Pestel Analysis Of The Business Environment Management Essay

1.0 Introduction

The PESTEL analysis is a strategic framework used to assess market growth and potential, the business position and direction for a strategy (Kotler, 1998) as provided by Peiker (2011). Gillespie (1963), referenced by Osinski (2011) suggests using the PESTEL-framework to analyze the important factors in an organization’s macro-environment. Porter, in addition to that, helps to analyse the five forces that are the state of competition within the industry of semiconductor manufacturers (Porter, 2004) referenced by Peiker (2011). Both frameworks are only to be used when conducting external analysis (Industry, not company).

Referring to of the acquisition of Palm Inc, HP is in a position to increase their standing in the mobile technologies market. The technology and expertise gained can be used to develop not only HP’s position in the mobile phone industry, but increase competitiveness in portable computing.

1.1 PESTEL

1.1.1 Political

The UK Government are authorising the investigation into the health concerns surrounding the usage of mobile phones (MTHR, 2007). Also the 3G technology has been put under strict observation by the Government that wants to regulate its tariffs.

With 65% of net revenue generated outside of the US, the company has to comply with local legal theory (Harrison, 2003). Baron (2010, p.286) stresses the need to comply with antitrust laws, and discusses HP who ‘provide guidance on appropriate business practice’ and competitors who are keen to demonstrate their commitment to compliance.

1.1.2 Economic

As the country as still not fully recovered from recession and economic downfall there is still shortage of disposable income for customers to spend. It is said that, in the US alone, mobile phone companies spend $350 (ballpark figure) on acquiring a new customer. Therefore, the company wants to make sure that the customer spends as much as they can per month, so the company can recoup there spending as quick as possible.

1.1.3 Socio-cultural

The mobile phone industry has grown so much that it is now at a level where almost everyone is expected to own a mobile phone. Both the sizes and prices of mobile phones have become more affordable. Due to that advance from the coming 3G technologies, consumers will have a desire to request information and receive this immediately; this has become a priority in today’s fast moving society. This means people have less patience to wait for the information desired and this is reflected in the culture of mobile phone use. 3G has the capability to transfer desired information that is up to date, directly to the handset being used.

1.1.4 Technological

The mobile phone industry is constantly expanding due to speed and consistency that some manufacturers have when developing new software and hardware for the companies’ latest mobile phone range.

1.1.5 Environmental

Was unable to find anything relevant to apply.

1.1.6 Legal

While most companies within the mobile phone industry do everything in their power to patent their products, there seems to be some uncertainty in the hardware and software that the many mobile phone manufacturers provide. Apple sued the Nokia for violating one of its patents, as a result of Nokia recent suit against Apple on the same grounds (Monfort, 2010). Another legal issue is to do with the huge amount of piracy and copyright infringement that exists in today’s digital world.

1.2 Porter’s five forces

1.2.1 Buyers

Given a host of competitors and substitute products available in the market, it can be said that the buyer bargaining power is moderately high or fair in the case of HP or other companies within this industry

1.2.2 Suppliers

Given the fact that supplier concentration of electronic parts and components is low, the bargaining power of suppliers with the company is low to fair. Given the size and reach of the HP, many suppliers will be too keen to supply goods to it and this offers a lot of choice to the companies within the industry in selecting suppliers.

1.2.3 Substitutes

Due to there being many striving companies within this market, substitutes will always be a factor. If a consumer is not satisfied with a product/service being offered by one company there will always be a competitor’s product as a substitute.

1.2.4 Market rivalry among existing competitors

Within the mobile phone industry competition it fierce. The market is also gradually being sub-divided into different segments with smart phones now being one of the key areas where those in the industry can anticipate growth and profitability. However, smart phones are an amalgam of different technologies and no one firm necessarily has the competence in each of the technologies to truly dominate the market (Biz/ed, 2009). Research in Motion’s Blackberry and Apple’s I-Phone come the closest.

1.2.5 New entrants

As research continues, sanctioned by the UK Government, on health concerns caused by the use of a mobile phone, if any concrete evidence is found then this could have a dramatic effect on the industry (MTHR, 2007). A massive investment in an alternative technology could be essential for a leading company to continue its operations.

1.3 Main opportunities and threats

Opportunities

Emerging markets

Utilising the resources gained from patent acquisition: Software development – use across a range of mobile computing, power saving technologies – environmental (one of key 3 issues)

Cloud computing software – benefits rather than large hard drive

Threats

Speed in which technology grows

Brand loyalty

Market penetration in an existing strong marketplace

Security

Government monitoring health concerns

Regulation of 3G technology tariffs

Development of new services and technologies

Question 2

Using relevant frameworks, conduct an internal analysis of HP (20 marks)

Conclude the main strengths and weaknesses of HP derived from the above analysis (5 marks)

2.0 Financial Analysis

As shown in diagram 1 in 2010, HP created $31.2 billion in the first quarter, then a slight drop of $30.8 billion in the second quarter and dropping further still in the third quarter to $30.7 billion. The company then had a large rise in revenue in the fourth quarter of the year, creating $33.3 billion, however by this time HP had acquired Palm, and therefore it could be assumed that this is the reason for the boost. During the first quarter of 2010, Apple, producer of the I-phone smartphone and the Mac-book laptop (an HP competitor in the smartphone and personal systems market) only managed to create revenue of $15.68 billion (Apple, 2010). In 2010, 44% of revenue was created in the Americas (35% US, 9% Canada/Latin America) which were a rise of 11% from the previous year. Europe contributed 38% revenue, up 7% from the previous year. And finally, 18% of revenue came from the Asia-Pacific region, which was an increase of 16% from the previous year (HP, 2010). Hewlett-Packard saw revenues grow by just 1% during the first quarter of its financial year, ending 31 January 2009, to $28.8 billion, although when measured in local currencies, that growth amounted to 4%.At the same time, the company’s profits shrunk by 13% during the quarter, from $2.1 billion last year to $1.9 billion. High revenue growth of 11% in the Americas region to $12.4 billion was offset by a 3% fall in sales in Europe, Middle East and Africa, down to $12 billion, and an 11% drop to $4.4 billion in Asia-Pacific. Much of the US growth came from the addition of revenues from HP’s acquisition EDS. HP’s sharp decline in earnings is testament to the company’s dependency on its printer and ink division. Revenues for the unit, which normally contributes around 40% of HP’s profit, fell by 19% to $6 billion. Worse, printer hardware unit sales tumbled 33%, a slump that will have a knock-on effect on cartridge sales. Between 2008 and 2010, total net revenue increased 6.48% to $126,033m. Facing a global recession, in 2009, revenue from product sales decreased almost 20%, however in the same period, following the 2008 acquisition of EDS, a business services provider, HP saw revenue from services grow 56.6%. Revenues for its financial quarter ending 31 January 2009 were $13.4 billion, down 16% compared with the same period last year, with net income down 48% to $351 million.

Source: HP Annual Report (2010)

Diagram 1 – HP Revenue

2.1 Product Portfolio

UNIX servers

E-commerce application software

Hosted services

Network management

Integration services

PC’s, printers, ink cartridges

Smartphone’s

2.2 BCG Matrix

The year’s revenue for HP can be divided into segments. As illustrated by HP (2010), Personal systems group made up 32%, services 28%, imaging and printing group 20%, enterprise storage and servers 15%, HP software 3% and HP financial services 2%. Within the personal systems group, pocket computers would fall under a ‘question mark’ with potential to become a ‘star’. Due to advancing technology and consumers demand for personal and handheld computer systems, pocket computers have low market share, however they could become a ‘star’ and then possibly a ‘cash cow’ when the market growth slows. Servers and computer repairs are HP’s ‘stars’ due to them being units with a high market share in a fast-growing industry. These are things that the company will sell on a regular basis. PDAs of HP were growing in 2002 but in 2010 they become cash cows.

2.3 Strengths & Weaknesses

The strengths and weaknesses portion of a SWOT analysis refers to the internal conditions of the firm. Where the firm excels (strengths) and where it may be lacking relative to competition (weaknesses) (Dess et al, 2007).

2.3.1 Strengths

Strong Market Position

Hewlett Packard, operating in more than 170 countries, enjoys a strong market leader position in a highly competitive market. It has become the biggest computer hardware and peripherals consort in the world (HP, 2011).

Strong Brand Identity and global presence

In 2010, HP was placed 10th amongst the best 100 global brands. The company has been quite flexible to adjust its brand image according to the necessities of competitive market. Leading provider of personal computers and imaging and printing

Multi-vendor customer services

Including infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services and consulting and integration services.

Strong financial condition

Organized into 7 business sections with strong position in each.

2.3.2 Weaknesses

Poor Market Segment Integration

When pitted against major competitors the HP portfolio shows significant lack of software products or management consultancy services.

Financial condition doubts

Financial condition leans very heavily on the state of our economy not just in the US but worldwide.

 

Question 3

Based on the internal and external analysis, and synthesis of the SWOT summary derived from it, identify two key strategic issues that HP faced before acquiring Palm and explain thoroughly why you define them as the key issues

3.0

HP faced a changed in market when they were to acquire Palm. Palm were manufacturers of smartphone’s, and while HP had previously released a smartphone, they were more focussed on PC and server market at the time. With the likes of Research in Motion and Apple bidding to dominate the market this becomes a key issue for HP, who have to decide whether or not they want to get a foothold on the market and tackle the very story competition, or to continue with there original strategy. Palm had not been successful in the smartphone market for a long time, and Ipaq (HP’s smartphone) was not received well either. Also time is a factor because if HP want to develop a new smartphone using Palm’s webOS server, by the time the product has gone through the planning, research and development stages, it can be assumed that competitors will already to two steps ahead and continue to out shine them as technology develops so quick.

Question 4

Using relevant frameworks (e.g. Ansoff) identify which development strategy HP used in the action of acquiring Palm and evaluate it using the SFA tool (10 marks)

Suggest another alternative option you think that HP can possibly adopt to deal with its key strategic issues and again use SFA to evaluate it (10 marks)

4.0

The acquisition of Palm by HP used a ‘market penetration’ strategy in terms of the Ansoff matrix. Market penetration occurs when a company penetrates a market with its current products. HP was already familiar with the smartphone market having previously released the Ipaq, however acquiring Palm and there operating system, this would provide HP with a better chance at succeeding in the market.

4.0.1 Suitability

Well the move certainly makes sense. The strategy provides the possibility to react to the threat of socio-cultural and technological change. Palm were once a company that showed a lot of potential in the industry, however as the years went by it became more clear that Palm could not succeed alone. With the deal came, HP obtaining Palm’s innovative mobile operating system, webOS, a stable of well-regarded mobile handsets, many patents. Palm gains access to HP’s prodigious marketing muscle and global reach. Since HP acquired Palm’s system, it did not have to be developed or designed; however, this strategy has required a lot of capital expenditure (King and Thomson, 2010) cited by Peiker (2011). The merge will provide HP with economies of scale, as they will be acquiring a larger workforce, bigger product line and potentially more customers.

4.0.2 Feasibility

The strategy can be funded as the financial quarter before the acquisition HP had revenue of $30.8 billion and the deal itself would only cost $1.2 billion. And as it was shown in the financial analysis, HP’s revenue had a massive boost during the quarter, after the acquisition.

4.0.3 Acceptability

As previously stated, Palm was a struggling company, which had to be bought out before going bust. It was proven that Palm could no longer succeed on there own. It is most importantly acceptable due to HP entering new markets and adding new ‘question marks’ to there product portfolio. Also, they enlarge there gross margin which may result in higher dividends. And finally, by spreading the portfolio and diversifying into promising markets, risks can be reduced.

4.1 Alternative Option

Using the Ansoff matrix, an alternative strategy that HP could have used could be ‘product development’, which would involve HP bringing new products to existing markets.

4.1.1 Suitability

This move would make sense for HP, as they had previously ventured into the smartphone market prior to the acquisition, releasing the Ipaq. However they did not push the development of this product and it was not successful. When HP acquired Palm, they became owners of Palm’s good quality system, which then HP could use to develop there smartphone for a new release.

4.1.2 Feasibility

This strategy would be feasible, as HP have already developed a smartphone in the past and would still have a lot of revenue left over after the merge.

4.1.3 Acceptability

It would be an acceptable strategy as it is only the real way to be able to compete with competitors such as BlackBerry and Apple who are constantly developing there products so that they can release new up to date products on a regular basis. The problem in the past with HP releasing the Ipaq was that once it was released they just left it and didn’t continue to develop it. With the acquisition of Palm they will obtain Palm’s operation system webOS which they could use with potential in developing a new smartphone range.

Question 5

Use the power/interest matrix to:

Identify the key external and internal stakeholders of HP (5 marks)

Discuss the ways in which the power of the key stakeholders might influence the implementation of HP’s acquisition strategy (10 marks)

5.0

According to Mendelow (1991) cited by Quan (2010) stakeholders can be differentiated according to their interest in a company’s decisions and their power to influence them. In order to get a good interpretation of the stakeholders a power/interest matrix can be. This tool helps to analyse the key stakeholders that require attention when applying strategic decisions (Johnston et al. 2008) as referenced by Peiker (2011).

Using the power/interest matrix, it divides the company’s stakeholders up into levels of power and interest. Low level of power accompanied by a low level of interest is given the heading ‘minimal effort’; while a low level of power along with a high level of interest is ‘keep informed’. High power with a low interest is ‘keep satisfied’ and finally high power with a high interest is ‘key people’.

Minimal effort stakeholders are stakeholders who should be informed of decisions, but who do not invest inappropriate effort. For HP these would be like there suppliers as an external stakeholder, who show a low level of interest as they will most likely have several companies contracted to them. They also have a low level of power in the company. Keep informed stakeholders have limited means to influence events. They keep informed, but do not invest inappropriate effort. These would be like competitors as an external stakeholder, who shows a high level of interest in how HP are doing, but have low power in the company. Employees may fit into this category too, as an internal stakeholder. Keep interested stakeholders needs should be took into account, as well as seeking to increase their interest and engagement. Keep them informed, and engage where appropriate. These will be HP’s customers. They have a low interest in the company as all they concerned with is purchasing their products, however they have a high level power due to HP wanting to keep up good customer relations and make sure they are always satisfied. Finally, key people are the most important stakeholders. They have a very high level of interest in the company and are very powerful. These would be like HP’s chairman and board of directors as internal stakeholders.

5.1

A deal as big as the acquisition of Palm will affect each and every stakeholder, therefore it is almost guaranteed that they would all have a say. Competitors will not what the deal to go ahead, as they will see two companies joining together as a bigger threat. The chairman and board members will like the deal as it has the potential of making a lot of income for the company. Customers would want the deal to go ahead as they would see it as an extension of a brand they are already familiar with and the potential of creating new products. And finally the suppliers would be happy for the acquisition to happen as it would make a larger company for them to sell supplies too.

Task B: Reflective Report

Question 1

Reflect on your leadership development by comparing the results of the two leadership style questionnaires (one is at the start of the module, another one is at the end of this module). Discuss why your leadership style has (or has not) been changed

When reflecting on the results of the two leadership questionnaires I can see that my leadership development did not change that much. When the questionnaire was originally taken, I was found to have a delegative style of leadership with a score of 36, however when the questionnaire was retaken I was still found to have a delegative style, but the result had slightly decreased from 36 to 33. The reason for this decrease could be due to some of the negative experiences I had within my team, which may have opened my eyes to the reality of my leadership style. I realized whilst working with the team that I prefer the delegative style of leadership as it allows for the other members of the team to be more vocal when approaching with ideas and solutions. The only problem with this is that if other members of the team have the same leadership style then often there would be a clash and it would often take a long time to decide what to do during tasks. I think however this style was to hit and miss, as sometimes we could work well as a group, whereas other times would be difficult as sometimes people would be reluctant to step up to take charge. In the other style questionnaire I scored a task total of 24, which was very low range and a relationship score of 32 which was moderately low.

Question 2

Based on your observation, identify one different leadership style which you have experienced during your studies and evaluate its strengths and weaknesses in the context of the seminar group

When working with the group I came across a leadership style that was a borderline of authoritarian and narcissistic. We had a particular team member who would often take a leadership role, even during times when it was someone else who was supposed to be in charge. The reason I found this style to be ‘borderline’ was because it had authoritarian qualities such as stepping up to the role, taking charge and providing guidance. However narcissistic qualities such as, what appeared to be a need for power and admiration were also present. The team member who used this style undoubtedly had knowledge of the subject area, but in some cases would appear to be cleverer than they actually were when i came to answering particular questions. Katz (1955) and Mumford et al. (2000) expressed that knowledge is an essential leadership skill. Ultimately I do not feel this style and approach worked well, as when the member used this style, I feel the rest of the team were too worried to question it and therefore let it go. This led to making mistakes within the work and occasionally caused tension between group members.

Question 3

Considering the different leadership styles you discussed above, what kind of leadership style(s) would be most effective in your group context? Explain why

I think the leadership style that would be the most effective in my team would be somewhere between authoritarian and participative. The reason for this being is that we needed someone to step up and take control, but not to take on a bossy approach. The person who steps up should still keep the democratic approach in tact to allow all other team members to have their say and not feel left out or worse, to feel that they are being forced into doing a particular piece of work. Alternatively, leadership could have been shared. Although there would still be one formal leader, the team could also distribute other leadership roles among group members (Day et al, 2004).