Global Strategic Alliances

¶ … global strategic alliances that exist between two companies in the computer industry. Hewlett Packard and SAP are the two companies selected for evaluations here. A brief overview of the companies will be provided. HP is a leading provider of products, technologies, solutions and services to consumers and businesses. HP offers services spanning IT infrastructure, personal computing and access devices, global services, and imaging and printing. (HP.com, 2005) William Hewlett and David Packard founded the company in 1939. The company now has 140,000 employees with capabilities in 160 countries. Today, HP conducts business in 43 currencies and 15 languages. HP essentially offered hardware components for the computer and the technology industry. Their main product lines included computers, printers, monitors and other peripheral devices for computers. "HP is #1 globally in inkjet, all-in-one and single-function printers, mono and color laser printers, large format printing, scanners, print servers, and ink and laser supplies." (HP-rankings, 2005)

ERP software design started in 1972 when five engineers in Mannheim, Germany created the company, SAP (Systemanalyse und Programmentwicklung). SAP provided customized ERP software and services to businesses. Richard Lawson, Bill Lawson, and John Cerullo created Lawson Software in St. Paul, Minnesota in 1975. They supplied a pre-packaged version of ERP to organizations that did not wish to spend prohibitive amounts of money on designing customized versions of the software. In 1977, Jack Thompson, Dan Gregory, and Ed McVaney formed JD Edwards. Soon, Larry Ellison created the Oracle Corporation. Jan Baan started The Baan Corporation in 1978. BAan specialized in providing financial and consulting services to organizations. Dave Duffield and Ken Morris founded Peoplesoft in 1987. (SaptechWebpage, 2001) ERP systems cost millions of dollars. The results for the efforts in innovation are often not immediate but take years to be identified and observed. (Roll, 2003) While traditionally developed for the manufacturing and production industries, the products from the above companies have received wide-scale application in other industries due to the potential improvements that they offer. (Al-Mashari, 2003) SAP offers custom enterprise-management systems to organizations.

Pros and Cons of the partnership

HP is incorporated in the U.S.; whereas, SAP is incorporated in Germany. Both are well recognized in their respective fields of operation. In 1989, HP and SAP entered into a strategic partnership to offer integrated solutions for the computer industry. HP went through various changes in organizational structure (at different stages) in order to arrive at its current position in the market. SAP also underwent similar restructuring and adjustment during its growth.

As of 2005, both companies remain successful in offering business solutions for big and mid-sized corporations. HP offers the hardware (servers) that is able to run UNIX, Linux, or Windows operating systems; SAP offers "ERP applications pre-configured for companies in oil & gas distribution, and consumer foods and high-tech device manufacturing. SAP will provide software, implementation services, maintenance, end-user training, support, functional management, and application management. HP will provide the data center and services that include operations, infrastructure hosting, storage on demand, business recovery, managed Web solutions, and security services." (EQUIS, 2005) In addition, the company also collaborates on offering the necessary service to support the business solutions that are offered.

SAP traditionally offered its products only to big businesses and large corporations. By collaborating with HP and identifying a new market segment -- the mid-sized company -- it has been able to access a whole new rage of customers. HP and SAP are also making the move to compensate vendors who are willing to modify and adapt the products for new uses and applications that help make the service more marketable to a greater section of the population. (Garner, 2004) The recent stepping down of the HP CEO, Carleton Fiorina, in addition to poor performances has resulted in many market fluctuations in the past year. HP had always prided itself on its methods of management. Bill Hewlett and Dave Packard create an open and corporate management style. The two entrepreneurs ran the company by communicating the need of the company to their employees and allowing the employees to carry out their duties with the flexibility and individual styles so long as the ultimate goals of the company were obtained. Fiorina attempted to change drastically the culture and the structure of the organization that did not sit very well with the shareholders and the employees. Extensive restructuring and re-engineering had also created an environment where employee loyalty and trust was at an all time low.

All ERP systems when implemented are expected to "solve the problem of fragmentation of information in large organizations by consolidating all business operations into a uniform system environment" where the consolidated information will be more useful in improving decision-making. (Somers, Nelson and Karimi, 2003) Success of ERP however, also depends on the employees' computer literacy to operate and perform tasks that need computer and software knowledge. (Sheng, Pearson and Crosby, 2003) SAP offers customized products. And the true benefits of the utilization of many of the products takes a number of years to show results. To compound the problem, the total cost of ownership and the fear of the software become obsolete are very real. In spite of this, SAP has been able to register a growth of nearly 10% for the 2004 financial year.

While the alliance has proved to be profitable so far there are some issues that generally occur with global partnerships. Working with different cultures and collaborating in an industry where knowledge and intelligence of the employee determine the viability of the company can be challenging. HP, while being heavily invested in manufacturing and production also spends a sizeable amount of its revenue on R & D. Until 1950, all branches of the organization were located within the U.S. With more demand for HP products, factories were set up all around Europe in the 50's; and in the 60's HP entered the Asian market. HP was always known for its decentralized organizational structure and mode of operations. For an organization that is technology-based, knowledge sharing is important. Proper channels for facilitating knowledge sharing -- whether on a formal or informal basis -- are necessary if the company is to survive in an increasing global market.

The mission statement of HP, drawn up by Hewlett and Packard, stressed the importance of customer loyalty. Also emphasized was the need to run the organization in a manner that would generate profits for all the shareholders. This would lead to the attainment of market leadership in the core business of technology development; and also a growth in the market share. To achieve the above, dedicated and enterprising employees had to be recruited and retained. Sufficient incentives would be necessary to keep them satisfied. Working in an increased global environment and the fear of outsourcing of many activities undertaken by HP has impacted the morale of the company.

SAP has invested extensively in its workers. It realizes that the worker has to be offered comparable benefits and rewards to keep their satisfied. In addition, its HR department is also very aware of the need for succession planning and career development for their employees. For a technology company, research and development is a key factor and managing by objective in this department to get the product out of the door is important. (BusinessWeek, 2001) SAP realizing this is investigating all the options available to them.

SWOT analysis of SAP and HP

Hewlett Packard

HP has displayed a tremendous ability to grow and develop over the years. The founders of the company had instilled a culture of employee participation and acknowledgement. R & D. was and continues to be important for the company. Ex-CEO, Fiorina had been trying to get to a front/back organizational model for the company and away from the managing by objective strategy. Especially in a market driven economy, the front/back organizational model (front-end, back-end organizational structure, in which two "back-end" units focus on product development, while two "front-end" units sell those products to corporate and consumer customers) is good. This however, proved to be a challenge for the company. Currently, worker motivation is low and worker participation is also suffering. HP has also outsourced many of the operations to countries like India, Taiwan and China. And as a result, it only retains the high-level research and developmental work. Collaborating with many companies such as Intel to develop the next new microprocessor is also displaying that HP still has the technical, intellectual and the financial capability to carry out major innovations.

"During the fiscal year ended October 31, 2004 (fiscal 2004), HP organized its operations into seven business segments: the Imaging and Printing Group (IPG), the Personal Systems Group (PSG), Enterprise Storage and Servers (ESS), HP Services (HPS), HP Financial Services (HPFS), Software and Corporate Investments." (NYSE, 2005) While many of the objectives, such as offering good worker-incentives and establishing a balance between work and personal life were met, the company was floundering in other arenas such as technology development and market share in recent times. During the acquisition of Compaq, many mistakes were made. These damaged the stability of the organization as a whole. In the case of a technology company where obsolescence in measured in weeks not months, being first to the consumers is critical -- HP appears to have lost the edge in the present day market. An organization like HP, which evolved over a period of time, is also bound to have interlinked structure where changes in one remote department may seriously affect performances in another. (Dvorak, 2001) In an attempt to keep their best workers, HP is also approaching a structure that is more lateral than vertical.

The opportunities that are available in the computer hardware industry are tremendous. A company able to provide new products and services to this market has the potential to obtain large profits. The company also has a very good reputation as a premier hardware manufacturer with reliable and dependable products. The staff in all the regions in which the company operates is well trained. This expertise can be used to constantly launch new products and maintain market share. HP, by investing in a new company, diversified within in its core competencies and used the merger to become a market share leader in a rapidly growing market. (Foster, 2003)

HP as with any other company in the computer industry is faced with many threats. Instability in the market for different products and the fear of obsolescence and rapid technology change has impacted the profit margins that can be gained. Outsourcing and conducting operations in more than one continent is also stretching the management capabilities of the company. The brand loyalty and customer loyalty of the past is not as assured for the future due to the constant stress on management to improve the profit margins. HP prides itself on being a learning organization. The downside to this approach is that the leader at the executive level, the business unit levels or the team levels may behave erratically and get bogged down in constant cost-intensive and job-threatening restructuring seriously impacting the morale and dedication of the employees. The fear of managers making short-term decisions that may seriously impact the long-term goals of the organization.

SAP

The company has stayed true to its core competencies of offering business solutions to corporations. In spite of the tremendous success in the software industry, the company has not diversified into other types of software development. Service and support for the products that the company sells has been able to propel the company far ahead of its competitors. A very well trained and qualified workforce has keep pace with new innovations and discoveries that are required for this market. The company has constantly sought to broaden its markets and its R & D. program internationally. Attracting and retaining the talent required for any task can only be done if understanding of the market is achieved. From its very inception, SAP has kept its finger on the pulse of the market and creates products that are well received in the market. It has reacted quickly enough to all the trends and changes in the management field and also helped define many new management concepts such as supplier and customer relationship management.

The company is a multinational corporation having branches worldwide. Controlling and monitoring the company can become a problem. Software development is very competitive and the fear of theft and piracy is very high. The costs of many of the products sold by the company are also very high and this can reduce the market share that the company can enjoy. High dependency of very skilled and talented labor that have to be provided with a standard of living comparable to the region in which they are employed can also chew into the overall profits that can be generated. Cultures and norms differences between the parent company and the subsidiaries operating at different locations also affecting the motivation of the workers.