Strategic Management



(Case Study “7”)

Name :

Muhammad Aamir Awan & Fareeha Saleem

Submitted to:

Miss Tayyaba


Management Sciences


MBA (3yrs – afternoon)





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“To view change in the market as an opportunity to grow; to use our profits and our ability to develop and produce innovative products, services and solutions that satisfy emerging customer needs.”

“To provide products, services and solutions of the highest quality and deliver more value to our customers that earns their respect and loyalty.”


HP mission statement can be: "HP's mission can be the most successful computer company in the world at delivering the best customer experience in markets we serve”.

Its the way we do business. It's the way we interact with the community. It's the way we interpret the world around us-- our customers needs, the future of technology, and the global business climate. Whatever changes the future may bring our vision -- HP Vision -- will be our guiding force. So HP needs full customer satisfaction. In order to become the most successful computer company.

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The 30s
Following graduation as electrical engineers from Stanford University in 1934, Bill Hewlett and Dave Packard go on a two-week camping and fishing trip in the Colorado Mountains during which they become close friends. Bill continues graduate studies at MIT and Stanford while Dave takes a job with General Electric. With the encouragement of Stanford professor and mentor Fred Terman, the two decide to start a business “and make a run for it” themselves. Hewlett-Packard Company is founded January 1, 1939.

The 40s
Products from the fledgling company win excellent acceptance among engineers and scientists. The start of World War II turns a trickle of U.S. government orders for electronic instruments into a stream and then a flood. HP builds the first of its own buildings and adds several new products.

As HP grows, Bill Hewlett and Dave Packard create a management style that forms the basis of HP’s famously open corporate culture and influences how scores of later technology companies will do business. Dave practices a management technique — eventually dubbed “management by walking around” — which is marked by personal involvement, good listening skills and the recognition that “everyone in an organization wants to do a good job.” As managers, Bill and Dave run the company according to the principle later called management by objective — communicating overall objectives clearly and giving employees the flexibility to work toward those goals in ways that they determine are best for their own areas of responsibility. HP also establishes its open door policy — opens cubicles and executive offices without doors — to create an atmosphere of trust and mutual understanding. The open door policy encourages employees to discuss problems with a manager without reprisals or adverse consequences. Bill and Dave make other important management decisions: providing catastrophic medical insurance, using first names to address employees (including themselves), and throwing regular employee parties and picnics.

The 50s
Hewlett-Packard goes through a growing and maturing process in the 1950s, learning much about the “new” technology of electronics and about the internal effects of growth. “How” the company should grow is as hotly debated as “how much” the company should grow. HP hammers out its corporate objectives — the basis of its special management philosophy and the core of the HP Way. The company goes public in 1957. In keeping with Bill Hewlett and Dave Packard’s respect for workers, HP takes the then-unusual step of giving stock grants to employees. The growing company begins building on the site that will become its corporate headquarters in Palo Alto, California. HP also embarks on a path toward globalization, establishing manufacturing and marketing operations in Europe.

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The 60s
HP continues its steady growth in the test-and-measurement marketplace and branches out into related fields like medical electronics and analytical instrumentation. It also develops its first computer (the HP 2116A), making its entry into that business in 1966. The company continues its expansion overseas, forming several subsidiary companies. Early in the decade it expands into Asia with a Japanese joint venture. In the U.S., HP opens its first manufacturing plants outside Palo Alto. HP begins to be noticed as a progressive, well-managed company — and a great place to work.

The 70s
HP continues its tradition of innovation with the introduction of a new array of computing products. Foremost among them is the HP-35, the first scientific handheld calculator, which ushers in a new era of portable, powerful computing. HP continues to look for new opportunities around the globe, laying the groundwork for an eventual joint venture with China over the course of several trips by HP representatives to that country. The decade is marked by significant growth in earnings and employment, with HP passing the $1 billion mark in sales in 1976. The company will pass the $2 billion mark three years later in 1979. Toward the end of the decade, Bill Hewlett and Dave Packard delegate day-to-day operating management of the company to John Young.

The 80s

HP becomes a major player in the computer industry in the 1980s with a full range of computers, from desktop machines to portables to powerful minicomputers. HP also links computers with its electronic instruments and medical and analytical products, making them faster and more powerful. HP makes its entry into the printer market with the launch of inkjet printers and laser printers that connect to personal computers. HP's high-quality, inexpensive inkjet printers spell the end of dot-matrix printers. The HP LaserJet printer line, which debuts in 1984, goes on to become the company's most successful single product line ever. The quality and reliability of HP's printers make HP a highly recognizable brand by both consumers and businesses. Near the end of the decade, HP is recognized for its rich past as well as for its technological advances and products. The garage where the company started is declared a California historical landmark, and HP celebrates its 50th anniversary.

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The 90s
HP is one of the few companies in the world to successfully marry the technologies of measurement, computing and communication. The company makes new advances in portable computing, enters the home-computing market and continues to invent new printing and imaging solutions. For most of the decade, HP enjoys growth rates of 20 percent. Early in the 90s, John Young retires and is replaced by Lew Platt, under whose leadership HP continues to grow. HP becomes recognized as a company whose policies on work-life balance, diversity and community involvement help attract and retain top employees. At the end of the decade, HP spins off its measurement and components businesses to form a new company, Agilent Technologies. It also brings on board a new CEO, Carleton (Carly) Fiorina, who focuses the company on reinventing itself for growth and leadership in the 21st century.

The 21st century
At the beginning of the 21st century, HP focuses on simplifying technology experiences for all of its customers, from individual consumers to the largest businesses. With a portfolio that spans printing, personal computing, software, services and IT infrastructure, HP grows to become the world's largest technology company. On May 3, 2002, HP completes its merger transaction with Compaq Computer Corp. The new HP is a leading global provider of products, technologies, solutions and services to consumers and business. The company's offerings span IT infrastructure, personal computing and access devices, global services, and imaging and printing. Later in the decade, a steady stream of acquisitions increases HP’s influence in the software, personal computing and printing markets, and in 2007, HP achieves $100 billion in revenue. In 2009, after the acquisition of EDS, HP moves up to No. 9 on the Fortune 500 list.

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Some of very important External Opportunities are as below:
• •

• •

The biggest advantage to HP by the merger with Compaq it became world's biggest computer hardware and Peripherals Company in the world, ranking 20 in the Fortune 500 list. Another advantage is that, Company is doing business in more then 170 countries including the ones that are developing and under-developed. Being a large company gives HP many advantages like dominating the market for printers, both laser and inkjet, and both for consumers and companies using the economies of scale. The company is also taking an active role in developing the capacity of new markets all around the world, engaging with other multinational corporations, non-governmental organizations and other world governing bodies to reignite the competitiveness at home and abroad through policies and strategies that can support free-market economies. This is one of the reasons that makes HP a leading technology company in the growing IT markets (HP Annual Report, 2003). Another advantage to HP is e-commerce expansion. One of the most important advantages to HP is, day by day development of imaging and printing business.

Some External Threats to HP are as follows:
• • • • • • • •

Intense competition from other PC manufacturers. Slowdown in economic conditions in over all world. Increasing competition on imaging and printing. Product recalls and supply chain disruptions. The past acquisition of Peregrine made the HP’s portfolio even more diverse and complete but HP Open View’s lack of mainframe management capabilities created several problems. Operating in global market means many competitors and therefore, the company has to be at the forefront of changing technologies as well as addressing the changing customer demands and needs. The global economic recession is also a threat for the company’s sales and profits. The prices have also fallen as the stock markets are at historic low positions. Many other competitors including Dell are entering the printer business whereas IBM has become a market leader.

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The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. The process of External Audit is as follows: 1. Involves as many managers and employees as possible. 2. A company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. 3. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. 4. The information can also be collected from internet, corporate, university and public libraries. 5. Vital information can also be collected from other sources such as suppliers, distributors, salespersons, customers and competitors. 6. Once information is gathered, it should be assimilated and evaluated. 7. A meeting or series of meeting is needed to collectively identify the most important opportunities and threats facing the firm. 8. These key external forces should be listed on flip charts and notice boards. 9. The most important 20 opportunities/threats should be displayed. 10. These opportunities/threats should be listed as 1to 20, at no.1 the most important opportunity/threat must be marked at on no. 20 the most least important threat or opportunity.


Key External Forces OPPORTUNITIES HP merger with Compaq Business in Global Markets Developing capacity of new markets e-commerce expansion Day by day development of imaging & printing business THREATS Intense competition from other PC manufacturers Slowdown in economic condition Increasing competition on imaging and printing Product recalls and supply chain disruptions The past acquisition of Peregrine 0.07 0.05 0.05 0.07 0.05 3 3 3 3 2 3 4 3 0.32 0.18 3.28 Page 14 0.21 0.15 0.15 0.21 0.12 Weight 0.15 0.10 0.10 0.10 0.08 Rating 4 4 4 3 3 Weighted Score 0.60 0.40 0.40 0.30 0.24

other competitors including Dell are entering the printer 0.04 business The global economic recession many competitors 0.08 0.06 1.00

All organization has strengths and weaknesses in the functional areas of businesses. No enterprise is equally strong or weak in all areas. Internal strengths/weaknesses coupled with external opportunities/threats and clear statement of mission, provide the basis for establishing objectives and strategies. Strategies are established with intention of capitalizing upon internal strengths and overcoming weaknesses. HP’s some strengths are as follows:
1. Strong brand equity.

2. Diversified product portfolio (offerings spans personal computing and other access devices; imaging and

printing-related products and services; enterprise information technology infrastructure, multi-vendor customer services, consulting and integration and outsourcing services). 3. Solid market position in key segments. 4. Strong financial condition. The enterprise has a large amount of cash in hand about $10 billion. Some weaknesses of HP are:
1. The company was in a long term debt for many years which kept it from investing in different growth 2. 3. 4. 5. 6. 7.

opportunities. A major problem and complaint about the hardware supplies of HP is its touch pads. These touch pads are either finicky, unreliable, or are difficult to use because of friction. When it comes to Software that HP provides there are also some weaknesses. Some heavy software’s were paired with slow hardware like Touch Smart. Internal control issues. Lack of in-house management consulting division. No aggressive investments in R&D compared to historical spending. No Good People retention policy or HR practices to ensure employee is protected.

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HEWLETT PACKARDS Critical Success Factors
1. Strong brand equity.

DELL Rating 4 4 Score 0.80 0.80

Weight 0.20 0.20

Rating 4 4

Score 0.80 0.80

Solid market position

Strong financial condition Internal control Products Quality Diversified product portfolio Organizational Culture Cost of common products Total

0.15 0.08 0.13 0.10 0.07 0.07 1.00

4 2 3 4 3 4 28.00

0.60 0.16 0.39 0.40 0.21 0.28 3.64

3 3 4 4 3 3 28.00

0.45 0.24 0.52 0.40 0.21 0.21 3.63

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RATIO ANALYSIS OF HEWLETT PAKCARD Note : All Figures Are Rounded off to Two Decimal points.

a.i) Current Ratio = Current Assets / Current Liabilities For 2006 Current Ratio = 48264 / 35850 For 2005 Current Ratio = 43334/31460

= 1.35 : 1

= 1.38 : 1

• • • • • This ratio shows the extent to which a firm can meet its short term obligations. 2 : 1 shows good position according financial analysts. If this ratio increase by 2 : 1 ( e.g. 3:1 ) this is also moment to worry as extra cash is held by business or staked in current assets. If we horizontally analyze this ratio, the results of 2006 shows decrease in firm’s power of meeting short term obligation by “0.03.” This decrease might be due to the reason that, firm has invested extra cash any where else. Current Liabilities of 2006 are also increased by 13.95%.

a.ii) Quick Ratio or Acid test ratio = Current Assets – Inventory / Current Liabilities For 2006 Quick Ratio = 48264 – 7750 / 35850 = 1.13 : 1 For 2005 Quick Ratio = 43334 – 6877 / 31460 = 1.16 : 1

• •

The extent to which a firm can meet its short term obligations without relying upon the sales of its inventories. Inventories are minus because; inventories of one firm cannot be sold very quickly, but at lower price. The difference of same “0.03” is also shown here, the reasons of this difference are discussed above.

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b.i) Asset to Debt Ratio = Total Debt / Total Assets For 2006 Asset to Debt Ratio = 43837/ 81981 = 0.53 : 1 or 53% For 2005 Asset to Deb Ratio = 40141 / 77317 = 0.52 : 1 or 52%

• • The percentage of total funds that are provided by the creditors. This ratio shows the relationship between debts obtained by an entity’s assets.

b.ii) Long term Debt to Equity Ratio = Long term Debt / Total stock holders equity

For 2006

For 2005

Long term Debt to Equity Ratio = 2490 / 38144 Long term Debt to Equity Ratio = 3392 / 37176 = 0.06 or 6% =0.09 or 9%

• • • • The percentage of total funds provided by creditors versus by owners. The ratio indicates how much of capital backing is available against debt. If the ratio is higher it means that the entity is depending more on debt than its own capital. The difference of 3% between 2006 & 2005, is a good sign that a firm has lack its dependence on debt. b.iii) Time Interest Ratio = Profit before Interest and Taxes / Total Interest charges For 2006 Time Interest Ratio = 6560 / 606 = 10.83 times For 2005 Time Interest Ratio = 3473 / 189 = 18.38times

• • • • The extent to which earnings can decline without the firm becoming unable to meet its annual interest cost. The Time Interest Ratio is very important from the lender’s point of view. It indicates the number of time interest is covered by the profit available to pay interest charges. There is a great decline in this ratio in 2006, which is alarming position for HP. As it can lead to decrease in investment.

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c.i) Inventory Turnover Ratio = Sales / Inventory of finished goods For 2006 For 2005 Inventory Turnover Ratio = 91658 / 7750 Inventory Turnover Ratio = 86696 / 6877 = 11.83 times = 12.61 times

• • • • • Whether a firm holds excessive stocks of inventories and whether a firm is slowly selling its inventories compared to the industry slowly. This ratio indicates that for how many days the inventory remained before it is sold. The higher the day the more the inventory is kept before sale. If compare both years results, there is difference of “0.78” time. Although this number is not so greater but, the firm should take care that this decrease should not become consistent in future too. c.ii) Average of Inventory = 360 / inventory turnover For 2006 For 2005 Average of Inventory = 360 / 11.83 Average of Inventory = 360 / 12.61

= 30.43days

= 28.55 days

• • This ratio tells average age of inventory, that for how long finished goods are kept in store. Comparing both results there is a increase of app 2 days in year 2006, which is not a good sign.

c.iii) Average Collection Period = Accounts Receivable / Average sales day For 2006 For 2005 Average Collection Period = 10873 / (91658/360) Average Collection Period = 9903 / (86696/360) = 42.70 days = 40.45days

• • This ratio shows that averagely in how much day’s credit sale are being converted in to cash. The increase in 2006 might be the done to increase the sale.

c.iv) Average Payment Period = Accounts Payable / Average Purchas per day For 2006 For 2005 Average Payment Period = 12102 / (7750/360) Average Payment Period = 10233 / (6877/360) = 562.10 days = 535.76 days

• • This ratio shows the result, that after how long credit purchases are been paid. Higher the result shows the company having full advantage of credit available. Page 19

c.v) Total Assets Turnover = Total Sales / Total Assets For 2006 For 2005 Total Assets Turnover = 91658 / 81981 Total Assets Turnover = 86696 / 77317 = 1.12 : 1 = 1.12 : 1

• • • This shows how many $ are generated by each $ of assets. The decline in the ratio shows that although capital is increased, sales have not increased vice versa. There is no growth shown in total Asset turn over.

d.i) Gross Profit Margin = Gross profit / Sales For 2006 Gross Profit Margin = 22480 / 91658 = 0.25 or 25% For 2005 Gross Profit Margin = 20472 / 86696 = 0.24 or 24%


• • •

The total margin available to cover operating expenses and yield a profit. This ratio shows percentage increase / decrease in the gross profit over the year if compared horizontally. And the difference between sales and the cost of goods sold if vertical calculation is carried out. d.ii) Operating Profit Margin = Earnings before interest and taxes / Sales For 2006 For 2005 Operating Profit Margin = 6560 / 91658 Operating Profit Margin = 3473 / 86696 = 0.07 or 7% = 0.04 or 4%

• • • Profitability without concern for taxes and interest. This ratio shows the percentage increase / decrease in the operating profit. It indicates the operational efficiency of management.

d.iii) Net Profit Margin = Net Income / Sales For 2006 Net Profit Margin = 6198 / 91658 = 0.07 or 7%

For 2005 Net Profit Margin = 2398 / 86696 = 0.03 or 3%

• • This ratio show after tax profit per $ of sales. This tells the extent to which dividend may be paid to the share holders and the amount that should be retained as reserves. Page 20

d.iv) Return on Total Assets = Net Income / Total Assests For 2006 For 2005 Return on Total Assets = 6198 / 81981 Return on Total Assets = 2398 / 77317 = 0.07 : 1 = 0.03 : 1

• • This ratio show after tax profit per $ of assets. This ratio also called return on inventory.

d.v) Return on Stock holder Equity = Net Income / Total Stock holders Equity For 2006 Return on Stock holder Equity = 6198 / 38144 = 0.16 : 1 For 2005 Return on Stock holder Equity = 2398 / 37176 = 0.06 :1

• • This ratio show after tax profit per $ of Stock holder’s Equity in the firm. Higher ratio shows firms best utilizing policy of Stock holder’s Equity. Earnings Per Share = Net Income / No. of Shares of Common Stock Outstanding For 2006 Earnings Per Share = 6198 / 2782 = $2.23 per share For 2005 Earning Per Share = 2398 / 2879 = $0.83 per share

• • • This ratio shows earnings available to the owner of stock holder’s equity. The EPS is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earning or earning power of the firm. This result clearly indicates the increase in EPS of fir.

e.i) Sales growth = Annual % Growth in Sales For 2006 For 2005 Sales growth = 5% increase from 2005 Sales growth = 8% increase from 2004

• This ratios result shows how much a company has grown in respect of sales from previous year. Page 21

e.ii) Net Income growth = Annual percentage growth in profits For 2006 Net Income growth = 158% increase from 2005 For 2005 Net Income growth = (31.43%) decrease from 2004


This ratios result shows how much a company has grown in respect of Net Income from previous year.

e.iii) Earnings Per Share growth = Annual percentage growth in EPS For 2006 EPS growth = 168% increase from 2005 For 2005 EPS growth = (28.45%) decrease from 2004


This ratios result shows how much a company has grown in respect of EPS from previous year.

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HP’s Value Chain  Inbound logistics  Number of contract manufacturers (‘‘CMs’’) and original design manufacturers (‘‘ODMs’’) around the world to manufacture HP-designed products.  Manufacturing

Plants spread throughout the world; Try to be as independent as possible.

 Outbound logistics  Besides traditional channel, individual distributors (in untapped markets), OEMs & independent software vendors (ISVs).  Marketing and Sales  Manufacturing divisions of enterprise/ public sector, commercial and consumer markets, responsible for marketing as well.  Services (maintenance)  HP Services provides multi-vendor IT services, and collaborates internally with other divisions.

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In the table below we have done the internal evaluation of the firm by taking some major factors as Strength and Weakness of the firm. After identifying the strength and weakness we assigned weight to them according to their importance. In rating column we assigned rate to each factor in this 1= Major Weakness, 2= Minor Weakness, 3= Minor Strength and 4= Major Strength. Then we multiplied the weight with rating and took the sum of score, which is 2.68, which shows that the firm is performing above average.

Key Factors
Brand Name Work experience Trained personals Widely spread network Targeting all segments Quality Diversified product portfolio 0.13 0.10 0.09 0.10 0.08 0.07 0.13

4 4 3 3 3 2 2 WEAKNESSES

0.60 0.40 0.27 0.30 0.24 0.14 0.26


Advertisement Internal control issues Unrest among internal employees No Good People retention policy Intellectual Capital is under estimated No aggressive investments in R&D TOTAL

0.03 0.04 0.05 0.06

2 2 2 1

0.08 0.08 0.10 0.06

0.05 0.07 1

2 2

0.10 0.14 2.77

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IE-MARTIX The IFE Total Weighted Scores
Strong 3.0 to 4.0 Average 2.0 to 2.99 Weak 1.0 to 1.99


4.0 High 3.0 to 4.0 EFE MATRIX SCORE





Medium 2.0 to 2.99


Low 10 to 1.99


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THE Space Matrix

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Computer Hardware >> Hewlett-Packard (HP) SWOT Analysis:
Weaknesses • Internal control issues • Lack of in-house management consulting division • No aggressive investments in R&D compared to historical spending • Unrest among internal employees due to pay cuts and lack of "people care" • Intellectual Capital is under estimated • No Good People retention policy or HR practices to ensure IC is protected

Strengths • Strong brand equity • Diversified product portfolio • (offerings spans personal computing and • other access devices; imaging and printing-related • products and services; enterprise • information technology infrastructure, • multi-vendor customer services, consulting and integration and outsourcing services) • Solid market position in key segments • Strong financial condition

Opportunities • Emerging markets, particularly BRIC countries • e-Commerce expansion • Restructuring of internal IT structure • Imaging and printing businesses

Threats • Intense competition from other PC manufacturers • Increasing competition on imaging and printing • Slowdown in economic conditions in US, Europe • Product recalls and supply chain disruptions

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HP and dell are in a dogfight with Hp having just overtaken Dell in total revenues, market share, and financial condition. But Dell still has by far the dominant position in the Internet and phone sales of PCs. Dell computers are now available in Wal-Mart stores and Sam’s Clubs in a break from their historical absence in retail stores. At HP we have recognized that creating a diverse, inclusive work environment is a journey of continuous renewal. Each step in the process has an important significance to remember as HP move forward into the 21st century. Together the steps create a diversity value chain upon which HP is building winning global workforce and workplace. HP had many accomplishments in continuing journey toward creating a diverse, inclusive workplace. As HP expands efforts to build a culture of inclusion not only in our workplace but

also in the marketplaces and communities where HP serves, HP remember the milestones that brought it here. Each has made a difference.

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• • • • • • •

• • “ Strategic Management Concepts and Cases” by “Fred R. David”