HP Palm Outputs in the Nadler-Tushman Congruence

HP Palm Outputs

In the Nadler-Tushman Congruence Model, outputs comprise everything that derives from the organization's activities. Thus, there are many categories of outputs. These include financial outputs (revenue, costs, profit), operational outputs (products, efficiency), human resource outputs (wages, benefits, employee turnover) and market outputs (market share, stock price). The congruence model seeks to explain a firm's relative success by analyzing its output performance in the context of the organization's goals. When the organization's inputs are aligned with its goals, it should be expected that the outputs would also be congruent with the goals. If the outputs are not congruent with the goals, the organization has not been successful, and at that point the inputs and throughputs need to be analyzed in order to determine where the organization failed. This paper will focus on the outputs at Palm, in particular those that are determined to be most important to the company's success.

In terms of financial measures of organizational performance, Palm uses many of the standard measures for all firms, including revenue, profit, margins and changes thereof. With respect to these outputs, Palm has performed poorly. The company saw revenues decline 15.5% in 2008 and a further 44.2% in 2009. Profits declined 296% in 2008 to a net loss and then declined a further 579% in 2009. Palm's equity fell from $1.062 billion in 2007 to negative equity of $413 million in 2009. During this period Palm added long-term debt totaling $394 million. Overall, Palm's financial performance over the past couple of years can only be termed as dismal.

In terms of operating outputs, Palm was able to launch two new products, the Pre and the Pixi and these were met with positive reviews from industry experts. The WebOS platform is considered to be highly accomplished (Topolsky, 2010) and was one of the main reasons why HP purchased Palm. Indeed, HP's purchase of Palm was largely for the company's intellectual property (Ogg, 2010). In addition to new products, patents are one of the major operating outputs and Palm has performed well with both.

Market outputs have been less successful for Palm. The company has steadily lost market share in its core smartphone business and now sits at 4%, which is more or less inconsequential (Perez, 2011). This is a distant fifth in the industry and going nowhere fast. The result is that Palm's share price dropped precipitously over its last two years before HP purchased the company.

Because Palm only has two main products, each very similar to the other, it does not use groups in its measurement of results. It used to split between smartphones and handheld computers, but discontinued all of its handheld products. There is a loose geographic split (USA vs. Rest of World) as well, but this is only for informational purposes. There may also be some internal breakdown of departmental outputs (for example in marketing or in R&D).

There are a number of key individual functions at Palm. The company develops and sells new products. Thus, the research and design function seeks to increase the number of patents and the number of new products, and can also be measured by the performance of these products. Product performance can be benchmarked, for example, against competing products or against the firm's previous outputs. Innovation is essential to the smartphone industry, so performance of new products vs. competition and the pace of new product introduction and/or new patents are all useful output measures for the research and development department.

For marketing, outputs include sales, market share, and ROI. Given that the smartphone industry is relatively new, it is important for firms in the industry to build market share so that they can build a loyal customer base going forward. Sales are essential to market share, but there is a diversion because of industry growth. A company in a rapidly-growing industry can increase sales while still losing market share. At Palm the company saw declining sales, which made the market share losses even steeper. These outputs relate to the amount of money spent on marketing, so ROI for marketing expenses is important. A sub-measure to this would be the cost of acquiring each new customer. In addition, brand recognition and brand perception measures can be implemented in to order to understand the effectiveness of this department.

The outputs of the different levels are closely related. In particular, brand perception and brand recognition play a significant role in Palm's total strategy. Palm competes as a differentiated provider, and therefore needs to have superior branding in addition to a superior product. When this does not occur, sales and market share will inevitably suffer. The same is also true for product. If the product is not superior to the competition's products, then Palm will not be able to compete with its chosen strategy. Both pieces need to be in place. If they are, then there will needs to be a highly efficient marketing program in order that the company be able to attract new customers profitably. While the different outputs are not necessarily related, they all support each other such that when one or more of them fails to achieve its objectives, the other objectives will also most likely not be met.

At Palm, the outputs are not congruent. The level of congruence is therefore low. The structure of the organization is such that when all of the outputs are optimized, the level of congruence would be high, and the outputs of the company would meet its goals. This was the case for much of Palm's run in the handheld computer industry. This is no longer the case, however. In smartphones, Palm has generally suffered from inferior performance of some of its divisions. The R&D department appears to be successful -- by all accounts Palm's products are of high quality. The number of new patents is high and the company's intellectual property base was sufficiently attractive for HP to want to buy Palm.