Table of Contents
- 1. Introduction
- 2. Process of Formulating Strategy
- 2.1 Vision & Mission
- 2.2 Setting Objectives
- 2.3 Strategic Analysis – SWOT
- 2.4 PESTLE Analysis
- 2.5 Porter’s Five Force Analysis
- 3. Strategic Position of Hewlett Packard’s Computing and Printing
- 3.1 HP’s competitive strategy
- 4. Position of Agilent’s test equipment business
- 4.1 Agilent’s Competitive strategy
In today’s world, managers are increasingly pressured to achieve targets and goals with limited and scarce economic resources. By deploying a well-formulated strategy, the scarce resources and efforts can be directed towards a charted course, eliminating waste from lacking direction. Without a plan to provide an overall guidance, the functional activities can run the risks of missed opportunities, fragmented and wasted effort, working at cross purposes, and getting involved in internal conflicts. The objective of formulating a corporate strategy is to allow a company to identify a competitive advantage and sustain that competitive advantage and survive, forge ahead and stay ahead of the competition.
In crafting organizational strategies, the company’s key objectives should drive the process. For this purpose, the strategy formulation process must be initiated with a clear understanding of “What” the company’s business mission is, “Who” are the customers, “What” do the customers consider as value, “What” has been the organization’s results so far in catering to these needs and “What” are the plan in meeting the consumer needs (Druker). The report aims at outlining the process of developing an organizational strategy and proposing a competitive approach for the business operations of Hewlett Packard’s Computer and Printing operations. A competitive plan for HP’s recently separated business arm of Agilent Test equipment operation is also developed.
2. Process of Formulating Strategy
To formulate a successful corporate strategy, it is essential to understand what delineates Corporate Strategy. A company’s policy can be followed as the game plan the management is using to stake out a market position, conduct operations, attract satisfy and retain customers, compete successfully, and achieve organizational objectives. The process of formulating corporate strategy cannot be carried out in an ad hoc fashion but follow a systematic process that involves five key steps. The Five Key Tasks of Strategy formulation includes identifying or developing Strategic Business Vision and Mission for the organization, Setting objectives, Create strategic plans to accomplish purpose and goals; implement the strategic plans and finally evaluate results and modify or change strategies in response to the dynamic business conditions (Thomson & Strickland 2003). To assess the effectiveness of formulated strategies, applicable criteria include whether the plans have clear decisive objectives, whether it maintains the initiative, whether it focuses and concentrates on goals, whether it can gain acceptance of those who have to implement it, whether it can sustain the commitment of leadership and whether the strategy has an element of surprise for the external parties such as competitors (Thomson & Strickland 2003).
2.1 Visions and Mission
An organizational mission and vision are the foundation upon which effective strategies can be formulated. (Kaplan & Norton 2001). “A strategically revealing mission statement incorporates three elements. These include “what,” “who,” and “how” refers to the needs, customer groups, and process of delivery (Abell 1980).
A company’s Vision should be Inspiring, Overarching, and Long-term and should not be myopic in its view, limiting the scope for growth in the future. Vision statements embody the fundamental Values, Aspirations, and goals of the organization. It is the reason for being where the organization’s existence is concerned. In contrast to the vision, the mission of the company is more specific and focuses on the customers, products, and services and the underlying business philosophy.
2.2 Setting Objectives
Setting objectives is the second step of the strategy formulation process. Without a clear set of goals which link the strategies to the organizational vision, the focus of the operations will suffer. A clearly defined and useful set of objectives aid in realizing the mission or the organization; guides how to move toward the vision of the company and provide
Specific, Measurable, Appropriate, Realistic objectives that cover a defined Time frame. Such SMART goals provide challenging targets for the organization to strive towards while forming the basis for reward systems. It is increasingly accepted by organizations today that organizational objectives should not be limited to financial considerations but take a balanced perspective and cover areas of customer focus, internal processes, financial performance, and innovation and learning process (Kaplan & Norton).
2.3 Strategic Analysis – SWOT
Practical strategies will have a clear insight into both internal and external factors which impinges upon the company’s performance. For this purpose, a SWOT analysis can be used in concluding how a company can best align its resource base to take advantage of the business opportunities while safeguarding against the threats. It should also be used in developing those weaknesses areas by strengthening the internal deficiencies and building required core competencies (Duncan, Ginter & Swayne 1998).
The strength and weaknesses of the company should be identified by assessing the core competencies in areas of Key business processes, Technology, Human resources, Manufacturing, Management Systems and Talent, and Financial strength. A company’s strengths and weaknesses may relate to innovation, customer focus, brand image or productivity, and supply chain effectiveness. An internal audit will facilitate the identification of the company’s strengths and weaknesses about its given business objectives, and techniques such as Organisational Capability Analysis (OCP) can be used to provided quantified score ratings for Business strengths and weaknesses.
Opportunities and Threats of the SWOT analysis focus upon the external factors which bear and impact on the organizational performance and involves assessment of current and future conditions of the industry and the external environment. The competitive conditions and industry attractiveness can be assessed by the application of analysis tools such as Porter’s Five Force model. In contrast, the environmental conditions can be evaluated using techniques such as the PESTLE analysis.
2.4 PESTLE Analysis
Political conditions in both national and global front impacts on business. Worldwide world terrorism has implications for many industries. Some of the closed economies in the 1980s have opened up and adopted the open economic policies and allowing foreign direct investments. Such countries as India, China, and Russia offer massive markets, which can be considered for new investment factors impinging upon companies. Environmental factors such as scarce natural resources, conservation of ecosystems through recycling have varying implications for different industries. Natural disasters as the Asian Tsunami and the series of hurricanes in the US can also impact the organizations adversely. Social & Cultural factors include shifting demographics, job trends, behaviors and attitudes. More and more people are becoming technology savvy, and new generations are highly computer literate. A higher percentage of women across the world are employed. The aging population of the world may hold adverse effects on some industries. Technological developments include widespread use of personal computers, the rapid growth of Internet usage, and the integration of information technology to drive key processes of organizations. Legal factors as an increased focus on Intellectual property rights, Anti Trust laws, regulation of mergers, and acquisitions monopolistic market practices also impact on organizations. Economic forces such as the slowdown in the global economy and the increased competition from cheaper global sources, the turbulent currency markets also affect companies.
2.5 Porters Five Force Model
For businesses to enjoy profits in the long run, two essential factors should be in place. First is industry attractiveness, and the second is the company’s capability to capitalize on the opportunities (Porter 1996). Industry attractiveness can be assessed using five dimensions of Porter’s Five Force Model. The threat of substitutes affects how attractive an industry is for both existing and prospective players. The substitutes can be direct or indirect, and therefore the scanning of the environment for the threat of substitutes should not be blind and restrictive. Bargaining Power of Buyers is another factor, which affects the industry attractiveness. If buyers are large scale and concentrated, their bargaining power will drive down prices and profitability. Bargaining Power of Suppliers is also an essential element, which decides the industry attractiveness. If specialized and scarce raw materials are required, the suppliers may demand higher prices and control supply conditions, affecting profitability and growth potential. The threat of new entrants will depend upon natural barriers and legal barriers. High capital intensity, high switching costs, alliances, economies of scale are some forms of barriers to entry, which reduce the threat of new entrants. Rivalry among competing sellers will depend upon factors such as the structure of competition, the structure of industry costs, and switching costs, aggressive strategic objectives, and high exit barriers.
Strategic Position of Hewlett Packard’s Computing and Printing
Founded in 1939 by two Stanford University classmates, Bill Hewlett and Dave Packard, Hewlett Packard is today among the top ten companies in Fortune 500 companies. With its team of 151,000 employees and operations spanning over 170 countries, the company revenue has reached $87 billion in 2005. The company, which started with a production of an audio oscillator—an electronic test instrument used by sound engineers today at the forefront of computer and printing technology. HP’s success is widely attributed to its strategic platforms, which links the operation to the overall company objectives. The company defines its corporate objectives clearly as Customer Loyalty, Profits, Market Leadership, Growth, Employee Commitment, Leadership Capability, and Global Citizenship. The importance of developing a corporate strategy, which is derived from company objectives and driving the overall operations, is embodied in the following quote by HP’s co-founder Dave Packard.
“It is necessary that people work together in unison toward common objectives and avoid working at cross purposes at all levels if the ultimate in efficiency and achievement is to be obtained.” — Dave Packard
Today the company stands as a leader in an industry with high growth potential. The IT industry and the hardware sector are proliferating with technology dispersion across the globe. With the strong internal strengths of HP driven by innovation, experience, economies of scale, and extensive global presence, the company is in a stable business position to capitalize on the available business opportunities. The industry attractiveness should be considered in terms of the threat of substitutes, which is high as IT technologies are subjected to fast obsolete. Intense competition is driving the innovation process at a rapid phase in this industry. The threat of new entrants is not high as the market entry barriers are high with alliances, high existing costs, and capital intensity. The bargaining power of suppliers is not at a high level, and the friendships formed can mitigate any threats in this aspect. The bargaining power of the buyers differs as HP serves a range of customers from individual to small and medium scale businesses as well as large-scale buyers. The rivalry among existing players is excellent, but differentiation tactics have allowed the operators to sustain profitably.
3.1 HP’s Competitive Strategy
Considering the above strategic position of HP, the following business strategies are proposed to capitalize on market opportunities while overcoming any challenging industry competitive forces. Components of the proposed competitive strategy for HP includes a Best Cost generic strategy supported by a combination of Growth, Differentiation, and Alliances to support its business mission of “offering products, services, and solutions that are high tech, low cost and deliver the best customer experience” (HP Home Page 2005). The company needs to capitalize on the current growth potential in the industry through Concentrated Growth strategies targeting the global market. Such growth strategies may include mergers and integrations as the HP – Compaq merger, allowing the firm to benefit from economies of scale, which will, in turn, support a generic strategy of Best Cost platform. The growth can be facilitated through alliances with global partners with joint venture operations. These joint ventures and strategic alliances will aid the company in increasing the barriers to entry in the industry and also in establishing powerful competitive positioning. Furthermore, such global growth strategies will allow the company to benefit from newly emerging markets as India and China, resulting from changes in business environmental factors related to political and economic conditions in the globe. To benefit from the IT industry growth in the developing nations,’ the company should pursue a best cost Generic strategy, offering Best Quality products, services, and solutions at the lowest possible prices, allowing lower-income consumers to consider HP products. Finally, the company should adopt a differentiated platform, capitalizing on HP’s brand image and aligning its innovation as a key strategic driver to ensure that changing consumer needs and evolving IT technology is intercepted with innovative new products by HP. To pursue a differentiated strategy, a company should have access to leading research, have a creative and highly skilled product design team, engage a strong sales team with a clear product vision, and possess a reputation for Quality and Innovation. HP currently spends $ 3.5 billion annually on innovation and produces 11 patents a day worldwide. Such strategically aligned innovation is the key to sustained competitive advantage.
Position of Agilent’s Test Equipment Business
As per a management decision at HP, a new company was formed as Agilent Technologies in 1999, concentrating on HP’s former measurement, components, chemical analysis, and medical businesses. Agilent Corporation was established in November 1999 with a record-breaking largest-ever IPO in Silicon Valley. Agilent Technologies today is the world’s premier measurement company, providing core electronic and bio-analytical measurement tools to engineers, service providers, researchers, and scientists in the electronics, communications, life science research, environmental and petrochemical industries. Agilent, with its global operations, generates two-thirds of its US$ 7 billion revenue from outside of the United States. The company is placed 212 in the Fortune 500 rankings since its introduction to the list in 2002. The company stands to gain from the rapid industrial development in the industries to which it caters, such as life science and bioanalytical measurement tools.
4.1 Agilent’s Competitive Strategy
The company was formed through a Restructuring strategy, which aims at changing the scale or a mix of operations to gain efficiency and improve performance. The company can further its competitive positioning through several key strategies. The Strategic use of the Internet in gaining competitive advantage is important to Agilent’s as it deals with large and high profile customers with high precision requirements, specialization. By establishing project collaboration and new product development systems, which incorporates the customers through Internet-based technologies, will allow the company to operate with a greater customer focus. By integrating the supply chain into the Internet-based system will also provide the company with strategic advantages in supplier reliability, lead-time, and cost management. The company should pursue a focused strategy when it comes to the Generic competitive platform. With its core competencies in precision electronics, the company should Focus on the needs of market segments. This would allow the company to benefit from specialization and achieve competitive positioning through premium quality and innovation within a narrow and focused product range. To make this strategy a success, the company should have strong market tracking to gauge consumer needs and develop strong customer loyalty. The process efficiencies are important to match lower volumes. The company can also engage growth strategies in geographical scale while pursuing its product focus so that the company caters to a wider market base spread across the globe. As the core industries being supplied by the company are operating globally, such a lateral growth strategy will be viable as the case of recent joint ventures with Chengdu Qianfeng Electronics Ltd. Corp. in China and the establishment of Agilent Technologies China Holding Company Ltd. aimed at consolidating the business in China.
While corporate strategies differ from company to company and need to be changed in response to the dynamic nature of the business environment, the underlying strategic options focus on catering to the needs of the consumers effectively and with cost-efficiency. Alliances, Growth, Technology, Differentiation, Low Cost, and Innovation strategies are all geared towards meeting consumer needs with effectiveness and efficiency.
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