This paper examines the 2001 merger between Hewlett-Packard and Compaq Computer Corporation, with a focus on the strategic rationale of entering the IT services and consulting market. Drawing on market share data from Gartner Dataquest, the paper profiles each company's pre-merger competitive position, identifies key rivals including IBM, EDS, and Unisys, and evaluates the complementary strengths each firm brought to the deal. The analysis concludes with a recommended phased strategy for capturing IT services market share, leveraging HP's financial resources and technology partnerships alongside Compaq's consulting experience and established clientele.
The HP–Compaq merger addresses the central strategic issue of combining Hewlett-Packard and Compaq Computer Corporation in 2001. The merger's primary objective was to make HP–Compaq the new leader not only in selling computer hardware, but also in providing consultation services to corporate consumers. With HP leading in computer imaging and printing and Compaq specializing in consultation services for small- to medium-sized companies, it becomes evident that HP, as the main proponent of the merger, sought to acquire Compaq precisely for its advantage in computer services and IT consulting.
The combination of HP's financial capabilities, wider consumer market scope, and partnerships with various IT management companies, together with Compaq's experience in IT servicing and consulting, was intended to allow the merged entity to launch itself not only as a personal computer and imaging services provider, but also as a full-scale information technology services and consulting company.
Looking at the individual performance of each company prior to the merger, data from Gartner Dataquest shows that HP was the world leader in the production of printers and imaging services, capturing 40.4% of that market. Compaq, meanwhile, held second place behind Dell in the personal computer market. Unfortunately, both HP and Compaq trailed far behind other computer companies in the IT services market, with low shares of 1.1% and 1.0% respectively, compared to IBM, which already held a 5% share.
The HP–Compaq merger was therefore both companies' business strategy to launch a combined plan to dominate the IT services market. Analysis of the performance of both firms confirms that, given the large number of players in the computer industry — particularly in IT servicing — the newly merged company would face the challenge of breaking into an industry where brand image and the establishment of a solid, loyal clientele are vital for survival.
HP's IT services portfolio had a wider scope than Compaq's. Its partnerships with independent software vendors allowed it to operate across specific aspects of IT servicing and consulting. HP Netaction was created to "create, integrate, and deploy new Internet services," while OpenView provided "comprehensive management" of those Internet services. Additional partnerships with software companies gave HP personalized, value-added services for broadband Internet services and solutions.
From this analysis it is clear that HP had strong partnerships and resources in IT servicing, although its exposure to the broader IT services market remained underdeveloped — the IT services it provided were largely limited to HP's own existing clientele.
"Compaq's consulting experience and growth constraints"
"EDS, IBM, and Unisys as dominant IT rivals"
"Phased market-entry plan for the merged company"
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