The changing concept of ‘adding value’
05/01/2005
There are many ways to “add value” to an enterprise. As companies grow, and industries and technologies mature, the focus may shift dramatically. The recent upheaval at Hewlett-Packard capsulates much about how this concept has been transformed over the years in our own industry.
H-P is one of the great growth companies from the early days of Silicon Valley. The tradition set by Dave Packard and Bill Hewlett when they set about building better instruments in their garage carried on through the decades as the corporation grew, thrived, and diversified. It was a dream company for creative engineers. Teams devised improved products, ranging from a robust, easy-to-use white noise generator to intricate microwave testing tools and sampling oscilloscopes. The developers went on the road to demonstrate how their new instruments could deliver superior performance. The exuberant pride and in-depth knowledge of these engineering teams made them a formidable marketing force.
At headquarters, the open layout kept everyone bouncing ideas around rather than isolating managers and executives in sealed offices. Teamwork and camaraderie, plus the joy of solving tough engineering problems, were H-P hallmarks. The company’s research labs attracted brilliant technical people and became a fountain of new science and technology. Intel’s Itanium processor, for example, actually was based on H-P’s work with very long instruction word (VLIW) architecture. H-P was instrumental in the push for more reliable, higher-quality electronic parts in the US. Executives there recognized the superior performance Japanese manufacturers were attaining with total quality management techniques, and induced suppliers to adopt TQM to compete.
It was a great place to visit even when the company went into the computer business. Bright engineers, fresh out of Carnegie Tech or UCal Berkeley, discussed projects aimed at improving server design or networking. One visit on Halloween, with almost everyone in costume and having a great time, showed that the team spirit had carried over to the computer side, which very quickly dominated the company. Still, when H-P moved into laser printers, it opted by buy its print engines from Canon in Japan. The concept of adding value was shifting.
Jump to the present. While a merger with Compaq allowed some cost cutting, it still didn’t stop major competitors from eating away at H-P’s margins and market shares. Wall Street has been clamoring for top management to shed some divisions to concentrate on higher-margin products, as if “adding value” is like shuffling rooms around when planning a new house. R&D at H-P has shrunk to 4.4% of sales, down from about 6% in recent years.
In today’s marketplace, the kind of “added value” that often richly rewards top executives comes from mega-mergers, mass layoffs, and shifting operations to lower-wage sites (even though many high-tech products involve little labor content). Rewards may also come from streamlining supply chains, adding automation, improving marketing, or boosting fees for intellectual property. But all of these depend on the art of turning useful R&D into viable products and services with solid business models.
It is interesting to note that in the chipmaking sector, leading companies continue to find that process technology can be a vital differentiator, even though getting and maintaining an edge is a very tough assignment for their scientists and engineers. There are many ways to add value, and maybe some of the traditional approaches - based on creating and enhancing products with innovative technology - may still have some usefulness after all.
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Robert Haavind
Editorial Director