(1996-2000)

XY
Management Strategy
Z
Table of Contents
I. Overview........3
II. Mission.......3-4
III. External Environment..4-7
IV. Internal Analysis.7
Strengths8-9
Weaknesses..9
Opportunities.9
Threats9
V. Issues and Problems9-10
VI. Alternatives..10-11
VII. Recommendations11-12
VIII. Conclusion and Implementations12
I. Overview
Making money in the [home PC] business [was] like landing a man on the moon.1
Thats exactly what Webb McKinney, the general manager of the Home Products
division wrote. Indeed, making money in the PC business was hard. (Almost as hard as

landing a man on the moon. Hewlett-Packards Home Products Division in Europe had a
lot to learn about when they were doing business with Europe.
Even today, there are many challenges to international brands in the European markets
compared to that of the United States.
The way Hewlett-Packards Home Products Division is organized is through functional
lines (the home PC market) and geographic lines (European Division). Also, they were
very centralized with a high degree of observing customs.
When Hewlett Packard first started working with Europe, they applied the same
strategic management knowledge they had from the United States to that of the
European markets. They thought that the identification and evaluation of alternative
strategies were intimately connected to existing strategies, which they had learned here
in the United States.
The problem there was that doing business in Europe was not the same as doing
business in the United States. The outcome was not positive. Because of this, they
decided to rearrange their strategy in doing business in Europe. It was then that they
decided to focus on operational excellence.
The new method of implementation that Hewlett Packard started needed a greater
degree of comprehensive designing and superior strategic analysis. Henry Mintzberg,
refers to this strategic management style as the planning mode, where a number of
complex and comprehensive planning models are used.
The outcome of Hewlett Packards new method of implementation had allowed the
company to achieve its overall strategic goals. The overall outcome is analyzed and
explained below.
II. Mission and Objective
The European market is a tough one for major international brands. Compared to the
United States, its much less brand-sensitive and more volatile. Hewlett Packards
mission was to straddle the gap between the price-conscious Packard Bell and the
more technologically sophisticated Compaq Computers. Webb McKinney, Hewlett
Packards general manager, was attempting to reach an annual growth in sales of 25%.
After many failed attempts, they finally saw what was wrong. In most markets there
are local competitors who are aggressive and very flexible, sourcing locally from

whichever supplier can provide the right products fastest. By contrast, the international
players, with globally integrated supply chains and supplier certification programs, can
seem slow and expensive. What Hewlett Packard decided to do was use new marketing
models and approaches that focused on building integrated business capabilities. The
new strategy, which Hewlett Packard came up with, was slowly making the company
achieve its goal.
III. External Environment
1. Industry sector
Threat of Entry Companies are able to diversify through acquisition in to the industry
from other markets often leverage their resources to cause a shake-up. Here are the
barriers of entry, which Hewlett Packard must face:
Economies of Scale In September 1996, Business Week reported that HP had made
an impressive leap to Number 4 in the U.S. market in just 16 months. These shows huge
economies of scale, which efficiently brought to bear, could be brought about in the
European market.
Product Differentiation This was one of the difficult barriers, which Hewlett Packard
faced. Although they were able to come out with a new product line every season, it
was hard for them. Also, Hewlett Packard did not have the name brand identification in
Europe as it had in the United States.
Capital Requirements Initially Hewlett Packard had the capital resources needed to
enter the European market. They were the #3 producer of home computers in the
United States. This helped them when other competitors ran into financial trouble.
Cost Disadvantages Independent of Size Hewlett Packard had more of a cost
advantage than their competitors because they were the #3 producer of home
computers, and because they had brand name recognition in the United States.
However since Europe was different than the United States, Hewlett Packards barrier
was that of learning how to cope with high turnover, and a compressed selling window.
Access to Distribution Channels Since Hewlett Packard along with other international
players used globally integrated supply chains and supplier certification programs, they
were seen as slow and expensive. They were not able to compete well with the local
competitors who sourced locally.

 Government Policy although Europe is seen as one country, it is actually made up of

many countries. Because of this most countries will have the same amount of currency.
However, some countries do not. Also, in Europe, there are many tax and business laws,
which could affect the successfulness of Hewlett Packard in Europe.
Powerful Suppliers Hypermarkets were a serious risk to Hewlett Packard. They were
able to lower the prices of their products and they were able to remain flexible. A
competitor such as this is numerous in Europe. And, underestimating these powerful
suppliers can quickly ruin Hewlett Packard.
Powerful Buyers As McKinney wrote, prices are lower in Europe. In the United States,
the $2000 price point had become almost standard, buying evermore capability
(processor speeds, amount of memory) However, this is different in Europe. So, to
overcome this barrier, Hewlett Packard should learn how to make the buyers in Europe
happy.
Substitute Products this should be easy for Hewlett Packard. This company is good at
upgrading the quality of their product as well as differentiating it by coming out with
new products every season. However, since they source from another place different
from local competition, this could be a disadvantage to Hewlett Packard.
Jockeying for Position Competition in Europe is strong. Because of this Hewlett Packard
will have to try to come up with innovative products to establish a name brand in
Europe. Also, with the competition high in prices, Hewlett Packard will also need to find
another method of sourcing their products.
b. Legal/political sector
The direction and stability of political factors are a major consideration in formulating
long range business strategies. Politics, especially in less developed nations, can make
or break a business. Some policies could place incredible constraints on current and
future profitability, if not fully evaluated prior to conducting operations abroad.
c. Technology Sector
With Hewlett Packard, they were a company which had a good background. Because of
this they were advanced in technology. They had the proper products to be innovated in
the industry. This was a key factor. This advance in technology was a part of the
required strategy required gaining growth in the European market.

Although HPD customized products for Europe, they assembled that whatever
technology they developed in the United States was fine for Europe.
D. Cultural sector
In Europe, the culture there is different. The way consumers and competitors do
business is different than that in the United States. Because of this, Hewlett Packard had
to adapt to their competition by trying to lower their prices. Also, they had to learn that
Europe is made up of many countries, and because of this they needed to research
these individual countries in order to do business in them.
Also, Hewlett Packards established mainstream in the United States enabled them to
remain strong when many of their competitors were having financial troubles.
E. Human Resources Sector
The upper management of Hewlett Packard is very committed. They are determined to
be successful in Europe. They wanted to establish itself in the European market. One
example was in November when Hewlett Packard saw losses through aggressive price
gouging, high inventory costs, and lost market share. However, to counteract this,
Hewlett Packard was committed to becoming successful in Europe.
F. Physical Resources Sector
With the physical resources available to Hewlett Packard, it was hard. Hewlett Packard
had globally integrated supply chains. They also tried to apply what United States
product had to that of the European markets. What Hewlett Packard had to do was find
new suppliers to find the right balance of inventory and just-in-time product delivery.
Since the competitors were aggressive and very flexible, Hewlett Packard had to adapt
to this.
G. Economic Sector
The economic issues in Europe are different than that of the United States. Because of
this, Hewlett Packard should try to understand its market. The European market remains
a tough market for major international brands.
Hewlett Packard should understand Europes availability of credit, inflation, taxation,
and levels of disposable income. If not, Hewlett Packard would not be able to be

successful in Europe. As McKinney wrote One of the fundamental things we did no

realize about European markets is that prices were lower than expected.
H. Customer/client Sector
Customers can force down prices, demand higher quality, as well as demanding to have
better service. Also, customers are able to use their buying power to force competitors
to lower their prices. This is one of the factor which is a threat to Hewlett Packard.
Products often cannot be standardized and therefore customer demands drive down
profits.
Researching and understanding consumer behavior is a key element in the process of
satisfying the selected target market. With this accomplished, Hewlett Packard would be
able to be successful in Europe.
IV. Internal Analysis SWOT
The first products which Hewlett Packard launched in Europe was priced at parity or
better with Compaq and IBM on like-for-like features. This made Hewlett-Packard stay
in the higher priced synch. This was a problem because in Europe, prices were generally
low. Also, HPDs product line changed seasonally.
Because of this, it was important for Hewlett-Packards Home Products Division to
develop a strategy based upon the most effective procedure of operating within their
preferred market. This purpose will enable them to be successful in Europe. Early on,
HPD failed to address the particular requirements of their target group of consumers,
instead they focused on what was successful back home in the United States and failed
to distinguish for what reason the differences were able to negatively affect efforts in
the European operations.
What affected Hewlett Packards Home Products Division in Europe was:
1. Centralized control, decentralized execution Hewlett Packard had a centralized
control and a decentralized execution in its company. Later on however, Hewlett Packard
realized that in order to become more successful in Europe, they had to change the way
their organization was built. In late 1989 early 99, HPD reorganized its local
management team and created a European P&L.

Hewlett Packard did a good job of selling to the channel but they were not good
enough at managing sellout and watching [their] competitors as carefully as [they]
should have. However, what Hewlett Packard needed to do was according to incoming
manager Emilio Ghilardi, we had to drive all the costs out of the systemand that
meant managing the entire value chain from manufacturing to final sales very tightly.
This method of implementation made Hewlett Packard successful towards the end of
2000 when Hewlett Packards managers finally felt that they had gotten it right.
2. Tried to apply American based method of doing business, in Europe - Hewlett Packard
learned from previous lesson learns that one products successfulness sin one market is
not always going to be successful in another. The European market Didier Chenneveau,
HPD-Es previous general manager Europe wrote, The European market remains a
tough one for major international brands. Compared to the United States, its much less
brand-sensitive and more volatile. In most markets there are local competitors who are
aggressive and very flexible, sourcing locally from whichever supplier can provide the
right product fastest. By contrast, the international players, with globally integrated
supply chains and supplier certification programs, can seem slow and expensive.
Hewlett Packards features, although barely enough for the consumer demands of the
US, essentially placed their Pavilion at the high end of the PC market in Europe. Fay
Barrow, the HPD-e marketing manager wrote that they did a good job of selling to the
channel, but were not good enough at managing sellout and watching our competitors
as carefully as we should have. Moreover, while HP had name brand recognition in the
US, they fought to have name brand recognition in the European market.
3. Supply chain management As we can see, Hewlett Packard is good at supply chain
management in the United States. However, within the European market, HP was not.
They, the international players, with globally integrated supply chains and supplier
certification programs, can seem slow and expensive. Thankfully however, after they
came out with their back-to-school product line in France and the United Kingdom, they
became a little successful. However, HPD-E did not do a good enough job at watching
their competitors. For example, when a competitor cut the price of its products by 17%,
HP was slow to react. Inventory built up in the channel and the technology became
obsolete.
SWOT
Strengths

The strengths of Hewlett Packard are that they have knowledge in their field. They are
one of the leading leaders in the PC market. Hewlett Packard is extremely effective in
building admirable relationships with major chains and they are also good at creating a
dominant position in printers and fax machines.
As such, they are also a very flexible company. They are always adapting, and coming
out with new product lines. From selling on the Internet, specialty retail sales, direct
sales, to even retail, they are able to reach their customers. What they were able to
learn from their lessons learned allowed Hewlett Packard to be more flexible and
remain competitive in Europe. Also a bonus was that this gave Hewlett Packard a lead
from their competitors.
Also Hewlett Packards upper management were very committed to their company. They
were determined in establishing itself in the European market. One example was in
November when Hewlett Packard saw losses through aggressive price gouging, high
inventory costs, and lost market share. However, to counteract this, Hewlett Packard
was committed to becoming successful in Europe. This was one of their most admirable
strengths.
Weaknesses
One of the biggest and most obvious weakness of Hewlett Packard was its lack of
working in the European Market. As Webb McKinney, General Manger, Home Products
Division wrote, Making money in the [home PC] business is like landing a man on the
moon. It was hard. Hewlett Packard was not in tune with the European market. They
did not know that European markets prices are lower than they expected. They also
assumed that whatever technology they developed in the United States was fine for
Europe as McKinney explained.
Another weakness was their supply chain management - Unlike the local competitors
who are aggressive and very flexible, sourcing locally from whichever supplier can
provide the right product fastest, Hewlett Packard by contrast, used globally integrated
supply chains and previously established supply chains. This made them seem slow and
expensive.
Opportunities
Hewlett Packard has some opportunities in Europe. They are a very flexible company.
They are also always coming up with new product lines every season. Also, they have a

foot in, in the European Market. With this, if there is name brand recognition there, they
should be able to expand on more of their products, such as faxes and printers.
Also, they are also a company with experience and background. This gives them a
technological advantage. With their extensive background in the field, they are able to
create more products, which will put them ahead of their competitors. This increases
their product differentiation and also, it increases Hewlett Packards obstacles to new
competition entrants.
Threats
The threats that are threatening Hewlett Packard are that they need to work on their
external environments. Also, they sometimes lean back on their previous US experience
to lead them. What they should do is learn from what happened in the past and change
or adapt to the European market. Also, they are not fully aware of the European market.
Such information as how prices in Europe are lower are what Hewlett Packard should
research about.
V. Issues and Problems:
Issue I: Centralized control with decentralized execution Hewlett Packards problem is
having centralized control with decentralized execution. If they could focus on improving
supply chain management, they would able to become more successful.
Issue II: Not knowing their competitors well, Hewlett Packard was at a disadvantage.
There were many competitors in Europe. And, the European market is a tough market
for major international brands. There were many competitors in Europe who was able to
use local suppliers. This enabled the competitors to become cheaper than Hewlett
Packard did. Because they were local they sourced locally from whichever supplier can
provide the right product fastest. This was more important during the holidays when
Hewlett Packard was not given this advantage and in turn seemed slow and expensive.
Many of the competitors were able to lower their prices to meet with other competitors
prices, unlike Hewlett Packard. As the competitors did this, the lowering of prices
became lower and lower. This meant that those who were slow to react would end up
with obsolete inventory that could not be sold.

Issue III: Also, Hewlett Packards lack of prior knowledge of the European market for
example having lower prices put them at a drawback. Initially, their pricing was okay,
however, prices in Europe, as McKinney recalls, is lower than expected.
To make things even worse, Hewlett Packard assumed that what worked in the United
States would also work in Europe. This was not true. Even though products were
customized for the European market, they were basically made from parts and
technology designed and developed for the United States.
Issue IV: Another issue was that Hewlett Packard tried to undertook an aggressive
expansionism policy in Europe. This just after obtaining an impressive leap to the
Number 4 position in the U.S. market in just 16 months. However, this did not hinder
HPs plans for 25% annual growth in sales. HPD-E would soon understand that there first
strategy for growth would be unsuccessful.
VI. Alternatives
I. a) Firms must assess two key dimensions of customer demands:
1. Customers acceptance of standardized products, and
2. The rate of innovation desired.
As seen by the response of many of the Europeans, innovation was to costly due to
R&D, and direct marketing required additional research; a customer intimacy study.
b) Western Europe is made up of many countries, most of which share a monetary
system and border. Because of this, each country has a different social, political, and or
economic make-up, in fact the environmental factors vary by country and each must be
studied, evaluated and rated. In order to be successful in these countries, Hewlett
Packard must develop an independent strategy for each country it intends to sell its
products and services to. With this, Hewlett Packard would be able to determine the
proper steps it must take to do business in these countries.
c) Differentiate their products as well as their services. If Hewlett Packard were able to
do this, they would be able to be more competitive than their competitors. They would
be able to be more innovative and may be able to establish name-brand recognition in
Europe.

d) Also, knowing the target audience is important. Knowing how the European customer
thinks will enable Hewlett Packard to become successful. Knowing the customer will
help the company in understanding both present and future customer needs and will
help to steer strategy in meeting these needs.
II.
a) As well as knowing the target audience, it is also important in knowing the target
competition. Knowing about the competitors will help Hewlett Packard become more
profitable.
b) What Hewlett Packard must also do is become better in whom they are sourcing. If
they are able to be as aggressive and flexible as their competitors by sourcing locally
from whichever supplier can provide the right product fastest, it will enable Hewlett
Packard to be more successful in their organization.
III.
a) Location and coordination of functional activities are important for Hewlett Packard.
Commonly, functional activities of a firm contain purchases of input resources,
operations, marketing, sales, R&D, and after-sales service. For Hewlett Packard
however, they had to find out where to best locate and coordinate its functional and
business activities. Where this location should be depends on the nature of its industry
and on the type of international strategy that the firm is engaging in. As mentioned
earlier, Europe has many countries in it. Because of this, Hewlett Packard should have
treating each country independently is the key.
b)Also, it is just as significant that each functional area has the right mix of human
resources. This means for example that, there are enough employees that understand
the differences of the European market culture.
VII. Recommendations
First of all, we know that Hewlett-Packards Home Products Division Europe is a
profitable company. They are doing the right things, which make them profitable in
Europe. However there is always room for improvement. What Hewlett-Packards Home
Products Division Europe should do is:

Issue I Recommend alternative b). Hewlett Packard is a very committed company.

Because of this, they should stick to what theyve recently did where they developed a
regional organization. This method of implementation should be used in other industries
across the company.
Issue II Recommend alternatives a),b), and c).Hewlett Packard should focus on
increasing its knowledge in the European market. They should also work on establishing
brand name recognition in Europe. From there, they would be able to have a bigger
target market.
Issue III Recommend alternative a). Although Hewlett Packard is learning from its
previous lessons learned, they still need to do more research on every country that they
do business in. This gives them an overall extensive knowledge of their product market.
Using this, they should be able to be more profitable in Europe.
Issue IV Recommend alternative b). Hewlett Packard should be more aware of their
competition. They should research their competitors to be more knowledgeable of their
product market. When they first started working in Europe, they were not aware of local
competitors who were aggressive and flexible. Or, that the local competitor sourced
locally from the fastest supplier. After researching, did they come up with this
knowledge. So, analyzing their competitors is another recommendation.
VIII. Conclusion and Implementation
Hewlett-Packards

Home Products Division ultimately has a high potential for

profitability. Their main goals, increasing wealth and striving to be the industry leader
will help them accomplish this task.
They have not only overcome global barriers, but they also have many lessons learned
in the process. This accomplishment will help them in the future. However, what they
must focus on is paying attention to both external and internal factors, especially as it
relates to the customer.
Naturally, the European market will be a tough. But as long as Hewlett-Packards sticks
to its lessons learned and learn from them, it will not be a hard task at all.