Friday, August 19, 2011

HP's Decision to Spin off its PC Division

HP’s decision to spin off or sell its PC division strikes me as reflecting badly upon both the strategy and execution of the business.

Consider the following facts:
  • HP is the largest technology company in the world with the leading market share in personal computers. As such it has potential economics of scale, economies of scope, buying power and should have a cost advantage over its competitors.
  • HP is one of the few full service computer providers who can provide a wide range of hardware to business buyers, presumably allowing lower cost of sales and service.
On the negative side, HP’s branding is confused. I have never been clear on what HP’s brands stand for at the overarching level (what is the difference between Compaq brand and HP brand?), or at the product line level – there is very little successful branding to communicate different value propositions to different types of buyers.

Perhaps the biggest sign of problems in the HP brand is its lack of innovation. Why for example was HP so late to the tablet market? What was its offering reviewed as slow and buggy? How can major companies launch buggy products with anticipating consequence? Even if you are late to market, it’s a bad idea to create negative word of mouth from early adopters and reviewers. It’s negative viral marketing.

Perhaps the biggest condemnation of HP’s innovation is to ask the question why it cannot even design an equivalent to the Apple Airbook. It’s pretty obvious to anyone who has travelled with a computer, that less weight and small form factors are desirable. It was a need obvious before the Airbook was launched. It was obvious when the first generation of Airbook was launched. It is even more obvious today with the second generation of Airbook.

There are other reasons to be critical too. If a company like HP decides to compete against a large and dominant competitor such as Apple in the tablet market and it is not prepared to develop a superior product offering, it must anticipate a long uphill battle. To launch a product and then give up on it quickly suggests either that the company lacks a long term plan or that it seriously underestimated its competition. Even worse, in the consumer market, competition is based upon ecosystems. Lacking an explicit ecosystem strategy to compete with a dominant competitor’s ecosystem is a recipe for disaster.

HP claims that profitability is a major reason for spinning off the PC division. But profitability is under the control of management. If Apple can command premium prices for ease of use, for design, for their integrated ecosystem, why can’t HP? Lack of profitability represents a failure to seek superior value and obtain the pricing that superior value claims.

Research on new product innovations suggests that the single largest predictor of new product success is offering a differentiated high value product. HP seems not to have understood this lesson.

Perhaps the fundamental reason for HP’s lack of success is explained by research on product managers. Some researchers suggests that companies with strong and senior product managers who are both accountable and given authority produce better products and bring them to market faster. In organizations where the product manager is less experienced, has little authority and plays a more coordinating role, products take longer to get to market and are of lower quality.

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