in

Hewlett Packard Business Model: A Brief overview

Introduction:

Hewlett Packard (HP) was incorporated in the year 1947. Today, it is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services. Till some years ago, HP and HPE were a single business. They became separate divisions in November 2015. The company brought about this separation so that each of the divisions could focus exclusively on its business area. HP is the segment that deals with personal systems and printing. Today, HP is the leading brand of PCs and notebooks globally rivaled by brands like Lenovo, Dell, Apple, and Acer. Notebooks, PCs, and printing supplies are the top sources of revenue for HP. As of 2018, the company had around 55,000 employees worldwide. The PC market has grown highly competitive, and the demand for PCs has continued to decline as per industry sources.

HP is an innovative brand and invests a significant sum in research and development each year to stay ahead of the competition in the PC market. As of October 2018, the company had a large number of patents in its global patent portfolio. The total number of patents in the patent portfolio of HP was higher than 26,000 in 2018. It has a large and global supply chain and distribution network. Among its leading suppliers are Intel, AMD, and Microsoft. HP’s business model has changed a lot in recent years, and since the separation, the brand is focused on notebooks, PCs, and printers mainly. With growing competition in the market, the focus of HP on research and innovation has also increased. Apart from the competition, increasing regulatory pressures are also making the situation challenging for PC brands. However, HP has managed a robust global presence and a competitive business model, which are some significant reasons behind its leading position and profitable growth.

Learn more about HP’s business model.

Business segments:-

HP’s business is divided into three reportable segments – Personal Systems, Printing, and Corporate Investments. The Personal Systems segment of HP offers Commercial and Consumer desktop and notebook personal computers (“PCs”), Workstations, thin clients, Commercial mobility devices, retail point-of-sale (“POS”) systems, displays, and other related accessories, software as well as support and services. The printing segment of HP offers Consumer and Commercial printer hardware, Supplies, solutions, and services, as well as scanning devices. The corporate investments segment includes the HP labs and specific other projects. In 2018, HP enjoyed growth in revenue from both its personal systems and printing businesses. The total net revenue of the brand was around $58.5 Billion in 2018.

Personal systems:

The personal systems segment of HP is grouped into four business units that include Notebooks, desktops, workstations, and others. The notebooks unit includes Consumer notebooks, Commercial notebooks, mobile workstations, and Commercial mobility devices. The desktop business unit of HP includes Consumer desktops, Commercial desktops, thin clients, and retail POS systems. The workstations business unit includes desktop workstations and accessories. Consumer and Commercial services as well as other Personal Systems capabilities are included within the other business units. Personal systems accounted for around 64% of the brand’s total net revenues in 2018. HP’s 2018 revenue form the entire personal systems segment was $37.7 Billion. Notebooks accounted for the highest revenue in the personal systems segment followed by desktops and workstations. Total revenue from notebook sales was $22.55 Billion in 2018 and that from desktops $11.57 Billion. The revenue from workstations in 2018 was $2.25 Billion. Other businesses in the personal systems segment generated around $1.3 billion in 2018.

Printing:

The global business capabilities of the printing business segment include office printing solutions, home printing solutions, Graphics solutions, as well as 3d printing. The printing segment is organized into three business units, which are consumer hardware, commercial hardware, and supplies.

The commercial hardware includes the  Office Printing Solutions, Graphics Solutions, and 3D Printing, excluding supplies. The consumer hardware unit consists of Home Printing Solutions, excluding supplies. The supplies business unit includes a set of highly innovative consumable products, including Ink and Laser cartridges to media, graphics supplies, 3D printing supplies, and Samsung-branded A4 and A3 supplies and OEM supplies, used in Consumer and Commercial Hardware.

The printing business segment accounted for around 35% of the net revenues of HP in 2018. The total revenue from the printing business segment of Hewlett Packard was approximately $20.8 Billion in 2018. The highest revenue in this segment came from printing supplies followed by commercial hardware and consumer hardware. Printing supplies generated about $13.6 Billion in 2018 in revenues. Commercial hardware and consumer hardware each generated around $4.7 Billion and $2.56 billion in revenues. HP’s total revenue from corporate investments was $5 million in 2018.

Risks:-

HP’s business model is also full of risks and challenges. Apart from the rising competition, there are other several challenges too including government regulations and supply chain disruption also pose severe challenges before HP.

As a PC business, HP is facing intense competition from rivals like Lenovo, Dell, Apple, Acer, and Asus. The threat of competition is growing every year and due to that, the competition has to invest a lot in marketing and research, and innovation. Moreover, HP separated from HPE in 2015 to focus exclusively on notebooks, desktops, and printing businesses. Each of its rivals in these areas also invests heavily in product quality and marketing as well as research and innovation.

The level of risks related to compliance and government regulation has also increased for PC businesses like HP. Apart from increased government oversight, the company is also facing intense pressures over compliance related to data privacy. The market situation has also grown highly challenging because of the economic fluctuations in the global economy. Fluctuations in regional markets and currency exchange rates are also causing pressure on profit margins.

Five Operational Performance Objectives

A well-defined set of operations performance objectives is critical to running an organization profitably.  There are five basic performance objectives that apply to all kinds of business operations. These five basic operations objectives are – cost, dependability, flexibility, quality, and speed. These five performance objectives have both internal and external implications. They are also interrelated. The internal effects of these performance objectives have a definite impact on cost. 

Quality:

Quality is a leading operational performance objective. It refers to consistent performance according to your customer’s expectations. Quality also affects customer satisfaction to a significant extent. However, quality can have a different meaning in one industry and a different one in another. Compare an automobile business with a technology business. The same quality standards do not apply to each one. Quality can acquire different meanings in different settings or industry environments. While in some industries, the level of staff friendliness is the main scale to measure quality, product efficiency is the main indicator of quality for another. However, no matter whatever industry a business belongs to, customers appreciate quality is the truth. Quality can, therefore, have a direct and major influence on customer satisfaction as well as organizational performance.

 Quality is also related to a company’s social image. It can make many things easier for businesses like customer acquisition through positive word of mouth and increase customer retention as well as higher brand recall. These things grow an organization’s profitability. In the context of the computing industry, quality is measured on the basis of several factors. While product performance is a leading indicator of quality, pricing, marketing and brand image are also indicators of quality for computing brands. 

HP is an industry leading brand of PCs, laptops, peripherals as well as printers. The company has managed its leadership position in the industry through a  consistent focus on product quality as well as brand image and technological innovation. HP excels in all these areas. It is also among the most trusted brands of Pcs and Laptops. The global popularity of HP products is also an indicator of its focus on quality. 

The PC industry is experiencing intense competition. There are several rival brands like Lenovo, Dell, and Asus that compete with HP. Quality has also become an essential factor; because of rising competition in the PC industry. As a result, HP, apart from product quality, performance, and design, also focuses on quality in the area of marketing. It is also a reason that it continues to rule the PC market globally.

Speed:

As the industry has evolved with the advancement of digital technology, speed has become essential to acquire business growth. In fact, you cannot imagine operational performance without speed in the 21st century. Now in nearly every industry speed matters just as much as quality or prices. Customers want products delivered to their doorsteps faster. In this era, where a large range of services are delivered and consumed online including a large range of technology and entertainment services, speed matters a lot and sometimes it can be a leading differentiating factor for a company. A company that brings ideas to the table and products to the shelves faster than its competitors usually finds itself ahead of the others in the market.  In some industries where services have to be consumed instantly, speed matters more than ever. Apart from that, in some industries, businesses need to keep the shelf filled with the latest items in order to engage their customers and it is also a reason that speed is so important. 

The advancement of digital technology has led to enormous changes in the world of computing. Speed has become more integral to business growth. HP has also managed its value chain in a manner that ensures higher efficiency as well profitability and success. It has managed its supply chain in a manner that ensures continuous availability of raw material as well as the flow of goods and services at a faster pace. Overall, the company focuses on quality in nearly all aspects of its business operations.

Dependability:

Dependability or reliability is in itself considered a sign of quality in this era. Dependability, reliability, or trust are synonymous with brand equity which is an important strength for any industry-leading brand. How dependable your business is or how much your customers trust your brand affects your brand equity. However, there are several factors that affect dependability in each industry. For example, while the quality of raw materials and the final product will have a direct impact on the dependability of a business, in the case of others it is the timeliness of delivery.

 Keeping the promise you made to your customers also affects dependability. Another factor that has kept growing in importance for businesses as well as customers in the twenty-first century that also affects dependability is the overall level of customer experience. Brands that offer a superior customer experience overall are considered to be more dependable by the customers. Apple and Amazon are two great examples of companies that have maintained very high-level customer loyalty because they deliver superior customer experience.

In the case of computing and related brands, dependability comes from performance and product quality. While marketing and company culture also matter for these businesses apart from brand equity, the first two factors are critical to winning in an intensely competitive industry environment. HP has earned strong brand recognition in the global industry based on product quality, marketing, and innovative technology. 

Dependability is a key factor that directly affects sales and profits of a PC brand. Customers like to buy computing products only from the brands that they trust. It is why apart from product quality, businesses need to focus upon their brand image and reputation in order to expand their customer base and to grow sales. However, it is equally important for businesses to focus on marketing to maintain a strong image and retain their market share. While product quality is a key determinant of dependability in the PC industry, there are other factors too that determine how much the customers trust a particular brand. Customer experience is also one of these factors. It is why apart from quality and innovation, HP also strives to offer its customers a superior customer experience since it affects its popularity as well as sales in the global markets. HP’s dependability is evident from its market leading position and the customer loyalty the brand enjoys. The company’s unique organizational culture is one of the main factors supporting the strong social image of HP. A strong social image can be the key to winning the trust of customers, employees, investors and other stakeholders. In this era, companies need to manage a strong image among all the stakeholders including internal and external. This helps maximize satisfaction and retain customers.

Flexibility:

Flexibility means the ability to change what, how, and when operations do. There are four types of flexibility in general that are applicable to business operations. They include product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility. Product/ service flexibility means the ability to introduce new or customized products or services. Mix flexibility means the ability to widen the product/services mix to cater to the customer needs better. Volume flexibility denotes the ability to change the output level to produce different quantities of products/services over time. Delivery flexibility on the other hand means the ability to change the timing of delivery. Overall, flexibility is an important aspect of operational performance and superior flexibility also denotes superior performance. Flexibility can also acquire different meanings in different industrial environments. For example, in a healthcare environment, the ability to introduce new types of treatment and to widen the range of available treatments or the ability to adjust more patients and reschedule appointments can all be a sign of flexibility. However, in the case of the automobile, hospitality or retail industries, flexibility can mean different things.

In the case of the computing or cloud technology industries, flexibility is central to delivering performance based on customer expectations. For brands like HP, flexibility is even critical since the tech industry is continuously evolving and so are the needs of the customers. The industry environment is highly competitive and HP needs to anticipate market changes and respond to them faster in order to maintain its leadership position and market share. HP has established a highly resilient and flexible supply chain that ensures a continuous supply of raw material. It utilizes the power of modern technologies like IoT, AI, blockchain, etc in supply chain and manufacturing for smooth operations. These technologies also help the business run its operations flexibly and cater to customer demand with higher efficiency.

Flexibility is the need of the time and every large business needs to operate flexibly. Apart from the competition, the fast-changing industry environment is also an important reason behind it. Higher flexibility in operations allows HP to bring new innovations faster to the market. The computing needs of customers including individual and corporate customers are evolving. It requires a continuous focus on innovation to understand their needs and respond to them with appropriate products. It is important to note that the companies that have established flexible operations and value chain are more innovative as compared to others. 

Cost:

Cost in terms of operations performance mainly means the operating expenses incurred by businesses. However, the proportion of various operating costs can vary from industry to industry. For example, staffing costs may represent the largest costs for a transportation company but the costs of raw material may be the largest group of operating costs for an automobile brand. In the case of most companies, if their operating expenses are low, they can also keep the prices low for their customers. Not all companies compete in the market on the basis of price.

 Some companies compete on product quality, other companies compete on the basis of customer service, and others on the basis of marketing or all of these factors. However, even the companies that do not compete on the basis of prices, they too are interested in keeping their operational costs low. If a company reduces its operating expenses that will help it increase its profits because a penny saved equals a penny earned. To keep operating expenses low requires focusing on areas where the company incurs the highest operating expenses.

Analysis of  HP’s Operations based on the 4Vs model:

Operations and operational processes are like the fundamental building blocks of organizations that have a significant influence on the productivity of the organization and the quality of the organizational output as well. Focusing on operational efficiency has helped businesses find faster market growth as well as maximize output. Many times, if the efficiency of processes is low then it is mainly because the organization has adopted a poor operational design. Processes across business organizations and industries can differ significantly and that is why all processes must be managed differently. Some of the leading differences between various processes are due to the technologies and the level of know-how involved. Different processes require different production equipment as well as different skills and know-how. However, apart from these things, the difference also lies in the nature of the demand for the products and services these processes produce. There are four particular characteristics of demand that have a significant impact on process management and which are as follows:

  • The volume of the products and services produced
  • Variety of products and services produced
  • Variation in the demand for products and services.
  • Degree of visibility that customers have of the production of products and services

Volume of products and services:

Does the business being discussed produce a large amount of the same products and services or various items in small volumes? For example, a car company will produce thousands of pieces of the same model.  On the other hand, a fashion brand will produce limited pieces of various designs. If the volume of output is high, it indicates repeatability or high-level familiarity of the processes. Many times since a large business produces more and more of the same thing, it gains significant expertise in producing that product. It also helps the business gain a significant competitive advantage compared to the smaller ones. In the Pc industry, most companies produce an extensive range of laptops and PCs in varying price ranges. 

 HP is among the leading PC brands in the world that produces and sells a vast range of laptops and PCs. The company sells its products globally and to retain its market-leading position, it maintains its focus on quality. However, despite its large range of products, the company has optimized its manufacturing and value chain efficiently so that the level of complexity in processes remains low. It produces PCs and printers in large volumes. In this way, the company has achieved economies of scale that help it maximize its profits.  While it produces a vast range of PCs and printers that cater to different market segments from individual users to corporate customers. Inside most of these products within the same category, the technology as well as the raw material used is similar. The company has gained significant expertise in the production of PCs and printers through repeatability and continuous focus on research and innovation. In this way, it has gained a significant competitive advantage that the company strives to retain through continuous innovation. 

Variety of processes (products and services produced):

 Variety is related to the various types of activities that are being performed by the company and how well it manages the various processes. The level of operational complexity is very high when it comes to a mixed model manufacturer that is engaged in lots of changeovers between processes. It means apart from having to choose from a very wide range of inputs, the company has to handle the additional complexity of matching specific customer requirements in terms of products and services. Generally, the high variety processes are more costly as compared to the lower variety processes.

HP uses both high and low variety processes for the production of the goods and services it offers. It produces a broad category of products including PCs and printers. Manufacturing these products requires a mix of high variety and low variety processes. Technological products are generally difficult to produce and apart from technical know-how also require complex manufacturing processes and equipment. However, HP maintains a consistent focus on innovation in order to improve its products and services. Apart from improving the manufacturing processes, it also consistently focuses on bringing in new expertise and technical knowhow that can make it easier to produce these products in large volumes easier and less costly.

 Variation in demand of products and services:

In fact, demand variation is among the most challenging aspects of business operations. It is easier for businesses to manage the processes when the level of demand is predictably constant. However, when demand can fluctuate significantly, then managing processes becomes somewhat complex. If demand is predictably constant, it is easier to gear resources to efficiently cater to the existing demand, Moreover, businesses can plan operational activities including marketing and sales or after-sales services in advance.

On the other hand, if the level of demand varies significantly or can be highly variable or even unpredictable, then resources will need to be adjusted over time. What is even worse is that if demand can soar unpredictably, extra resources need to be devoted to the process such that it provides a capacity cushion that can easily absorb the unexpected demand. Let’s take a simple example of seasonal variations in retail and e-commerce. Demand for a large range of products surges suddenly during the festive season including gifts, electronics, home decor products as well as fashion products. Another important factor that can cause a variation in demand for specific products and services is the level of competition in the market. If the overall level of competition in the market is very high, the companies have to care a lot to maintain the demand for their products and services and that may require a large annual investment in marketing as well as technology.

As in the case of computing and cloud technology products and services, they are consumed by individual and corporate customers throughout the year. The sales of laptops and computing products, and well as cloud technology products does not show significant seasonal variations. Their demand has continuously surged, driven by the competitive edge businesses around the world can gain through the use of digital technology products. This is why seasonal variations are generally not common in the PC or cloud industry since these products stay in demand throughout the year. HP does not experience any significant variation in demand  throughout the year.

Visibility of processes:

Visibility denotes that aspect of business operations that is easily visible to the customers. The businesses that work with consumers directly may have more visible processes. For example, the healthcare and retail industry have more visible processes. However, the same is not true about an automobile business. Customers generally do not have a very clear view of the production and distribution processes of automobile brands. They cannot peep into everything that goes on before the finalized cars reach the showrooms. This is the only aspect of automobile operations that they are generally familiar with. It is also true about businesses like Apple inc. However, when it comes to businesses like Amazon or even Facebook, these are highly customer-facing businesses or customers have very high visibility into their operations. These are also some businesses for which transparency and accountability matters a lot. However, even in the physical retail industry, accountability and transparency have become of paramount importance because of the growing focus on the brand image as well as customer trust and customer experience.

HP is not a highly customer-facing business. It is because apart from the HP stores, customers generally cannot see the rest of its business processes or what goes on behind the scenes. The company’s manufacturing operations and supply chain generally remain invisible to the customers. Despite its being a low visibility business, the company has to remain committed to customer experience which is essential for expanding its customer base as well as increasing profits in a highly competitive industry environment.

Conclusion:

HP is an innovative company that specializes in PCS, notebooks, and printers. It is a global business whose products sell in nearly every corner of the world. Notebooks accounted for the largest part of the brand’s revenue in 2018 followed by Printing supplies and desktops. The growth of HP and its leadership position can be attributed to its strong focus on innovation, product quality, and a strong business model. HP separated from HPE in 2015. While its revenue has grown in 2018, there are also several challenges ahead. HP and HPE are both focusing on restructuring since the separation. HP is investing in customer experience, sustainability as well as innovation to retain its leadership position in the PC and printing market.

Sources: HP Annual Report 2018

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

Amazon resources and capabilities

SWOT Analysis of Ford Motors 2019