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How HP Turns Business Catastrophes to Their Advantage

• Jonathan Brill

Lessons from the company’s “Future Unit.”

In oceanography, a rogue wave refers to a massive wave that pops up, seemingly out of nowhere, when multiple unlikely natural phenomena collide. In the deep ocean, these waves routinely sink large ships. In business, they decimate growth and risk mitigation plans. What does it take for your organization not only to stay afloat when a rogue wave hits, but to actually turn it to your advantage? In this piece, the author describes a 3-part framework for resilient growth that helped HP emerge successful after a year of several potentially business-ending challenges. This approach — which can be adapted to any organization — involves building awareness of potential threats and opportunities on the horizon, adapting behaviors based on these trends, and ensuring a culture of open communication, clear processes, and a healthy balance of hierarchy and independence.

What would you do if one of your largest competitors attempted to force a takeover, your supply chain was obliterated, and your cash cow business imploded — almost overnight?

• Jonathan Brill is a globally recognized expert, advisor and speaker on successful innovation under uncertainty. He is the the author of Rogue Waves : Future–Proof Your Business to Survive and Profit From Radical Change , McGraw-Hill, 2021. He has been the Global Futurist at HP and the managing partner of innovation firms that have generated over $27 billion in new revenue for clients. He has taught in executive programs at Harvard and Stanford Universities. Learn more and find tools at jonathanbrill.com

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Compaq and HP: Ultimately, the Urge to Merge Was Right

But the execution, says a professor of management, was the hard part.

June 01, 2007

In 2001, when Hewlett-Packard’s then-CEO Carly Fiorina announced that the technology giant proposed to merge with Compaq Computer Corp., she set off a firestorm of controversy. Michael Dell, CEO of rival Dell Computer, famously called it “the dumbest deal of the decade,” and Walter Hewlett, the son of one of the company’s founders, mounted an aggressive proxy fight to prevent the corporate marriage from being consummated. Stockholders as well as the media were fiercely divided as to the wisdom of the move.

Not any longer. Six years later, after Fiorina’s acrimonious 2005 departure — which many attributed largely to the merger — and the promotion of former NCR head Mark Hurd to lead HP, the consensus is that the merger was indeed a good idea.

The change in attitude is due as much to Hurd’s leadership as to the fact that the logic driving the merger was sound. “Public opinion about the merger has fluctuated over the years, but people don’t talk about it anymore because its initial assumptions have been proven right, and because Mark Hurd is making it work,” says Robert Burgelman, the Edmund W. Littlefield Professor of Management at the Graduate School of Business. With Webb McKinney, a former HP executive vice president who led HP’s post-merger integration team, Burgelman analyzed the merger to distill important lessons for other managers.

“Ultimately, it turned out to be a good move,” says Burgelman. “But although the logic of the merger was correct, executing it was difficult.” Where Fiorina failed — and where Hurd excels — was in educating HP managers and employees on how to realize the cost and operational efficiencies and translate those into higher margins for each business. “This set the stage of achieving a higher growth rate,” says Burgelman. “By getting HP’s leaders to do a better job of exploiting the possibilities of the merger and thus the capabilities of the combined company, Hurd accomplished what Fiorina couldn’t.”

One of the best things that HP did early on, according to Burgelman, was to engage in rigorous integration planning while waiting for the courts and regulatory authorities to approve the merger. Eventually, more than 1,500 people worked full time on this effort to set goals — both short- and long-term; define exactly how the new organization and related decision-making processes would work; and develop comprehensive operational plans for upcoming operational and strategic integration phases.

Indeed, “the integration planning process was so successful that on the day the merger was approved, the new company was ready to go,” says Burgelman. And because of this rigorous pre-clearance integration planning, many issues and problems that typically hinder the effectiveness of large acquisitions were resolved much more easily than most skeptics had expected. The short-term goal of cutting $2.5 billion from operations was exceeded by more than $1 billion. And short-term market-share losses were lower than expected.

“However, it was at this point that Fiorina took a wrong turn,” says Burgelman. Because senior management of the combined companies now focused on executing the very complex operational integration, the strategic integration aspect of the merger faltered. For example, HP failed to pick up on key customers’ concerns about the new corporate strategy: Where was the firm heading after the integration was complete? Would HP be capable of continuing its legacy of breakthrough innovation? Or would it simply be a more operationally efficient company?

“These were valid questions,” says Burgelman. “And by the end of 2003 things were not going well.” For starters, HP was beginning to miss its longer term goals. Also, its estimates about growth of both the business and consumer PC markets turned out to be overly optimistic.

Despite this, top management declared victory. “But it was too soon. And because senior management failed to follow through, it failed to achieve the full promise of the merger,” says Burgelman. This naturally led to market disillusionment, and the stock price fell.

In summary, says Burgelman, “establishing the logic for the integration and setting the performance goals were right on target. The pre-clearance integration planning was first-rate. But the strategic integration aspects of the acquisition raised significant challenges that the company did not overcome.”

In hindsight — and the takeaway for other firms — the weak feedback loop between the operational integration process and the firm’s long-term strategic goals prevented HP management from testing the new corporate strategy with key customers and responding more agilely to longer term shifts in market direction. “This in turn led to insufficient attention being paid to the multiyear strategic activities required to exploit all the opportunities created by the merger,” says Burgelman. He believes that Fiorina should have kept the large-scale integration team that had been formed for pre-approval activities. “It could have become much smaller and more focused during strategic integration, but it should have remained in place,” he says.

Ultimately, Hurd turned all this around. “Mark Hurd has done a much better job at reading the market and adjusting HP’s corporate strategy to reality,” says Burgelman. “What Fiorina was attempting to do was extremely complicated. She was trying to change the culture of HP without really understanding what that culture was like in the first place. Hurd simplified things, and, recognizing that HP was first and foremost a technology company, put it on track to leveraging its considerable strengths.”

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IMPACT: 22% jump in employee engagement between 2016 and 2018

SCALE: 4,700 managers worldwide

SPEED: 1 year

As you’ve been reading in our ongoing blog series, Culture Change: The Master Class , NLI’s approach to culture change consists of two key ingredients: growth mindset and priorities, habits, and systems .

At HP, recent spikes in a host of key metrics have shown the success of those two elements over the span of a year of partnering with the NeuroLeadership Institute. HP is now leading both the commercial PC and printer markets and has raised its overall market cap to more than $30 billion.

The story of how it all happened began with HP splitting from Hewlett-Packard Co. in 2015, and senior leadership realizing a need to establish a new culture for the 50,000 employees moving to the new HP Inc.

Led by CHRO Tracy Keogh, the initiative grew into two distinct components: a continual focus on getting better (rather than being the best), and defining what it prioritizes as an organization, so that it could build the habits and systems to make those priorities come to life.

“Make it happen!”

HP worked with NLI as a thinking partner to determine which leadership principles could turn priorities into concrete behavior. Hundreds of ideas were shared throughout the company, before the team arrived at three key mantras: Imagine the future, Inspire the team, and Make it happen .

Now, in meetings and in emails, HP employees use the shared phrases to create shared understanding and ways of working. For example, employees put “Make it happen!” in their email signatures. Follow-up surveys have shown a 22% jump in employee engagement between 2016 and 2018 and stock gains to record levels.

Of the past two years reigniting this culture, Tracy Keogh, HP’s Chief Human Resources Officer, says, “It’s been an amazing journey.”

Click here to view the full HP feature case study.

This article is the sixth installment in NLI’s new series,  Culture Change: The Master Class , a 6-week campaign to help leaders understand the science behind creating — and sustaining — culture change.

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What hewlett-packard’s spying scandal tells us about the limitations of corporate boards, october 18, 2006 • 18 min listen.

The crisis at Hewlett-Packard over allegations that its chairwoman, Patricia Dunn, authorized illegal surveillance of HP board members in order to find out who leaked sensitive company information to the press, is dragging on, perhaps longer than most people first expected. And it has raised a number of important issues about corporate governance, privacy protection and surveillance of employees. Tom Donaldson, professor of legal studies and business ethics at Wharton, joins Knowledge at Wharton to talk about HP's woes as they relate to business practices both in the U.S. and abroad. Donaldson's research areas include business ethics, leadership, risk management and corporate compliance. He has consulted with companies ranging from Goldman Sachs and Wachovia to Exelon and KPMG, and is currently working on articles about corporate risk management programs and cash management practices at non-profit organizations.

The crisis at Hewlett-Packard over allegations that its chairwoman, Patricia Dunn, authorized illegal surveillance of HP board members in order to find out who leaked sensitive company information to the press, is dragging on, perhaps longer than most people first expected. And it has raised a number of important issues about corporate governance, privacy protection and surveillance of employees. Tom Donaldson , professor of legal studies and business ethics at Wharton, joins Knowledge at Wharton to talk about HP’s woes as they relate to business practices both in the U.S. and abroad. Donaldson’s research areas include business ethics, leadership, risk management and corporate compliance. He has consulted with companies ranging from Goldman Sachs and Wachovia to Exelon and KPMG, and is currently working on articles about corporate risk management programs and cash management practices at non-profit organizations.

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Management as a Success Factor: Hewlett-Packard Case Study Example

Hewlett-packard case study introduction, hewlett packard history timeline, hewlett packard swot: strengths, hewlett packard swot: weaknesses.

• Computers, Desktops, Printers & Imaging Products Printers & All-in-ones Workstations, and laptops
• Smart-phones, Scanners & Fax, Ink, Toner & Paper & Handhelds

Marketing research and development of the company

Market segmentation and target market, customer relationship management program, strategy and implementation, hp case study conclusion.

Hewlett-Packard Company is an international company incorporated in the United States of America as an information and technology company; it is one of the world’s largest technology company with its headquarters at Palo Alto; California.

It is involved in the business of developing hardware, software, computing, printing, and digital imaging; in terms of sales, it is ranged world’s second largest company in sales volume of desktop computers, servers, peripherals, and services. Other than the personal and corporate computer devises, it also makes other computer preferential devises like the printers (HP Official website, 2011).

The company was incorporated on August 18, 1947, by two friends; Bill Hewlett and Dave Packard who were graduates in electrical engineering from Stanford University; o n November 6, 1957, the company was register as a public company. Since its incorporation, the company has been performing well and recording a profit and technological development.

Despite global financial crisis of 2007, HP was able to make a profit of $115 billion in 2009; the largest position of the amount came from sale of hardware devises but services offered about $40 billion of the profits.

This was a 100milion increase from the one reported in 2007, which was $104 billion in 2008 the company was the number one producer and seller of inkjet, laser, large format and multi-function printers market, and hardware’s.

There have been major changes which of late include in 1999 a spin-off of part of its business as Agilent Technologies . In 2008, there was yet another acquisition where EDS was taken over by Compaq company in after the successful deal, the net worth of the combined companies was US$ 118.4 Billion in 2008; in the following year, the company was ranked nine by Fortune 500 .

In November 2009, there was another acquisition of 3Com ; despite after the completion of the deal, the next target was Palm Company which was completed in April/May, 2010 at $1.2; the acquisitions where part of strengthening the companies operating base and improvement of services.

Of the sales recorded the company records over 85% of its sales from sales of computers; about 50% of the company’s sales take place outside the United States; some of the main competitors of the company are Lexmark International, Inc.,apple Computer, Inc., International Business Machines Corporation, Dell Inc., and Toshiba Corporation (HP Official website, 2011).

The company already has a strong brand name in the computer world; with the strength within and outside the United States; the strength has enabled it to develop appropriate infrastructure, personal computing and access devices, global services, and imaging and printing services. The diversification that the company has been able to attain offers it with an ever increasing sales and competitiveness.

Other than the company itself, the companies that it has acquired are also doing well. With this even after introducing the new products, it will be easier for it to sell.

There is the expertise that the company boosts of. This again is the one gotten from the acquired companies and the one that it has developed over the years. Using this, the company should come up with measures that are aimed to counter competition by offering quality to the clients.

The name and the market structure of the company is strengthened by its effective management team who are able to make intervention on products, services and the general approach of the company.

The company has created an environment of greatest dichotomy that seems to support individualism, however the ideology and philosophy of the company supports a high sense of collective responsibility and team work (HP Official website, 2011).

In attempting to counteract the market forces of demand and supply brought about by the advanced technology, myriad of challenges may be encountered on the way. Competition in the industry is high and calls for continuous improvement which is a costly exercise; of late the innovations made by Apple Inc. are one of the challenging issues that the company has; there is much competition in the industry.

Another area of inevitable weakness is an expansion plan which entails diversifying the level of the company activities. This may take different forms. A critical look at geographical expansion depicts a glaring possibility of other stringent market uncertainties. Right at the onset, strategic planning will demand strategic resources, both human and financial, to make any significant move.

Besides, implementation of the proposed market research will require mutual consent from all the affected divisions in the company. This will not only consume time as decisions are being made, but a lot of uncertainties abound especially on the verdict of the company (Varadarajan, 2010).

Products and services

HP is involved in information and technology business where it offers products and services in the line; with time the products and services keeps changing and improving to meet the demands of the people. The products by the company can be divided into five major areas as:

Computers, Desktops, Printers & Imaging Products Printers & All-in-ones Workstations, and laptops

The company makes desktops, laptops, monitors, and central processing units; with the demand so the customer as well as the level of technology, the company ensures that its products are commensurate to the prevailing situation.

There are some simple computers and laptops used for house works and general office work and at the same time there are some complex machines used for programming and in management of large business institutes.

The company is in the business of making printers, fax machines, toners, and other accessories to be used with the products or similar products. When making the different products the company ensures that it meets the current level of technology and the expected quality.

Smart-phones, Scanners & Fax, Ink, Toner & Paper & Handhelds

HP recognizes that the world is taking another route in technology. Respect to this, the recent acquisition of Palm is seen as a strategic move towards this recognition. The era of personal laptops and desktops is slowly coming to an end and replaced by the smart phone.

This is in the efforts as the people seek their independence with time. Palm Company was/ is the producer of Smartphone’s powered by the Palm webOS mobile operating system. This acquisition will help the company to be in a position to participate in the fast growing mobile technology market in the world.

When the company merged with Palm’s, it got the chance to use unique technology by the company called webOS and other informational sharing strategies; other than the technology that the firm will come with, there will be the increased sharing of the human resource personal that the two companies have. This merger is seen as the way that the company is using to venture in the world mobile market.

To venture here there is the need to have the software and the technology that you need incorporated. Very soon we hope to seen smart phones of the Brand of Hp.

When reporting on the merger on April 28, 2010 Todd Bradley, executive vice president, Personal Systems Group, HP said, “Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices.” (Anon, April 28, 2010).

Analyzing the merger from a different angle, it is seen as a way to curb competition; Palm Company was one of the companies that was offering hp competition

Before the above acquisition / merger, the company was positioning itself for the future; what is doing is the development of smaller and smaller (but more efficient) computers. It was initially the Thin film Transistor (T. F. T.) Desktops, then to a less heavy laptop and finally the notebook computers the notebook for instance can fit in the hand bag and more efficient to carry.

HP has a number of services that it sells to their customers; they include computer operating systems and other business related software. Some of the software produced by the company includes enterprises resources software.

In the case a corporate customer is in need of maintenance of their computers, the technical team is used to offer the service. Other services by the company include business outsourcing, IT infrastructure outsourcing, transformational application as well as offering business support services to demanding customers.

Hewlett Packard Market Analysis

Development in technology in different parts of the world where HP operates offers the company a market and window to sell its products. Depending with the segmentation, the population, the technology and the strength of its competitors, HP makes strategic marketing interventions to ensure it remains the choice of majority.

Before developing a marketing strategy, the first thing that the company embarks on is analyzing the current position that it has in the world market. The strategy that the assist the company to analyze itself in two dimensions; market share and Market Growth; when the position has been learnt, then the decisions on the way that the company should adopt should be put in place. Marketing policies have two main agenda as:

• Retaining the existing companies customers and growing the market
• Entering the new venture market and become competitive

After the analysis HP takes an analysis of the internal strength, opportunities and threats offered by the market; strength of the undoubtedly be engineers internal managerial mechanisms. In order to have a competitive edge in selling its product and services, it is advisable for the company to take advantage of its ability to compete favorably with equal players in the market.

A strategic marketing plan is the only way out. Through this arrangement, the company should be able to adopt different modalities and outreach programs of reaching out to its consumers.

In a market mostly controlled by price levels rather than quality, it will be an open strength for the company to explore more on quality than price. In retrospect, strategic marketing plan should be in a position to explicitly document the various channels that can be used by the company to allocate more resources towards improving quality (Hsuen-Ho & Jia-Wei, 2010)

To ensure that the company meets demands of different category of people, the management divides the marketing using three parameters as demographics, economic situation, location/place, and price.

Generation Y is fast adjusting to current technology and they are willing to adopt the nest high technology that is affordable. On the other hand, the older generations are more likely to be interested with basic product that will meet their demand. Depending with the component and the strength that a certain machine has, the cost follows suit.

The approach ensures that the company can produce products of high quality and be able to sell them at an affordable price; the research and development center ensures that there is high innovation and invention to make the company’s products the products of choice by customers.

HP operates one of the world’s most successful customer care service, the service ensures that customer complaints are well handled and addressed with immediate effect. Other than addressing customers issues, the department are involved in offering corporate responsibility tasks that are aimed at improving customer relations and improving their strategies (Constantinides, 2006).

As much as the company can be commended on its advertising models, the use of online advertising should be increased. This is for the old business and new venture; there are many advantages that come with online marketing and advertisement; in the hard economic times and the opening of regional and international trade.

One of the remedy that have been proposed, to try and fight global financial crisis is the enhancing the international trade. This trade will be enhanced at low costs if online marketing is embraced by both the trader and the customer. The education level that the world is continuously undertaking will also be another boost.

The growing population of the youth who are finding the world with the technology in place is more likely to adopt it. Despite the growing need and the advantages that come with the mode of advertising, there is the population that the mode of advertizing cannot cater for at any one time, thus a blend of the two is required (Vorhies, Morgan & Autry, 2009).

On the other hand the new venture of the mobiles is not the core business of the company; it should not be misinterpreted to get the major focus of the company. The company should then embark on campaigns to gain an increased customer loyalty and building a strong brand name. The only way that this can be attained is by adopting more and more technology advancement.

The more efficient the company will become the more the demand for its products. Innovation is the way forward that the company should adopt in its efforts to ensure that the customers remain loyal. There is also the simplification of the computer devises. The laptops and the desktops should be made as simple as possible to carry around or keep in the ever reducing office/ home places.

In this the users will not see it as a burden and can still prefer them. The other way that the company can keep afloat in the changing business environment is the diversification of business as well as recognizing other areas of business.

This has been seen through the mergers that the company has of late, as discussed above the merger with 3Com were deliberate measures that were targeted to get in the Chinese market. In 2002 with Compaq Computer Company, this was another way of neutralizing the competition as well as to get more and more customers.

With current competition, HP should consider adopting the “blue ocean theory” of sales and marketing. This is a recent theory that was developed in 2005 by W. Chan Kim and Renée Mauborgne of The Blue Ocean Strategy Institute, the theory focuses on target of the untapped markets instead of focusing on the already populated area.

The main concern and advocacy of the theory is that there is always a niche market that is not fulfilled by current market situations, thus a company needs to venture in thus areas more than the concentrated ones. By areas, the theory is of the option that it can be physical location or can be a market niche that needs are not met by the prevailing condition (Bell, 2011).

The success of HP as the second largest information and technology firm in the world can be attributed to its effective management team and orchestrate team. The management makes strategic decisions when to ensure that the firm remains competitive in the fiercely competitive world.

Research and development team is mandated with the task of advising the management on the best products and services to offer the market; the department works closely with sales and customer service to incorporate customer needs and demands.

To improve their market volume, the company should use strategies advocated by Blue-ocean theory; the approach focuses on establishing niche markets instead of concentrating with highly concentrated markets.

Bell, K. (2011). Blue Ocean Fiction. Harvard Business Review , 89(5), 142-143.

Constantinides, E. E. (2006). The Marketing Mix Revisited: Towards the 21st Century Marketing. Journal of Marketing Management , 22(3/4), 407-438.

HP Official website.(2011). Hewlett-Packard Company. Retrieved from https://www8.hp.com/

Hsuen-Ho, H., & Jia-Wei, T. (2010). A Model of Marketing Strategic Alliances to Develop Long-Term Relationships for Retailing. International Journal of Business & Information , 5(2), 151-172.

Varadarajan, R. (2010). Strategic marketing and marketing strategy: domain, definition, fundamental issues and foundational premises. Journal of the Academy of Marketing Science , 38(2), 119-140.

Vorhies, D. W., Morgan, R. E., & Autry, C. W. (2009). Product-market strategy and the marketing capabilities of the firm: impact on market effectiveness and cash flow performance. Strategic Management Journal , 30(12), 1310-1334.

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Home » Management Case Studies » Case Study: The Hewlett-Packard and Compaq Merger

Case Study: The Hewlett-Packard and Compaq Merger

The following is a brief description of the two companies:

Hewlett-Packar d (HP)

It all began in the year 1938 when two electrical engineering graduates from Stanford University called William Hewlett and David Packard started their business in a garage in Palo Alto. In a year’s time, the partnership called Hewlett-Packard was made and by the year 1947, HP was incorporated. The company has been prospering ever since as its profits grew from five and half million dollars in 1951 to about 3 billion dollars in 1981. The pace of growth knew no bounds as HP’s net revenue went up to 42 billion dollars in 1997. Starting with manufacturing audio oscillators, the company made its first computer in the year 1966 and it was by 1972 that it introduced the concept of personal computing by a calculator first which was further advanced into a personal computer in the year 1980. The company is also known for the laser-printer which it introduced in the year 1985.

The company is better known as Compaq Computer Corporation. This was company that started itself as a personal computer company in the year 1982. It had the charm of being called the largest manufacturers of personal computing devices worldwide. The company was formed by two senior managers at Texas Instruments. The name of the company had come from-“Compatibility and Quality”. The company introduced its first computer in the year 1983 after at a price of 2995 dollars. In spite of being portable, the problem with the computer was that it seemed to be a suitcase. Nevertheless, there were huge commercial benefits from the computer as it sold more than 53,000 units in the first year with a revenue generation of 111 million dollars.

Reasons for the Merger

A very simple question that arises here is that, if HP was progressing at such a tremendous pace, what was the reason that the company had to merge with Compaq? Carly Fiorina , who became the CEO of HP in the year 1999, had a key role to play in the merger that took place in 2001. She was the first woman to have taken over as CEO of such a big company and the first outsider too. She worked very efficiently as she travelled more than 250,000 miles in the first year as a CEO. Her basic aim was to modernize the culture of operation of HP. She laid great emphasis on the profitable sides of the business. This shows that she was very extravagant in her approach as a CEO. In spite of the growth in the market value of HP’s share from 54.43 to 74.48 dollars, the company was still inefficient. This was because it could not meet the targets due to a failure of both company and industry. HP was forced to cut down on jobs and also be eluded from the privilege of having Price Water House Cooper’s to take care of its audit. So, even the job of Fiorina was under threat. This meant that improvement in the internal strategies of the company was not going to be sufficient for the company’s success . Ultimately, the company had to certainly plan out something different. So, it was decided that the company would be acquiring Compaq in a stock transaction whose net worth was 25 billion dollars. Initially, this merger was not planned. It started with a telephonic conversation between CEO HP, Fiorina and Chairman and CEO Compaq, Capellas. The idea behind the conversation was to discuss on a licensing agreement but it continued as a discussion on competitive strategy and finally a merger. It took two months for further studies and by September, 2001, the boards of the two companies approved of the merger. In spite of the decision coming from the CEO of HP, the merger was strongly opposed in the company. The two CEOs believed that the only way to fight the growing competition in terms of prices was to have a merger. But the investors and the other stakeholders thought that the company would never be able to have the loyalty of the Compaq customers, if products are sold with an HP logo on it. Other than this, there were questions on the synchronization of the organization’s members with each other. This was because of the change in the organization culture as well. Even though these were supposed to serious problems with respect to the merger, the CEO of HP, Fiorina justified the same with the fact that the merger would remove one serious competitor in the over-supplied PC market of those days. She said that the market share of the company is bound to increase with the merger and also the working unit would double.

Advantages of the Merger

Even though it seemed to be advantageous to very few people in the beginning, it was the strong determination of Fiorina that she was able to stand by her decision. Wall Street and all her investors had gone against the company lampooning her ideas with the saying that she has made 1+1=1.5 by her extravagant ways of expansion. Fiorina had put it this way that after the company’s merger, not only would it have a larger share in the market but also the units of production would double. This would mean that the company would grow tremendously in volume. Her dream of competing with the giants in the field, IBM would also come true. She was of the view that much of the redundancy in the two companies would decrease as the internal costs on promotion, marketing and shipping would come down with the merger. This would produce the slightest harm to the collection of revenue. She used the ideas of competitive positioning to justify her plans of the merger. She said that the merger is based on the ideologies of consolidation and not on diversification . She could also defend allegations against the change in the HP was. She was of the view that the HP has always encouraged changes as it is about innovating and taking bold steps. She said that the company requires being consistent with creativity, improvement and modification . This merger had the capability of providing exactly the same.

Advantages to the Shareholders

The following are the ways in which the company can be advantageous to its shareholders:

• Unique Opportunity: The position of the enterprise is bound to better with the merger. The reason for the same was that now the value creation would be fresh, leadership qualities would improve, capabilities would improve and so would the sales and also the company’s strategic differentiation would be better than the existing competitors. Other than this, one can also access the capabilities of Compaq directly hence reducing the cost structure in becoming the largest in the industry. Finally, one could also see an opportunity in reinvesting.
• Stronger Company: The profitability is bound to increase in the enterprise, access and services sectors in high degrees. The company can also see a better opportunity in its research and development . The financial conditions of the company with respect to its EBIT and net cash are also on the incremental side.
• Compelling Economics: The expected accumulation in IIP gains would be 13% in the first financial year. The company could also conduct a better segmentation of the market to forecast its revenues generation. This would go to as much as 2 and a half billion dollars of annual synergy.
• Ability to Execute: As there would be integration in the planning procedures of the company, the chances of value creation would also be huge. Along with that the experience of leading a diversified employee structure would also be there.

Opposition to the Merger

In fact, it was only CEO Fiorina who was in favor of going with the merger. This is a practical application of Agency problem that arises because of change in financial strategies of the company owners and the management. Fiorina was certain to lose her job if the merger didn’t take effect. The reason was that HP was not able to meet the demand targets under her leadership. But the owners were against the merger due to the following beliefs of the owners:

• The new portfolio would be less preferable: The position of the company as a larger supplier of PCs would certainly increase the amount of risk and involve a lot of investment as well. Another important reason in this context is that HP’s prime interest in Imaging and Printing would not exist anymore as a result diluting the interest of the stockholders . In fact the company owners also feel that there would be a lower margin and ROI (return on investment) .
• Strategic Problems would remain Unsolved: The market position in high-end servers and services would still remain in spite of the merger. The price of the PCS would not come down to be affordable by all. The requisite change in material for imaging and printing also would not exist. This merger would have no effect on the low end servers as Dell would be there in the lead and high-end servers either where IBM and Sun would have the lead. The company would also be eluded from the advantages of outsourcing because of the surplus labor it would have. So, the quality is not guaranteed to improve. Finally, the merger would not equal IBM under any condition as thought by Fiorina.
• Huge Integrated Risks: There have been no examples of success with such huge mergers. Generally when the market doesn’t support such mergers, don’t do well as is the case here. When HP could not manage its organization properly, integration would only add on to the difficulties. It would be even more difficult under the conditions because of the existing competitions between HP and Compaq. Being prone to such risky conditions, the company would also have to vary its costs causing greater trouble for the owner. The biggest factor of all is that to integrate the culture existing in the two companies would be a very difficult job.
• Financial Impact: This is mostly because the market reactions are negative. On the other hand, the position of Compaq was totally different from HP. As the company would have a greater contribution to the revenue and HP being diluted at the same time, the problems are bound to develop. This would mean that drawing money from the equity market would also be difficult for HP. In fact this might not seem to be a very profitable merger for Compaq as well in the future.

The basic problem that the owners of the company had with this merger was that it would hamper the core values of HP. They felt that it is better to preserve wealth rather than to risk it with extravagant risk taking. This high risk profile of Fiorina was a little unacceptable for the owners of the company in light of its prospects.

So, as far as this merger between HP and Compaq is concerned, on side there was this strong determination of the CEO, Fiorina and on the other side was the strong opposition from the company owners. This opposition continued from the market including all the investors of the company. So, this practical Agency problem was very famous considering the fact that it contained two of the most powerful hardware companies in the world. There were a number of options like Change Management , Economic wise Management, and Organizational Management which could be considered to analyze the issue. But this case study can be solved best by a strategy wise analysis. (HP-Compaq merger faces stiff opposition from shareholders stock prices fall again, 2001)

Strategic Analysis of the Case

Positive aspects.

A CEO will always consider such a merger to be an occasion to take a competitive advantage over its rivals like IBM as in this case and also be of some interest to the shareholders as well. The following are the strategies that are related to this merger between HP and Compaq:

• Having an eye over shareholders’ value : If one sees this merger from the eyes of Fiorina, it would be certain that the shareholders have a lot to gain from it. The reason for the same is the increment in the control of the market. So, even of the conditions were not suitable from the financial perspective, this truth would certainly make a lot of profits for the company in the future.
• Development of Markets: Two organizations get involved in mergers as they want to expand their market both on the domestic and the international level. Integration with a domestic company doesn’t need much effort but when a company merges internationally as in this case, a challenging task is on head. A thorough situation scanning is significant before putting your feet in International arena. Here, the competitor for HP was Compaq to a large degree, so this merger certainly required a lot of thinking. Organizations merge with the international companies in order to set up their brands first and let people know about what they are capable of and also what they eye in the future. This is the reason that after this merger the products of Compaq would also have the logo of HP. Once the market is well-known, then HP would not have to suffer the branding created by Compaq. They would be able to draw all the customers of Compaq as well.
• Propagated Efficiencies: Any company by acquiring another or by merging makes an attempt to add to its efficiencies by increasing the operations and also having control over it to the maximum extent. We can see that HP would now have an increased set of employees. The only factor is that they would have to be controlled properly as they are of different organizational cultures. (Benefits of Mergers:, 2010)
• Allowances to use more resources: An improvised organization of monetary resources, intellectual capital and raw materials offers a competitive advantage to the companies. When such companies merge, many of the intellects come together and work towards a common mission to excel with financial profits to the company. Here, one can’t deny the fact that even the top brains of Compaq would be taking part in forming the strategies of the company in the future.
• Management of risks: If we particularly take an example of this case, HP and Compaq entering into this merger can decrease the risk level they would have diversified business opportunities. The options for making choice of the supply chain also increase. Now even though HP is a pioneer in inkjet orienting, it would not have to use the Product based Facility layout which is more expensive. It can manage the risk of taking process based facility layout and make things cheaper. Manufacturing and Processing can now be done in various nations according to the cost viability as the major issue.
• Listing potential: Even though Wall Street and all the investors of the company are against the merger, when IPOs are offered, a development will definitely be there because of the flourishing earnings and turnover value which HP would be making with this merger.
• Necessary political regulations: When organizations take a leap into other nations, they need to consider the different regulations in that country which administer the policies of the place. As HP is already a pioneer in all the countries that Compaq used to do its business, this would not be of much difficulty for the company. The company would only need to make certain minor regulations with the political parties of some countries where Compaq was flourishing more than HP.
• Better Opportunities: When companies merge with another company , later they can put up for sale as per as the needs of the company. This could also be done partially. If HP feels that it would not need much of warehouse space it can sell the same at increased profits. It depends on whether the company would now be regarded a s a make to stock or a make to order company.
• Extra products, services, and facilities: Services get copyrights which enhances the level of trade. Additional Warehouse services and distribution channels offer business values. Here HP can use all such values integrated with Compaq so as to increase its prospects.

Negative Aspects

There are a number of mergers and acquisitions that fail before they actually start to function. In the critical phase of implementation itself, the companies come to know that it would not be beneficial if they continue as a merger. This can occur in this merger between HP and Compaq due to the following reasons.

• Conversations are not implemented: Because of unlike cultures, ambitions and risk profiles; many of the deals are cancelled. As per as the reactions of the owners of HP, this seems to be extremely likely. So, motivation amongst the employees is an extremely important consideration in this case. This requires an extra effort by the CEO, Fiorina. This could also help her maintain her position in the company.
• Legal Contemplations: Anti-competitive deals are often limited by the rules presiding over the competition rules in a country. This leads to out of order functioning of one company and they try to separate from each other. A lot of unnecessary marketing failures get attached to these conditions. If this happens in this case, then all that money which went in publicizing the venture would go to be a waste. Moreover, even more would be required to re-promote as a single entity. Even the packaging where the entire inventory from Compaq had the logo of HP would have to be re-done, thus hampering the finance even further.
• Compatibility problems: Every company runs on different platforms and ideas. Compatibility problems often occur because of synchronization issues. In IT companies such as HP and Compaq, many problems can take place because both the companies have worked on different strategies in the past. Now, it might not seem necessary for the HP management to make changes as per as those from Compaq. Thus such problems have become of greatest concern these days.
• Fiscal catastrophes: Both the companies after signing an agreement hope to have some return on the money they have put in to make this merger happen and also desire profitability and turnovers. If due to any reason, they are not able to attain that position, then they develop a abhorrence sense towards each other and also start charging each other for the failure.
• Human Resource Differences: Problems as a result of cultural dissimilarities , hospitality and hostility issues, and also other behavior related issues can take apart the origin of the merger.
• Lack of Determination: When organizations involve, they have plans in their minds, they have a vision set; but because of a variety of problems as mentioned above, development of the combined company to accomplish its mission is delayed. Merged companies set the goal and when the goal is not accomplished due to some faults of any of the two; then both of them develop a certain degree of hatred for each other. Also clashes can occur because of bias reactions.
• Risk management failure: Companies that are involved in mergers and acquisitions, become over confident that they are going to make a profit out of this decision. This can be seen as with Fiorina. In fact she can fight the whole world for that. When their self-confidence turns out into over-confidence then they fail. Adequate risk management methods should be adopted which would take care of the effects if the decision takes a downturn. These risk policies should rule fiscal, productions, marketing, manufacturing, and inventory and HR risks associated with the merger.

Strategic Sharing

• Marketing : HP and Compaq would now have common channels as far as their buying is concerned. So, the benefits in this concern is that even for those materials which were initially of high cost for HP would now be available at a cheaper price. The end users are also likely to increase. Now, the company can re frame its competitive strategy where the greatest concern can be given to all time rivals IBM. The advantages of this merger in the field of marketing can be seen in the case of shared branding, sales and service. Even the distribution procedure is likely to be enhanced with Compaq playing its part. Now, the company can look forward to cross selling, subsidization and also a reduced cost.
• Operations : The foremost advantage in this area is that in the location of raw material. Even the processing style would be same making the products and services synchronized with the ideas and also in making a decent operational strategy. As the philosophical and mechanical control would also be in common, the operational strategy would now be to become the top most in the market. In this respect, the two companies would now have co-production, design and also location of staff. So, the operational strategy of HP would now be to use the process based facility layout and function with the mentioned shared values.
• Technology : The technical strategy of the company can also be designed in common now. There is a disadvantage from the perspective of the differentiation that HP had in the field of inkjet printers but the advantages are also plentiful. With a common product and process technology, the technological strategy of the merged company would promote highly economical functioning. This can be done through a common research and development and designing team.
• Buying : The buying strategy of the company would also follow a common mechanism. Here, the raw materials, machinery, and power would be common hence decreasing the cost once again. This can be done through a centralized mechanism with a lead purchaser keeping common policies in mind. Now HP would have to think with a similar attitude for both inkjet printers as well as personal computers. This is because the parameters for manufacturing would also run on equal grounds.
• Infrastructure : This is the most important part of the strategies that would be made after the merger. The companies would have common shareholders for providing the requisite infrastructure. The capital source, management style, and legislation would also be in common. So, the infrastructure strategies would have to take these things into account. This can be done by having a common accounting system. HP does have an option to have a separate accounting system for the products that it manufactures but that would only arouse an internal competition. So, the infrastructural benefits can be made through a common accounting, legal and human resource system. This would ensure that the investment relations of the company would improve. None of the Compaq investors would hesitate in making an investment if HP follows a common strategy.

HP would now have to ensure another fact that with this merger they would be able to prove competitors to the present target and those of competitors like IBM as well. Even the operations and the output market needs to be above what exists at present. The company needs to ensure that the corporate strategy that it uses is efficient enough to help such a future. The degree of diversification needs to be managed thoroughly as well. This is because; the products from the two companies have performed exceptionally well in the past. So, the most optimum degree of diversification is required under the context so that the company is able to meet the demands of the customers. This has been challenged by the owners of HP but needs to be carried by the CEO Fiorina.

Related posts:

• Case Study: Competitive Advantage of Hewlett Packard (HP)
• SWOT Analysis of Hewlett-Packard (HP)
• Porter’s Five Forces Analysis of Hewlett Packard (HP)
• Case Study: The Merger between Daimler and Chrysler
• Case Study: Merger Between US Airways and American Airlines
• Case Study: Corporate Merger Between Volkswagen and Porsche
• Case Study: America Online (AOL) Merger with Time Warner (TWX)
• Case study- “Merger of HDFC Bank and Times Bank”
• Case Study: Qantas Crisis
• Case Study: The Collaboration Between Sony and Ericsson

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• Harvard Business School →
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• September 2016
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Hewlett Packard Enterprise: The Dandelion Program

• Format: Print
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• | Pages: 20

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