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Hewlett-Packard: The First IT Company Founded in the Silicon Valley

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Hewlett-Packard: The First IT Company Founded in the Silicon Valley

Introduction

Hewlett-Packard (HP) is considered one of the first IT companies founded in the Silicon Valley. Founded in 1939, the company now operates in more than 170 countries around the world. The company ended the year 2009 with net revenues of $114.6 billion (Hewlett-Packard Development Company, 2010a).

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In 28 April, 2010, HP announced the acquisition of Palm Inc (Hewlett-Packard Development Company, 2010d), a decision that can be considered definitive in the context of the current trends in the industry. Such decision can provide an opportunity for re-launching the positions of both companies in the market of smartphones. The present proposal provides an identification of the strategic direction that the company might consider in the light of the recent acquisition, which is focusing on customer satisfaction, providing suggestions on the way the company might use their marketing and promotional tool to achieve a competitive advantage in the niche of innovative mobile devices, currently held by Apple Inc.

Background and Situation Analysis

Smartphone Device Industry

Currently the position of smartphone leader is held by Nokia Company, where in the period between 2008 and 2009, the company had sold 18.4 million smartphones (Hughes, 2010). Despite such number, the market share of the company decreased by 2.4 percent, from 47.4 to 45 percent. The overall market in general experienced a considerable growth for the same period, where 40.9 million smartphones was sold, reflecting a 27 percent growth.

Focusing on Apple as a story of success in the market of smartphones, it can be stated that despite not being placed in the top position, which is logical, with iPhone being the first product in this sector, nevertheless, the Apple showed impressive results, representing “the largest expansion of any smartphone market” (Hughes, 2010). Such growth was represented through an increase in sales from 892,000 million in 2008 to 5.4 million iPhones in 2009; a growth from 2.8 percent market share to 13.3 percent share of second-quarter sales in 2009 (Hughes, 2010).

A factor worth mentioning that neither HP nor Palm was represented in such statistics, and with the acquisition of Palm, it can be stated that leading the sector can be seen among HP’s strategic goals. Despite the suggestion of analysts that such move by HP was in response to Apple’s growing influence, the acquisition was more of strategic growth plans, as stated by Todd Bradley, the head of HP’s Personal System Group (Edwards, 2010). The fast growth of the segment to which Apple move, i.e. smartphone sector, was admitted as fast growing though, and thus, presenting a strategic interest for the company (Edwards, 2010).

Companies’ Background

HP is the largest IT company in the world (Hewlett-Packard Development Company, 2010b). Founded in 1939 by William R. Hewlett and David Packard, the company was incorporated in 1947, under the laws of the State of California. Headquartered in Palo Alto, California, the company currently employs 304,000 employees all over the world (Hewlett-Packard Development Company, 2010b). The company’s core business areas can be categorized into the following:

  • The personal Systems Group
  • The Imaging and Printing Group
  • Enterprise Business (Hewlett-Packard Development Company, 2010b)

In terms of personal systems, to which the area of mobile devices can be also related, it can be stated that company has an impressive success, although the competition in such market is very intensive (Hewlett-Packard Development Company, 2010a). Accordingly, the products are differentiated under this segment, where in terms of personal computers the competition includes such companies as “Dell, Acer Inc., ASUSTeK Computer Inc., Apple Inc., Lenovo Group Limited and Toshiba Corporation” (Hewlett-Packard Development Company, 2010a).

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The handheld sector in the company already represent a few models, which despite having a moderate success, this sector is not the company’s greatest area of expertise. Accordingly, it can be seen that the rationale of acquiring Palm is driven by the fact that the expertise is lacking in such area, while the market is definitely attractive to the company.

Palm is considered a pioneer in the smartphone market, and despite constant struggles, Palm’s position in such market is certainly better than that of HP (Guglielmo and Levy, 2010). The competitiveness of the market is attributed to the recent losses of Palm, which position is certainly to be enhanced through the HP deal. Once shipping three of every four handheld sold as well as licensing their operating systems for other mobile manufacturers, Palm faced several misfortunes, ending the production of Portable Digital Assistants (PDAs), and switching to smartphones and mobile operating systems development (Klein, 2009). The company ended 2009 with 25 percent decline, compared with 2008, with a net loss applicable to shareholders for fiscal year 2009 of $ 753.5 million (Klein, 2009).

Situation Analysis

Analyzing the situation with HP it can be stated that the financial capabilities of the company and their success in non-smartphone sector might moderate the impact of the external environment. PEST analysis is an environmental scanning tool that looks at the likely changes in the environment, and the likely consequences of these changes on an organization (Worthington and Britton, 2009, p.475). A PEST analysis of the industry (see Appendix A) reveals that the main factors might be the technological and sociological, where shifts in the preferences for technologies can be reflected on consumers’ demand.

Porter’s Five Forces is a model for the assessment of an industry, in which the author, Michael Porter, identified five forces, the strengths of which determines the profit potential in the industry (Ehmke et al., n.d.). The analysis of Porter’s five forces, see Appendix B, identifies competitive rivalry and the bargaining power of buyers as the highest in impact in the smartphone industry. The inclusion of both analyses in a SWOT analysis, a technique for analyzing the strengths and the weaknesses of an organization against the external threats and opportunities (Worthington and Britton, 2009, p.510), outlines existing opportunities in the recent acquisition that might neutralize the company’s weaknesses in the smartphone sector, see Appendix C.

Accordingly, the strengths of the company, in terms of R&D and marketing power, provide an insight into how well the company might manage to deal with the threats, an aspect that will be thoroughly discussed in the next section.

Marketing Direction

Taking the success of Apple’s handheld devices, it can be stated that the strategy of the newly formed alliance between HP and Palm should be focused on increasing the brand loyalty of consumers. Considering the fact that Apple’s iPhone grabbed the lead in the business smartphone satisfaction ratings, conducted in 2009 by J.D. Power and Associates, such strategy can be considered effective (J.D. Power and Associates, 2009).

The leading position of Apple substantially surpassed the industry’s average, to which HP and Palm’s handheld production belong. In marketing, the product is more than just the functionality delivered, and in this case, HP’s product might even surpass in functionality similar products provided by Apple. The product should include “decisions about customer service, package design, brand names, trademarks, patents, warranties, the life cycle of a product, positioning the product in the market place, and new product development” (Kurtz, 2008, p.61). The combination of the aforementioned factors should be considered when marketing the product to increase the loyalty of the brand

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The acquisition will allow HP to utilize the technologies which were developed by Palm, and with the aid of the company’s far superior strategic reach, and marketing abilities (Guglielmo and Levy, 2010) developed a marketing strategy to increase the brand’s loyalty. The latter can be seen as the most important factor in such case, considering that the in terms of production capabilities and innovative technologies, both companies were among the leaders.

Accordingly, the latter can be confirmed by the fact that Palm’s Pre and Pixi phones, did not sell well in 2009 (Guglielmo and Levy, 2010), while at the same time being functionally identical to Apple’s product, to say the least, and sold at a lower price (Palm Inc, 2010). The same can be said about HP, with iPAQ Glisten bearing similar capabilities (Hewlett-Packard Development Company, 2010c). The most recent example of the differentiation between innovation and marketing, although not concerning Palm, can be seen through the clash of Apple’s recently released iPad, a handheld tablet device, and the announced HP’s Slate, a product in the same niche, although having more technologically advanced capabilities.

Announced almost at the same time, iPad sold a million units in just 28 days (Apple Inc, 2010), while HP’s Slate, which was pronounced as the iPad competitor, was cancelled about the same time the sales for iPad were revealed (Hope, 2010). Thus, it can be stated that in the alliance of HP and Palm, the technological resources of both companies are of great importance, a factor which did not attract consumers to their brands, and thus, the marketing strategy of their upcoming products should be prioritized on increasing brand’s loyalty.

Proposed Data Resources

The main approach for the development of a marketing strategy for the HP company should be focused on brand loyalty. In this case, the company should identify the factors that should drive the appeal of the product toward consumers through marketing efforts.

The company should identify the target market for which the company’s next product will be addressed. As the marketing strategy of high-tech products involve weighing the product variable against other elements of the marketing mix, i.e. distribution, communication and pricing (Viardot, 2004, p.66), all of the aforementioned should be addressed to the target consumer of the product, the identification of which should be among the main priorities of the marketing research. The data that might be proposed in that matter involves the identification of the most common tasks performed by common smartphones users, which in this case can be achieved through conducting a quantitative analysis through online surveys.

Recommending a quantitative approach is mainly rationalised by the fact the theoretical framework for such type of investigation is well-defined (Remenyi and Williams, 1998, p.134). Additionally, the evidences that should be collected are apparent in such case, and thus, do not require exploration, a typical task of qualitative researches. Primary data can be substituted with secondary in this case, although considering the rapid changes in the industry, specifically in the IT sector there is a risk of information being outdated.

Among the secondary resources that might be suggested in this proposal, is the analysis of the brand characteristics. It can be seen that the success of iPhone is not only based on the simplicity of the product-customer interaction, but also through the perception of acquiring a unique and an identifiable brand. The latter can be seen as a unique characteristic of Apple’s marketing strategy. The analysis of literature concerning the various models of analyzing brands perceptions can be implemented through a qualitative approach, where such characteristic are to be explored, rather than tested. One of the proposed sources can be seen as study of the effect of the aesthetic designs of smartphones, based on the case of Black Berry (Nanda et al., 2008).

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Another tool for consideration can be seen through the investigation of using Analytic Hierarchy Process (AHP) and Data Envelopment Analysis (DEA) to compare different smartphone brands (Peaw and Mustafa, 2006), in which both quantitative and qualitative data are employed. This tool can prove useful to identify what consumers perceive as a best-buy option among smartphone brands. The brands that should be considered might include iPhone, HTC and Google, all of which devised a customer orientation strategy as the proposed in this paper (Aaker and McLoughlin, 2007, p.314).

Recommendations and Possible Findings

It is recommended that HP should consider the cases of success and failures in the smartphone market, specifically in the context of its alliance with Palm. The main identified issue can be generally referred to as increasing the brand loyalty of the company’s smartphone products. The identification of the target market and the brand elements would be helpful in forming the company integrate marketing communications strategy, not only transcending the findings in the product, but also through other elements, such as pricing, positioning, and communication.

The company needs to identify the potential elements in competing smartphone products that would increase the brand loyalty of their own product line in this sector. It can be predicted that the potential findings of the quantitative and the qualitative investigation would confirm the current trends initiated through the Apple’s mobile brands such as iPhone and iPad, which is focusing on such elements as usability, software support, aesthetic design, and others.

In those cases, the company’s innovations were not in the technological innovation of a single element, rather than on the mix presented by those elements. The software support factor should be specifically considered, where a shift in the software platform can be expected toward Palm’s webOS, for which the availability of various applications can be a factor. The example of iPhone shows how Apple managed to address the need of various target groups, where a unified design was differentiated through a vast amount of applications that set the way the device was used the most. The same can be implemented in the case of HP and Palm.

Conclusion

The present proposal provided a brief outline of the main issue for HP, following their efforts in the smartphone market. The issue identified was the lack of brand loyalty in the smartphone segment of the market. Such issue are specifically important in the light of the recently announced acquisition of Palm Inc. The proposal analyzed the trends of the industry’s most recent examples of success, providing the outline for a future investigation on how to increase brand loyalty.

The proposal recommends focusing on the marketing aspect. The latter specifically concerns brand perception, targeting and the positioning of the product. The smartphone market is among the fastest growing in the IT industry and thus, presents a specific interest for HP. Accordingly, such market is highly competitive, showing many cases of failures, which should be considered before launching a new product.

References

Aaker, D. A. & Mcloughlin, D. 2007. Strategic market management, Hoboken, NJ, Wiley.

Apple Inc. 2010. Apple Sells One Million iPads. Apple Inc. Web.

Edwards, C. 2010. HP Gets Its Hands on Palm. Bloomberg L.P. Web.

Ehmke, C., Fulton, J., Akridge, J., Erickson, K. & Linton, S. n.d. Industry Analysis: The Five Forces. Purdue University. Web.

Guglielmo, C. & Levy, A. 2010. Hewlett-Packard to Buy Palm for $1.2 Billion. Web.

Hewlett-Packard Development Company. 2010a. Annual Report 2009. Web.

Hewlett-Packard Development Company. 2010b. HP in Brief 2010. Web.

Hewlett-Packard Development Company. 2010c. HP iPAQ Glisten. Web.

Hewlett-Packard Development Company. 2010d. HP to Acquire Palm for $1.2 Billion. Web.

Hope, D. 2010. Another Tablet Falls: HP Slate Canceled. Yahoo! Inc. Web.

Hughes, N. 2010. Apple leads international smartphone market growth . Web.

J.D. Power and Associates. 2009. As Customer Satisfaction with Feature-Rich Smartphones Continues to Increase. Web.

Karjaluoto, H., Karvonen, J., Kesti, M., Koivumaki, T., Manninen, M., Pakola, J., Ristola, A. & Salo, J. 2005. Factors Affecting Consumer Choice of Mobile Phones: Two Studies from Finland. Journal of Euromarketing, 14. Web.

Klein, T. 2009. Palm Reports Q4 and FY 2009 Results. Web.

Kurtz, D. L. 2008. Contemporary marketing, Australia, Mason South-Western Cengage Learning.

Lemon, S. 2008. HP to manage PC manufacturing plant in China. IT World. Web.

Nanda, P., Bos, J., Kramer, K.-L., Hay, C. & Ignacz, J. 2008. Effect of smartphone aesthetic design on users’ emotional reaction: An empirical study. The TQM Journal, 20, 348 – 355.

Palm Inc. 2010. Palm. Web.

Peaw, T. L. & Mustafa, A. 2006. Incorporating AHP in DEA Analysis for Smartphone Comparisons. In: 2nd IMT-GT Regional Conference on Mathematics, Statistics and Applications, 13-15 June 2006 University Sains Malaysia, Penang.

Viardot, E. 2004. Successful marketing strategy for high-tech firms, Boston, Artech House.

Worthington, I. & Britton, C. 2009. The business environment, Harlow, England ; New York, FT Prentice Hall.

Appendixes

Appendix A: PEST Analysis

Factor Description Impact
Political Government policies influencing the industry. In this case such factor implies the policies of the countries in which the manufacturing plants are located. Development conditions provided by government policies might play crucial role in HP’s growth strategies, e.g. HP’s factory in HP and the Chongqing, China (Lemon, 2008).
Economical The global economic situation plays a vital role in the sales of HP in general, and its strategy in particular. The main influence of an economic downturn in the industry can be seen in shifting the efforts of the company toward reducing costs (Hewlett-Packard Development Company, 2010a, p.1). Additionally, economic activities conducted in other are affected by such factors as inflation, exchange rates, etc (Hewlett-Packard Development Company, 2010a, p.22).
Sociological The sociological factors might be related to the consumption style, specifically in the mobile industry. Income and social class can have an impact on the preferences and the demand for smartphones (Karjaluoto et al., 2005, p.66).
Technological The technology is a critical factor in the mobiles and smartphones industry, specifically the rate of its advancement. Shifts in the preferences of the customers can be seen influenced by the introduction of new technologies, e.g. cameras, sensor displays, size reduction, etc (Karjaluoto et al., 2005, p.67).

Appendix B: Porter’s Five Forces

The Threat Description Impact
The threat of entry High Research and Development (R&D) and high manufacturing costs (Hewlett-Packard Development Company, 2010b). Low, although the threat entrance from major players from other industry’s is high, Apple, Google, Microsoft.
The power of buyers The availability of products in the mobile sector, the ability to evaluate market information and low switching costs provide bargaining power to buyers. High
The power of suppliers The contracting form of partnership with suppliers as well as the large number of suppliers implies low bargaining power of suppliers. Low
The threat of substitutes With the differences between mobile phones and smartphones gradually becoming blurred, thus the impact of substitutes can be evaluated through the category to which the substitute belongs the most, e.g. simple mobile phones, multi-functional phones, PDAs, etc. Medium
Competitive rivalry The industry is intensely competitive (Hewlett-Packard Development Company, 2010a, p.12). High

Appendix C: SWOT Analysis

Strengths Weaknesses
  • Recognizable brand
  • Marketing and strategic capabilities
  • Innovation and research and development capabilities
  • Brand and procurement leverage
  • The absence of a smartphone strategy
  • Low brand loyalty in smartphone market.
  • Small market share.
Opportunities Threats
  • The acquisition of Palm, its experience and WEBOs developments
  • Penetration of the smartphone sector, the fastest-growing area of the mobile-phone market
  • Competitive industry
  • The changes in the customer’s preferences
  • Low brand recognition in the smartphone sector

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