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Armstrong, Gary and Philip Kotler. Marketing: An Introduction. Pearson & Prentice Hall, 2005. p. 8-32.

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Prepared By

Team 1:
Baterdene Sambalaibat
Morgan Allen
Chad Balaj
Kendra Bloom
Ryan Bodenhorn

September 21, 2005
Table of Contents

Executive Summary 3

Introduction 4 Porter’s Force of Competition 4 S.W.O.T. Analysis 4

Recommendations 5 Implementation of Windows NT 5 Cooperation with Fujitsu 6 Long-Term Packages 6 Linked Prosperity 7 Internal Strategy 8 Mission Statement 10 Marketing Strategy 10

Conclusion 12

Appendices 13 Appendix A – Porter’s Five Forces 13 Appendix B – S.W.O.T Analysis of Sun Microsystems 16 Appendix C – History of Sun 19 Appendix D – About Products 20 Appendix E – Stock Chart 21 Appendix F – Market Shares 22 Appendix G – Budget/Marketing Expenses Chart 23 Appendix H – OS Market Share / Windows Budget 24 Appendix I – Microsoft Lawsuit 25 Appendix J – Current Mission Statement 26 Appendix K – Values Cards 28 Appendix L – Porter’s Generic Strategies 29 Appendix M – Fujitsu Merger 30 Appendix N – Stakeholder Analysis 31

Works Cited 32

Endnotes 35

Executive Summary

Sun Microsystems is a struggling business in the competitive world of the computer industry. With stock prices falling and an unreliable image in the marketplace, Sun must establish a sustainable competitive advantage to increase profits and customer satisfaction. Sun’s competitive advantage should be its dedication to customers, high-quality products and packages, innovation in complex networks, and services for clients that go far beyond expectations. After a thorough analysis of the industry and a complete assessment of Sun’s strengths, weakness, opportunities and threats, the following proposals are recommended:

1. Sun must establish a strong relationship with Fujitsu because Sun could enter into new markets, gain more customers, and save money both tactically and strategically by dropping certain aspects of its research and development. Fujitsu will allow Sun to further expand its hardware and software industry. 2. Then, Sun should also develop a friendly a relationship with Microsoft. Because Microsoft holds over 90 percent of the software industry worldwide, Sun’s allowing of Microsoft’s operating system on its computers would encourage more sales of Sun’s products and services. 3. Sun should begin to sell long-term packages of its products that include free services for six months and free educational seminars on all products. Sun does not have the relationship with its customers that its competitors do, but with this recommendation Sun will be increasing customer value and satisfaction, along with a predicted strong growth of its customer base. 4. Next, a revamp of internal values, including its mission statement, is important to Sun’s success in the computer market. One such value recommended to Sun is the idea of linked prosperity. Sun should want a prosperous environment for not only itself, but for its clients and employees, as well. 5. The final recommendation for Sun is a strong and strategic marketing plan. This marketing strategy includes advertising in trade and business journals, having a large and positive presence at industry conferences, and sending sales representatives to businesses, worldwide.

These recommendations can be measured by the amount of positive customer feedback Sun receives, growth of profit, and growth of its customer base. Sun needs to establish itself as a quality and customer-driven organization with a sincere desire to support the well-being of its employees and clients. With these recommendations, Sun should have a brighter and more productive future.

Introduction

“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage,” says former CEO of General Electric Jack Welch.[i] This quotation is especially appropriate for Sun Microsystems current situation because a change is necessary. Sun Microsystems’ stock dropped from 64 to 4 dollars a share in the last four years, and it has continued to do poorly in the market. Sun lost nearly four billion dollars in the last two years, causing consumers and the computer industry to lose confidence in the organization.[ii] Additionally, a lack of focus on employees and customers could further erode the confidence base. An industry analysis and an investigation of Sun’s strengths, weaknesses, opportunities, and threats provide the foundations for the proposals outlined in this study. Should Sun analyze its problem and quickly respond with solutions, as Jack Welch believes, it can attain a more profitable and productive future in the computer industry.

Porter’s Force of Competition
As mentioned in the analysis of Porter’s Five Forces (Appendix A), competition is the biggest threat to Sun Microsystems. The market consists of many players, and though they do vary in size, every company has its own niche. Dell is small, but controls a huge portion of the PC market.[iii] IBM and Hewlett-Packard are large, but Sun can still compete with its unique, quality products and services.

Players in the server industry have some similar but unique strategies and products. There are four main competitors in the server industry: Dell, IBM, Hewlett-Packard, and Sun Microsystems. Together, these four companies make up over 80 percent of the market, with a number of other companies controlling the rest of the 20 percent. Right now, Sun controls 10.8 percent of that 80 percent market. Dell is yet again the most different, marketing to the individual consumers. The other companies have relatively similar strategies – market to businesses with the notion that their products are of higher quality.[iv]

According to Michael Porter’s Generic Competitive Strategies, strategic decisions should be driven by one of two factors: market scope and source of competitive advantage.[v] Sun’s market scope is narrow because its target market is businesses, hospitals, government research facilities, and other organizations with a need for networking or high-end computers. Sun also cannot compete with prices because its products are of very high-quality and security. A customer looking for a server would find that one from Sun is about 995 dollars, and a HP server is as little as 314 dollars.[vi] Therefore, Sun must compete with a differentiated product, and because Sun is in a narrow market, Porter calls this “focused differentiation.”[vii] For the full Porter’s Generic Strategy analysis, refer to Appendix L.

S.W.O.T. analysis
After reviewing Sun Microsystems, one of its most important strengths is its expertise of computers and its wide assortment of quality products. For example, Sun invented the Java programming language and offers over 200 different products.[viii] Sun, however, does have its weaknesses. Sun has high costs which led to a 3.43 billion dollar loss last year.[ix] Sun’s image is suffering, as well, because top-level managers have a tendency to bash other companies, instead of promoting their own. For instance, CEO Scott McNealy spoke out against Microsoft and Intel at a recent computer industry conference.[x] A final weakness is Sun’s lack of focus on services and values. In Appendix J, Sun’s mission lacks customer value and focuses on its products. Sun does not provide its employees with any kind of value system to live by in the business environment, as well.[xi] One significant opportunity, however, is cooperation with other businesses in the industry. As an example, Sun could consider strengthening alliances with companies like Fujitsu and Microsoft because the threat of competition will always be present. Refer to Appendix B for a complete S.W.O.T. analysis of Sun.

Recommendations

Implementation of Windows NT
The computer industry today contains a lot of strong profitable companies, one of them being Microsoft. Microsoft’s Windows has been a dominating force in the operating systems market since the 1980s. They have almost a complete monopoly over the market, holding around 93 percent of the market share. Apple Macintosh holds about 2 percent, Linux has about 0.5 percent, and Solaris has the other 4.5 percent (Appendix H Graph). It would be of great interest for Sun Microsystems to consider using both Solaris and Windows NT on their servers to develop a broader customer base. Windows NT is one of Microsoft’s operating systems which is the version made specifically for networking. Using Windows NT would provide Sun with a very well-known product which is more user friendly and more secure from hackers.

In a recent lawsuit Sun held against Microsoft over antitrust and patent issues, Sun was awarded a 1.6 billion dollar settlement, which helped them financially, but more importantly Sun was able to develop a good working relationship with Microsoft. They have agreed to a ten year contract in which they will try to make their two systems more compatible with each other (Appendix I).

In taking this agreement a step further, it is recommended that Sun Microsystems choose a select few of their servers on which to install Windows NT. Before implementation into the market, tests will be performed to analyze the benefits of this recommendation. Sun will hold focus groups with ten people who will perform certain tasks on both Solaris and Windows NT systems and answer an extensive questionnaire on both systems. This will be repeated fifty times and the results will be recorded and analyzed to see the focus groups’ opinions on both Windows and Solaris and what the benefits of each of them are. If results show that the focus groups liked using Windows on the Sun servers, then Sun will begin to offer customers the choice of having either Windows or Solaris when placing their server orders. This customization will attract new customers who are more comfortable using Windows, but on the other hand, it will also retain their customers who are more comfortable using the Solaris operating system.

In the long run, if implementing Windows on Sun servers proves to be profitable and is worthwhile to the customers, then Sun will begin to implement Windows into a broader share of their servers. This recommendation will bring Sun an increase in customers of about 20 percent which would provide more revenues. It would also provide them with a better company image by partnering with Microsoft and a greater base of more loyal and reliable customers.

Implementing Windows will also require Sun to hire 25 new customer service employees to answer phone calls and e-mails from customers with questions on their new Windows based servers. Sun will have to train its employees and vendors on every aspect of its new Windows servers to make sure that they know how to install and repair the servers for its customers successfully (Appendix H Budget).

Cooperation with Fujitsu
In the past, Sun Microsystems has merged with or bought other companies to further expand its grasp on the computer industry.[xii] Just recently, Sun made a very good tactical and strategic move by expanding its 20 year partnership with Fujitsu (Appendix M). Right now, Sun controls 10.8 percent of the server industry in the United States, but a little cooperation with Fujitsu will allow it to gain another five percent of the market.[xiii] “This is not only good for Sun and Fujitsu who are essentially doubling the number of ‘feet on the street’ globally, but their customers, partners and investors will also benefit tremendously from this alliance,” said Vernon Turner, Group Vice President, Global Enterprise Server Solutions IDC. “It means a protected investment, a clear product roadmap, high quality and choice, and a great potential to grow market share.”[xiv]

The deal involves several chips and systems, as mentioned in Appendix M. This partnership will save a lot of money for Sun because the company will no longer have to put money into certain aspects of research and development. It is estimated that this joint venture of the SPARC Processor could save Sun 200 million dollars a year. A joint development of SPARC and servers could save 300 to 400 million dollars a year.[xv] The collaboration between Sun and Fujitsu will also throw a damper on the strategies of other companies like IBM, Dell, and HP, all of whom are trying to wipe out Sun’s installed base (Appendix A).

It is highly recommended that Sun makes this cooperation work. It saves Sun money on research and development, it allows for higher quality products and services, and it opens up a large Japanese market to Sun. Fujitsu controls over 95 percent of the Japanese server industry, allowing a huge possibility for Sun not only to gain name recognition, but to establish a larger customer base in countries outside the United States.[xvi] The money saved on this cooperation will also have a huge impact on Sun. As mentioned, Sun will save close to 600 million dollar, and as will be discussed later in the report, the money will be used to help fund Sun’s marketing and customer relations strategies.

Long-term Packages
Especially in the computer industry, comfort with and knowledge of a product’s brand makes a significant impact on a customer’s decision when purchasing a computer. For example, Jay Beam, Assistant Director of the Administrative Systems at Ohio University, explains that because he feels comfortable with IBM computers he would be less likely to purchase a substitute.[xvii] Beam also explained that Ohio University has one Sun computer, as well, though he does not feel as comfortable with it as he does with IBM’s. Beam’s comfort came from being familiar with the computer, having a good relationship with the supplier, and utilizing the services and support IBM offers. This feeling of comfort that Beam and other consumers feel is an emotion that Sun must also provide, not only to current customers, but to every single new customer it serves. When a new customer buys from Sun, he or she should feel that Sun is not just a computer sales company, but an important member of his or her own business.

To establish these types of customer relationships, Sun should offer the highest quality customer service, support, and computer systems all in one package. Support and services should be free of charge for the first six months after the purchase to ensure the customer knows exactly how to operate the network, software, or even storage units. Customer help lines should be open 24 hours a day with knowledgeable, friendly, and trained staff. Not only should Sun provide free services, it is recommended that Sun give seminars so that everyone within the company understands its product. By giving the seminars on how their servers work, Sun will be eliminating the complexity that many times comes from new technology. For the old customers who have already purchased the servers, Sun should still give them the six months free, as well. This will attract new customers and, at the same time, make the old ones feel like they are important to Sun. Sun’s objective, then, is to make customers realize that it wants to help their business, not just increase its own profits.

This recommendation has tactical and strategic implementations. In the short-run, a training program for all employees will be started immediately with the money Sun will save from their cooperation with other companies. According to Sun’s S.W.O.T. analysis, found in Appendix B, an opportunity Sun has is that it recently cut 9 percent of its workforce. Though this may sound like a strange opportunity, Sun was able to cut costs, and the money saved can also be used to invest in these long-term packages. The packages for sale should be established within the next months. Strategically, however, by offering these package deals with customers, Sun will be developing strong customer relationships for the long-run. Though Sun may lose some money in the short-run, its long-term investment in its customers and the packages provided will increase profits in the future.

Linked Prosperity
Sun’s goal is not just to sell computers for their company to prosper, but also to want the companies that they serve to prosper, as well. As a result, Sun has come up with a new linked prosperity plan that will make every business realize that Sun is there for them.

Everything in the business world is connected in some way, and the computer industry is no different. Everyone wants to make a profit, and sometimes a company can benefit from the success of others. Sun is trying to revamp its image, and one of the best ways to do this is to become a team player in the industry and help others. To do this, Sun should launch a program to benefit not only its own company, but other companies as well. This is known as linked prosperity.

As explained earlier in the report, Sun is offering its products and services in package deals. If a company buys a Sun product, they can get X amount of service for free, or Y amount of training to learn how to use a Sun product. The linked prosperity comes in with the success of Sun. Let’s say that company ABC buys a large amount of hardware from Sun. Sun offers them six months of free service and maintenance just for buying its product. Sun’s profits are likely to go up because of this transaction, and that can lead to higher stock prices and pleased company employees. If Sun continues to boost its profits and stock prices, the companies they serve will benefit as well. Since Sun did well, it will further help out company ABC by offering them another two months of free maintenance. This keeps company ABC satisfied, so that they, in turn, will buy more Sun products.

As a result, if the customer is satisfied then he or she will go out into the business world and give positive remarks about Sun. Pleased customers can be the most important marketing tool by providing positive feedback about Sun. Jeff Bezo, founder and CEO of Amazon.com, says, “If you do build a great experience, customers tell each other about that. Word of mouth is very powerful.”[xviii] The more Sun can “build a great experience” and establish itself as a team player, the more companies will want to buy from Sun. Because of linked prosperity, profits go up, the company makes a name for itself, and it satisfies customers and employees.

Based on the company’s new plan, Sun will be losing a little money in the short-run, but in the long run, as they continue to build better customer relationships, the company will make a profit. A tool for Sun to measure the success of linked prosperity is by looking at the way their clients respond to the new program. If profits go up, and Sun is selling more hardware and network servers, strategically, Sun will be able to tell if this new program has been a major benefit. Sun can also take surveys and ask their recent customers if this program had any influence on them selecting Sun as their new provider. If potential and current customers respond positively then Sun will know that this program has been a success.

Internal Strategy
“If you are not thinking customer, you are not thinking,” best stated by GE’s former CEO, Jack Welch, in Marketing: An Introduction. This is the mentality in which Sun needs to focus. As Welch also stated, “Companies can’t give job security. Only customers can!”[xix]

Not only are external customers important, it is very important to recognize the internal ones, as well. It is recommended that the employees of Sun be known as the “internal customers.” This concept of the “internal customer” comes from the video, “The Voice of the Customer.” The video explains that employees should be thought of as the most important asset of a company, and treated considerately and with the same respect as a customer receives.[xx] Employees who are encouraged and appreciated are much more valuable than employees who are not. Charles Schwab says, “I have yet to find the man, however exalted his station, who did not do better work and put forth greater effort under a spirit of approval than under a spirit of criticism.”[xxi]

Happy employees equal happy customers. This is why a recommendation is to devise a new internal strategy for Sun that will directly impact the front-end of the business. Customer happiness has to start from inside the organization first. Many companies today such as well-known GE, American Standard, Microsoft, Mac Tools, and Enterprise Rent-A-Car use a unique strategy to keep employees motivated. Every employee of Mac Tools, from the truck driver to the CEO, John Aden, carries a large silver Mac Tools coin everywhere. The coin represents teamwork, values, and choices.[xxii] On the other hand, all of GE, Microsoft, American Standard, and Enterprise Rent-A-Car employees also carry company value cards. It represents the people’s and companies values.

Because of the unity and profitability of the previously mentioned companies, it is recommended the Sun create a similar strategy – an internal makeover for Sun. Presently, Sun does not have company values in place according to their website.[xxiii] All that Sun indicates to customers and employees is a very lengthy mission statement. When a customer sees that a company does not have an established set of values that can be viewed as a weakness which could lose a potential customer.

Rival Microsoft has a set of established company values by which to live.[xxiv] Perhaps that is why Microsoft does so well; everyone who works there has common values. It is recommended that all Sun employees carry value cards and not only understand them but live by them.

American Standards CEO, Fred Poses, held a conference call on April 25 to personally emphasize the importance of its company’s values and how those values will guide their business decisions to more than 250 business leaders in their organization.[xxv] It is recommended that Sun should also hold a conference call for all Sun employees to establish the importance of their values and how to incorporate them in their everyday business.

The value cards will bring Sun employees together, working towards the common good of customer satisfaction because “customer value and customer satisfaction are key building blocks for developing and managing customer relationships.”[xxvi] Technology is a rapidly growing, ever-changing industry, but values will help keep employees thinking level-headedly, working for the right reasons, and moving towards a common goal.

It is projected that once the value cards are in place and all employees trained in better customer service, customer satisfaction should increase by an estimated 27 percent. A monthly census will be conducted for all Sun’s customers and employees alike that will help determine other ways to increase customer satisfaction. For a sample of Sun’s value cards refer to Appendix K.

Mission Statement
Current Mission Statement: “Solve complex network computing problems for governments, enterprises, and service providers.”[xxvii]

One tactical recommendation for Sun is revising its current mission statement, which is fully cited in Appendix J. Janel M. Radtke of the Grantsmanship Center describes three important aspects that should be addressed in a mission statement: the purpose, the business, and the values of the organization.[xxviii] Sun’s current mission statement is technical and does not address all that it encompasses with services and support.

Sun’s goal with this new mission statement is for every employee to feel connected to it and to embrace it as his or her own. The value cards each employee will have, as discussed earlier, should further solidify the employee connection to the mission statement.

New Mission Statement:

Marketing Strategy
The final strategic recommendation for Sun Microsystems is to establish a new marketing plan. This recommendation is based upon ideas gathered when researching today’s computer market and Sun’s place in it. According to Gary Armstrong and Philip Kotler’s Marketing: An Introduction, the times are changing and so are marketing strategies.[xxix]

Today, business marketers focus on customer satisfaction; whereas, businesses used to focus only on their products.[xxx] John Ellis, a journalist for Fast Company, says Sun’s slogans are “self-serving and self-important,” and Sun needs client focus.[xxxi] Therefore, in order to compete with its competitors, a new image and strategic marketing make-over is absolutely necessary.

In Sun’s S.W.O.T. analysis, found in Appendix A, a weakness Sun has is the damaged image of the company. The image is becoming damaged because of CEO Scott McNealy’s regular unkind remarks towards other companies in the computer industry and Sun’s recent negative press because of its diminishing stock prices (Appendix E). One of Sun’s strengths, however, is its several notable customers. Its most distinguished customers include a “top-five financial services firm in the United States, a top-five European bank and a leading United States government research facility, the Idaho National Engineering and Environmental Laboratory (INEEL).”[xxxii] As noted in Appendix B, Porter’s Threat of Competition within the computer industry is intense, especially between the top four competitors, Dell, Hewlett-Packard, IBM, and Sun Microsystems, who hold over 80 percent of the server market’s revenue, as cited in Appendix F.

Because the industry has such a tight market share, Sun Microsystems must strive for a more sustainable competitive advantage and market it. The recommendation is that Sun’s competitive advantage should be its high-quality computer hardware, secure software, innovative networking systems, and the very sincere service and support that Sun will begin to offer. Furthermore, all these features will be offered together in a complete package. With the services, support, and excellent products, the businesses will feel like Sun is an intricate part of their organization and not just their computer provider. Therefore, because of the strong threat of competition, the changing strategies of marketing, Sun’s weak image, and notable customers, the following plan for marketing will be the most effective.

Sun’s target market is businesses – big and small, universities, hospitals, research facilities, government agencies, and other organizations with a need for high-quality and secure networking and computer systems. As discussed earlier in Sun’s new mission statement, the idea of high-quality and secure systems is a necessity for all of its customers. Thus, Sun’s brand and slogan should convey those ideas in this marketing plan.

“Complexity doesn’t have to equal confusion.” This new slogan was designed to address a significant need for user-friendly, uncomplicated networking systems, for complex organizations, that until now have only caused confusion. According to Fast Company, “Complexity is what tears up virtually every large corporation, governmental, and institutional organization.”[xxxiii] Sun’s goal, then, is to eliminate any confusion that comes with the complex systems its customers use.

This campaign will include advertising in trade and business journals, plus hospital and academic journals. In addition, a part of the marketing plan is having a large and positive presence at industry conferences with creative displays. Trained salespersons should also visit potential customers, world-wide, to give presentations about its new promotions and high-end computer technology. Sun’s customers, especially their most notable, like INEEL, will be in the advertisements giving testimonials, which give them and Sun profitable exposure. Once again, linked prosperity is occurring between Sun and its clients because both receive positive publicity. Other businesses or organizations will also see that Sun helped complicated and distinguished companies which will improve Sun’s reputation and image in the computer marketplace.

Another aspect of Sun’s new marketing plan is to promote their expert knowledge of the Java and UNIX systems. (Appendix D has a complete definition of Java and UNIX.) Sun’s expertise in these areas will, of course, be included in the packages they offer to their customers; however, Sun will also offer that as a service to anyone in the computer industry. Promotions for Sun’s expert advice will be included in each avenue of exposure Sun uses.

To meet Sun’s goal of being known as the most qualified and customer-driven computer supplier, marketing costs will be substantial. The estimated cost for this marketing plan is 200 million dollars. This amount is about a third of the money Sun saved because of cuts in the budget and merging opportunities discussed earlier. It is estimated that 35 percent will be used in salespersons’ salary, training, travel expenses, and business expenses while negotiating. Advertising in trade and business journals will account for 40 percent of the budget. Industry conferences, the displays involved, and other expenses will contribute to 23 percent of the budget. The remaining 2 percent will be used for any other miscellaneous expenses, and a chart of these expenses is included in Appendix G. Success with customers can be measured by direct phone calls to clients to assure the services they receive are of the utmost quality, and an increase in customer satisfaction and long-term profit increases will be a way for Sun to measure its marketing success.

Conclusion

As seen in the report and as gathered from industry and S.W.O.T. analyses, Sun has its challenges internally within the company and in the computer industry as a whole. The proposals included in this report attempt to solve Sun’s problems. The recommendations for Sun include cooperating with Fujitsu and Microsoft, improving customer service, promoting values in Sun’s working environment, and initiating a new marketing strategy.
After implementation of the previous recommendations, Sun Microsystems should see an increase in profits and customer satisfaction which will positively impact market share and lead Sun into a brighter horizon.

Appendix A – Porter’s Five Forces

Buyer and Supplier Power

The technology boom came just as quickly as it did leave, and so did Sun Microsystems supplier strategy. Sun has gone through a series of supply strategies since the start of the company. They have done everything from producing all products in-house to outsourcing to their current strategies of a communication-based portal system and reverse-auctions. Once Sun started outsourcing 90 percent of their products, they saw the crucial key for survival was effective communication with all suppliers and buyers. “The increased outsourcing and greater cost pressures from Sun’s executives also left buyers concerned about the impact on its existing supplier relationships.” These concerns made Sun create a new infrastructure to foster communication directly with its diverse supply base, which created the portal system.[xxxiv] Using the portal system, suppliers and buyers have all the tools and information they needed to make the right decisions. “Today, 40 suppliers use 18 different applications available through the portal, from demand planning to supplier performance to logistics tools.” The portal strategy had accounted for 50 percent reduction in inventory and a 500 million dollars reduction in costs.[xxxv] Even though Sun was recording successful results from the portal system, senior management was still being pressured to reduce costs more by CEO, Scott McNealy, by adding reverse-auctions to their supply strategy. Reverse-auctions gave Sun a strategic competitive advantage in the market and Sun saw an instant savings of 30 percent from their very first reverse-auction. A reverse-auction is where bidders can see each others bids but not know who the bidders are, which allows them time to readjust their bids. Sun then moved 20 percent of its send onto reverse auctions, and over the next two years it grew to 25 percent, or about 1 billion dollars a year.[xxxvi] Sun’s quick move to the communication-based portal system and the reverse-auction strategies proves that Sun understands efficiencies directly affect the bottom line.[xxxvii] By Sun changing their supply strategies, it provides more value to customers suppliers and buyers alike.

Threat of New Entrants

Standard & Poor’s Industry Survey explains that because a very consistent pressure of lowering prices exists, the computer market share is becoming more and more exclusive. In 1992, about half of the market was dominated by the top 10 worldwide computer vendors, but by 2003, almost 50 percent of the market was held by only the top five.[xxxviii] New entrants to the market could not have the low prices Dell or Hewlett-Packard offer without superior technology, and gaining the technological edge requires a large investment in research and development that many start-up companies could not afford. Again, according to Standard & Poor’s Industry Survey, “during each evolutionary phase of the computer hardware industry, the price for computing power has decreased, usability has increased, and the market has broadened.”[xxxix] This decrease of pricing, increase of technology and broadening market makes for harsh competition and makes staying in the evolving race to the best computer hardware more difficult, let alone trying to get in the race at all. Especially competitive, and also the largest, is the PC segment of the market.[xl] “Hewlett-Packard and Dell rule the consumer PC market,” explains a Hoover Industry Snapshot report, and “companies lacking the size to compete in the escalating market share race rely more in product differentiation and branding.”[xli] Therefore, new entrants have difficulties entering the market without a strong brand or a significant differentiation of their products. A marketing professor at Walsh University, Dr. Suzanne Allen, says this about entering the computer market: “When you have a high cost of entry and a tight market share, it’s next to impossible to get in.”[xlii]

Threat of Substitution

In today’s society, it is necessary to own or have access to a computer. Computer hardware, then, is not going to be substituted easily. When new technology emerges, it enhances features or hardware for the computer, and no technology has become popular that would replace the personal computer (PC), workstation, or other type of computer. Therefore, the threat of substitution is hardly existent in today’s computer hardware industry. Looking deeper into the industry, however, the threat of substituting one brand for another within the industry can become an intense threat. According to Michael Porter’s Generic Competitive Strategies, companies, including the computer hardware industry, must have one of two advantages to compete: cost advantage or differentiation. For example, if a customer is looking to buy a PC online from BizRate.com, he or she would find that a Dell PC is about $100 cheaper than a similar one from Gateway.[xliii] That customer many decide to replace his or her out-dated computer with a Dell regardless of the old computer’s brand. Looking to Porter’s Generic Strategy again, a customer may choose a company over another if it has a superior and differentiated product. An instance of this case may occur when a computer owner wants to buy a printer. Hewlett-Packard (HP) is known for quality printers and expertise on the subject of printing. In fact, 30 percent of the sales are in printers alone.[xliv] A customer, then, could choose to replace an IBM printer with an HP printer because HP has differentiated itself in the printer market. Clearly, though the threat of substitution outside of the computer industry is very low, a threat of competition within the industry can be a powerful force.

Competition

When it comes to smaller, personal computers, Dell has a huge advantage. Dell only controls 9.5 percent of the industry, but its’ offer of lower prices and good quality products allows it to have a firm grasp of over 70 percent of that particular segment of the market.[xlv] Because of this firm grasp, Sun should just drop this segment of its operations. That way Sun can use these resources towards an operation that is more profitable, or projects that have a better chance of being more successful. Hewlett-Packard presents much more of a threat to Sun as opposed to Dell. Hewlett-Packard controls 27.7 percent of the market, and believes that it will benefit from Intel’s Itanium chips for higher end servers. HP is also close to coming out with sub-CPU positioning capability as well. These Itanium chips have an advantage in that not only can they address the UNIX market, but the Windows market as well.[xlvi] The biggest threat to Sun is IBM. IBM controls 31.1 percent of the overall industry. IBM has produced a new generation of UNIX servers. IBM believes that “Big Blue” is so powerful that it will topple any rivals. IBM has also come out with low-end and mid-range models using the new Power5 processor. Well known analyst Jonathan Eunice is quoted as saying, “IBM is at a very strong point in its product cycle right now.”[xlvii] IBM’s UNIX servers are a major threat to Sun and its’ servers. Sun is still number one when it comes to this particular market, but “Big Blue” is hitting Sun at a time when the company is trying to dig itself out of a hole. Of these four companies, Sun was the only one which saw its revenue decline in the third quarter to 1.17 billion dollars.[xlviii] Another factor in this market is that barriers for exit are high. The computer business is an expensive industry. The equipment and services are highly specialized, and it would be very costly to try and exit.

Appendix B – S.W.O.T Analysis of Sun Microsystems

|Strengths |Weaknesses |
|- They have many prominent customers |- High expenses / costs |
|- Offer a wide array of products and services |- Bad decisions by top officers |
|- Recently partnered with Fujitsu |- Damaged company image |
| |- They lack in their values |
|Opportunities |Threats |
|- Recently settled a dispute with Microsoft |- Gradually increasing losses |
|- Recently cut nine percent of employees |- Scott McNealy criticizes competition |

Strengths

They have many prominent customers:

Sun has some very reputable and notable customers who use Sun’s products and highly support them. Some of these companies include a top five financial services firm in the United States, a top five European bank, and a leading United States government research facility.[xlix]

Offer a wide array of products and services:

They offer over two hundred different products and provide nearly a hundred different services to their customers.[l] Sun also invented the Java programming language, which is used in many different forms today. The cost of goods sold for their products for 2003 was about 55 percent, while the cost of sales for their services was almost 59 percent.[li]

Recently partnered with Fujitsu:

Sun Microsystems and Fujitsu have recently combined certain aspects of their business to produce better quality products and services for their customers in both the United States and the Japanese markets. It will also save Sun money in their Research and Development department both tactically and strategically.

Weaknesses

High expenses / costs:

Sun Microsystems is experiencing extremely high costs which caused them to suffer a 3.43 billion dollar loss in 2003. They were turning profits up until 2001, but the last two years they have taken a loss. They are spending a considerable amount of money on their research and development expenses, at an enormous seventeen percent, while Dell’s research and development department operates at only two percent.[lii]

Bad decisions by top officers:

Their CEO Scott McNealy has made some poor choices over the last few years, which irritated some of his top officers, causing them to resign and work elsewhere. In 1997 he had the opportunity to begin using Intel processor chips instead of Sun’s SPARC chips, which would have lowered their costs by thirty percent. He declined the offer though, and said, “For the time being, no Sun computers would have Intel inside.”[liii] In 2001 Cisco systems began laying-off employees, which some Sun officials wanted to do also. McNealy said he would have no part of it though, and kept trying to push Sun forward. He still had the idea engraved in his head that the economy was turning around and that Sun would begin making profits again. This never happened however, and they continued losing money.

Damaged company name:

While Sun has been losing so much money recently, they have also been losing valuable customers to their competitors which cost them even more money. When people read the Wall Street Journal or Business Week Magazine and see the articles bashing Sun and how Sun’s stock prices have diminished, that gives them a bad company image. That encourages potential customers to buy their hardware and software from one of their competitors.

They lack in their values:

The company website for Sun Microsystems does not contain anything about their values in guiding their employees. Their mission statement does not contain anything concerning values either; while many of their competitors, such as Microsoft or Dell, do have expressed values for their employees to follow.

Opportunities

Recently settled a dispute with Microsoft:

Sun has recently settled a long running dispute with Microsoft. Microsoft agreed to compensate Sun for 1.6 billion dollars.[liv] This new revenue can now be used to help offset their recent losses. This settlement was also important in that it helped settle the bad relations that have existed between Sun and Microsoft over the last few years.

Recently cut nine percent of employees:

After promoting Jonathon Schwartz as the new company president, Sun announced that they were cutting nine percent, or about 3000 employees, from their workforce.[lv] They also made some changes in their management, including some hiring and firing of managers. These lowered costs will provide extra cash and generate new the new management positions will generate new innovative ideas.

Threats

Gradually increasing losses:

Sun had a net loss of 587 million dollars in 2002, followed by a 3.43 billion dollar loss in 2003. Sun has been gradually losing more of their market share each of these years also. They just cannot compete as well with their strong competition as they could in the late 1990’s. Analysts predict that these losses will continue into the foreseeable future with slim chances of any increases.[lvi]

Scott McNealy criticizes competition:

Scott McNealy has been known in the past for speaking out against his competition, especially Intel and Microsoft. Now that Sun is on good terms with Microsoft and they have settled their lawsuit, Scott McNealy needs to be considerate of what he says about Microsoft. McNealy’s executives has urged him not to be so critical of the other companies, but he always insists on doing things his way and not listen to anybody else which is a threat to the whole company.[lvii]

Appendix C – History of Sun

Sun Microsystems, based in Silicon Valley, is a computer, semiconductor and software manufacturer founded by Stanford grads Vinod Khosla, Scott McNealy and Andy Becktolsheim. Of the three, McNealy and Beckolsheim remain at Sun today.
Sun Microsystems is a leading provider of industrial strength hardware, software and services made for networking. Sun can be found in more than 100 countries and on the internet. Sun’s more successful products and services include: computer servers and workstations based on their SPARC processor, the Solaris operating system, the Java platform, and, together with AT&T, the standardization of the Unix System.[lviii]

• The company was incorporated in 1982 with only four employees and introduced its first workstation to the public. • In 1983 Sun signed a forty million dollar deal with Computervision and began its operations in Europe. • Sun became incorporated in 1986, and was very successful in its initial public stock offering. They also began their operations in both Asia and Australia. • In 1987 Sun gained the lead in the workstation market, was connected to the internet, and partnered with AT&T to begin development on a UNIX based system. • In 1988 Sun reached one billion dollars in revenues, becoming the fastest company to ever reach this goal. • Sun introduced its SPARCstation 1 system, expanded by building alliances with several companies, and began operation in France in 1989. • In 1990 Sun developed the first workstation for less than 5,000 dollars and opened a manufacturing plant in Scotland. • Sun exposed its Solaris 2 operating system to the public and began operations in Latin America in 1991. • In 1992 Sun introduced SPARCstation 10 as the first multiprocessing desktop computer and was placed on Standard and Poor’s top 500 companies. • In 1994 Sun’s webpage, www.sun.com, was developed and introduced. • Sun’s Java technology was developed as universal software which could be ran on any computer and Sun became ISO-9001 certified in 1995. • In 1996 Sun introduced its first 64 bit UltraSPARC processor in its Sun Ultra workstations. • Sun became the number one supplier of UNIX systems in 1997. • In 1998 Sun introduced a new and improved version of Java that was faster and more flexible. • Sun introduced its Solaris 8 operating system and purchased Cobalt Networks in 2000. • In 2002 Sun acquired Pirus Networks and Terraspring and introduced its Solaris 9 operating system.[lix]

Appendix D – About Products

SPARC: This stands for Scalable Processor Architecture. SPARC is a RISC microprocessor, which is a type of microprocessor that favors a smaller and simpler set of instructions that take about the same amount of time to execute as opposed to a larger processor.[lx]

Solaris: This is a premier operating system that reduces cost and complexity throughout the data center. Sun designed Solaris to provide its customers with a very secure and highly available environment in the computer world. Solaris also allows customers to take advantage of Sun’s UltraSPARC processor based systems.[lxi]

Java Platform: The Java platform plays three crucial roles in the field of software. It serves as a programming language, as middleware, and as a platform. It is object oriented, mostly independent of the host platform, contains language facilities and libraries for networking, and is designed to execute code from remote sources securely. A crucial aspect of Java is that it is available on almost all types of devices, chips and software packages. It also allows software developers to develop code locally and at low cost.[lxii]

The UNIX System: The UNIX System is a multi-task, multi-user computer operating system. It is believed to be one of the most influential operating systems in history. The hardware uses RISC (reduced instruction set computing) processors, and has now expanded to accommodate Linux and X86 chips.[lxiii]

Appendix E – Stock Chart

|[pic] |

Chart available on the World Wide Web: http://finance.yahoo.com/q/bc?s=SUNW&t=5y

Appendix F – Market Shares

[pic]

Standard and Poor’s Industry Survey, page 6

Appendix G – Budget/Marketing Expenses Chart

|Sun Microsystems' Budget for Team One's Recommendations |
| | | | | | | |
|Gains/Savings |(all numbers in millions) | | |
| | | | | | | |
|Small Workforce Cut | |$3 | | |
|Joint Venture with Fujitsu | |$600 | | |
| | | | | | | |
|Total Gains/Savings | |$603 | | |
| | | | | | | |
| | | | | | | |
|Expenses | |(all numbers in millions) | | |
| | | | | | | |
|Marketing | | | | | | |
| Advertising in journals | |$80 | | |
| Training Salespersons | |$20 | | |
| Travel/Employee Expenses |$50 | | |
| Industry Conferences | |$46 | | |
| Miscellaneous Expenses |$4 | | |
|Total Marketing | |$200 | | |
|Incentives to Buys | |$75 | | |
|Included Services | |$75 | | |
| | | | | | | |
|Total Expenses | | |$350 | | |

[pic]
Appendix H – OS Market Share / Windows Budget

Operating Systems Market Share Graph

[pic]
Graph available on the World Wide Web at: http://www.internetweek.com/ITServices/showArticle.jhtml?articleID=15201904

Implementing Windows Budget

|Training Employees and Vendors on Windows servers|25 Temporary Employees for a 1 year span at 40,000 a year|-1,000,000 |
|Focus Groups |500 Volunteers at $1000 per person |-500,000 |
|Cost of Acquiring Windows |150,000 copies at $50 / copy |-7,500,000 |
|New Customer Service Employees |25 employees at 40,000 / year |-1,000,000 |
|Increase in customers |Customer increase of 20% |200,000,000 |
| |(500,000 customers/year * 20%)*$2000 spent on an average | |
| |server | |
| | | |
|Total | |$190,000,000 |

Appendix I – Microsoft Lawsuit

Brief of Sun V. Microsoft

I. Facts

Sun Microsystems entered into a civil dispute with Microsoft Corporation on the matter that Microsoft developed and distributed a Java based virtual machine in 1997 for use with the Windows MSJVM which was incompatible with Sun’s Java specifications. The Sun engineer who invented Java, James Gosling, testified that Microsoft breached the 1996 Technology License and Distribution Agreement with Sun by producing the MSJVM.[lxiv]

II. Issues

Sun Microsystems alleged that Microsoft infringed on Sun’s source code for their Java software by distributing software outside of their license agreement.[lxv]

III. Decision

The decision ruled in favor of the plaintiff, Sun Microsystems. The defendant, Microsoft, was ordered to pay restitution of 700 million dollars to resolve all pending antitrust issues, and another 900 million dollars to resolve all patent issues, for a total payment of 1.6 billion dollars.[lxvi]

IV. Reasons

The ruling decision in this case was based on the fact that Microsoft is a monopolist and was developing and distributing Java based software which they altered without permission from Sun who holds the patents on Java software. Microsoft was attempting to from a monopoly over internet access so that every time users tried to connect to the internet they would be required to use a Microsoft manufactured product.[lxvii]

Appendix J – Current Mission Statement

VISION: Everyone and everything connected to the network.

Eventually every man, woman, and child on the planet will be connected to the network. So will virtually everything with a digital or electrical heartbeat -- from mobile phones to automobiles, thermostats to razor blades with RFID tags on them. The resulting network traffic will require highly scalable, reliable systems, from Sun.

MISSION: Solve complex network computing problems for governments, enterprises, and service providers.

At Sun, we're tackling complexity through system design. Through virtualization and automation. Through open standards and platform-independent Java technologies. In fact, we're taking a holistic approach to network computing in which new systems, software, and services are all released on a regular, quarterly basis. All of it integrated and pretested to create what we call the Network Computer.

EXPERIENCE: Two decades on the forefront of network computing.

From day one, all our systems included a network interface and all our employees were using electronic mail. That was 1982. Since then, Sun has established a history of innovation and leadership that stretches from the protocols that propel the Internet to our widely adopted Java technology--used in everything from smart cards to supercomputers. We provide breakthroughs that change the way people work and the way companies do business.

UNDERSTANDING: The know-how to meet your business challenges.

In virtually every field--from manufacturing to financial services, telecommunications to education, retail to government, energy to health care--Sun is helping companies leverage the power of the Internet. To streamline processes and raise productivity. To reduce both costs and complexity. We understand the critical issues you face every day, and we offer proven products and comprehensive services to take your business where you want it to go--to a new level of competitive advantage.

INNOVATION: A way of computing that connects everyone.

Workstations that redefine high performance. Servers that give new meaning to high availability. High-speed networking. Robust system software. Intelligent network storage systems. Platform-independent Java and Jini technologies. A full range of products and services, and more than 35,000 employees in 100 countries dedicated to one thing--making you more successful.

COOPERATION: Bringing together the best solutions.

As broad as our product line is, we recognize that no single supplier of computing solutions can be all things to all people. That's why we've established long-standing relationships with leading companies worldwide. With value-added resellers who add capabilities to Sun systems for use in specialized markets. With original equipment manufacturers who incorporate Sun products and technologies in everything from embedded controllers to massively parallel supercomputers. And with independent software vendors who work with us to deliver tuned and tested business solutions--for enterprise resource planning, supply-chain management, data warehousing, and more. Not to mention systems integration firms who use Sun products to deliver comprehensive, integrated solutions for mixed-platform environments.

COMMITMENT: Quality services and support.

At Sun, we stand ready to help you design, test, deploy, and manage network computing solutions that can translate into real competitive advantage. Our professional services experts provide single-point-of-contact solutions to fit your business needs: managed services, utility computing, high-availability service packs, customer relationship management, network identity services -- whatever you need. And we're committed to fast response. Twenty-four hours a day, seven days a week, our world-class team provides mission-critical support. We can even provide multivendor support that solves complex problems with one phone call.
Available on the World Wide Web at: http://www.sun.com/aboutsun/coinfo/mission.html

Appendix K – Values Cards

| |
| |

Appendix L – Porter’s Generic Strategies

|Cost Leadership Strategy |Differentiation Strategy |
| | |
| | |
|Dell, HP |Sun Microsystems |
|Focused Low Cost Strategy |Focused Differentiation Strategy |
| | |
| | |
|Compaq, Gateway |Sun Microsystems after recommendations |

Broad

Market Scope

Narrow

Low Price Uniqueness

Source of Competitive Advantage

Appendix M – Fujitsu Merger

About Fujitsu: Fujitsu is a Japanese-based company specializing in semiconductors, computers, telecommunications and services. It has world wide experts in systems and services that allow it to deliver solutions that open up infinite possibilities for its customer’s success. Fujitsu considers IBM to be its main competitor, but Sun also competes with IBM. In combining with Sun, both companies will have a better advantage to market and sell their products.

About the Merger: The two companies intend to merge their Solaris and SPARC based server product lines to form a complete datacenter systems family. This merger is code named the Advanced Product Line (APL). The APL system will be based on Sun’s Niagara and Rock chips. These systems will be capable of running several processing tasks simultaneously. The two companies will jointly design the high end systems, Sun’s part is the design of the Niagara and Rock based products. When either company sells an APL system, both will get some of the revenue.

Appendix N-Stakeholders Analysis

|Keep Satisfied |Manage Closely |
|-Shareholders |-Senior Executives |
|-Customers |-The boss |
|-Alliance Partners | |
|-Co-workers | |
|Keep Informed |Monitor (Minimum Effort) |
|-Government |-The community |
|-Analysts |-The public |
|-Family members |-The press |
|-Future Recruits | |
|-Perspective Customers | |

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Endnotes
-----------------------
[i] Woopidoo Quotations, “Jack Welch Quotes,” http://www.woopidoo.com (accessed September 19, 2004).
[ii] Peter Burrows and Jim Kerstetter, “SUN: A CEO’s Last Stand,” Business Week 3893 (2004). Academic Search Premier, via Ohio, http://www.library.ohiou.edu
[iii] Stephen Shankland, “IBM Attacks Unix Rivals with Power5,” http://news.zdnet.com (accessed September 13, 2004)
[iv] ibid
[v] Dr. John R. Schermerhorn, Core Concepts of Management (Hoboken, NJ: John Wiley & Sons, Inc., 2004), 94.
[vi] http://www.bizrate.com (accessed September 12, 2004).
[vii] Dr. John R. Schermerhorn, Core Concepts of Management, 94.
[viii] Products and Services, http://www.sun.com (accessed September 13, 2004).
[ix] Peter Burrows and Jim Kerstetter, “SUN: A CEO’s Last Stand,” Business Week
[x] ibid
[xi] Mission Statement, http://www.sun.com (accessed September 16, 2004)
[xii] Stephen Shankland, “IBM Attacks Unix Rivals with Power5,” http://news.zdnet.com
[xiii] ibid
[xiv] Fujitsu and Sun Expand, http://www.sun.com (accessed September 8, 2004)
[xv] Stephen Shankland, “IBM Attacks Unix Rivals with Power5,” http://news.zdnet.com
[xvi] Bob Djurdjevic, “Analysis of Fujitsu FY04 Business Results,” http://www.djurdjevic.com (accessed September 13, 2004)
[xvii] Jay Beam, Interview by class: Athens, OH, September 10, 2004.
[xviii] Woopidoo Quotations, “Business Quotes,” http://www.woopidoo.com
[xix] Gary Armstrong and Philip Kotler, Marketing: An Introduction, (Pearson & Prentice Hall: 2005)
[xx] Voice of the Customer
[xxi] Woopidoo Quotations, “Leadership Quotes,” http://www.woopidoo.com
[xxii] John Aden, Interview by class (Joslyn Abner): Athens, OH April 2004.
[xxiii] Mission Statement, http://www.sun.com
[xxiv] Mission and Values, http://www.microsoft.com/mscorp/mission (accessed September 16, 2004)
[xxv] About our Company Values, http://americanstandard.com (accessed September 18, 2004).
[xxvi] Gary Armstrong and Philip Kotler, Marketing: An Introduction, 8.
[xxvii] Mission Statement, http://www.sun.com
[xxviii] Janel M. Radtke, “How to Write a Mission Statement,” The Grantsmanship Center Magazine, http://www.tgci.com (accessed September 18, 2004).
[xxix] Gary Armstrong and Philip Kotler, Marketing: An Introduction, 32.
[xxx] ibid
[xxxi] John Ellis, “What’s the Matter with Sun?” Fast Company (June 2002), 124.
[xxxii] “Sun Extends Leadership in High Performance and Technical Computer Market According to Latest Analysis Report,” http://www.sun.com (accessed September 8, 2004).
[xxxiii] John Ellis, “What’s the Matter with Sun?” Fast Company, 124.
[xxxiv] “Where Storm Clouds Still Threaten Can Sun Weather the Transition to a Commodity Market?” http://etextb.ohiolink.edu (accessed September 11, 2004)
[xxxv] ibid
[xxxvi] ibid
[xxxvii] “Where the Sun Shines Bright,” Electronic Business 29, (2003): 24.
[xxxviii] Megan Graham-Hackett, “Computers: Hardware,” Standard & Poor’s Industry Survey (2004): 7.
[xxxix] Megan Graham-Hackett, “Computers: Hardware,” Standard & Poor’s Industry Survey: 6.
[xl] ibid
[xli] “Computer Hardware,” Hoover’s Industry Snapshots, (Hoover’s Inc.) September 14, 2004.
[xlii] Dr. Suzanne Allen, Phone Interview, September 12, 2004.
[xliii] http://www.bizrate.com (accessed September 12, 2004).
[xliv] “Computer Hardware,” Hoover’s Industry Snapshots, September 14, 2004.
[xlv] Stephen Shankland, “IBM Attacks Unix Rivals with Power5,” http://news.zdnet.com
[xlvi] ibid
[xlvii] ibid
[xlviii] ibid
[xlix] “Sun Extends Leadership in High Performance and Technical Computer Market According to Latest Analysis Report,” http://www.sun.com
[l] Products and Services, http://www.sun.com
[li] 2003 Sun Microsystems’ Annual Report, 52
[lii] Peter Burrows and Jim Kerstetter, “SUN: A CEO’s Last Stand,” Business Week
[liii] ibid
[liv] ibid
[lv] “Computer Hardware,” Hoover’s Industry Snapshots, September 14, 2004
[lvi] 2003 Sun Microsystems’ Annual Report, 52.
[lvii] Peter Burrows and Jim Kerstetter, “SUN: A CEO’s Last Stand,” Business Week
[lviii] Sun History, http://www.sun.com/aboutsun/coinfo/history.html (accessed September 15, 2004)
[lix] ibid
[lx] Wikipedia Definitions, http://en.wikipedia.org (accessed September 9, 2004)
[lxi] ibid
[lxii] ibid
[lxiii] ibid
[lxiv] Concerning Alleged Java Incompatibilities, http://www.microsoft.com (accessed September 15, 2004)
[lxv] Published United States Court of Appeals, http://www.microsoft.com (accessed September 15, 2004)
[lxvi] Microsoft and Sun Mircosoft Enter Broad Cooperation Agreement; Settle Outstanding Litigation, http://www.microsoft.com (accessed September 15, 2004)
[lxvii] ibid

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