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COMPAQ
Merger
Sopio Elizbarashvili
Nikoloz Lortkipanidze
Marita Genebashvili
Tatuli Okriashvili
Salome Zhvania
TABLE OF CONTENTS
Executive Summary ........................................................................................................................ 3
Industry Highlight ........................................................................................................................... 4
Competitors – IBM ..................................................................................................................... 4
Competitors – Dell ...................................................................................................................... 4
History Highlight ............................................................................................................................ 5
Hewlett-Packard: The COMPANY PRE-Merger ....................................................................... 5
The Company Timeline .............................................................................................................. 5
COMPAQ – The company PRE-MERGER: .............................................................................. 7
POTENTIAL IMPACT OF MERGER:.......................................................................................... 8
Life Cycle Pre-Merge of HP and COMPAQ .................................................................................. 8
Reasons for the Merger ................................................................................................................... 9
Reasons against Merger ................................................................................................................ 10
Positive Aspects ........................................................................................................................ 10
Negative Aspects ...................................................................................................................... 12
Summary of Benefits ................................................................................................................ 13
Market Benefits ..................................................................................................................... 13
Operational benefits of Merger ............................................................................................. 14
Financial Benefits ................................................................................................................. 14
SUMMARY OF THE DEAL ................................................................................................... 14
Five Forces .................................................................................................................................... 15
Threat of New Entrants (Barriers to Entry): (Moderate) .......................................................... 15
Bargaining Power of Buyers: (Low) ......................................................................................... 15
Bargaining Power of Suppliers: (High) .................................................................................... 15
Threat of Substitutes: (Moderate) ............................................................................................. 15
Rivalry: (High) .......................................................................................................................... 15
Implementation Strategy Highlight............................................................................................... 16
Marketing .................................................................................................................................. 16
Operations ................................................................................................................................. 16
Technology ............................................................................................................................... 16
Buying ....................................................................................................................................... 17
Infrastructure ............................................................................................................................. 17
SWOT Analysis ............................................................................................................................ 18
Financial Highlights ...................................................................................................................... 19
Recommendations ......................................................................................................................... 22
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Executive Summary
The world’s largest corporate Information Technology merger began in September 2001
when HP announced that they would acquire Compaq in an all stock purchase valued at
$25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder
and regulatory approval with the end result being one company. The new HP has annual
sales of approximately $90 billion which is comparable to IBM, and an operating income of
almost $4 billion. The merger was led by Carly Fiorina, the chairwoman and CEO of HP. The
president of the new HP was Michael Capellas who was the former chairman and CEO of
the old HP and who has recently resigned and is now the CEO of World Com.
Overall, many analysts were critical of the merger from the beginning since both Compaq
and HP were struggling companies before the merger. The common question that has been
raised by analysts is: Do two struggling companies make a better merged company? Some
analysts have indicated that the merger is a gamble and that it is difficult to see any focused
logic behind the merge considering that most I.T acquisitions are not successful. Prior to
the merger, Compaq has been unable to grow despite previously buying Digital, while HP
was trying to grow internally, without much success. Both companies were still adjusting to
acquisitions they have made in the past and both were adjusting to new leadership (Fiorina
and Capellas). The merger deal also means that there are many overlaps in products,
technologies, distribution channels, services, facilities and jobs. Employee morale is a
threat to a successful merger as there have been numerous layoffs -15,000 employees. The
claimed annual cost savings of about $2.5 billion dollars by the year 2004 amounts to only
3 % of the combined costs of both companies. Gartner Group research has indicated that
the merged company has failed to do a good enough job of presenting the benefits of an
acquisition of this scale to justify the deal’s risk as it is generally known that technology
mergers rarely work. In addition, both companies in the past have struggled to resolve
conflicts between direct and indirect sales channels. The cultural background of both
companies is quite different and integration will take a long time. The culture at HP is
based on consensus; Compaq’s culture on the other hand is based on rapid decision
making.
From a positive perspective, most botched tech mergers involved companies that were
trying to buy their way into new businesses they knew little about, this is not the case with
the HP/Compaq merger. Apart from servers and PC’s, they have several areas where their
products overlap. e.g.: they are both are involved in making data -storage equipment and
both make handheld computing devices. In addition, both companies also bring different
strengths to the table. Compaq has done a better job in regard to engineering an entire line
and HP has been strong in consumer products. The justification provided by HP senior
management suggests that a merger will enable them to compete with two of their biggest
competitors, IBM and Dell.
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In conclusion, it is viewed by many analysts that there will be at least 2 more years of bitter
infighting which will cause the new HP to lose direction and good personnel. This is great
news for competitors such as IBM and Sun as both of them will be able to pick off the
market while the new HP is distracted by the merger. The new HP may be a threat to IBM
but not any time soon. It could take several years to determine if the largest merger in I.T
history will be a successor a complete flop.
Industry Highlight
COMPETITORS – IBM
IBM has a very strong R&D and marketing department, which aids the company to
popularize its brand and products. IBM is the company, which gave the rise to PC industry
by implementing Microsoft Windows Operational System (OS). IBM’s point of difference is
its strong customer assistance, which helps the company to gain customer loyalty.
COMPETITORS – DELL
Dell’s competitive advantage is that it offers its customers direct business model, so
consumers can customize the product the way they want via Dell.com. This feature gives
Dell the ability to lower the inventory costs and make new technology introductions faster
than its competitors, so Dell suits quickly to rapid market changes. So Dell gained number
one position with its global PC market share in 2001.
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History Highlight
In 1938, two Stanford graduates in electrical engineering, William Hewlett and David
Packard, started their own business in a garage behind Packard’s Palo Alto home. One year
later, Hewlett and Packard formalized their business into a partnership called Hewlett-
Packard. HP was incorporated in 1947 and began offering stock for public trading 10 years
later. Annual net revenue for the company grew from $5.5 million in 1951 to $3 billion in
1980. By 1997, annual net revenue exceeded $42 billion and HP had become the world’s
second largest computer supplier.
The company, which originally produced audio oscillators, introduced its first computer in
1966. In 1972, the company pioneered the era of personal computing by introducing the
first scientific, hand-held calculator. Hewlett-Packard introduced its first personal
computer in 1980. Five years later, HP introduced the LaserJet printer, which would
become the company’s most successful product ever.
1938: William Hewlett and David Packard, both graduates of the electrical engineering
program at Stanford University, start their own business in the garage behind Packard’s
rented house in Palo Alto, CA.
1939: Hewlett and Packard formalize their business into a partnership called Hewlett-
Packard Co. (HP)
1947: HP is incorporated. Revenue: $851,287. Employees: 111.
1957: HP stock is offered for public trading.
1962: HP makes Fortune magazine's list of the top 500 U.S. companies for the first time,
entering at number 460.
1964: David Packard is elected chairman of the board and William Hewlett is elected
president of the company. Revenue: $126 million. Employees: 7,092.
1966: HP forms Hewlett-Packard Laboratories, which becomes one of the world’s leading
electronics research centers.
1972: HP introduces the first scientific, hand-held calculator and also enters the business
computer market with its minicomputer. In 2000, Forbes ASAP will name the calculator
one of 20 "all time products" that have changed the world.
1977: John Young replaces Hewlett as president of HP, and also becomes CEO in 1978.
1980: HP introduces its first personal computer. Revenue: $3 billion. Employees: 57,196.
1982: Compaq Computer Corporation (which will merge with HP 20 years later) is formed
in Houston, Texas. The company is started by three former Texas Instruments executives—
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Rod Canion, Jim Harris and Bill Murto. On November 4, Compaq introduces its first product,
the first portable PC to run 100 percent compatible IBM software.
1985: HP introduces its LaserJet computer printer, which will become the company’s most
successful product ever.
Compaq is listed on the New York Stock Exchange.
1989: HP celebrates its 50th anniversary and is in the top 50 on Fortune 500 listing. HP
Revenue: $11.9 billion. HP employees: 95,000.
1992: Lewis E. Platt succeeds John Young as president of HP.
1993: Compaq introduces its first all-in-one Compaq PC, the Presario family.
1995: Dave Packard publishes The HP Way, a book that chronicles the rise of HP and gives
insight into the business practices, culture and management style that helped make it a
success. HP revenue: $31.5 billion. HP employees: 105,200.
1996: HP becomes one of the 30 stocks that comprise the Dow Jones Industrial Average.
1998: Compaq acquires Digital Equipment Corporation for $9.6 billion—at the time the
largest acquisition in computer industry history.
1999: HP's board of directors announces its decision to spin off a new company from the
existing HP organization. Agilent Technologies consists of HP's former measurement,
components, chemical analysis and medical businesses. HP retains its computing, printing
and imaging businesses. Agilent has its initial public offering of common stock on
November 18, 1999. HP retains 84.1 percent of common stock. It is Silicon Valley's largest-
ever IPO.
In July, Lew Platt retires, and HP names Carleton (Carly) S. Fiorina as President and CEO.
In November, HP begins a new brand campaign based on a single concept: invent. Print and
television ads focus on the company's history of invention and innovation. The company
also introduces a new logo.
Michael Capellas is named CEO of Compaq.
2001: In March, HP creates a new business organization, HP Services. The role of the new
organization includes consulting, outsourcing, support, education and solutions
deployment.
On September 4, HP and Compaq announce a merger agreement to create an $87 billion
global technology leader. HP revenue: 45.2 billion. HP employees: 88,000.
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COMPAQ – THE COMPANY PRE-MERGER:
Important facts in Compaq history that led the company to merger decision:
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POTENTIAL IMPACT OF MERGER:
Merger would create a full-service technology firm capable of doing everything from
selling PCs and printers to setting up complex networks;
Merger would eliminate redundant product groups and costs in marketing,
advertising, and shipping, while at the same time preserving much of the two
companies’ revenues;
The merger would eliminate one player in an oversupplied PC marketplace;
It would also improve HP’s market share across the hardware line and double the
size of HP’s service unit—both essential steps in being able to compete with
industry-giant IBM;
Fiorina argued the merger would create a full-service technology firm capable of
doing everything from selling PCs and printers to setting up complex networks.
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Reasons for the Merger
A logical question that arises here is that, if HP was progressing at such a marvelous pace -
what was the reason that the company had to merge with Compaq? Carly Fiorina, who
became the CEO of HP in the year 1999, had a key role to play in the merger that took place
in 2001. She was the first woman to have taken over as CEO of such a big company and the
first outsider too. Her basic aim was to modernize the culture of operation of HP. She laid
great emphasis on the profitable sides of the business. This shows that she was very
extravagant in her approach as a CEO. In spite of the growth in the market value of HP's
share from 54.43 to 74.48 dollars, the company was still inefficient. This was because it
could not meet the targets due to a failure of both company and industry. HP was forced to
cut down on jobs and also be eluded from the privilege of having Price Water House
Cooper's to take care of its audit. So, even the job of Fiorina was under threat. This meant
that improvement in the internal strategies of the company was not going to be sufficient
for the company's success. Ultimately, the company had to certainly plan out something
different. So, it was decided that the company would be acquiring Compaq in a stock
transaction whose net worth was 25 billion dollars. Initially, this merger was not planned.
It started with a telephonic conversation between CEO of HP, Fiorina and Chairman and
CEO of Compaq, Capellas. The idea behind the conversation was to discuss on a licensing
agreement but it continued as a discussion on competitive strategy and finally a merger. It
took two months for further studies and by September, 2001, the boards of the two
companies approved of the merger. In spite of the decision coming from the CEO of HP, the
merger was strongly opposed in the company. The two CEOs believed that the only way to
fight the growing competition in terms of prices was to have a merger. But the investors
and the other stakeholders thought that the company would never be able to have the
loyalty of the Compaq customers, if products are sold with an HP logo on it. Other than this,
there were questions on the synchronization of the organization's members with each
other. This was because of the change in the organization culture as well. Even though
these were supposed to serious problems with respect to the merger, the CEO of HP,
Fiorina justified the same with the fact that the merger would remove one serious
competitor in the over-supplied PC market of those days. She said that the market share of
the company is bound to increase with the merger and also the working unit would double.
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Reasons against Merger
The last remaining board member from the founding families, Walter B. Hewlett went
public with his opposition to the Compaq deal. He mentioned several key reasons for this
decision, a few of which are summarized below:
It would increase HP's exposure to the PC market, which he felt was neither growing nor
profitable;
HP was paying too much for Compaq;
It would dilute shareholders' interests in the more valuable portions of HP's business:
printers and imaging services;
It could cause customers to delay purchases of HP products or buy from competitors due
to uncertainty;
There could be considerable disruption among employees during integration which
could lead to loss of talent and market share;
Possible benefits to HP since the announcement have declined due to negative outlooks
for Compaq;
In addition to these points, Mr. Hewlett specifically pointed out the fact that he does not
believe that this merger will aid HP in creating shareholder value nor does he felt this was
worth the risk.
Also the son of HP co-founder Dave Packard said he would vote the 1.3% stake he
controlled against the Compaq deal the day after childhood friend Walter Hewlett
announced his opposition. His big problem with the deal: It would require 15,000 layoffs.
Having an eye over shareholders' value: If one sees this merger from the eyes of Fiorina, it
would be certain that the shareholders have a lot to gain from it. The reason for the same is
the increment in the control of the market. So, even of the conditions were not suitable
from the financial perspective, this truth would certainly make a lot of profits for the
company in the future.
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Development of Markets: Two organizations get involved in mergers as they want to expand
their market both on the domestic and the international level. Integration with a domestic
company doesn't need much effort but when a company merges internationally as in this
case, a challenging task is on head. A thorough situation scanning is significant before
putting your feet in International arena. Here, the competitor for HP was Compaq to a large
degree, so this merger certainly required a lot of thinking. Organizations merge with the
international companies in order to set up their brands first and let people know about
what they are capable of and also what they eye in the future. This is the reason that after
this merger the products of Compaq would also have the logo of HP. Once the market is
well-known, then HP would not have to suffer the branding created by Compaq. They
would be able to draw all the customers of Compaq as well.
Listing potential: Even though Wall Street and all the investors of the company are against
the merger, when IPOs are offered, a development will definitely be there because of the
flourishing earnings and turnover value which HP would be making with this merger.
Necessary political regulations: When organizations take a leap into other nations, they
need to consider the different regulations in that country which administer the policies of
the place. As HP is already a pioneer in all the countries that Compaq used to do its
business, this would not be of much difficulty for the company. The company would only
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need to make certain minor regulations with the political parties of some countries where
Compaq was flourishing more than HP.
Better Opportunities: When companies merge with another company, later they can put up
for sale as per as the needs of the company. This could also be done partially. If HP feels
that it would not need much of warehouse space it can sell the same at increased profits. It
depends on whether the company would now be regarded a s a make to stock or a make to
order company.
Extra products, services, and facilities: Services get copyrights which enhances the level of
trade. Additional Warehouse services and distribution channels offer business values. Here
HP can use all such values integrated with Compaq so as to increase its prospects.
NEGATIVE ASPECTS
There are a number of mergers and acquisitions that fail before they actually start to
function. In the critical phase of implementation itself, the companies come to know that it
would not be beneficial if they continue as a merger. This can occur in this merger between
HP and Compaq due to the following reasons.
Conversations are not implemented: Because of unlike cultures, ambitions and risk profiles;
many of the deals are cancelled. As per as the reactions of the owners of HP, this seems to
be extremely likely. So, motivation amongst the employees is an extremely important
consideration in this case. This requires an extra effort by the CEO, Fiorina. This could also
help her maintain her position in the company.
Legal Contemplations: Anti-competitive deals are often limited by the rules presiding over
the competition rules in a country. This leads to out of order functioning of one company
and they try to separate from each other. A lot of unnecessary marketing failures get
attached to these conditions. If this happens in this case, then all that money which went in
publicizing the venture would go to be a waste. Moreover, even more would be required to
re-promote as a single entity. Even the packaging where the entire inventory from Compaq
had the logo of HP would have to be re-done, thus hampering the finance even further.
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Fiscal catastrophes: Both the companies after signing an agreement hope to have some
return on the money they have put in to make this merger happen and also desire
profitability and turnovers. If due to any reason, they are not able to attain that position,
then they develop a abhorrence sense towards each other and also start charging each
other for the failure.
Lack of Determination: When organizations involve, they have plans in their minds, they
have a vision set; but because of a variety of problems as mentioned above, development of
the combined company to accomplish its mission is delayed. Merged companies set the goal
and when the goal is not accomplished due to some faults of any of the two; then both of
them develop a certain degree of hatred for each other. Also clashes can occur because of
bias reactions.
Risk management failure: Companies that are involved in mergers and acquisitions, become
over confident that they are going to make a profit out of this decision. This can be seen as
with Fiorina. In fact she can fight the whole world for that. When their self-confidence turns
out into over-confidence then they fail. Adequate risk management methods should be
adopted which would take care of the effects if the decision takes a downturn. These risk
policies should rule fiscal, productions, marketing, manufacturing, and inventory and HR
risks associated with the merger.
SUMMARY OF BENEFITS
Market Benefits
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Operational benefits of Merger
Financial Benefits
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Porter’s Five Forces
RIVALRY: (HIGH)
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Two big players hold the top two market share spots in the computer hardware
industry;
IBM;
Dell.
MARKETING
Hp and Compaq would now have common channels after their merging. So, the benefits in
this concern is that even those materials which were initially of high cost for HP would now
be available at a cheaper price. The end users are also likely to increase. Now, the company
can reframe its competitive strategy where the greatest concern can be given to all time
rivals IBM. The advantages of this merger in the field of marketing can be seen in the case
of shared branding, sales and service. Even the distribution procedure is likely to be
enhanced with Compaq playing its part. Now, the company can look forward to cross
selling, subsidization and also a reduced cost.
OPERATIONS
The foremost advantage in this area is that in the location of raw material. Even the
processing style would be same making the products and services synchronized with the
ideas and also in making a decent operational strategy. As the philosophical and
mechanical control would also be in common, the operational strategy would now be to
become the top most in the market. In this respect, the two companies would now have co-
production, design and also location of staff. So, the operational strategy of HP would now
be to use the process based facility layout and function with the mentioned shared values.
TECHNOLOGY
The technical strategy of the company can also be designed in common now. There is a
disadvantage from the perspective of the differentiation that HP had in the field of inkjet
printers but the advantages are also plentiful. With a common product and process
technology, the technological strategy of the merged company would promote highly
economical functioning. This can be done through a common research and development
and designing team.
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BUYING
The buying strategy of the company would also follow a common mechanism. Here, the
raw materials, machinery, and power would be common hence decreasing the cost once
again. This can be done through a centralized mechanism with a lead purchaser keeping
common policies in mind. Now Hp would have to think with a similar attitude for both
inkjet printers as well as personal computers. This is because the parameters for
manufacturing would also run on equal grounds.
INFRASTRUCTURE
This is the most important part of the strategies that would be made after the merger. The
companies would have common shareholders for providing the requisite infrastructure.
The capital source, management style, and legislation would also be in common. So, the
infrastructure strategies would have to take these things into account. This can be done by
having a common accounting system. HP does have an option to have a separate accounting
system for the products that it manufactures but that would only arouse an internal
competition. So, the infrastructural benefits can be made through a common accounting,
legal and human resource system. This would ensure that the investment relations of the
company would improve. None of the Compaq investors would hesitate in making an
investment if HP follows a common strategy.
HP would now have to ensure another fact that with this merger they would be able to
prove competitors to the present target and those of competitors like IBM as well. Even the
operations and the output market needs to be above what exists at present. The company
needs to ensure that the corporate strategy that it uses is efficient enough to help such a
future. The degree of diversification needs to be managed thoroughly as well. This is
because; the products from the two companies have performed exceptionally well in the
past. So, the most optimum degree of diversification is required under the context so that
the company is able to meet the demands of the customers. This has been challenged by the
owners of HP but needs to be carried by the CEO Fiorina.
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SWOT Analysis
Strengths: Weaknesses:
Opportunities: Threats:
• Merger could improve economics and • Dell increases pressure in the low-end
innovation - server market;
• Economies of scale; • IBM, Dell and new entrants erode more
• Strengthen leadership in storage; market share.
• Market growth in IT services. • Economic downturn
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Financial Highlights
If we compare Gross profit margin of HP and COMPAQ with Gross profit of the company
formed as a result of the merger itself, one can come up to obvious finding: market where
companies operate is competitive enough to keep direct costs at very competitive level. It is
clear that even after such powerful merger as HP-COMPAQ companies were not able to get
synergy effect at their direct production materials (bargaining power over suppliers) and
direct labor (bargaining power over professional labor force market) level. On the other
had companies were able to achieve economies of scale in operating expenses. After initial
deterioration of Operating Profit margin (-1% in 2002) (which can be considered as normal
at the beginning of post-merger period, company started to recover its profitability starting
from 2003 and achieved 5% operating margin in 2004.
Positive outcomes of the given merger can be accessed based on the Profit Margin time
series analyses. Starting from
Profit Margin 2001 (COMPAQ Profit Margin
2000 was equal to 1.3%) through
5.0% 4% 2004 company managed to
4.0% 3% increase its profitability from zero
3.0% to 4%. Considering the difficulties
2.0% caused by the merging of two
0.9% companies’ cultures and financial
1.0%
operations company managed to
0.0%
recover from negative profit and
-1.0% 2001 2002 2003 2004 to add 4% equal economic value
-2.0% -1% to company shareholders pocket
in 2004.
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Fixed Asset Turnover
10% 9%
8% 7%
6%
4% 3%
2%
0%
-2% 2001 2002 2003 2004
-4% -3%
Positive synergy can be observed analyzing the Fixed Asset Turnover ratio of the Post-
Merger HP. Understanding the necessity of growth that is not always equivalent to taking
away market share from competitors, creating economic profits, and providing returns to
shareholders HP and COMPAQ still decided to unite their Assets and to strive for leading
place on the market. By affectively using united fixed assets companies managed to
maintain and increase turnover of production plant and equipment (in year 2000 10.9 and
11.8 fixed asset turnover was reported by HP and COMPAQ).
Return On Assets
10% 9%
8% 7%
6%
4% 3%
2%
0%
-2% 2001 2002 2003 2004
-4% -3%
Efficient usage of total assets preserving fixed cost stability is evident from company’s
Return on Assets employed. After the merger HP achieved increased profits bymaintaining
stable financial leverage (stable fixed costs).
Return On Equity (ROE) has always been the best measure of Merger success. Chart
presented below compares ROEs of HP and COMPAQ before merger and continues with
Post-Merger company ROE performance. We see that after 2002 negative performance
company overwhelmed pre-merger profitability and started to generate two times more
value for existing shareholders.
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Return On Equity
10% 9%
8%
7%
6%
5% 5%
4% 3%
2%
0%
2000 HP 2000 CQ 2001 2002 2003 2004
-2%
-3%
-4%
Observing profitability and efficiency ratios above, it can be stated that HP_COMPAQ
merger was more that welcome from shareholders perspective.
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Recommendations
Recommendations
The majority of mergers and acquisitions fail in one or more strategic goals. Often the expected
synergy is wishful thinking, management and strategy not being applied consistently from the
start, or an unexpected technology shift or business downturn affecting one or more key
operating units in the new entity. The key element of success will be in minimizing product and
service overlap.
HP-Compaq will evolve through this period by focusing on three key elements.
Understanding and adjusting to the rapidly evolving and shifting markets
domestically and internationally as the second Internet boom, B2Bi takes off.
HP-Compaq will need to understand which technologies to accelerate, and which
ones to drop, to avoid the "drag" that is fatal against the pace of Moore's law, and against
stronger competitors like IBM.
The synergy of the "four S" components will need to extend into the technology
solution discovery process, account management, and value creation for HP-Compaq
customers.
HP-Compaq has the benefit of clearly knowing and addressing these issues from the start. Key
points in Strategy Evolved for HP-Compaq:
o HP-Compaq will need customer-designed solutions to compete against company like
Dell.
o Global deployment will be key to the success against dual threats of IBM and Dell.
o Extending value to customers - The optimum HP-Compaq entity evolves into a fluid
organization where customers, connected by products, services, and software, now
succeed through a transparent discovery of business solutions and partners across the
globe. Connecting with suppliers, partners, and customers naturally will sweep them
through HP-Compaq solutions.
In the middle phase of the merger, the combined entity must be able to hold its own against
market leaders in all competing sectors. A key challenge to address will be not losing 18 months
of "integration time" while the next generation of products is introduced to the market. HP-
Compaq will need to simultaneously evolve and integrate.
Additionally, the competitive landscape will have changed significantly, and HP-Compaq will be
competing in traditional Fortune 5000 markets, enterprise B2B and consumer products. IBM
will be a key competitor in all three markets. HP-Compaq will need to be seen as one contiguous
corporate entity. Servers are key hardware strengths for HP-Compaq, as is their business
software. Storage needs will continue to grow exponentially, as will data management and
network services.
HP-Compaq can build market share in service using two complementary but different
approaches.
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* The first approach is to ensure integration opportunities for server-software solutions by
including features, which quickly extend the reach of HP-Compaq's customers to their
suppliers, partners, and customers. As B2Bi creates immediate value for businesses with easily
extensible business architectures, new solutions will require extensive analysis of business
problems to solve and opportunities to manage.
* The second approach uses a Managed Services Approach to monitor, optimize, and evolve HP-
Compaq solutions that reside on customer premises, but extend partially through HP-Compaq
data centers. Distributed and extensible business solutions can be architected and evolved by
HP-Compaq engineers in controlled environments, and seamlessly deployed to customers after
thorough testing.
Strategy Deployed
Redundant or non-competitive product and service offerings must be identified quickly and
eliminated, or refocused into core value competency activities. Integrated solutions across
hardware, software, and enterprises are where HP-Compaq has the greatest potential to excel.
Both firms possess technical strength, product maturity, and customer knowledge required for
building market share in enterprise business solutions.
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Key points in Strategy Deployed for HP-Compaq:
* Servers - The server is a key component in a value model as it is the nexus for software,
network connections, and business applications for the customer and its partners. Garnering
market share here is the key for the combined HP-Compaq entity.
* Services - This is the Holy Grail in enterprise IT markets going forwards, as it drives discovery
of new products, and is driven by placement of servers and software. It can be 20% of total
revenues, and 25% of profit. It ensures constant customer contact.
* Software - HP has been strong in software, and reasonably successful bundling it on servers.
However, a combined HP-Compaq entity is a more visible threat to IBM, will respond in kind.
Evolution of application platforms will be key to selling suites of business applications.
Ironically, competition from Oracle could help IBM here.
* Storage - The fastest growing segment in network services is network storage and data
management. This is a replenishment and dynamic transaction in the value framework, and also
drives incremental sales of products and services.
* Strategy - Initial strategy must focus on synergy of the "four S" participants inside the HP-
Compaq entity before value extension towards the customer can occur.
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