Pestel Analysis Of Hewlett Packard Management Essay
The following analysis will be taken from Hewlett-Packard’s (HP) operations within the mobile technology industry. In this question that author will be using a PESTEL framework as well as Porters five forces framework.
Hewlett-Packard operate in more than 170 countries (Hewlett Packard 2010). Multinational firms can be majorly impacted by governments, who impose regulations. Whilst also being able to change the levels of taxation or import duties (Mellahi et al 2005, p.37). There is also political risk defined as “the the likelihood that political forces will cause drastic changes in a country’s business environment” (Robock and Simmonds 1989 p.378) as cited by (Mellahi et al 2005, p.43).
Within the mobile technology industry economic factors to be considered are the rate of inflation, the disposable income consumers, as well as levels of unemployment (Mellahi et al 2005, p.44). Mobile technology products such as smartphones can be seen as a luxury product (Brassington and Pettitt 2006, p.57). With a worldwide recession occurring from 2007 till 2009 (CNN) and the market still recovering less disposable income is available to spend on these luxuries.
Consumer attitudes changing can influence firm strategies (Mellahi et al 2005, p.47) With some products becoming less fashionable, the mobile technology industry must become sensitive to changing trends. Articles have been written that predict there is a possibility for smartphones to take over from the PC in the near future (Betanews.com 2010)
The mobile technology industry is a fast moving with the pace increasing (Mellahi et al 2005, p.48). This is true in this industry with new technology software being released every day (ere.net 2011). As well as Wi-Fi being made available in public places, such as the London Underground (BBC 2011)
Environmental issues have become a more increasing concern in recent years (Bassington and Pettitt 2006). This includes the mobile technology industry. Companies are put under more pressure to adopt corporate social responsibility. There is also the need to follow environmental law for example in Europe (European Environmental Law Network 2011).
The mobile technology industry has many legal factors they must take into consideration. This can include laws against monopolies, impacting on whether companies can perform an acquisition or merger. As well as financial regulations and employment laws. The industry must also be aware of patents, ensuring they don’t infringe on a patent (Intellectual Property Office 2011).
1.2 Porters five forces framework
1.2.1 Threat of Entry
There are low threats of entry within the mobile technology industry, this is due to many obstacles that would face potential newcomers (Mellahi et al 2005, p.71) The companies within the market have already established there brand names, (Hubbard 2004, p.35) any new entrant would have to overcome firms like Hewlett Packard, Apple, and Nokia. There is also the cost of capital, with the revenues for the mobile phone market being at £15,466 million in 2010 (Mintel 2011).
1.2.2 The threat of substitutes
There are few substitutes to mobile technology, with the main one being PC’s. These act as a substitute to mobile devices such as netbooks or laptops, and the Apple iPad.
1.2.3 The power of buyers
There is a reasonable level of buyer power in the mobile technology market. This is down to the low switching costs for buyers (Johnson et al 2008, p.63). Consumers are able to switch between one supplier or another due to the large number competitors in the industry.
1.2.4 The power of suppliers
The power of suppliers is high within the market place. This is due to there being few large suppliers that a company would be able to rely on. Such as Intel for processors in their laptops and netbooks. (Intel 2011) There is also a difficulty for companies to manufacture the parts required themselves, therefore Hewlett Packard and others in the industry would be reliant upon its suppliers.
1.2.5 Competitive Rivalry
Competitive rivals account for all the companies which offer similar products. In the mobile technology industry, there are several competitors relating to Hewlett Packard. These include; Apple Inc, Nokia, Google, HTC, Blackberry and Sony. With all these companies having established brands. (BBC 2010)
1.3 Opportunities and Threats
The main opportunity for Hewlett Packard is for the company to grow, with it being predicted that the mobile phone market alone is expected to increase by around £2,500 million by 2015 (Mintel 2011) They also have to opportunity to move into the emerging market created by Tablets, With HP already having a product out, the HP TouchPad, to compete with the Apple iPad. There is also an opportunity from the patents gained from the purchase of Palm. These allow for new technologies to be explored.
The threats that face Hewlett Packard, can be seen to be competitive rivalry (Hewlett Packard 2010). There is aggressive competition within the industry with a variety of products competing with those of HP. The saturation within the market could harm future revenues. There are also security risks (Hewlett Packard) which could damage reputation, a recent example of this is Sony (Telegraph 2011)
2. Internal Analysis
To analyse Hewlett Packard internally the author has chosen to use the following, financial analysis as well as strategic capabilities and competitive advantage.
2.1 Financial Analysis
In 2010 Hewlett Packard had the largest revenues against those of its competitors reporting figures of $126,033 million. These compare to Apple who reported $65,225 million, and Dell who reported $61,494 million. The revenue can be seen to have risen from 2009 when it was reported to be $114,552. Dell and Apple can also be seen to have risen from the previous year, with Apple overtaking Dell and becoming a bigger competitor. Despite this marked improvement for Apple, HP still have almost double the revenue. This would suggest that the market for mobile technology is growing, which is further supported by the projections for growth by Mintel (2011). HP have seen the biggest growth in their revenue come from the non-U.S. market. This has seen a rise of $54,149 since the year 2000. Although growth has occurred in the U.S. market, it has not been quite so high. Hewlett Packard have seen their dividend per share remain at a constant level over the past 5 years, with it declining slightly from $0.30 to $0.29 in 2010. In comparison to Apple and Dell neither has issued a dividend over the 5 year period.
A decrease in net cash can be seen to of occurred over the last 2 years, although this could suggest poor performance it can be seen from the cash flow statement that the company has paid back $1731 million in debt in 2010. This compares to Apple who in 2010 have increased their net cash, this being down to retaining higher profits for the year. With the purchase of Palm Inc, they have worked towards the strategy for converged and cloud-based infrastructures (Hewlett Packard). Although by doing this they can be seen to have increased the risk of the company, with gearing seen to have increased from 61.95% in 2008 to 91.14% in 2010. Despite this effect on long-term liquidity, in the short term the current ratio and acid test ratio has decreased slightly, remaining at similar levels to the industry average. It can also be noted that HP reduced employees by 5,700 in Europe, the Middle East and Africa. This was in an effort to reduce costs (Keynote 2010).
The ratios and earnings figures used in this came from Osiris.
2.2 Strategic Capabilities and Competitive Advantage
2.2.1 Threshold resources
The threshold resources that Hewlett Packard have are there manufacturing staff that they have across the world, having a skilled workforce means that they can supply the very best products in a constantly changing environment. A second threshold resource would be infrastructure they have in place, allowing them to keep track of all their orders.
2.2.2 Threshold Competencies
The threshold competencies or Hewlett Packard are there brand management. This is important due to the other companies who are also established within the marketplace. HP must maintain its brand to stay competitive. A second threshold competency is the ability to meet demand. As previously stated there is large amounts of competition in the marketplace. If HP were unable to meet the level of demand then they could potentially lose out to other competitors within the market. A final competency is that HP is able to manage their finances. This is to ensure that they remain liquid. HP can be seen to show this competency with their revenue, and profit.
2.2.3 Unique Resources
The unique resource that HP have is they have manufacturing facilities right across the world (Hewlett Packard). By having these facilities it means that the company is able to deliver its products right across the world. It can be noted by Betanews (2010) that HP will be able to sell Palms in places that Apple and Google can only dream about. Betanews (2010) also note that HP’s manufacturing capabilities “makes Apple look puny by comparison”. A second unique resource is the patents owned by HP. These cannot be copied by other companies, and therefore they allow HP to release technology unique to the company. HP have also increased its patents with the acquisition of Palm, this has allowed HP to use the WebOS which in turn strengthens the products they are able to offer (Bloomberg 2010).
2.2.4 Core Competencies
The first core competency that Hewlett Packard has is their research and development department. This allows them to improve their software, also HP’s ability to merge with Compaq (BBC 2002), as well as acquire Palm means the company is able to collect all the research done previously by those companies and incorporate it into their own products. A second core competency is the wide variation of mobile technology products that the company are able to offer. They currently produce smartphones, tablets, laptops as well as netbooks (Hewlett Packard). This is a more diverse range than some competitors are able to offer such as Nokia, Google and Blackberry.
2.3 Strengths and Weaknesses
The first strength for Hewlett Packard is the popularity of mobile phone apps, with it being reported that 24% of 16-24 year olds download mobile applications at least once a week (Mintel 2011). This is a strength after acquiring WebOS. Next strength for HP in the mobile technology industry is the demand for multi-functional smart handsets is on the rise. With it being anticipated that the market will be further stimulated by this through 2011 (Mintel 2011).
Another strength for HP is that they are currently the market leader is terms of revenue. This means that they have a sound financial basis to move forward with, as well as already having their brand established within the current market place.
A first weakness for Hewlett Packard is that in the current economic climate, consumers are spending less on mobile phones, Mintel (2011) reports that 92% of people already own a mobile phone, meaning that manufacturers, such as HP are reliant on upselling. Purchasing a new mobile phone when customers already have one can be seen as a non-essential purchase.
There are already competitors in the market, that have established a share, such as Apple with 16.2% (Betanews 2010) It will take time for HP to gain a high share of the market.
3. Strategic Issues
3.1 Strategic Issue 1
The first key issue for Hewlett Packard is the number of competitors within the mobile technology industry. Competitors who are established within the market include Apple, Nokia, Blackberry, Google, and Sony. Before acquiring Palm HP had the iPaq device within the market. This had however failed to keep up with its competitors (Bloomberg 2010) with Betanews (2010) noting that the iPaq brand was pretty much ignored within the market. This is a key issue due to HP’s main competitor Apple having a large market share. Should the company not invest heavily into the technology behind its smartphones and other portable devices then it could fail to become a dominant part of the mobile technology industry in the near future.
3.2 Strategic Issue 2
The second strategic issue for Hewlett Packard is that they currently have the highest revenue of all its competitors. With a revenue or $126,033 (Osiris). With the company looking to diversify its products and move more into the mobile technology industry, through smartphones then they are placing their current place as the market leader at risk. Should they move more into this relatively new market then they risk damaging their own sales figures, the company’s reputation, and potentially the company share price. This is a key issue for HP as they must assess the risks they take moving further into a new market. The company may find they would be better expanding their current products.
4. Development Strategy
The author is going to use Ansoff Matrix as the framework for this analysis.
4.1 Ansoff Matrix
Under Ansoff Matrix Hewlett Packard can be seen to be developing its product with the purchase of Palm. Under product development the organisation delivers a modified or new product to an existing market (Johnson et al 2008, p.261) This applies to HP as through acquiring the WebOS they have modified a product they previously had, with the iPaq, and going on to sell it within the present market. An advantage of product development would be that it distinguishes the company, HP, from its competitors. This would mean that HP could be seen to have a newer product that is designed around changes in consumer tastes. Despite the advantages to product development , it can be seen to be very costly. Although HP have acquired Palm they have needed to pay $1.2 billion (Bloomberg 2010), this must also be followed up with high levels of investment as the new technology may be unfamiliar to HP. A second problem with product development are problem management risks, costs for the product may be higher than first thought, or delays may mean that the product cannot be released when planned.
Using this strategy allows for HP to react to the fast changing technological climate, as mentioned in the PESTEL analysis. They have also gained a core competency as they are able to use all the research and development carried out by Palm, this will save HP money, but still give them a competitive advantage. To surmise this strategy helps is suitable as it helps HP keep up to date with the fast moving market, as well as giving them the possibility to gain a foothold in a market they had previously not consolidated.
It is feasible for HP to acquire Palm as they have proved in the past through their merger with Compaq. Hewlett Packard also note on their website they have experience in difficult mergers and acquisitions. Also with the revenues that the company has had in recent years, financially HP can afford the deal.
The acquisition can also be seen to be acceptable to the key stakeholders. These being the government and legislators, as well as the investors. The government may only disagree with the acquisition should HP be seen to be monopolising the market. However, because Palm operate in a separate market this would not be the case. The deal would also be acceptable to the share holders as it gives the possibility of sustainable long-term growth, through the companies development in a market they have previously done poorly in.
4.2 Alternate Option
An alternate option would be for Hewlett Packard would be for the company to adopt a strategy of market penetration. This would be where the company would take an existing product in an existing market and increase the market share. The main advantage to this would be that HP already have a knowledge of the market, and is not venturing into any new territories. The second advantage to this would be that it saves the company money, as they do not need to carry out a pricy acquisition. Also staying in the same market reduces the need for market research.
This would be a suitable strategy, as the market value is predicted to rise from now till 2015 (Mintel 2011) This could mean that if HP invested in their own product they could take a higher share of the market.
This would be feasible for HP to implement as they already have a product within the market, and they would not need to change their resources or technology overly.
Although there would be relatively low costs involved in this strategy, shareholder may be unwilling for the company to go in this direction. This is due to the iPaq previously failing in the market. There would be the possibility that this could happen again, and therefore damage the company reputation.
5. Stakeholder Analysis
The author will use the power/interest matrix for this analysis
5.1.1 Category A
The Category A stakeholders of Hewlett Packard would be the communities around the sites HP is located
5.1.2 Category B
The Category B stakeholder would be the lower level employees of the company, as well as the analysts and media in the market place. The lesser suppliers would also be within this category
5.1.3 Category C
The Category C stakeholders would be the higher level employees, as well the more important suppliers. Customers may also fall into category C for the matrix.
5.1.4 Category D
These are the most important stakeholders connected to Hewlett Packard. Category D stakeholders would be the investors, as well as the government, and legislators.
5.2 Stakeholder Influence
“A successful merger or acquisition requires the coordination of many intricate details spanning the entire business model. Complex merger and acquisition activities necessitate the ability to plan and execute a massive logistical transition, to foresee and mitigate risks and to launch and complete the project in the shortest possible time frame. This all must be accomplished while avoiding costly disruptions to the core business and protecting customer satisfaction.” (Hewlett Packard 2011)
The first key stakeholder that would be affected by Hewlett Packard’s acquisition strategy would be the investors. The shareholders of Hewlett Packard are interested in their wealth being maximized. Brealey et al (2008, p.24) writes that shareholders want “competent managers to choose positive-NPV projects. These managers don’t need to know the preference of each shareholder. They just need to follow one simple instruction: Maximize NPV.” Therefore if the acquisition is likely to have a negative effect upon the company’s value, investors may not wish for the acquisition to go through.
The second of the key investors that would have an influence on Hewlett Packard’s merger and acquisition policy would be the government regulators, and legislators. They engage with these through membership to trade associations, and by doing this allows HP to cooperate with its regulators in order to resolve any issues. One such issue that may arise from any potential acquisition would be the conflicts with any monopoly laws. Forrest (1896) writes that "The General Assembly shall have no power to authorize any corporation to make any contract or agreement whatever with any (other) corporation, which may have the effect, or be intended to have the effect to defeat or lessen competition in their respective business, or to encourage monopoly; and all such contracts or agreements shall be illegal or void.” Although these laws would be unlikely to have any effect on Hewlett Packard’s acquisition of Palm. This is due to Palm being in the mobile phone industry, and HP being in a wider range of technology industries.
The customers would also be an important stakeholder, with them wanting to be aware of any products that may come into the market as a result of an acquisition. In the example of HP taking over Palm, new smartphones may become available. The final important stakeholder would be the employees. They would want to know whether or not their jobs will be safe following on from the acquisition.
Leadership has been described by Conger (1992) as “individuals who establish direction for a working group of individuals, who gain commitment from these groups members to this direction and who then motivate these members to achieve the direction’s outcomes”.
1.1 My Leadership Style
The main type of leadership I used within the task group was participative leadership. When viewing the tasks that were required to complete then I would split the work into different parts and allow each member to decide what part they wanted to carry out. Once this had been decided group members would then complete the assigned tasks separately before the group once again converged to discuss what we had completed separately and put the work together to make up the whole task. The advantages of using this method were that each member of the group had a clear idea of their task, as group members were able to choose what they wanted to do, no-one felt pressured into doing work they did not necessarily want to, and everyone was able to express an opinion if they felt some of the work carried out needed more adding to it or parts were irrelevant.
Throughout the process I do not feel that my leadership style has changed much, I may have moved more towards a delegative style but still found myself to predominately have a participative style. I feel that my leadership style has not changed as I have felt that my first leadership method worked successfully. The disadvantages of this were that there was a relaxed working environment, meaning that group members were inclined to relax, rather than work hard towards finishing the task. This would have been avoided should an autocratic leadership style been employed.
1.2 Alternative leadership style
A different style of leadership would be that of authoritarianism, or autocratic leadership. This is where an individual takes control over the group and proceeds to tell the other members of the group their role will be. Had an authoritarian leadership style been used as group members would have been told what to do, with the potential for conflict should a particular party not like what was being asked of them.
1.3 Effective Leadership
In the context of a group activity I believe that the best leadership style to use would be to follow a delagative approach. This would mean that everyone within the group was given more freedom and would of felt like an equal part of the end product.
In the Leadership Challenge Kouzes et al (2007) the main characteristic of leaders are honest, forward looking, and inspiring. By having these competencies it means that others in the group will have respect and will look towards the person in the leadership role which will help when motivating group.
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