1. Compile, what business model and strategies made Mattel the industry leader? 2. Evaluate what strategies have its rival, MGA, pursued that have threatened its competitive position? 3. Discuss what new strategies does Mattel need to pursue to regain its competitive advantage? CLOSING CASE Beating Dell: Why HP Acquired Compaq In 2001, Hewlett-Packard (now HP) shocked the still be a minnow in the service and consultancy area, business world when its former CEO, Carly Fiorina, with less than 3% of market share. announced that rival computer-maker Compaq had In 2005, HP announced that it had achieved its agreed to be acquired by HP. The announcement cost savings target and that it was continuing to find came at the end of a year in which slumping demand ways to reduce the duplication of resources in the and strong competition from Dell had buffeted merged company. However, it also announced that both companies. The merged company would have Dell's entry into the printer business had hurt its profit annual revenues of about $87.4 billion, putting it in margins, and the profit margins on the sales of its PCS the same league as IBM, and would be able to pro- were still well below those obtained by Dell HP's vide customers with a full range of computer prod. stock price plunged, and its board of directors reacted ucts and services. With the exception of printers, in by firing Fiorina and bringing in a new CEO, Mark which HP is the market leader, there was significant Hurd, a person with proven skills in managing a com product overlap between HP and Compaq. panys cost structure. Hurd initiated another round To justify the acquisition, Fiorina claimed that it of cost reductions by pruning HP's product line and would yield a number of benefits. First, there would workforce. In Spring 2006, the company astounded be significant cost savings. Some $2.5 billion per year analysts when it announced much higher profit mar would be taken out of annual expenses by eliminar- gins on its sales of PCs and higher profits across the ing redundant administrative functions and laying company. Many of Fiorina's strategies thad begun to off 15,000 employees. In addition, combining the pay off: HP's PCs were much more attractive to cus PC businesses of HP and Compaq would enable HP tomers, and Dell's foray into printers had not proved to capture significant scale economies and compete highly successtul against market leader HP. Neither more efficiently with Dell. The same would be true in had Dell's entry into other electronics industries such the computer server and storage businesses, areas in as MP3 players, televisions, and so on. which Dell was gaining share. Critics, however, were The result was that competitive advantage in the quick to point out that Dell's competitive advantage PC industry seemed to be moving away from Dell and was based on its cost-leadership business model that toward HP. As a result, Dell has been forced to find was based on the efficient management of its supply ways to increase its level of differentiation to increase chain-an area in which both HP and Compaqlagged the attractiveness of its machines and so defend its posi- behind Dell. Although achieving economies of scale tion against HP and Apple. Dell and bought the upscale is desirable, would the merger allow HP to reduce its PC-maker Alienware in one move to increase differen- cost structure, such as by increasing its supply chain tiation, it also entered into physical retailing industry efficiency? If HP could not change its PC business when it opened Dell PC stores in major shopping malls, model to match Delly low cost, then the merger imitating Apple strategy. And, to find more cost sav would not provide any real benefit. ings, Dell aho began to use AMD cheaper chips and In addition to the cost advantages of the merger broke its long term exclusive tieto Intel to find more Fiorina argued that the acquisition would the HP a cost savings. Analysts worry these moves will increase critical mass in the computer service and consultancy its cost structure, and the battle has heated up in the business, in which it significantly logged behind PO industry as Dell HP, and Apple work to find new leader IBM. By being able to offer customers a total ways to lower costs and differentiate their products to solution to their IT needs, both hardware and ser increase their profitability and ROIC vies, Fiorina argued that HP could gain new mar ket share among corporate clients, who would now Case Discussion Questions buy its PCs as part of the total computer package": 1. What kind of corporate level strategies did HP moreover, HP would be entering the higher margin and Dell pursue to strengthen their multibusiness service business. Here too, however, critics were models quick to perceive flaws. They argued that HP woulu 2. What are the advantages and disadvantages asso ciated with the strategies 1. Compile, what business model and strategies made Mattel the industry leader? 2. Evaluate what strategies have its rival, MGA, pursued that have threatened its competitive position? 3. Discuss what new strategies does Mattel need to pursue to regain its competitive advantage? CLOSING CASE Beating Dell: Why HP Acquired Compaq In 2001, Hewlett-Packard (now HP) shocked the still be a minnow in the service and consultancy area, business world when its former CEO, Carly Fiorina, with less than 3% of market share. announced that rival computer-maker Compaq had In 2005, HP announced that it had achieved its agreed to be acquired by HP. The announcement cost savings target and that it was continuing to find came at the end of a year in which slumping demand ways to reduce the duplication of resources in the and strong competition from Dell had buffeted merged company. However, it also announced that both companies. The merged company would have Dell's entry into the printer business had hurt its profit annual revenues of about $87.4 billion, putting it in margins, and the profit margins on the sales of its PCS the same league as IBM, and would be able to pro- were still well below those obtained by Dell HP's vide customers with a full range of computer prod. stock price plunged, and its board of directors reacted ucts and services. With the exception of printers, in by firing Fiorina and bringing in a new CEO, Mark which HP is the market leader, there was significant Hurd, a person with proven skills in managing a com product overlap between HP and Compaq. panys cost structure. Hurd initiated another round To justify the acquisition, Fiorina claimed that it of cost reductions by pruning HP's product line and would yield a number of benefits. First, there would workforce. In Spring 2006, the company astounded be significant cost savings. Some $2.5 billion per year analysts when it announced much higher profit mar would be taken out of annual expenses by eliminar- gins on its sales of PCs and higher profits across the ing redundant administrative functions and laying company. Many of Fiorina's strategies thad begun to off 15,000 employees. In addition, combining the pay off: HP's PCs were much more attractive to cus PC businesses of HP and Compaq would enable HP tomers, and Dell's foray into printers had not proved to capture significant scale economies and compete highly successtul against market leader HP. Neither more efficiently with Dell. The same would be true in had Dell's entry into other electronics industries such the computer server and storage businesses, areas in as MP3 players, televisions, and so on. which Dell was gaining share. Critics, however, were The result was that competitive advantage in the quick to point out that Dell's competitive advantage PC industry seemed to be moving away from Dell and was based on its cost-leadership business model that toward HP. As a result, Dell has been forced to find was based on the efficient management of its supply ways to increase its level of differentiation to increase chain-an area in which both HP and Compaqlagged the attractiveness of its machines and so defend its posi- behind Dell. Although achieving economies of scale tion against HP and Apple. Dell and bought the upscale is desirable, would the merger allow HP to reduce its PC-maker Alienware in one move to increase differen- cost structure, such as by increasing its supply chain tiation, it also entered into physical retailing industry efficiency? If HP could not change its PC business when it opened Dell PC stores in major shopping malls, model to match Delly low cost, then the merger imitating Apple strategy. And, to find more cost sav would not provide any real benefit. ings, Dell aho began to use AMD cheaper chips and In addition to the cost advantages of the merger broke its long term exclusive tieto Intel to find more Fiorina argued that the acquisition would the HP a cost savings. Analysts worry these moves will increase critical mass in the computer service and consultancy its cost structure, and the battle has heated up in the business, in which it significantly logged behind PO industry as Dell HP, and Apple work to find new leader IBM. By being able to offer customers a total ways to lower costs and differentiate their products to solution to their IT needs, both hardware and ser increase their profitability and ROIC vies, Fiorina argued that HP could gain new mar ket share among corporate clients, who would now Case Discussion Questions buy its PCs as part of the total computer package": 1. What kind of corporate level strategies did HP moreover, HP would be entering the higher margin and Dell pursue to strengthen their multibusiness service business. Here too, however, critics were models quick to perceive flaws. They argued that HP woulu 2. What are the advantages and disadvantages asso ciated with the strategies