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HP and Compaq
- Going from strength to strength -
Results of a recent INSEAD report "Measuring
the Competitive Fitness of Global Firms" suggest that the proposed
merger between HP and Compaq could be a success based on the fact
that both are strong companies with an impressive range of core
capabilities.
The report, authored by INSEAD Professor, Jean Claude Larréché
uses a methodology, which monitors 12 fundamental capabilities that
influence the effectiveness of a firm in its markets. Ratings on
12 fundamental business capabilities are obtained from 182 indicators
assessed by a confidential panel of executives within each firm.
The 2002 report, which evaluated 326 top firms, classified both
HP and Compaq as world-class with both firms achieving a world-class
standard across all of the capabilities. Compaq scored particularly
well in 'Innovation', 'Performance', 'Mission & Vision', and
'Customer Orientation' with HP scoring just as highly in 'Performance'
and 'Corporate Culture'.
According to Prof. Larréché, a firm's ability to drive
long-term shareholder value is based on its competitive fitness,
which may not be accurately reflected in commonly available information,
such as financial ratios, market ratings, public relations, or general
perceptions.
"The recent demise of ENRON, which only one year ago was often
cited as one of America's Most Admired firms, dramatically illustrates
the danger created by the difficulty to obtain information on the
real capabilities of corporations" says Prof. Larréché.
When asked about the potential success of the merger, Prof. Larreche
said: "Many mergers do fail in creating sustainable shareholder
value, the current market environment is not favorable, and this
would be a challenging merger. But it is not the merger of two weak
companies. Professional management teams who have made long-term
investments in the fundamental capabilities lead both firms. The
capability profiles of these companies show underlying strengths
that will not be found in companies led by short-term financial
engineering options. I feel that the management of HP and Compaq
have the capabilities to make this merger a success if it is approved
by their shareholders."
Prof. Larréché goes on to explain "Fundamental
capabilities are intangible and therefore difficult to measure,
but are truly the ultimate competitive differentiator.
"In the case of the proposed HP-Compaq merger, the absence
of tangible information on these fundamental capabilities has been
exploited by its opponents to cast doubts on its likely success."
The report, Competitive Fitness of Global Firms, has been
produced since 1998 with both HP and Compaq obtaining "world
class" status for the past three years. Over the period the
average rating of both firms has been around 71, which is six points
above 'world class'. These results identify that both HP and Compaq
have a history of displaying strength in each of the core capabilities
and have managed to sustain that success in a period which has seen
the Computers & Electronics sector experience some difficulty.
About The Competitive Fitness of Global Firms Report
This report publishes results of an annual study
conducted by Professor Jean-Claude Larreche, at INSEAD business
school. The study ranks top North American and European firms based
on fundamental business capabilities based on a survey of top managers
from those firms. The capabilities measured are: Mission & Vision,
Customer Orientation, Corporate Culture, Organization & Systems,
Planning & Intelligence, Human Resources, Technical Resources,
Innovation, Market Strategy, Marketing Operations, International,
Performance and E-Business. Out of the 326 firms covered, a total
of 86 firms achieved above a World-Class rating for 2002 with BMW,
Nokia, and Pfizer ranking as the "best". For more information
and results of the study, visit: www.corvaltec.com.
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