Five Forces Analysis of Palm Palm's Strategy Essay

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Five Forces Analysis of Palm

Palm's Strategy

Palm's corporate strategy is what Michael Porter would call Cost Leadership. According to Gavin Reid, "Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). A cost leadership strategy aims to exploit scale of production, well defined scope and other economies (e.g. A good purchasing approach), producing highly standardized products, using high technology."

In the first element of its corporate strategy, Palm states that it will "strive in order to reach a leading position in attractive markets." It does not indicate which market in particular, as with Focused Strategies, but any market which happens to be attractive to Palm at a given time (i.e. A market that they believe they can be competitive in.) Notice that Palm is not trying to create new markets or innovative product categories. Instead, Palm intends to scout existing mobile market segments for opportunities to compete.

In the second element, Palm states that it will focus on "securing a competitive share of the mobile computing market segments." This statement identifies multiple "mobile computing market segments" as the attractive markets Palm refers to in the first element. Segments in the plural form indicate that Palm is not attempting to dominate the entire mobile computing market. Nor does Palm want to dominate individual market segments. It merely wants to secure a competitive share of each of the mobile computing market segments.

The third element states a desire to "improve the company's efficiency and cut costs in operations." This suggests that Palm is adopting the Cost Leadership strategy outlined by Porter. Palm wants to improve the company's overall efficiency, not just its efficiency in one market segment or product category. Overall company efficiency will improve Palm's operations in each market segment it enters.

In the fourth element, Palm states its desire to pursue continuous growth through selective acquisitions for as long as they are able to create shareholder value. This indicates that Palm is not going to acquire companies just to gain market share or thwart competitors. It will only seek acquisitions which can increase its profitability directly, such as vertical acquisitions of suppliers to increase operational efficiency or acquisitions of distributors to increase profit margins.

None of Palm's strategic elements suggest innovation, creativity, or luxury because these terms are found in mostly in Differentiation Strategies. As Forbes Analyst Darcy Travlos noted in 2009, "Palm is positioning itself squarely in the growth tide of the Mobile Internet with compelling design, attractive price points and a pleasing user experience."

The Congruence of the Input with the Strategy

Organizational Environment

Palm brought in John Rubenstein, an executive from Apple who was behind the development of the iPod. Palm's critical inputs regarding organizational environment were not congruent with its strategy of Cost Leadership. Rubenstein was a tremendous scientist and leader at Apple, developing the iPod and leaving Apple in the best competitive position it had ever been in. However, Rubenstein's success at Apple was achieved through his pursuit of a Differentiation strategy. Differentiation was definitely the strategy driving the innovative iPod and is perhaps the guiding principle of the Apple corporation in general.

"A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product's unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily."

Companies who pursue a Differentiation Strategy typically have to spend liberally on R&D to create an innovative product. Assuming the company is fortunate enough to get a viable product out of that R&D, they then have to spend heavily on Marketing in order to convince people to take a chance on an expensive, unproven product. Apple, with Rubenstein leading, was clearly masterful at executing a differentiation strategy, as demonstrated by the iPod. Unfortunately, he did not have much experience directing Cost Leadership strategies because Apple has never seriously attempted to be the Cost Leader in any market segment.

Many of the objectives and requirements of a Differentiation strategy conflict with the objectives and requirements of a Cost Leadership strategy. First, Cost Leadership requires a company to be frugal and cut unnecessary costs in its operations. Any sane company pursuing a Cost Leadership strategy would probably not fund R&D for an unknown quantity when they could allocate those funds to known quantities such as marketing or sales. Second, a Cost Leadership strategy avoids products which are either expensive for the Company or expensive for the consumer. Third, a Cost Leadership strategy discourages operations in areas which are outside the expertise of the Company, such as the iPod mp3 player for Apple.

Unfortunately, John Rubenstein, a 15-year Apple veteran, had differentiation in his DNA. It did not help that he entered Palm in 2007 as the Chief Executive of R&D, where he developed the consumer-oriented Palm Pre, which was so anticipated that Rubenstein was named the CEO of Palm upon the Pre's release in 2009. The Palm Pre-failed to deliver on expectations for a number of reasons: quality issues, lack of developer support for apps, and staleness compared to the iPhone and Android phones.

Though Palm had the right idea by attempting to make Palm Pre -- the Cost Leader within the unsettled iPhone/Android market segment, it failed because it ignored basic tenets of Cost Leadership. First, Palm attempted to compete against the much larger Apple and Google without the advantages of size, scale, and experience which are crucial to Cost Leadership. These advantages were instead held by market leader Apple. Second, it took too big of a risk on what was and still is an unknown quantity, as the smartphone market had not and has not yet become predictable. The novelty of the market precludes any useful case studies or lessons, leaving experience as the only route to expertise. Palm could have gained this experience through more conservative ventures. Third, Palm did not offer an acceptable product for that market segment, as the Palm Pre-had little developer support and even fewer apps. Fourth, it entered a market which was not yet willing to trade quality for value. Smartphone customers in 2009 did not yet see smartphones as standard, but rather as luxury items for which price was not so important. Palm's attempt to offer these customers an inferior iPhone with no app support in return for $200 was not worth it at the time.

Some analysts, such as Corporate Strategist Sramana Mitra, insist that Palm's performance was a botched execution of a Differentiation strategy: "My analysis is that Palm has done a poor job of two critically important things in getting the product positioned for differentiation: market segmentation and partnerships. Instead of going for a differentiated enterprise application-based strategy that I suggested two years back that would have given Palm a differentiated prosumer story, the company has become a me-too company chasing Apple's and RIM's tails. The result is that Palm means nothing to no one in trying to become everything to everyone. This a very poor strategy, despite good execution on the product development side. Nor is it surprising given that Jon Rubinstein, during his Apple days, relied on the marketing genius of Steve Jobs to worry about these aspects of the business."

Internal Resources

Palm deployed its limited resources towards software as well as hardware. Although Palm is known as a hardware company, its success is founded on stable, flexible, and intuitive operating systems. In fact, Palm's software division was so successful that Palm eventually spun off a separate software company called PalmSource in 2002. PalmSource was sold to a Japanese company in 2006 and the company's software initiatives stagnated, possibly contributing to Palm's loss of market share to RIM's Blackberry and Apple.

Although Palm's attempted comeback with the Palm Pre-in 2009 was largely a failure, Palm's development of the WebOS platform can be called the silver lining to that cloud. The WebOS was hailed as an achievement in Mobile OS design, web integration, and eventually persuaded HP to acquire Palm in a fairly generous deal.

Palm was in a difficult financial situation when it started planning its comeback in 2007. Palm had dwindling market share and measley cash reserves. Most expected Palm, the progenitor of the smartphone, to rediscover its genius and one-up the iPhone, which it tried to do in some ways. However, Palm did not neglect software and initiated the development of a visionary OS which would be one step ahead of the other mobile OS upon release. Palm deserves credit for having the wisdom to invest in a visionary mobile operating…

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