Strategic Decision Making in a declining performance situation of a United States based Manufacturing Company
According to Bhushan and Rai (2014) the success of this company is standing on different strategic decision making of the board of directors of Halwett Packard in different crucial point of time in the business and in this essay the strategic decision making of the company in a declining performance situation is going to be analyzed critically considering its multidimensional business environment. The decision making of a company is affected by both the rational and non-rational factors which are responsible to reduce the risk under different higher degree of uncertainty. HP takes almost five types of decisions in the business and these are – Tactical, Operational, Programmed, Non-programmed and Strategic (Nickols, 2014). The strategic decision making of the business is going to be analyzed under the declining performance situation of the company.
Organizational Structure of the company
HP is the largest unit of business of information technology in the global IT business. The core organizational structure of this company is built with information technology services, servers and the storage software (Marsh, 2011). HP also includes the ESSN (Enterprise Storage Service and Networking) with the HP software division and HP Enterprise Services. The forth division which is recently recognized under the Enterprise Storage Service and Networking is the HP Technology Services.HP Company is providing its services to its customer and it is running its business successfully in more than 170 countries of the worldusing this organizational structure (Leleur, 2012).
Figure 1: Organizational Structure of HP Company
In accordance of Marsh (2011) the operations of HP are segregated into 7 different business segments. These business segments are – Enterprise Storage Servers and Networking (ESSN), HP Software Division (HPSD), Imaging and Printing Group (IPG), HP Enterprise Services (HPES), Personal System Group (PSG), HP Enterprise Security Services (HPESS), HP Technology Service (HPTS) and HP Networking, a combination of 3Com and HP ProCurve (It is a part of ESSN now).
An organizational structure is built up and also works properly if and only if the management is perfectly active. The proper management structure binds all the separate activities of the company that helps the company to perform in a growing structure of business. The Executive Vice President of HP Enterprise Business Group is Ann Livermore since May, 2004. He is running the business so smoothly to achieve different success pillars of the business. So the successful business management of the company is built up by the following Executive Vice Presidents –Dave Donatelli (Enterprise Services, Storage and Networking); Jan Zadak (Sales, Marketing and Strategy); Bill Veghte (HP Software Division) and Senior Vice Presidents – Gary Budzinski (HP Technology Services) and Tom Ianmotti (HP Enterprise Services) (Bhushan and Rai, 2014).
Business Model of Hewlett Packard
The business models can be defined in a multidimensional perspective according to different market analysis. It can be considered either as statement of business or as an architecture that is made for the orientation of a business or as a representation of a business framework or as a methodology to business or as a conceptual tool or model of a business (Scholzâ€ et al, 2012). The business model used by the HP Company is very much successful in the starting of the business. The business model is actually concentrated in the creation of value of the business and the creation of value of the products and services that are used to provide by the companies. A good business model is also responsible for the appropriation of the particular values. There are mainly two types of business models and these are general business models and web based business models. The web based business models are pretty much new and the general business models are old and conventional (Scholzâ€ et al, 2012). The HP Company has used both types of business models because there is no web based business models in the initial period of the business when the company has actually started the business. Day by day with the innovation of internet services the web based model is developed for business purpose. Now a days this company has focused on the web based business models. So the e-business models or the web based business models is going to be analyzed from the perspective of the application of this business models by Helwett Packard Company.
The figure 2 describes the two-sided business model used by the HP Company.
According to Bhushan and Rai (2014) e-business or web based business is actually a business strategy using the electronic media and internet. When the business company use to do most of the transactions related to the business over the internet using their personally designed company website then it is called the e-business. In case of HP, all the products and services of the company is sold by the company basically using the internet to the whole sale as well as the retail customers. The several components of the e-business model used by the company are – strategic marketing in e-business, business model representations etc. (Wenjia, 2015).
In the figure 3 the e-marketing strategy taken by the HP Company is discussed.
Key Resources of Business of the Company
The key resources of the business of the company always determine the success of the business of a company. In case of HP Company the success is dependent on two basic or key resources and there are the Research and Development of HP and Brand Marketing of HP. Now we are going to analyze these two resources critically.
1. Research and Development of HP
HP Company spends a lot on the research and development purpose for the company for the better future growth of the business. The revenue mark of the company is reaching a very good position since 2008 at the end of each financial year and it is highly effective partially. But in the recent past years the company has put very little effort and expenditure in this regards. The spending on the research and development of the company in the recent past was 3.1% of the total revenue and the amount is $2.57 billion according to a report on 31st July, 2014 (Stead and Stead, 2012).Overall it can be concluded that research and development plays a important role in the business of HP company.
2. Brand Marketing of HP
According to Leleur (2012) the HP Company is one of the most valuable companies in the brand marketing by taking a much amount of sponsorship in the last decade and Walt Disney is one of them. The sponsorship of HP was seen in the field of sports too. This company is the sponsor of shirt of North Melbourne football club in Australian Football League of the Premier League Club from 1997 to 1999. Another sponsorship of the company is of BMW Williams Formula 1 team and this sponsorship was hold by the company until 2005. Again until 2013 this company has named for the right arrangements for the sponsorship of San Jose Sharks NHL hockey team (Wenjia, 2015). Last but not the least we have to take the name of ‘HP Integrity Non Stop’ in the history of the brand marketing of HP. So at last taking the words ofThe company doctor is in (2011) it can be said that brand marketing is a very successful strategy which is used as a key resource by the company.
Hewlett Packard and other Companies in the Industry
The HP Company is a information technology based company and the modern age is highly attached with the information technology. This is the reason that there are several small medium and large companies in the world who are providing the information technology related products and services. According to the analysis of Wenjia (2015)the level of the competition is clear from the following table:
In table 1 the top computer hardware selling companies of USA are listed according to the previous financial year’s (2013 -2014) sale. It is clear that HP Company was the 2nd top company from this point of view in USA. This analysis implies that the company is in a very good position from the point of view of sales in the market and giving a tough competition to the other existing companies (Leleur, 2012).
Role of the company within this ecosystem
The first enterprise class SDN (Software Defined Networking) open ecosystem developer kit was unveiled in the month of September, 2013 and the HP SDN App Store wants to develop the business of the company by providing a new and simple path that can be used to purchase and deploy networking services (Scholzâ€ et al, 2012). The months of extensive ‘human middleware’ and the customization is required to be rolled out with the Legacy network. This is able to delay the potential application deployment that can limit the agility. The promise of the SDN technology is the provision of automates network operations that can limit the creation of the market place. Wigblad (2015) has explained that for the fulfillment of the purpose of unlocking the innovations in different skillful dimensions and enabling the collaboration an open SDN ecosystem and application is developed in this platform. According to Bethany Mayer, a senior vice president and senior manager of the company, the networking industry is ready for a monumental bounce forward using the opportunity of disruptive innovation with the SDN.
Declining Performance of the Company
The performance of a company is depending on several factors and these are the gross profits, net profits, sales etc. the gross profit is calculated after the deduction of the value of the total cost of the production from the total sales of the production and then deducting the operating costs, taxes and some other essential expenses the net profit of the company is derived (Marsh, 2011). When the gross profit of the company decline then the other taxes and the operating expenses of the company also affected and as a result the net profit of the company also falls. There are many drivers that are affecting the declining condition of the profit of the company as well as the performance of the company.
In the figure 4 it is analyzed that in the 2nd quarter of the financial year 2013 how the HP Company has earned the revenue and what is the distribution of the revenue earning in different segments of the company.
The main drivers of the declining performance of the company should be found properly to solve the current issue.
1. Selling Price
The gross profit margin of the company is declined when the prices of the products are increased and for this the total sale is affected negatively. The existing competition in the market always insist the company to vary the price accordingly but with the existence in the market the company has to remember the profit margin of the company which is also determined by the prices of the products (Boccia, 2013).
2. Amount of total sales
The gross profit of any company also declines due to the poor performance of sales. The cost of the sold goods also shows a declining trend which is the translation of the low level of sales of the products (Schneider and Vieira, 2010).
3. Cost of Goods
The cost of the goods sold affects both the gross profit and the net profit. According to Kolich (2009)in this situation the profit margin is affected due to the lower level of the gross profit and higher level of the cost of the goods produced and sold
Recommendations: Two alternative strategic avenues
The current condition of the company according to the performance is declining and there are several factors too which are affecting the declining performance of the company in the current market condition which is also discussed in the previous sections. So the company has to follow different avenues of innovation to remain in the success path of business. Two alternative strategic avenues are going to be analyzed in this respect under this subheading. These strategic avenues are the recommendations to the company that can follow these for further success in business in the near future. In the words of Stead and Stead (2012)the corresponding risks and rewards of the strategic avenues are going to be discussed and the following points like, innovating from within, managing innovation, merging and buying other companies and diversifying are the basic points of this analysis in the alternative strategic avenues and managing the innovation process and innovating by diversifying are the point of consideration here.
1. Managing the Innovation Process
The right and working management process have to be placed in the right direction to reap the financial rewards of the blockbuster success in production of the company. The Xerox and the Bell Labs can be taken into the consideration as the examples of reaping the financial rewards by slipping away potentially and the allowance of other companies in this regard. The main reason behind this for these two companies is the isolation of R&D department of the companies from the rest departments of the company. The commercial success of these companies and the launch of new products in the market are depending on the various business models used by the companies (Stead and Stead, 2012). So HP Company is also recommended this management of the innovation process of the company.
The use of a collaborative approach and the building of innovative alliances must be shown from the side of the organizations throughout the company without which innovation initiatives can be blocked by strong power position resisters. A successful team performance is required for the launch and marketing of new products by the company. A good and working innovation process can be successful in the future the reliable data related to the topic can be gathered in a very systematic way to get into the insightful knowledge about the company (Nickols, 2014). The relevant data should be on the business model of the company, the overall industry in which the company is belonging to, the needs of the customers of the company and the products that are marketed and sold of the HP Company.
2. Innovating by Diversifying
The innovating by diversifying strategy is very much affective for the HP Company in the performance declining situation of the company because the company is stagnating at a very lower rate, the profit margin of the company has also declined than the last financial year and the prospect of growth of the company is also looking very much dim (Nathan, 2011). There are some companies also who cannot be successful by applying the diversifying strategy in the innovation and failed to attain the expected profit margin. But there is a possibility of the company to be successful by using this particular strategic avenue according to different market analysts. But it is to be remembered for always that there are several examples of the companies which have faced wrong results of diversification and also paid costly price of it (Stein, 2010).
The essential part of every business of each company is to set a goal to achieve in different dimensions of the market. The strategic planning of a company or the strategic decision making of a company is actually the description of the mission and objectives of the company which is in the process of creation (Kirkwood, 2007). The whole objective of the company is going to be decided depending upon the course of action of the company which is pursued by the company to achieve the particular goals.
The creation of strategies to achieve goals and the observed outcome basis altering of the strategies are involved in the ongoing process of strategic decision making. In the circumstances of decreasing performance the company must take the initiative towards the price change of the product in the international market that can increase the total sales of the company and the strategy should be implemented by lowering the unit price of the products as well as by offering different discount plans and free of cost products. The company can use the strategy by changing the warrantee and guarantee plans of the products (Garengo and Bernardi, 2007). All of these strategies will help the company to attract new customers as well as to retain the old and existing customers of HP products and services. The success of the following strategy should be evaluated after the data collection in the primary stage that will reflect the success or the failure of the strategy. The company can use the SWOT Analysis or the Cost-Benefit Analysis for this purpose and the outside advice can also be taken regarding this matter (Nickols, 2014). So at the end of this analysis it could be concluded that a proper genesis of Strategic Decision Making in a declining performance situation can solve each of the problem and after a recovery it is possible for the company t run in the new growth path of the aimed success.
Bhushan, N. and Rai, K. (2014). Strategic decision making. London: Springer.
Kirkwood, C. (2007). Strategic decision making. Belmont: Duxbury Press.
Leleur, S. (2012). Complex strategic choices. London: Springer.
Stead, W. and Stead, J. (2012). Management for a small planet. Newberry Park, Calif.: Sage Publications.
Stein, J. (2010). From H-bomb to Star Wars. Lexington, Mass.: Lexington Books
Boccia, M. (2013). Social Business by Design: Transformative Social Media Strategies for the Connected Company. Perf. Improv., 52(4), pp.53-55.
Garengo, P. and Bernardi, G. (2007). Organizational capability in SMEs. Int J Productivity & Perf Mgmt, 56(5/6), pp.518-532.
Kolich, M. (2009). Solutions and recommendations to address issues with Company XYZ's performance management system. Perf. Improv., 48(1), pp.12-24.
Marsh, R. (2011). A new company descriptor takes us into a new era. Int J Productivity & Perf Mgmt, 60(1).
Nathan, E. (2011). Critical success factors: How one multinational company develops global e-learning. Perf. Improvement Qrtly, 24(1), pp.7-30.
Nickols, F. (2014). Does Your Company Have a Performance GPS?. Perf. Improv., 53(6), pp.24-29.
Schneider, R. and Vieira, R. (2010). Insights from action research: implementing the balanced scorecard at a windâ€farm company. Int J Productivity & Perf Mgmt, 59(5), pp.493-507.
Scholzâ€Reiter, B., Heger, J., Meinecke, C. and Bergmann, J. (2012). Integration of demand forecasts in ABCâ€XYZ analysis: practical investigation at an industrial company. Int J Productivity & Perf Mgmt, 61(4), pp.445-451.
The company doctor is in. (2011). Int J Productivity & Perf Mgmt, 60(7).
Wenjia, Y. (2015). Cumulative Voting: In the US (Declining), in China (Rising) and the EU (Not-Adopted). European Company and Financial Law Review, 12(1).
Wigblad, R. (2015). Community turnarounds in declining company towns: A restructuring model. The Journal of Socio-Economics, 24(3), pp.463-475.