return on assets ......................................................................................................................................... 17 Debt to worth ratio ..................................................................................................................................... 17 Working capital ........................................................................................................................................... 17 RECOMMENDATIONS ................................................................................................................................. 18

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HP – Hewlett Packard Corporation 2012

Introduction In 1938, two Stanford graduates in electrical engineering, William Hewlett and David Packard, started their own business in a garage behind Packard’s Palo Alto home. One year later, Hewlett and Packard formalized their business into a partnership called Hewlett-Packard. HP was incorporated in 1947 and began offering stock for public trading 10 years later. Annual net revenue for the company grew from$5.5 million in 1951 to$3 billion in 1980. By 1997, annual net revenue exceeded$42 billion and HP had become the world’s second largest computer supplier. The company, which originally produced audio oscillators, introduced its first computer in 1966.In 1972, the company pioneered the era of personal computing by introducing the first scientific, hand-held calculator. Hewlett-Packard introduced its first personal computer in 1980. Five years later, HP introduced the LaserJet printer, which would become the company’s most successful product ever. Products and services Hp is a leading company, offering products, technologies, software, solutions and services to consumers, small and medium sized businesses and large organizations Hewlett-Packard Company (HP)is a leading company offering a wide range of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. Its operations are organized into seven segments: Services, Enterprise, Storage and Servers (ESS), HP Software, the Personal Systems Group (PSG), the Imaging and Printing Group (IPG), HP Financial Services (HPFS), and Corporate Investments. Services, ESS and HP Software are reported collectively as a broader HP Enterprise Business. Hewlett-Packard's business is vast in scope and size. The company manufactures more than24, 000 electronic products and systems for measurement, computing, and calculation. The worldwide operation with research facilities; manufacturing plants; and sales, service, and support offices spread across the U.S. and more than 120 countries.

Mission Statement of Hewlett Packard “We are committed to developing a wide range of innovative products and multimedia services that challenge the way consumer’s access and enjoy digital entertainment. By ensuring synergy between businesses within the organization, we are also constantly striving to create exciting new worlds of entertainment that can be experienced on a variety of different products.”

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HP – Hewlett Packard Corporation 2012

Sr. # 1.

Components

2.

Products/ Services

3.

Market

4.

Technology

5.

Survival, Growth, Profits

6.

Philosophy

7.

Self Concept

8.

Public Image

9.

Employees

Customers 

Vision statement of Hewlett Packard “We recognize and seize opportunities for growth that builds upon our strengths and competencies.”

Improved Mission statement To provide product, services and solution of highest quality and deliver more value to our customers that earn their respect and loyalty.

Improved Vision statement To view change in market as an opportunity to grow, to use our profit and to ability to develop and produce innovative products, services and solutions that satisfy customers need.

Why? They are brief and to the point. It is highlighting all the main points

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HP – Hewlett Packard Corporation 2012

SWOT ANALYSIS Strengths 1. Brand name 2. Low debt 3. Wide range of innovative products 4. Developing of own hardware and software 5. Web technology used for product awareness & sale 6. World and has ranked 20th in the Fortune 500 list. 7. Strong financial condition. 8. Global presence 9. Ability to provide end-t0-end IT solution H/W, application development and support 10. Highly talented workforce.

Weaknesses 1. 2. 3. 4. 5.

Lack of in-house management consulting division Intellectual capital is underestimated No aggressive investment in R & D No good people retention policy Financial condition leans very heavily on the state of our economy not just in the US but worldwide 6. Lack of in-house management consulting division 7. R&D department has significantly less investments compared to historical spending 8. Pay cuts has brought low morale to employees 9. Struggling to Add Value and Remain Profitable in Low-Cost High-Volume PC Business. 10. Slow speed to market or responsiveness

Opportunities 1. 2. 3. 4. 5.

Expansion of retailed stores for customer convenience Participation in joint venture Make easy to use product for upcoming retirees Computer and cell phone software & hardware Globally acceptable software used in the laptops which makes them easy to use and repair. 6. The company is spread through the world and has a very effective management that constantly keeps a check on their products functioning. 7. The prices are very affordable.

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HP – Hewlett Packard Corporation 2012 8. The HP is continuously keeps on updating their technology which keeps the interest of the customers intact. 9. Their line of Laptops COMPAQ has a very strong hold of the middle class people which includes students also. 10. The cartridges are easily available for the printers.

Threats 1. 2. 3. 4. 5.

Competitor’s technology & pricing Low compatibility with non- HP product Availability of substitute Less global coverage than competitor. Biggest threat to the HP is Apple Inc's MAC. The popularity of the Mac can seriously harm the market for the HP laptops. 6. The HP is not paying attention to the designing of their Laptops or customization like DELL and VIVO does. 7. The innovative behavior of Apple Inc can be a serious factor in the falling of sales of HP. 8. HP has marketed itself as a brand for the ordinary people who are very well appreciated but their ads need to have celebrities to endorse their products. 9. HP association with the spying scandal. 10. HP's biggest threats on a system level - looking at companies with a broad breadth of storage, servers, and professional services - would be IBM. I would also point to EMC as their strongest overall threat in the storage market, especially since the beginning of 2003.

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HP – Hewlett Packard Corporation 2012 IFE (INTERNAL FACTOR EVALUATION MATRIX)

INTERPRETATION: The main strengths of electronic products and systems retail market in which HP operates is the strong brand names and recognition of management also corporate culture and post sales services are of relative importance, too. The weighted score of 2.72 (which is greater than 2.5) shows a strong internal position but there are still issues to be sorted out. As in case of HP due to high product diversification and venturing into new product markets costs have been high and though net sales have increased since 2006.

EFE (EXTERNAL FACTOR EVALUATION MATRIX)

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HP – Hewlett Packard Corporation 2012

INTERPRETATION A weighted score of 2.62 (above average and midpoint 2.5) shows that the HP has been able to manipulate the opportunities and have been able to counter threats and is doing rather well but its business isn’t still great. HP can still manipulate the opportunities and counter the threats that it has failed to do i.e. HP has not been able to work well with the foreign exchange market and it has not been able to expand its business activities in Asia

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HP – Hewlett Packard Corporation 2012 SWOT Matrix

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HP – Hewlett Packard Corporation 2012 CPM (COMPETITIVE PROFILE MATRIX)

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HP – Hewlett Packard Corporation 2012 SPACE (STRATEGIC POSITION & ACTION EVALUATION MATRIX)

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HP – Hewlett Packard Corporation 2012

INTERPRETATION: According to the space matrix score HP falls in the “ AGGRESSIVE quadrant” . Their strategies should be one of the following: Vertical and horizontal integration Market penetration Market development Product development Diversification

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HP – Hewlett Packard Corporation 2012 IE (INTERNAL-EXTERNAL MATRIX)

INTERPRETATION: HP falls in first region of IE matrix and there main focus will be on “GROW AND BUILD” and they will mainly focus on strategies which are: Market development Horizontal integration

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HP – Hewlett Packard Corporation 2012 QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX)

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HP – Hewlett Packard Corporation 2012

INTERPRETATION: According to the total attractive score of QSPM HP should go for “ HORIZONTAL INTEGRATION”

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HP – Hewlett Packard Corporation 2012

Financial Ratio Analysis

Gross profit margin ratio The gross profit has increased from 23.61% to 24.53%. This means that profitability at the basic level has increased from previous year. This is a sign of good ratio.

Operating profit margin Profitability before interest and tax has increased from 4.00% to 7.15%. This means that efficiency of the business before taking any financing has increased from the previous year. This also is a sign of good ratio.

Net profit margin This also has increased from 2.7% to 6.76%. This means that overall profitability has also increased. This is a sign of good ratio.

Current ratio Current ratio has decreased from 1.38 to 1.35. This means that working capital to meet short term obligations has decreased, which shows a poor use of working capital. This is a sign of bad ratio.

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HP – Hewlett Packard Corporation 2012 Quick ratio This ratio has also decreased from 1.16 to 1.13. So this shows that the ability to pay immediate financial obligations has also decreased. This quick ratio is acceptable but has decreased.

Inventory turnover ratio The ratio has decreased from 9.63 to 8.93, which means that more capital is tied up in inventory which is not a good sign.

Sales to receivables ratio It also has decreased from 8.75 to 8.43. This means that the efficiency in collecting accounts receivables has deceased.

Return on assets This ratio has increased from 6.9% to 13.0% .This is the sign of good ratio.

Debt to worth ratio This ratio has decreased to 6.52% from 9.12%. This means that debt financing has decreased and hence the risk also has decreased.

Working capital Working capital has increased from $11,874 to $12,414. This shows that the ability of a company to endure difficult financial periods has increased.

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HP – Hewlett Packard Corporation 2012 RECOMMENDATIONS 

HP falls in first region of IE matrix and their main focus will be on “GROW AND BUILD” and they will mainly focus on strategies which are: Market development Horizontal integration.



According to the total attractive score of QSPM HP should go for “ HORIZONTAL INTEGRATION”



According to the space matrix score HP falls in the “AGGRESSIVE quadrant”. Their strategies should be one of the following: Vertical and horizontal integration Market penetration Market development Product development Diversification

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