Transcript of Hewlett-Packard: The Flight of the Kittyhawk

Target Market
Nintendo
Express the need for cheap storage of $50
Mobile computing market
Projected growth
Fax machines
Price range of $48
PDA market
Express the capacity for storage
Recommendations
Stick with the original idea, but know who is buying the product.
Remember: Forecasting is a dark art, but extremely important
Customer Discovery Review
Pick the correct customer-Need to have lead customer
New markets are unproven markets
Sustaining vs. disruptive technologies
Does MBO work for this type of launch?
Recommendations
Financial Targets for disruptive technologies are different than large proven projects
Failure prior to success is the rule of disruptive technology
Feel your way through the market, Add breakthroughs and higher cost applications later
Focus on low cost applications for the lowest common denominator
Add features later--Small, cheap & dumb
New markets are unproven markets

Recommendations

Do what customer wants/needs

The Kittyhawk was backwards. Product selected, then market research started
The team went to CES after it created the product
Hewlett-Packard:
The Flight of the Kittyhawk

Project Scope
Pros:
Affordable
Simple
Increase of memory
Small
Durable

Cons:
To build such an affordable product at a low price
Competition
Limited current market presence
SWOT Analysis
Strengths
Hewlett Packard culture valued technological innovation as a key to success. This
culture led to support from upper management
There decentralized organizational structure at the time allowed for freedom of decision
making and movement of new projects
KittyHawk had a short developing cycle (12 months as opposed to 18 months for other
new disk drives)
KittyHawk was the smallest and lightest hard disk drive of its time
Additional new technologies were developed due to KittyHawk, such as, new glass disk
substrate in case need of increase storage space is needed in future and a new
piezoelectric accelerometer, which would protect disk drive from a 3 foot fall.

Weakness
Conflicts between Disk Memory Division (DMD) and KittyHawk project Managers
DMD customers interested in higher speed and larger capacity (laptops and desktops)
Kittyhawk conflicted with their target market
Kittyhawk Project Managers had aggressive growth plan breakeven in 36 months with
a $100 million revenue rate in two years
KittyHawk Managers felt they could build it for $50.00, yet it ended up costing
approximately $130.00
Mobile computing in its infancy and product priced higher than target market could pay

Opportunities
Threats
The 1.8 inch disk drive was seen as next in hard disk drive market, larger capacity, but
consumed more power
PDA market failed, thus demand for the 1.3 in disk drive decreased
Flash drive market was increasing

Disk Drive Market

1939:
Stanford electrical engineers Bill Hewlett and Dave Packard found the company out of a
Palo Alto garage with $538 and a Sears-Roebuck drill press. They decide whose name
would go first with a coin toss.
Revenue is $5,369 after one year. Their first product is the resistance-capacitance
audio oscillator, a version of which was sold to the Walt Disney Co.

1940:
HP pays its first bonus to employees -- a $5 Christmas windfall. In the 1940s, it begins
to benefit from U.S. orders for electronics with the onset of World War II and growing
acceptance for its products in the engineering and scientific community.

History of Hewlett-Packard
History of Hewlett-Packard
1942:
Construction kicks off on the company's first building, in Palo Alto. The 10,000-square-
foot office, laboratory and factory -- with an open floor plan -- is designed to be easily
converted into a grocery store should the business fail to grow. Revenue hits $522,803.

1948
: Revenue surpasses the seven-figure mark, ending the year at $2.2 million with 128
employees.

1957
: HP becomes a publicly traded company with an initial public offering of $16 per share.
Revenue is $28 million this year.

History of Hewlett-Packard
1958:
HP makes its first acquisition: of graphic recorder maker F.L. Moseley Co of Pasadena,
California.

1968
: HP introduces the world's first desktop scientific calculator that stores programs on
magnetic cards. Advertisements for the device call it a "personal computer," one of the
first uses of the term.

1982:
HP debuts its LaserJet printer, the company's most successful product line ever.

History of Hewlett-Packard
1989
: HP turns 50. The Palo Alto garage where the company was hatched is dedicated as a
state historic landmark and named "the birthplace of Silicon Valley." HP's annual
revenue has grown to $11.9 billion, employees total 95,000.

1995:
Dave Packard publishes the "The HP Way," a book that chronicles the history of the
company and outlines its founders' people-centric management style, which became a
model adopted in part by many in Silicon Valley including companies like Apple
Inc(AAPL.O) and Cisco Systems Inc.

1997:
HP becomes one of the 30 component stocks in the Dow Jones Industrial Average. Its
revenue is $43 billion.
1999:
HP names Carleton (Carly) Fiorina president and chief executive.
She was the first outsider appointed to lead the company and the most powerful woman
in business at the time. She was the first woman to run a top-20 U.S. company.
2002:
HP acquires Compaq Computer Corp in a $25 billion deal, after a contentious proxy
battle that pitted Fiorina against Walter Hewlett, Bill's son. The merger vote was seen as
a key victory for Fiorina, who had drawn fire for ordering massive layoffs and her top-
down management style.

History of Hewlett-Packard
History of Hewlett-Packard
Previous Market
Focus on HP work stations
Higher capacity and faster time access
Established in the 3.25-5inch DMD market

Kittyhawk
1.3-2.5inch disc drive market that could be used in any device
Focus on hand held devices and potential markets
Withstand 3-foot drop
Less weight and low power
The Project Scope
Product Strategy
Key Characteristics
A 2.5-inch drive
Leverage the ruggedness
Price: $50
Small, dumb, cheap disk drive

Risks

Sourcing all external parts at a low enough price.

Reducing the feature set to get under the $50 cap may reduce the saleability of the
drive.
The project required a large initial investment which means less for conventional drives
and HP could fall behind competitors.
Risks

Flash memory becomes cheaper

Supply chain might get interrupted by time or price
Major customers (like Nintendo) find a way around having a storage device with their
game cartridges
Issues To Consider
The Kittyhawk was way too focused on revenues, Management and the team never
actually set terms with manufacturers that would use the Kittyhawk.
Development was based on speculation that certain products like the PDA and ultrathin
laptops would be interested in the product.
In terms of cost per megabyte and capacity it way underachieved the 2.5 drives and
some companies simply lost interest.
The product was not flexible enough to lower its cost of production to adjust to emerging
markets or companies. (ex: Nintendo)

Kittyhawk was discontinued by HP in September 1994.

Approximately 160,000 units were actually sold compared to projected 2-year sales of
700,000 units
The crash was not nearly as devastating as everyone expected and no one was fired
inside of the company.
Seymour was placed in charge of developing a nine-gigabyte drive with many ex-
Kittyhawk members.
Jeff White became the OEM marketing manager.

The End of The KittyHawk

PDA market developing
Smaller drivers for game cartridges with larger storage at a cheaper price
Customers interested if price was under $50.00, such as Nintendo, Kanji for cameras
and cash registers

The DMD picked the wrong target customers and built the wrong product because
corporate expectations left no other choice.
The product could not storm any other emerging market in as short a period of time as
was expected.
Positioning on the market was done not based on realistic market opportunities but by
the company's aggressive revenue expectations.
Existing computing market trends were driven by capacity and cost per megabyte, not
by size.
Kittyhawk didn't offer any value for the established markets.
Even having a substantial opportunity in emerging markets, DMD attempted to please
customers in established markets, where performance expectations were high. It
included features that made Kittyhawk too expensive to satisfy customers in emerging
markets.
Why It Failed
Why It Failed
Bruce Spenner, general manager of DMD, drafted a project charter for Kittyhawk, which
comprised five goals:

1.
Introduce the Kittyhawk in 12 months, from start to finish.
2.
Accomplish a break-even time (BET) of less than 36 months. BET was the timeit took to
repay the negative cash flow incurred in developing and launching the product.
3.
Achieve a $100 million revenue rate in two years after launch.
4.
Be the first 1.3-inch drive on the market.
5.
Grow faster than the disk-drive market to help HP become a significant industry leader.
Thus, revenue growth rate had to be around 35%.
HP's Target Market
Performance Issues
1. DMD failed to identify the right customers and develop the right product due to
overestimated management outlooks.
2. HP had been unsuccessful in introducing the new product. It was distracting
innovation not ready to satisfy the current market.
3. The product couldn't accelerate other emerging markets in a short period as
expected. PDA market is an example that never emerged as expected, and Kittyhawk's
performance was more than sufficient.
4. The Kittyhawk couldn't add value for existing markets due to its incompatibility with
potential products.

Proposed Solutions
Continue to pursue the ruggedness-based applications that were being developed
Re-brand the Kittyhawk showcase durable feature of the drive and build a unique brand
around it. This will allow the Kittyhawk to cater to a new range of applications including:
digital games, cash registers and others focused on the drive's shock absorbing
capability.
This approach would also require HP to sacrifice its favored accelerometer technology
and all the years of investments in time, effort and capital that went into it.
This would also limit the market HP could sell the KittyHawk to since it would be such a
niche market.

Proposed Solutions
Leverage the rugged and electronics integration technologies HP team had developed
to create a superior 2.5 inch drive for notebook computers, focused on dimensions of
speed and space would give HP a proven market to sell the Kittyhawk.
Promote an early offering to current customers to promote the product.
Focus a mere fraction of this disc drive market market, as opposed to dominating the
entire potential market for durable drives.
Customize the Kittyhawk to specialize on speed and space features in for notebooks
and computers.

Proposed Solutions
Designing a $50 drive would make the Kittyhawk the lowest-price competitor in the
market, provided they developed it first, and the possibilities would be immense.
The team was very motivated to pursue this option - It would be an ideal drive that
would encompass almost every application in the industry, at the time, from cash
registers to notebook computers to gaming devices.
On the flip-side, it would need heavy financial investments in R&D over an unknown
time frame with no plausible certainty of perfectly developing the product.
Internal Resistance
DMD's functional management hesitated to support the 1.3-inch drive.
The new market would distract from the needs of established markets.
DMD management and RD felt that the divisions priorities should be to its next-
generation higher-gigabyte product lines, not to a tiny drive whose market was yet
unclear.
One team member viewed Kittyhawk as an engineer's dream project:

We were basically a start-up business with the speed and flexibility of entrepreneurs
but with also the financial and technical backing of a successful high-techcompany.

The project also received executive support from the top ranks of HP.
The Team
Kittyhawk team had the autonomy to develop the drive, find new markets, and cultivate
a customer base.
The core project team, formed in May of 1991, contained three functional
representatives: manufacturing, marketing, and R&D with a program manager from
R&D, Rick Seymour, as the leader.
Management looked for risk takers & employees considered that were considered to be
can do people.
The Team
Measures of Success
HP's Method for Evaluating Project Success:
The Break-Even Time Calculation
The Pattern in Reduction of Disk Surface in New, Small Architectures
Units Sold
Rachel Crow, Donovan Hill, Michael Klevens, Walter Smith, & Fabrizio Medrano