Use Strategic Market Models to Predict Customer Behavior

In the late 1980s, the computer systems industry embarked on a perilous but thrilling white-water journey of change that left many previous giants upset or beached on the rocks, while young, unknown companies emerged from the chute as celebrities. In retrospect, the undercurrents of change seem clear, but, at the time, the level of confusion was tremendous. Hewlett-Packard’s successful navigation through this treacherous passage is attributable to many factors, including its new approach, called strategic market modeling (SMM), which HP’s computer systems organization used to generate and test alternative business strategies both for itself and for competitors.

The computer systems industry (traditional mini-computers and mainframes) in the late 1980s was already experiencing the impact of powerful desktop PCs and workstations when it was hit from a different direction by the growing acceptance of Unix and open systems. For HP, while the emergence of commercial Unix represented a tremendous opportunity, it was also a threat. Unix had been a popular computer operating system among scientists and engineers for many years, due to its portability across different platforms and its networking features. It began to penetrate the commercial market, as MIS managers introduced Unix into their departments for the same reasons. But Unix was only a small part of a larger technology shift to the “open systems” that have subsequently revolutionized the computer industry. Open systems have meant the standardization and interchangeability of components, with companies leveraging each other’s R&D investments, resulting in great economies of scale for computer customers.

HP managers hoped that Unix would thaw the minicomputer marketplace, where most customers were already frozen into one or two proprietary vendors, primarily IBM or DEC. Market shares between vendors seldom changed by more than 1 percent per year. Even though HP had only a 6 percent market share in the very large commercial minicomputer market, HP managers viewed the proprietary HP 3000 business as a success; it was highly profitable and growing in excess of 15 percent per year. The introduction of a competing Unix offering, the HP 9000, would cannibalize this business.

This problem was compounded by the fact that if HP were to sell both product lines to information technology directors around the world, the same sales force would have to do the selling. HP could not have two sales representatives calling on the same customers and recommending two different solutions.

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References

1. H. Mintzberg, The Rise and Fall of Strategic Planning (New York: Free Press, 1994), pp. 324–325.

2. See, for example:

S. Schoeffler, R.D. Buzzell, and D.F. Heany, “Impact of Strategic Planning on Profit Performance,” Harvard Business Review, volume 52, March–April 1974, pp. 137–145;

R.D. Buzzell, B.T. Gale, and R.G.M. Sultan, “Market Share — A Key to Profitability,” Harvard Business Review, volume 53, January–February 1975, pp. 97–106;

W.J. Abernathy and K. Wayne, “Limits of the Learning Curve,” Harvard Business Review, volume 52, September–October 1974, pp. 109–119; and

P. Ghemawat, “Building Strategy on the Experience Curve,” Harvard Business Review, volume 63, March–April 1985, pp. 143–149.