Hewlett-Packard (HP) announced last August that it was planning on exiting the PC market, possible moving towards an increased emphasis in software development. Their new CEO, however, has stated that HP will continue to be primarily a PC hardware company. The hedgehog concept from Good to Great can be applied to this strategy decision.
What can we be the very best at?
Hewlett-Packard has spent years developing its products to meet its customer's expectations. While they are not the best in terms of hardware quality, they seem to be trying to be the very best at producing quality products for the low-end, price sensitive market. According to HP CEO Meg Whitman, their strategy is "to remain the largest provider of IT infrastructure, software, services and solutions for individuals of all size."
What can we be passionate about?
When asked about HP's hardware division, Meg Whitman said, "That's the core of who we are and we should stand up and be proud of that. We're a proud hardware company and we want to stand tall with you... Everything else we do builds and amplifies that opportunity." Certainly, HP feels like their core competency lies in the hardware division. Its other divisions such as software are meant to strengthen its core business of hardware production.
What drives your economic engine?
The third aspect of the Hedgehog concepts relates strongly to the concept of profit pools. HP has several different profit pools including software, PC hardware, printers, warranties, etc. According to their CEO, "Infrastructure is the core of HP's DNA... with 70 percent of HP revenue coming from servers, printers, storage, PCs and workstations."
Friday, February 17, 2012
Monday, February 6, 2012
JC Penny
JC Penny recently announced that instead of having massive sales discounts, they would move towards an everyday low-price strategy. This seems to apply to Porter's competitive advantage framework.
JC Penny traditionally has had a broad customer focus and a product differentiation strategy through its private label brands. With a lower everyday pricing model, it will shift towards a low cost, broad market strategy. This strategy seems to have some advantages and disadvantages. Its advantages are that it can appeal to the price-sensitive groups by not making them wait for the huge discount sales. On the other hand, if they drop some of their private label brands because of lower sales prices, they may lose customers who feel that JC Penny represents value and quality. Also, price-sensitive shopper who get exciting about huge 50% off sales may be turned away from JC Penny because there is not as much perceived value in the everyday low prices.
JC Penny traditionally has had a broad customer focus and a product differentiation strategy through its private label brands. With a lower everyday pricing model, it will shift towards a low cost, broad market strategy. This strategy seems to have some advantages and disadvantages. Its advantages are that it can appeal to the price-sensitive groups by not making them wait for the huge discount sales. On the other hand, if they drop some of their private label brands because of lower sales prices, they may lose customers who feel that JC Penny represents value and quality. Also, price-sensitive shopper who get exciting about huge 50% off sales may be turned away from JC Penny because there is not as much perceived value in the everyday low prices.
Friday, January 20, 2012
Apple iBooks
Apple recently announced that it intends to compete with the textbook industry by selling electronic copies of books at a low cost to K-12 schools. I was thinking about how Porter's Five Forces applies to this decision.
Threat of new competition
I would say the threat of new competition would be high. It does not seem that the potential for high profit margins in this segment would invite other technology companies to join in. It seems like Amazon would be well-suited to compete in this market with its Kindle. Apple may be able to create high barriers to entry through programs to get iPads into school districts nationwide. If schools invest large amounts of money into purchasing iPads, the cost to switch to another platform could potentially limit the viability of new entrants in the market.
Threat of substitute products
The physical textbooks are the current competition to electronic textbooks. However, the cost of making a physical textbook is significantly higher than a digital copy, so the electronic copies could sell for much cheaper. The Kindle has a lot of eBooks currently, but does not market them to the K-12 schools. Amazon is probably the best suited to come up with a substitute product.
Bargaining power of customers (K-12 school districts)
In this case, the schools seem like they would have limited buyer power because of budget restraints. Physical textbooks are an enormous expense for school districts, so electronic versions would come much cheaper, but still at a healthy profit margin for Apple.
Bargaining power of suppliers
In this case, the suppliers are the textbook writers and publishing companies. Apple may have a difficult time purchasing copyrights for textbooks. The limited number of textbook publishing companies may give the suppliers a great deal of power, but Apple certainly has sufficient capital to overcome any barriers with suppliers.
Rivalries
If Apple is able to effectively flood the K-12 schools with iPads, the first-mover advantage could definitely give them a favorable position. However, when Apple introduced the iPad, competitors were quick to come up with their own tablet. These same companies could come up with similar e-Books that could create a fierce rivalry in this market.
Threat of new competition
I would say the threat of new competition would be high. It does not seem that the potential for high profit margins in this segment would invite other technology companies to join in. It seems like Amazon would be well-suited to compete in this market with its Kindle. Apple may be able to create high barriers to entry through programs to get iPads into school districts nationwide. If schools invest large amounts of money into purchasing iPads, the cost to switch to another platform could potentially limit the viability of new entrants in the market.
Threat of substitute products
The physical textbooks are the current competition to electronic textbooks. However, the cost of making a physical textbook is significantly higher than a digital copy, so the electronic copies could sell for much cheaper. The Kindle has a lot of eBooks currently, but does not market them to the K-12 schools. Amazon is probably the best suited to come up with a substitute product.
Bargaining power of customers (K-12 school districts)
In this case, the schools seem like they would have limited buyer power because of budget restraints. Physical textbooks are an enormous expense for school districts, so electronic versions would come much cheaper, but still at a healthy profit margin for Apple.
Bargaining power of suppliers
In this case, the suppliers are the textbook writers and publishing companies. Apple may have a difficult time purchasing copyrights for textbooks. The limited number of textbook publishing companies may give the suppliers a great deal of power, but Apple certainly has sufficient capital to overcome any barriers with suppliers.
Rivalries
If Apple is able to effectively flood the K-12 schools with iPads, the first-mover advantage could definitely give them a favorable position. However, when Apple introduced the iPad, competitors were quick to come up with their own tablet. These same companies could come up with similar e-Books that could create a fierce rivalry in this market.
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