Research Proposal: Business Modeling Business Model Hewlett Packard

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Business Modeling

Business Model

Hewlett Packard is considered by many as the largest it company in the world, its impressive revenues surpassing the $100 billion figure in 2007, when the company reported revenues of $104.3 billion, a 14% increase as compared to the previous year

Started as an electrical company at the end of the 1930s, the company evolved as one of the leading computer and it companies in the world, its vast portfolio of products ranging from computers to laptops and notebooks, from printers and other peripheral instruments to accessories.

At the same time, all these are backed by an extensive services framework under the HP umbrella, referred to as HP Enterprise Business, and that includes "Technical services, Enterprise Services (formerly known as EDS), HP Software & Solutions, and Enterprise Storage and Networking Group (ESN)"

. The growth was fueled both by internal research and development and by an extensive acquisition campaign, while within the last decades, portfolio diversification became a key instrument in ensuring that the company retains its leadership position on the market. Through the acquisition of several software developers, Hewlett Packard ensured that its business included as much of the software market as possible, while at the same time continuing its leadership position on the hardware and other markets.

Hewlett Packard has marked the evolution of it and continue to partner with many of the important governmental or private entities. It is at the same time an innovatory company, which continues to reinvent its business model and to adapt it more and more to the current economic and societal environment so as to continue to remain competitive in the medium and long-term.

2. Relationships

As seen, Hewlett Packard operates in the computer industry and in a series of connected and complementary industries, such as the printer or printer cartridge industry. In fact, quite a significant part of HP's profits, as much as 15%

, comes not from its main area of activity (selling fully assembled computers), but rather from such additional tools that are added to its portfolio.

This is, however, where much of its competition also comes from. The computer and even the laptop and notebook segment of the it business is reasonably stable, with high barriers for new entrants. On the other hand, such connected and auxiliary segments are usually influenced either by small players that try to assimilate some of the innovations that Hewlett Packard brings about or by individuals who hijack the manufacturing process by simply creating such products in their own laboratories. One easy example in this sense is those individual users who fill their printer cartridges instead of replacing them.

This does not necessarily mean that the competition in the computer and laptop segments is not just as intense. The most important competitive advantage in today's computer business environment seems to be the cost. The computers offer more or less similar characteristics, so the real differentiation means offering that for less than the competitor can. From that point-of-view, prices tend to be pushed down on the market, which makes business more difficult.

Beyond partnerships within the industry between different organizations, perhaps the most important partnership that Hewlett Packard can have is that with national governments. The reason for this is that the contracts with national governments tend to be very large in size and volume, which ensures that the company can deliver a large amount of its production and obtain almost immediate revenues for the respective service.

3. Competitive Forces and Challenges

From Porter's five forces, the most important one to be taken into consideration and the one providing a significant challenge is the bargaining power of suppliers. Hewlett Packard uses more and more suppliers from Asia, including countries such as Taiwan, Malaysia and even China. During the early phases of this outsourcing phase, the power of suppliers was relatively limited and Hewlett Packard was able to bargain significantly in terms of price, terms of delivery etc. However, as the years went by, the company became more and more dependant on these external suppliers for its business model. The bargaining power of suppliers remains high and will continue to increase throughout the next years.

The bargaining power of customers has also increased. At the time Hewlett Packard launched its computer business, some time in the 1960s and 1970s, the number of potential consumers generally revolved around large companies or governmental organizations that could afford such a tool. Nowadays, the personal computer in its different forms is part of every individual's lives. However, with this also came an increase in the customers' bargaining power: more and more the client can chose between the different offers on the market and, quite often, impose his or her own perspective on how certain models should be developed to include the different desired characteristics. As such, the bargaining power increased.

On the other hand, the threat of new entrants and the threat of substitute products remains significantly low. On one hand, the it and computer industry is an extremely challenging one and, despite some new entrants from the Asian markets, these markets remain more important as suppliers rather than as full providers of it hardware and it solutions. At the same time, substitute products are very rare for this industry.

The intensity of competitive rivalry is probably Porter's force that most significantly affects the business model at Hewlett Packard and the one to be most considered. Obviously, the competition is extremely intense on this market: despite the fact that the number of consumers has increased exponentially, the large number of producers and the relatively limited differentiated between the products raises the level of competitiveness. At the same time, beyond the recognized names in the industry, more and more small companies offer assembly services, whereby the client can simply select his configuration and the company will build the computer for him at a lower cost than if he actually purchased a computer from one of the reputed companies in the industry.

4. Competitive Strategies

The most significant challenge that the company faces in the subsequent years is, in fact, not necessarily related to its closest competitors, but it is related to the macroeconomic environment. The current economic crisis, despite signs that it is coming to an end, will still affect the consumer behavior within the next year or so. In that sense, the company's competitive strategy will need to focus on providing similar HP quality, but at lower prices.

If one follows the two options that Porter presents as his proposed competitive strategies, then the company should most likely follow both strategies, in a sequential approach. As such, at the moment, the current economic crisis is the most important elements that conditions consumer behavior. What that means is that consumers tend to reshape their consumer behavior, usually in a minimizing, decreasing way. The contraction of the purchasing behavior means that the consumers will tend to direct their revenues towards basic products, starting with food and shelter, and decreasing the amount of funds used for things that can be considered luxury products, including the electronic products.

The cost leadership strategy should be focused on the outsourcing process. This has been successful to some degree in the past, but now, with the accession of the countries in Central and Eastern Europe to the European Union, it has become more available than ever. The countries in this region of Europe benefit from the EU legislation, which they needed to implement and adopt at the national level as a precondition of accession.

These countries also have a salary level that is significantly lower than that of the European average and still continues to remain so. The costs of setting up a unit of production are also significantly lower than other parts of Europe. Basically, in these countries, HP can benefit from the organization and legislation of the Western society, but with the costs of a developing country. The labor there is also highly qualified and educated, with a booming it sector that makes it also well trained.

At the same time, this is usually not enough to ensure a long-term competitiveness. Diversification is necessary, as is the constant development and improvement of the portfolio of products and services. The company seems to be following this direction and some of the steps it has taken in the last couple of years, including the campaign of acquisitions directed towards several software companies, which shows that Hewlett Packard is taking into consideration the development in several sectors of the it industry.

5. Sustainable Competitive Advantages

The company's leadership position on the market is supported by two important competitive advantages: the size of its portfolio of products and the sound financial condition of the company. The first allows the company to have a diversified approach on the market and ensure that its products continue to bring increasing revenues for the shareholders. The HP products have become synonymous with quality, which will tend to increase the level of customer retention.

The financial stability of the… [END OF PREVIEW]

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Business Modeling Business Model Hewlett Packard.  (2009, November 4).  Retrieved July 22, 2019, from https://www.essaytown.com/subjects/paper/business-modeling-model-hewlett/570905

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"Business Modeling Business Model Hewlett Packard."  Essaytown.com.  November 4, 2009.  Accessed July 22, 2019.
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