Case Analysis - Hewlett Packard: The Flight of the Kitty Hawk

Hewlett-Packard’s Kittyhawk project team was led by Rick Seymour and in 1992 they came up with five parameters for launching the project successfully. The introduction phase was supposed to take 12 months from start to finish, with revenue from the two year period expected to hit $100M. In addition, the Kittyhawk team were the first to introduce a 1.3-inch drive to the market with an 18 month development cycle (stage-gate process). HP aimed to become the industry leader, however, they needed to maintain a 35% growth rate to hit the target and to break-even within 36 months.

       Despite the outlined parameters, HP based its market positioning on predictions rather than taking advantage of the tangible opportunities in the market (e.g. revenue expectations were based on the financial projections, which had the tendency of being misinterpreted). Moreover, the market trends were bounded on cost basis and not by size. The Kittyhawk confronted the risk of having two highly competitive products in the market such as flash memory drives and the 1.8 inch drive, which were expected to be introduced shortly.

Business Model

HP focused on one niche to escalate its market positioning. However, there were challenges starting with manufacturing and ending in retail pricing. Outsourcing the manufacturing was a viable option, because it would decrease the operating expenses, however, HP would be running the risk of losing control over quality and being vulnerable to innovation inferiority while the HP culture deeply valued technical innovation as a key to success.

Principal Issue
The principal issue in this case is a decision. Seymour is poised with three alternatives and must decide which of them will best steer the Kittyhawk towards a successful and promising future. 

1.      Continue to pursue the ruggedness-based applications that were cropping up.

2.   Leverage the ruggedness & electronics integration technologies the team had developed to create a superior 2.5 inch drive for notebook computers, specializing on space and speed.

3.      Develop a ‘first of its kind’ $50 drive, which would have multiple industry applications.

Subsidiary Issues

1.  The actual Kittyhawk customers were very different from what the team had initially anticipated.

2.     Customers wanted a $50 drive, with or without the accelerometer.

3.      Kittyhawk sales failed to meet the team’s targets after two years of effort.

4.     The Disk Memory Division (DMD) had disk-drive sales of $519 million in contrast to IBM and Seagate Technology, which had disk-drive sales of $4 billion and $3 billion, respectively.

5.   The lowest unit price in the industry was $130 despite and irrespective of capacity, the best strategy to reach a $50 price margin was high volume production.

6.  There were several ‘possibilities’ that presented themselves, in prospect, for the Kittyhawk, however they were never validated against proper contracts for the product. This misled management to overestimate it’s potential. Nintendo and Chicago Controls’ platonic interest were prime examples of this.

7.    The Kittyhawk’s marketing strategies were narrowed down to focus on the mobile computing market and development of an inexpensive drive.

Performance
The main reasons for the Kittyhawk's initial failure were as follows.

1.   DMD failed to identify the right customers and develop the right product due to overestimated management outlooks.

2.      HP had been unsuccessful in introducing the new product as it was a distracting innovation not ready to satisfy the current market.

3.      The product couldn't accelerate other emerging markets in a short period as expected. PDA market is an example that never emerged as expected, and Kittyhawk’s performance was more than sufficient.

4.   The Kittyhawk couldn't add value for existing markets due to its incompatibility with potential products.

Alternative Decisions & Criteria for Choice

1.      If Seymour were to continue to pursue the ruggedness-based applications that were cropping up, HP would enjoy immediate business from currently interested Kittyhawk customers without having to modify their product. They could also avail of the opportunity to become pioneering leaders in the manufacture of durable drives and build a unique brand around it. This will allow the Kittyhawk to cater to a new range of applications vis-à-vis digital games, cash registers and others focused on the drive’s shock absorbing capability. However, this approach would also require HP to sacrifice its favored accelerometer technology and all the years of investments in time, effort and capital that went into it. Also, this would spell a transition into serving a very niche market with a high risk factor, in prospect.

2.      Leveraging the ruggedness and electronics integration technologies the team had developed to create a superior 2.5 inch drive for notebook computers, focused on dimensions of speed and space would give HP a proven market to sell the Kittyhawk. HP were one of the leading manufacturers of virtual memory products, at the time, and so it would not be very difficult for them to create inroads in this segment of the market as they could leverage their brand credentials to promote their offering and acquire early trust. They would hypothetically make more profit even by capitalizing upon a mere fraction of this market, as opposed to dominating the entire potential market for durable drives. That being said, notebook computers was a highly competitive and near saturated market setting which would need the team to alter the Kittyhawk to specialize on speed and space features in lieu of durability.

3.      Designing a $50 drive would make the Kittyhawk the lowest-price competitor in the market, provided they developed it first, and the possibilities would be immense. The team was very motivated to pursue this option - It would be an ideal drive that would encompass almost every application in the industry, at the time, from cash registers to notebook computers to gaming devices. On the flip-side, it would need heavy financial investments in R&D over an unknown time frame with no plausible certainty of perfectly developing the product.

Recommendation
Based on the analysis of these alternatives and in light of the stated issues, I recommend that Seymour pursue the second option and create a superior 2.5-inch drive for notebook computers specializing on speed and space dimensions instead of durability. With a proven market to sell the product, I believe that it would be easier for HP to make the transition into developing this drive since it would need minimal investments in R&D, on account of existing competitor alternatives.

Plan of Action

1.   Clear off inventory for the existing drive and manufacture until demand sustains.

2.   Shut down the production of this drive once the demand fizzles out and simultaneously focus on developing the superior 2.5 inch drive for notebook computers, focused on superior speed & space.

3. Invest in R&D to design a new and improved 1.8 inch drive for modern computing applications.

4.  Use in-house manufacturing for flexibility as demand grows and until the right product is developed.