Jonathan Weisse

BUS450-04

HP Business Units Merger

04/12/2012

In a March 20, 2012 online version of the New York Times, an article titled H.P to Merge Business Units contains information describing precisely that, that Meg Whitman, Hewlett Packards CEO since September 2012, is poised to consolidate H.P.s personal computing and printing divisions, which when combined will account for about half of H.P.s revenues. By combining these two divisions, whose products have overlaps in areas such as manufacturing and marketing, Ms. Whitman hopes to cut costs, improve designs, and become more efficient. Both these products have been buffeted by cloud computings and Apples iPads popularity, and one can surmise that the goal of this corporate-level strategic decision is that it will enable H.P. to sustain (or regain, as the case may be) its competitive advantage in the personal computing and printing marketplace and in the process create value that will enable H.P. to earn above average returns. As defined by our textbook, Strategic Management: Competitiveness & Globalization, corporate-level strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. H.P.s actions to compete in the personal computing, printer, corporate call center, and business computing systems, does indicate a corporate-level strategy on their part and by looking at their level of diversification and the degree of relatedness between their business groups, we can determine the corporate level strategy H.P. is pursuing. The textbook defines three levels of diversification: (1) low--where more that 70% of revenue comes from a single or dominant business, (2) moderate to high--where less than 70% of revenue comes from the dominant business and the other businesses are to some degree linked, and (3) very highwhere less than 70% of the revenue comes from the dominant business and there are no common links between businesses. H.P. falls in the moderate to high level of diversification category, based on dollar numbers

from the article. However, within this category are two subgroups, either related constrained or related linked. Because H.Ps business units vary from serving different segments in the home computing business and the corporate and business sector and these units are to varying degrees linked together, H.P.s overall corporate level strategy is a related linked diversification strategy. However, when it comes to H.P.s strategy of merging the personal computing and printing divisions into the personal systems group, they are following a related constrained diversification strategy, because the links (e.g. ability to share and/or combine manufacturing and marketing, among other capabilities) are direct between the business units. So why is H.P using this strategy and what does Ms. Whitman hope to achieve from this the merger of the two business units? Well, as Ms Whitman said, it is to cut costs, improve designs and become more efficient, or in other words, to create (more) value for the organization. Ms. Whitman also wants PCs and printers designed and sold so they work better together, which would presumably create value for H.P.s customers. Easy enough said, but how will these goals be achieved using a related diversification corporate-level strategy? By utilizing a related diversification corporate-level strategy, one way H.P. is looking to achieve its goals is by its creation of economies of scope, which are cost savings that the firm creates by successfully sharing some of it resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses (textbook). Sharing aspects of primary activities such as logistics, manufacturing and marketing (as stated in the article), and operations or sharing and/or combining aspects of support activities such as human resources and procurement (operational relatedness) will increase efficiency and reduce costs through the elimination of redundant operations and a reduced workforce. Further adding value to the H.P. organization will be the transfer of corporate-level core competencies (corporate relatedness) which the textbook defines as complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience and expertise. An example of this is the move of R. Todd Bradley, who runs H.P.s PC business, to run the

new personal systems group and the retirement of Vyomesh I. Joshi, who runs H.P.s printing group. Another example will be the sharing of technological knowledge across the platforms to improve the designs of the PCs and printers. By simultaneously using operational relatedness and corporate relatedness to create economies of scope, Ms. Whitman may be able to create market power through reduced organizational costs or by creating value for its product (through improved designs and performance) that the customer is willing to pay for above the existing competitive level. In conclusion, Ms. Whitman is using a related diversification corporate-level strategy with the merger of the two business units. Combining aspects of operational relatedness with some aspects of corporate relatedness, her aim is to create economies of scope, which can be hard for the competition to mimic and she will be successful in creating value for H.P.s stakeholders. However, if the hoped synergies do not materialize, and there is no reason to believe why they may not, given Ms. Whitmans track record in the corporate world (as opposed to the political arena), but if they dont and evidence of diseconomies start showing on quarterly financial reports, one can only ponder Meg Whitmans next textbook corporate-level strategy decision. Exit strategies perhaps, oh, wait a minute, thats not in the textbook, is it?