In the first four decades of its existence, Hewlett-Packard did everything right to attract, retain, and support qualified personnel to build a company that eventually became the leader in innovative engineering. The amalgamation of core values and management systems morphed into a corporate culture and business process known all over the world as The HP Way, and this unique management and business framework paved the way for the creation of a multi-billion dollar company.
However, beginning in the 1980s, HP realized the difficulty of sustaining the company’s preferred business model. Nonetheless, the decision to abandon the business and management principles that served the company well for several decades may lead to disastrous consequences. To survive and thrive, newly appointed CEO Lew Platt must persuade his subordinates and the shareholders to uphold the core values and business practices known collectively as The HP Way and combine this commitment with the difficult decision of downsizing the company and compete in relatively smaller-sized market segments to outperform the competition with technically superior products.
Identifying the Most Important Facts
At the end of the fiscal year 1992, newly appointed CEO Lew Platt was wary of the company’s external manifestations of success. From an outsider’s point of view, HP was one of the most successful companies competing within the tech industry (Rogers, 1995). Platt was managing a global firm with an estimated net revenue of $16.4 billion. However, the lessons learned in the decade of the 70s and 80s forced Platt to fight off the tantalizing temptation of complacency brought on by immense success. He had every reason to doubt the sustained dominance of HP after receiving reports convening significant employee dissatisfaction.
Schooled in the fine points of company lore, Platt knew that it had something to do with The HP Way and so he was pondering the consequences of preserving the company’s core values. The company’s history and long-term success revealed that proper implementation of The HP Way can lead to sustained growth.
It is not difficult to appreciate the company’s organizational culture and business model that transformed a small company from Palo Alto, California into one of the leading tech innovators of the 20th century. The world-renowned framework called The HP Way is a unique blend of organizational culture, work system, and employee selection scheme that eventually created a nurturing, supportive, and inspiring environment that produced innovative products.
However, it is imperative to highlight two critical facts about the company’s business model to fully understand the impact of The HP Way. First, the firm concentrated on relatively smaller sized market segments (Rogers, 1995). Second, the company overwhelmed their competitors with technically superior products (Rogers, 1995). It was a perfect scenario for an innovation-focused firm in a niche market with no serious competition to threaten its position.
Identifying Key Issues
It has to be made clear that in the first three decades of its existence, the firm specialized in electronic test and measurement instruments for engineers and scientists. The most lucrative aspect of the business model was the supply of electronic equipment for the U.S. military (Rogers, 1995). As a result, there was little incentive to invest in marketing, because the firm’s competitive advantage was largely dependent on technical innovation (Rogers, 1995).
This is not a surprising development for an innovative tech company, especially when it comes to a relatively small marketing segment. Consider, for instance, a client like the National Aeronautics and Space Administration or NASA, it is impossible to imagine an agency of such stature to gamble on the cheapest gadgets available in the market. Even if NASA embraces a low-cost policy, the sub-standard equipment prevents the agency from accomplishing its goals forcing it to eventually go back to the most innovative supplier selling a more reliable set of instruments.
Just like any other successful tech firm, shareholders and corporate executives found it prudent to expand the firm’s business operations. As a result, the firm invested in new product offerings like computers, medical electronic equipment, instrumentation for chemical analysis, calculators, and solid-state components (Rogers, 1995). In the absence of external forces transforming the business landscape, HP was set to reap dividends from exploiting a well-developed business system. However, the decade of the 1980s came along, and the socio-economic changes, as well as the combined effects of the computer revolution, brought HP into uncharted territories.
HP encountered a significant slowdown in orders coming from the U.S. military, and this was the first unexpected challenge that the corporate leaders faced in the said decade. Since the company’s main source of revenue depended on a steady flow of orders from the U.S. government, when the contracts to build instruments dried up, HP workers began to feel worried about job security.
The downturn in the electronics business was compounded by intense competition in the field of computer hardware manufacturing. The decade of the 1980s saw the unveiling of the Apple Macintosh and the IBM PC (Eicher, 2011).
One can argue that if Apple and IBM continued on their respective paths in terms of building proprietary systems, the probable consequence would have been favorable to HP. This is based on the idea that HP can become one of the players building their type of computer hardware. However, the emergence of Microsoft changed the computer landscape most profoundly. Due to Microsoft’s Windows operating system, it was possible for the mass manufacturing of computer clones or clones of IBM personal computers (Eicher, 2011). Microsoft’s Windows operating system was designed to run on computers that were not built using IBM’s proprietary system. As a result, cheaper alternatives flooded the market. In a few short years, competitors from other parts of the globe made known their alternative product offerings. The unexpected outcome in the context of HP’s business operation was to create intense pressure to produce innovative products at a faster rate.
Due to the need to produce new products every year, HP was compelled by conventional strategies when it comes to product development and marketing. The company was forced to introduce new products that competed directly with older products in the lineup (Rogers, 1995). This strategy may sound strange during that period, but it is now a normal business procedure to sell products with slight variations of existing models.
It was not the time element that was the fir’s main concern; a more problematic issue was the lack of expertise in the field of computer hardware design. As a result, HP abandoned another facet of The HP Way, which was a firm resolve to finance the research and development department from funds coming from consolidated earnings (Rogers, 1995). In other words, the traditional route calls for the creation and deployment of an innovative piece of engineering makes a great deal of profit and uses part of that profit to expand the business. Due to intense competition, HP executives did not have the luxury of time to wait for innovative solutions, and they decided to acquire another company called Apollo Computer (Rogers, 1995). The acquisition of the said company represented the first major blow that caused significant degradation of the company’s core values.
The second major blow to HP’s prized corporate culture was in response to the overwhelming pressure to make profits in a highly competitive industry. Due to revenue issues and other related problems, HP’s commitment to its workforce began to wane. The company initiated layoffs, downsizing the business, and redeploying workers to find jobs within the company and embrace the idea of underemployment. Those who were not comfortable with this idea had to accept the severance package that was made ready for them.
It did not take long for Platt to realize that the decline in HP’s performance was tied up directly to the violations or disregard of the principles that comprised The HP Way. He had three choices. First, he can maintain the status quo, meaning he would allow the degradation of The HP Way as the firm commits to embrace a new business model, one that is similar to other computer manufacturing companies. Second, he can revitalize The HP Way by changing the mindset of his subordinates regarding the need to adapt to a changing business landscape. Third, he can revitalize The HP Way by modifying it to conform to the needs and challenges of the present time.
Specify Alternative Courses of Actions
The decision to maintain the status quo is an unacceptable proposition because it takes away the firm’s ability to develop a competitive advantage. It has to be made clear that HP’s competitive advantage over others is the company’s ability to develop innovative products. Thus, it is prudent to develop two alternative courses of action. First, the firm revitalizes the application of The HP Way by adhering to its basic principles while compromising in certain areas like acquiring new companies, borrow ing money, entering into a contracting business agreement with other firms, and outsourcing certain parts of the business operations. Second, the firm revitalizes the application of The HP Way by embracing a focus-differentiation strategy. In other words, the company differentiates itself from other tech firms and create a premium brand. This requires focusing on a niche market and selling top-of-the-line computer hardware and electronic equipment.
Evaluating Each Course of Action
The first alternative course of action is attractive but less prudent because it attempts to get the best of both worlds, and yet delivers an inferior performance. It is an attractive proposition because it allows the company to retain its identity, inspire the workers by going back to the application of The HP Way principles. At the same time, it gives the company the flexibility to adapt new business strategies that other firms are implementing, such as outsourcing, the use of the contracting business platforms, the acquisition of related companies, and borrowing money to finance business expansions.
The problem with the first alternative course of action is the introduction of business systems or business processes that dilutes the core principles of The HP Way. The most important effect is the destruction of the mechanisms and the nurturing environment that paved the way for innovation. It has to be made clear that HP’s success was rooted in its ability to attract, retain, and support the industry’s best minds. It is no longer possible to hire a significant number of talented and creative personnel because there is no longer any type of job security.
Also, the pressure to reduce operating costs made it harder to implement traditional work systems and decision-making frameworks that encouraged interactions and contributions from the employees. In the end, the absence of a competitive advantage forces the company to imitate the products of innovative companies like Apple and Samsung, making it easier to see the company’s future demise.
The second alternative course of action is fraught with risk, but not the type that the company cannot handle. The more problematic issue when it comes to embracing a focus-differentiation strategy is the possible resistance coming from shareholders who may try to maintain a certain level of profitability. Without a doubt, the income statements and financial reports for fiscal years 1991 and 1992 attests to the profitability of HP computers and printers. However, there is no assurance of sustained growth considering the fast-paced innovations of computer hardware components and computer peripherals.
HP’s only assurance of survival and future success is for the firm to go back to its roots, and that is to become a leader in engineering innovation. The decision to embrace a focus-differentiation strategy that calls for the creation of a premium brand is not without precedent in the firm’s history. In the middle part of the 1980s, HP’s investment in UNIX and RISC computer systems paid handsome dividends for the company. Thus, the implementation of the second alternative course of action requires the company to focus on the development of high-end personal computers and computer systems. In other words, the company must abandon the need to compete with companies like Dell, Lenovo, and Acer in the manufacturing of computer desktops and laptops.
The company must evolve into another version of Apple and focus on developing high-performance personal computers. At the same time, it must invest in the development of computer systems or a computer infrastructure that is similar to the investments made in UNIX and RISC. This course of action allows HP to shut down its foreign companies and concentrate on research and development within the United States. There is no need to dilute the company’s corporate culture to engage in a price war with low-cost computers in foreign markets. Once HP rediscovers its innovative spirit, other companies will pay a premium to get hold of their innovative solutions to computer manufacturing problems or computer infrastructure issues.
Recommendations
It is prudent to implement the second alternative course of action after realizing that HP’s future depends on its rediscovery of the passion to become an innovative engineering company. It is high time for HP to lead the way in innovative solutions for the development of top-of-the-line personal computers and computer systems. This is possible through the revitalized application of The HP Way. The company was successful when it competed in relatively smaller market segments wherein it can dominate the competition with technically superior products.
References
Eicher, C. (2011). How Apple beat IBM in Steve Jobs’ first retail war. Web.
Rogers, G. (1995). Human resources at Hewlett-Packard. Boston, MA: Harvard Business School Publishing. Web.