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Subject: February 2002 ECMgt.com: HP-Compaq Proposed Merger Analyzed via the Value Framework™
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February 1, 2002 *4,300 subscribers* Volume 4, Issue 2
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Analysis of the Proposed HP-Compaq Merger via the Value Framework™
by Mitchell Levy, Author, E-Volve-or-Die.com
and the Value Equation
and Bob Cormia, Faculty Member Foothill Community College and E-Business Consultant


Hewlett-Packard and Compaq have the opportunity to create one of the most successful enterprise-computing firms in history, but all mergers face challenges and issues that must be overcome to achieve synergy of combined partner strengths. The Value Framework shows that a HP-Compaq merger strategy must be deployed, managed, and evolved in the key areas of customer facing processes to create a seamless solution discovery and provisioning experience.

Key to predicting strategies for their successful merger is in understanding the "four S" quadrant of servers, services, software and storage, as key components of process in enterprise solution design. Process integration of servers, software, storage, and services will be the key to building market share in Fortune 5000 firms and the growing B2Bi (Business to Business integration) market.

Using the value framework, a methodology can be applied to analyzing how a HP-Compaq merger strengthens the combined companies' position against IBM, Sun, and Dell in enterprise and consumer markets. Together the HP-Compaq entity could garner almost forty percent of enterprise markets, where the biggest competitors are IBM, Dell, and Sun.

HP and Compaq often compete head to head in enterprise and consumer markets. However, HP's desire for a stronger professional services offering to compete with IBM, makes Compaq a logical choice. Compaq, which has a global services division of almost 40,000 employees, is moving strategically towards IT business solutions in the key markets, where together with HP, they can compete effectively against IBM, Dell, and Sun.

The key element of success will be in minimizing product and service overlap, and a seamless provisioning of the tightly coupled "four S" process approach, driving renewed investment in holistic IT solutions.


Strategy Evolved:

The majority of mergers and acquisitions fail in one or more strategic goals, usually within five years. Often the expected synergy was wishful thinking, management and strategy were not applied consistently from the start, or an unexpected technology shift or business downturn affecting one or more key operating units in the new entity.

HP-Compaq will evolve through this period by focusing on three key elements.

  1. Understanding and adjusting to the rapidly evolving and shifting markets domestically and internationally as the second Internet boom, B2Bi takes off.
  2. HP-Compaq will need to understand what technologies to accelerate and which ones to drop to avoid the "drag" that is fatal against the pace of Moore's law, and against stronger competitors like IBM.
  3. The synergy of the "four S" components will need to extend into the technology solution discovery process, account management, and value creation for HP-Compaq customers.

It is only in strategy evolved that the full spectrum of the value framework is completed, and if not, this merger will risk becoming burdened by the inefficiencies that cause most mergers to falter or not achieve the desired result. HP-Compaq has the benefit of clearly knowing and addressing these issues from the start.

Key points in Strategy Evolved for HP-Compaq

  • Rapidly evolving markets in the global recovery of 2002 to 2003 put enormous pressure on HP-Compaq to extend products and services in pace with IBM and Dell.
  • Evolving not absorbing technology will be the key to consolidation against the backdrop of Moore's Law. HP-Compaq will need customer-designed solutions.
  • Global deployment will be key to the success against dual threats of IBM and Dell.
  • "Five S" approach - In strategy evolved, the "fifth S" of strategy succeeds in connecting the server, services, software, and storage into "solution strategies" which HP-Compaq customers discover and implement transparently (see below).
  • Extending value to customers - The optimum HP-Compaq entity evolves into a fluid organization where customers, connected by products, services, and software, now succeed through a transparent discovery of business solutions and partners across the globe. Connecting with suppliers, partners, and customers naturally will sweep them through HP-Compaq solutions.


Strategy Managed:

In the middle phase of the merger, the combined entity must be able to hold its own against market leaders in all competing sectors. A key challenge to address will be not losing 18 months of "integration time" while Moore's law takes the market into the next generation of products. HP-Compaq will need to simultaneously evolve and integrate.

Additionally, the competitive landscape will have changed significantly, and HP-Compaq will be competing in traditional Fortune 5000 markets, enterprise B2B (SME), and consumer products. IBM will be a key competitor in all three markets. The "four S" quadrant for HP-Compaq will need to be seen as one contiguous corporate entity. Here is where metrics are important. Enterprise business solutions will require IT components from each piece of the "four S" quadrant. Servers are key hardware strengths for HP-Compaq, as is business software. Storage needs will continue to grow exponentially, as do data management and network services.

HP-Compaq can build market share in service in two complementary but different approaches.

  • The first approach is to ensure integration opportunities for server-software solutions by including features, which quickly extend the reach of HP-Compaq's customers to their suppliers, partners, and customers. As B2Bi creates immediate value for businesses with easily extensible business architectures, new solutions will require extensive analysis of business problems to solve and opportunities to manage. This is the domain of professional service organizations.
  • The second approach uses a Managed Services Approach to monitor, optimize, and evolve HP-Compaq solutions that reside on customer premises, but extend partially through HP-Compaq data centers. Distributed and extensible business solutions can be architected and evolved by HP-Compaq engineers in controlled environments, and seamlessly deployed to customers after thorough testing.

Key points in Strategy Managed for HP-Compaq:

  • Fortune 500 / Global 2000 - This is the target market for HP-Compaq going head-to-head with IBM. Strategy managed will have to include combining HP's direct sales force with Compaq Global Services as an integrated presentation from the start. IBM is the key competitor here, and will require a strong account management approach.
  • B2Bi - The sleeper in the next wave of e-business applications is B2Bi or Business-to-Business integration over the Internet. This represents untapped value for servers, software, and services, where it is almost a free-for-all in today's untamed world of web services. Quick positioning here allows HP-Compaq to create offerings connecting the 100,000 SME firms that are one step removed from the Fortune 500.
  • Consumer markets - This is where HP-Compaq has both opportunity and challenge. Together they are the best brand known nationwide in both retail and discount venues. However, Dell's direct sales now command the lead in total market size, with IBM also faring quite well. The overlap of products is the danger, and this could cause disruption in both the minds of consumers and retailers alike. The best solution, from the perspective of the value framework, is to aid discovery, negotiation, and transactions through an online direct sales approach rivaling Dell and IBM, while continuing to command a combined 50% marketshare in the consumer markets.
  • "Four S" evolution - To knit the best synergy of servers, software, services, and storage, HP-Compaq will need one unified suite for discovery, negotiation, and delivery of high performance business solutions within 18 months of a merger.
  • Strategy - The difficult challenge for HP-Compaq will be to carve the world into customers, products, and services, and move those wedges through a three to five year time-line that optimizes the internal development of the combined entity in the rapidly evolving global ecosystem of networked business solutions.


Strategy Deployed:

In the initial phase of this merger, the "four S" divisions of each firm are treated as "participants" in the process of solution discovery. Key to success in this critical phase is in building synergy of the "four S" participant quadrant of servers, services, software, and storage, using strategy to create synergy. Additionally, redundant or non-competitive product and service offerings must be identified quickly and eliminated or refocused into core value competency activities.

Evolution of strategy along the path from deployed, managed, and evolved starts with a road map that includes metrics. A key baseline for strategy deployment should include a company wide assessment of customer solutions, including the business problems being solved, where solutions require help and the degree of integration with suppliers, partners, and customers for a more responsive enterprise.

Integrated solutions across hardware, software, and enterprises are where HP-Compaq has the greatest potential to excel. Both firms possess technical strength, product maturity, and customer knowledge required building market share in enterprise business solutions.

Key points in Strategy Deployed for HP-Compaq:

  • Servers - The server is a key component in a value model as it is the nexus for software, network connections, and business applications for the customer and its partners. Garnering marketshare here is key for the combined HP-Compaq entity.
  • Services - This is the holy grail in enterprise IT markets going forwards, as it drives discovery of new products, and is driven by placement of servers and software. It can be 20% of total revenues, and 25% of profit. It ensures constant customer contact.
  • Software - HP has been strong in software, and reasonably successful bundling it on servers. However, a combined HP-Compaq entity is a more visible threat to IBM, will respond in kind. Evolution of application platforms will be key to selling suites of business applications. Ironically, competition from Oracle could help IBM here.
  • Storage - The fastest growing segment in network services is network storage and data management. This is a replenishment and dynamic transaction in the value framework, and also drives incremental sales of products and services.
  • Strategy - Initial strategy must focus on synergy of the "four S" participants inside the HP-Compaq entity before value extension towards the customer can occur.


About the Authors:

Mitchell Levy, is President and CEO of ECnow.com (http://ecnow.com), an e-commerce management consulting company helping start-up, medium and large enterprises transition its employees, partners and customers to the Internet age through strategy, marketing, and off-the-shelf and customized on-line and on-ground training. He is the author of E-Volve-or-Die.com (http://e-volve-or-die.com), Executive Producer of VMS3.info (http://VMS3.info), an on-line E-Commerce Management (ECM) eZine, Chair of comdex.biz at Comdex Fall and the Founder and Program Consultant of the premier San Jose State E-Commerce Management Certificate Program (http://ecmtraining.com/sjsu), VP of education for the Silicon Valley Web Guild and the Chairman of the Pay-per-Performance PR Agency Media Attention Now TM (http://ecnow.com/mediaattention) and the on-line learning content production company Transition Learning (http://transitionlearning.com). Mitchell was at Sun Microsystems for 9 years, the last 4 of which he managed the e-commerce component of Sun's $3.5 billion supply chain. Mitchell is a popular speaker, lecturing on ECM issues throughout the U.S. and around the world.

Read more about Mr. Levy: http://ecnow.com/ml_bio.htm
Public speaking appearances I've given: http://ecnow.com/speaking.htm
Read about ECnow.com's media coverage: http://ecnow.com/media

Bob Cormia, is an Internet technologist and e-business consultant. Working at SuperBusiness NET, Bob developed strategic positioning, product definition, and account management. Bob developed the e-commerce curriculum at Foothill College while working as a market analyst for G2R, specializing in IT strategy development for Fortune 5000 enterprises. Bob joined eCongo.com in Fall 1998, developing corporate strategy, product development, and launching FreeCommerce on the Internet. In March 2000, Bob joined Calkey.com as an advisor in training and education development in using UML (Unified Modeling Language). In Fall 2001, Bob will join Foothill College as a full-time instructor in the Computer Technology Information Systems division, where he will teach e-commerce, Web strategy, Internet projects, and XML.


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