The original purpose of the phone conversation was to discuss a possible licensing agreement. However, their conversation led to a discussion of competitive strategy and the idea of a merger between the two companies was broached. (Hoopes, 2004). By next month, all the basics of the deal were formulated and by September first week, the merger was approved by both boards. The merger was expected to yield savings projected to reach $2.5 billion annually by 2004. (Hoopes, 2004).
To identify the strategic management issues that arose out at Compaq and Hewlett-Packard respectively in the lead up to the merger in 2001, and the changes in strategic management that resulted after the merger within the newly merged operation.
Although Compaq was growing at a good rate as an independent corporation in the server market and retail PCs, as part of strategic management policy it wanted to expand its reach, particularly in the consulting arena. As an important step towards its transition as a consulting power providing corporate solutions, Compaq and its CEO Michael Cappellas utilized the offer put forward by Carly Fiorina. “Compaq, which has a global services division of almost 40,000 employees, is moving strategically towards IT business solutions in the key markets, where together with HP, they can compete effectively against IBM, Dell, and Sun.” (Cormia, 2002). As Compaq had a strong strategic management policy of expansion into the consulting arena, the merger was the best feasible option for them.
HP wanted to include PC assembling and retailing in its ‘resume’ and thereby become a full-service technology company. A full service technology company who can do all the IT related works and thereby take on the leaders Dell and IBM. “Fiorina argued, the merger would create a full-service technology firm capable of doing everything from selling PCs and printers to setting up