HP, Inc. (Hewlett-Packard) is an Information Technology (IT) company based in Palo Alto, California. The company’s core business involves design, manufacture, and selling of IT related hardware that includes personal computers (PCs), printers, printer consumables, network servers, data storage hardware, and computer accessories. These HP products comprise of a variety of component parts that derive from different suppliers. Similarly, the ultimate destination of HP products is characterized by specific demands from customers who are not uniform in their characteristics. For instance, customers can be individuals, small and medium-sized businesses (SMB), the public sector or large enterprises whose access to HP products can be either direct or indirect.
A company’s values chain implies the synergized arrangement of all factors of production and distribution, so that the company’s competitive strengths are utilized effectively.
The primary chain values of HP include inputs, manufacturing and assembly, service coordination, and the ultimate market. These primary activities are facilitated by the supporting activities, which improve efficiency or effectiveness.
The input stage is where HP’s product and services suppliers are recognizable. HP’s raw materials include microprocessors, graphics processor, motherboards, storage disks, display drivers, housing, among others. These objects are all hardware and software components needed to complete a full unit of a HP product. Suppliers of semiconductors include AMD, Intel, Broadcom, Micron, and NVidia. Hardware suppliers include Western Digital, ASUS, Logitech, Linksys, and Creative Labs. It is imperative to note that HP is disadvantaged at this stage of the value chain in terms of determining the cost of production of its products. This disadvantage is inherent because HP alone cannot produce all the component parts needed to make up one product unit (Detwarasiti & Tay, 2010). Interestingly, some of these components originate from HP’s direct competitors. For example, Samsung electronics makes semiconductors that HP uses in its PCs. Moreover, suppliers such as Microsoft and Intel enjoy a high bargaining power in determining HP’s product components because they enjoy a stronger customer base support. The majority of HP’s consumers will demand that HP’s products be compatible with the Microsoft windows operating system and the Intel’s motherboards. Nevertheless, HP exploits the presence of many suppliers who are competing to supply raw materials of the same function to obtain the best deals that comply with its budget and forecasts.
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The manufacturing stage incorporates product design and assembly. HP’s competitive advantage starts manifesting at this stage of the chain value. This competitive advantage is present because HP combines all these component parts into one unit that provides real value to the ultimate consumers. In fact, HP’s research and development department facilitates this competitive advantage by providing information about customer’s preferences such as their demand for no-touch devices, low-touch devices, configure-to-order devices, high-value devices, or service-integrated devices. Consequently, HP’s brand reputation that is strong all over the world inevitably invites all suppliers to compete in supplying their raw materials to HP in the hope that their brands will also get exposure. Therefore, HP exploits the economies of scale at this stage to improve its operational efficiency. It is important to note that HP’s brand following allows it to dictate how some hardware and software raw materials will be customized to suit the needs of its large base of customers. Consequently, most of the IT products frequently used in the market are designed to be compatible with only HP products. In this way, HP’s dominance in the printer market will also lead to its dominance in the sales of printer consumables such as inks, which are only compatible with HP printers.
HP’s third value chain stage, the service coordination, is where the firm enjoys a higher competitive advantage than its rival firms do. Service coordination is the process through which HP fulfils orders, provides logistics, and shapes demand. HP’s global popularity and brand recognition enables HP to enjoy economies of scope. The economies of scope in this case imply HP’s ability to exploit the large number of its distributors and retailers all over the world to sell more products. In fact, studies have proven that HP is the number one IT vendor globally in terms of the number of distributors and sales agents (Zhang, 2010). Therefore, HP can take advantage of its distribution and inventory management channels to dominate the retail shelf space in markets where competitors do not have any presence. For example, the HP brand has a strong presence in all the seven continents of the earth as comparison to Lenovo, its competitor, whose presence in the North American continent is weak. Consequently, HP enjoys competitive advantage because of the halo effect in which the sales of HP printers provoke an equal rise in the number of compatible HP PC units sold. Moreover, HP leads in terms of providing enterprise consulting and integration services, support and maintenance, and direct sales to all categories of consumers. Often, HP involves distributors in circumstances that involve enterprises being the ultimate consumers. These HP distributors are mandated to provide all the support to these enterprises at discounted costs.
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The financial ratios of HP and its major competitor, Lenovo, provide a valuable insight into the competitive advantages and competitive disadvantages that each company has. For instance, the quick ratio for the years of 2011, 2012, and 2013 for Lenovo and HP respectively show HP’s ratio being higher. This high value of HP is attributable to the large investments that it already has in terms of assets that can undergo liquidation to pay for the debts of the company. Consequently, this ability gives HP the competitive advantage of being able to carry out daily operations even in a business environment that is not profitable. Similarly, the long-term solvency or financial ratios of HP are comparatively higher than the ratios of Lenovo. This ratio is an indication that HP’s cash flow is adequate to meet its short-term liabilities and long-term liabilities. In this case, HP’s competitive advantage is secured in that it can invest much money and time in research and development projects that can return the company to a market dominance position.