Project M. Business Strategy for the Imaging & Printing Group (IPG) HP New Zealand. Company Report. Submitted By: Name Deleted

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1 Project M Business Strategy for the Imaging & Printing Group (IPG) HP New Zealand Company Report Submitted By: Name Deleted Supervisor: Name Deleted The Engineering Management Project M Company Report presented to the University of Auckland in partial fulfillment of the requirements for the award of the Master of Engineering Management

2 Executive Summary This project report evaluates the business processes involved in the sales of HP hardcopy devices within the New Zealand market. The focus of this paper is primarily on the business markets that account for the majority of the ongoing revenues. As part of this project, an End User survey comprising of decision makers within 395 New Zealand businesses was conducted in addition with detailed discussions with the key channel partners. The main objectives of this study are To identify means of countering the threat posed by copier companies as a result of the converging Hardcopy Devices market. Understand the ideal channel structure and what they believe is required from HP to support them to compete in the converging markets. Explore possibilities of partnering with resellers willing to dedicate their core marketing efforts with HP to create opportunities for sales of copy centre solutions. To provide recommendations for any possible improvement in the process of marketing HP s hardcopy devices. The approach taken to fulfill the project objectives has been to initially study the available literature on the hardcopy device markets followed by gathering information from the telephonic interviews conducted with the decision makers in New Zealand businesses for procuring hardcopy devices. Additionally, a detailed understanding was formulated through discussions with HP s core NZ team comprising Andrew Seerden, Director of IPG, Allan Farquarson and Duncan Glynn. Further insights were received by having formal interviews with the General Managers of HP s key channel partners. After careful analysis of the processes involved and the planned approach by HP, the following conclusions and recommendations can be drawn: 2

3 The following product groups need to be addressed: High Speed A3 MFDs. Mid-size MFD products. HP should continually educate users on the benefits of using a mix of A4 MFDs and A3 Colour Laser printers in lieu of A3 Colour MFDs. HP should focus on offering hybrid service delivery models Although MFDs are going to drive the business to a large extent, HP should maintain their focus on their core products, the departmental laser printers since single function copiers will ultimately be replaced by MFDs but there will always be a need for single function Laser Printers HP have one of the strongest brands in the Information Communication Technology (ICT) space and they need to leverage off their capabilities to promote and market their document solutions offerings including hardware devices and software applications. System Integrators such as Axon, Gen-I, etc. should be offered support through HP's internal business development team. These system integrators have strong relationships with some of the major prospective accounts in New Zealand. Develop semi-exclusive partnerships with certain channel partners. Their sales force could be considered as an extension of HP. Value added resellers should be given access to all products and service delivery offerings apart from the high-end A3 MFDs. 3

4 Acknowledgements I wish to thank Mr. Graeme Muller, IDC NZ Country Manager for supporting me in this project and Mr. Andrew Seerden, General Manager, NZ Imaging & Printing Group (IPG) at Hewlett-Packard Company for his exceptional guidance and support through to the completion of this project. My experience in the Master of Engineering Management program has allowed me to interact with the most diverse group of people and everyone has been eager to share their unique perspective and learn from those of others. Additionally, I would like to extend my thanks to Hewlett Packard NZ with a special mention to Mr. Allan Farquarhson and Mr. Duncan Glynn from Hewlett Packard for sharing their ideas and strategies with me. I would also wish to thank Mr. Bruce Koefed, Managing Director of Laser Plus and Mr. James Fee of I 3 for sharing their views on HP in context to the New Zealand hardcopy device market. A special thanks to Mr. Gerry Mallon from OEM Print Solutions for his contribution and perspective. Acknowledgments would be incomplete without a special mention of thanks to Liam Gunson, Sr. Analyst Hardware Research at IDC. This project would not have been possible without the suggestions and on-going guidance from my supervisor Name Deleted from the University of Auckland. Last but not the least; I would like to thank my friends and family for their love and support through the course of my Master's Degree, especially my lovely wife Arishta who has happily sacrificed her weekends and offered me the utmost support in fulfilling my goal. 4

5 TABLE OF CONTENTS Executive Summary...2 Acknowledgements Introduction Project Objectives Research Methodology Situation Overview Historical Printer and MFD Performance in New Zealand Market Research Future expectations of ICT budgets Ratio of Standalone vs. Networked hardcopy devices Ratio of Centralised vs. Distributed Output The Purchasing Decision Key Purchasing Decision Makers Purchase vs. Lease Equipment Purchase Trends and Influencers Single vs. Multiple Vendor relationship Total Cost of Ownership Consumable Acquisition Methods Perceptions on Hardcopy Device Total Running Costs Technology Uptake and Utilisation Copier vs. Printer MFD Technology Trends Perception about Vendors Current Vendors Shares Vendor Ratings by their Customers Market Perception of Vendors Most Preferred MFD Vendor Channel Feedback Summary Recommendations Means to counter the threat posed by copier companies Differentiation through Superior Product Range Developing the Ideal Channel Structure Improve Service Delivery Enhance credibility with IT Managers...33 Bibliography...34 Appendix

6 1.0 Introduction The workgroup and departmental output device market is undergoing an unavoidable transformation that is likely to impact almost all vendors. Copiers and single function printers are increasingly competing for the same customer application, specifically that all purpose output device in almost every department or business. Historically, customers have had two alternatives in finding a product to meet their needs. The ubiquitous copier, now also the colour copier, and/or, the high speed departmental A3 format laser printer. Traditionally, there have been two distinct categories; however, this 'convergence' has created a new category, the 'Multi Function Device' or the 'MFD'. A number of these devices have high performance network controllers from a technology perspective and offer a high degree of paper handling capabilities. The convergence within the hardcopy device industry and marketplace has meant that innovators and leaders are losing their competitive advantages. It is the purpose of this paper to identify key issues, assess the impacts on the company and make recommendations to counter the situation. As part of the business strategy project we undertook a survey of 391 NZ businesses to understand the needs of wants of end users with regard to Hardcopy devices. In addition, some of the key channel partners for HP were interviewed to receive their perspective on the marketplace as well as identify areas for increased support from HP. IDC is the premier global provider of market intelligence and advisory services for the information technology and telecommunications industries. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. Over 775 IDC analysts in 50 countries provide global, regional, and local expertise on technology and industry trends. HP is a key client for IDC with a long standing global partnership. 6

7 This has enabled IDC to understand the businesses issues faced by HP on a day to day basis as well as for long term planning. The understanding of the industry as a whole through on-going research has been leveraged in this report. 1.1 Project Objectives To identify means of countering the threat posed by copier companies as a result of the converging Hardcopy Devices market. Understand the ideal channel structure and what they believe is required from HP to support them to compete in the converging markets. Explore possibilities of partnering with resellers willing to dedicate their core marketing efforts with HP to create opportunities for sales of copy centre solutions. To provide recommendations for any possible improvement in the process of marketing HP s hardcopy devices. 1.2 Research Methodology The survey on which this study is based was conducted in June Respondents to the survey consisted of 395 New Zealand businesses with greater than 5 employees and varied between differing vertical markets. Respondents had to be responsible for the purchasing of workgroup and departmental hardcopy devices, including printers, copiers, and multifunction devices (MFDs). IDC's Computer Aided Telephone Interviewing Center, which is based in Malaysia, was used to contact respondents; all questionnaires were conducted in English. The results were translated into SPSS where all analysis was performed on the data. Additionally, in-depth face to face interviews were conducted with key members of HP's main business partners. Their invaluable views and market perspectives have been carefully taken into consideration. 7

8 2.0 Situation Overview In order to capitalize or for some simply sustaining within the converging marketplace the approach taken by vendors with a copier bloodline and that of printer vendors has been very distinct but eventually striving to find the same result. The service delivery models, product configurations and channel dynamics at the moment from both sides of the 'Hardcopy" industry are so diverse that it has caused some vendors to take a rather piece meal and random approach. Copier vendors have historically developed relationships with the CFOs, pushing their devices via a leasing model, incorporating service delivery within a click charge or cost-per-page model and primarily selling networked versions of their A3 copier models as MFDs. Their sales efforts have been through a direct sales force and that has created a gap due to the lack of partnerships within the wider IT industry. On the other hand, printer vendors such as HP have typically dealt with the IT heads within businesses, selling their products through a channel comprising of printer resellers, system integrators, office supply companies etc., primarily creating ongoing revenues through the sale of consumables, and pushing an MFD based on an existing A4 or A3 printer engine with a scan top. The question is who will win in this new environment? Will it be the traditional copier vendor, or the printer vendor? And how will customer expectations change as MFDs become the common denominator in the office environment? And how will the advent of workgroup color MFDs with substantially reduced street prices impact the color copier market? What service delivery models are important to customers? Who makes the decisions? How are the various brands rated within the converged market? 8

9 It is the answers to these questions that would assist HP in maintaining their consistent number one position. 2.1 Historical Printer and MFD Performance in New Zealand The Printer and Copier markets in New Zealand have been in a process of transformation over the past couple of years. Inkjet printers, the dominant form factor in terms of unit shipments, has seen its share of the market eroded by the laser and multifunction devices (MFD) as technology improved and prices plummeted. The overall market has stayed relatively flat with only a slight contraction of 1.0% in 2004 over However, within that there have been some significant shifts from various form factors with strong growth shown by MFDs creating declines in single function unit shipments. Growth in the MFD space has largely come about through falling prices opening up new markets and opportunities. However price has not been the only driver. Improved technology has also meant that difference between a MFD's ability to perform each function in comparison to that of a single function device has decreased. The end-user therefore no longer has to sacrifice a great deal of quality for each function in order to have the convenience of an all-in-one machine. 3.0 Market Research This section is based on the findings of the survey run in 2005 to assess end user perceptions and examines certain key factors that shape the hardcopy device market within New Zealand. These key factors are: 3.1 Future expectations of ICT budgets When respondents were asked their thoughts on the future expectations of their ICT Budgets almost three quarters of respondents expected their budgets to stay the same. Only 6.1% of respondents expected their budgets 9

10 to decrease while one fifth expected it to increase in the next financial year. This is good news for hardcopy device vendors as it indicates the ICT market in New Zealand is stable with potential for increased spending in the coming quarters. However hardcopy devices will be in competition for the ICT budget along with other technologies. Future expectations of ICT budgets varied with company size. Nearly 40% respondents in the 500+ staff companies believed their ICT budgets were going to increase. 3.2 Ratio of Standalone vs. Networked hardcopy devices When asked about standalone and networked devices the average ratio was 76.1% Networked and 23.9% Standalone. With more hardcopy devices networked it will be important for vendors of MFDs to focus on the ability of their products to integrate into various types of networks- an area HP are already strong. General feedback from the market has indicated that there is a perception that in the past printer MFDs have typically performed better on a network than copier MFDs. 3.3 Ratio of Centralised vs. Distributed Output It's clear from the Table in the appendix that businesses prefer to have a centralised document output environment. This however, changes for the larger companies, especially companies with 500+ staff, where 40% respondents preferred a distributed output environment- aligned with HP's business model. 3.4 The Purchasing Decision Historically there has been thought to be a relatively clear division, in terms of who were the main influencers in the purchasing decisions for copiers and printers. The purchasing decision surrounding copiers has typically been the domain of the finance departments, due to the leasing model of the copier space and the separation from the 10

11 IT network. Decisions on the purchase of printers however have generally been thought to fall under the IT department due to the printer's close connection with the company's computer base Key Purchasing Decision Makers Our study concluded that a vast majority (94.9%) of respondents were responsible for the purchase of both printers and copiers within their organisation, providing an early indication to the merging landscape. This picture changed little when looking at the data by company size indicating that this trend is occurring throughout the market. The IT department is heavily involved in the brand decision of copiers; however, the facilities, operations and purchasing departments still have significant influence in terms of brand decision and budget and will remain so in the near to mid term. The role of finance seems to be dwindling as copiers become a part of the IT infrastructure within businesses and thus come under direct control of the IT department Purchase vs. Lease Within the New Zealand market there are two distinct ways in which end users acquire their hardcopy devices- purchasing or leasing. When we look at the whole sample, the majority of respondents currently purchase their hardcopy devices as opposed to leasing them. Traditionally the market has been divided wherein the printer based machines have been purchased while copier based machines have been leased. However the dominance of a preference for purchasing indicates that as the printer-copier market converges, there seems to be an inclination towards purchasing the hardcopy devices. As printers take on copier functions businesses prefer to purchase their hardcopy devices to leasing them. It may however be noted that the response regarding the purchasing or leasing option started shifting more towards leasing with larger companies. This is a strong 11

12 indicator of ideal market segments for both printer and copier vendors. It is widely expected that larger companies would prefer to deal with both, printer and copier vendors to suit their diverse requirements. But the New Zealand business environment consists primarily of smaller businesses and they account for a sizeable chunk of the sales in the hardcopy device market. The fact that the Finance departments don t have a strong influence on brands of MFDs as discussed in the previous section, not to mention that more and more businesses prefer to purchase rather than lease should certainly be considered an advantage by HP. Additionally, HP and their channel partners are also offering leasing options to their customers primarily through self or third party finance companies Equipment Purchase Trends and Influencers Recommendation from an IT Partner Nearly 55.4% respondents felt the role of their IT partner was a key factor in assisting them with choosing a brand. Additionally, only 18.7% felt that it was not important, as shown in the figure below. Copier vendors, with a direct sales model, on the other hand have a weak link because of a lack of established channel through IT vendors Perceptions on Factors When Choosing a Brand While companies will look at various functions to determine what type of product will suit their needs, equally important are the factors which will determine the type of brand they choose to go with, as shown in the figure below. Service level was considered the most important factor stressing the importance to provide more than just the products in a time when products are seen as commodity items. Factors involving costs then took the next three spots in terms of importance highlighting the benefits that could be obtained with the ability to clearly show a competitive price and significant ROI. 12

13 It may indicate an issue of concern for HP as well as copier vendors. HP rely heavily on service levels offered by their channel and as they begin to compete more proactively with copier companies that manage their own service network to a large extent, they need to exercise greater control of the service channel. Choosing a brand that is a market leader or loyalty to a brand was reasonably important but was clearly not as critical as service level delivery and cost related issues. HP should take note since this makes it easier for incumbents to be removed as preferred suppliers, if key competitors offered a superior level of service and pricing Drivers of Multifunction Acquisitions As MFDs increase their share of the market it is important to know what is driving their growth or the factors that influence their acquisition. As expected, reducing costs came out as the main reason for driving the acquisition of multifunction devices. However MFDs are considered more expensive in terms of running costs than single function printers and copiers. It is therefore safe to make the assumption that cost reduction perception here applies more towards the initial capital cost savings through purchasing one device that performed multiple functions Importance of MFD Capabilities In terms of functions of a multifunction device considered important apart from Mono printing, mono copying is the clear leader. Colour printing and copying are far less important functions in an MFD despite the falling prices. Colour copying is expected to become less important over time since more and more colour documents that are created in digital format are distributed electronically. 13

14 This is a cause of concern for copier vendors who are currently attempting to push colour capable MFDs into the market. On the other hand, HP who don t have competing products in the market highlight the futility of colour copying and convey the advantage to clients of purchasing a mono MFD and a colour printer. Independent feedback received from copier vendors indicates that they are currently focusing heavily on colour MFDs. Scan to file or is considered far less important than expected which is contrary to the perceptions of some key vendors of MFD. It also indicates that many documents are now created in a soft copy decreasing the need to scan hard copy files. The need for this is probably also limited to a niche market of certain businesses as well as companies that have an existing or planned Document Management policy. Currently, in the New Zealand market, companies that currently implement or plan to implement document management solutions prefer centralised scanning as an option rather than distributed scanning. Faxing is still seen as important by many New Zealand businesses as there is still a trend for many businesses to fax items such as purchase orders or contracts' ensuring the fax function of MFDs remains an important part. Thus, HP's current approach, which is to include Fax as an option and offer it as standard where the need arises may be the appropriate offering Importance of A3 Capability with Regard to MFD Functionalities A3 capability on an MFD was considered important with regard to Mono printing and copying. A3 capability for colour printing and copying on the other hand was considered less important with less than 40% of respondents regarding it as not important. This could be crucial considering copier vendors have a wider range of A3 capable MFDs than printer manufacturers. HP need to evaluate the appropriate strategy for marketing their high speed A3 MFDs. 14

15 3.4.4 Single vs. Multiple Vendor relationship The majority of respondents indicated that they do not have a preference for a single vendor relationship for their hardcopy devices. It reflects the mindset of decision makers within the New Zealand market who would prefer to maintain a reasonable level of options available to them which also enables them to deploy superior negotiating tactics with regard to pricing and service delivery. It may also represent their view that most vendors do not have the scalability or capability to service all their requirements. However businesses that would prefer a single vendor relationship did still account for a significant portion of end users and grew in proportion to company size. 3.5 Total Cost of Ownership Consumable Acquisition Methods When asked about their preferred model to acquire consumables, nearly 65% of respondents preferred to purchase as and when required rather than the cost-per-page model. The perception is that the trend is unlikely to change in the future which could be good news for printer companies and maybe an issue of concern for copier companies. This is a crucial factor to consider since HP are currently developing various costper-page service delivery models to adopt to varying market segments. Hence, a focused approach needs to be developed to create the 'right fit ' solution through the appropriate channel partners that could potentially offer a hybrid model Perceptions on Hardcopy Device Total Running Costs When asked about their perceptions on the expense of the various form factors, respondents clearly saw MFDs as being more expensive to run than single function hardcopy devices- copiers and printers. Considering the main factors driving the acquisition of MFDs is to reduce costs, it can only be assumed that businesses 15

16 perceive the cost savings by reducing the initial capital outlay through acquiring one device in lieu of multiple devices. It conveys that the majority of customers are short sighted when conducting cost benefit analysis. The customer's parameters, despite efforts from copier vendors to educate businesses regarding running costs seem to be based on the initial costs of the machines. Copiers are considered as marginally more expensive than printers both in single function and multifunction devices. 77.5% of respondents viewed copier MFDs as expensive while 71.1% of respondents viewed printer MFDs as expensive. This is contrary to the feedback that IDC receives from various vendors regarding the market perceptions. However, this has created an opportunity for the copier vendors to sell their hardware at subsidised prices and maintain a cost per page below that offered by printer vendors. HP on the other hand may not have the luxury to replicate the model considering they have to look after the channel's margins as well as their own margins. 3.6 Technology Uptake and Utilisation With the landscape changing through the growing presence of multifunction devices, it is important to look at the types of technologies New Zealand businesses currently deploy and how that will possibly change moving forward Copier vs. Printer MFD With regard to a preference between a copier based MFD or printer based MFD 48.4% indicated they would prefer a printer based MFD. This is possibly an early indication that as the two markets merge; the printer industry is encroaching on copier territory rather than the copier encroaching on the printer. This may be attributed to two major factors: Firstly, the IT department has the key influence in making decisions for MFDs and printers have historically been an extension of the IT function and secondly, the fact that printing, which is promoted as a printer based 16

17 MFD's key function is perceived to be more important than copying. This trend needs to be exploited by HP Technology Trends As IT uptake increases the need for networks and the ability for the various devices to communicate seamlessly with each other also increase. 66.6% of respondents agreed with the statement that print volume is moving from single user to networked and only 10.4% disagreeing with it. With more hardcopy devices networked it will be important for vendors of MFDs to focus on the ability of their products to integrate into various types of networks. It is generally perceived that printer MFDs do this better than copier MFDs. HP have an inherent advantage in this regard since they are considered one of the leading technology companies and historically their network printers adopt to all major network environments deployed in businesses. Most importantly it should be noted that a large majority of people agreed with statement that copy volume is shifting from single function copier to MFDs. This indicates potentially a gradual demise of single functional copiers and is likely to put immense strain on copier vendors over time since it would mean an end to their core product range. Whereas, HP would still continue to sell printers along with MFDs, while copier vendors would eventually only have MFDs in their range of products. However, this can be countered by copier vendors becoming more proactively involved with their printer products. All key copier vendors in New Zealand such as Fuji-Xerox, Canon, Ricoh and Konica-Minolta have a range of printer based products. 17

18 Importance of Network Print Management 76.6% respondents agreed that Network Print Management was important and is possibly considered unimportant only by the segment that does not have networked devices yet or limited devices on their network. HP have an established network print management solution, namely Web Jetadmin, that is offered complimentary with their networked products. End-users and IT Managers need to be educated about this offering from HP. The study found that as the number of PC's or Hardcopy devices in use by an organisation increases, so does the usefulness of network print management. The percentage of respondents who indicated that network print management was not useful in their organisation decreased to zero as the number of PC's in use reached 501 or more and the number of Hardcopy devices reached more than Importance of Wireless Printing Only 20.7 % respondents believed that wireless printing was important which indicates that it is early days for the concept. 60.8% respondent did not feel it was important while 18.5% were indifferent Implementation of Document Management Strategy Document management strategies will affect the type of approach vendors should take when selling their products into a business, as they will need to show how the device can fit into the strategy. As per our study, 77.7% of respondents did not have a document management strategy while 17.7% did have a document management strategy already in place. However, more than 50% companies with 500+ staff indicated they had an existing policy in place. Document management strategies were more common in larger companies as an increased number of documents create the need for the system. This indicates that unless vendors are able to provide 18

19 simplified document management solutions for small business the use of these systems are unlikely to increase due to New Zealand's landscape. For those that did have a document management strategy, the majority (70.0%) had a centralised strategy in place. This indicates that a majority of companies still used high speed scanners and dedicated human resource for the purpose of storing documents into a repository. For those who did not have a document management strategy, 89.9% did not have any intentions of implementing a strategy in the future. This may result from a lack of focus on this area of IT from the major solution providers in New Zealand. New Zealand Company's law requires businesses to store documents such as Tax Invoices, Purchase Orders etc for a period of seven years. Many businesses may still have the perception that documents need to be stored physically in the form of hardcopies. It may be worthwhile for HP to educate users through partnering with IT solution providers or their newly acquired IT consulting arm (Cap Gemini NZ) on the validity of electronic documents in this regard. Electronic documents stored in an EDMS can be considered equivalent to their hardcopy documents and provide significant advantages such as saving on physical storage space costs, ease of location of documents, access by multiple users at the same time and electronic back up for disaster recovery Importance of Forms Management Forms management solutions were also considered reasonably important by companies in all segments, although it becomes more relevant as company size increases. HP offer various forms management solutions that need to be marketed through the system integrator partners or even HP's solutions and services group as a bundled solution with hardware. 19

20 Document Job Accounting The ability to account for document output was not considered as important as some vendors may prefer to believe. There was a significant number who were indifferent towards it. In our opinion, the indifferent segment can be converted into believers by vendors through creating awareness and discussing the ease of implementation of job accounting solutions available. This is a feature that is often overlooked by IT managers and therefore, it may be helpful to discuss these options with other influencers in the purchasing decision making process. It would be helpful for HP to create awareness of document job accounting solutions that work with HP hardware to develop strong credibility with finance and operations teams within prospective customers to garner support. 3.7 Perception about Vendors Current Vendors Shares Current Vendors for Printers The respondents were asked an unprompted question to provide names of their key vendors for printers, copiers and MFDs. It is interesting to note the level of dominance HP has as a printer vendor. It is unparalleled by any other vendor and is also consistent in all the company size segments. As expected, the only other vendors who had any presence in the 500+ staff companies were Lexmark, Kyocera and Fuji Xerox Current Vendors for Copiers With regard to the preferred vendor for copiers there is a more even split although Fuji Xerox become a more dominant player on segmenting the 500+ staff companies with 35% respondents identifying them as their key copier vendor. Fuji Xerox was followed by Canon (14.9%), Ricoh (13.7%) and Konica-Minolta/ UBIX /Onesource 20

21 (11.9%). HP was ranked behind Konica-Minolta with 10.1%, although the share diminished as the company size grew to 500+ staff. Nevertheless, it still reflects the strong brand equity HP has within this market Current Vendors for MFDs HP was also the most dominant in the current MFDs category with 25.6% share. It was interesting to note that their share was more or less consistent within all company size segments. It was interesting to note that Brother had 15% share of the 500+ staff companies. It conveys that the prevalent perception is quite blurred since Brother is predominantly a manufacturer of low-end MFDs. Many companies would be filling up their MFD requirements with small Brother MFDs, primarily for the purpose of using the fax functionality, while still maintaining a fleet of printers and copiers Vendor Ratings by their Customers Respondents were asked to rate their current vendors for Printers, Copiers and MFDs. The vendor that received the highest rating for laser printers was Dell, which accounted for only one client. Dell primarily sells Lexmark branded printers in New Zealand, although in most other markets, they re-badge the devices as Dell machines. Dell should certainly not be discounted as a future threat by vendors, if they decide to enter the New Zealand market actively, since they have direct penetration into several large accounts within New Zealand businesses which is reflected in their ever-growing PC market share. Additionally, they are also making a strong foray into the IT services market. The companies that received the highest rating as copier vendors were Lexmark, OKI and Kyocera, though their share of the respondents was quite insignificant and thus may be overlooked. Surprisingly, from among the key copier vendors, the highest rating was received by Toshiba followed by Ricoh, Fuji-Xerox, Konica- 21

22 Minolta and Canon. However, the rating for Toshiba was the poorest in comparison as an MFD vendor which conveys that the brand may have higher acceptance as a single function copier vendor rather than a company that produces technologically advanced products. Toshiba also ranked the lowest in ratings as a printer vendor alongside Lexmark and UBIX/ Onesource. UBIX resell multiple brands of printer products and are not a printer manufacturer, so probably bore the brunt of either representing a brand that received poor ratings or not having strong service capabilities for some of the printer brands they represent. HP was rated relatively high by their current customers as a printer, copier and MFD vendor Market Perception of Vendors The HP brand leads as expected followed closely by Canon, Fuji-Xerox, Ricoh and Konica-Minolta. A point worth noting is that Copier brands have quite high brand perception in the market and this could certainly assist them with their efforts in increasing their presence as the printer-copier market converges. Even though HP have a definite advantage over the copier companies, there is no room for complacency Top Three Printer and Copier Brands Respondents were asked to rank, in their opinion,the top three copier companies and the top three printer companies in the New Zealand market. Fuji Xerox was seen as the top copier company, as expected, followed by Canon and HP. It's strong mind share in the New Zealand market is obviously a major contributor to its strong showing in the copier space. As end-users looking for hardcopy solutions increasingly look at MFD devices, overall mind share will be increasingly important. 22

23 In comparison, the printer space had two very clear leaders. HP and Canon were very clearly seen as the two top vendors in the NZ printer space. It is interesting to note however, that Fuji Xerox was ranked number three as a printer company, which indicates the penetration Fuji Xerox Printers has made into the market. Ricoh and Konica-Minolta too were ranked higher than some of their printer contemporaries such as Lexmark and OKI Most Preferred MFD Vendor Respondents were asked an unprompted question to name their most preferred vendor for MFDs. HP received by far the highest backing of the respondents with nearly 40% of the market preferring HP as the ideal vendor for MFDs. This was followed by Canon, Fuji-Xerox, Ricoh, Konica-Minolta, Brother and Sharp. This creates an opportunity for HP to clearly position itself as a market leader for MFDs. However, in order to convert the perception to reality, HP would be required to develop and market a wide spectrum of MFD products with appropriate service offerings. 4.0 Channel Feedback As part of this project HP's key channel partners were interviewed to gain their perspective on the market dynamics and how HP could help them achieve greater success in countering the imposing threat of copier vendors encroaching on their territory. The following key findings were identified: Key observations HP are the brand leaders in the MFP market Colour printing requirements are increasing Customers want consolidated devices for Mono/ Colour Customers require visibility of costs Financing is increasing while ownership is reducing 23

24 IT owns document strategy Companies want single supplier / brand HP's technology is good Document Management Solutions are not in huge demand Challenges for HP They are designing service delivery programs such as cost per page at regional level not country level and may not work in a mature market such as ANZ. These programs are more suited to IT Resellers HP are treating corporate document space same as sale of PCs and Servers Model of distribution does not necessarily work well Stock issues create delivery bottle necks At times channel have to purchase stock in advance to address delivery issue Low Margin It may be noted that Ingram Micro NZ and Exeed are the two key distributors for HP printers. Challenges for Channel Inventory issues Margin issues: Lower margins restrict employing good sales people Printer sales professionals are not as savvy as copier sales people HP print their RRP on brochures thus limiting margins for the channel 24

25 Copier service delivery business model such as leasing and cost per page Equipment ownership model for acquisition of printers creates long product life thus increasing refresh cycles. Key channel partners believe they get special pricing on deals but not necessarily exclusive At times key channel partners lose deals to small resellers who are unable to provide support to client resulting in loss of credibility for HP. Delays from HP in special pricing approval Gaps in HP range ppm mono MFDs ppm MFDs A3 Mono MFDs.( A3 is a perception issue when competing with copier companies. What can HP do to assist the channel? Provide better inventory support for printers and spares Offer a more document centric finance agreement through HP Finance rather than simple equipment finance. The finance agreements should be more aligned to copier contracts. Increase reseller margins HP need to introduce leading products that are competitive HP need to churn products rapidly Difference between Copier and Printer contracts Copier contracts are straightforward and not too long Flexibility in Terms and Conditions 25

26 Competitive Advantages for HP Great technology relationships with the IT sector Reliable and a market perception of being an industry leader Low overall TCO for customers. Advantages possessed by Copier vendors Copier companies offer deal by deal flexibility and have a degree of tenacity. Redeployment of old equipment from a client to another client and replacing it with new equipment. They work on a lifecycle model and try to roll into a new contract prior to completion of existing contract It is also clearly understood during discussions with the key channel partners that they have a strong inclination towards marketing HP products as their first preference and are prepared to align their business models with HP's strategy. Overall, the channel believed that HP had effective marketing but certainly required to tweak their strategy specific to the New Zealand market rather than having a regional approach. 5.0 Summary This study has given an insight into the future intentions of companies into how they expect their own internal purchasing strategy and criteria to change in the future. Following are the key findings: Nearly 40% respondents in the 500+ staff companies believed their ICT budgets were going to increase. This is a good sign since the large companies drive the volumes and boost the industry. The brand decisions for printers, copiers and MFDs are very much held within the IT department with Facilities Management and Operations still 26

27 appearing to be heavily involved in controlling the process and the waning influence of the Finance department. The IT department will by association become more involved in the acquisition and implementation of copiers and MFDs due to the inherent digital and network technology involved. Although, most respondents stated cost reduction as the main factor involved in acquiring MFDs, they also believed that MFDs were more expensive in running costs than single function devices such as laser printers and copiers. Thus, conveying that customers expected to have capital cost savings by acquiring one device that performed the task of multiple devices instead of saving on running costs. The majority of respondents preferred to purchase their hardcopy devices in the current context but would also wish to maintain the same in the future. Although, with the increase in company size, the preference started to move towards leasing, however, purchasing was still prevalent along with the option for both, purchasing and leasing. A vast majority of respondents also preferred to acquire their hardcopy consumables as and when required rather than the cost-per-page model. This was not expected to change in the future. Although over time it is expected that scanning and ing would increase, as end users become more technology savvy, it is not likely to have a dramatic impact on faxing. IDC's previous study in markets such as Europe has indicated that scanning was considered a key functionality of MFDs. This also reflects the higher uptake of technologies such as EDMS in markets such as Germany and U.K. Additionally, 60% respondents who stated that they would be implementing document management solutions in the future believed they would be using centralising scanning facilities to capture hardcopy documents. This does not create a very positive situation for MFD vendors trying to integrate their hardcopy devices into client's document workflow strategies. 27

28 A3 is only seen as important with regard to mono printing and copying. Around 40% of respondents regarded it as not being Important for colour output thus making the market more attractive for HP who lack an adequate range of A3 colour MFDs. Print volume is moving to networked devices from standalone devices and copy volume is moving from standalone copiers to MFDs. This re-iterates that the future is strong for MFDs. Most respondents don t prefer single vendor relationships, which convey the desire by customers to maintain a competitive environment. It also is reflective of the customer's perceptions of having separate vendors for printers and copiers. With 48.4% respondents preferring a printer based MFD, it gives the printer vendors an edge. Based on this study, the only printer vendor in a strong position to capitalise on this is HP. HP is clearly recognized as the most preferred brand for MFDs and is rated as the best printer brand while also being considered among the Top 3 copier brands. The channel believed that HP could counter the threat posed by the converging markets by providing better inventory support for printers and spares, offering a more document centric finance agreement, increase reseller margins to allow for employing a quality sales force, introduce more midrange MFDs and high speed A3 MFDs. At the same time, they believed that HP need to churn products rapidly. It is also worth noting that the channel has faith in the HP brand and consider them to be the clear market leaders in the document device space. However, it is important to note that HP do not have a direct sales force in New Zealand and none of their channel partners are exclusive HP resellers. This may be enough reason for HP to develop a New Zealand centric strategy rather than following a regional strategy. 28

29 6.0 Recommendations 6.1 Means to counter the threat posed by copier companies On evaluating the findings through the survey of 395 businesses in New Zealand and the perspective of the channel, the following key recommendations may be offered to HP: Differentiation through Superior Product Range HP have recently taken major leaps towards the convergence game by unveiling the HP 4345MFPs to capture the A4 MFD market. Until recently, the only products they had available in their range were the 9150MFP and the 4100MFP, which was also an A4 device while the former was an A3 device. The 4100 MFP had been in the market for a number of years and for the price there were superior products available by other vendors. Neither could it be classified as a high end A4 MFD, nor a low end MFD. The other MFDs introduced by HP over the last couple of years have been low end MFDs. It is imperative for HP to maintain a range of A4 MFDs along with a A3 range of products. It is the A3 range which is lacking in HP's NZ strategy- providing customers access to the state of the art A3 MFDs would take HP a level above all the competitors. Hence the following product groups need to be addressed: High Speed A3 MFDs: HP have such products to offer but are currently not deploying them in New Zealand due to a lack of adequate service and support infrastructure for such products currently offered by the channel. Wider range of mid-size MFD products. HP should continually educate users on the benefits of using a mix of A4 MFDs and A3 Colour Laser printers in lieu of A3 Colour MFDs. The capital cost is a huge concern for users and this configuration would help them keep the initial costs lower. With the availability of A3 Mono MFDs within their range, HP would be in a position to sprinkle the occasional A3 device within their client's infrastructure to fulfill the odd requirement for A3 copy or finishing capabilities. 29

30 Although MFDs are going to drive the business to a large extent, HP should maintain their focus on their core products, the departmental laser printers. Copiers eventually have to sell as MFDs but there will always be a need for single function printers. However, HP may need to watch for copier companies re-positioning themselves as printer vendors to ensure that they have a range of MFDs and single function printers E.g. Ricoh, Xerox, Konica-Minolta etc Developing the Ideal Channel Structure It is important to forge strategic partnerships with system integrators, VARS, PC vendors in order to incorporate their products in an overall IT solution. However, as mentioned earlier, there is a notion that such channel partners do not have much brand loyalty with regard to hardcopy devices, so offering compelling reasons for partnering over long-term would be the key. Additionally, it is important to note that it is the specialist resellers such as Laser Plus, OEM Print Solutions etc. who actively promote the brands they have a loyalty towards. An ideal channel structure would include defining clear segmentations in terms of access to products: System Integrators such as Axon, Gen-I, etc. should be offered support through HP's internal business development team. These system integrators have strong relationships with some of the major prospective accounts in New Zealand. They can generate leads and opportunities purely on the basis of their existing relationships within these accounts. Additionally, HP could link the sales opportunity generated through these system integrators to a service and consumables supply opportunity for one of their key reseller partners. E.g. Axon could create an opportunity in Auckland International Airport, which could be supported by HP but at the same, since Axon would not have service capabilities or the inclination to pick up the consumables supply business, HP could pass on the opportunity for this to one of the preferred partners such as Laser Plus. This would ensure a win-win situation 30

31 for Axon, HP and Laser Plus while at the same time ensuring fulfillment of all service delivery obligations through Laser Plus. Develop semi-exclusive partnerships with certain channel partners. Focus on loyalist companies such as OEM Print Solutions or Laser Plus. Branding them as an HP exclusive partner, offer them benefits by providing access to market a range of products exclusively E.g. High end A3 MFDs. Their sales force could be considered as an extension of HP and should have indirect accountability to the HP product team. This would ensure that HP is able to offer true scalability to their clients and also offer high end copy centre solutions. This would offer a good alternative to counter the threat posed by copier companies through their high end MFDs and direct sales force. It is recommended that HP could contribute towards the cost of salary and incentives borne by the channel partner to hire quality sales staff for such solutions. Additionally, a hybrid model could be developed for offering the service and support to customers of such high end products. HP could hire a specialist services manager who could offer training to the services staff of the channel partner. This option would potentially lead to channel conflicts and it is imperative that a contingency plan be developed in advance to counter situations. What would happen if another reseller/ system integrator channel partner were to generate an opportunity that warranted the deployment of mid-range laser printers and high end A3 MFDs? HP's business development team needs to work jointly with the partner that generated the opportunity and the HP exclusive channel partner who has access to provide the A3 MFDs to ensure that a suitable solution is developed and the client can be offered a seamless solution. In such a case the exclusive partner would gain through the revenue from service and supply of consumables for the high end A3 MFDs while the partner generating the opportunity would gain from the sales of devices as well as service and supply of consumables for all other devices. 31