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 BMGMNT6 Students Formulating Long Term Objectives and Grand Strategies Read the following and perform the required activities Beating Dell: Why Hewlett Packard Wanted to Acquire Compaq  On September 4, 2001, Hewlett Packard's CEO, Carly Fiorina, shocked the business world by announcing that rival computer maker Compaq had agreed to be acquired by HP. The acquisition announcement came at the end of a year in which slumping demand and strong competition from Dell Computer had buffeted both companies. The merged company would have annual revenues of about $87.4 billion, putting it in the same league as IBM, from a range of products that span printers, personal computers, servers, storage, and information technology services. With the exception of printers, where HP is the clear market leader, there was significant product overlap between HP and Compaq. To justify the acquisition, Fiorina claimed that it would yield a number of benefits. First, there would be significant cost savings. Some $2.5 billion a year would be taken out of annual expenses by eliminating redundant administrative functions and cutting 15,000 employees. By combining the personal computer businesses of HP and Compaq, Fiorina argued that the new HP would leapfrog Dell to seize the number one position in the PC business with a 21% share fo the market. The expanded volume would enable HP to capture significant scale economies and thus compete more efficiently with Dell. The same would be true in the computer server and storage businesses, areas where Dell was gaining share. Here too the new HP would take the number one spot, with a 27% share of the market in servers and a 26% of the market in storage systems. Critics, however, were quick to point out that Dell's competitive advantage was based on its direct selling model and the efficient management of its supply chain, areas where both HP and Compaq lagged Dell. Economies of scale are all very well, they argued, but unless the new HP could sell computers and servers the way Dell does and manages its supply chain efficiently, the new HP might just give Dell a bigger target to aim at.In addition to the cost advantages of the merger, Fiorina argued that the acquisition would give the new HP a critical mass in the service area, where it lagged leaders IBM and EDS significantly. By being able to offer customers a total solution to their information technology needs, both hardware and services, Fiorina argued that HP could gain back market share among corporate customers from commodity box providers such as Dell and reap the benefits associated with the higher margin service business. Here too, though, critics were quick to perceive flaws. They argued that HP would still be a minnow in the information technology services area, with under 3% of the market share, well behind IBM and EDS. Moreover, they noted, Dell's success suggested that building a service business was not necessarily consistent with maximizing profitability. The proposed acquisition turned into a long-running corporate saga when Walter Hewlett, son of one of the company's founders and an HP board member, came out and publicly opposed the deal, stating that it lacked strategic rationale. A proxy battle between backers of Fiorina and Hewlett ensued. A shareholder vote on March 20, 2002, gave Fiorina's plan a slim majority and in May 2002 the merger was formally completed. Meanwhile, Dell continued to gain share in the critical PC, server, and storage areas. What are the competitive advantages of Dell and HP? Research on the current market share of Dell and HP. (use short bond paper for your output) Click here for your notes
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