Capstone Project on "HP and Palm Strategic Analysis"

Capstone Project 5 pages (1573 words) Sources: 4

[EXCERPT] . . . .

Palm

Current Situation

Palm was one of the early smartphone companies, and maintains a vision of itself as an innovator, a vision that began with the introduction of the Palm Pilot in 1996. The company markets to consumers, professionals and businesses with a range of smartphones, each of which operates with a proprietary operating system. As part of HP Palm, there is less a sense of vision or mission for the future. The company states on its website that it "creates and defines categories," but this is something that it has not done in many years. As a result of having a vision based on the past rather than the future, Palm is suffering. The company's market share in smartphones in Q4 2010 was just 3.9%, down from 4.6% at the end of August. This compares with 33.5% share for Blackberry, 26% for Android products and 25% for the iPhone. Palm also trails Microsoft's operating system, meaning that it is #5 in the market with a declining share and an increasingly irrelevant brand (Virzi, 2011).

Palm's current strategy is ill-defined. It competes exclusively in smartphones. It utilizes its own operating system, something that two of the three industry leaders (RIM and Apple) also do. Palm markets to consumers, businesses and professionals, a strategy that differs from RIM (professionals and businesses) and Apple (consumers) but is more in line with the utilitarian marketing of the Android products. This approach -- targeting all markets -- is unusual in the smartphone industry. As with other firms in the industry, Palm is committed to a rapid pace of new product introduction in order to keep the technology current. With HP, Palm is now seeking ways to use its operating system, WebOS, on a multitude of different devices and apparently believes that this is where the future value in the company lies (Patel, 2010).

Beyond these introductions, Palm does not express much in terms of goals and objectives. Survival of its smartphones would have to be considered one of those goals, though for optics purposes Palm could be forgiven for not stating this outright. The declining market share and increasing consumer ambivalence to Palm products, combined with the lack of a firm market position, points to this being an area of strategic concern for Palm.

Palm has few strengths on which to draw. The brand has lost much of its luster, although it has only faded in the past couple of years and the brand's value could be restored. The company still has some good staff to bring to the table. HP clearly believes that the operating system is a valuable part of the company. There are some points of technological innovation in Palm products, even if those points failed to resonate in the market (Patterson, 2010). Weaknesses are more glaring. For Palm, its marketing and technology have failed to resonate with consumers in recent years. The operating system trails for other platforms. Whereas competitors have staked out niches in the smartphone industry, Palm has not, preferring to meet the needs of all consumers, leaving consumers with the perception that it does not do this. The operating system WebOS, despite its declining market share, is believed to be the focal point of new product introductions. However, significant work will need to be done for HP/Palm to introduce a product that the public truly wants.

Competitor Analysis

Competition in the smartphone market is based around operating systems. There are two distinct approaches -- proprietary systems and non-proprietary systems. Palm, Apple and Blackberry all utilize proprietary operating systems for their phones, acting as manufacturers for their own systems. Android and Microsoft license their operating systems to a wide range of manufacturers. Blackberry is almost as old as Palm in the smartphone industry, but has maintained the number one market share. The Blackberry is marketed to and especially popular with professionals, not the least because of its security (Whittaker, 2010). Apple's iPhone is popular with consumers, primarily because of its entertainment features. Google's Android operating system is licensed to a wide variety of phones, giving it excellent distribution and a good combination of features. Microsoft has a less popular OS that nonetheless has double Palm's market share. Neither consumers nor professionals have truly responded to the newer Palm products, meaning that Palm does not have a competitive advantage in any segment of the smartphone business. Palm's current products are the Pre and the Pixi, the former marketed to professionals and the latter to consumers (Palm.com, 2011).

Palm needs a competitive strategy. Porter warns of the dangers of not having a clear competitive strategy (QuickMBA, 2010), but that is the position in which Palm finds itself. Ostensibly, it competes as a differentiated provider, but the company in recent years has failed to develop any significant point of differentiation, leading to the steep decline in market share. In order for Palm to restore market share, it must develop a point of differentiation again. In the past, the company had a stronger brand and more innovative products, and that allowed it to gain a substantial market share as a differentiated producer. There is little hope for Palm as a focus producer, in part because of the company's current size, HP's size and also because the smartphone market is not conducive to focus producers given the high research and development costs. Palm is not suited to cost leadership either, as that niche is being aggressively targeted by a number of Android and Microsoft licensees.

Given that Palm has more weaknesses than strengths, it is in a difficult strategic position. Its competitors are strong, and that does not lead to many opportunities in the marketplace. Other phones are strong in the major markets, leaving little room for Palm to grow outside of direct competition. There is room for growth at the expense of Blackberry, as that company is facing declining demand, but most of the growth at Blackberry's expense has come from Android products. One opportunity that always existed is that provided by technological leadership. Palm had formerly exploited this opportunity to great success and its competitors are doing so today. There are two major threats to consider, however. One is the lack of applications for the Palm, a situation brought about in part due to its closed system and in part due to its relatively small market share. This will limit the appeal of Palm products, especially vs. The big three. Another major threat is technological innovation. Companies like Google, Microsoft and Apple have multi-billion-dollar warchests with which to finance innovation. Only with the purchase by HP does Palm have the ability to match the R&D spending of these competitors. This situation makes it difficult for Palm to recapture technological leadership and maintain it in the long run.

It is recommended that significant changes be made by HP in the wake of its takeover of Palm. The status quo is going to result in the demise of the Palm brand, given the current market share trend and the brand's current market position. HP needs to put substantial amount of financial and intellectual capital into Palm in order to resuscitate the brand. Investment needs to bring Palm's operating system to a point of technological superiority. In addition, substantial improvements need to be made on the marketing end. Palm needs to target a specific target market and develop technologies that meet the need of this market. If it insists on continuing with a differentiation strategy, it will need a superior operating system, more and better applications and perhaps a revolutionary new concept to renew consumer interest in Palm products.

The company has few strengths with which to work, but one is the historical value of the Palm brand and the reputation for innovation. It is possible to restore the brand by restoring innovation. This… READ MORE

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