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Hewlett Packard Case Study

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1. Based on your experience and general business knowledge, what are the key strengths and weakness of the way Hewlett-Packard structure and supported the Kittyhawk development team? Why do you think that HP made the mistake it did? (***)

Key Strengths
The HP culture deeply valued technical innovation as a key to success, which means that the company encourages innovation.
HP favored a decentralized structure so as to allow its business freedom of decision making and movement.
HP employed a management-by-objective (MBO) process to focus its business on financial goals and its people on the potential paths of innovation and strategy to achieve such goals.
Relevant Experience
HP has the experience of the production of 5.25 and 3.5 inch disk drives and had diskdrive sales of 519 million dollars in 1992, which will be very helpful for the design and production of 1.3-inch drives.

Internal Support
HP’s Corvallis Division was designing a “super” subnotebook that would need the new 1.3-inch drives. The kittyhawk team worked closely with the Corvallis group to meet their operating requirements.

Lack of scientific and reasonable policy decision procedure
Hackborn, the executive vice president in charge of the company’s computer products organization, approved the Kittyhawk project totally by himself. This is unwise and will easily lead to wrong judgment.

The low sales volume of HP disk drive
From exhibit 3, we can see that the disk-drive revenues of HP are just a very small part of the corporate net revenues, and have a slow growth from 1983-1992, which means disk-drive is not the main business of the company and it should not occupy huge resources.

The low market share of HP disk drive
From exhibit 4, we can see that the market share of the products sold by DMD is much lower than the competitors such as Conner and Quantum, which means the products sold by DMD have no market advantage and it should not occupy huge resources. Reasons of mistakes

The group ignored desktop and notebook computer sections of the show. They pursued mobile computing, benefits being that the industry was new itself, so there were no established specific component standards. The issue here was a very uncertain time to market and consumer demand.

The team decided against addressing the identified need from Nintendo, which was exactly Kittyhawk’s original signed creed of “a cheap, small disk drive!” as well as a listed strategy of the group, “sell you a drive for $49.95.” They did not listen to very market that needed them immediately, and instead tried to  move even further upfield with a new and unproven market of PDAs, which themselves were beset by technical issues. DMD hired a market research firm specializing in high-tech markets. This was the right thing to do, but the issue was that the product was so revolutionary that the research firm could not generate any leads or demands from customers. The research firm then began talking more to the HP engineers, to find demands and usages for the product, which invalidated their results, since they were in essence rehashing the findings from the Consumer Electronics show.

Another mistake was that DMD didn’t realize this disruptive technology might have to wait for a market to develop. Existing and other traditional customers would be loathe to quickly adopt a disruptive technology due to their investments in sustaining technologies. New and non-traditional customers might be interested but may not have either the capability or resources to initially use Kittyhawk or might serve niche markets themselves making them less attractive to HP.

The biggest mistake DMD made was setting goals in a project charter for a disruptive technology. Without assessment of the potential market or understanding their customers, the team set about a goal of $100 million revenue in two years and breakeven in less than 36 months, and to achieve revenue growth of 35%!

This is preposterous to do when you do not even know what your end product will look like. You pigeon hole yourself into decisions that may not prove fruitful outside of “making the numbers” which is what exactly happened here. Had the Kittyhawk team just used the initial creed, it would have produced a usable drive for the current market, and then been able to gain more traction as customers became aware of the product, and bring out new versions which could address other segments and markets.

With the numbers and growth rates listed, the team had to make big and risky bets on new technologies, expecting the new technologies to hit exaggerated growth rates, rather than take the volume leader that would not necessarily provide the revenue goals. The final straw was when the team decided in their minds that they could not build a disk drive for less than $130, which was the industry norm for manufacturer’s costs. They lost sight of being the visionary product on the new hill because of this thinking.

2. Suppose in the future you are asked to head a project similar to the Kittyhawk project. What would be your plan of action? What, if anything, would you have done differently? (***) For the successful launch of a new product, it is critical to recognize the market potential for the technology and to understand and incorporate the customer’s needs into the product attributes. However, markets for disruptive technologies are not only new but often must be discovered or developed. We have to either allow time for the market for the technology develop, or work together with a customer to ensure your product will be used in their products and you meet the specs given by that customer.

We could have set realistic expectations around timeframes & revenue projections based on predictions of the market demand for Kittyhawk. Creating a small scaled, independent organization with the goal to become cash positive versus one of revenue generation, would have allowed the team to focus and also reduced the scope of failure. Designing a product whose features & functionality could be changed easily would have allowed them to target market segments faster. They should have also considered entering with a market penetration strategy using lower price points despite high operating costs. Lastly, once HP recognized that their customer segment was evolving in a completely different direction than expected, they should have created new distribution channels to capture the markets and gain first mover advantages.

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